UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report for the transition period from ____________to ____________
Commission file number: 001-38851
POWERBRIDGE TECHNOLOGIES CO., LTD.
(Exact Name of Registrant as Specified in its Charter)
N/A
(Translation of Registrant’s Name into English)
Cayman Islands
(Jurisdiction of Incorporation or Organization)
1st Floor, Building D2, Southern Software Park
Tangjia Bay, Zhuhai, Guangdong 519080, China
Tel: +86-756-339-5666
(Address of principal executive offices)
Ban Lor, Co-Chief Executive Officer
1st Floor, Building D2, Southern Software Park
Tangjia Bay, Zhuhai, Guangdong 519080, China
Tel: +86-756-339-5666
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Ordinary shares, par value $0.00166667
Name of Each Exchange on Which Registered
NASDAQ Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report:
As of December 31, 2020, the issuer had 45,777,318 shares outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See
definition of “large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Emerging growth company
☐
☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
* If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. Yes ☐ No ☒
TABLE OF CONTENTS
INTRODUCTION
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3.
KEY INFORMATION
ITEM 4.
INFORMATION ON THE COMPANY
ITEM 4A.
UNRESOLVED STAFF COMMENTS
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8.
FINANCIAL INFORMATION
ITEM 9.
THE OFFER AND LISTING
ITEM 10.
ADDITIONAL INFORMATION
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15.
CONTROLS AND PROCEDURES
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B.
CODE OF ETHICS
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G.
CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
PART III
ITEM 17.
FINANCIAL STATEMENTS
ITEM 18.
FINANCIAL STATEMENTS
ITEM 19.
EXHIBITS
i
ii
1
1
1
1
35
64
64
85
94
97
97
98
111
111
112
112
112
112
113
113
114
114
114
115
116
116
117
117
117
117
INTRODUCTION
Unless otherwise indicated, numerical figures included in this Annual Report on Form 20-F (the “Annual Report”) have been subject to rounding
adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
For the sake of clarity, this Annual Report follows the English naming convention of first name followed by last name, regardless of whether an
individual’s name is Chinese or English. Numerical figures included in this Annual Report have been subject to rounding adjustments. Accordingly,
numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. Certain market data and other
statistical information contained in this Annual Report are based on information from independent industry organizations, publications, surveys and
forecasts. Some market data and statistical information contained in this Annual Report are also based on management’s estimates and calculations, which
are derived from our review and interpretation of the independent sources listed above, our internal research and our knowledge of the PRC information
technology industry. While we believe such information is reliable, we have not independently verified any third-party information and our internal data
has not been verified by any independent source.
● All references to “RMB,” “yuan” and “Renminbi” are to the legal currency of China, all references to “HKD” is to the legal currency of Hong
Kong, and all references to “USD,” and “U.S. dollars” are to the legal currency of the United States.
● “AIC” refers to Administration for Industry and Commerce in China.
● Depending on the context, the terms “we,” “us,” “our company,” “our”, “Powerbridge” and “Powerbridge Cayman” refer to Powerbridge
Technologies Co., Ltd., a Cayman Islands company, and its subsidiaries and affiliated companies.
● “Controlling Shareholders” refers collectively to Ban Lor and Stewart Lor.
● Depending on the context, the terms “we,” “us,” “our company,” “our”, “Powerbridge” and “Powerbridge Cayman” refer to Powerbridge
Technologies Co., Ltd., a Cayman Islands company, and its subsidiaries and affiliated companies.
● “Exchange Act” refers to the U.S. Securities Exchange Act of 1934, as amended.
● “Fiscal Year” is to the period from January 31 of each calendar year to December 31 of the following calendar year.
● “Hongding Hong Kong” refers to Hongding Technology Co., Ltd., a Hong Kong company.
● “Hongding Shenzhen” refers to Shenzhen Hongding Interconnect Technology Co., Ltd., a PRC company.
● “IPO” means the initial public offering by the Company of 2,012,500 Ordinary Shares consummated on April 4, 2019 (including the full
exercise of the over-allotment option by the underwriters to purchase an additional 262,500 Ordinary Shares on May 10, 2019).
● “IP” refers to intellectual property.
● “Powerbridge HK” refers to Powerbridge Technologies Co., Limited, a Hong Kong company.
● “Powerbridge Zhuhai” refers to Zhuhai Powerbridge Technology Co., Ltd., a PRC company.
● “Powerbridge Beijing” refers to Beijing Powerbridge Technology Co., Ltd., a PRC company.
● “PRC” and “China” refer to the People’s Republic of China, excluding, for the purposes of this Annual Report only, Macau, Taiwan and Hong
Kong.
● “Registration Statement” refers to the Company’s Registration Statement on Form F-1 (File No. 333-229128) for the sale of up to 1,750,000
Ordinary Shares initially filed on January 4, 2019, and subsequently amended thereafter, which became effective on March 28, 2019.
ii
● “R&D” refers to research and development.
● “Securities Exchange Commission,” “SEC,” “Commission” or similar terms refer to the Securities Exchange Commission
● “Sarbanes-Oxley Act” refers to the Sarbanes-Oxley Act of 2002.
● “Securities Act” refers to the Securities Act of 1933.
● “Shares” or “Ordinary Share” refers to our Ordinary Shares, par value $0.00166667 per share.
● “United States,” “U.S.” and “US” refer to the United States of America.
Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2020 and 2019.
Unless otherwise noted, all currency figures in this filing are in U.S. dollars. Any discrepancies in any table between the amounts identified as
total amounts and the sum of the amounts listed therein are due to rounding. Our reporting currency is U.S. dollar and our functional currency is Renminbi.
This Annual Report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Other than in accordance
with relevant accounting rules and as otherwise stated, all translations of Renminbi into U.S. dollars in this Annual Report were made at the rate of
RMB6.5250 to USD1.00, the noon buying rate on December 31, 2020, as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. Where
we make period-on-period comparisons of operational metrics, such calculations are based on the Renminbi amount and not the translated U.S. dollar
equivalent. We make no representation that the Renminbi or U.S. dollar amounts referred to in this Annual Report could have been or could be converted
into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.
iii
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Part I
Not Applicable.
Item 3. KEY INFORMATION
A. Selected Financial Data
The following table sets forth selected historical statements of operations for the years ended December 31, 2020, 2019 and 2018, and balance
sheet data as of December 31, 2020 and 2019, which have been derived from our audited consolidated financial statements included elsewhere in this
annual report. The consolidated financial statements are prepared and presented in accordance with GAAP. Historical results are not necessarily indicative
of the results for any future periods.
The following table presents our summary consolidated statements of income and comprehensive income for the fiscal years ended
December 31, 2020, 2019 and 2018, respectively.
* The shares and per share data are presented on a retroactive basis to reflect the nominal share issuance.
Selected Consolidated Statement of Income and Comprehensive Income
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Provision for doubtful accounts
Research and development
Share based compensation
Total operating expenses
Operating (loss) income from operations
Other (Expenses) income
(Loss) income before income taxes
Provision (benefits) for income taxes
Net (loss) income
Less: (loss) income attributable to non-controlling interests
Net (loss) income attributable to Powerbridge’s shareholders
Comprehensive (loss) income
For the Years Ended
December 31,
2019
2020
26,664,011
17,271,316
9,392,695
US$
20,095,058
14,030,347
6,064,711
2,675,028
5,559,426
191,148
2,780,944
1,473,976
12,680,522
(3,287,827)
(15,152,307)
(18,440,134)
(80,532)
(18,359,602)
(105,945)
(18,253,657)
(17,549,930)
3,562,425
5,945,576
3,293,600
2,163,658
2,351,890
17,317,149
(11,252,438)
252,109
(11,000,329)
(213,347)
(10,786,982)
(145)
(10,786,837)
(10,888,839)
2018
23,152,267
15,318,661
7,833,606
2,144,588
2,316,058
368,125
1,992,228
-
6,820,999
1,012,607
584,209
1,596,816
43,190
1,553,626
7,336
1,546,290
1,214,388
Basic (loss) earnings per common share*
$
(1.13) $
(1.29) $
0.22
*
The shares and per share data are presented on a retroactive basis to reflect the nominal share issuance.
1
The following table presents our summary consolidated balance sheet data as of December 31, 2020 and 2019.
Total Current Assets
Total Assets
Total Liabilities
Total Powerbridge’s Shareholders’ Equity
Non-controlling Interests
Total Equity
Total Liabilities and Shareholders’ Equity
Exchange Rate Information
As of
December 31,
2020
$
34,763,945 $
$ 106,183,267 $
33,489,750 $
$
72,805,544 $
$
(112,027) $
$
$
72,693,517 $
$ 106,183,267 $
2019
22,867,697
30,500,845
24,589,798
5,911,062
(15)
5,911,047
30,500,845
The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On June 30,
2021, the buying rate announced by the Federal Reserve Statistical Release was RMB 6.4566 to $1.00.
Period
Ended
Spot Exchange Rate
Average
Low
(RMB per US$1.00)
High
6.5063
6.8755
6.9618
6.5250
6.4282
6.4730
6.5518
6.4749
6.3674
6.4566
6.7569
6.6090
6.9081
6.9042
6.4672
6.4601
6.5109
6.5186
6.4321
6.4250
6.4773
6.2649
6.6912
6.5208
6.4282
6.4344
6.4648
6.4710
6.3674
6.3796
6.9575
6.9737
7.1543
7.1681
6.4822
6.4869
6.5716
6.5649
6.4749
6.4811
Period
2017
2018
2019
2020
January
February
March
April
May
June
Source: https://www.federalreserve.gov/releases/h10/hist/default.htm.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the following risk factors, together with all of the other information included in this Annual Report. Investment in
our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in
this Annual Report before making an investment decision. The risks and uncertainties described below represent our known material risks to our business.
If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, you may lose all or part of
your investment.
2
The Company’s business operations could be adversely affected by the continued outbreak of COVID-19.
Risks Related to Our Business and Industry
The Company’s business operations could continue to be adversely affected by the recent outbreak of respiratory illness caused by a novel
coronavirus known as COVID-19 which was first reported in the City of Wuhan, Hubei, China. The Company’s corporate headquarter is located in Zhuhai,
China with operation offices located in Wuhan, Changsha, Nanning and Hangzhou, where any outbreak of contagious diseases and other adverse public
health developments could be materially adverse on the Company’s business operations. In response to the highly contagious and sometimes
fatal coronavirus inflicting thousands of people in China, the local government imposed travel restrictions and quarantines order to help control the spread
of COVID-19 in February 2020. Since May 2020, the situation in China has appeared to be on a path of slow recovery from the impact. While many of the
restrictions on movement within China have been relaxed as of the date of this annual report, there is great uncertainty as to the future progress of the
disease
The Company primarily engages in providing software application and technology solutions and services to corporate and government customers
primarily located in China. Our customers are corporate and government organizations engaged in global trade, including import and export companies,
manufacturers and logistics providers engaged in international trade, as well as customs, ports, terminals, and other government agencies that oversee the
flow of goods and services across borders. The global outbreak of COVID-19 has significantly adversely impacted our business operations. In late January
2020, the Zhuhai government released a stop order on all activities that involved public gatherings and movement restrictions. As a result, we were forced
to postpone most of our in-person business meetings. Although we were able to communicate with customers from home to provide software and cloud
services, we failed to stick to the original timelines of certain on-premise projects due to strict movement restrictions. We also experienced a slowdown in
our regular business activities, as a result of remote working requirements and travel restrictions. Given that the outbreak has been gradually controlled in
China, all of the Company’s offices have started to resume their business. Our business was and has continued being adversely impacted by the outbreak of
COVID-19. Any potential impact to the Company’s results will depend on, to a large extent, future developments and new information that may emerge
regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat
its impact, almost all of which are beyond the Company’s control.
Economic uncertainties or downturns could materially adversely affect our business.
Current or future economic uncertainties or downturns, including those caused by the ongoing COVID-19 outbreak (as discussed above), could
adversely affect our business and operating results. Negative conditions in the general economy both in the China and abroad, including conditions
resulting from changes in gross domestic product growth, the continued sovereign debt crisis, financial and credit market fluctuations, political deadlock,
natural catastrophes, pandemics, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in
business investments, including corporate spending on business intelligence software in general and negatively affect the rate of growth of our business.
General worldwide economic conditions may experience significant downturns and may be unstable. These conditions make it extremely difficult
for our customers and us to forecast and plan future business activities accurately, and they could cause customers to reevaluate their decisions to subscribe
to our platform, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic
times customers may tighten their budgets and face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability
to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial
results.
3
For example, the rapid spread of coronavirus globally in 2020 and 2021 has resulted in travel restrictions and in some cases, prohibitions of non-
essential travel, disruption and shutdown of businesses and greater uncertainty in global financial markets. Health concerns or political or governmental
developments in countries in which we or our customers, partners and service providers operate could result in economic, social or labor instability, slow
our sales process, result in customers not purchasing or renewing our products or failing to make payments, and could otherwise have a material adverse
effect on our business and our results of operations and financial condition. The extent to which the coronavirus impacts our results will depend on future
developments, which are highly uncertain and will include emerging information concerning the severity of the coronavirus and the actions taken by
governments and private businesses to attempt to contain the coronavirus. Any prolonged contractions in the industries in which our customers or partners
operate could materially and adversely impact our business, results of operations and financial condition.
To the extent subscriptions to our system solutions are perceived by customers and potential customers to be discretionary, our revenue may be
disproportionately affected by delays or reductions in general information technology spending. Moreover, competitors may respond to market conditions
by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced
overall spending on our system solutions.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.
If the economic conditions of the general economy or industries in which we operate do not improve, or worsen from present levels, our business, operating
results, financial condition and cash flows could be adversely affected.
The growth and success of our business depends on our ability to develop new services and enhance existing services in order to keep pace with rapid
changes in technology.
The market for our services is characterized by rapid technological change, evolving industry standards, changing customer preferences and new
product and service introductions. Our future growth and success depend significantly on our ability to anticipate developments in technologies, and
develop and offer new services to meet our customers’ evolving needs. We may not be successful in anticipating or responding to these developments in a
timely manner, or if we do respond, the services or technologies we develop may not be successful in the marketplace. The development of some of the
services and technologies may involve significant upfront investments and the failure of these services and technologies may result in our being unable to
recover these investments, in part or in full. Further, services or technologies that are developed by our competitors may render our services uncompetitive
or obsolete. In addition, new technologies may be developed that allow our customers to more cost-effectively perform the services that we provide,
thereby reducing demand for our services. Should we fail to adapt to the rapidly changing technologies or if we fail to develop suitable services to meet the
evolving and increasingly sophisticated requirements of our customers in a timely manner, our business and results of operations could be materially and
adversely affected.
Furthermore, our future growth and success could be adversely affected by conditions of potential business partners, which may cause delay or
failure in development of the services or technologies.
If we do not succeed in attracting new customers for our services and or growing revenues from existing customers, we may not achieve our revenue
growth goals.
We plan to significantly expand the number of customers we serve to diversify our customer base and grow our revenues. Obtaining new
customers is important for us to achieve rapid revenue growth. We also plan to grow revenues from our existing customers by identifying and selling
additional services to them. Our ability to attract new customers, as well as our ability to grow revenues from existing customers, depends on a number of
factors, including our ability to offer high quality services at competitive prices, the strength of our competitors and the capabilities of our sales and
marketing teams. If we are not able to continue to attract new customers or to grow revenues from our existing customers, we may not be able to grow our
revenues as quickly as we anticipate or at all.
4
We may be unable to effectively manage our expansion for the anticipated growth, which could place significant strain on our management personnel,
systems and resources. We may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.
We have optimized our operations in 2020 fiscal year for the anticipated growth. The number of our total employees decreased from 287 in
December 2019 to 236 in December 2020. As of the date of this Annual Report, we have 236 full-time employees. We have five branches, of which are
located in China (Changsha, Wuhan, Nanning, Hangzhou, Jiujiang, and Xiamen) and maintain offices in Changsha, Wuhan, Naning, and Hangzhou to
serve different customers in various geographic locations. In order to pursue existing and potential market opportunities, we plan to expand our business
including (i) establishing new offices and expanding our current offices in China; (ii) exploring and expanding into international markets; and (iii)
upgrading our existing services and introducing new services. We are facing the following challenges with respect to our planned expansion:
● recruiting, training, developing and retaining sufficient industry and technology talents and management personnel;
● creating and capitalizing upon economies of scale;
● managing a larger number of customers in a greater number of locations;
● maintaining effective oversight of personnel and offices;
● coordinating work among offices and project teams and maintaining high resource utilization rates;
● integrating new personnel and expanded operations while preserving our culture and core values;
● developing and improving our internal administrative infrastructure, particularly our financial, operational, human resources, communications
and other internal systems, procedures and controls; and
● adhering to and further improving our service quality and process execution standards and maintaining high levels of customer satisfaction.
Moreover, as we introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges
with which we are unfamiliar, and it may require substantial management efforts and skills to mitigate these risks and challenges. As a result of any of these
problems associated with expansion, our business, results of operations and financial condition could be materially and adversely affected. Furthermore, we
may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.
We face risks associated with having an extended selling and implementation cycle for our services that require us to make significant resource
commitments prior to realizing revenues for those services.
We have an extended selling cycle for certain of our software applications and technology services, which requires significant investment of
capital, human resources and time by both our customers and us. Before committing to use our services, potential customers require us to expend
substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject
to many risks and delays over which we have little or no control, including our customers’ decision to choose alternatives to our services (such as other
providers or in-house resources) and the timing of our customers’ budget cycles and approval processes. Implementing our services, particularly for our
application development services also involves a significant commitment of resources over an extended period of time ranging from three months to three
years from both our customers and us. The ongoing COVID-19 pandemic has resulted in a reduction in economic activity by adversely affecting the
Company’s selling cycle. As a result, we may have a longer selling cycle and delay in business meetings, which could materially and adversely affect our
business and our financials. Our customers may experience delays in obtaining internal approvals or delays associated with our services, thereby further
delaying the implementation process. Our current and future customers may not be willing or able to invest the time and resources necessary to implement
our services, and we may fail to close sales with potential customers to which we have devoted significant time and resources, which could have a material
adverse effect on our business, results of operations, financial condition and cash flows.
5
Adverse changes in the economic environment, either in China or globally, could reduce our customers’ purchases from us and increase pricing
pressure, which could materially and adversely affect our revenues and results of operations.
The software application and technology service industry are particularly sensitive to the economic environment, both in China and globally, and
tend to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject to a significant
degree to the economic environment, especially for regions in which we and our customers operate. During an economic downturn, our customers may
cancel, reduce or defer their technology spending or change their technology strategy, and reduce their purchases from us. The recent global economic
slowdown, any future economic slowdown, and the resulting diminution in technology spending, could also lead to increased pricing pressure from our
customers. The trade war between the U.S. and China which may lead to higher percentage of tariff to be placed on Chinese and American goods and
services could also lead to a reduction of import and export volume for some of our customers resulting in reduced purchases of our services from these
customers. The occurrence of any of these events could materially and adversely affect our revenues and results of operations.
We generate a significant portion of our revenues from a relatively small number of major customers and loss of business from these customers could
reduce our revenues and significantly harm our business.
We believe that in the foreseeable future we will continue to derive a significant portion of our revenues from a small number of major customers.
For the year ended December 31, 2020, one customer accounted for 25.7% of the Company’s total revenues. For the year ended December 31, 2019, two
customers accounted for 21.8% and 10.7% of the Company’s total revenues.
Our ability to maintain close relationships with major customers is essential to the growth and profitability of our business. However, the volume
of work performed for a specific customer is likely to vary from year to year, especially since we are generally not our customers’ exclusive technology
services provider and we do not have long-term commitments from any of our customer to purchase our services. A major customer in one year may not
provide the same level of revenues for us in any subsequent year. The services we provide to our customers, and the revenues and income from those
services, may decline or vary as the type and quantity of services we provide changes over time. In addition, our reliance on any individual customer for a
significant portion of our revenues may give that customer a certain degree of pricing leverage against us when negotiating contracts and terms of service.
In addition, a number of factors other than our performance could cause the loss of or reduction in business or revenues from a customers, and these factors
are not predictable. These factors may include organization restructuring, pricing pressure, changes to its technology strategy, switching to another services
provider or returning work in-house. The loss of any of our major customers could adversely affect our financial condition and results of operations.
We may be forced to reduce the prices of our services due to increased competition and reduced bargaining power with our customers, which could lead
to reduced revenues and profitability.
The software application and technology service industry in China is developing rapidly and related technology trends are constantly evolving.
This results in the frequent introduction of new services and significant price competition from our competitors. We may be unable to offset the effect of
declining average sales prices through increased sales volumes and or reductions in our costs. Furthermore, we may be forced to reduce the prices of our
services in response to offerings made by our competitors. Finally, we may not have the same level of bargaining power we have enjoyed in the past when
it comes to negotiating for the prices of our services, all of which could lead to reduced revenues and profitability.
6
A portion of our income is generated, and will in the future continue to be generated, on a project basis with a fixed price; we may not be able to
accurately estimate costs and determine resource requirements in relation to our projects, which would reduce our margins and profitability.
A portion of our income is generated, and will continue to be generated, from fees we receive for our projects at a fixed price. Our projects often
involve complex technologies, utilizing workforces with different skill sets and competencies, and must be completed within compressed timeframes and
meet customer requirements that are subject to changes and increasingly stringent. In addition, some of our fixed-price projects are multi-year projects that
require us to undertake significant projections and planning related to resource utilization and costs. If we fail to accurately assess the time and resources
required for completing projects and to price our projects profitably, our business, results of operations and financial condition could be adversely affected.
Our revenues and results of operations are affected by seasonal trends.
Our business is affected by seasonal trends. In particular, our revenues are typically progressively higher in the second, third and fourth quarters of
each year compared to the first quarter of each year due to seasonal trends, such as: (i) a general slowdown in business activities and a reduced number of
working days during the first quarter of each year as a result of the Chinese New Year holiday period, and (ii) our customers in general tend to spend their
technology and software budgets in the second half of the year and in particular the fourth quarter. Other factors that may cause our quarterly operating
results to fluctuate include, among others, changes in general economic conditions in China and the impact of unforeseen events. We believe that our
revenues will continue to be affected in the future by seasonal trends. As a result, you may not be able to rely on period to period comparisons of our
operating results as an indication of our future performance, and we believe it is more meaningful to evaluate our business on an annual basis.
If we are unable to collect our receivables from our existing customers, our results of operations and cash flows could be adversely affected.
Our business depends on our ability to successfully obtain payment from our customers of the amounts they owe us for our services. As of
December 31, 2020 and 2019, our accounts receivable balance, net of allowance, amounted to approximately $14.3 million and $11.2 million, respectively.
