# EDGAR Filing Document

**Accession Number:** 0001754323
**File Stem:** 0001213900-25-093168
**Filing Date:** 2025-9
**Character Count:** 175261
**Document Hash:** dae877d8d4c4b38d20f0f20c5cd2397b
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001213900-25-093168.hdr.sgml**: 20250929

**ACCESSION NUMBER**: 0001213900-25-093168

**CONFORMED SUBMISSION TYPE**: 6-K

**PUBLIC DOCUMENT COUNT**: 82

**CONFORMED PERIOD OF REPORT**: 20250630

**FILED AS OF DATE**: 20250929

**DATE AS OF CHANGE**: 20250929

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** X3 Holdings Co., Ltd.
- **CENTRAL INDEX KEY:** 0001754323
- **STANDARD INDUSTRIAL CLASSIFICATION:** SERVICES-COMPUTER PROGRAMMING SERVICES [7371]
- **ORGANIZATION NAME:** 06 Technology
- **EIN:** 000000000
- **STATE OF INCORPORATION:** E9
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 6-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38851
- **FILM NUMBER:** 251357080

**BUSINESS ADDRESS:**
- **STREET 1:** SUITE 412, TOWER A, TAI SENG EXCHANGE
- **STREET 2:** ONE TAI SENG AVENUE
- **CITY:** SINGAPORE
- **STATE:** U0
- **ZIP:** 536464
- **BUSINESS PHONE:** 86-756-339-5666

**MAIL ADDRESS:**
- **STREET 1:** ADVANCED BUSINESS PARK, 9TH FL, BLDG C2
- **STREET 2:** 29 LANWAN LANE, HIGHTECH DISTRICT ZHUHAI
- **CITY:** GUANGDONG
- **STATE:** F4
- **ZIP:** 519080

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Powerbridge Technologies Co., Ltd.
- **DATE OF NAME CHANGE:** 20180926

?xml version='1.0' encoding='ASCII'?

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 6-K**

**REPORT OF FOREIGN PRIVATE ISSUER**

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

**UNDER THE SECURITIES EXCHANGE ACT OF 1934**

For the month of September 2025

**Commission File Number: 001-38851**

**X3 HOLDINGS CO., LTD.** 

(Translation of Registrant's name into English)

**Suite 412, Tower A, Tai Seng Exchange**

**One Tai Seng Avenue**

**Singapore 536464**

(Address of Principal Executive Office)

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

Form 20-F ☒ &nbsp;&nbsp;&nbsp;&nbsp; Form 40-F ☐

<u>CONTENT</u>

**Financial Results for the Six Months Ended June 30, 2025**

The financial results as at and for the six months ended June 30, 2025 of X3 Holdings Co., Ltd. (the "Company") is attached as Exhibit 99.1 hereto and is incorporated by reference into the registration statements filed with the Securities and Exchange Commission by the Company on [Form F-3](http://www.sec.gov/Archives/edgar/data/1754323/000121390024049972/ea0207316-f3_x3holdings.htm) (Registration No. 333-279954). The management's discussion and analysis of financial condition and results of operations of the Company as at and for the six months ended June 30, 2025 is attached as Exhibit 99.2 hereto.

<u>EXHIBIT INDEX</u>

---

| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| 99.1 | [X3 Holdings Co., Ltd. Unaudited Condensed Consolidated Financial Statements as at and for the six months ended June 30, 2025, together with the notes thereto](ea025891601ex99-1_x3hold.htm) |
| 99.2 | [Management's Discussion and Analysis of Financial Condition and Results of Operations of X3 Holdings Co., Ltd. as at and for the six months ended June 30, 2025](ea025891601ex99-2_x3hold.htm) |
| 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) |

---

**SIGNATURE**

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

Date: September 29, 2025

---

| | |
|:---|:---|
| **X3 HOLDINGS CO., LTD.** | **X3 HOLDINGS CO., LTD.** |
| By: | */s/ Stewart Lor* |
|  | Stewart Lor |
|  | Co-Chief Executive Officer |

---

## Exhibit 99.1

?xml version='1.0' encoding='ASCII'?

**Exhibit 99.1**

**X3 HOLDINGS CO., LTD.** 

**UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**TABLE OF CONTENTS** 

---

| | |
|:---|:---|
| **Unaudited Condensed Consolidated Financial Statements** |  |
| [Unaudited Condensed Consolidated Balance Sheets as at June 30, 2025 and December 31, 2024](#f_001) | F-2 |
| [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the six months ended June 30, 2025 and 2024](#f_002) | F-3 |
| [Unaudited Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2025 and 2024](#f_003) | F-4 |
| [Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024](#f_004) | F-5 |
| [Notes to Unaudited Condensed Consolidated Financial Statements](#f_005) | F-6 – F-32 |

---

**X3 HOLDINGS CO., LTD.**

**UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS**

---

| | | |
|:---|:---|:---|
|  | **June 30,**<br>**2025** | **December 31,**<br>**2024** |
| ASSETS |  |  |
| CURRENT ASSETS: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalent | $2649211 | $4193839 |
| &nbsp;&nbsp;&nbsp;Restricted cash | - | 70721 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 16707880 | 17281112 |
| &nbsp;&nbsp;&nbsp;Due from related parties | 617057 | 897415 |
| &nbsp;&nbsp;&nbsp;Loan receivable, net | 1312298 | 1351915 |
| &nbsp;&nbsp;&nbsp;Prepayments, deposits and other current assets, net | 2349367 | 1702483 |
| Total Current Assets | 23635813 | 25497485 |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | 5876294 | 5980692 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | 3171269 | 11072858 |
| &nbsp;&nbsp;&nbsp;Prepayments, deposits and other assets | 37554060 | 37689697 |
| &nbsp;&nbsp;&nbsp;Long term investment | 43944 | - |
| &nbsp;&nbsp;&nbsp;Goodwill | - | 4838820 |
| &nbsp;&nbsp;&nbsp;Right-of-use assets-operating lease | 658187 | 338017 |
| &nbsp;&nbsp;&nbsp;Deferred tax assets | 791759 | 977450 |
| Total Assets | $71731326 | $86395019 |
| LIABILITIES AND EQUITY |  |  |
| CURRENT LIABILITIES: |  |  |
| &nbsp;&nbsp;&nbsp;Short-term bank loans | $3252555 | $3877084 |
| &nbsp;&nbsp;&nbsp;Accounts payable | 16381903 | 18073964 |
| &nbsp;&nbsp;&nbsp;Convertible notes | - | 6574380 |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 1875261 | 1855313 |
| &nbsp;&nbsp;&nbsp;Loan from third parties | 159273 | 578573 |
| &nbsp;&nbsp;&nbsp;Due to a related party | 222 | 218 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities - current | 296124 | 215253 |
| &nbsp;&nbsp;&nbsp;Taxes payable | 126825 | 244770 |
| &nbsp;&nbsp;&nbsp;Accrued expenses and other current liabilities | 2798772 | 3038236 |
| Total Current Liabilities | 24890935 | 34457791 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities - non-current | 366065 | 146932 |
| &nbsp;&nbsp;&nbsp;Deferred tax liabilities | - | 1882829 |
| Total Liabilities | 25257000 | 36487552 |
| COMMITMENTS AND CONTINGENCIES |  |  |
| EQUITY: |  |  |
| &nbsp;&nbsp;&nbsp;Class A Common shares, $0.00003 par value, 4,980,000,000 shares authorized; 6,007,767 and 2,292,652 issued and outstanding as of June 30, 2025 and December 31, 2024, respectively | 180 | 68 |
| &nbsp;&nbsp;&nbsp;Class B Common shares, $0.00003 par value, 20,000,000 shares authorized; 202,032 and 2,032 issued and outstanding as of June 30, 2025 and December 31, 2024 | 6 | - |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 325148808 | 363712513 |
| &nbsp;&nbsp;&nbsp;Subscription receivable | (4711396) | (55906186) |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (272171637) | (255789851) |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss | (5647527) | (6072241) |
| Total X3 Holdings Co., Ltd.'s Shareholders' Equity | 42618434 | 45944303 |
| &nbsp;&nbsp;&nbsp;Non-controlling interest | 3855892 | 3963164 |
| Total Equity | 46474326 | 49907467 |
| Total Liabilities and Equity | $71731326 | $86395019 |

---

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

**X3 HOLDINGS CO., LTD.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**

---

| | | |
|:---|:---|:---|
|  | **For the Six Months Ended June 30,** | **For the Six Months Ended June 30,** |
|  | **2025** | **2024** |
| REVENUES: |  |  |
| &nbsp;&nbsp;&nbsp;Application development services | $1599202 | $884538 |
| &nbsp;&nbsp;&nbsp;Consulting and technical support services | 1082533 | 2383000 |
| &nbsp;&nbsp;&nbsp;Subscription services | 302583 | 215355 |
| &nbsp;&nbsp;&nbsp;Trading revenue | - | 1375319 |
| &nbsp;&nbsp;&nbsp;Others revenue | - | 135832 |
| Total revenues | 2984318 | 4994044 |
| COST OF REVENUES |  |  |
| &nbsp;&nbsp;&nbsp;Cost of application development services | 1158423 | 301601 |
| &nbsp;&nbsp;&nbsp;Cost of consulting and technical support services | 411991 | 1019261 |
| &nbsp;&nbsp;&nbsp;Cost of subscription services | 42966 | 27749 |
| &nbsp;&nbsp;&nbsp;Cost of trading revenue | - | 1371067 |
| &nbsp;&nbsp;&nbsp;Cost of others revenue | - | 53626 |
| Total cost of revenues | 1613380 | 2773304 |
| GROSS PROFIT | 1370938 | 2220740 |
| OPERATING EXPENSES |  |  |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 381935 | 548885 |
| &nbsp;&nbsp;&nbsp;General and administrative | 2447531 | 3773296 |
| &nbsp;&nbsp;&nbsp;(Recovery of) provision for credit losses | (1427183) | 3773492 |
| &nbsp;&nbsp;&nbsp;Research and development | 1600711 | 2156721 |
| &nbsp;&nbsp;&nbsp;Share based compensation | 4040000 | 3654999 |
| &nbsp;&nbsp;&nbsp;Impairment charges | 12012569 | - |
| Total operating expenses | 19055563 | 13907393 |
| OPERATING LOSS | (17684625) | (11686653) |
| OTHER (EXPENSES) INCOME |  |  |
| &nbsp;&nbsp;&nbsp;Loss from deregistering of a subsidiary | - | (113361) |
| &nbsp;&nbsp;&nbsp;Loss from long term investment | (4853) | - |
| &nbsp;&nbsp;&nbsp;Change in fair value of convertible notes | - | 1048271 |
| &nbsp;&nbsp;&nbsp;Other expenses, net | (317475) | (585759) |
| Total other (expenses) income | (322328) | 349151 |
| LOSS BEFORE INCOME TAXES | (18006953) | (11337502) |
| INCOME TAX BENEFIT | (1690631) | (144951) |
| NET LOSS | (16316322) | (11192551) |
| Less: income (loss) attributable to non-controlling interests | 65464 | (705479) |
| NET LOSS ATTRIBUTABLE TO X3 HOLDINGS CO., LTD | (16381786) | (10487072) |
| OTHER COMPREHENSIVE INCOME (LOSS) |  |  |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustment | 251978 | (1098206) |
| COMPREHENSIVE LOSS | (16064344) | (12290757) |
| Less: comprehensive loss attributable to non-controlling interest | (107272) | (648203) |
| COMPREHENSIVE LOSS ATTRIBUTABLE TO X3 HOLDINGS CO., LTD | $(15957072) | $(11642554) |
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES |  |  |
| Basic and diluted | 2838778 | 2190090 |
| LOSS PER SHARE |  |  |
| Basic and diluted | $(18.46) | $(4.79) |

---

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

**X3 HOLDINGS CO., LTD.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY**

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Ordinary shares** | **Ordinary shares** | **Ordinary shares** | **Ordinary shares** | | | | | | |
|  | **Class A** | **Amount** | **Class B** | **Amount** | **Additional<br> Paid-in**<br>**Capital** | **Subscription**<br>**Receivable** | **Accumulated**<br>**Deficit** | **Accumulated<br> Other<br> Comprehensive**<br>**Loss** | **Non-controlling**<br>**Interest** | **Total**<br>**Equity** |
| **Balance, January 1, 2025** | **2292652** | $**68** | **2032** | $**&nbsp;&nbsp;&nbsp;&nbsp; -**  | **363712513** | $**(55906186)** | $**(255789851)** | $**(6072241)** | $**3963164** | $**49907467** |
| Issuance of shares for private placement | 3720933 | 112 |  | - | 9329888 | (4600000) | - | - | - | 4730000 |
| Deemed distribution |  | - |  | - | (36027401) | 39888604 | - | - | - | 3861203 |
| Split shares | (5818) | - |  | - | (15906186) | 15906186 | - | - | - | - |
| Restricted shares issued for services |  | - | 200000 | 6 | 4039994 | - | - | - | - | 4040000 |
| Net loss for the year |  | - |  | - | - | - | (16381786) | - | 65464 | (16316322) |
| Foreign currency translation adjustment | - | - | - | - | - | - | - | 424714 | (172736) | 251978 |
| **Balance, June 30, 2025** | **6007767** | $**180** | **202032** | $**6** | **325148808** | $**(4711396)** | $**(272171637)** | $**(5647527)** | $**3855892** | $**46474326** |
| **Balance, January 1, 2024** | **2162202** | $**64** | **2032** | $**-**  | **347080357** | $**(40500000)** | $**(168679873)** | $**(5062516)** | $**11182715** | $**144020747** |
| Issuance of shares for private placement | 970 | - |  | - | 101639 | 500000 | - | - | - | 601639 |
| Stock dividend | 129790 | 4 |  | - | 10872746 | - | (10872750) | - | - | - |
| Issuance of shares for services |  | - |  | - | 3654999 | - | - | - | - | 3654999 |
| Deregister a subsidiary |  | - |  | - | - | - | - | - | 113361 | 113361 |
| Net loss for the year |  | - |  | - | - | - | (10487072) | - | (705479) | (11192551) |
| Foreign currency translation adjustment | - | - | - | - | - | - | - | (1155482) | 57276 | (1098206) |
| **Balance, June 30, 2024** | **2292962** | $68 | **2032** | $**-**  | **361709741** | $**(40000000)** | $**(190039695)** | $**(6217998)** | $**10647873** | $**136099989** |

---

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

**X3 HOLDINGS CO., LTD.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

---

| | | |
|:---|:---|:---|
|  | **For the Six Months Ended<br> June 30,** | **For the Six Months Ended<br> June 30,** |
|  | **2025** | **2024** |
| CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(16316322) | $(11192551) |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss from operations to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 1387003 | 2928124 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recovery of (provision for) credit losses | (1427183) | 3773492 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share based compensation | 4040000 | 3654999 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from disposal of property and equipment | 59 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax benefit | (1693253) | (144541) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of convertible notes | - | (1048271) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Settlement loss on disposition of assets | - | 318129 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued interest for liabilities | 181559 | 192471 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from disposition of a subsidiary | - | 113361 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment charges | 12012569 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from long term investment | 4853 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of right-of-use assets-operating lease | 123813 | 185657 |
| &nbsp;&nbsp;&nbsp;Changes in assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes receivable | - | 27720 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | 2392961 | (357380) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepayments, deposits and other assets | (115600) | 25289 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | (1888287) | 8762 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses and other current liabilities | (292571) | 1110024 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxes payable | (121077) | (7406) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue | (15011) | (519449) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease liabilities | (144040) | (164221) |
| NET CASH USED IN OPERATING ACTIVITIES | (1870527) | (1095791) |
| CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment from (loans to) third parties | 53107 | (94494) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment | (26302) | (605746) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of intangible assets | (307686) | (396847) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment from (loans to) related parties | 274969 | (245472) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash arising from business combination | - | 47240 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment for long-term investment | (48259) | - |
| NET CASH USED IN INVESTING ACTIVITIES | (54171) | (1295319) |
| CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from short-term bank loans | 1103053 | 2079002 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayments of short-term bank loans | (1792461) | (3187803) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from private placement and market offering | 8591203 | 601639 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Repayment of) proceeds from convertible notes | (533333) | 1419589 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from related parties | 7173 | 8182 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Repayment to) loan from third party | (6641906) | 10193 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of deferred financing costs | (480000) | - |
| NET CASH PROVIDE BY FINANCING ACTIVITIES | 253729 | 930802 |
| EFFECT OF EXCHANGE RATE CHANGES | 55620 | (102431) |
| NET DECREASE IN CASH, CASH EQUIVALENT AND RESTRICTED CASH | (1615349) | (1562739) |
| CASH, CASH EQUIVALENT AND RESTRICTED CASH - beginning of period | 4264560 | 4715500 |
| CASH, CASH EQUIVALENT AND RESTRICTED CASH - end of period | $2649211 | $3152761 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest | $139221 | $152140 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes | $2621 | $(271) |
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Right of use assets obtained in exchange of lease liabilities | $436685 | $293269 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepayments, deposits and other assets as consideration for acquisition | $- | $13854016 |
| RECONCILIATION TO AMOUNTS ON CONSOLIDATED BALANCE SHEETS: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalent | $2649211 | $1468511 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restricted cash | - | 1684250 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total cash, cash equivalent and restricted cash | $2649211 | $3152761 |

---

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

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1 — Nature of business and organization**

X3 Holdings Co., Ltd. ("X3" or the "Company") is a company that was established under the laws of the Cayman Islands on July 27, 2018 as a holding company. The Company, through its subsidiaries (collectively the "Group"), is a provider of software application and technology services to corporate and government customers engaged in global trade. Mr. Stewart Lor, the Company's Chairman of the Board and Co-Chief Executive Officer ("Co-CEO") is the ultimate Controlling Shareholders of the Company.

Effective January 30, 2024, the Company has undergone a transformation, changing its corporate name from Powerbridge Technologies Co., Ltd. to X3 Holdings Co., Ltd. The Nasdaq stock symbol has also transitioned from PBTS to XTKG. This change reflects the Group's evolving global expansion strategy and its commitment to broader technological and business horizons.

As of June 30, 2025, the details of the Company's principal subsidiaries are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Major subsidiaries** | **Percentage of<br> Ownership** | **Date of<br> Incorporation** | **Place of<br> Incorporation** | **Major Operation** |
| Powerbridge Holding Limited ("Powerbridge HK") | 100% by X3 | July 27, 2018 | Hong Kong, PRC | Investment holding |
| Hong Kong Hongyi Holdings Limited("Hongyi") | 100% by X3 | April 24, 2023 | Hong Kong, PRC | Investment holding |
| Hongding Technology Co., Ltd ("Hongding") | 100% by X3 | July 28, 2020 | Hong Kong, PRC | Investment holding |
| Powercrypto Inc | 100% by X3 | April 5, 2022 | USA | Management consultancy services |
| X3 HOLDINGS PTE. LTD. ("X3 HOLDINGS") | 100% by X3 | November 8, 2023 | Singapore | Investment holding |
| Hong Kong Anxin Jieda Co., Limited ("Anxin Jieda") <sup>(1)</sup> | 100% by X3 | November 30, 2021 | Hong Kong, PRC | Investment holding |
| X3 Technologies PTE. LTD. | 100% by X3 HOLDINGS | July 22, 2024 | Singapore | Software application and technology services |
| Powerbridge Technology Group Co., Ltd. ("Powerbridge Zhuhai") | 100% by <br> Powerbridge HK | October 30, 1997 | the PRC | Software application and technology services |
| Powerstream Supply Chain Co., Ltd. ("Powerstream") | 100% by <br> Powerbridge HK | August 17, 2021 | the PRC | Supply chain business |
| Powermeta Digital Co., Ltd. ("Powermeta") | 100% by <br> Powerbridge HK | January 21, 2022 | the PRC | Software application and technology services |
| Powerbridge Digital Trade (HK) Co., Limited | 51% by <br> Powerbridge HK | June 26, 2023 | Hong Kong, PRC | Investment holding |
| SmartConn Co.Limited("SmartConn") | 50.99% by <br> Powerbridge HK | December 14, 2020 | Hong Kong, PRC | Investment holding |
| Hongxi Data Technology Co., Ltd. | 70% by <br> Powerbridge Zhuhai | February 8, 2021 | Macau | Software application and technology services |
| Zhuhai Hongyang Supply Chain Co., Ltd. ("Zhuhai Hongyang") | 60% by <br> Powerbridge Zhuhai | July 21, 2021 | the PRC | Supply chain business |
| Ningbo Zhijing Tongfu Technology Co., Ltd. ("Ningbo Zhijing") | 51% by <br> Powerbridge Zhuhai | April 25, 2021 | the PRC | software application and technology services |
| Metafusion Digital Co., Ltd ("Metafusion") | 66% by <br> Powermeta Digital | February 15, 2022 | the PRC | Software application and technology services |
| Shanghai Stamp Technology Co., Ltd. | 100% by SmartConn | December 9, 2018 | the PRC | Software application and technology services |
| Ascendent Insight Education Co., Ltd. ("Ascendent") <sup>(1)</sup> | 90% by Anxin Jieda | January 7, 2020 | the PRC | Software application and technology services |
| Xingtai Ningyao Technology Co., Ltd. <sup>(1)</sup> | 100% by Ascendent | December 17, 2022 | the PRC | Software application and technology services |
| Shenzhen Hongchuangxin Technology Co., Ltd.("Hongchuangxin") | 100% by Hongyi | October 31, 2022 | the PRC | Trading |

---

(1) On July 14, 2025, the Company signed an agreement with a third party to sell 100% equity interests of its wholly-owned subsidiary, Anxin Jieda, and its subsidiaries, for a total consideration of $6,370 (HKD50,000). The transaction was closed on July 29, 2025.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies**

<u>Basis of presentation</u>

The accompanying unaudited condensed 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").

In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2025 and 2024 are not necessarily indicative of the results that may be expected for the full year. The information included in this interim report should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Group's annual financial statements for the year ended December 31, 2024 filed with the SEC on April 25, 2025.

<u>Principles of consolidation</u>

The unaudited condensed consolidated financial statements include the financial statements of the Group 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 Group, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

Non-controlling interest represents the portion of the net assets of a subsidiary attributable to interests that are not owned by the Company. The non-controlling interest is presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interest's operating result is presented on the face of the consolidated statements of income and comprehensive income as an allocation of the total income for the year between non-controlling shareholders and the shareholders of the Company.

<u>Liquidity</u> 

As of June 30, 2025, the Group had working capital deficit of $1.3 million. For the six months ended June 30, 2025, the Group incurred a net loss of approximately $16.3million and had negative operating cash flow of approximately $1.9 million. The Group has historically funded its working capital needs primarily from public offering, operations, bank loans, advance payments from customers and shareholders. The working capital requirements are affected by the efficiency of operations, the numerical volume and dollar value of revenue contracts, the progress or execution on customer contracts, and the timing of accounts receivable collections.

In assessing its liquidity, the Group monitors and analyzes its cash on hand, its ability to generate sufficient revenue sources in the future and its operating and capital expenditure commitments. As of June 30, 2025, the Group had cash and cash equivalent of approximately $2.6 million.

On August 13, 2025, the Company entered into a promissory note agreement with a creditor, pursuant to which the Company issued the creditor an unsecured promissory note with original principal amount of $1,095,000 for $1,000,000 in gross proceeds. The promissory note bears interest at a rate of 8% per annum compounding daily and have a term of twelve months. The promissory note includes an original issue discount of $80,000 along with $15,000 for creditor costs and other transaction expenses incurred in connection with the purchase and sale of the promissory note. The Group may prepay all or a portion of the promissory note at any time by paying 120% of the outstanding balance elected for pre-payment. As of this report date, the Company has collected $1.0 million.

On May 19, 2025, the Company entered into purchase agreements with thirteen investors. Pursuant to the Purchase Agreement, the Company agreed to sell 22,325,600 (post-reverse stock split adjusted to 3,720,933) Class A ordinary shares, at a purchase price of $0.43 (post-reverse stock split adjusted to $2.58) per share. The Company has received proceeds of $5.0 million as of June 30, 2025. Outstanding subscription receivable amounted to $4.6 million as of June 30, 2025.

On July 11, 2025, the Company entered into a definitive securities purchase agreement with certain individuals, the Company agreed to sell 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares with consideration of $25.8 million. The Company issued 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares on July 17, 2025.

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

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

<u>Use of estimates</u>

The preparation of unaudited condensed 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Group's unaudited condensed consolidated financial statements include but not limited to the useful lives of property and equipment and intangible assets, impairment of long-lived assets, impairment of goodwill, valuation of accounts receivables, valuation of convertible notes, revenue recognition and realization of deferred tax assets and uncertain tax positions. Actual results could differ from these estimates.

<u>Foreign currency translation</u>

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

<u>Fair value measurement</u>

ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

● Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

● Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.

● Level 3 — inputs to the valuation methodology are unobservable.