As of December 31, 2020, no customers accounted for more than 10% of our accounts receivable . As of December 31, 2019, one customers accounted
12.8% of our accounts receivable . The significant outstanding accounts receivable balance was mainly related to certain projects for our government
customers such as government agencies, authorities and state-owned enterprises. Due to multiple levels of the government approval process for payments,
it could take extra time for us to collect the full proceeds from our government customers. The COVID-19 pandemic created significant economic
uncertainty and volatility in the credit and capital markets since December 2019. Many of customers have delayed their payments to the Company, which
caused the significant increase in the Company’s aged accounts receivable balance over one year and slow collection progress in 2020. In addition, since
we generally do not require collateral or other security from our customers, we establish an allowance for doubtful accounts based upon estimates,
historical experience and other factors surrounding the credit risk of specific customers. However, actual losses on customer receivables balance could
differ from those that we anticipate and as a result we might need to adjust our allowance. There is no guarantee that we will accurately assess the
creditworthiness of our customers. Macroeconomic conditions, including related turmoil in the global financial system, could also result in financial
difficulties for our customers, including limited access to the credit markets, insolvency or bankruptcy, and as a result could cause customers to delay
payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to
us. As a result, an extended delay or default in payment relating to a significant account will have a material and adverse effect on the aging schedule and
turnover days of our accounts receivable. If we are unable to collect our receivables from our customers in accordance with the contracts with our
customers, our results of operations and cash flows could be adversely affected.
7
We face a number of risks in our strategy to target larger organizations for sales of our services, and if we do not manage these efforts effectively, our
business and results of operations could be adversely affected.
A portion of our sales and marketing efforts is focusing on larger corporate and government organizations. As a result, we face a number of risks
with respect to this strategy. For example, we expect to incur higher costs and longer sales cycles for larger organizations, and we may be less effective at
predicting when we will complete these sales. In our industry, the decision to invest in our services may require a great number of product evaluations and
multiple approvals within a potential customer’s organization, which may require us to invest more time educating these potential customers. In addition,
larger organizations may demand more features and professional services. As a result, these sales opportunities would likely lengthen our typical sales
cycle and may require us to devote greater research and development, sales, support, and professional services resources to individual customers. This
could strain our resources and result in increased costs. Moreover, larger customers may demand discounts in pricing, which could lower the amount of
revenue we generate from any particular service we offer. If an expected transaction is delayed until a subsequent period, or if we are unable to close one or
more expected significant transactions with larger customers or potential new customers in a particular period, our results of operations for that period, and
for any future periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected. Our investments in
marketing and selling to large organizations may not be successful, which could harm our results of operations and our overall ability to grow our customer
base.
Our business depends, in part, on services to the public sector, and significant changes in the contracting or fiscal policies of the public sector could
have an adverse effect on our business.
We derive a large portion of our revenue from our services to government organizations, and we believe that the success and growth of our
business will continue to depend in part on our successful procurement of government contracts. Factors that could impede our ability to maintain or
increase the amount of revenue derived from government contracts, include:
● changes in fiscal or contracting policies;
● decreases in available government funding;
● changes in government programs or applicable requirements;
● the adoption of new laws or regulations or changes to existing laws or regulations; and
● potential delays or changes in the government appropriations or other funding authorization processes.
The occurrence of any of the foregoing could cause governmental organizations to delay or refrain from purchasing our services in the future or
otherwise have an adverse effect on our business, results of operations and financial condition.
Any failure to offer high-quality customer support may adversely affect our relationships with our customers.
Our ability to retain existing customers and attract new customers depends on our ability to maintain a consistently high level of customer service
and technical support. Our customers depend on our service support team to assist them in utilizing our services effectively and to help them to resolve
issues quickly and to provide ongoing support. If we are unable to hire and train sufficient support resources or are otherwise unsuccessful in assisting our
customers effectively, it could adversely affect our ability to retain existing customers and could prevent prospective customers from adopting to our
services. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to
modify the nature, scope and delivery of our customer support to compete with changes in the support services provided by our competitors. Increased
demand for customer support, without corresponding revenue, could increase our costs and adversely affect our business, results of operations and financial
condition. Our sales are highly dependent on our business reputation and on positive recommendations from customers. Any failure to maintain high-
quality customer support, or a market perception that we do not maintain high-quality customer support, could adversely affect our reputation, business,
results of operations and financial condition.
8
Incorrect or improper implementation or use of our services could result in customer dissatisfaction and negatively affect our business, results of
operations, financial condition, and growth prospects.
Our services are deployed in a wide variety of increasingly complex technology environments, including on premises, in the cloud or in hybrid
environments. We believe our future success will depend on our ability to increase sales of our services for use in such deployments. We must often assist
our customers in achieving successful implementations of our services, which we do through our professional consulting and technical support services. If
our customers are unable to implement our services successfully, or unable to do so in a timely manner, customer perceptions of our services may be
harmed, our reputation and brand may suffer, and customers may choose to cease usage of our services or not to expand their use of our services. Our
customers may need training in the proper use of and the variety of benefits that can be derived from our services to maximize their benefits. If our services
are not effectively implemented or used correctly or as intended, or if we fail to adequately train customers on how to efficiently and effectively use our
services, our customers may not be able to achieve satisfactory outcomes. This could result in negative publicity and legal claims against us, which may
cause us to generate fewer sales to new customers and reductions in renewals or expansions of the use of our services with existing customers, any of
which would harm our business and results of operations.
Failure to adhere to regulations that govern our customers’ businesses could result in breaches of contracts with our customers. Failure to adhere to
the regulations that govern our business could result in our being unable to effectively perform our services.
Our customers’ business operations are subject to certain rules and regulations in China or elsewhere. Our customers may contractually require
that we perform our services in a manner that would enable them to comply with such rules and regulations. Failure to perform our services in such manner
could result in breaches of contract with our customers and, in some limited circumstances, civil fines and criminal penalties for us. In addition, we are
required under various Chinese laws to obtain and maintain permits and licenses to conduct our business. If we do not maintain our licenses or other
qualifications to provide our services, we may not be able to provide services to existing customers or be able to attract new customers and could lose
revenues, which could have a material adverse effect on our business and results of operations.
If our new enhancements to our services do not achieve sufficient market acceptance, our financial results and competitive position will suffer.
We spend substantial amounts of time and money to research and develop new enhancements of our services to incorporate additional features,
improve functionality or other enhancements in order to meet our customers’ rapidly evolving demands. When we develop an enhancement to our services,
we typically incur expenses and expend resources upfront to develop, market and promote the new enhancements. Therefore, when we develop and
introduce new enhancements to our services, they must achieve high levels of market acceptance in order to justify the amount of our investment in
developing and bringing them to market. If our new enhancements to our services do not garner widespread market adoption and implementation, our
growth prospects, future financial results and competitive position could suffer.
If we cause disruptions to our customers’ businesses or provide inadequate service, our customers may have claims for substantial damages against us,
and as a result our profits may be substantially reduced.
If we make errors in the course of delivering services to our customers or fail to consistently meet service requirements of a customer, these errors
or failures could disrupt the customer’s business, which could result in a reduction in our net revenues or a claim for substantial damages against us. In
addition, a failure or inability to meet a contractual requirement could seriously damage our reputation and affect our ability to attract new business.
The services we provide are often critical to our customers’ businesses. We generally provide customer support after our customized application is
delivered. Certain of our customer contracts require us to comply with security obligations including maintaining system security, ensuring our system is
virus-free, maintaining business continuity procedures, and verifying the integrity of employees that work with our customers by conducting background
checks. Any failure in a customer’s system or breach of security relating to the services we provide to the customer could damage our reputation or result in
a claim for substantial damages against us. Any significant failure of our systems could impede our ability to provide services to our customers, have a
negative impact on our reputation, cause us to lose customers, reduce our revenues and harm our business.
9
Unauthorized disclosure, destruction or modification of data, through cybersecurity breaches, computer viruses or otherwise or disruption of our
services could expose us to liability, protracted and costly litigation and damage our reputation.
Our business involves the collection, storage, processing and transmission of customers’ business data. An increasing number of organizations,
including large merchants and businesses, other large technology companies, financial institutions and government institutions, have disclosed breaches of
their information technology systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or
infrastructure. We could also be subject to breaches of security by hackers. Threats may derive from human error, fraud or malice on the part of employees
or third parties, or may result from accidental technological failure. Concerns about security are increased when we transmit information. Electronic
transmissions can be subject to attack, interception or loss. Also, computer viruses and malware can be distributed and spread rapidly over the internet and
could infiltrate our systems or those of our associated participants, which can impact the confidentiality, integrity and availability of information, and the
integrity and availability of our products, services and systems, among other effects. Denial of service or other attacks could be launched against us for a
variety of purposes, including interfering with our services or creating a diversion for other malicious activities. These types of actions and attacks could
disrupt our delivery of products and services or make them unavailable, which could damage our reputation, force us to incur significant expenses in
remediating the resulting impacts, expose us to uninsured liability, subject us to lawsuits, fines or sanctions, distract our management or increase our costs
of doing business.
Our encryption of data and other protective measures may not prevent unauthorized access or use of sensitive data. A breach of our system or that
of one of our associated participants may subject us to material losses or liability. A misuse of such data or a cybersecurity breach could harm our
reputation and deter customers from using our products and services, thus reducing our revenue. In addition, any such misuse or breach could cause us to
incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, result in the
imposition of material penalties and fines under applying laws or regulations.
We cannot assure that there are written agreements in place with every associated participant or that such written agreements will prevent the
unauthorized use, modification, destruction or disclosure of data or enable us or our customers to obtain reimbursement in the event we should suffer
incidents resulting in unauthorized use, modification, destruction or disclosure of data. Any unauthorized use, modification, destruction or disclosure of
data could result in protracted and costly litigation, which could have a material adverse effect on our business, financial condition and results of
operations.
Cybersecurity incidents are increasing in frequency and evolving in nature and include, but are not limited to, installation of malicious software,
unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or
otherwise protected information and the corruption of data. Given the unpredictability of the timing, nature and scope of information technology
disruptions, there can be no assurance that the procedures and controls we employ will be sufficient to prevent security breaches from occurring and we
could be subject to manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material
adverse effect on our business, financial condition and results of operations.
Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business, results of operations, and
financial condition.
Our continued growth depends in part on the ability of our existing customers and new customers to access our SaaS services, at any time and
within an acceptable amount of time. We may in the future experience, service disruptions, outages and other performance problems due to a variety of
factors, including infrastructure changes, human or software errors or capacity constraints. In some instances, we may not be able to identify the cause or
causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance
as our SaaS services become more complex. If our services are unavailable or if our customers are unable to access features of our services within a
reasonable amount of time or at all, our business would be negatively affected.
10
We currently provide our SaaS services via designated data centers and we intend to outsource our cloud infrastructure to commercial available
cloud infrastructure as a service providers (“IaaS”), which can host our services. Our customers need to be able to access our services at any time, without
interruption or degradation of performance. IaaS providers run their own platforms that we access, and we are, therefore, vulnerable to service
interruptions. We expect that in the future we may experience interruptions, delays and outages in service and availability from time to time due to a
variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Capacity constraints
could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks. In addition, if our security, or that of
IaaS providers, is compromised, our services are unavailable or our customers are unable to use our services within a reasonable amount of time or at all,
then our business, results of operations and financial condition could be adversely affected. In some instances, we expect that we may not be able to
identify the cause or causes of these performance problems within a period of time acceptable to our customers. It may become increasingly difficult to
maintain and improve our service performance, especially during peak usage times, as the features of our services become more complex and the usage of
our services increases. Any of the above circumstances or events may harm our reputation, cause customers to stop using our services, impair our ability to
increase revenue from existing customers, impair our ability to grow our customer base and otherwise harm our business, results of operations, and
financial condition.
The market for our BaaS (blockchain-as-a-service) services is new and unproven, which could result in limited customer adoption of our services,
limited customer retention, or weaker customer expansion.
We currently provide our BaaS services as pilot projects on a limited basis to selected customers. While we believe that, over time, the concept of
a BaaS services will become fundamental to an organization’s core operations involving global trade, the market for BaaS services is largely unproven and
is subject to a number of risks and uncertainties.
The market for BaaS services is new and less mature than traditional on-premises software applications, and the adoption rate for BaaS services
may be slower among customers with business practices requiring highly customizable application software. Our success with BaaS services will depend to
a substantial extent on the widespread adoption of BaaS services in general, but we cannot be certain that the trend of adoption of BaaS services will
continue in the future. In particular, many organizations have invested substantial personnel and financial resources in integrating traditional software into
their businesses over time, and some may be reluctant or unwilling to migrate to BaaS. It is difficult to predict customer adoption rates and demand for our
BaaS services, the future growth rate and size of the BaaS services market or the entry of competitive applications. The expansion of the BaaS services
market depends on a number of factors, including the cost, performance and perceived value associated with BaaS. If BaaS services do not continue to
achieve market acceptance, or there is a reduction in demand for BaaS services caused by a lack of customer acceptance, technological challenges,
weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and services or decreases in
information technology spending, it would result in decreased revenues and our business would be adversely affected.
It is difficult to predict our future operating results.
Our ability to accurately forecast our future operating results is limited and subject to a number of uncertainties, including planning for and
modeling future growth. We have encountered, and will continue to encounter, risks, and uncertainties frequently experienced by growing companies in
rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change due to
industry or market developments, or if we do not address these risks successfully, our operating results could differ materially from our expectations and
our business could suffer.
If we have overestimated the size of our total addressable market, our future growth rate may be limited.
We have estimated the size of our total addressable market based on data published by third parties and internally generated data and assumptions.
We have not independently verified any third-party information and cannot be assure of its accuracy or completeness. While we believe our market size
estimates are reasonable, such information is inherently imprecise. In addition, our projections, assumptions and estimates of opportunities within our
market are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including but not limited to those described in this Annual
Report. If this third-party or internally generated data prove to be inaccurate or we make errors in our assumptions based on that data, our actual market
may be more limited than our estimates. In addition, these inaccuracies or errors may cause us to misallocate capital and other critical business resources,
which could harm our business.
11
Even if our total addressable market meets our size estimates and experiences growth, we may not continue to grow our share of the market. Our
growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.
Accordingly, the estimates of our total addressable market included in this Annual Report should not be taken as indicative of our ability to grow our
business. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this Annual Report, see the
sections titled “Industry Background” and “Business—Our Opportunity.”
We face intense competition from onshore and offshore software application and technology service providers, and, if we are unable to compete
effectively, we may lose customers and our revenues may decline.
The market for software application and technology services is highly competitive and we expect competition to persist and intensify. We believe
that the principal competitive factors in our markets are domain knowledge and industry expertise, breadth and depth of service offerings, quality of the
services offered, reputation and track record, marketing and selling skills, scalability of technology infrastructure and price. In the software application and
technology services market, customers tend to engage multiple service providers instead of using an exclusive service provider, which could reduce our
revenues to the extent that customers obtain services from other competing providers. Our ability to compete also depends in part on a number of factors
beyond our control, including the ability of our competitors to recruit, train, develop and retain highly skilled professionals, the price at which our
competitors offer comparable services and our competitors’ responsiveness to customer needs. Therefore, we cannot assure you that we will be able to
retain our customers while competing against such competitors. Increased competition, our inability to compete successfully against competitors, pricing
pressures or loss of market share could harm our business, financial condition and results of operations.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and
teamwork fostered by our culture, which could harm our business.
We believe that our culture has been and will continue to be a key contributor to our success. We have optimized our operations in 2020 fiscal
year for the anticipated growth and the number of our total employees decreased from 287 in December 2019 to 236 in December 2020. We expect to
continue to adjust our workforce according to operational needs. If we do not continue to maintain our corporate culture as we grow, we may be unable to
foster the innovation, creativity, and teamwork we believe we need to support our growth. Our substantial anticipated headcount growth and our transition
from a private company to a public company may result in a change to our corporate culture, which could harm our business.
Our success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely
disrupted if we lose their services.
Our future success heavily depends upon the continued services of our senior executives and other key employees. If one or more of our senior
executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able
to replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and we may be unable to retain
our senior executives and key personnel or attract and retain new senior executive and key personnel in the future, in which case our business may be
severely disrupted, and our financial condition and results of operations may be materially and adversely affected. If any of our senior executives or key
personnel joins a competitor or forms a competing company, we may lose customers, suppliers, know-how and key professionals and staff members to
them. Also, if any of our business development managers, who generally keep a close relationship with our customers, joins a competitor or forms a
competing company, we may lose customers, and our revenues may be materially and adversely affected. Additionally, there could be unauthorized
disclosure or use of our technical knowledge, practices or procedures by such personnel. All of our executives and key personnel have entered into
employment agreements with us that contain non-competition provisions, non-solicitation and nondisclosure covenants. However, if any dispute arises
between our executive officers and key personnel and us, such non-competition, non-solicitation and nondisclosure provisions might not provide effective
protection to us, especially in China, where most of these executive officers and key employees reside, in light of the uncertainties with China’s legal
system.
12
Due to intense competition for highly skilled personnel, we may fail to attract and retain enough sufficiently trained personnel to support our
operations; as a result, our ability to generate new business may be negatively affected and our revenues could decline.
The software application and technology service industry rely on skilled personnel, and our success depends to a significant extent on our ability
to recruit, train, develop and retain qualified personnel, especially experienced middle and senior level management. There is significant competition for
skilled personnel, especially experienced middle and senior level management, with the skills necessary to perform the services we offer to our customers.
Increased competition for these personnel, in the software application and technology service industry or otherwise, could have an adverse effect on us. We
have established certain programs to increase our human capital and employee loyalty, however, a significant increase in our attrition rate could decrease
our operating efficiency and productivity and could lead to a decline in demand for our services. Additionally, failure to recruit, train, develop and retain
personnel with the qualifications necessary to fulfill the needs of our existing and future customers or to assimilate new personnel successfully could have a
material adverse effect on our business, financial condition and results of operations. Failure to retain our key personnel on customer projects or find
suitable replacements for key personnel upon their departure may lead to termination of some of our customer contracts or cancellation of some of our
projects, which could materially and adversely affect our business.
Our profitability will suffer if we are not able to maintain our resource utilization levels and continue to improve our productivity levels.
Our gross margin and profitability are significantly impacted by our utilization levels of human resources as well as our ability to increase our
productivity levels. We have expanded our operations in recent years through organic growth, which has resulted in a significant increase in our headcount
and fixed overhead costs. We may face difficulties maintaining high levels of utilization. Although we try to use all commercially reasonable efforts to
accurately estimate service and resource requirements from our customers, we may overestimate or underestimate, which may result in unexpected cost and
strain or redundancy of our human capital and adversely impact our utilization levels. In addition, some of our professionals are specially trained to work
for specific customers or on specific projects and some of our sales are dedicated to specific customers or specific projects. Our ability to continually
increase our productivity levels depends significantly on our ability to recruit, train, develop and retain high-performing professionals and project staffs
appropriately and optimize our mix of services and delivery methods. If we experience a slowdown or stoppage of service for any customer or on any
project for which we have dedicated professionals or project staffs, we may not be able to efficiently reallocate these professionals and project staffs to
other customers and projects to keep their utilization and productivity levels high. If we are not able to maintain high resource utilization levels without
corresponding cost reductions or price increases, our profitability will suffer.
If we are not able to maintain a strong brand for our services and increase market awareness of our company and our services, then our business,
results of operations and financial condition may be adversely affected.
We believe that we have a strong brand in our industry and the continuing success of our services will depend in part on our ability to develop and
sustain a strong brand identity for our services and to increase the market awareness of our services and their capabilities. The successful promotion of our
brand will depend largely on our continued marketing efforts and our ability to offer high quality services to our customers. Our brand promotion activities
may not be successful or produce increased revenue. In addition, independent industry analysts may provide reviews of our services and of competing
products and services, which may significantly influence the perception of our services in the marketplace. If these reviews are negative or not as positive
as reviews of our competitors’ products and services, then our brand may be harmed.
The promotion of our brand also requires us to make substantial expenditures, and we anticipate that these expenditures will increase as our
industry becomes more competitive and as we seek to expand into new markets. These higher expenditures may not result in any increased revenue or
incremental revenue that is sufficient to offset the higher expense levels. If we do not successfully maintain and enhance our brand, then our business may
not grow, we may see our pricing power reduced relative to competitors and we may lose customers, all of which would adversely affect our business,
results of operations and financial condition.
13
We may be unsuccessful in entering into strategic alliances or identifying and acquiring suitable acquisition candidates, which could impede our
growth and negatively affect our revenues and net income.
We have pursued strategic alliances and intend to pursue strategic acquisition opportunities to increase our scale and geographic presence, expand
our service offerings and capabilities and enhance our industry and technical expertise. However, it is possible that in the future we may not succeed in
identifying suitable alliances or acquisition candidates. Even if we identify suitable candidates, we may not be able to consummate these arrangements on
terms commercially acceptable to us or to obtain necessary regulatory approvals in the case of acquisitions. Challenges we face in the potential acquisition
and integration process include:
● integrating operations, services and personnel in a timely and efficient manner;
● unforeseen or undisclosed liabilities;
● generating sufficient revenue and net income to offset acquisition costs;
● potential loss of, or harm to, employee or customer relationships;
● properly structuring our acquisition consideration and any related post-acquisition earn-outs and successfully monitoring any earn-out
calculations and payments;
● retaining key senior management and key sales and marketing and research and development personnel;
● potential incompatibility of solutions, services and technology or corporate cultures;
● consolidating and rationalizing corporate, information technology and administrative infrastructures;
● integrating and documenting processes and controls;
● entry into unfamiliar markets; and
● increased complexity from potentially operating additional geographically dispersed sites, particularly if we acquire a company or business
with facilities or operations outside of China.
Furthermore, many of our competitors are likely to be seeking to enter into similar arrangements or acquire the same targets that we are looking to
enter into or acquire. Such competitors may have substantially greater financial resources than we do and may be more attractive to our strategic partners or
be able to outbid us for the acquisition targets. In addition, we may also be unable to timely deploy our existing cash balances to effect a potential
acquisition, as use of cash balances located onshore in China may require specific governmental approvals or result in withholding and other tax payments.
If we are unable to enter into suitable strategic alliances or complete suitable acquisitions, our growth strategy may be impeded and our revenues and net
income could be negatively affected.
Some of our technology incorporates “open source” software, which could negatively affect our ability to sell our services and subject us to possible
litigation.
Some aspects of our technology platforms from which we develop our services, are built using open source software, and we intend to continue to
use open source software in the future. The terms of certain open source licenses to which we are subject have not been interpreted by U.S., China or
foreign courts , and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions
on our ability to monetize our services. Additionally, we may from time to time face claims from third parties claiming ownership of, or demanding release
of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise
seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source
code freely available, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement.