Unless otherwise disclosed, the fair value of the Group's financial instruments including cash, notes and accounts receivable, due from related parties, deposits and other current assets, notes and accounts payable, customer deposits, salaries and benefits payables and due to related party approximates their recorded values due to their short-term maturities. The fair value of the deposits and other assets and loans to third parties approximate their carrying amounts because the deposits were paid in cash.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

<u>Accounts receivable, net</u>

Accounts receivable represents the amounts that the Group has an unconditional right to consideration and is recorded net of allowance for credit losses.

In 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASC Topic 326"), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The Group has adopted this ASC Topic 326 and several associated ASUs on January 1, 2023 using a modified retrospective approach. The adoption has no material impact to the Group's unaudited condensed consolidated financial statements. The Group estimated allowance for credit losses to reserve for potentially uncollectible receivable amounts periodically, considering factors in assessing the collectability of its accounts receivable, such as historical distribution of the age of the amounts due, payment history, creditworthiness, forward-looking factor, historical collections data of the customers, to assess the credit risk characteristics. If there is strong evidence indicating that the accounts receivable is likely to be unrecoverable, the Group also makes specific allowance in the period in which a loss is determined to be probable. Accounts receivable is considered impaired and written off when it is probable that all contractual payments due will not be collected after all collection efforts have been exhausted.

<u>Prepayments, deposits and other assets, net</u>

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.

<u>Intangible assets, net</u>

The Group's intangible assets mainly include capitalized development costs, purchased software and acquired software from business acquisitions. The Group follows the provisions of Accounting Standards Codification ("ASC") 985-20, "Costs of Software to be Sold, Leased, or Marketed." ASC 985-20 provides guidance on capitalization of the costs of software developed or obtained for sold, leased, or marketed. The Group expenses all costs incurred during the preliminary project stage of its development, and capitalizes costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

---

| | |
|:---|:---|
|  | **Useful Life** |
| Capitalized development costs | **5 years** |
| Purchased software | **5 years** |
| Software from business combinations | **10 years** |

---

<u>Impairment for long-lived assets other than goodwill</u>

Long-lived assets, including property, equipment, furniture and fixtures and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When these events occur, the Group measures impairment by comparing the carrying values of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amounts of the assets, the Group would recognize an impairment loss based on the excess of the carrying value over the assessed discounted cash flow amount. For the six months ended June 30, 2025, due to slow development of Hongchuangxin, the Group evaluated the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition and determined that the fair value of intangible assets of Hongchuangxin was less than carrying value. Therefore, the Group impaired the intangible assets acquired from the acquisition of Hongchuangxin of $7,173,749 for the six months ended June 30, 2025. For the six months ended June 30, 2024, there was no impairment was recognized for the long-lived assets.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

 

<u>Business combinations</u>

The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total of the cost of the acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the identifiable net assets of the acquiree, the difference is recognized directly in earnings.

The determination and allocation of fair values to the identifiable net assets acquired, liabilities assumed and noncontrolling interest is based on various assumptions and valuation methodologies requiring considerable judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Group determines discount rates to be used based on the risk inherent in the acquiree's current business model and industry comparisons. Although the Group believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from forecasted amounts and the differences could be material.

<u>Goodwill</u>

Goodwill is the cost of acquired companies in excess of the fair value of identifiable net assets at acquisition date. Goodwill is not subject to amortization, but rather is evaluated for impairment at least annually. The Group evaluates its goodwill for impairment during the fourth quarter of its fiscal year or more frequently if indicators of potential impairment exist, in accordance with ASC 350, Intangibles - Goodwill and Other. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit (generally defined as the businesses for which financial information is available and reviewed regularly by management) with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be impaired. However, if the estimated fair value is below carrying value, further analysis is required to determine the amount of the impairment.

In the course of evaluating the potential impairment of goodwill, the Group may perform either a qualitative or a quantitative assessment. The Group's qualitative assessment of potential impairment may result in the determination that a quantitative impairment analysis is not necessary. Under this elective process, the Group assesses qualitative factors to determine whether the existence of events or circumstances leads the Group to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events and circumstances, the Group determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing a quantitative analysis is not required. However, if the Group concludes otherwise, then the Group performs a quantitative impairment analysis.

If the Group either chooses not to perform a qualitative assessment, or the Group chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then the Group performs a quantitative evaluation. In the case of a quantitative assessment, the Group estimates the fair value of the reporting unit with which the goodwill that is subject to the quantitative analysis is associated and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, the excess is recorded as a goodwill impairment, which is limited to the total amount of goodwill allocated to that reporting unit.

For the six months ended June 30, 2025, the Group performed the impairment test and determined that the fair value of goodwill acquired from the acquisition of Hongchuangxin was less than carrying value. The Group impaired the goodwill acquired from the acquisition of Hongchuangxin of $4,838,820 for the six months ended June 30, 2025.

For the six months ended June 30, 2024, the Group performed a qualitative assessment for the reporting unit. Based on the requirements of ASC 350-20, the Group evaluated all relevant qualitative and quantitative factors, weighed all factors in their entirety and concluded that it was not more-likely-than-not that the fair value of the reporting unit was less than its carrying amount. Therefore, no goodwill impairment was recognized for the six months ended June 30, 2024.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

<u>Revenue recognition</u>

The Group adopted ASC Topic 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Group's customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services and is recorded net of value-added tax ("VAT"). To achieve that core principle, the Group applies the following steps:

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

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

The Group derives its revenues from four sources: (1) application development services, (2) consulting and technical support services, (3) subscription services, (4) trading and (5) others. All of the Group's contracts with customer do not contain cancelable and refund-type provisions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Revenue from application development service

The Group's application development service contracts are primarily on a fixed-price basis, which require the Group to perform services including project planning, project design, application development and system integration based on customers' specific needs. These services also require significant production and customization. Upon delivery of the services, customer acceptance is generally required. In the same contract, the Group is generally required to provide post-contract customer support ("PCS') for a period from three months to three years ("PCS period") after the customized application development services are delivered. The type of services for PCS clause is generally not specified in the contracts or as stand-ready services on when-and-if-available basis. The unspecified PCS is stand-ready service on when-and-if-available basis. It grants the customers on line and telephone access to technical support personnel during the term of the service. Specified PCS includes specified service term in the contract such as training.

The Group's application development service revenues are generated primarily from contracts with PRC government or related agencies and state-owned enterprises. The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a significant portion (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the Group has enforceable right on payments for the work performed.

The Group sometimes provides a warranty for its application development service contracts. The warranty period is typically 12-36 months upon the completion of the application development service. In accordance with ASC 606-10-25-19, the Group believes the warranty provision in the contracts generally represents service-type warranty, which is a distinct performance obligation and the Group also provides the similar service on standalone basis and customers can benefit from the related service-type warranty service. For the service warranty component, the customer simultaneously receives and consumes the benefits provided by the Group performance over the warranty term, therefore, the service warranty is satisfied over time. The revenue allocated to the service warranty is recognized over the warranty period.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

The Group assesses that application development service, PCS or specific service and service-type warranty, if applicable, are distinct performance obligations in the application development service contracts. The Group provides these services on standalone basis and customers are able to benefit from each of the service on its own. In addition, the timing of delivery of these performance obligations can be separately identifiable in the contracts. The transaction price is allocated to these identified performance obligations based on the relative standalone selling prices. The transaction price allocated to PCS or unspecific service and service-type warranty, if applicable, on a straight-line method over the contractual period. Revenue allocated to specified PCS is recognized as the related services are rendered. The transaction price allocated to application development service is recognized over time as the Group's performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. The Group uses an input method based on cost incurred as the Group believes that this method most accurately reflects the Group's progress toward satisfaction of the performance obligation, which usually takes less than one year. Under this method, the transaction price allocated to application development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance, such as indirect labor, supplies, and tools. Cost-based input method requires the Group to make estimates of revenues and costs to complete the construction. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the application development, including materials, labor, and other system costs. The Group's estimates are based upon the professional knowledge and experience of our engineers and project managers to assess the contract's schedule, performance, technical matters. The Group has adequate cost history and estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater than the related revenues, the Group recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. Changes in estimates for application development services include but not limited to cost forecast changes and change orders. The cumulative effect of changes in estimates is recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. To date, the Group has not incurred a material loss on any contracts. However, as a policy, provisions for estimated losses on such engagements will be made during the period in which a loss becomes probable and can be reasonably estimated. If contract modifications result in additional goods or services that are distinct from those transferred before the modification, they are accounted for prospectively as if the Group entered into a new contract. If the goods or services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract values.

In certain application development service arrangements, the Group sells and delivers IT equipment on standalone basis prior to the delivery of the services. In these cases, the Group controls the IT equipment before they are transferred to the customer. The Group has the right to direct the suppliers and control the goods or assets transferred to its customers. Thus, the Group considers it should recognize revenue as a principal in the gross amount of consideration to which it is entitled in exchange for the IT equipment delivered. The Group assesses the sale of equipment is separately identifiable from other promises in the contract and it is distinct performance obligation within the context of the contract. Accordingly, the revenue from the related IT equipment based on its relative standalone selling price is recognized upon customer acceptance after delivery.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Revenue from consulting and technical support services

Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Group to provide professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12 to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Revenue from subscription services

Revenue from subscription services is comprised of subscription fees from customers accessing the Group's software-as-a-service applications for a subscribed period. The Group's monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription arrangements are considered service contracts because customers do not have the right to take possession of the software and can only benefit from the software when provided the right to access the software. Accordingly, the subscription services contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line basis or based on the actual usage as customers receive and consume benefits of such services.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) Trading revenue

The Group started trading business for the year ended December 31, 2021 and recognized revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. Product sale contracts typically include a single performance obligation and there are no rights of return. The transaction price is based on the fixed contractual price with the customer. Billings to the customer for the sale of products occur at the time the products are transferred to the customer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) Others revenue

In April 2023, the Group 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 Group's services under regional cooperation agreements include marketing support to advertise as well as utilization of the Group's trademark and copyrights for business promotion purpose. The term of cooperation agreements is typically one to two years. The Group charges a fixed amount authorization fee which is non-refundable and to be paid upon execution of an authorization agreement. For all the Group's cooperation agreements, the amount of fee is fixed or determinable and no right of return provision indicated in the agreement. Since the Group provides no financing to authorized distributors and offers no guarantees on their behalf, the services provided by the Group are considered to represent a single performance obligation. The agreement price is fully allocated to the single performance obligation. The total authorization fees are recognized ratably on a straight-line basis over the term of the cooperation agreements.

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

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

*Practical Expedient and Exemptions*

The Group does not disclose the value of unsatisfied performance obligations within one year by applying the right to invoice practical expedient provided by ASC 606-10-55-18.

*<u>Contract balance</u>*

The accounts receivable includes both unbilled accounts receivable and billed accounts receivable. The Group records unbilled accounts receivable for revenue that has been recognized in advance of billing the customer, which is common for application development service contracts. The unbilled accounts receivable represents the Group's right to consideration in exchange for the service that the Group has performed to the customer before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when the Group has the right to invoice. Contract liabilities are presented as deferred revenue on the consolidated balance sheet. Contract liabilities relate to payments received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the completion of performance obligations. As of June 30, 2025 and December 31, 2024, the balance of deferred revenue amounted to $1,875,261 and $1,855,313, respectively.

<u>Operating leases</u>

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

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

<u>Income taxes</u>

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

An uncertain tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 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 six months ended June 30, 2025 and 2024. All of the tax returns of the Group's subsidiary in China remain subject to examination by the tax authorities for five years from the date of filing.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

<u>Loss per share</u>

Earnings (loss) per ordinary share is calculated in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per ordinary share is computed by dividing the net income (loss) attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings (loss) per share is computed using the weighted average number of ordinary shares and potential ordinary shares outstanding during the period. Potential ordinary shares include ordinary shares issuable upon the exercise of outstanding share options by using the treasury stock method and ordinary shares issuable upon the conversion of convertible instruments using the if-converted method. Potential ordinary shares are not included in the denominator of the diluted net (loss)/earnings per share calculation when inclusion of such shares would be anti-dilutive. For the six months ended June 30, 2025 and 2024, since the company had a loss, basic and dilutive loss per share is the same.

<u>Share-Based compensation</u>

The Group accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation, and under the recently issued guidance following FASB's pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, 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 Group's Ordinary share.

<u>Segment reporting</u> 

The Group's chief operating decision maker ("CODM") has been identified as its CEO, who reviews the consolidated results when making decisions about allocating resources and assessing performance of the Group as a whole and hence, the Group has only one reportable segment. The Group does not distinguish between markets or segments for the purpose of internal reporting. The Group's long-lived assets are substantially all located in the PRC and all of the Group's revenues are derived from the PRC. Therefore, no geographical segments are presented.

<u>Concentrations of Risks</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Concentration of credit risk

Assets that potentially subject the Group to significant concentration of credit risk primarily consist of cash, restricted cash, accounts receivable and other current assets. The maximum exposure of such assets to credit risk is their carrying amounts as at the balance sheet dates. As of June 30, 2025 and December 31, 2024, the aggregate amount of cash, cash equivalents and restricted cash of $2,546,964 and $4,209,535, 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 Group conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The Group establishes an accounting policy for allowance for credit losses on the individual customer's and supplier's financial condition, credit history, and the current economic conditions.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Foreign currency risk

A majority of the Group's expense transactions are denominated in RMB and a significant portion of the Group and its subsidiaries' assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People's Bank of China ("PBOC"). Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

The Group's functional currency is the RMB, and the Group's financial statements are presented in U.S. dollars. The RMB deprecation by 2.8% in fiscal year 2024 and appreciation by 1.9% for the six months ended June 30, 2025. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our assets, liabilities, revenues and costs are denominated in RMB. To the extent that the Group 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 Group would receive from the conversion. Conversely, if the Group 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 Group.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Significant customers

For the six months ended June 30, 2025, two customers accounted for 38.7% and 15.1% of the Group's total revenues, respectively. For the six months ended June 30, 2024, three customers accounted for 13.7%, 12.9% and 10.0% of the Group's total revenues, respectively. As of June 30, 2025, two customers accounted for 16.3% of and 11.3% the Group's accounts receivable. As of December 31, 2024, two customers accounted for 15.6% and 10.3% of the Group's accounts receivable, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Significant suppliers

For the six months ended June 30, 2025, three suppliers accounted for 19.3%, 12.6% and 10.2% of the Group's total purchases, respectively. For the six months ended June 30, 2024, five suppliers accounted for 15.4%, 13.4%, 11.5%, 10.9% and 10.4% of the Group's total purchases, respectively. As of June 30, 2025, two suppliers accounted for 26.2% and 10.7% of the Group's total accounts payable. As of December 31, 2024, one supplier accounted for 24.6% of the Group's total accounts payable.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 2 — Summary of significant accounting policies** (continued)

<u>Recently issued accounting pronouncements</u>

The Group considers the applicability and impact of all accounting standards updates ("ASUs"). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended ("the JOBS Act"), the Group meets the definition of an emerging growth company, or EGC, and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2025. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. Once adopted, this ASU will result in additional disclosures. The Group is currently assessing the potential impact of the rule on our disclosures.

In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. ASU 2025-03 clarifies the guidance to determine the accounting acquirer in a business combination that is affected primarily by exchanging equity interests, when the legal acquiree is a variable interest entity ("VIE") that meets the definition of a business. ASU 2025-03 requires entities to consider the same factors in ASC 805, Business Combinations, required for determining which entity is the accounting acquirer in other acquisition transactions. ASU 2025-03 is effective for the Company's annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-03 is required to be applied on a prospective basis to any acquisition transaction that occurs after the initial application date. The Group is currently evaluating the potential impact of adopting this guidance on Financial Statements.

In May 2025, the FASB issued ASU 2025-04, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). ASU 2025-04 revises the definition of the term performance condition for share-based consideration payable to a customer to incorporate conditions that are based on the volume or monetary amount of a customer's purchases or potential purchases. ASU 2025-04 also eliminates the policy election to account for forfeitures as they occur for awards with service conditions. ASU 2025-04 also clarifies that ASC 606 variable consideration guidance does not apply to share-based payments to customers; instead, vesting probability should be assessed solely under ASC 718, Compensation—Stock Compensation. ASU 2025-04 is effective for the Company's annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-04 may be applied on either a modified retrospective basis or on a retrospective basis. The Group is currently evaluating the potential impact of adopting this guidance on Financial Statements.

In July 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 amends ASC 326, Financial Instruments—Credit Losses, and introduces a practical expedient available for all entities and an accounting policy election available for all entities, other than public business entities, that elect the practical expedient. These changes apply to the estimation of expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue Recognition. Under the practical expedient, entities may assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the asset when developing reasonable and supportable forecasts. This simplifies the estimation process for short-term financial assets. ASU 2025-05 is effective for the Company's annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-05 should be applied on a prospective basis. The Group is currently evaluating the potential impact of adopting this guidance on Financial Statements.

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.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 3 — Accounts receivable, net**

Accounts receivable, net, consists of the following:

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Accounts receivable | $26606601 | $28715543 |
| &nbsp;&nbsp;&nbsp;Less: Allowance for credit losses | (9898721) | (11434431) |
| Accounts receivable, net | $16707880 | $17281112 |

---

Unbilled accounts receivable included in accounts receivable above amounted to $10,664,445 and $11,973,816 as of June 30, 2025 and December 31, 2024, respectively. The unbilled accounts receivables as of June 30, 2025 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 September 15, 2025, approximately $2.3 million (or 8.5%) of total accounts receivable as of June 30, 2025 was collected. It represented 9.9% of billed accounts receivable balance and 6.4% of unbilled accounts receivable balance as of June 30, 2025 were subsequently collected, respectively.

Movement of allowance for credit losses is as follows:

---

| | | |
|:---|:---|:---|
|  | **For the<br> Six Months<br> Ended<br> June 30,<br> 2025** | **For the<br> Year ended<br> December 31,<br> 2024** |
| Beginning balance | $11434431 | $7133370 |
| (Recovery of) provision for credit losses | (1554884) | 4625042 |
| Written-off | (99847) | (131158) |
| Foreign currency translation adjustments | 119021 | (192823) |
| Ending balance | $9898721 | $11434431 |

---

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 4 — Prepayments, deposits and other assets, net**

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

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Security deposits <sup>(1)</sup> | $635929 | $631211 |
| Advances to suppliers | 1726396 | 1659609 |
| Advances to employees | 83211 | 129971 |
| Prepaid expense | 561737 | 529751 |
| Antique art pieces <sup>(2)</sup> | 36970600 | 36970600 |
| Deferred financing cost | 480000 | - |
| Others | 4188 | 19286 |
| Total | 40462061 | 39940428 |
| Less: Long term portion | (37554060) | (37689697) |
| Allowance for credit losses | (558634) | (548248) |
| Prepayments, deposits and other assets – current portion | $2349367 | $1702483 |

---

(1) Security deposits mainly represent contract fulfillment deposits required by customer for specific projects, rent deposits etc.

(2) On January 5, 2023, the Group received 20 antique art pieces to settle $59,651,975 (RMB411,157,212) from a debt extinguish agreement. On May 1, 2024, the Group settled 7 antique art pieces as a purchase consideration to acquire Hongchuangxin. The fair value of the remaining antique art pieces was $36,970,600 as of June 30, 2025.

Movement of allowance for credit losses is as follows:

---

| | | |
|:---|:---|:---|
|  | **For the<br> Six Months<br> Ended<br> June 30,<br> 2025** | **For the<br> Year<br> Ended<br> December 31,<br> 2024** |
| Beginning balance | $548248 | $281694 |
| &nbsp;&nbsp;&nbsp;Provision for credit losses | 127701 | 9065372 |
| &nbsp;&nbsp;&nbsp;Written-off | (127701) | (8787174) |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | 10386 | (11644) |
| Ending balance | $558634 | $548248 |

---

**Note 5 — Intangible assets, net**

Intangible assets, net consist of the following:

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Capitalized development costs <sup>(1)</sup> | $12534364 | $11995622 |
| Purchased software | 391929 | 384643 |
| Software from business combinations | 44002341 | 43184301 |
| Subtotal | 56928634 | 55564566 |
| Less: accumulated amortization | (17338186) | (15877444) |
| Impairment | (36419179) | (28614264) |
| Intangible assets, net | $3171269 | $11072858 |

---

(1) The Group 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 six months ended June 30, 2025 and 2024 amounted to $1,145,741 and $2,691,285, respectively.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 6 — Related party balances and transactions**

<u>The relationship of related parties</u>

---

| | |
|:---|:---|
| **Name of Related Party** | **Relationship to the Group** |
| Stewart Lor | Co-CEO |
| Ban Lor | Co-founder, Co-CEO's brother |
| Yuxia Xu | CFO |
| Phillip Tao Qiu | Independent Director |
| Xiaoyan Liu | Shareholder of Ascendent |
| Zhongchuan Dadi (Beijing) Technology Co., LTD | Shareholder of Ascendent |

---

<u>Due from related parties</u> <sup>(1)</sup>

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Ban Lor | $6678 | $13700 |
| Stewart Lor | 290257 | 348714 |
| Yuxia Xu | 105715 | 60700 |
| Phillip Tao Qiu | 210973 | 470931 |
| Xiaoyan Liu | 3434 | 3370 |
| **Subtotal** | $617057 | $897415 |

---

(1) From time to time, the Group advances funds to senior management, mainly for expanding oversea business purpose.

<u>Due to a related party</u> <sup>(1)</sup>

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Zhongchuan Dadi (Beijing) Technology Co., LTD | $222 | $218 |

---

(1) The above balance represent unpaid expenses to the related party.

<u>Related party transactions</u>

---

| | | | |
|:---|:---|:---|:---|
|  |  | **For the Six Months Ended<br> June 30,** | **For the Six Months Ended<br> June 30,** |
|  |  | **2025** | **2024** |
| Stewart Lor | Interest income | $7959 | $8003 |
| Yuxia Xu | Interest income | $- | $6998 |

---

**<u>Loan guarantee provided by related parties</u>**

In connection with the Group's short term bank loans, Mr. Stewart Lor pledged his personal assets as collateral and signed guarantee agreements to provide guarantee to the Company's bank loans. (See Note 7).

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 7 — Short term bank loans** 

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

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2024** | **December 31,<br> 2024** |
| **Loans from Bank of Communication** Fixed interest rates ranging from 3.90% to 4.20%, maturity dates from January 16, 2024 to April 10, 2025 and guaranteed by the representative of Zhuhai Powerbridge, Mr. Stewart Lor and a third party. The Group pledged buildings with the aggregated carrying value of $2.1 million and $2.1 million as of June 30, 2025 and December 31, 2024 to secure the loans | $1814730 | $2465990 |
| **Loan from SPD Bank** Fixed interest rates ranging from 3.5% to 4.1%, maturity on from June 28, 2024 to December 16, 2025 and guaranteed by Mr. Stewart Lor. The Group pledged fixed asset with the aggregated carrying value of $1.6 million and $1.6 million as of June 30, 2025 and December 31, 2024 to secure the loan, Mr. Stewart Lor pledged personal property to secure some of these loans. | 1437825 | 1411094 |
| Short term bank loans | $3252555 | $3877084 |

---

The movement short-term bank loans are as follows:

---

| | | |
|:---|:---|:---|
|  | **For the Six Months Ended<br> June 30,** | **For the Six Months Ended<br> June 30,** |
|  | **2025** | **2024** |
| Beginning balance | $3877083 | $3943718 |
| Additions | 1103053 | 2079002 |
| Repayments | (1792461) | (3187803) |
| Foreign currency translation adjustments | 64880 | (82825) |
| Ending balance | $3252555 | $2752092 |

---

For the six months ended June 30, 2025 and 2024, interest expense for above short-term bank loans were $64,324 and $77,673, respectively, with the weighted average interest rate of 3.8% and 4.0%, respectively.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 8 — Lease**

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

Total lease expense for the six months ended June 30, 2025 and 2024 amounted to $174,733 and $258,823, respectively. Cash paid for amounts included in the measurement of lease liabilities amounted to $144,040 and $164,221 for the six months ended June 30, 2025 and 2024, respectively.