This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In
addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software,
as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or
manage, and if not addressed, could have a negative effect on our business, results of operations and financial condition.
14
We may be liable to our customers for damages caused by unauthorized disclosure of sensitive and confidential information, whether through our
employees or otherwise.
We are typically required to manage, utilize and store sensitive or confidential customer data in connection with the services we provide. Under
the terms of our customer contracts, we are required to keep such information strictly confidential. We use system and network security technologies and
other methods to protect sensitive and confidential customer data. We also require our employees and subcontractors to enter into confidentiality
agreements to limit access to and distribution of our customers’ sensitive and confidential information as well as our own trade secrets. We can give no
assurance that the steps taken by us in this regard will be adequate to protect our customers’ confidential information. If our customers’ proprietary rights
are misappropriated by our employees or our subcontractors or their employees, in violation of any applicable confidentiality agreements or otherwise, our
customers may consider us liable for those acts and seek damages and compensation from us. Any such acts could cause us to lose existing and future
business and damage our reputation in the market. In addition, we currently do not have any insurance coverage for mismanagement or misappropriation of
such information by our subcontractors or employees. Any litigation with respect to unauthorized disclosure of sensitive and confidential information
might result in substantial costs and diversion of resources and management attention.
We may not be able to prevent others from unauthorized use of our intellectual property, which could cause a loss of customers, reduce our revenues
and harm our competitive position.
We rely on a combination of patent, copyright, trademark, software registration, anti-unfair competition and trade secret laws, as well as
confidentiality agreements and other methods to protect our intellectual property rights. To protect our trade secrets and other proprietary information,
employees, customers, subcontractors, consultants, advisors and collaborators are required to enter into confidentiality agreements. These agreements
might not provide effective protection for the trade secrets, know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Implementation of intellectual property-related laws in
China has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property
rights and confidentiality protections in China may not be as effective as those in the United States or other developed countries, and infringement of
intellectual property rights continues to pose a serious risk of doing business in China. Our patent applications may not issue as patents or may not issue as
patents that provide meaningful protection against third parties. Policing unauthorized use of proprietary technology is difficult and expensive. The steps
we have taken may be inadequate to prevent the misappropriation of our proprietary technology. Reverse engineering, unauthorized copying, other
misappropriation, or negligent or accidental leakage of our proprietary technologies could enable third parties to benefit from our technologies without
obtaining our consent or paying us for doing so, which could harm our business and competitive position. Though we are not currently involved in any
litigation with respect to intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our
intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.
We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such
claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.
Our success largely depends on our ability to use and develop our technology and services without infringing the intellectual property rights of
third parties, including copyrights, trade secrets and trademarks. We may be subject to litigation involving claims of violation of other intellectual property
rights of third parties. The holders of other intellectual property rights potentially relevant to our service offerings may make it difficult for us to acquire a
license on commercially acceptable terms. Also, we may be unaware of intellectual property registrations or applications relating to our services that may
give rise to potential infringement claims against us. There may also be technologies licensed to and relied on by us that are subject to infringement or other
corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. We are subject to additional risks as a
result of our recent and proposed acquisitions and the hiring of new employees who may misappropriate intellectual property from their former employers.
Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology involving the
allegedly infringing intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from
our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages,
develop non-infringing technology, or re-brand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all,
and cease making, licensing or using products that have infringed a third party’s intellectual property rights. Protracted litigation could also result in
existing or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, or could require us to indemnify
our customers against infringement claims in certain instances. Any intellectual property claim or litigation in this area, whether we ultimately win or lose,
could damage our reputation and have a material adverse effect on our business, results of operations or financial condition.
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We use third-party licensed software in or with our services, and the inability to maintain these licenses or errors in the software services we provide
could result in increased costs or reduced service levels, which would adversely affect our business.
Our services incorporate certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on
such third-party software and development tools in the future. Such third-party companies may discontinue their products, go out of business or otherwise
cease to make support available for such third-party software. Although we believe that there are commercially reasonable alternatives to the third-party
software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our
services with new third-party software may require significant work and substantial investment of our time and resources. Also, to the extent that our
services depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in such third-party
software could prevent the deployment or impair the functionality of our services, delay new feature introductions, result in a failure of our services and
injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties. In the
event that we are not able to maintain our licenses to third-party software, or cannot obtain licenses to new software as needed to enhance our services, our
business and results of operations may be adversely affected.
We may need additional capital and any failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our
business and develop or enhance our service offerings to respond to market demand or competitive challenges.
We believe that our current cash and cash flow from operations would be sufficient to meet our anticipated cash needs for at least the next 12
months from the date of this Annual Report. However, in order to capitalize on the growing needs of global trade software applications and technology
services as a result of the growth in China’s global trade and rapid advancement of the Belt and Road Initiative of China, or B&R, we intend to expand to
capture additional market shares. Thus, we may however, require additional cash resources for our research and development, sales and market and
potential strategic alliances and acquisitions. If these cash resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity
or debt securities or obtain a credit facility. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of
indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our
operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
● investors’ perception of, and demand for, securities of technology services outsourcing companies;
● conditions of the U.S. and other global markets in which we may seek to raise funds;
● our future results of operations and financial condition;
● PRC government regulation of foreign investment in China;
● economic, political and other conditions in China; and
● PRC government policies relating to the borrowing and remittance outside China of foreign currency.
In the event that we are in need of additional financing, such financing may not be available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our solution
and service offerings to respond to market demand or competitive challenges.
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Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to anti-corruption, anti-bribery and anti-money laundering laws in China and various other jurisdictions. From time to time, we
leverage third party partners and intermediaries, including channel partners, to sell our services. We and our third-party intermediaries may have direct or
indirect interactions with officials and employees of government agencies or state-owned or affiliated organizations and may be held liable for the corrupt
or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents,
even if we do not explicitly authorize such activities. While we have policies and procedure to address compliance with such laws, we cannot assure you
that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.
Any violation of the applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media
coverage, investigations, severe criminal or civil sanctions, or suspension or debarment from government contracts, all of which may have an adverse effect
on our reputation, business, operating results and prospects.
Fluctuation in the value of the Renminbi and other currencies may have a material adverse effect on the value of your investment.
Our financial statements are expressed in U.S. dollars. However, a majority of our revenues and expenses are denominated in Renminbi. Our
exposure to foreign exchange risk primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity. We do
not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any
other derivative financial instruments. However, the value of your investment in our Ordinary Shares will be affected by the foreign exchange rate between
U.S. dollars and RMB because the primary value of our business is effectively denominated in RMB, while the Ordinary Shares will be traded in U.S.
dollars.
The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic
conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in
RMB exchange rate and achieve certain exchange rate targets, and through such intervention kept the U.S. dollar-RMB exchange rate relatively stable.
As we may rely on dividends paid to us by our PRC subsidiaries and branches, any significant revaluation of the RMB may have a material
adverse effect on our revenues and financial condition, and the value of any dividends payable on our Ordinary Shares in foreign currency terms. For
example, to the extent that we need to convert U.S. dollars we received from offerings into for our operations, appreciation of the RMB against the U.S.
dollar would have an adverse effect on the RMB amount we received from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars
for the purpose of making payments for dividends on our Ordinary Shares or for other business purposes, appreciation of the U.S. dollar against the RMB
would have a negative effect on the U.S. dollar amount available to us. Furthermore, appreciation or depreciation in the value of the RMB relative to the
U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of
operations. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign exchange losses in the
future. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert into
foreign currencies.
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As we plan to expand internationally, our business will become more susceptible to risks associated with international operations.
Historically, we have generated all of our revenue from customers in PRC. We plan to expand our market coverage internationally, with a focus on
B&R countries, including countries in Asia and Eastern Europe, Middle East, Africa and South America. Conducting international operations subjects us to
risks that we have not generally faced in the PRC. These risks include:
● challenges caused by distance, language, cultural and ethical differences and the competitive environment;
● heightened risks of unethical, unfair or corrupt business practices, actual or claimed, in certain geographies and of improper or fraudulent
sales arrangements that may impact financial results and result in restatements of, and irregularities in, financial statements;
● application of multiple and conflicting laws and regulations, including complications due to unexpected changes in foreign laws and
regulatory requirements;
● risks associated with trade restrictions and foreign import requirements, including the importation, certification and localization of our
solutions required in foreign countries, as well as changes in trade, tariffs, restrictions or requirements;
● new and different sources of competition;
● potentially different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;
● management communication and integration problems resulting from cultural differences and geographic dispersion;
● greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods;
● the uncertainty and limitation of protection for intellectual property rights in some countries;
● increased financial accounting and reporting burdens and complexities;
● lack of familiarity with locals laws, customs and practices, and laws and business practices favoring local competitors or partners;
● uncertainties in global economy and foreign markets caused by COVID-19; and
● political, social and economic instability abroad, terrorist attacks and security concerns in general.
Any of these risks could adversely affect our business. For example, compliance with laws and regulations applicable to our international
operations increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in government requirements as they
change from time to time. Failure to comply with these regulations could have adverse effects on our business. In addition, in many foreign countries it is
common for others to engage in business practices that are prohibited by our internal policies and procedures or applicable PRC laws and regulations. As
we grow, we continue to implement compliance procedures designed to prevent violations of these laws and regulations. There can be no assurance that all
of our employees, contractors, resellers, and agents will comply with the formal policies we will implement, or applicable laws and regulations. Violations
of laws or key control policies by our employees, contractors, resellers, or agents could result in delays in revenue recognition, financial reporting
misstatements, fines, penalties, or the prohibition of the import or export of our software and services, and could have a material adverse effect on our
business and results of operations.
Further, our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may
undertake will not be successful. If we invest substantial time and resources to expand our international operations and are unable to do so successfully, or
in a timely manner, our business and results of operations will suffer.
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Our international operations may subject us to potential adverse tax consequences.
We plan to expand our international operations and staff to better support our growth into international markets. Our corporate structure and
associated transfer pricing policies contemplate future growth into the international markets, and consider the functions, risks and assets of the various
entities involved in the intercompany transactions. The amount of taxes we pay in different countries and jurisdictions may depend on the application of the
tax laws of the various countries and jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised
tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and
intercompany arrangements. The taxing authorities of the countries and jurisdictions in which we operate may challenge our methodologies for pricing
intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to
specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes,
interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our
operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
We’ve provided a certain amount of working capital support to Shenzhen Kezhi Technology Co., Ltd., which will be due in two years. If we are unable
to collect the loan receivable or maintain low default rate, our business and results of operations may be materially adversely affected
In October 2020, we started to implement our plan to build a network of digital displays such as LCD screens and operate an advertisement
platform in Shenzhen, China, initially, and then expand to the Greater Bay Area of China. On September 25, 2020, Shenzhen Honghao Internet Technology
Co. Ltd. (“Honghao”), the wholly-owned subsidiary of the Company, entered into a leasing agreement (the “Original Leasing Agreement”) with Shenzhen
Kezhi Technology Co., Ltd., a company incorporated under the PRC laws (“Kezhi”), pursuant to which, Kezhi agreed to transfer the right to operate and
publish advertisements at certain advertising space it leases or controls in certain shopping centers in Shenzhen, Guangdong, to Honghao. On November
20, 2020, Honghao and Kezhi entered into a supplemental agreement to the Original Leasing Agreement (the “First Supplemental Agreement”), pursuant to
which, Kezhi agreed to transfer the right to operate and publish advertisements at certain additional advertising space it leased or controls in several urban
villages in Shenzhen, Guangdong, to Honghao. However, due to uncertainties caused by COVID-19 on media business in China, the Company entered into
a second and third supplemental agreement to the Original Leasing Agreement with Kezhi on May 12, 2021 and May 16, 2021 (the “Second Supplemental
Agreement” and the “Third Supplemental Agreement”). Pursuant to such supplemental agreements, both parties agreed that all the prepayments paid by the
Company in aggregated of approximately $68.1 million to Kezhi shall be considered as the Company’s working capital support loan to Kezhi for a term of
two years with specific annual repayment plan. The repayment of loan is guaranteed by a third party. If we are unable to collect this loan receivable from
Kezhi on timely basis, we might incur significant loss, which is also harmful to our liquidity and future cash flow.
Advertising is particularly sensitive to changes in economic conditions and advertising trends.
Demand for advertising time slots and advertising frame space on our networks, and the resulting advertising spending by our clients, is
particularly sensitive to changes in general economic conditions and advertising spending typically decreases during periods of economic downturn.
Advertisers may reduce the money they spend to advertise on our networks for a number of reasons, including:
● a general decline in economic conditions;
● a decline in economic conditions in the particular cities where we conduct business;
● a decision to shift advertising expenditures to other available advertising media; or
● a decline in advertising spending in general.
A decrease in demand for advertising media in general and for our advertising services in particular would materially and adversely affect our
ability to generate revenue from our advertising services, and our financial condition and results of operations.
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Our operating results of our advertising and media business are difficult to predict and may fluctuate significantly from period to period in the future.
The operating results of advertising and media business of Kezhi are difficult to predict and may fluctuate significantly from period to period
based on the seasonality of consumer spending and corresponding advertising trends in China. As a result, you may not be able to rely on period to period
comparisons of our operating results as an indication of our future performance. Factors that are likely to cause our operating results to fluctuate include the
seasonality of advertising spending in China, a deterioration of economic conditions in China and potential changes to the regulation of the advertising
industries in China. If Kezhi fails to return the working capital as scheduled, we may be unable to reduce our operating expenses for that quarter by a
corresponding amount, which would harm our overall operating results for that quarter relative to our operating results from other quarters.
The out-of-home advertising market is intensely competitive. In addition, we might face competitive pressure from well-established internet companies,
marketing agencies and traditional media.
With the introduction of new technologies and the influx of new entrants, we expect competition to continue and intensify, which could harm our
ability to increase revenue and attain or sustain profitability. We believe the principal competitive factors in this industry include:
● ability to deliver return on marketing expenditure at scale;
● customer trust;
● geographic reach;
● breadth and depth of cooperation with publishers, ad exchanges, ad networks and other participants in the online marketing ecosystem;
● comprehensiveness of solutions and service offerings;
● pricing structure and competitiveness;
● cross-channel capabilities;
● accessibility and user-friendliness of solutions; and
● brand awareness.
In addition, independent online marketing technology platforms face competitive pressure from large and well-established internet companies
which have established stronger and broader presence across the online marketing ecosystem and have significantly more financial, technical, marketing
and other resources, more extensive client base, and longer operating histories and greater brand recognition than we do. These companies may also
leverage their positions to make changes to their systems, platforms, exchanges, networks or other products or services that could be harmful to our
business and results of operations. In addition, these large and well-established companies control content distribution channels and would directly compete
with us should we vertically expand our business to own or operate content distribution channels in the future. Further, some of these companies are, or
may also become, our content distribution channels and may enter into other types of strategic arrangements with us. We also face competition from
marketing agencies, who may have their own relationships with content distribution channels and can directly connect marketers with such channels.
Furthermore, we continue to compete with traditional media including direct marketing, television, radio, cable and print advertising companies.
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New technologies and methods of online marketing present an evolving competitive challenge, as market participants upgrade or expand their
service offerings to capture more marketing spend from marketers. In addition to existing competitors and their existing service offerings, we expect to face
competition from new entrants to the online marketing technology industry and new service offerings from existing competitors. If existing or new
companies develop, market or resell competitive high-value marketing technology solutions, acquire one of our competitors or strategic partners, form a
strategic alliance or enter into exclusivity arrangement with one of our competitors or strategic partners, our ability to compete effectively could be
significantly compromised and our business, results of operations and prospects could be materially and adversely affected.
If our advertising business do not achieve widespread market acceptance, our business, growth prospects and results of operations would be materially
and adversely affected. And we may change our strategy in advertising business.
The market for out-of-home advertising is evolving in China and may not achieve or sustain high levels of demand and market acceptance as we
expect because we may face competition from mobile and social media. While marketing via search engines or display channels has been established for
several years, marketing via new digital channels such as mobile and social media is not as well established and under quick development. The future
growth of our out-of-home advertising business could be constrained by our competitors in out-of-home digital display business and competitors from
emerging online marketing channels and social media.
Expansion of our outdoor advertising business depends on a number of factors, including the growth of new digital advertising channels such as
mobile and social media and the cost, as well as the performance and perceived value associated with online marketing technology solutions. If we do not
achieve widespread acceptance, or there is a reduction in demand for out-of-home advertising caused by weakening economic conditions, decreases in
corporate spending, technological challenges, data security or privacy concerns, governmental regulation, competing technologies and solutions or
otherwise, our business, growth prospects and results of operations will be materially and adversely affected, and therefore, we may seek a new business
strategy in operating these out-of-door digital displays.
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If Kezhi fails to maintain existing relationships or obtain new relationships, it may harm or reverse our growth potential and our ability to increase our
revenues.
Kezhi’s ability to repay the working capital loans may depend on generate revenues from advertising sales depending largely upon its ability to
provide large networks of flat-panel displays placed in desirable building, commercial and store locations, of advertising poster frames placed in residential
complexes, to secure desirable locations of large outdoor LED digital billboards, throughout major urban areas in China. Kezhi also depend on the ability
of our third-party location provider to secure desirable LED digital billboard locations for our outdoor LED network. This, in turn, requires that we develop
and maintain business relationships with real estate developers, landlords, property managers, hypermarkets, retailers and other businesses and locations in
which we rent space for our displays and digital billboards.
We may need additional capital and we may not be able to obtain it, which could adversely affect our liquidity and financial position.
We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash needs
including for working capital and capital expenditures, for the foreseeable future. We may, however, require additional cash resources due to changed
business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or
debt securities or obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our
shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that
would restrict our operations and liquidity.
Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
● investors’ perception of, and demand for, securities of alternative advertising media companies;
● conditions of the U.S. and other capital markets in which we may seek to raise funds;
● our future results of operations, financial condition and cash flows;
● PRC governmental regulation of foreign investment in advertising services companies in China;
● economic, political and other conditions in China; and
● PRC governmental policies relating to foreign currency borrowings.
We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds
on terms favorable to us could have a material adverse effect on our liquidity and financial condition.
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We do not maintain any business liability disruption or litigation insurance coverage for our operations, and any business liability, disruption or
litigation we experience might result in our incurring substantial costs and the diversion of resources.
While business disruption insurance is available to a limited extent in China, we have determined that the risks of disruption, cost of such
insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance.
As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations of advertising and media business in China.
Any business disruption or litigation may result in our incurring substantial costs and the diversion of resources.
Any negative publicity with respect to us in general or our partners may materially and adversely affect our reputation, business and results of
operations.
Complaints, litigation, regulatory actions or other negative publicity that arise about the advertising industry in general or our company in
particular, including on the quality, effectiveness and reliability of privacy and security practices, and advertising content, even if inaccurate, could
adversely affect our reputation and client confidence in, and the use of, our solutions. Harm to our reputation and client confidence can also arise for many
other reasons, including employee misconduct, misconduct of our data and content distribution channel partners, data center providers or other
counterparties, failure by these persons or entities to meet minimum quality standards or otherwise fulfill their contractual obligations or to comply with
applicable laws and regulations. Additionally, negative publicity with respect to our data or content distribution channel partners could also affect our
business and results of operation to the extent that we rely on these partners or if marketers or marketing agencies associate our company with such
partners.
If we fail to promote or maintain our brand in a cost-efficient manner, our business and results of operations may be harmed.
We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of
our platforms, and is an important element in attracting new clients and partners. Furthermore, we believe that the importance of brand recognition will
increase as competition in our market increases. Successful promotion of our brand will depend largely on our ability to deliver value propositions to
marketers and on the effectiveness of our marketing efforts If we fail to successfully promote and maintain our brand, or incur substantial expenses in an
unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new clients or retain our existing clients and our business and
results of operations can be materially and adversely affected.
We may need additional capitals for our business and future sales of our ordinary shares could cause the market price of our ordinary shares to
decline.
Sales of a substantial number of shares of our ordinary shares in the public market, or the perception that these sales could occur, may depress the
market price for our ordinary shares. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the
future. We may issue additional ordinary shares in the future and our shareholders may elect to sell large numbers of shares held by them from time to time.
Our amended and restated articles of incorporation authorize us to issue up to 300,000,000 ordinary shares.
In March 2021, we filed with the SEC prospectus to issue and sell, in an at-the-market (“ATM”) offering through A.G.P./Alliance Global Partners,
ordinary shares having an aggregate offering price of up to $30 million. From March 22, 2021 through May 14, 2021, we issued and sold 1,626,327
ordinary shares through the ATM offering for net proceeds of approximately $5.32 million. We may issue more ordinary shares through the ATM offering
in the future and, therefore, it may cause the market price of our ordinary shares to decline.
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Risks Relating to Our Corporate Structure
We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law
than under U.S. law, shareholders may have less protection for their shareholder rights than they would under U.S. law.
Our corporate affairs are governed by our Fourth Amended and Restated Memorandum and Articles of Association, the Cayman Islands
Companies Law (Revised) (the “Companies Law”) and the common law of the Cayman Islands. The rights of shareholders to take action against the
directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed
by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the
Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of
our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes
or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws than the United
States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman
Islands. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will
in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. As a result
of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management or members of the
board of directors than they would as shareholders of a U.S. public company.
Judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and all of our assets are located outside of the United States. Our current operations are based in China. In
addition, the majority of our current directors and executive officers are nationals and residents of countries other than the United States. Substantially all
of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or
against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities
laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to
enforce a judgment against our assets or the assets of our directors and officers.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
The determination of our status as a foreign private issuer is made annually on the last business day of our most recently completed second fiscal
quarter and, accordingly, the next determination will be made with respect to us on or after June 30, 2021. We would lose our foreign private issuer status if
(1) a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents, and (2) a majority of our shareholders or a
majority of our directors or management are U.S. citizens or residents, a majority of our assets are located in the United States, or our business is
administered principally in the United States. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S.
securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with corporate
governance practices associated with U.S. domestic issuers, which would involve additional costs.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or
submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC.
We believe that any disclosure controls and procedures, or internal controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an
unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur
and not be detected, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to
capital markets, harm our results of operations, and lead to a decline in the trading price of our Ordinary Shares. Additionally, ineffective internal control
over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock
exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior
periods.
If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with
applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial
reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However,
while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by
our independent registered public accounting firm and due to a transition period established by rules of the SEC for newly public companies, we are not
required to include a report of management’s assessment regarding internal control over financial reporting in this annual report. The presence of material
weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports
and/or delays in our financial reporting, which could require us to restate our operating results. The material weakness identified consisted of (i) a lack of
accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient
documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; (iii) inadequate controls with
respect to the maintenance of sufficient documentation for, and the evaluation of the accounting implications of, significant and non-routine payment
transactions. (iv) a lack of sufficient documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and
accruals., as defined in the standards established by the Public Company Accounting Oversight Board of the United States.