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

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2024** | **December 31,<br> 2024** |
| Right-of-use assets, net | $658187 | $338017 |
| Operating lease liabilities - current | 296124 | 215253 |
| Operating lease liabilities - non-current | 366065 | 146932 |
| Operating lease liabilities | $662189 | $362185 |

---

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June 30, 2025:

---

| | |
|:---|:---|
| Remaining lease term and discount rate: |  |
| Weighted average remaining lease term (years) | 2.4 years |
| Weighted average discount rate | 4.3% |

---

The following is a schedule of maturities of lease liabilities as of June 30, 2025:

---

| | |
|:---|:---|
| **Twelve months ending June 30,** | **Amount** |
| 2026 | $316754 |
| 2027 | 230895 |
| 2028 | 146424 |
| Total future minimum lease payments | 694073 |
| Less: imputed interest | (31884) |
| Present value of lease liabilities | $662189 |

---

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 9 — Convertible notes**

Convertible notes consist of the following:

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| YA Notes | $&nbsp;&nbsp;&nbsp;&nbsp; - | $6574380 |
| Convertible notes | $- | $6574380 |

---

<u>YA 2024 Notes</u>

On May 16, 2024, the Group entered into entered into a standby equity purchase agreement with YA II PN, LTD ("YA") Pursuant to the Purchase Agreement, YA purchases convertible notes in the principal amount of $8,000,000 (the "YA 2024 Notes") and up to $30,000,000 (the "Commitment Amount"). The offering will be conducted in four tranches and each closing has conditions specified in the agreement. The principal will become due and payable before maturity date defined in specific agreement and bears an annual interest rate of 8% unless earlier converted or redeemed by the Group. At any time before the maturity date, YA may convert convertible notes at its option into Class A Ordinary Shares. The Group has the right, but not the obligation, to redeem a portion or all amounts outstanding under the convertible notes prior to the maturity date at a cash redemption price equal to the outstanding principal balance to be redeemed, plus the redemption premium, plus accrued and unpaid interest. The Group shall pay to the Investor a structuring fee in amount of $15,000. The Group accounted for the above structuring fee as direct financing cost to YA Notes.

On May 16, 2024, The Group closed the first tranche of the YA 2024 Notes for the principal amount of $4,756,986 with an origin issue discount ("OID") of 7% for a maturity date at May 16, 2025. The net proceed from the first closing was $4,162,347 (after deducting OID and other issuance costs). On June 17, 2024, The Group closed the second tranche of the YA 2024 Notes for the principal amount of $1,500,000 with an origin issue discount ("OID") of 7% for a maturity date at May 16, 2025. The net proceed from the second tranche was $1,317,225 (after deducting OID and other issuance costs).

On December 5, 2024, the Company and YA entered into an omnibus amendment agreement (the "December 2024 modification"). Pursuant to the omnibus amendment agreement, the Floor Price under the YA 2024 Notes will be reduced from $0.1641 (post-reverse stock split adjusted to $0.98) to $0.10 (post-reverse stock split adjusted to $0.6) per Ordinary share, subject to the adjustment to reflect any reverse stock split effectuated by the Company.

The Group adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") by using a modified retrospective transition method. In accordance with ASU 2020-06, since the YA 2024 Notes were not issued at a substantial premium, all of the proceeds received from the issuance are recorded as a liability on the unaudited condensed consolidated balance sheet in accordance with ASC 470-20. That is, no portion of the proceeds from issuing are attributed to the conversion option at inception. The difference between the principal amount and net proceeds from the issuance is considered debt discount and is amortized at their respective effective interest rates to accrete the carrying value to its face value on the respective put dates.

During the year ended December 31, 2024, the effective interest rates of the first and second tranche of the YA 2024 Notes were ranged from 7.1% and 22.8%, respectively. The aggregated effective interest expense amounted to $558,585 for the year ended December 31, 2024.

**X3 HOLDINGS CO., LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 9 — Convertible notes** (continued)

The December 2024 modification with YA was determined to be an extinguishment of debt in accordance with ASC 470. As a result, the difference between the fair value of YA 2024 Notes immediately after the December 2024 modification and the carrying value of the YA 2024 Notes immediately before the modification in the amount of $473,653 was accounted for as a loss on debt extinguishment for the year ended December 31, 2024.

On February 16, 2025, the Company entered into a forbearance and repayment agreement (the "Forbearance Agreement") with YA, pursuant to which YA agreed (a) to forbear from exercising certain of its rights and remedies as stipulated under the related agreements and (b) to forbear from exercising conversion right under the outstanding YA 2024 Notes into the Company's Ordinary shares in connection with the outstanding amounts under the YA 2024 Notes as set forth in the Forbearance Agreement, subject to the conditions, amendments and modifications contained in the Forbearance Agreement for the period commencing from February 16, 2025 to June 30, 2025, so long as (i) the Company strictly complies with the terms of this Forbearance Agreement and (ii) that there is no occurrence or existence of any event of default as defined in the related agreements or in the Forbearance Agreement, other than the existing defaults as stated in the Forbearance Agreement. In addition, the Forbearance Agreement does not constitute a waiver of, or an amendment to, any rights, powers, or remedies of the Investor under the related agreements in conjunction therewith as in effect prior to the date of the Forbearance Agreement. Prior to April 24, 2025, the Company repaid $533,333 to YA. On April 24, 2025, the Company entered into a termination agreement with YA, pursuant to which YA agreed terminate the standby equity purchase and registration rights and obligation (together as "the YA termination"). The Company evaluated the YA termination under ASC 470 and determined that it was not considered an extinguishment of debt. As a result, the Company reclassified the YA 2024 Notes to loan from third parties. From April 24, 2025 to June 30, 2025, the Company repaid $6,063,333 to YA, the remining balance was $159,273 as of June 30, 2025.

**Note 10 — Taxes**

<u>Income tax</u>

*Cayman Islands*

X3 was incorporated in the Cayman Islands and is not subject to tax on income or capital gains under the laws of Cayman Islands. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

*Singapore*

 

Under Singapore tax laws, subsidiaries in Singapore are subject to statutory income tax rate at 17.0% if revenue is generated in Singapore and there are no withholding taxes in Singapore on remittance of dividends.

*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.

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 10 — 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 Group'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 Group's subsidiaries in PRC are subject to an income tax rate of 25%.

The impact of the preferred tax treatment noted above decreased income taxes by $18,461 and $209,134 for the six months ended June 30, 2025 and 2024, respectively. The benefit of the preferred tax treatment on net loss per share (basic and diluted) was $0.00 (split-adjusted 0.01) and $0.00 (split-adjusted 0.06) for the six months ended June 30, 2025 and 2024, respectively.

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

---

| | | |
|:---|:---|:---|
|  | **For the Six Months Ended<br> June 30,** | **For the Six Months Ended<br> June 30,** |
|  | **2025** | **2024** |
| Current | $2621 | $(410) |
| Deferred | (1693253) | (144541) |
| Income tax expense (benefit) | $(1690631) | $(144951) |

---

The following table reconciles China statutory rates to the Group's effective tax rate:

---

| | | |
|:---|:---|:---|
|  | **For the Six Months Ended<br> June 30,** | **For the Six Months Ended<br> June 30,** |
|  | **2025** | **2024** |
| PRC statutory rates | 25.0% | 25.0% |
| Preferential tax rates | 0.1% | (1.9)% |
| R&D credits | 0.6% | 1.2% |
| Change in valuation allowance and others | (16.3)% | (23.3)% |
| Effective tax rate | 9.4% | 1.0% |

---

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 and liabilities are as follows:

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Deferred tax assets: |  |  |
| Provision for credit losses | $1307197 | $1483285 |
| Depreciation and amortization | 211130 | 207204 |
| Net operating loss carryforward | 3105490 | 2751701 |
| Valuation allowance | (3832058) | (3464740) |
| Deferred tax assets, net | $791759 | $977450 |
| Deferred tax liabilities: |  |  |
| Increase in fair value of intangible assets acquired through acquisition | $1815719 | $1882829 |
| Impairment of intangible assets acquired through acquisition | (1815719) | - |
| Deferred tax liabilities | $- | $1882829 |

---

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 10 — Taxes** (continued)

As of June 30, 2025, the Group has approximately $16.8 million net operating loss ("NOL") carryforwards with expirations by 2030. 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 $3,832,058 and $3,464,740 valuation allowance against the deferred tax assets that the Group does not expect to realize at June 30, 2025 and December 31, 2024, respectively.

<u>Value added tax</u>

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 Group'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 Group's technology development business is exempted from VAT.

<u>Tax payable</u>

Taxes payable consists of the following:

---

| | | |
|:---|:---|:---|
|  | **June 30,<br> 2025** | **December 31,<br> 2024** |
| Income taxes payable | $5697 | $5591 |
| VAT and other tax payable | 121128 | 239179 |
| Taxes payable | $126825 | $244770 |

---

*Uncertain tax positions*

The Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of June 30, 2025 and December 31, 2024, the Group did not have any significant unrecognized uncertain tax positions. The Group did not incur any interest and penalties related to potential underpaid income tax expenses for the six months ended June 30, 2025 and 2024. The Group also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from June 30, 2025.

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 11 — Equity**

<u>Ordinary Shares</u>

On February 10, 2025, the Company held an extraordinary general meeting. At the meeting, the Company's shareholders approved the following among other items: (a) a share consolidation of every six (6) issued and unissued Class A ordinary shares with par value of $8 each in the Company's issued and unissued share capital be consolidated into one (1) share with par value of $48; (b) the authorized share capital of the Company be increased from $40,000,000,000 divided into 833,333,333 shares of par value of $48 each, consisting of 830,000,000 Class A ordinary shares of a par value of $48 each and 3,333,333 Class B ordinary shares of a par value of $48 each, to $240,000,000,000 divided into 5,000,000,000 shares of par value of $48 each, consisting of 4,996,666,667 Class A ordinary shares of a par value of $48 each and 3,333,333 Class B ordinary shares of a par value of $48 each, by creation of an additional 4,166,666,667 Class A ordinary shares of a nominal or par value of $48 each; (c) 16,666,667 Class A ordinary shares of the additional 4,166,666,667 authorized Class A ordinary shares be re-designated as Class B ordinary shares, such that the authorized share capital of the Company shall be changed to $240,000,000,000 divided into (i) 4,980,000,000 Class A ordinary shares of a par value of US$48 each; and (ii) 20,000,000 Class B ordinary shares of a par value of $48 each; (d) the par value of each of the issued and unissued ordinary shares be reduced from $48.00 to $0.00003 per share by cancelling the paid-up share capital to the extent of $47.99997 per share by way of a reduction of capital, so as to form new ordinary shares with par value of $0.00003 each, such that the authorized share capital of the Company shall be changed to $150,000 divided into (i) 4,980,000,000 Class A ordinary shares of a par value of $0.00003 each; and (ii) 20,000,000 Class B ordinary shares of a par value of $0.00003 each.

All historical share and per share amounts in these condensed financial statements have been retroactively adjusted to reflect the share consolidation.

The Company had 36,046,664 (post-reverse stock split adjusted 6,007,767) and 13,755,975 (post-reverse stock split adjusted 2,292,652) Class A ordinary shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively. The Company had 1,212,195 (post-reverse stock split adjusted 202,032) and 12,195 (post-reverse stock split adjusted to 2,032) Class B ordinary shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively.

<u>Shares issued for consulting services</u> 

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 4,202 (post-reverse stock split adjusted to 700) 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 63,025 (post-reverse stock split adjusted to 10,504) restricted Class A ordinary shares to the advisory firm based on the fair market value.

On June 18, 2025, the Company issued 650,000 (post-reverse stock split adjusted to 108,334) and 550,000 (post-reverse stock split adjusted to 91,666) Class B restricted ordinary shares to Mr. Stewart Lor and Ms. Yuxia Xu, respectively, as stock bonuses.

For the six months ended June 30, 2025 and 2024, the Group recorded a consulting fee expense of $1,860,000, and $1,474,999 included in the share-based compensation expense. As of June 30, 2025 and December 31, 2024, there were no unrecognized share-based compensation expense related to the shares issued for consulting services.

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 11 — Equity** (continued)

<u>Restricted share units ("RSUs") issued for consulting services</u>

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 2,500 (post-reverse stock split adjusted to 416) RSUs (representing 1 ordinary share of the Company) as compensation for the services after signing of the agreements. The Company issued 2,500 (post-reverse stock split adjusted to 416) 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 six months ended June 30, 2025 and 2024, the Company recorded a consulting fee expense of $2,180,000 and $2,180,000 included in the share-based compensation expense. As of June 30, 2025 and December 31, 2024, there were unrecognized share-based compensation expense related to RSUs issued for consulting services amounted to $181,667 and $2,361,667.

<u>2018 Stock option plan</u>

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) 216 (post-reverse stock split adjusted to 36) 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's 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 12,973 (post-reverse stock split adjusted to 2,162) Class A ordinary shares of the Company reserved for issuance under the Amended 2018 Plan, which are in addition to the 4,161 (post-reverse stock split adjusted to 693) 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 17,134 (post-reverse stock split adjusted to 2,855) Class A ordinary shares.

On April 4, 2019, the Board approved to issue 219 (post-reverse stock split adjusted to 36) stock options to its employees under 2018 stock option plan with exercise price of $24,000 (post-reverse stock split adjusted to $144,000) 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.

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 11 — Equity** (continued)

On April 4, 2019, the Board approved to issue 62 (post-reverse stock split adjusted to 10) stock options to an external consultant under 2018 stock option plan with an exercise price of $18,000 (post-reverse stock split adjusted to $108,000) 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 12 (post-reverse stock split adjusted to 2) shares options on a cashless basis. On February 6, 2021, the Company issued 5 (post-reverse stock split adjusted to 1) Class A ordinary shares to the consultant.

On May 26, 2021, the Board approved to issue 1,584 (post-reverse stock split adjusted to 264) stock options to its employees under 2018 stock option plan with an exercise price of $5,856 (post-reverse stock split adjusted to $35,136) per share. 836 (post-reverse stock split adjusted to 140) of these stock options were fully vested upon grant; 748 (post-reverse stock split adjusted to 124) 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 $5,856 (post-reverse stock split adjusted to $35,136) to $1,632 (post-reverse stock split adjusted to$9,792) per share, 1,210 (post-reverse stock split adjusted to 202) of these stock options were fully vested upon grant; 374 (post-reverse stock split adjusted to 62) 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 $1,632 (post-reverse stock split adjusted to $9,792) to $1,272 (post-reverse stock split adjusted to $7,632) per share. The Company recorded modification expense of $137,641. On December 20, 2022, the Board further approved to amend the exercise price from $1,272 (post-reverse stock split adjusted to $7,632) to $403.2 (post-reverse stock split adjusted to $2,419.2) per share. The Company recorded modification expense of $206,461.

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 <br> granted in <br> May <br> 2021** | **Options <br> Amended in <br> January,<br> 2022** | **Options<br> Amended in<br> May,<br> 2022** | **Options<br> Amended in<br> December,<br> 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 | $7232526 | $2106163 | $1652811 | $689971 |

---

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 11 — Equity** (continued)

A summary of activities of the stock options is presented as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Number of<br> Share<br> Options** | **Weighted<br> Average<br> Exercise<br> Price** | **Weighted<br> Average<br> Remaining<br> Contractual<br> Term** | **Aggregate<br> Intrinsic<br> Value** |
|  | | **US$** | **Year** | **US$** |
| Outstanding as of December 31, 2023 | 272 | 5524.52 | 2.49 |  |
| Granted | - | - |  |  |
| Cancelled | - |  |  |  |
| Outstanding as of December 31, 2024 | 272 | 5524.52 | 1.49 |  |
| Granted | - | - |  |  |
| Cancelled | - | - |  |  |
| Outstanding as of June 30, 2025 | 272 | 5524.52 | 0.99 |  |
| Exercisable as of June 30, 2025 | 272 | 5524.52 | 0.99 |  |

---

For the six months ended June 30, 2025 and 2024, total share-based compensation expenses recognized for the share options granted both were $nil. As of June 30, 2025 and December 31, 2024, there was no unrecognized share-based compensation expenses related to the share options granted.

<u>Private placement</u> 

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 $6.0 (post-reverse stock split adjusted to $36.0) per share. The Company issued 6,523,157 (post-reverse stock split adjusted to 1,087,192) Class A ordinary shares on November 24, 2023 and recorded the related subscription receivable of $40.0 million as of December 31, 2024 and 2023. In February 2025, the Company entered into a supplemental agreement with these twelve investors to change the aggregate purchase amount to $3,972,600 at a price of $0.609 (post-reverse stock split adjusted to $3.65) per share. The change in the subscription consideration of $36,027,400 was considered as a deemed distribution to the investors. The Company received proceeds of $3,861,203 as of June 30, 2025. Outstanding subscription receivable amounted to $111,397as of June 30, 2025.

On May 19, 2025, the Company entered into purchase agreements with thirteen investors. Pursuant to the purchase agreement, the Company agreed to sell 22,325,600 (post-reverse stock split adjusted to 3,720,933) Class A ordinary shares, at a purchase price of $0.43 (post-reverse stock split adjusted to $2.58) per share. The Company issued 22,325,600 (post-reverse stock split adjusted to 3,720,933) Class A ordinary shares to these investors on June 5, 2025 and received proceeds of $5.0 million as of June 30, 2025. Outstanding subscription receivable amounted to $4.6 million as of June 30, 2025.

<u>Shares issued for reserve</u>

As of June 30, 2025, the Company issued 1,339 (post-reverse stock split adjusted to 223) Class A ordinary shares held in an escrow account as reserve solely for potential stock options. As of June 30, 2025, no shares were transferred to the holders.

<u>Shares issued for long-term investments</u>

On March 24, 2023, the Company entered into an equity transfer agreement with a shareholder of DTI which the Company agrees to prepaid 34,911 (post-reverse stock split adjusted to 5,818) Class A ordinary shares to purchase 32% equity of DTI. In connection with the failure to acquire DTL, these 34,911 (post-reverse stock split adjusted to 5,818) Class A ordinary shares were cancelled on January 29, 2025.

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 11 — Equity** (continued)

<u>Warrants</u>

During the year ended December 31, 2021, the Company completed in aggregate of $6.0 million convertible notes with YA and issued 136 (post-reverse stock split adjusted to 22) warrants to YA. The warrants carry a term of five years and shall be exercisable at $17,520 (post-reverse stock split adjusted to $105,120) 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.

<u>Statutory reserve</u> 

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 as of June 30, 2025 and December 31, 2024, as a result, the statutory reserve balances were $nil as of June 30, 2025 and December 31, 2024.

**Note 12 — Commitments and contingencies**

<u>Contingencies</u>

The Group is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Group does not anticipate that the final outcome arising out of any such matters will have a material adverse effect on our consolidated financial position, cash flows or results of operations on an individual basis or in the aggregate.

**Note 13 — Segment reporting**

The Group's Chief Executive Officer is the Chief Operating Decision Maker ("CODM"). The CODM makes decisions on resource allocation, assesses performance of the business, and monitors budget versus actual results using factors such as revenue, operating expenses, loss from operations and net loss. Significant expenses include cost of revenues, sales and marketing expenses, general and administrative expenses, research and development and share based compensation, which are each separately presented on the Group's statements of operations and comprehensive loss. Other segment items within net loss include interest expenses, change in fair value of convertible notes and so on. During the six months ended June 30, 2025 and 2024, all revenue is PRC revenue. The Group's long-lived assets consist primarily of property and equipment and intangible assets, most of which are located in the PRC.

The following table presents revenues by the service lines:

---

| | | |
|:---|:---|:---|
|  | **For the Six Months Ended<br> June 30,** | **For the Six Months Ended<br> June 30,** |
| REVENUES: | **2025** | **2024** |
| Application development services | $1599202 | $884538 |
| Consulting and technical support services | 1082533 | 2383000 |
| Subscription services | 302583 | 215355 |
| Trading revenue | - | 1375319 |
| Others revenue | - | 135832 |
| Total revenues | $2984318 | $4994044 |

---

**X3 HOLDINGS CO., LTD.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 14 — Subsequent events**

On July 11, 2025, the Company entered into a definitive securities purchase agreement with certain individuals, the Company agreed to sell 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares with consideration of $25.8 million. The Company issued 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares on July 17, 2025.

The Company entered into a definitive share purchase agreement (the "Share Purchase Agreement") dated as of August 1, 2025, with a Non-U.S. individual ("Seller"), pursuant to which the Company agreed to acquire 100% of the outstanding equity interests in Creation Intelligent Co., Limited ("Creation Intelligent"), a Hong Kong-based company that holds a 51% equity interest in PicAIGames Technology Co., Ltd. ("PICAIGAMES"), a mobile game developer and operator renowned for its innovative gameplay design and strong user engagement metrics. Pursuant to the Share Purchase Agreement, the acquisition of Creation Intelligent consists of transfer of certain tangible assets of the Company, with a total assessed market value of approximately RMB59.4 million to the Seller. Upon execution of the Share Purchase Agreement, the Company is entitled to full control over Creation Intelligent, including indirect control over PICAIGAMES's 51% equity interest. The transaction was close on August 1, 2025.

On August 13, 2025, the Company entered into entered into a promissory note agreement with a creditor, pursuant to which the Company issued the creditor an unsecured promissory note with original principal amount of $1,095,000 for $1,000,000 in gross proceeds. The promissory note bears interest at a rate of 8% per annum compounding daily and have a term of twelve months. The promissory note includes an original issue discount of $80,000 along with $15,000 for creditor costs and other transaction expenses incurred in connection with the purchase and sale of the promissory note. The Group may prepay all or a portion of the promissory note at any time by paying 120% of the outstanding balance elected for pre-payment. As of the date of this report date, the Company has collected $1.0 million.

## Exhibit 99.2

**Exhibit 99.2**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our interim unaudited condensed consolidated financial statements and the related notes for the six months ended June 30, 2025 and the audited consolidated financial statements and accompanying notes for the year ended December 31, 2024 included in our annual report on Form 20-F filed with the SEC on April 25, 2025. 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.*

**Overview**

X3 Holdings Co., Ltd. (hereinafter referred to as "we," "our," or the "Company"), 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 represented 53.6% and 17.7% of total revenue for the six months ended June 30, 2025 and 2024, respectively. We generate revenue from consulting and technical support services, which represented 36.3% and 47.7% of our revenue for the six months ended June 30, 2025 and 2024, respectively. We also earn subscription service revenue from customers accessing our SaaS, which represented 10.1% and 4.3% of our revenue for the six months ended June 30, 2025 and 2024. We started to generated revenue from trading business, which represented nil and 27.5% of total revenue for the six months ended June 30, 2025 and 2024, respectively. Other revenue represented nil and 2.7% of our revenue for the six months ended June 30, 2025 and 2024, respectively.

**Recent Developments**

On May 19, 2025, we entered into a purchase agreement with thirteen investors. Pursuant to the Purchase Agreement, the Company agreed to sell 22,325,600 (post-reverse stock split adjusted to 3,720,933) Class A ordinary shares, at a purchase price of $0.43 (post-reverse stock split adjusted to $2.58) per share. We have received proceeds of $5.0 million as of June 30, 2025. Outstanding subscription receivable amounted to $4.6 million as of June 30, 2025.

On July 11, 2025, the Company entered into a definitive securities purchase agreement with certain individuals, pursuant to which the Company agreed to sell 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares with consideration of $25.8 million. The Company issued 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares on July 17, 2025.

We entered into a definitive share purchase agreement (the "Share Purchase Agreement") dated as of August 1, 2025, with a Non-U.S. individual ("Seller"), pursuant to which the Company agreed to acquire 100% of the outstanding equity interests in Creation Intelligent Co., Limited ("Creation Intelligent"), a Hong Kong-based company that holds a 51% equity interest in PicAIGames Technology Co., Ltd. ("PICAIGAMES"), a mobile game developer and operator renowned for its innovative gameplay design and strong user engagement metrics. Pursuant to the Share Purchase Agreement, the acquisition of Creation Intelligent consists of transfer of certain tangible assets of the Company, with a total assessed market value of approximately RMB59.4 million to the Seller. Upon execution of the Share Purchase Agreement, the Company is entitled to full control over Creation Intelligent, including indirect control over PICAIGAMES's 51% equity interest. The transaction was close on August 1, 2025.

On August 13, 2025, we entered into a promissory note agreement with a creditor, pursuant to which we issued the creditor an unsecured promissory note with original principal amount of $1,095,000 for $1,000,000 in gross proceeds. The promissory note bears interest at a rate of 8% per annum compounding daily and have a term of twelve months. The promissory note includes an original issue discount of $80,000 along with $15,000 for creditor costs and other transaction expenses incurred in connection with the purchase and sale of the promissory note. The Group may prepay all or a portion of the promissory note at any time by paying 120% of the outstanding balance elected for pre-payment. As of this report date, the Company has collected $1.0 million.

**Key Factors that Affect Operating Results**

We currently derive a majority of revenues from our application development services, consulting and technical support services, subscription services and trading. We intend to continually enhance our services and cross-sell new services to our existing customers and acquire new customers by increasing our market penetration with a deeper market coverage and a broader geographical reach. Our ability to maintain and expand our customer base with our application development services significantly affects our operating results. We intend to expand the scope of our offerings to serve existing customers and attract new customers by continually making significant investments in R&D as well as sales and marketing activities to increase our subscription revenue and profit. Our ability to drive greater customer adoption and usage of our SaaS services affects our operating results.

Our business of providing digital solutions and technology services spans diverse industries. We harness cutting edge technologies to forge agile, innovative business models by integrating pivotal resources in technology applications, financial prowess, and streamlined operations. We aim for accelerated and transformative growth across digital technologies and crypto mining operations.

We intend to pursue strategic acquisitions and investments in selective technologies and businesses that will enhance our technology capabilities, expand our offerings and increase our market penetration. We believe our strategic acquisition and investment strategy is critical for us to accelerate our growth and strengthen our competitive position. Our ability to identify and execute strategic acquisitions and investments will have an effect on our operating results.