We have already taken some steps and have continued to implement measures to remediate the material weakness identified, including but not
limited to providing trainings to staff, changing to a new and well-established accounting system, and continuing to monitor the internal control over
financial reporting. However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future.
Due to the material weakness in our internal controls over financial reporting, we conclude that our internal controls over financial reporting are
ineffective and therefore investors may lose confidence in our operating results, the price of the Ordinary Shares could decline and we may be subject to
litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the Ordinary
Shares may not be able to remain listed on the NASDAQ Capital Market.
We will likely not pay dividends in the foreseeable future.
Dividend policy is subject to the discretion of our board of directors and will depend on, among other things, our earnings, financial condition,
capital requirements and other factors. We have never declared a dividend. There is no assurance that our board of directors will declare dividends even if
we are profitable. The payment of dividends by entities organized in China is subject to limitations as described herein. Under Cayman Islands law, we may
only pay dividends from profits of the Company, or credits standing in the Company’s share premium account, and we must be solvent before and after the
dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value
of assets of our Company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital.
Pursuant to the Chinese enterprise income tax law, dividends payable by a foreign investment entity to its foreign investors are subject to a withholding tax
of 10%. Similarly, dividends payable by a foreign investment entity to its Hong Kong investor who owns 25% or more of the equity of the foreign
investment entity is subject to a withholding tax of 5%. The payment of dividends by entities organized in China is subject to limitations, procedures and
formalities. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting
standards and regulations in China. The transfer to this reserve must be made before distribution of any dividend to shareholders.
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Our business may be materially and adversely affected if our Chinese subsidiary declare bankruptcy or become subject to a dissolution or liquidation
proceeding.
The Enterprise Bankruptcy Law of China provides that an enterprise may be liquidated if the enterprise fails to settle its debts as and when they
fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts. Our Chinese subsidiaries hold certain assets that are
important to our business operations. If any of our Chinese subsidiary undergo a voluntary or involuntary liquidation proceeding, unrelated third-party
creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect
our business, financial condition and results of operations.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate
governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they
would enjoy if we complied fully with such corporate governance listing standards.
As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq listing standards. However, the Nasdaq
Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Currently, we rely on home
country practice with respect to certain aspects of our corporate governance. See “Item 16G. Corporate Governance.” Our shareholders may be afforded
less protection than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers given our reliance on the home
country practice exception.
Risks Related to Doing Business in China
Adverse changes in political, economic and other policies of the Chinese government could have a material adverse effect on the overall economic
growth of China, which could materially and adversely affect the growth of our business and our competitive position.
Currently, all of our business operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects
are affected significantly by economic, political and legal developments in China. Although the PRC economy has been transitioning from a planned
economy to a more market-oriented economy since the late 1970s, the PRC government continues to exercise significant control over China’s economic
growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict
investment in certain industries by foreign investors, control the exchange between the Renminbi and foreign currencies, and regulate the growth of the
general or specific market. While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both
geographically and among various sectors of the economy. Furthermore, the current global economic crisis is adversely affecting economies throughout the
world. As the PRC economy has become increasingly linked with the global economy, China is affected in various respects by downturns and recessions of
major economies around the world. The various economic and policy measures enacted by the PRC government to forestall economic downturns or bolster
China’s economic growth could materially affect our business. Any adverse change in the economic conditions in China, in policies of the PRC government
or in laws and regulations in China could have a material adverse effect on the overall economic growth of China and market demand for our outsourcing
services. Such developments could adversely affect our businesses, lead to reduction in demand for our services and adversely affect our competitive
position.
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Uncertainties with respect to the PRC legal system could have a material adverse effect on us.
The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the
late 1970s, the PRC government has been building a comprehensive system of laws and regulations governing economic matters in general. The overall
effect has been to significantly enhance the protections afforded to various forms of foreign investments in China. We conduct our business primarily
through our subsidiary established in China. This subsidiary is generally subject to laws and regulations applicable to foreign investment in China.
However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections
available to us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other
government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some
circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either
by law or contract. However, since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual
terms, it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more
developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our business partners, customers
and suppliers. In addition, such uncertainties, including any inability to enforce our contracts, together with any development or interpretation of PRC law
that is adverse to us, could materially and adversely affect our business and operations. Furthermore, intellectual property rights and confidentiality
protections in China may not be as effective as in the United States or other more developed countries. We cannot predict the effect of future developments
in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption
of local regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In
addition, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.
U.S. regulators’ ability to conduct investigations or enforce rules in China is limited.
Currently, all of our operations conducted outside of the U.S. As a result, it may not be possible for the U.S. regulators to conduct investigations or
inspections, or to effect service of process within the U.S. or elsewhere outside China on us, our subsidiaries, officers, directors and shareholders, and
others, including with respect to matters arising under U.S. federal or state securities laws. China does not have treaties providing for reciprocal recognition
and enforcement of judgments of courts with the U.S. and many other countries. As a result, recognition and enforcement in China of these judgments in
relation to any matter, including U.S. securities laws and the laws of the Cayman Islands, may be difficult or impossible.
We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating
company.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by
the PRC State Administration of Taxation on December 10, 2009, or Circular 698, where a foreign investor transfers the equity interests of a PRC resident
enterprise indirectly by way of the sale of equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is
located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the foreign investor should
report such Indirect Transfer to the competent tax authority of the PRC resident enterprise. The PRC tax authority will examine the true nature of the
Indirect Transfer, and if the tax authority considers that the foreign investor has adopted an abusive arrangement in order to avoid PRC tax, they will
disregard the existence of the overseas holding company and re-characterize the Indirect Transfer and as a result, gains derived from such Indirect Transfer
may be subject to PRC withholding tax at the rate of up to 10%. In addition, the PRC resident enterprise is supposed to provide necessary assistance to
support the enforcement of Circular 698. At present, the PRC tax authorities will neither confirm nor deny that they would enforce Circular 698, in
conjunction with other tax collection and tax withholding rules, to make claims against our PRC subsidiary as being indirectly liable for unpaid taxes, if
any, arising from Indirect Transfers by shareholders who did not obtain their shares in the IPO of our shares.
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On February 3, 2015, the PRC State Administration of Taxation issued a Public Notice Regarding Certain Corporate Income Tax Matters on
Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 supersedes the rules with respect to the
Indirect Transfer under SAT Circular 698, but does not touch upon the other provisions of SAT Circular 698, which remain in force. SAT Public Notice 7
has introduced a new tax regime that is significantly different from the previous one under SAT Circular 698. SAT Public Notice 7 extends its tax
jurisdiction to not only Indirect Transfers set forth under SAT Circular 698 but also transactions involving transfer of other taxable assets through offshore
transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 provides clearer criteria than SAT Circular 698 for assessment of
reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public
securities market. SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the
transfer) of taxable assets. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding
company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets,
may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence
of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC
tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated
to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident
enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the
transferor fails to pay the taxes.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such
as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our
company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under SAT
Circular 698 and SAT Public Notice 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiary may
be requested to assist in the filing under SAT Circular 698 and SAT Public Notice 7. As a result, we may be required to expend valuable resources to
comply with SAT Circular 698 and SAT Public Notice 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these
circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition
and results of operations.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to
personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiary ability to
distribute profits to us, or otherwise materially and adversely affect us.
In July 2014, China’s State Administration of Foreign Exchange (“SAFE”) has promulgated the Circular on Relevant Issues Concerning Foreign
Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE
Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip
Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37.
SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with local branches of SAFE in connection
with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable
to any offshore acquisitions that we make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments
in offshore special purpose vehicles, or SPVs, will be required to register such investments with the SAFE or its local branches. In addition, any PRC
resident who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect to that SPV,
to reflect any material change. Moreover, any subsidiaries of such SPV in China is required to urge the PRC resident shareholders to update their
registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed
registration, the subsidiaries of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer
or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contribution into its subsidiary in China. On February 28,
2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE
Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct
investment and outbound overseas direct investment, including those required under the SAFE Circular 37, will be filed with qualified banks instead of the
SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of the SAFE.
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Messrs. Ban Lor and Stewart Lor are not PRC resident, thus, they are not subject to SAFE Circular 37. We have requested our shareholders that
we know are PRC residents and hold direct or indirect interests in us to make the necessary applications, filings and amendments as required under SAFE
Circular 37 and other related rules. As of the date of this Annual Report, all of those shareholders have completed the Circular 37 registration. However, we
may not at all times be fully aware or informed of the identities of all our beneficial owners who are PRC residents, and we may not always be able to
compel our beneficial owners to comply with the SAFE Circular 37 requirements. As a result, we cannot assure you that all of our shareholders or
beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable registrations or approvals required by,
SAFE Circular 37 or other related regulations. Failure by any such shareholders or beneficial owners to comply with SAFE Circular 37 could subject us to
fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiary’s ability to make distributions or pay dividends
or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly
evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and
implemented by the relevant governmental authorities. For example, we may be subject to a more stringent review and approval process with respect to our
foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial
condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such
company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign
exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the
offerings to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our
ability to fund and expand our business.
In utilizing the proceeds from the offerings or any future offerings, as an offshore holding company of our PRC subsidiary, we may make loans to
our PRC subsidiary and controlled PRC affiliate, or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary
or controlled PRC affiliate are subject to PRC regulations and approvals. For example, loans by us to our PRC subsidiary in China, each of which is a
foreign-invested enterprise, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local counterpart.
We may also decide to finance our PRC subsidiary through capital contributions. These capital contributions must be approved by the Ministry of
Commerce in China or its local counterpart. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely
basis, if at all, with respect to future loans by us to our PRC subsidiary or controlled PRC affiliate or capital contributions by us to our subsidiaries or any
of their respective subsidiaries. If we fail to receive such registrations or approvals, our ability to use the proceeds of the IPO and to capitalize our PRC
operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.
In 2015, SAFE promulgated Circular 19, a notice regulating the conversion by a foreign-invested enterprise of foreign currency into Renminbi by
restricting how the converted Renminbi may be used. Circular 19 requires that Renminbi converted from the foreign currency-denominated capital of a
foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be
used for equity investments within the PRC unless specifically provided for otherwise in its business scope. In addition, SAFE strengthened its oversight of
the flow and use of Renminbi funds converted from the foreign currency-denominated capital of a foreign-invested enterprise. The use of such Renminbi
may not be changed without approval from SAFE and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used for
purposes within the foreign-invested enterprise’s approved business scope.
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We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a
timely basis, if at all, with respect to future loans by us to our PRC subsidiary or controlled PRC affiliate or with respect to future capital contributions by
us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we receive from the offerings
and to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability
to fund and expand our business.
Governmental control of currency conversion may limit our ability to use our revenues effectively and the ability of our PRC subsidiary to obtain
financing.
The PRC government imposes control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency
out of China. We receive a majority of our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion
imposed by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies
or our business activities outside China. Under China’s existing foreign exchange regulations, Renminbi may be freely converted into foreign currency for
payments relating to current account transactions, which include among other things dividend payments and payments for the import of goods and services,
by complying with certain procedural requirements. Our PRC subsidiary are able to pay dividends in foreign currencies to us without prior approval from
SAFE, by complying with certain procedural requirements. Our PRC subsidiary may also retain foreign currency in their respective current account bank
accounts for use in payment of international current account transactions. However, we cannot assure you that the PRC government will not take measures
in the future to restrict access to foreign currencies for current account transactions.
Conversion of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments relating to capital account transactions,
which principally includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions
on the convertibility of the Renminbi for capital account transactions could affect the ability of our PRC subsidiary to make investments overseas or to
obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from us.
We may be classified as a “resident enterprise” for PRC enterprise income tax purposes; such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders.
The Enterprise Income Tax Law provides that enterprises established outside of China whose “de facto management bodies” are located in China
are considered PRC tax resident enterprises and will generally be subject to the uniform 25% PRC enterprise income tax rate on their global income. In
addition, a tax circular issued by the State Administration of Taxation on April 22, 2009 regarding the standards used to classify certain Chinese-invested
enterprises established outside of China as resident enterprises clarified that dividends and other income paid by such resident enterprises will be
considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC enterprise shareholders.
This recent circular also subjects such resident enterprises to various reporting requirements with the PRC tax authorities. Under the implementation rules
to the Enterprise Income Tax Law, a de facto management body is defined as a body that has material and overall management and control over the
manufacturing and business operations, personnel and human resources, finances and other assets of an enterprise. In addition, the tax circular mentioned
above details that certain Chinese-invested enterprises will be classified as resident enterprises if the following are located or resident in China: senior
management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making
bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior
management or directors having voting rights.
Currently, there are no detailed rules or precedents governing the procedures and specific criteria for determining de facto management bodies
which are applicable to our company or our overseas subsidiaries. We do not believe that Powerbridge meets all of the conditions required for PRC resident
enterprise. The Company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries,
and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained,
outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident
status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto
management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with ours.
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However, if the PRC tax authorities determine that Powerbridge is a PRC resident enterprise for enterprise income tax purposes, we may be
required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be
reduced by applicable tax treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible
for the benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In addition, non-
resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ordinary shares, if such income is
treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains
obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such
dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear
whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC
in the event that the Company is treated as a PRC resident enterprise.
Provided that our Cayman Islands holding company, Powerbridge, is not deemed to be a PRC resident enterprise, our shareholders who are not
PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares.
However, under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity
interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the
transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using
a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial
purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be
subject to PRC enterprise income tax, and the transferee would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of
equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under
Circular 7, and we may be required to expend valuable resources to comply with Bulletin 37, or to establish that we should not be taxed under Circular 7
and Bulletin 37.
In addition to the uncertainty in how the new resident enterprise classification could apply, it is also possible that the rules may change in the
future, possibly with retroactive effect. If we are required under the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to
our foreign shareholders, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of
your investment in our shares may be materially and adversely affected. These rates may be reduced by an applicable tax treaty, but it is unclear whether, if
we are considered a PRC resident enterprise, holders of our shares would be able to claim the benefit of income tax treaties or agreements entered into
between China and other countries or areas. Any such tax may reduce the returns on your investment in our shares.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors,
which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory
agencies in August 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC
domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC,
prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice
on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas
listings. The application of the M&A Rules remains unclear. These M&A Rules and some other regulations and rules concerning mergers and acquisitions
established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and
complex, including requirements in some instances that the China’s Commerce Ministry (“MOC”) be notified in advance of any change-of-control
transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be
notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that
became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and
mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are
subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction
through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the
requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required
approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or maintain our market share.
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Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules,
PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an
overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the
PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to
handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and
other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who are granted options or
other awards under the equity incentive plan are subject to these regulations as our company has become an overseas listed company. Failure to complete
the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary
and limit our PRC subsidiary’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional
incentive plans for our directors, executive officers and employees under PRC law.
Failure to make adequate contributions to various mandatory social security plans as required by PRC regulations may subject us to penalties.
PRC laws and regulations require us to pay several statutory social welfare benefits for our employees, including pensions, medical insurance,
work-related injury insurance, unemployment insurance, maternity insurance and housing provident fund contributions. Local governments usually
implement localized requirements as to mandatory social security plans considering differences in economic development in different regions. Our failure
in making contributions to various mandatory social security plans and in complying with applicable PRC labor-related laws may subject us to late
payment penalties. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or
fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Our current employment practices may be restricted under the PRC Labor Contract Law and our labor costs may increase as a result.
The PRC Labor Contract Law and its implementing rules impose requirements concerning contracts entered into between an employer and its
employees and establishes time limits for probationary periods and for how long an employee can be placed in a fixed-term labor contract. Because there is
lack of clarity with respect to the implementation and potential penalties and fines provided in the Labor Contract Law and tis implementing rules, it is
uncertain how it will impact our current employment policies and practices. We cannot assure you that our employment policies and practices do not, or
will not, violate the Labor Contract Law or its implementing rules and that we will not be subject to related penalties, fines or legal fees. If we are subject to
large penalties or fees related to the Labor Contract Law or its implementing rules, our business, financial condition and results of operations may be
materially and adversely affected. In addition, according to the Labor Contract Law and its implementing rules, if we intend to enforce the non-compete
provision with an employee in a labor contract or non-competition agreement, we have to compensate the employee on a monthly basis during the term of
the restriction period after the termination or ending of the labor contract, which may cause extra expenses to us. Furthermore, the Labor Contract Law and
its implementation rules require certain terminations to be based upon seniority rather than merit, which significantly affects the cost of reducing workforce
for employers. In the event we decide to significantly change or decrease our workforce in the PRC, the Labor Contract Law could adversely affect our
ability to enact such changes in a manner that is most advantageous to our circumstances or in a timely and cost-effective manner, thus our results of
operations could be adversely affected.
32
If the chops of our PRC company and branches are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the
corporate governance of these entities could be severely and adversely compromised.
In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a
signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security
Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our
PRC subsidiary are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent
those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities
could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they
were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we
could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and
resources to resolve while distracting management from our operations.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our
management named in the prospectus supplement based on foreign laws. It may also be difficult for you or overseas regulators to conduct
investigations or collect evidence within China.
We are a company incorporated under the laws of the Cayman Islands, and we conduct our operations in China and our assets are located in China.
In addition, most of our senior executive officers reside within China for a significant portion of the time. As a result, it may be difficult for you to effect
service of process upon us or those persons inside mainland China. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the
PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of
the U.S. or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and
enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country
where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement
with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law,
the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of
PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment
rendered by a court in the U.S. See “Enforceability of Civil Liabilities.”
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are
significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to
foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to
monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the United States may not be
efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which
became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the
territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to
securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent
departments of the PRC State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability
for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by
you in protecting your interests.
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Recent joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes
submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging
market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These
developments could add uncertainties to our offering.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint
statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The
joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of
fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operating
in a “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or the board of directors for Restrictive Market
companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned
or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB
inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national
exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020,
the Holding Foreign Companies Accountable Act was signed into law.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the
auditors based in China. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct
inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control
procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our
Ordinary Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
Our auditor, Onestop Assurance PAC, the independent registered public accounting firm that issues the audit report incorporated by reference in
this Annual Report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the
United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. However, the
recent developments would add uncertainties to our continued listing in the U.S. and we cannot assure you whether Nasdaq or regulatory authorities would
apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures,
adequacy of personnel and training, or sufficiency of resources, geographic reach, or experience as it relates to the audit of our financial statements.
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Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Corporate History and Background
Powerbridge 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, is a provider of software application and technology services to corporate and government customers engaged in global trade.
For the purpose of the IPO and listing on the NASDAQ Capital Market, a reorganization of the Company’s legal structure was completed on
August 27, 2018. The reorganization involved the incorporation of Powerbridge, a Cayman Islands holding company, and its wholly owned subsidiary,
Powerbridge HK, a holding company incorporated on July 27, 2018 under the laws of Hong Kong; and the transfer of all equity ownership of Powerbridge
Zhuhai to Powerbridge HK from the former shareholders of Powerbridge Zhuhai through an investment holding company.
Prior to the reorganization, Powerbridge Zhuhai’s equity interests were held by the former shareholders through an investment holding company.
Powerbridge Zhuhai was incorporated on October 30, 1997 in Zhuhai, Guangdong province under the laws of the People’s Republic of China. Powerbridge
Zhuhai is an operating subsidiary that provides global trade software application and technology services to corporate and government customers located in
China.
On August 7, 2018, the former shareholders transferred their 100% ownership interest in Powerbridge Zhuhai to Powerbridge HK, which is 100%
owned by Powerbridge. After the reorganization, Powerbridge owns 100% equity interests of Powerbridge HK and Powerbridge Zhuhai. All shareholders
have the same ownership interest in Powerbridge as in Powerbridge Zhuhai prior to the reorganization.
As of the date of this Annual Report, Zhuhai Powerbridge has five branches, which are located in China (Changsha, Wuhan, Nanning, Hangzhou,
Jiujiang, and Xiamen) and maintain offices in Changsha, Wuhan, Naning, and Hangzhou to serve different customers in various geographic locations.
Powerbridge Cayman is the sole shareholder of Powerbridge Hong Kong, incorporated in Hong Kong on July 27, 2018, and Hongding Hong
Kong, incorporated in Hong Kong on August 19, 2020. Powerbridge Hong Kong is the sole shareholder of Powerbridge Zhuhai. Powerbridge Zhuhai was
incorporated on October 30, 1997 under the laws of the People’s Republic of China, as a wholly-owned subsidiary of Powerbridge Hong Kong and a
wholly foreign-owned entity under the PRC laws. Hongding Shenzhen was incorporated on October 21, 2020 under the laws of the People’s Republic of
China, as a wholly-owned subsidiary of Hongding Hong Kong and a wholly foreign-owned entity under the PRC laws. As of the date of this Annual
Report, Hongding Hong Kong and Hongding Shenzhen have no business operations.
Neither Powerbridge Cayman, Powerbridge Hong Kong, nor Hongding Hong Kong is currently engaged in any active business other than acting
as holding companies. We conduct our business mainly through Powerbridge Zhuhai and Hongding Shenzhen. As of the date of this Annual Report,
Honding Shenzhen has no business operations.
On April 2, 2019, our ordinary shares commenced trading on Nasdaq under the symbol “PBTS.”
On June 21, 2019, the Company incorporated Wuhan Honggang Technology Co. Ltd. (“Wuhan Honggang”) in Hubei province under the law of
the PRC. Wuhan Honggang is 60% owned by Powerbridge Zhuhai, one of the wholly owned subsidiaries of the Company, and 40% owned by a third party.
Wuhan Honggang is engaged in application development service and Internet of Things (“IOT”) system developments.
On June 28, 2019, Powerbridge Zhuhai entered into a joint venture agreement (the “JV Agreement”) with Guangdong Guangrui Network
Technology Co., Ltd. (“Gaungrui”) to form the joint venture through a newly-formed corporation named Shantou Hongrui Information Technology Co.,
Ltd. (“Hongrui”) to undertake exploration for technology information services in the area of Shantou and Guangdong. Powerbridge Zhuhai and Guangrui
each initially owned 51% and 49% equity interest in Hongrui. On July 1, 2019, Powerbridge Zhuhai, Guangrui, and Haoqing Su entered into a
supplemental agreement to the JV Agreement for equity interest alternation, pursuant to which Hongrui was 51% owned by Powerbridge Zhuhai, 43%
owned by Guangrui, and 6% owned by Qaoqing Su. On August 19, 2019, Hongrui was established in Guangdong province under the law of the PRC. On
January 14, 2020, Haoqing Su entered into certain share transfer agreements with Xiaoyu Liu and Hengqin Baisheng Investment Partnership (General
Partnership) (“Hengqin”), pursuant to each of which, Haoqing Su agreed to transfer 3% equity interest of Hongrui for RMB 150,000. On the same day,
Guangrui entered into a certain share transfer agreement with Xiaoyu Liu to transfer 18% equity interest of Hongrui for RMB 900,000. As a result of the
share transfer agreements, Hongrui was 51% owned by Powerbridge Zhuhai, 25% owned by Guangrui, 3% owned by Hengqin, and 21% owned by Xiaoyu
Liu. On May 21, 2020, Powerbridge Zhuhai, Guangrui, Hengqin, and Xiaoyu Liu entered into another supplemental agreement to the JV Agreement for
equity interest alternation, pursuant to which Hongrui is currently 38% owned by Powerbridge Zhuhai, 35% owned by Guangrui, 15% owned by Hengqin,
and 12% owned by Xiaoyu Liu. Shantou Hongrui is engaged in IT system development and integration service.
On September 2, 2019, Powerbridge Zhuhai, together with two unrelated entities, incorporated Chongqing Powerbridge Zhixin Technology Co.,
Ltd (“Chongqing Powerbridge”) with Powerbridge Zhuhai holding 45% equity interest in Chongqing Powerbridge. By the date of this report, Chongqing
Powerbridge has not commenced its operations and Powerbridge Zhuhai has not injected any capital to the business. Chongqing Powerbridge is engaged in
IT system development and technical consulting service.
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On September 29, 2019, Powerbridge Zhuhai incorporated Ningbo Powerbridge Pet Products E-commerce Co. Ltd. (“Ningbo Powerbridge”) in
Zhejiang province under the law of the PRC. Ningbo Powerbridge is 60% owned by the Powerbridge Zhuhai and 40% owned by two unrelated entities.
Ningbo Powerbridge is engaged in development of e-commerce systems for pet industry. As of the date of this Annual Report, Ningbo Powerbridge is
dormant and has no operation.
On July 28, 2020, Powerbridge Zhuhai incorporated Shenzhen Honghao Internet Technology Co., Ltd. (“Shenzhen Powerbridge”) in Guangdong
province under the law of the PRC. Shenzhen Powerbridge is 100% owned by the Powerbridge Zhuhai. Shenzhen Honghao is engaged in the outdoor
advertising business. Powerbridge Hong Kong, incorporated a fully owned subsidiary -Shenzhen Hongding Interconnect Technology Co., Ltd in
Guangdong province under the law of the PRC.
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, registration
statements and other information with the SEC. The Company’s reports, registration statements and other information can be inspected on the SEC’s
website at www.sec.gov and such information can also be inspected and copies ordered at the public reference facilities maintained by the SEC at the
following location: 100 F Street NE, Washington, D.C. 20549. You may also visit us on the World Wide Web at www.powerbridge.com. However,
information contained on our website does not constitute a part of this annual report.
Corporate Information
Our principle executive offices are located at 1st Floor, Building D2, Southern Software Park, Tangjia Bay, Zhuhai, Guangdong 519080, China.
Our telephone number is +86-756-339-5666. Our principle website address is www.powerbridge.com. The information on our website is not part of this
Annual Report.
The following diagram illustrates our corporate structure as of the date of this Annual Report.
Compliance with Foreign Investment
All limited liability companies formed and operating in the PRC are governed by the Company Law of the People’s Republic of China, or the
Company Law, which was amended and promulgated by the Standing Committee of the National People’s Congress on October 26, 2018 and came into
effect on the same day. Foreign invested enterprises must also comply with the Company Law, with exceptions as specified in the relevant foreign
investment laws. Under our corporate structure as of the date of this Annual Report, 100% of the equity interests of Powerbridge Zhuhai are entirely and
indirectly held by our company through Powerbridge HK. Therefore, Powerbridge Zhuhai, a wholly foreign-owned enterprise (“WFOE”) of Powerbridge
HK, should be regarded as a foreign-invested enterprise and comply with both the Company Law and other applicable foreign investment laws.
With respect to the establishment and operation of WFOEs, the MOFCOM, and the National Development and Reform Commission, or NDRC,
promulgated the Catalogue of Industries for Guiding Foreign Investment, or the Catalogue (2017 Version), as amended on June 28, 2017, which came into
effect on August 28, 2017. The Catalogue divides industries for foreign investment into three categories: encouraged, restricted and prohibited. Those
industries not set out in the Catalogue shall be classified as industries permitted for foreign investment. The Catalogue serves as the main basis for
management and guidance for the MOFCOM to manage and supervise foreign investments to PRC. In addition, in June 2018, MOFCOM and NDRC
promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List, effective July 2018. The
Negative List expands the scope of permitted industries by foreign investment by reducing the number of industries that fall within the Negative List where
restrictions on the shareholding percentage or requirements on the composition of board or senior management still exists. According to the Catalogue and
the Negative List, IT services, the main business that our PRC subsidiary presently conduct, are neither restricted nor prohibited.
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Emerging Growth Company Status
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the
Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise
applicable to public companies. These provisions include, but are not limited to:
● being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our SEC filings;
● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
● reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and
● exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our
common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended. However, if certain events occur
before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more
than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year
period.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the
extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of
the JOBS Act.
Foreign Private Issuer Status
We are incorporated in the Cayman Islands. Less than 50% of our outstanding voting securities are held by U.S. residents and none of the
following three circumstances applies: the majority of our executive officers or directors are U.S. citizens or residents; more than 50% of our assets are
located in the United States; or our business is administered principally in the United States. Therefore, we are a “foreign private issuer,” as defined in Rule
405 under the Securities Act and Rule 3b-4(c) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). As a result, we are not subject to
the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient
and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We
will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be
required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery
regime.
The Initial Public Offering
On April 4, 2019, the Company completed its initial public offering of 1,750,000 Ordinary Shares, $0.00166667 par value per share. The Ordinary
Shares were sold at an offering price of $5.00 per share, generating gross proceeds of approximately $8.75 million, and net proceeds of approximately $7.8
million. The registration statement relating to the IPO also covered the underwriters’ common stock purchase warrants and the Ordinary Shares issuable
upon the exercise thereof in the total amount of 122,500 Ordinary Shares. Each five-year warrant entitles the warrant holder to purchase the Company’s
shares at the exercise price of $5.50 per share and is not be exercisable for a period of 180 days from March 28, 2019. Our Ordinary Shares began trading
on the NASDAQ Capital Market on April 2, 2019 under the ticker symbol “PBTS”.
On May 10, 2019, the Company closed on the exercise in full of the over-allotment option to purchase an additional 262,500 Ordinary Shares of
the Company by Maxim Group LLC and The Benchmark Company, LLC, the representatives of the underwriters in connection with and the joint book
running managers of the Company’s IPO (“Underwriters”), at the IPO price of $5.00 per share. As a result, the Company has raised gross proceeds of
approximately $1.31 million, in addition to the IPO gross proceeds of $8.75 million, or combined gross proceeds in this IPO of approximately $10.06
million, before underwriting discounts and commissions and offering expenses.
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B. Business Overview
Overview
We are a provider of software application and technology solutions and services to corporate and government customers primarily located in
China. We introduced global trade software applications when we launched our operations in 1997 with a vision to make global trade operations easier for
our customers. Since our inception, we have continued to innovate by developing technologies that enable us to successfully deliver a series of solutions
and services that address the evolving and changing needs of our corporate and government customers. Our mission is to make global trade easier by
empowering all players in the ecosystem.
Our customers are corporate and government organizations engaged in global trade. Our corporate customers are import and export companies,
manufacturers engaged in international trade, as well as logistics and other service providers. Our government customers include customs and other
government agencies that oversee the flow of goods and services across borders, as well as government authorities and organizations that manage and
operate free trade and bonded trade zones, ports and terminals, and other international trade facilities.
Global trade involves complicated and cumbersome processing, manual handling of voluminous documents, extended and complex cross-
organization workflows as well as a great number of business and government players in the global trade ecosystem. We estimated that a typical process for
an export shipment in China may involve 1 exporter, 8 government agencies and authorities and 12 various logistics and financial service providers with
more than 60 persons engaged in 13 different work processes that generate more than 55 regulatory compliance and trade logistics documents and 150
information or message exchanges.
Our customers are facing increasing challenges as the world’s trade ecosystems continue to grow in size and complexity. Costs associated with
global trade, such as logistics performance, border control and international connectivity remain high. Potential savings from more collaborative and
efficient trade processes could reduce the costs of global trade significantly. The need for greater efficiency and cost savings are driving the transformative
shift for participants in global trade to become more connected and collaborative.
Our comprehensive and robust solutions and services include Powerbridge System Solutions and Powerbridge SaaS Services with more than 40
solutions and services deployable on premise and in the cloud. Leveraging our deep domain knowledge and strong industry experience, we provide a
series of differentiated and robust solutions and services that address the mission critical needs of our corporate and government customers, enabling them
to handle and simplify the complexities of global trade operations, logistics and compliance.
Powerbridge System Solutions
We provide Powerbridge System Solutions to our corporate and government customers engaged in global trade, including businesses and
manufacturers across a broad range of industries, government agencies and regulatory authorities, as well as global trade logistics and other service
providers. Powerbridge System Solutions enable our customers to streamline their trade operations, trade logistics and regulatory compliance, consisting of
Trade Enterprise Solutions and Trade Compliance Solutions which have been in service since our first introduction twenty years ago and Import & Export
Loan and Insurance Processing which have recently been introduced to a selected group of customers.
Powerbridge SaaS Services
We began offering our Powerbridge SaaS Services (software-as-a-service) in 2016 and are continually developing and expanding our SaaS
services that provide our corporate and government customers with significant benefits, including better use of resources, a lower cost of operations, easier
document handling, faster processing time as well as higher logistics and compliance connectivity and efficiency. Powerbridge SaaS Services include
Logistics Service Cloud and Trade Zone Operations Cloud which are in service, and Inward Processed Manufacturing Cloud, Cross-Border eCommerce
Cloud and Import & Export Loan and Insurance Processing Service Cloud which are in development.
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Powerbridge BaaS Services
We have begun offering our cloud-based Powerbridge BaaS Services (blockchain-as-a-service) with designated use case for limited government
customer in June 2019 and we have generated limited revenue from it. We continue developing our BaaS Services for market commercialization.
Blockchain technology is emerging as a major disruptive force across many industries including those involved in global trade. We believe that blockchain
technology could allow our customers to conduct business in more synchronized and collaborative ways to substantially increase operational efficiency and
reduce trade costs across the global trade supply chain. Powerbridge BaaS Service includes Compliance Blockchain Services and Supply Chain Blockchain
Services.
Our solutions and services are built from our multiple proprietary technology platforms which are developed based on industry leading open
source infrastructure technologies. Our technology platforms include Powerbridge System Platform and Powerbridge SaaS Platform, which are designed
for high-performance reliability, flexibility and scalability, allowing us to expand our solutions and services rapidly and efficiently to consistently address
the needs of our corporate and government customers. Our Powerbridge BaaS Platform became available in June 2019.
Powerbridge System Platform consists of modular technology and business components that enable us to provide mission critical applications and
solutions in trade operations, trade logistics and regulatory compliance to our corporate and government customers.
Powerbridge SaaS Platform is the technology infrastructure upon which we are developing our SaaS services designed to provide on-demand
services in trade operations, trade logistics and regulatory compliance with a multi-tenant and microservice architecture.
Our BaaS services are built on top of our Powerbridge Blockchain Platform that is designed to allow the customs agency to increase the
effectiveness of risk assessments and interventions in monitoring and controlling the flow of goods, documents, and vendors for cross border trade events
and transactions, with an enhanced level of regulatory information transparency and synchronization among customs agencies and other government
authorities.
We intend to continue leveraging our industry expertise and product knowledge with the best use of emerging and disruptive technologies such as
big data, artificial intelligence and Internet of Things to enhance our core technology capabilities and continually increase the scope of our solutions and
services to our customers.
Our corporate and government customers include (i) international trade businesses and manufacturers, (ii) government agencies and authorities,
and (iii) logistics and other various service providers. We currently derive our revenues from three sources: (1) revenue from application development
services generated from Powerbridge System Solutions, which require us to perform services including project planning, project design, application
development and system integration based on customers’ specific needs. These services also require significant production and customization; (2) revenue
from consulting and technical support services primarily generated from Powerbridge System Solutions, and (3) revenue from subscription services
generated from Powerbridge SaaS Services. We currently generate most of our revenues from application development services, which represented 82.5%
and 78.2% of total revenue in fiscal 2020 and 2019, respectively. Revenue from consulting and technical support services represented 14.2% and 16.5% of
total revenue in fiscal 2020 and 2019, respectively. Revenue from subscription services represented 3.3% and 5.3% of total revenue in fiscal 2020 and
2019, respectively. For the fiscal years ending December 31, 2020 and 2019, our revenues were $26.7 million and US$20.1 million, respectively.
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Expansion Into Advertising and Media
Since October 2020, we started to implement our plan to build a network of digital display such as LCD screens and operate an advertisement
platform in Shenzhen, China initially, and then expand to the Greater Bay Area of China. We believe that there is a substantial market opportunity to
operate an advertising and media technology platform in the Greater Bay Area of China. We will pivot on new media business with display advertising in
various high traffic advertising locations such as residential and office buildings, commercial parking garages, and elevators in residential and office
buildings.
As of the date of this Annual Report, we have not started the management of digital displays and have not generated any revenue under the
outdoor advertising business. Due to uncertainties of COVID-19 in the media business development, the Company entered into the Second Supplemental
Agreement and the Third Supplemental Agreement to the with Kezhi on May 12, 2021, and May 16, 2021. Pursuant to the Third Supplemental Agreement,
both parties agreed that we would not acquire the management rights and advertising publishing rights previously granted under the relevant agreement
over the outdoor advertisement space and the amount paid to Kezhi shall be deemed as the Company’s working capital loan to Kezhi over two years and
the repayment of loan is guaranteed by a third party and is required to be repaid with a specific annual payment plan over two years. Nevertheless, we will
continue prudently to explore any possibilities in the media segment,
As of the date of this Annual Report, we had a total of 236 full-time employees, of which 106 are in research and development, 39 are in sales and
marketing, 52 are in technical and customer services, and 39 are in general administration.
Our Opportunity
We believe the need for global trade software application and technology services will continue to grow, driven by the continuing growth in
China’s global trade volume and the rapid advancement of the Belt & Road Initiative (“B&R”). The convergence of disruptive technologies and emergence
of blockchain technology will accelerate the drive for organizations engaged in global trade to increasingly adapt at scale to new technologies as they
mature and become more widely available.
We intend to address the subsets of three technology markets: the traditional enterprise software market in China which we have been servicing
since our inception, the SaaS application market in China which we began servicing in 2016, and the blockchain applications market for which we have
begun to implemented the BaaS services with designated use since June 2019.
According to Techvio, an industry research and consulting firm with offices located around the world, the market size in global trade management
software of 2019 is $334.5 million and is expected to grow to $416.23 million in 2024.1
According to the market report entitled “Blockchain Technology Market Size By Providers (Infrastructure Provider, Application Provider,
Operators), By Application (Smart Contract, Payment & Wallet, Digital Identity, Exchange, Compliance & Risk Management), By End-use (BFSI,
Government, Healthcare, IT Service, Media & Entertainment, Transportation & Logistics) Industry Analysis Report, Regional Outlook, Growth Potential,
Competitive Market Share & Forecast, 2019 – 2025” published in November 2019, blockchain technology market size surpassed USD 488 million in 2018
and is predicted to grow at more than 69% CAGR between 2019 and 20252.
Our Competitive Strengths
We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:
● Global Trade Software Application Pioneer. We introduced software applications for international trade companies when we launched our
operations in 1997. Since our inception, we have continued to innovate by developing technologies that enable us to consistently and
successfully deliver a series of solutions and services that address the evolving and changing needs of our customers.
1
2
https://www.technavio.com/talktous?report=IRTNTR22765&type=sample&rfs=epd&src=search
Blockchain Technology Market 2019-2025 | Global Report; Published Date: November 2019 | 259 Pages | Report ID: GMI2194 (From Global Market
Insights) https://www.gminsights.com/industry-analysis/blockchain-technology-market
40
● Deep Domain Knowledge and Industry Expertise. We have gained and developed deep domain knowledge and industry expertise from over
twenty years of experience in service, which is built into and will continue to contribute to the robust and differentiated capabilities of our
solutions and services. We believe domain knowledge and industry expertise is a significant competitive barrier due to the complex nature of
global trade.
● Solid and Diversified Customer Base. Our corporate and government customers include global trade businesses and manufacturers across a
broad range of industries, government agencies and authorities as well as logistics and other service providers. Our solid customer base
enables us to continually cross sell our solutions and services and to expand our market share.
● Comprehensive and Robust Product Portfolio. Our proven track record with our customers demonstrates the strengths in our comprehensive
and robust solution and service portfolio that is built to handle the complexities of global trade business. We continue to leverage disruptive
technologies to expand the breadth and adaptability of our portfolio of offerings to service a wider range of customers.
● Mission-Critical System That is Difficult to Replace. Because our solutions and services address the mission-critical needs in global trade,
our customers depend on our solutions and services for managing their regulatory compliance and trade logistics operations. Once deployed,
our solutions and services become a mission-critical system that is often deeply entrenched into their core technology and operational
infrastructures.
● Extensive Experience for the Belt & Road. The B&R has catalyzed substantial development for improving regulatory compliance and trade
logistics in China. We have been providing our solutions and services to help our customers achieve their objectives in this regard. Our
extensive experience will enable us to efficiently expand into international markets which we intend to target as B&R accelerates in these
markets3.
● Strong Brand Recognition and Industry Resources. We have built a trusted brand with a long history and a proven track record of delivering
value to our customers. We believe our brand, reputation and scale as well as our extensive network of industry and government resources
enable us to capture substantial growth potential as our corporate and government customers continue to grow and evolve.
● Solid Foundation for Developing Blockchain Applications. Blockchain technology is promising for business but its adoption is challenging.
It requires not only technology and product expertise but also the ability to integrate and bring all players to adapt and participate. We believe
we are capable of utilizing blockchain for global trade by leveraging our strong domain knowledge, product expertise and industry resources.
● Scalable Business Model with a Prudent Approach. Our solutions and services are highly adaptable, scalable and supported by our flexible
technology infrastructures, enabling us to efficiently expand our customer base. In addition, we are taking a prudent approach by combining
traditional technologies and disruptive technologies because we believe the adoption and transformation of new technologies will take
considerable time and effort.
● Experienced and Visionary Management Team. Our success is attributable to the deep industry expertise and proven track-record of our
experienced management. We were founded twenty years ago with a vision to make global trade operations easier, and since then, we have
successfully demonstrated our abilities. We believe our management’s strong execution capability is among the best in our industry.
3
Belt and Road Portal, https://eng.yidaiyilu.gov.cn
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Our Growth Strategy
We plan to grow and expand our business by pursuing the following growth strategies:
● Increase Revenue with Existing Customers. We have a large number of corporate and government customers that currently utilize our global
trade software application and technology services. We intend to increase our revenue by leveraging and broadening our relationships with
existing customers by helping them identify new use cases for our existing solutions and services; and solving more problems for them by
providing new solutions and services.
● Accelerate Research and Development. We used a portion of the proceeds from the IPO towards our research and development to accelerate
the development of disruptive technology-enabled global trade software application and technology solutions and services. We believe
disruptive technology-enabled applications such as SaaS and BaaS services will enable us to capture significant market share in China and
abroad.
● Expand Our Solution and Service Offerings. Global trade involves complex and cumbersome processes in trade operations, trade logistics
and regulatory compliance with many players in the global trade ecosystem. Each player is operating in different settings and with different
objectives. We plan to expand our offerings and focus on solutions and services that enable our customers to better connect and collaborate.
● Increase Market Penetration. We plan to leverage our deep domain knowledge, industry experience and product expertise to increase our
market penetration with a deeper market coverage and a broader geographical reach in China. We intend to continually strengthen our sales
and marketing capabilities and build strategic partnerships with government and corporate organizations to further drive sales.
● Expand into International Markets. China’s B&R has brought significant opportunities for Chinese organizations such as infrastructure
builders and logistics service providers. We plan to expand into international markets by “piggybacking” on these organizations as they bring
their products and services to the B&R countries. We believe this approach will mitigate risk, reduce cost and minimize time-to-market for
entering new markets.
● Pursue Strategic Acquisitions and Investments. We plan 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 Solutions
We provide software applications and technology solutions and services to corporate and government organizations involved in global trade. We
introduced our first global trade software application in 1998 and have since substantially expanded the scope of our solutions and services to address
deeper and broader customer needs.
Our solutions and services currently include Powerbridge System Solutions and Powerbridge SaaS Services; we are also designing and developing
Powerbridge BaaS Services.
We have been servicing our corporate and government customers with Powerbridge System Solutions since our introduction of this solution series
twenty years ago. Our comprehensive solutions and services address the mission critical needs in global trade for our customers, enabling them to optimize
and streamline their trade operations, trade logistics and regulatory compliance.
In 2016, we introduced Powerbridge SaaS Services and are continually expanding the scope our SaaS services. Powerbridge SaaS Services is a
software-as-a-service designed to enable businesses and government organizations with significant benefits, including better use of resources, lower cost of
operations, easier documentation handling, faster processing time as well as higher logistics and compliance and connectivity and efficiency.
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We began offering our cloud-based Powerbridge BaaS Services (blockchain-as-a-service) with designated use case for limited government
customer in June 2019 and have not generated any revenue from it yet. We continue developing our BaaS Services for market commercialization.
Blockchain technology is emerging as a major disruptive force across many industries, including those involved in global trade. We believe that blockchain
technology could allow our customers to conduct business in more synchronized and collaborative ways to substantially increase operational efficiency and
reduce trade costs across the global trade supply chain. Powerbridge BaaS Service includes Compliance Blockchain Services and Supply Chain Blockchain
Services.
Our solutions and services are built from our multiple proprietary technology platforms: Powerbridge System Platform and Powerbridge SaaS
Platform, which are designed for high-performance reliability, flexibility and scalability, allowing us to expand our solutions and services rapidly and
efficiently to consistently address the needs of our corporate and government customers. Our Powerbridge BaaS Platform became available in June 2019.
Powerbridge System Solutions
Overview of Powerbridge System Solutions
We provide Powerbridge System Solutions to our corporate and government customers engaged in global trade, including import and export
businesses, manufacturers, government agencies and regulatory authorities, as well as trade logistics and other service providers.