&nbsp;&nbsp;&nbsp;&nbsp;**A.** **Operating Results** 

***For the six months ended June 30, 2025 and 2024***

The following table summarizes the results of our operations for the six months ended June 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the Six Months Ended** | **For the Six Months Ended** | | |
|  | **June 30,** | **June 30,** | | |
|  | **2025** | **2024** |<br>**Change** |<br>**% Change** |
| REVENUES: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Application development services | $1599202 | $884538 | $714664 | 80.8% |
| &nbsp;&nbsp;&nbsp;Consulting and technical support services | 1082533 | 2383000 | (1300467) | (54.6)% |
| &nbsp;&nbsp;&nbsp;Subscription services | 302583 | 215355 | 87228 | 40.5% |
| &nbsp;&nbsp;&nbsp;Trading revenue |  | 1375319 | (1375319) | (100.0)% |
| &nbsp;&nbsp;&nbsp;Others revenue | - | 135832 | (135832) | (100.0)% |
| &nbsp;&nbsp;&nbsp;**Total revenues** | **2984318** | **4994044** | **(2009726)** | **(40.2)%** |
| COST OF REVENUES: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Application development services | 1158423 | 301601 | 856822 | 284.1% |
| &nbsp;&nbsp;&nbsp;Consulting and technical support services | 411991 | 1019261 | (607270) | (59.6)% |
| &nbsp;&nbsp;&nbsp;Subscription services | 42966 | 27749 | 15217 | 54.8% |
| &nbsp;&nbsp;&nbsp;Trading |  | 1371067 | (1371067) | (100.0)% |
| &nbsp;&nbsp;&nbsp;Others | - | 53626 | (53626) | (100.0)% |
| &nbsp;&nbsp;&nbsp;**Total cost of revenues** | **1613380** | **2773304** | **(1159924)** | **(41.8)%** |
| **GROSS PROFIT** | **1370938** | **2220740** | **(849802)** | **(38.3)%** |
| OPERATING EXPENSES: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Selling and marketing | 381935 | 548885 | (166950) | (30.4)% |
| &nbsp;&nbsp;&nbsp;General and administrative | 2447531 | 3773296 | (1325765) | (35.1)% |
| &nbsp;&nbsp;&nbsp;(Recovery of) provision for credit losses | (1427183) | 3773492 | (5200675) | (137.8)% |
| &nbsp;&nbsp;&nbsp;Research and development | 1600711 | 2156721 | (556010) | (25.8)% |
| &nbsp;&nbsp;&nbsp;Impairment charges | 12012569 |  | 12012569 | -% |
| &nbsp;&nbsp;&nbsp;Share-based compensation | 4040000 | 3654999 | 385001 | 10.5% |
| &nbsp;&nbsp;&nbsp;**Total operating expenses** | **19055563** | **13907393** | **5148170** | **37.0%** |
| OPERATING LOSS FROM OPERATIONS | (17684625) | (11686653) | (5997972) | 51.3% |
| OTHER (EXPENSES) INCOME |  |  |  |  |
| Loss from deregistering subsidiary |  | (113361) | 113361 | (100.0)% |
| Loss from long term investment | (4853) |  | (4853) | -% |
| Change in fair value of convertible notes |  | 1048271 | (1048271) | (100.0)% |
| Other expense, net | (317475) | (585759) | 268284 | (45.8)% |
| **Total other (expenses) income** | **(322328)** | **349151** | **(671479)** | **(192.3)%** |
| LOSS BEFORE INCOME TAXES | (18006953) | (11337502) | (6669451) | 58.8% |
| INCOME TAX EXPENSE (BENEFIT) | (1690631) | (144951) | (1545680) | 1066.3% |
| NET LOSS | $(16316322) | $(11192551) | $(5123771) | 45.8% |

---

*Revenues*

We derive revenues from five sources: (1) application development services, (2) consulting and technical support services, (3) subscription services, (4) trading, and (5) others.

 

For the six months ended June 30, 2025, our total revenue was approximately $3.0 million as compared to approximately $5.0 million for the six months ended June 30, 2024. Our total revenue decreased by approximately $2.0 million, or 40.2%. The overall decrease in total revenue was primarily attributable to approximately $1.4 million decrease in trading revenue and approximately $1.3 million decrease in revenue from consulting and technical support services.

 

*<u>Revenue from application development services</u>*

Our 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 six months ended June 30, 2025, our application development service revenue was approximately $1.6 million as compared to approximately $0.9 million for the six months ended June 30, 2024. The increase in application development service revenue was approximately $0.7 million or 80.8% due to a major project in current period. In certain application development service arrangements, the contracts included sales of IT equipment. Such revenue was $1.6 million for the six months ended June 30, 2025, which increased from $0.3 million of the related revenue for the six months ended June 30, 2024.

*<u>Revenue from consulting and technical support services</u>*

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 six months ended June 30, 2025, our consulting and technical support service revenue was approximately $1.1 million as compared to approximately $2.4 million for the six months ended June 30, 2024. The decrease in consulting and technical support service revenue was approximately $1.3 million, or 54.6% due to fewer new projects during such period.

 

*<u>Revenue from subscription services</u>*

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 six months ended June 30, 2025, our subscription service revenue was approximately $0.3 million as compared to approximately $0.2 million for the six months ended June 30, 2024.

*<u>Trading revenue</u>*

 

Revenue from trading revenue was nil for the six months ended June 30, 2025 as compared to approximately $1.4 million for the six months ended June 30, 2024.

*<u>Others revenue</u>*

Other revenue was nil for the six months ended June 30, 2025 as compared to approximately $0.1 million for the six months ended June 30, 2024.

***Cost of Revenues***

Our cost of revenues mainly consists of compensation and benefit expenses for our professionals, material cost, travel expenses related to revenue contracts, and purchase cost of products.

Our cost of revenues decreased by approximately $1.2 million or 41.8% to approximately $1.6 million for the six months ended June 30, 2025 from approximately $2.8 million for the six months ended June 30, 2024, which was mainly attributable to a decrease of $1.4 million in cost of revenue from trading and a decrease of approximately $0.6 million in cost of revenue from consulting and technical support services, offset by an increase of approximately $0.9 million in cost of revenue from application development service. Our cost of revenue from application development services, consulting and technical support services, subscription services, trading and others was approximately $1.2 million, $0.4 million, $0.04 million, nil and nil for the six months ended June 30, 2025, respectively, as compared to approximately $0.3 million, $1.0 million, $0.03 million, $1.4 million and $0.05 million for the six months ended June 30, 2024, respectively.

***Gross profit***

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **For the Six Months Ended** | **For the Six Months Ended** | **For the Six Months Ended** | **For the Six Months Ended** |
| | **June 30,** | **June 30,** | **June 30,** | **June 30,** |
| | **2025** | **2025** | **2024** | **2024** |
| <br>**GROSS PROFIT** | **Gross <br> Profit** | **Gross <br> Margin** | **Gross <br> Profit** | **Gross <br> Margin** |
| Application development services | $440779 | 27.6% | $582937 | 65.9% |
| Consulting and technical support services | 670542 | 61.9% | 1363739 | 57.2% |
| Subscription services | 259617 | 85.8% | 187606 | 87.1% |
| Trading revenue |  | -% | 4252 | 0.3% |
| Others revenue | - | -% | 82206 | 60.5% |
| **Total gross profit** | $**1370938** | **45.9%** | $**2220740** | **44.5%** |

---

 

 

Our gross profit decreased by approximately $0.8 million, or 38.3%, from approximately $2.2 million for the six months ended June 30, 2024 to approximately $1.4 million for the six months ended June 30, 2025. Gross margin as a percent of overall revenue for the six months ended June 30, 2025 and 2024 was 45.9% and 44.5%, respectively.

Gross profit for application development services decreased by approximately $0.1 million, or 24.4%, from $0.6 million for the six months ended June 30, 2024 to approximately $0.4 million for the six months ended June 30, 2025. The decrease was driven by higher proportion of IT equipment sales in application development services in current period. Certain application development service arrangements included sales of IT equipment, which often have lower gross profit margin. Gross profit margin for the six months ended June 30, 2025 and 2024 was 27.6% and 65.9%, respectively.

Gross profit for consulting and technical support services decreased by approximately $0.7 million, or 50.8%, from approximately $1.4 million for the six months ended June 30, 2024 to approximately $0.7 million for the six months ended June 30, 2025. Gross profit margin for the six months ended June 30, 2025 and 2024 was 61.9% and 57.2%, respectively.

Gross profit for subscription services increased by approximately $0.1 million, or 38.4%, from approximately $0.2 million for the six months ended June 30, 2024 to approximately $0.3 million for the six months ended June 30, 2025. Gross profit margin was 85.8% and 87.1% for the six months ended June 30, 2025 and 2024, respectively.

Gross profit for trading revenue was nil and approximately $0.004 million for the six months ended June 30, 2025 and 2024, respectively; gross profit margin was nil and 0.3% for the six months ended June 30, 2025 and 2024, respectively.

Gross loss for others revenue was nil and approximately $0.08 million for the six months ended June 30, 2025 and 2024, respectively. Gross profit margin was nil and 60.5% for the six months ended June 30, 2025 and 2024, respectively.

*Operating Expenses*

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the Six Months Ended** | **For the Six Months Ended** | | |
|  | **June 30,** | **June 30,** | | |
|  | **2025** | **2024** |<br>**Change** |<br>**% Change** |
| OPERATING EXPENSES: |  |  |  |  |
| Selling and marketing | $381935 | $548885 | $(166950) | (30.4)% |
| General and administrative | 2447531 | 3773296 | (1325765) | (35.1)% |
| (Recovery of) provision for credit losses | (1427183) | 3773492 | (5200675) | (137.8)% |
| Research and development | 1600711 | 2156721 | (556010) | (25.8)% |
| Share-based compensation | 4040000 | 3654999 | 385001 | 10.5% |
| Impairment charges | 12012569 | - | 12012569 | -% |
| **Total operating expenses** | $**19055563** | $**13907393** | $**5148170** | **37.0%** |

---

Our operating expenses consist of selling and marketing, general and administrative, (recovery of) provision for credit losses, research and development ("R&D") expenses, share-based compensation and impairment charges. Operating expenses increased by approximately $5.1 million, or 37.0%, from approximately $13.9 million for the six months ended June 30, 2024, to approximately $19.1 million for the six months ended June 30, 2025. The increase in our operating expenses was primarily due to approximately $12.0 million increase in impairment charges, offset by approximately $5.2 million decrease in provision for credit losses and approximately $1.3 million decrease in general and administrative expenses.

Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, entertainment, travel and transportation, and other expenses relating to our sales and marketing activities. Selling and marketing expenses decreased by approximately $0.2 million or 30.4% from approximately $0.5 million for the six months ended June 30, 2024 to approximately $0.4 million for the six months ended June 30, 2025. The decrease was primarily attributable to decreased salary due to personnel optimization for the six months ended June 30, 2025.

General and administrative expenses primarily consisted of salary and compensation expenses relating to our accounting, human resources and executive office personnel, and included rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and transportation costs. General and administrative expenses decreased by approximately $1.3 million or 35.1% from approximately $3.8 million for the six months ended June 30, 2024 to approximately $2.4 million for the six months ended June 30, 2025, due to decreased depreciation and amortization fee and salaries. As a percentage of revenues, general and administrative expenses were 82.0% and 75.6% of our total revenue for the six months ended June 30, 2025 and 2024, respectively.

Recovery of credit losses was approximately $1.4 million for the six months ended June 30, 2025, as compared to provision for credit losses of approximately $3.8 million for the six months ended June 30, 2024, the changes was due to strengthened collection for the six months ended June 30, 2025.

R&D expenses primarily consisted of compensation and benefit expenses relating to our R&D personnel, as well as office overhead and other expenses relating to our R&D activities. Our R&D expenses decreased by approximately $0.6 million, or 25.8%, from approximately $2.2 million for the six months ended June 30, 2024 to approximately $1.6 million for the six months ended June 30, 2025, representing 53.6% and 43.2% of our total revenues for the six months ended June 30, 2025 and 2024, respectively. We expect to continue investing in R&D and anticipate that our ability to effectively utilize our R&D capabilities will significantly affect our future operating results .

Share-based compensation increased by approximately $0.4 million, or 10.5%, from approximately $3.7 million for the six months ended June 30, 2024 to approximately $4.0 million for the six months ended June 30, 2025.

Impairment charges were approximately $12.0 million, nil for the six months ended June 30, 2025 and 2024, respectively.