Powerbridge System Solutions include Trade Compliance Solutions and Trade Enterprise Solutions which have been in service since our first
introduction twenty years ago and Import & Export Loan and Insurance Processing which have recently been introduced to a selected group of customers.
Trade Compliance Solutions and Trade Enterprise Solutions are implemented and deployed on premises largely as customized services capable of
integrating with applications, systems, equipment and facilities from customers and third-party providers.
Import & Export Loan and Insurance Processing are deployed on browser/server and client/server environments.
Strengths of Powerbridge System Solutions:
We believe Powerbridge System Solutions provide the following core benefits for our customers:
● Our Trade Compliance Solutions enable government agencies and regulatory authorities greater control and security, better use of resources,
higher duty collection, faster processing time and higher compliance efficiency in servicing global trade businesses and logistics service
providers.
● Import and export businesses and manufacturers in diverse vertical industries use our Trade Enterprise Solutions to manage business
operations, simplify trade processes, reduce document handling, minimize operational cost and increase overall productivity.
● Our newly introduced Import & Export Loan and Insurance Processing is designed to facilitate and streamline global trade related loan and
insurance processes. It enables businesses, financial and insurance service involved in global trade to reduce workflow complexity, processing
time and operational cost while increase processing efficiency.
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Trade Compliance Solutions
Trade Compliance Solutions are a series of regulatory compliance solutions and services for government agencies and regulatory authorities for
managing trade zones, optimizing port control, streamlining customs clearance, accelerating cross-border processing, and expanding Chinaport services,
which include the following:
Trade Zone Compliance. We provide Trade Zone Compliance to government agencies and authorities such as customs for regulating cross-border
flow of goods and services and trade facility authorities for managing the trade zones, including bonded traded zones, free trade zones and other regulated
trade zones. Our solution allows our government customers to streamline compliance and business processes and automate document processing and
exchange as well as manage and regulate all operational activities in the trade zones, including goods and cargo flows, logistics and warehousing, and
inward processing manufacturing.
Port Compliance & Logistics. Import and export ports include ocean, air, rail, river, highway and cross-border ports. Port operations involve
complex and cumbersome processes with many players involved, including port and terminal authorities, customs and other government agencies, import
and export businesses and cargo owners, transport vessels and vehicle operators, customs and forwarding agents and various logistics service providers. We
provide Port Compliance & Logistics to all players to streamline compliance and logistics processes, which enables rapid and efficient handling of goods
and documents.
Customs Clearance. We provide Customs Clearance to customs and other government agencies such as customs and inspections to regulate cross-
border flow of goods and services for regulatory compliance operations and control. Our solution enables our government customers to streamline customs
clearance processes, increase fraud detection capabilities, and enhance duty collections, with featured applications including single window operations,
clearance compliance and processing, import and export goods inspection, inward processed manufactured goods clearance, cross-border clearance as well
as risk and security control and duty processing.
Cross-Border Processing. We provide Cross Border Processing to the customs agency, quarantine and inspection agency and other government
agencies and authorities for managing and regulating commodity and merchandise trades at designated trade markets or areas at cross-borders between
China and its neighboring countries. Our solution enables government agencies and authorities to effectively and efficiently manage all cross-border trade
operations, including trader registration, merchandise inspection, customs processing, vehicle control and checkpoint operations.
Chinaport Services. Chinaport is an import and export technology and data platform supported by sixteen major government ministries and
bureaus, including China Customs, MOC, Ministry of Industry and Information Technology, Ministry of Transportation and State Administration of
Foreign Exchange. Chinaport provides services to port authorities for data sharing and online verifications and to trade businesses for import and export
processing. We offer customized solutions and services to Chinaport organizations at national and local levels, engaging in project designing and planning,
system and platform development, system maintenance and customer service for multiple Chinaport strategic initiatives and programs.
Smart Command. Government agencies and authorities such as customs and trade facility authorities use Smart Command for more effective
managing and regulating trade compliance and trade logistics activities under their supervision. Our smart command dashboard integrates key performance
data from structured and unstructured data sources. Our visualization applications enable data display in real time on a single large multi-screen interface
with three-dimensional features. Our solution provides intelligent data in an intuitive and timely manner to enable the operators and decision makers to
make informed decisions.
Trade Enterprise Solutions
We provide Trade Enterprise Solutions to businesses, manufacturers and inward processed manufacturing companies involved in global trade. Our
solutions provides a suite of enterprise management applications that allow our customers to streamline their global trade business and operations with
features and functionalities including business and process operations, inventory and warehousing control, project execution and management, customs
clearance processing and all other compliance and logistics processing.
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Inward processed manufacturing companies use imported raw materials, components and parts, packing and other materials to produce finished
products for exporting. Inward processed manufacturing is a complicated and extended process that is highly regulated. We provide a series of applications
specific to inward processed manufacturing companies to help streamline and automate their operations with features and functionalities including bonded
goods verification, bonded logistics record keeping, digital manual processing and customs data management.
Import & Export Loan and Insurance Processing
We are introducing Loan Processing Service to import and export businesses, financial institutions such as commercial banks and technology-
enabled financial service providers to facilitate and expedite the transaction and execution process for trade related loans. Our service are designed for
document handling, loan application and approval, contract management, lending and repayment processing, and collateralized asset processing. The
various types of loan processing services include trade credit loans, factoring loans, bonded goods loans, and duty refund loans.
Our Insurance Processing Service is newly introduced to facilitate and streamline the import and export related insurance processing and
executing process for businesses and trade insurance providers involved in global trade. Our service facilitates the processing for insurance selection,
insurance estimation, application processing and approval, customs declaration verification, insurance policy issuance, and policy modification and
cancellation for a variety of global trade insurance policies including trade duty guarantee insurance, export risk insurance, transportation and logistics
insurance.
Powerbridge SaaS Services
Overview of Powerbridge SaaS Services
In 2016, we introduced Powerbridge SaaS Services (software-as-a-service) designed for corporate and government organizations involved in
global trade, including import and export businesses and manufacturers, government agencies and regulatory authorities, cross-border eCommerce
operators, as well as logistics and other service providers.
Our services are designed to be deployed rapidly via internet browsers and mobile devices, and can be supported through designated data centers
and commercially available cloud platform services that provide infrastructure as a service for servers, storage, networking and database.
Strengths of Powerbridge SaaS Services
We believe our services encompass the following core advantages:
● Lower total cost of ownership. Unlike the traditional software model, our on-demand services enable our customers to have access anytime
and anywhere without the upfront spending in software and hardware.
● Rapid deployment and configuration. Our services are designed to be deployed and configured rapidly through our application programming
interfaces.
● Flexible and scalable. Our flexible and extensible architecture enables us to offer services that are scalable and adjustable to quickly address
the different needs of our diverse group of customers.
● Reliable and secure. Our multi-tenant and microservice technology architectures allow us to design our services to provide our customers
with a high level of performance, reliability and security.
● Intuitive and ease of use. Our services are designed be intuitive and easy to use with interfaces that are simple and user friendly. Our users are
able to learn and use our services without specialized training.
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Logistics Service Cloud
Logistics Service Cloud services are used by import and export logistics service providers such as freight forwarding agent companies who
organize and arrange for air, ocean or land shipments. Our services allow our logistics service customers to minimize paperwork handling, reduce
processing time, simplify workflow and increase performance efficiency by streamlining the import and export freight forwarding process and by
facilitating digital exchange of information and documents among all players engaged in the freight forwarding process.
Our services enable our customers to connect and synchronize with the applications and systems of cargo owners, cargo depots and terminals,
transportation and carrier companies and regional customs agencies for rapid exchange and sharing of information and data. Our customers can complete
the freight arrangement process to minimize paper document handling that is often tedious, error-prone and time consuming. Electronic processing of
customs declaration, reporting and approval through our data exchange system further expedites the freight forwarding process.
We are continually expanding the features and functionalities of our services to reach a broader range of our logistics service customers. Our core
services provide features and functionalities including digital document exchange and processing among freight forwarders, cargo owners, cargo terminals,
transportation carriers and local customs for a variety of tasks, including transport booking confirmation, cargo manifests and waybills processing, cargo
status reporting at regulated depots and terminals, unloading and loading reporting, document receipt and message handling.
Trade Zone Operations Cloud
Our newly introduced Trade Zone Operations Cloud is designed for all businesses operating in regulated bonded and free trade zones, including
importers and exporters, manufacturers engaged in global trade, inward processed manufacturers, cross-border eCommerce operators and logistics service
providers as well as government zone management authorities. Our services are designed to enable businesses to streamline their operations in the zones
and allow authorities to effectively manage the zones. Our services are integrated with the systems from businesses, government authorities, logistics
service providers and other third parties.
Businesses and logistics service providers use our services to run and manage their daily operational, compliance and logistics activities, including
commodity flows of bonded and non-bonded goods, operations record declaration and verification, goods display and business transaction, bonded to non-
bonded conversion, inward processed operations and materials management, zone in-and-out processing, cross-border eCommerce operations and
compliance as well as customs declaration and clearance processing.
Our services are provided to government zone management and operating authorities as a supplement to their management and operations systems
for a variety of regulatory and management operations, including checkpoint verification and release, logistics planning and allocation, contract and
settlement management as well as document handling and performance data analysis. We are expanding our services using artificial intelligence and IoT
technologies and applications to enhance the government’s capabilities in checkpoint and zone security, vehicle monitoring and control, and smart
command operations.
Inward Processed Manufacturing Cloud
We are developing our Inward Processed Manufacturing Cloud services designed for inward processed manufacturing and trade companies who
use imported raw materials, components and parts, packing and other materials to produce finished products for exporting. Our services are being
developed to allow our customers to streamline and optimize their logistics and compliance operations in bonded or non-bonded environments. Our
services are being designed to integrate with the systems from inward processed businesses, government authorities and agencies, and logistics service
providers. Our services have recently been made available to selected customers.
Inward processed manufacturing and trade businesses may use our services to perform a variety core logistics and compliance works, including
digital handbook and manual declaration, material and component usage management, customs code revision and update, ledger maintenance, authorized
economic operators services, production related work order based declaration, import and export customs declaration and processing, bonded goods
operations and compliance as well as material and warehousing logistics management.
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Our services are designed to connect and synchronize with regional customs and other authorities through their localized single window platforms,
customs compliance and clearance systems, and Chinaport systems and applications, allowing us not only service our inward processed and trade
businesses effectively, but also offer value-added services to the government authorities by streamlining the work order based manufacturing data
verification process as well as providing insightful inward processed manufacturing related operational and compliance analytics using big data
technologies.
Cross-Border eCommerce Cloud
Our Cross-Border eCommerce Cloud is being developed for cross-border eCommerce operators, logistics service providers and payment and
settlement service providers for rapid and efficient handling of the import and export process for couriered consumer merchandise and products. Our
services are aimed at addressed the unique and challenging logistics, compliance and settlement needs of our customers, allowing them to reduce workflow
complexities, minimize processing time all the while increase customs clearance and overall productivity. Our services have currently been available for
Zhuhai-Macao cross border trade only and we have been working to realize the commercialization of our cross-border eCommerce services.
Our services are being designed to integrate with the platforms, systems and applications from all players involved in the cross-border eCommerce
process, including those from cross-border eCommerce operators, logistics service providers, payment and settlement service providers as well as
government agencies and authorities. Our services should enable the players to exchange and share information and data for streamlining the cross-border
process as well as to derive intelligent insight from the trade data for better performance and decision making.
Our services are being designed to encompass all core steps throughout the entire cross-border eCommerce process with features and
functionalities, including identity authentication of eCommerce operators, customs declaration and verification, merchandise inspection and approval, data
verification and exchange, customs clearance declaration and processing, logistics handling and tracking, compliance status inquiry and notification via
mobile devices, duty payment and tariff refund processing, government data analytics as well as regulatory information announcements.
Import & Export Loan and Insurance Processing Cloud
Import & Export Loan and Insurance Processing Cloud is being designed and developed for import and export businesses, commercial banks,
technology-enabled financial service providers and trade insurance providers. Our services will enable us to facilitate and simplify the trade related loan
and insurance processes as well as optimize the value of matching trade businesses to financial and insurance products to provide credit and risk assessment
services for the financial service providers. We plan to incorporate the use of big data, artificial intelligence and other technologies into our services.
Global trade businesses, financial service providers, and trade insurance companies may use our services to streamline the entire loan and
insurance approval and execution process. Our services will enable our customers to save time and effort in handling the complicated and cumbersome
processing tasks for a variety of trade related loans and insurances, with features and functionalities including identity verification and authentication,
document exchange and handling, application and approval, and contract execution and management, among other tasks.
Powerbridge BaaS Services
Overview of Powerbridge BaaS Services
We began offering our cloud-based Powerbridge BaaS Services (blockchain-as-a-service) with designated use case for limited government
customer in June 2019 and have not generated any revenue from it yet. We continue developing our BaaS Services for market commercialization.
Blockchain technology is emerging as a major disruptive force across many industries, including those involved in global trade. We believe that blockchain
technology could allow our customers to conduct business in more synchronized and collaborative ways to substantially increase operational efficiency and
reduce trade costs across the global trade supply chain. Powerbridge BaaS Service includes Compliance Blockchain Services and Supply Chain Blockchain
Services.
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Our blockchain technology-enabled compliance applications and services are designed to allow the customs agency to increase the effectiveness
of risk assessments and interventions in monitoring and controlling the flow of goods, documents, and vendors for cross border trade events and
transactions, with an enhanced level of regulatory information transparency and synchronization among customs agencies and other government
authorities.
Global trade is generally characterized by its extended workflows with complicated compliance and logistics processes, voluminous
documentation and time-consuming paper handling, cumbersome and costly peer-to-peer messaging and a great number of players from many different
disciplines.
We estimated that a typical process for an export shipment in China may involve 1 exporter, 8 government agencies and authorities and 12 various
logistics and financial service providers with more than 60 persons involved in 13 different work processes that generate more than 55 trade compliance
and logistics documents and 150 information or message exchanges.
Conventional and traditional applications have enhanced the functional performance of global trade organizations, but are limited at establishing
trusted relationships, allowing transparency because of inconsistent information sharing, and enabling collaboration across organizational boundaries
among all players.
We believe blockchain technologies can not only address the shortfalls of conventional and traditional applications, but will disrupt the global
trade industry and change how global trade is conducted with a collaborative model that can drastically enhance overall efficiency and reduce trade cost for
all players in the global trade ecosystem.
Strengths of Powerbridge BaaS Services
We are designing and developing our Powerbridge BaaS Services to provide corporate and government organizations involved in global trade with
significant improvements in workflow performance, reduction in document handling, optimization of synchronized peer-to-peer exchange of information,
and enhancement of overall productivity and efficiency, with the following potential core attributes and advantages:
● Distributed and shared ledgers of immutable data and records for transactions are on trusted and secured global trade blockchain networks
that are made accessible only to permissioned trading partners and peers.
● Encoded smart contract execution are validated and automated based on pre-defined business rules and contractual conditions for global trade
peer-to-peer transactions or executions that are authenticated and verifiable in real time.
● End-to-end visibility and transparency throughout the global trade supply chain ensures real time exchange of events and documents among
all trading parties and peers in the ecosystem.
● Provenance and traceability are enabled with time-stamped records or documents and immutable provenance records of import and export
goods that ensure accuracy for audit and regulatory compliance purposes.
● Extensible and interoperable capabilities enable the blockchain networks to connect and integrate with multiple other blockchain networks
and with applications and systems of the permissioned members.
● Lower total cost of ownership with services offered in the cloud with minimum investment in software and hardware for rapid deployment as
well as intuitive, easy-to-use user interface on the internet and via mobile devices.
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We offer our cloud-based BaaS services through commercial cloud platform services that provide infrastructure as a service for servers, storage,
networking and database. We currently plan to generate our revenue on a subscription basis with single use, group and enterprise editions and from
professional service fees.
We began designing and developing our Powerbridge BaaS Services infrastructure and services in 2017. We have our own development teams and
work with third-party providers of infrastructure technologies. We recently introduced our services as pilot projects on a limited basis to selected
customers.
We used a portion of the proceeds from the IPO to accelerate our R&D in order to expedite our service offerings to drive product adoption. We
believe our domain knowledge, product expertise and customer relationships will enable us to capture significant market share with Powerbridge BaaS
Services.
Our BaaS Services
Corporate and government organizations involved in global trade are facing increasing challenges with existing available technology and
applications which hinder their productivity and efficiency. Conventional and traditional applications are inadequate and ineffective in addressing
challenges which include:
● Conventional and traditional software systems used by each global trade participant is largely disjointed with inefficient integration and
synchronization.
● Information across organizational boundaries is inconsistent and not fully transparent with many “blind spots” on the global trade supply
chain.
● Peer-to-peer messaging or information exchanges among global trade players are complex, cumbersome, time-consuming and costly.
● Manual handling of paper-based global trade documents is time consuming, resource draining and error-prone.
● Compliance risk assessment and control are ineffective and costly due to lack of sufficient and credible information.
We believe our Powerbridge BaaS Services will address the imminent challenges faced by corporate and government organizations in global
trade. Our services are being developed to offer potential benefits including:
● Trusted and secured blockchain networks where all permissioned players in the global trade ecosystem can synchronize and collaborate.
● End-to-end visibility and transparency of goods and documents throughout the global trade supply by all permissioned players.
● Synchronized cross-organizational workflows and secured exchange of transaction events and messages among global trade players.
● Digitized and automated exchange of global trade documents in real time with assurance of authenticity and immutability.
● Enhanced compliance risk assessments with increased level of information transparency and assured provenance of import and export goods
and services.
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Our services are provided as consortium blockchain networks designed for all players in the global trade ecosystem including import and export
businesses and manufacturers, logistics service providers, financial service providers, and government agencies and authorities with the following potential
benefits to each group of players:
● Businesses can benefit from full transparency of a streamlined supply chain that allows for greater predictability, earlier detection of
problems, enhanced inventory management and better overall resources allocation.
● Logistics service providers can benefit from increased visibility on the supply chain, enhanced document processing and shorter processing
time, improved service reliability and lower cost to trade businesses.
● Financial service providers can benefit from increased visibility into key trade events which mitigate risks and increase assurances, and
automated document exchange and processing for loan, insurance and settlement services.
● Government agencies can benefit from enhanced monitoring and control on flow of goods, more effective risk assessments and interventions,
increased sharing of information among agencies, and higher overall compliance efficiency.
● Government authorities for trade zones and ports can benefit from increased operational efficiency driven by increased transparency,
improved document flow and faster processing time, and higher throughput for goods and cargos.
Our services are designed to be built on an open and extensible blockchain infrastructure. This will enable us to efficiently add and expand our
services over time. We intend to offer our services in sequence starting with regional or functional blockchain networks with fewer players and gradually
expanding to larger ones and eventually covering the entire global trade supply chain.
We believe this approach of targeting subsets of the global trade ecosystem by leveraging our deep domain knowledge and strong customer
relationships will allow us to continually test and fine-tune our services and incrementally drive product and market adoption which may take considerable
time and effort. We plan to initially offer the following services on a regional or functional basis:
● Compliance Blockchain Services are intended for government agencies including customs, inspections and quarantines, cross-border control,
maritime affairs, foreign exchange, tax and duty, and trade commerce, and government authorities such as free trade and bonded trade zone
authorities, port and terminal authorities and operators, and other trade regulated zone authorities. Our services will provide multiple
government agencies and authorities a single view of trade events and documents on designated global trade blockchain networks, which
allow them to synchronize and streamline their regulatory compliance activities with enhanced compliance effectiveness and operational
efficiency.
Government agencies will be able to use our services to increase the effectiveness of risk assessments and interventions in monitoring and
controlling the flow of goods and documents with increased level of transparency and assurance of provenance. Trade zone and port authorities
will be able to increase their service and operations efficiency with enhanced transparency and visibility, faster processing time and higher cargo
throughput. Our blockchain services will be capable of integrating with the software systems from government agencies and authorities for real
time monitoring and synchronization and from global trade businesses and logistics service providers for the government agencies and authorities
to better service them.
● Logistics Blockchain Services are being designed for businesses and manufactures involved in global trade as well as customs and freight
forwarding service providers. The customs and freight forwarding processes are complicated and cumbersome with multiple parties involved
and many voluminous documents to handle. Customs and freight forwarders represent the businesses to take on a number of tasks including
making import and export declarations with customs and inspection agencies, arranging for cargo shipments with the shippers and carriers,
and handling logistics and compliance works in the regulated trade zones. These processes generate large sets of documents and require
constant communication among the involved parties.
Our services will allow all involved participants operating in the customs and freight forwarding process to better connect and synchronize on the
blockchain networks. Our customers will use our services to streamline cross-organizational workflows and have real time access to monitor and
manage progress throughout the process. Our blockchain networks will be capable of connecting and integrating with the software systems from
permissioned trade businesses and logistics service providers, with features and functionalities including automated contract execution, expedited
service remittance, streamlined document handling, and synchronized information exchange.
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● Supply Chain Blockchain Services are being designed to provide end-to-end visibility and transparency to all stakeholders or players
throughout the cross-border global trade supply chain, including import and export businesses and manufacturers, logistics service providers,
transportation shippers and carriers, financial service providers, insurance companies, settlement service providers, government agencies and
authorities, and all other players. Our services will enable real time sharing of trade data and events on distributed and trusted blockchain
networks for broad synchronization and collaboration among all players in the global trade ecosystem in which the entire trade process is
facilitated and optimized.
Our services will provide secured information and message exchanges on the blockchain networks that enable all players to have real time access
to flows of documents and goods along the supply chain, allowing them to synchronize and collaborate across organizational boundaries in order
to efficiently handle the complicated and cumbersome compliance and logistics processes. Our customers can use our services to track goods and
documents, identity and manage milestone exceptions, trace the provenance of goods, and share information with their trade partners and
customers. We intend to first offer our services in China and subsequently expand to integrate the international players on the global trade supply
chain.
● Import & Export Loan and Insurance Processing Blockchain Services are being designed for businesses and financial service providers
involved in global trade. Our blockchain services will empower businesses with easier and faster processing for loans, insurance and
settlements with lower financing cost. Financial service providers can have improved visibility on key events on the blockchain-enabled trade
supply chain, resulting in better and more assured loan decisions that mitigate financing risks. Insurance companies and settlement service
providers will be able issue trade insurances and provide settlement services with more streamlined workflows and higher processing
efficiency with our blockchain services.
Through our services, transaction events or activities among businesses on the global supply chain, such as sales and invoicing, purchasing and
ordering, and shipping and receiving are programmed or encoded with pre-defined business rules and contractual conditions, allowing for
validated and automated transactions to occur. These transaction events and records on the secured blockchain networks will be authenticated and
time-stamped, thus bringing substantial proof and immutable evidence to the financial service providers for effective credit and risk assessment
when offering their loans and other services to the businesses.