***Other Expense***

*<u>Change in fair value of convertible notes</u>*

The Company elected the fair value option to account for its convertible notes. For the six months ended June 30, 2025 and 2024, we recognized an unrealized gain of nil and approximately $1.0 million, respectively.

*<u>Other expense, net</u>*

Other expense was primarily related to interest expenses, interest income, government subsidy income and other items. Our other expense decreased by approximately $0.3 million, or 45.8%, from approximately $0.6 million for the six months ended June 30, 2024 to approximately $0.3 million for the six months ended June 30, 2025, due to less loss on disposal of assets.

 

*Income Tax Benefit*

 

Income tax benefit increased by approximately $1.6 million, or 1,066.3%, from approximately $0.1 million for the six months ended June 30, 2024, to approximately $1.7 million for the six months ended June 30, 2025, due to impairment of intangible assets acquired through acquisition.

*Net Loss*

As a result of the foregoing, our net loss increased by $5.1 million, or 45.8%, from $11.2 million for the six months ended June 30, 2024, to $16.3 million for the six months ended June 30, 2025. The increased net loss was the result of increased operating expense, offset by decreased gross profit as discussed above.

**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, and convertible notes. The Company believes that the non-GAAP financial measures provide useful information about the Company's results of operations, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools, and when assessing 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 Six Months Ended** | **For the Six Months Ended** |
|  | **June 30,** | **June 30,** |
|  | **2025** | **2024** |
| Net loss: | $(16316322) | $(11192551) |
| Add: |  |  |
| Share-based compensation expenses | 4040000 | 3654999 |
| Change in fair value of convertible notes | - | (1048271) |
| Adjusted net loss | $(12276322) | $(8585823) |

---

**Impact of Foreign Currency Fluctuations**

Foreign currency translation gain (loss) was approximately $0.3 million and ($1.1 million) for the six months ended June 30, 2025 and 2024, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying change in our business or results of operation. The exchange rates in effect are shown below:

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| | | | |
|:---|:---|:---|:---|
| **U.S. Dollar Exchange Rate** | **June 30,<br> 2025** | **December 31,<br> 2024** | **June 30,<br> 2024** |
| At the end of the period - USD: RMB | $1=RMB7.1636 | $1=RMB7.2993 | $1=RMB7.2672 |
| Average rate for the period - USD: RMB | $1=RMB7.2526 | $1=RMB7.1957 | $1=RMB7.2150 |

---

**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 June 30, 2025, cash and cash equivalent of approximately $2.6 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 meets the requirements for statutory reserve funds. In addition, we would need to accrue and pay withholding taxes if we were to distribute funds from our subsidiary in China to us. We do not intend to repatriate such funds in the foreseeable future, as we plan to use existing cash balance in PRC for general corporate purposes.

For the six months ended June 30, 2025, the Company incurred a net loss of approximately $16.3 million and had negative operation cash flow of approximately $1.9 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 June 30, 2025, the Company had cash of approximately $2.6 million.

On August 13, 2025, we entered into a promissory note agreement with a creditor, pursuant to which we issued the creditor an unsecured promissory note with original principal amount of $1,095,000 for $1,000,000 in gross proceeds. The promissory note bears interest at a rate of 8% per annum compounding daily and have a term of twelve months. The promissory note includes an original issue discount of $80,000 along with $15,000 for creditor costs and other transaction expenses incurred in connection with the purchase and sale of the promissory note. The Group may prepay all or a portion of the promissory note at any time by paying 120% of the outstanding balance elected for pre-payment. As of this report date, we have collected approximately $1.0 million.

On May 19, 2025, we entered into purchase agreements with thirteen investors. Pursuant to the Purchase Agreement, we agreed to sell 22,325,600 (post-reverse stock split adjusted to 3,720,933) Class A ordinary shares, at a purchase price of $0.43 (post-reverse stock split adjusted to $2.58) per share. The Company has received proceeds of $5.0 million as of June 30, 2025. Outstanding subscription receivable amounted to $4.6 million as of June 30, 2025.

On July 11, 2025, we entered into a definitive securities purchase agreement with certain individuals, we agreed to sell 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares with consideration of $25.8 million. We issued 60,000,000 (post-reverse stock split adjusted to 10,000,000) Class A ordinary shares on July 17, 2025.

We believe that its cash on hand and financing cash flows will be sufficient to fund its operations over at least the next 12 months from the date of this report. However, 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 our 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 six months ended June 30, 2025, and 2024.

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| | | |
|:---|:---|:---|
|  | **For the Six Months Ended** | **For the Six Months Ended** |
|  | **June 30,** | **June 30,** |
|  | **2025** | **2024** |
| Net cash used in operating activities | $(1870527) | $(1095791) |
| Net cash used in investing activities | (54171) | (1295319) |
| Net cash provided by financing activities | 253729 | 930802 |
| Effect of exchange rate change on cash, cash equivalent and restricted cash | 55620 | (102431) |
| Net decrease in cash, cash equivalent and restricted cash | $(1615349) | $(1562739) |

---

***Operating Activities***

Net cash used in operating activities was approximately $1.9 million for the six months ended June 30, 2025. Cash used in operating activities for the six months ended June 30, 2025, mainly consisted of approximately $16.3 million of net loss, adjustment of approximately $14.6 million non-cash items, a decrease of approximately $1.9 million in accounts payable, a decrease of approximately $0.3 million in accrued expenses and other current liabilities, offset by an increase of approximately $2.4 million in accounts receivable.

Net cash used in operating activities was approximately $1.1 million for the six months ended June 30, 2024. Cash used in operating activities for the six months ended June 30, 2024 mainly consisted of approximately $11.2 million of net loss, adjustment of approximately $10.0 million non-cash items, an increase of approximately $0.4 million in accounts receivable and a decrease of approximately $0.5 million in deferred revenue, offset by an increase of approximately $1.1 million in accrued expenses and other current liabilities.

***Investing Activities***

Net cash used in investing activities was approximately $0.05 million for the six months ended June 30, 2025. Cash used in investing activities for the six months ended June 30, 2025 consisted of approximately $0.3 million spending on purchases of intangible assets and property and equipment, offset by approximately $0.3 million repayment from related parties.

Net cash used in investing activities was approximately $1.3 million for the six months ended June 30, 2024. Cash used in investing activities for the six months ended June 30, 2024 consisted of approximately $1.0 million spending on purchases of intangible assets and property and equipment, loans to related party of approximately $0.2 million.

***Financing Activities***

Net cash provided by financing activities was approximately $0.3 million for the six months ended June 30, 2025. Net cash provided by financing activities for the six months ended June 30, 2025 was mainly consisted of proceeds of approximately $8.6 million from the private placement and proceeds of approximately $1.1 million from bank loan, offset by approximately $7.2 million repayment of loan from third parties and convertible notes, approximately $1.8 million repayment to bank loans and approximately $0.5 million paid for deferred financing cost.

Net cash provided by financing activities was approximately $0.9 million for the six months ended June 30, 2024. Net cash provided by financing activities for the six months ended June 30, 2024 mainly consisted of approximately $2.1 million from bank loan, net proceeds of approximately $1.4 million from convertible notes and proceeds of approximately $0.6 million from private placements and approximately$3.2 million repayment to bank loans.

**Capital Expenditures**

The Company made capital expenditures of $0.3 million and $1.0 million for the six months ended June 30, 2025 and 2024, 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**

See "Item 4. Information on the Company—B. Business Overview—Research and Development." and "Item 4. Information on the Company—B. Business Overview—Intellectual Property." of our annual report on Form 20-F for the year ended December 31, 2024 filed with the SEC on April 25, 2025.

**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, 2024 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition.

**E. Critical Accounting Estimates**

We prepare our unaudited condensed 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 was 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.

<u>Use of estimates</u>

The preparation of unaudited condensed 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our unaudited condensed consolidated financial statements include but not limited to the useful lives of property and equipment and intangible assets, impairment of long-lived assets, impairment of goodwill, valuation of accounts receivables, revenue recognition and realization of deferred tax assets and uncertain tax positions. Actual results could differ from these estimates.

<u>Accounts receivable, net</u>

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 is considered impaired and written-off when it is probable that all contractual payments due will not be collected after all collection efforts have been exhausted.

<u>Intangible assets, net</u>

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.

<u>Impairment for long-lived assets other than goodwill</u>

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 six months ended June 30, 2025, due to slow development of Hongchuangxin, 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 Hongchuangxin was less than carrying value. Therefore, the Company impaired the intangible assets acquired from the acquisition of Hongchuangxin of $7.2 million for the six months ended June 30, 2025. For the six months ended June 30, 2024, there was no impairment was recognized for the long-lived assets.

<u>Goodwill</u>

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 six months ended June 30, 2025, we performed a qualitative assessment for the reporting unit. Based on the requirements of ASC 350-20, we evaluated all relevant qualitative and quantitative factors, weighed all factors in their entirety and concluded that it was not more-likely-than-not that the fair value of the reporting unit was less than its carrying amount. For the six months ended June 30, 2025, due to slow development of Hongchuangxin, 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 Hongchuangxin was less than carrying value. Therefore, the Company impaired the intangible assets acquired from the acquisition of Hongchuangxin of approximately $7.2 million for the six months ended June 30, 2025. For the six months ended June 30, 2024, there was no impairment was recognized for the long-lived assets.

<u>Revenue recognition</u>

The Company adopted ASC Topic 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to our customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services and is recorded net of value-added tax ("VAT"). To achieve that core principle, the Group applies the following steps:

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

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

The Company derives its revenues from five sources: (1) application development services, (2) consulting and technical support services, (3) subscription services, (4) trading and (5) others. All of our contracts with customer do not contain cancelable and refund-type provisions.

(1) Revenue from application development service

Our application development service contracts are primarily on a fixed-price basis, which require 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.

Our application development service revenues are generated primarily from contracts with PRC government or related agencies and state-owned enterprises. The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a significant portion (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the Company has enforceable right on payments for the work performed.

We sometimes provide a warranty for its application development service contracts. The warranty period is typically 12-36 months upon the completion of the application development service. In accordance with ASC 606-10-25-19, 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.

We assess that application development service, PCS or specific service and service-type warranty service, if applicable, are distinct performance obligations in the application development service contracts. 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 our performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. We use an input method based on cost incurred as the Company believes that this method most accurately reflects our progress toward satisfaction of the performance obligation, which usually takes less than one year. Under this method, the transaction price allocated to application development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance, such as indirect labor, supplies, and tools. Cost-based input method requires 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. Our estimates are based upon the professional knowledge and experience of our engineers and project managers to assess the contract's schedule, performance, technical matters. We have adequate cost history and estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater than the related revenues, 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. We have 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. We assess 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 our software-as-a-service applications for a subscribed period. Our monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription arrangements are considered service contracts because customers do not have the right to take possession of the software and can only benefit from the software when provided the right to access the software. Accordingly, the subscription services contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line basis or based on the actual usage as customers receive and consume benefits of such services.

(4) Trading revenue

We started trading business for the year ended December 31, 2021 and recognized revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. Product sale contracts typically include a single performance obligation and there are no rights of return. The transaction price is based on the fixed contractual price with the customer. Billings to the customer for the sale of products occur at the time the products are transferred to the customer.

(5) Others revenue

In April 2023, 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. Our services under regional cooperation agreements include marketing support to advertise as well as utilization of our trademark and copyrights for business promotion purpose. The term of cooperation agreements is typically one to two years. We charge a fixed amount authorization fee which is non-refundable and to be paid upon execution of an authorization agreement. For all our cooperation agreements, the amount of fee is fixed or determinable and no right of return provision indicated in the agreement. Since 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 nil of our revenue for the six months ended June 30, 2025.

Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. We report revenues net of value added tax ("VAT"). Our subsidiaries in PRC are subject to a 3% to 13% value added tax ("VAT") and related surcharges on the revenues earned from providing services and products.

*Practical Expedient and Exemptions*

We do not disclose the value of unsatisfied performance obligations within one year by applying the right to invoice practical expedient provided by ASC 606-10-55-18.

*<u>Contract balance</u>*

The accounts receivable includes both unbilled accounts receivable and billed accounts receivable. We record unbilled accounts receivable for revenue that has been recognized in advance of billing the customer, which is common for application development service contracts. The unbilled accounts receivable represents our right to consideration in exchange for the service that 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 June 30, 2025, and December 31, 2024 the balance of deferred revenue amounted to approximately $1.9 million and $1.9 million, respectively.

<u>Income taxes</u>

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

An uncertain tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the six months ended June 30, 2025 and 2024. All of the tax returns of our subsidiary in China remain subject to examination by the tax authorities for five years from the date of filing.

<u>Recently issued accounting pronouncements</u>

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