Our Technology
Our solutions and services are built from our multiple proprietary technology platforms which are developed based on industry leading open
source infrastructure technologies. Our technology platforms are designed for high performance reliability, flexibility and scalability, allowing us to expand
our solutions and services rapidly and efficiently to consistently address the needs of our global trade customers.
Our technology platforms include Powerbridge System Platform for our Powerbridge System Solutions, Powerbridge SaaS Platform for
our Powerbridge SaaS Services, and Powerbridge BaaS Platform for our Powerbridge BaaS Services.
We are developing our own technologies as well as working with other third-party technology infrastructure partners to expand the scope of our
solutions and services with the best use of big data, artificial intelligence and Internet of Things.
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Powerbridge System Platform
Powerbridge System Platform is our proprietary technology platform from which we develop our Powerbridge System Solutions. Our platform is
built on Java Spring and Microsoft .Net frameworks as well as other open source technologies.
Powerbridge System Platform consists of modular technology and business components that enable us to provide mission critical applications and
solutions in trade operations, trade logistics and regulatory compliance to our corporate and government customers. Our platform’s core capabilities
include:
● Scalable Modular Architecture. Our scalable architecture consists of a robust set of modular technology and business components that allows
for rapid and efficient development and deployment to support complex mission-critical business processes and transactions in global trade.
● Flexible Configuration Modeling. Leveraging our deep domain knowledge, product expertise and customer experience in global trade
applications, we have developed a flexible system configuration modeling that minimize development resources and time without repetitive
coding for common or special business and operations use cases.
● Reliable Enterprise Grade Performance. Our platform provides the infrastructure for reliable and high performance that can be built with
multiple programing languages, support all commonly used databases, operate with web browser/server or client/server models, and generate
dynamic interactive user interfaces.
● Diverse Industry Applications Supported. Our platform supports product applications and system solutions that are used by global trade
businesses in a wide variety of industries such as automotive, pharmaceutical and consumer goods and involving different government
agencies and authorities.
Powerbridge SaaS Platform
Powerbridge SaaS Platform is built based on the open source Spring Cloud and other industry leading technologies for developing, deploying and
operating our software-as-a-service. It is capable of running in multiple designated data centers and cloud environments on commercially available
infrastructure as a service platforms.
Powerbridge SaaS Platform is the technology infrastructure upon which we are developing our Powerbridge SaaS Services designed to provide
on-demand services in trade operations, trade logistics and regulatory compliance with a multi-tenant and microservice architecture. Our core technology
capabilities include:
● Secured Multi-Tenant Architecture. Our multi-tenant architecture is designed to operate a single instance of a software application
simultaneously for multiple organizations or tenants. Each tenant is operating in virtual isolation from each other. Our multi-tenancy
architecture ensures and maintains data security and integrity for our customers.
● Scalable Microservice Architecture. Our microservice architectural approach allows us to provide scalable and reliable application services as
a suite of independently deployable, modular services in which each service can run a unique business or transaction process based on a
lightweight mechanism with well-defined business rules and logic.
● Ease of Integration and Configuration. We provide a set of application programming interfaces that is designed to enable our customers to
integrate and configure our services quickly and seamlessly with their systems and applications, as well as with third-party’s systems.
● Extensible Technology Platform. Our application services are built on a single platform that leverages the shared business and technology
components, enabling us to rapidly expand our product features and functionalities without disruption and seamlessly integrate our services
with one another.
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Powerbridge BaaS Platform
We are designing and developing our proprietary Powerbridge BaaS Platform based on the open source Hyperledger Fabric framework and other
third-party frameworks that provide the blockchain infrastructure for shared ledger, smart contract, consensus algorithm, distributed storage, encryption and
security, and network operations.
Powerbridge BaaS Services are built on top of our blockchain platform that is designed to provide high scalability and performance
characteristics, consisting of multiple technology engines that support the various business component models specific for trade transaction, trade logistics
and regulatory compliance in global trade:
● Smart Contract Engine is designed to provide a complete and automated blockchain service for the coding, registering, authorizing, releasing,
triggering, executing, updating and cancelling of the business contracts or transactions based on pre-defined contractual conditions or pre-
defined business rules that are encoded into the smart contracts between trading or transactional parties.
● Member Service Engine is intended for authenticating and managing the identity of the blockchain network members or participants with
encrypted public or private key generation and maintenance as well as managing member accounts, maintaining multi-level permission access
control and conducting risk monitoring and compliance auditing on selective member transactions.
● Network Service Engine is designed for managing network connectivity with applications, programing interfaces and structured query
languages, member consensus via consensus algorithms and permission mechanisms, secured and authenticated peer-to-peer data
transmissions and exchanges, and transaction record storage with key value and Merkel hash value on distributed shared ledgers and/or in
cloud-based database environments.
● Network Operations Engine is intended to monitor, manage and maintain the blockchain network operations, including network
configuration, throughput and time consumption, hardware resource and allocation, fraud and emergency situation detection, network system
update and announcement, and other network functions and operations as well as network performance and trend analysis and reporting.
We are continuing to enhance the technology capabilities of Powerbridge BaaS Platform while it is under development. We believe our platform
offers all of the governance and operations benefits derived from blockchain technology with the following differentiated and distinctive advantages:
● Global Trade Centric Business Components. We believe our domain knowledge, product expertise and customer experience will allow us to
develop a platform that forms a strong and powerful foundation for continually offering and expanding our services to drive product adoption
with this new and exciting technology.
Our BaaS services will be supported by our business components which are stacked on top of and driven by our technology engines. Our business
components will include trade transaction, trade operations, trade logistics and regulatory compliance, which are designed to address the mission
critical needs of global trade businesses, government agencies and authorities, and logistics and other service providers with comprehensive
services from document handling to customs processing to transaction processing.
● Data Separation Modeling. Global trade transaction processes typically generate voluminous data to which organizations have different needs
and ways to handle them. Some organizations may choose not to have their sensitive data stored on the blockchain networks. We are
developing a data separation model that can allow data to be recorded and stored on the shared ledgers, but also have more sensitive data
securely stored off the blockchains, which has the added benefit of minimizing data storage space.
We intend to further separate the smart contract blockchains and workflow blockchains. Smart contract blockchains and the corresponding
contract codes and hash values are recorded and stored on the shared ledgers as the contract codes can be called and used numerous times. Data
generated from the workflow blockchains and the smart contract blockchains can be designated as on or off the shared ledgers. This further
ensures data security and reduce data storage on the blockchains.
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Other Technologies and Applications
We intend to continue leveraging our industry expertise and product knowledge with the use of disruptive technologies such as big data, artificial
intelligence and Internet of Things to enhance our core technology capabilities and continually increase the scope of our solutions and services to our
customers.
● Big Data. We are developing our big data technology and applications designed to acquire, store, process, analyze and visualize large scaled
structured and unstructured global trade transaction and compliance data. Our technology is intended to augment our solutions and services in
trade operations, trade logistics and regulatory compliance in global trade, including regulatory risk control, compliance command operations,
cross-border trades and processing, logistics matching services, among others.
We intend to use ETL (extract, transform and load) technologies for acquiring and processing massive volumes of data such as customs
declarations and shipping manifests from various government and commercial sources. We intend to build our big data platform based on a
distributed data warehouse architecture using the open source Hadoop and Spark frameworks, allowing for high performance in multi-dimensional
correlation analytics, real-time complex event processing, and distributed data query and retrieval.
Our correlation analytics are being designed for multi-dimensional and real-time correlation of large quantities of structured, semi-structured and
unstructured data from different data sources. Our complex event processing technology is designed to monitor and track data relating to events as
they occur in real time and provide data insights based on pre-defined business rules. Our data query and retrieval is intended to support query and
retrieval from multiple data sets and provide multi-dimensional data displays.
Our data visualization and interactive data mining technologies is designed to provide intuitive and interactive visualization tools and dashboards
that are easy to use and can be customized for displaying critical business performance data or metrics. Our visualization tools and dashboards are
designed to support interactive data mining and a variety of display formats including charts, graphs and tables as well as three-dimensional
displays and geographic information system mappings.
● Artificial Intelligence. We work with third party artificial intelligence technology providers to enhance our solutions and services in global
trade. Our artificial intelligence applications facilitate and support biometric facial and fingerprint recognitions as well as object recognition
for transportation vehicles and shipping containers. We plan to develop our machine learning capabilities to provide optimized matching and
recommendation services for global trade logistics and processing.
Our biometric face recognition application is used for security and enforcement measures typically at checkpoints of cross-border trade operations
and regulated trade zone facilities for identifying and verifying a person from a digital image or a video frame by comparing distinct facial
features with given facial images extracted from our database. Our applications are designed to support concurrent processing of multiple persons.
Our fingerprint recognition application is also applied for security measures in some cross-border trade settings.
Our object recognition application is designed to identify and verify transportation vehicles at ports and terminals, regulated trade zones and cross-
border checkpoints by capturing, processing, and identifying still images and video images. Further, through machine learning computation,
transportation vehicles in these facilities can be automatically directed with optimized routes to their designated destinations such as a warehouse
or a container depot.
We plan to enhance our technology capabilities in machine learning algorithms that learn from experience, identify patterns and make predictions
driven by a large set of global trade data. We intend to leverage our domain knowledge and industry experience to design and develop machine
learning algorithms and distributed computing that can optimize the efficiency in the matching of trade logistics services among trade businesses
and service providers.
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● Internet of Things. Internet of Things or IoT refers to the network of physical objects embedded with sensors, electronics, and network
connectivity that allow these objects to collect and exchange data. We work with third-party technology companies to provide IoT
applications to process, store, and analyze IoT data from trade related trucking vehicles, weighting stations, and shipping containers. Our
applications are integrated with the target object’s IoT systems and software systems of government authorities.
Trucking vehicles, weighting stations and shipping containers are tightly regulated at ports and terminals, regulated trade facilities and cross-
border facilities. Our IoT applications are used by government authorities to monitor and control these objects. Our applications are able to
authenticate objects, facilitate data exchanges, connect through gateways and application programming interfaces, and provide event-based IoT
data processing, analysis and visualization.
Our IoT applications allows fast and accurate identification of trucking vehicles as they pass through the checkpoints at regulated areas with a high
throughput capacity and rapid data transmission, which facilitates efficient control and fast checkpoint release. Our IoT applications can combine
with the use of global positioning systems, global system for mobile communication and global information system to enable government
authorities complete monitoring and control of the trucking vehicles.
Our IoT applications are capable of acquiring and processing a high volume of IoT enabled data from radio frequency identification and other
types of sensor devices installed on intermodal shipping containers operating in many different trade facilities or settings such as container yards,
shipping ports, bonded warehouses and air terminals. Our IoT applications can also process IoT data from electronic locks on the containers for
automated container lock handling.
Our Customers
Our customers are international trade businesses and manufacturers, government agencies and authorities, logistics service and other providers,
primarily located in China.
Our international trade business and manufacturer customers are import and export companies, manufacturers engaged in import and export,
inward processed manufacturers who use imported raw materials, components and parts, packing and other materials to produce finished products for
exporting, and cross-border eCommerce operators who conduct cross-border business for air packaged consumer products.
Our government customers are provincial and regional government agencies, government authorities and government-owned organizations.
Government agencies include customs, inspection and quarantine, border enforcement, maritime affair, transportation and commerce. Government
authorities include authorities for ports, bonded and free trade zones and government-owned organizations include Chinaport and other international trade
related organizations.
Our logistics service and other provider customers include freight forwarding and shipping agent firms, customs and inspection brokers,
warehouse operators, transportation companies and other international trade related service organizations as well as financial and insurance service
providers engaged in global trade services.
Our customers include (i) international trade businesses and manufacturers, (ii) government agencies and authorities, and (iii) logistics and other
various service providers. During the fiscal year ended December 31, 2020, we generated revenue from a total of 602 customers, of which 373 are
international trade businesses and manufacturers, 33 are government agencies and authorities, and 196 are logistics and other service providers. During the
fiscal year ended December 31, 2019, we generated revenue from a total of 488 customers, of which 312 are international trade businesses and
manufacturers, 29 are government agencies and authorities, and 147 are logistics and other service providers. During the fiscal year ended December 31,
2018, we generated revenue from a total of 589 customers, of which 104 are international trade businesses and manufacturers, 30 are government agencies
and authorities, and 455 are logistics and other service providers.
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We plan to expand our market coverage to international markets to service customers in different B&R countries. We also intend to provide our
solutions and services to corporate and government customers in the countries or markets we intend to target.
Sales and Marketing
Our sales and marketing teams work closely together to drive market awareness, develop and manage leads, and develop and build customer
relationships to increase revenue growth. We sell our solutions and services to corporate and government customers through our direct sales organization,
indirect channel partners and strategic government partners.
Our sales team is organized by customer type and geography. Our direct sales force is supported by sales engineers and service consultants. Our
indirect channel partners include value added resellers, system integrators, software and application providers, system hardware providers and other referral
partners. As of the date of this Annual Report, our sales teams consisted of 39 full-time sales and marketing personnel respectively. During fiscal years
2020, 2019 and 2018, our sales and marketing expense were approximately $2.7 million, $3.6 million and $2.1 million, respectively, representing 10.0%,
17.7% and 9.3% of our total revenues for fiscal years 2020, 2019 and 2018, respectively.
We generate customer leads, accelerate sales opportunities and build brand awareness through our marketing programs. Our marketing programs
target management and technology executives of global trade businesses, government agencies and authorities, and various service providers, including
user conferences, sponsored events and product promotions.
We continue to develop strategic partnerships with provincial and local government agencies, technology organizations, trade zone authorities and
other government organizations, i.e., regional customs and commerce agencies, bonded and other trade facilities, and Chinaport and other state-owned
entities, to drive sales by leveraging their strengths and resources in targeted customer base, strong regional market influence and extensive government
and industry resources.
As part of our overall strategy, we plan to expand into international markets to provide global trade software solutions and services by
“piggybacking” with the infrastructure builders and other Chinese organizations who participate in the B&R’s development of global trade infrastructures
in the B&R partnering countries.
Research and Development (“R&D”)
Our R&D organizations consist of dedicated engineering and technology employees, who are responsible for the design, development, testing and
delivery of all aspects of our technologies, solutions and services. As of the date of this Annual Report, our team consists of 106 full-time R&D personnel.
We incurred expenses of $2,780,944 and $2,163,658 in R&D in fiscal year 2020 and 2019, respectively.
The majority of our R&D team is based in our Zhuhai office and to a lesser degree in our branch offices. Our team is further apportioned into
smaller agile development groups to foster continuous innovation and rapid delivery.
We believe we have a strong R&D culture that rapidly and consistently delivers high quality products. We plan to continue to invest substantial
resources in R&D to drive core technology innovation and bring new solutions and services to market.
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Competition
The market for global trade software application and system integration services is highly competitive and fragmented. We face intensive
competition. Our main sources of current and potential competition fall into the following categories:
● Regional global trade application providers offering regulatory compliance, trade logistics and trade processing software and systems.
● Software vendors providing online or cloud-based single point or single feature functional global trade application products and services.
● Online global trade hubs or portals offering specific global trade transactional and processing application products and services.
● Enterprise resource planning, supply chain and logistics software application companies offering global trade software, systems and services.
● Government organizations providing global trade related regulatory compliance and trade logistics applications and systems.
● Emerging blockchain, artificial intelligence and IoT technology providers offering technologies and software for global trade applications.
We believe the following competitive attributes are necessary for us to compete successfully in our industry:
● Deep domain knowledge, industry experience and product expertise in global trade software applications and system integration to address
customer needs.
● Enablement of emerging and disruptive technologies to develop and provide global trade software applications and services
● Enterprise grade performance level in scalability, reliability and security as well as cost of ownership and ease of deployment.
● Breadth, depth and quality of application features and functionalities that are able to operate in multiple infrastructures such as in cloud, on
premises or both.
● Capability of technology platforms in integrating and interoperating with legacy and other enterprise infrastructures and third party
applications.
● Strength of sales and marketing as well as customer support in service responsiveness and level of customer satisfaction.
● Brand awareness and reputation, size of customer base and level of user adoption to new and disruptive technologies and applications.
● Ability to capture market share in China and expand into international markets to operate as a global player in servicing multiple markets and
countries.
We believe we compete favorably on the basis of the competitive factors listed above. Some of our competitors have substantially greater
financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution channels and larger or more
intellectual property portfolios.
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Intellectual Property
The PRC has domestic laws for the protection of rights in copyrights, trademarks and trade secrets. The PRC is also a signatory to all of the
world’s major intellectual property conventions, including:
● Convention establishing the World Intellectual Property Organization (June 3, 1980);
● Paris Convention for the Protection of Industrial Property (March 19, 1985);
● Patent Cooperation Treaty (January 1, 1994); and
● Agreement on Trade-Related Aspects of Intellectual Property Rights (November 11, 2001).
The PRC Trademark Law, adopted in 1982 and revised in 2013, with its implementation rules adopted in 2014, protects registered trademarks. The
Trademark Office of the State Administration of Industry and Commerce of the PRC, handles trademark registrations and grants trademark registrations for
a term of ten years.
We rely on a combination of trademark, fair trade practice, copyright and trade secret protection laws and patent protection in China and other
patent jurisdictions, as well as contractual restrictions, to protect our intellectual property. We entered into comprehensive confidentiality agreements with
our management and consultants. We have standard confidentiality terms with all other employees. We also control access to and distribution of our
documentation and other licensed information.
Despite our efforts to protect our proprietary technology and our intellectual property rights, unauthorized parties may attempt to copy or obtain
and use our technology to develop applications with the same functionality as our products. Policing unauthorized use of our technology and intellectual
property rights is difficult. Our patent applications may not issue as patents, and if they do issue as patents, they may not provide meaningful protection
against competitors. We expect that software in our industry may be subject to third-party infringement claims as the number of competitors grows and the
functionality of applications in different industry segments overlaps. Any of these third parties might make a claim of infringement against us at any time.
We require our employees to enter into non-disclosure agreements to limit access to and distribution of our proprietary and confidential information. These
agreements generally provide that any confidential or proprietary information developed by us or on our behalf must be kept confidential. These
agreements also provide that any confidential or proprietary information disclosed to third parties in the course of our business must be kept confidential by
such third parties. In the event of trademark infringement, the State Administration for Industry and Commerce has the authority to fine the infringer and to
confiscate or destroy the infringing products.
As of the date of this Annual Report, we have 2 registered patent, 103 registered software copyrights, and 12 registered trademarks in the PRC. In
addition, we own five URL designations and domain names, including powerbridge.com, erp-china.com, pbtcloud.com, pbtyun.com, and pbtco.cn.
We do not have applications pending in any jurisdiction other than China. We do not know if these applications will be granted as patents, and if
they are granted as patents whether they will provide meaningful protection against their party competitors.
Facilities
Our headquarters and executive offices are located in Zhuhai, China and consist of approximately 1,200 square meter of office space under one
lease which will expire in December of 2021. In addition to our headquarters, we lease space in Zhuhai, Wuhan, Changsha, Nanning, and Hangzhou. Rent
expenses amounted to $305,832 and $492,530 and $386,076 for the years ended December 31, 2020, 2019 and 2018, respectively.
We lease all of our facilities and do not own any real property. We intend to procure additional space as we add employees and expand
geographically. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative
space will be available to accommodate any such expansion of our operations. As of May 10, 2021, we maintain following facilities in China.
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Facility
Address
Space (㎡)
Zhuhai Office
1st Floor, Building D2, Southern Software Park, Tangjia Bay
Wuhan Office
Suite 805, Block 5, Fanhai Central Business District, Soho City
Jianghan, Wuhan, Hubei 430014, China
Changsha Office
Suite 458, 12th Fl, Lanwan International, Shuyan & Nanhu Road
Tianxin, Changsha, Hunan 410015, China
Nanning Office
Suite 2206-2209, 22nd Fl, Block 2, 118 Dongge Road
Qingxiu, Nanning, Guangxi 530012, China
Hangzhou Office
Suite 1301, Building 1, Jiliang Tower, 252 Wantang Road
Xihu, Hangzhou, Zhejiang 310012, China
Jiujiang Office
Gangcheng Ave.#200, Jiujiang Ecomonic Technology Development Zone, Jiujiang, China
Employees
1190
388
305
389
86
50
As of the date of this Annual Report, we had a total of 236 full-time employees, of which 106 are in research and development, 39 are in sales and
marketing, 52 are in technical and customer services, and 39 are in general administration.
We have standard employment, comprehensive confidentiality and non-compete agreements with our management and standard confidentiality
and non-compete terms with all other employees. As required by laws and regulations in China, we participate in various social security plans that are
organized by municipal and provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-
related injury insurance and housing fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of
the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.
We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our
employee is represented by a labor union or covered by collective bargaining agreements. We have not experienced any work stoppages.
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Legal Proceedings
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not
currently a party to any legal proceedings that in the opinion of the management, if determined adversely to us, would have a material adverse effect on our
business, financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense
and settlement costs, diversion of management resources and other factors.
Government Regulation Relating to Our Business
Regulations Related to Foreign Investment
Investment activities in China by foreign investors are principally governed by the Catalogue for the Guidance of Foreign Investment Industries,
which was promulgated by MOFCOM and the National Development and Reform Commission, as amended from time to time. Industries listed in the
catalogue are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the catalogue are generally open to foreign
investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged
industries. For some restricted industries, foreign investors can only conduct investment activities through equity or contractual joint ventures, while in
some cases PRC partners are required to hold the majority interests in such joint ventures. In addition, projects in the restricted category are subject to
higher-level governmental approvals. Foreign investors are not allowed to invest in industries in the prohibited category.
Regulations Relating to PRC Information Technology Service Industry
According to the Catalog on Foreign Invested Industries (2017 Revision) issued by the National Development and Reform Commission and the
Ministry of Commerce, IT services fall into the category of industries in which foreign investment is encouraged. In 2018, The National Development and
Reform Commission and the Ministry of Commerce launched Special Administrative Measures for Access of Foreign Investment (Negative List) (Version
2018)(“the 2018 Negative List”) to replace part of the Catalog on Foreign Invested Industries (2017 Revision) in respect of the category of industries in
which foreign investment is restricted or prohibited, and foreign investment in IT services is neither restricted nor prohibited according to the 2018
Negative List. The State Council has promulgated several notices since 2000 to launch favorable policies for IT services, such as preferential tax treatments
and credit support.
Under rules and regulations promulgated by various Chinese government agencies, enterprises that have met specified criteria and are recognized
as software enterprises by the relevant government authorities in China are entitled to preferential treatment, including financing support, preferential tax
rates, export incentives, discretion and flexibility in determining employees’ welfare benefits and remuneration. Software enterprise qualifications are
subject to annual examination. Enterprises that fail to meet the annual examination standards will lose the favorable enterprise income tax treatment.
Enterprises exporting software or producing software products that are registered with the relevant government authorities are also entitled to preferential
treatment including governmental financial support, preferential import, export policies and preferential tax rates.
Companies in China engaging in information systems integration were used to be required to obtain qualification certificates from the Ministry of
Industry and Information Technology. “Information systems integration” means plan, design, development, implementation, service and safeguard of
computer system and network system. Currently the Company does not engage in information system integration business, therefore the Company is not
required to have such qualification certificates. Companies planning to set up computer information systems may only retain systems integration companies
with appropriate qualification certificates. The qualification certificate is subject to review every two years and is renewable every four years. In June 2015,
the China Information Technology Industry Federation (CITIF) promulgated the Appraisal Condition for Qualification Grade of Information Systems
Integration (Provisional) to elaborate the conditions for appraising each of the four qualification grades of systems integration companies. Companies
applying for qualification are graded depending on the scale of the work they undertake. The grades range from Grade 1 (highest) to Grade 4 (lowest) in the
scale of the work the respective companies can undertake.
In 2009, the Ministry of Commerce and the Ministry of Industry and Information Technology jointly promulgated a rule aiming to protect a fair
competition environment in the PRC service outsourcing industry. This rule requires that each of the domestic enterprises which provides IT and
technological BPO services and each of its shareholders, directors, supervisors, managers and employees should not violate the service outsourcing contract
to disclose, use or allow others to use the confidential information of its customer. Such enterprises are also required to establish an information protection
system and take various measures to protect customers’ confidential information, including causing their employees and third parties who have access to
customers’ confidential information to sign confidentiality agreements and or non-competition agreements.
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Regulations Related to Labor and Social Security
Pursuant to the Labor Law, promulgated by National People’s Congress in January 1995, and the Labor Contract Law, promulgated by Standing
Committee of the National People’s Congress in June 2007 and amended in December 2012, employers must execute written labor contracts with full-time
employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment
relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee
twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to
the day prior to the execution of the written employment contract. All employers must comply with local minimum wage standards. Violation of the Labor
Law and the Labor Contract Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violation.
On December 28, 2012, the PRC Labor Contract Law was amended with effect on July 1, 2013 to impose more stringent requirements on labor
dispatch. Under such law, dispatched workers are entitled to pay equal to that of full-time employees for equal work, but the number of dispatched workers
that an employer hires may not exceed a certain percentage of its total number of employees as determined by the labor administrative department of the
State Council. Additionally, dispatched workers are only permitted to engage in temporary, auxiliary or substitute work. According to the Interim
Provisions on Labor Dispatching promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on
March 1, 2014, the number of dispatched workers hired by an employer shall not exceed 10% of the total number of its employees (including both directly
hired employees and dispatched workers). The Interim Provisions on Labor Dispatching require employers which are not in compliance with the PRC
Labor Contract Law in this regard to reduce the number of its dispatched workers to below 10% of the total number of its employees prior to March 1,
2016. In addition, an employer is not permitted to hire any new dispatched worker until the number of its dispatched workers has been reduced to below
10% of the total number of its employees.
Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds,
namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan,
and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries of the employees as specified by the
local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an
employer that fails to make social insurance contributions may be ordered to rectify the noncompliance and pay the required contributions within a
stipulated deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the case may be. If the employer still fails to rectify the failure to make
social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to
the Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance
and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. Our
PRC operating entities have not made adequate employee benefit payments and we may be required to make up the contributions for these plans as well as
to pay late fees and fines. See “Risks Related to Doing Business in China--Failure to make adequate contributions to various mandatory social security
plans as required by PRC regulations may subject us to penalties”.
Regulations on Intellectual Property Rights
The PRC Copyright Law, as amended, together with various regulations and rules promulgated by the State Council and the National Copyright
Administration, protect software copyright in China. These laws and regulations establish a voluntary registration system for software copyrights
administered by the Copyright Protection Center of China. Unlike patent and trademark registration, copyrighted software does not require registration for
protection. Although such registration is not mandatory under PRC law, software copyright owners are encouraged to go through the registration process
and registered software may receive better protection. The PRC Trademark Law, as amended, together with its implementation rules, protect registered
trademarks. The Trademark Office of the State Administration for Industry and Commerce handles trademark registrations and grants a renewable
protection term of 10 years to registered trademarks.
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Regulation of Foreign Currency Exchange and Dividend Distribution
Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration
Regulations, most recently amended in August 2008. Payments of current account items, such as profit distributions and trade and service-related foreign
exchange transactions, can usually be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by
complying with certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required where
Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-
denominated loans.
On March 30, 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Management Approach
regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular 19. Pursuant to SAFE Circular 19, the foreign
exchange capital of foreign-invested enterprises is subject to the discretional foreign exchange settlement, which means the foreign exchange capital in the
capital account of foreign-invested enterprises upon the confirmation of rights and interests of monetary contribution by the local foreign exchange bureau
(or the book-entry registration of monetary contribution by the banks) may be settled at the banks based on the actual operation needs of the enterprises.
The proportion of discretionary settlement of foreign exchange capital of foreign-invested enterprises is currently 100%. SAFE can adjust such proportion
in due time based on the circumstances of international balance of payments.
The dividends paid by the subsidiaries to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration
Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange,
subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the
capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.
Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law
of the PRC (1993), as amended in 2013, the Foreign Investment assets or interests to a SPV, but failed to complete foreign exchange registration of
overseas investments as required prior Enterprise Law (1986), as amended in 2016, and the Administrative Rules under the Foreign Investment Enterprise
Law (1990), as amended in 2001 and 2014 respectively.
Under these regulations, wholly foreign-owned investment enterprises in China may pay dividends only out of their retained profits, if any,
determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned investment enterprises in China are required
to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the
registered capital of the enterprises. These reserves are not distributable as cash dividends, and a wholly foreign-owned enterprise is not permitted to
distribute any profits until losses from prior fiscal years have been offset.
Circular 37. On July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall
apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the
domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required if the
registered overseas SPV’s basic information such as domestic individual resident shareholder, name, operating period, or major events such as domestic
individual resident capital increase, capital reduction, share transfer or exchange, merger or division has changed. Although the change of overseas funds
raised by overseas SPV, overseas investment exercised by overseas SPV and non-cross-border capital flow are not included in Circular 37, we may be
required to make foreign exchange registration if required by SAFE and its branches.
Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic to implementation of Circular 37, are
required to send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in
Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to
RMB 50,000 for an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed. PRC
residents who control our company are required to register with SAFE in connection with their investments in us. If we use our equity interest to purchase
the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures
described in Circular 37.
62
New M&A Regulations and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration
Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations
on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006 and was
amended on June 22, 2009. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle
formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain
the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles.
The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval
process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the
scope of the applicability of the CSRC approval requirement.
Our PRC counsel has advised us that, based on their understanding of the current PRC laws and regulations, that the corporate structure of the
Group Companies shall not be deemed as “a foreign investor’s merger and acquisition of a domestic enterprise” as specified in the Article 2 of the New
M&A Rule, so the Company is not required to obtain approval from the CSRC for listing and trading of its shares. However, uncertainties still exist as to
how the New M&A Rule will be interpreted and implemented and our opinion stated above is subject to any new laws, rules and regulations or detailed
implementations and interpretations in any form relating to the New M&A Rule.
Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC subsidiary
An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after
investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which
include the Wholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture
Enterprise Law, all as amended from time to time, and their respective implementing rules; the Administrative Provisions on Foreign Exchange in
Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting
Foreign Exchange Administration Policies for Direct Investment. Under the aforesaid laws and regulations, the increase of the registered capital of a
foreign-invested enterprise is subject to the prior approval by the original approval authority of its establishment. In addition, the increase of registered
capital and total investment amount shall both be registered with SAIC and SAFE. Shareholder loans made by offshore parent holding companies to their
PRC subsidiary are regarded as foreign debts in China for regulatory purpose, which is subject to a number of PRC laws and regulations, including the
PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics
Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange. Under
these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiary shall be registered with SAFE. Furthermore,
the total amount of foreign debts that can be borrowed by such PRC subsidiary, including any shareholder loans, shall not exceed the difference between
the total investment amount and the registered capital amount of the PRC subsidiary, both of which are subject to the governmental approval.
C. Our Structure
See “Item 4. Information on the Company – A. History and Development of the Company.”
D. Property, Plants and Equipment
Information regarding our property, plants and equipment is described “Item 4. B. Business Overview.”
63
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial
statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report.
Overview
Powerbridge Technologies Co., Ltd. is a company that was established under the laws of the Cayman Islands on July 27, 2018 as a holding
company.
We are a provider of software application and technology solutions and services to corporate and government customers engaged in global trade.
All of our customers are located in China. We currently generate most of our revenues from application development services, which represent 82.5%,
78.2% and 86.5% of total revenue in fiscal 2020, 2019 and 2018, respectively. We also generate revenue from consulting and technical support services,
which represent 14.2%, 16.5% and 10.3% of our revenue in fiscal 2020, 2019 and 2018, respectively. Further, we also earn subscription service revenue
from customers accessing our SaaS. For the years ended December 31, 2020, 2019 and 2018, our revenues were approximately $26.7 million, $20.1
million and $23.2 million, respectively.
Coronavirus (“COVID-19”) updates
The COVID-19 pandemic has caused disruptions to our operations starting in December 2019. During the first quarter of 2020, our operations
were closed in February due to China government mandates and we moved quickly to transition our colleague base to a fully remote working environment
in all our locations. At the beginning of March 2020, substantially all of our employee were back to work in our offices. The ongoing COVID-19 pandemic
not only adversely impacted our operations but business of our customers. We experienced delayed customer payments and rescheduled customer orders,
which adversely impacts the Company’s results of operations, cash flows and financial position. Since the COVID-19 pandemic has been gradually
contained in China, our revenue and gross margin for the year ended December 31, 2020 has not been adversely affected.
The extent of the impact on our 2021fiscal year results will be dependent on future developments such as the length and severity of the crisis, the
potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global
economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. The Company continues taking actions to
help mitigate, as best we can, the impact of the COVID-19 pandemic on the health and well-being of our employees, the communities in which we operate
and our partners, as well as the impact on our operations and business as a whole.
Recent Developments
Since October 2020, we started to implement our plan to build a network of digital display such as LCD screens and operate an advertisement
platform in Shenzhen, China initially, and then expand to the Greater Bay Area of China. Since February 2021, we found delivery of the outdoor
advertising space could not be made as scheduled pursuant to the First Supplemental Agreement. Therefore, management does not expect our proposed
outdoor advertisement business will be launched as previously planned. Upon intensive negotiation with Kezhi, we entered into a second supplemental
agreement to the Original Leasing Agreement and Supplemental Agreement (the “March Supplemental Agreement”). Pursuant to the March Supplemental
Agreement, we converted the paid leasing fees and contract bonds as a working capital support loan to Kezhi, with 5% annual interest rate, and the
Company would not acquire the management rights and advertising publishing rights under the First Supplemental Agreement and the Original Agreement.
The term of the working capital support loan was six years. On May 12, 2021, we entered into a void confirmation agreement with Kezhi, pursuant to
which both parties agreed to void the March Supplemental Agreement. On May 17, 2021, Guangdong Huafa Law Firm (the “PRC Legal Counsel”) issued a
legal opinion regarding the legal effect of the March Supplement Agreement and the void confirmation agreement. The PRC Legal Counsel confirmed that
the parties’ rights and obligations under the March Agreement have been terminated upon the effectiveness of the void confirmation agreement.
On May 12, 2021, we entered into a second supplemental agreement to the Original Leasing Agreement (the “Second Supplemental Agreement”)
with Kezhi. Pursuant to the Second Supplemental Agreement, we would not acquire the management rights and advertising publishing rights over the
outdoor advertisement space and extended the paid leasing fees and contract bonds in aggregated of $68,095,019 as a secured working capital support to
Kezhi with expected annual returns over six years and coupon interest rate of 5% (the “Secured Working Capital”). Additionally, Kezhi agreed to use the
Secured Working Capital in its outdoor advertisement business and other investment activities approved by us. Under the Second Supplemental Agreement,
Kezhi guaranteed that it would fulfill its obligation of return of the Secured Working Capital, including the coupon interest payment, through cash
generated from its business with Nanjing Jinjiahu Culture Media Co., Ltd (“Nanjing Jinjiahu”) and Guangzhou Hongtan Commercial Real Estate
Investment Partnership (limited partnership) (“Guangzhou Hongtan”) in the next six years. Furthermore, if Kezhi, Nanjing Jinjiahu, and Guangzhou
Hongtan can meet the milestones for asset value increase, we shall have the right of first refusal to acquire the three companies at a purchase price based on
an independent valuation report.
On May 16, 2021, we entered into a third supplemental agreement to the Original Leasing Agreement with Kezhi (the “Third Supplemental
Agreement”), pursuant to which the Secured Working Capital will not be used in Kezhi’s business nor its business with Nanjing Jinjiahu and Guangzhou
Hongtan. The Secured Working Capital shall be returned in two years. Under the Third Supplemental Agreement, in the event that Kezhi fails to return the
Secured Working Capital as scheduled, Shenzhen Qinghaihuai Construction Material Co., Ltd. will provide guarantee over the return of the working capital
for Kezhi. We also released the mortgage of certain chattel provided by Kezhi under the Third Supplemental Agreement.
64
Key Factors that Affect Operating Results
We currently derive a majority of revenues from our application development services, consulting and technical support services, and subscription
services. We intend to continually enhance our services and cross-sell new services to our existing customers and acquire new customers by increasing our
market penetration with a deeper market coverage and a broader geographical reach. Our ability to maintain and expand our customer base with our
application development services significantly affects our operating results.
We intend to expand the scope of our offerings to service existing customers and acquire new customers by continually making significant
investments in R&D as well as sales marketing activities to increase our subscription revenue and profit. Our ability to drive increased customer adoption
and usage of our SaaS services affects our operating results.
Our business of providing global trade software application and technology services requires highly skilled professionals with specialized domain
knowledge and technology expertise in order to develop and perform the services offered to our customers. Our ability to recruit, train, develop and retain
our professionals with the skills and qualifications necessary to fulfill the needs of our existing and new customers has a significant effect on our operating
results.
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.
Results of Operations
For the years ended December 31, 2020 and 2019
The following table summarizes the results of our operations for the years ended December 31, 2020 and 2019, respectively, and provides
information regarding the dollar and percentage increase or (decrease) during such periods.
REVENUES:
Application development services
Consulting and technical support services
Subscription services
Total revenues
COST OF REVENUES:
Application development services
Consulting and technical support services
Subscription services
Total cost of revenues
GROSS PROFIT
OPERATING EXPENSES:
Selling and marketing
General and administrative
Provision for doubtful accounts
Research and development
Share based compensation
Total operating expenses
OPERATING LOSS FROM OPERATIONS
OTHER INCOME (EXPENSES)
Other income
Change in fair value of convertible debt
Total other expense
For the Years Ended
December 31,
2020
2019
Change
% Change
$
21,985,214 $
3,797,354
881,443
26,664,011
15,720,676 $
3,307,662
1,066,720
20,095,058
6,264,538
489,692
(185,277)
6,568,953
15,320,446
1,803,239
147,631
17,271,316
12,553,556
1,339,133
137,658
14,030,347
2,766,890
464,106
9,973
3,240,969
9,392,695
6,064,711
3,327,984
2,675,028
5,559,426
191,148
2,780,944
1,473,976
12,680,522
(3,287,827)
3,562,425
5,945,576
3,293,600
2,163,658
2,351,890
17,317,149
(11,252,438)
(887,397)
(386,150)
(3,102,452)
617,286
(877,914)
(4,636,627)
7,964,611
39.8%
14.8%
(17.4)%
32.7%
22.0%
34.7%
7.2%
23.1%
54.9%
(24.9)%
(6.5)%
(94.2)%
28.5%
(37.3)%
(26.8)%
(70.8)%
106,026
(15,258,333)
(15,152,307)
252,109
-
252,109
(146,083)
(15,258,333)
(15,404,416)
(57.9)%
-%
(6110.2)%
LOSS BEFORE INCOME TAXES
(18,440,134)
(11,000,329)
(7,439,805)
67.6%
INCOME TAX BENEFITS
NET LOSS
(80,532)
(213,347)
132,815
(62.3)%
$ (18,359,602) $ (10,786,982) $
(7,572,620)
70.2%
65
Revenues
We derive revenues from three sources: (1) revenue from application development services, (2) revenue from consulting and technical support
services, and (3) revenue from subscription services.
The Company is focusing on developing global trade applications and solutions equipped with the Company’s new technology in SaaS platform,
Big Data, AI and IoT applications and BaaS platform. The Company believes new technology development is the key driver for the Company’s future
growth. In fiscal 2020, our revenue related to deploying our new technology including SaaS and big data analysis services accounted for 5.8% of our total
revenue (or approximately $1.5 million) compared to 14.8% of our total revenue (or approximately $3.0 million) in fiscal 2019.
For the year ended December 31, 2020, our total revenue was approximately $26.7 million as compared to $20.1 million for the year ended
December 31, 2019. The Company’s total revenue increased by approximately $6.6 million, or 32.7%. The overall increase in total revenue was primarily
attributable to $6.3 million increase in revenue from application development services.
Revenue from application development services
The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company to perform services
including project planning, project design, application development and system integration based on customers’ specific needs. These services also require
significant production and customization. Revenue from application development service is recognized as work is performed based on the ratio of costs
incurred to date to the total estimated costs at completion of the performance obligations.
For the year ended December 31, 2020, our application development service revenue was approximately $22.0 million as compared to $15.7
million for the year ended December 31, 2019. The increase in application development service revenue was approximately $6.3 million or 39.8% due to
the fact that certain multiple large size project agreements secured between fiscal 2019 and 2020 was rescheduled and executed in fiscal 2020. In certain
application development service arrangements, the contacts included sales of IT equipment. Such revenue was $6,299,982 in fiscal 2020, significantly
increased from $1,554,428 of the related revenue in fiscal 2019. On the other side, 1.2% (or approximately $0.3 million) of revenue from application
development service were related to SaaS platform development and big data analysis applications in fiscal 2020, comparing to 6.8% (or approximately
$1.1 million) of the related revenue in fiscal 2019. Despite to the temporary slowdown in SaaS platform and big data analysis related application
development service revenue in fiscal 2020, we intend to continue investing for long-term growth in the SaaS development and big data analysis market
and we plan to continue to expand our ability to sell our applications by investing in product development and customer support to address the business
needs of local markets and continuous growth for these services.
66
Revenue from consulting and Technical Support Services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company to provide
professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its
service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12
to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and
technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
For the year ended December 31, 2020, our consulting and technical support service revenue was approximately $3.8 million as compared to $3.3
million for the year ended December 31, 2019, representing an increase of $0.5 million or 14.8%, which was due to more technical consulting services
requests from our existing clients. In addition, by providing application development services, we gain extensive understanding and knowledge of each
customer’s unique business needs, often resulting in opportunities for us to cross-sell our consulting and technical support services.
Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing the Company’s software-as-a-service applications.
The Company’s monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription services
contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line
basis or based on the actual usage as customers receive and consume benefits of such services.
For the year ended December 31, 2020, our subscription service revenue was approximately $0.9 million as compared to $1.1 million for the year
ended December 31, 2019, representing a decrease of $0.2 million or 17.4%. The slightly decrease in subscription service revenue was mainly due to
delayed reopening schedule of company’s customers under the impact of COVID-19. We introduced our SaaS subscription services in fiscal 2016 and
continue to expand the scope of our services and enhance the features and functionalities of our applications and improve our marketing efforts, we expect
our subscription service revenue will grow with an expanded offering and increased market awareness.
Cost of Revenues
Our cost of revenues mainly consists of compensation benefit expenses for our professionals, material cost and travel expenses related to revenue
contracts.
Our cost of revenues increased by $3.2 million or 23.1% to approximately $17.3 million in fiscal 2020 from approximately $14.0 million in fiscal
2019, which was mainly attributable to an increase of $2.8 million in cost of revenue from application development services in line with the increased
application development service revenue. Our cost of revenue from consulting and technical support services was approximately $1.8 million in fiscal
2020, representing an increase of $0.5 million from $1.3 million in fiscal 2019. The increase was primarily due to extra outsourcing maintenance service
expense incurred during COVID-19 pandemic. Our cost of revenue from subscription services was approximately $0.1 million in both fiscal 2020 and
2019. We have established a stable SaaS development and service team and expect to expand the scope of our services and enhance the features and
functionalities of our applications and improve our marketing efforts.
67
Gross profit
GROSS PROFIT
Application development services
Consulting and technical support services
Subscription services
Total gross profit
For the Years Ended
December 31,
2020
Gross
Profit
6,664,768
1,994,115
733,812
9,392,695
$
$
Gross
Margin
30.3% $
52.5%
83.3%
35.2% $
2019
Gross
Profit
3,167,120
1,968,529
929,062
6,064,711
Gross
Margin
20.1%
59.5%
87.1%
30.2%
Our gross profit increased by $3.3 million or 54.9% from $6.1 million in fiscal 2019 to $9.4 million in fiscal 2020. Gross margin as a percent of
overall revenue for fiscal 2020 and 2019 was 35.2% and 30.2%, respectively.
Gross profit for application development services increased by $3.5 million or 110.4% from $3.2 million in 2019 to $6.7 million in fiscal 2020
mainly due to more application development service revenue in fiscal 2020. Gross profit margin for fiscal 2020 and 2019 was 30.3% and 20.1%,
respectively. The increase in gross margin was primarily due to that we completed several high-value contracts in fiscal 2020, which brought economies of
scale.
Gross profit for consulting and technical support services kept constant at approximately $2.0 million for both fiscal 2020 and fiscal 2019. Mainly
due to increased cost resulted from the outsourcing of maintenance service for the purpose of fulfilling scheduled maintenance and operating plan when we
reducing staff and incorporating workforce optimization practices during the COVID-19 pandemic outbreak and spreading. Gross profit margin for fiscal
2020 and 2019 was 52.5% and 59.5%, respectively.
Gross profit for subscription services decreased by $0.2 million or 21.0% from $0.9 million in 2019 to $0.7 million in fiscal 2020, which is due to
decreased revenue but maintaining stable level of payroll benefit packages for employees. As a result, gross profit margin for fiscal 2020 was 83.3%,
decreased from 87.1% in fiscal 2019.
Operating Expenses
OPERATING EXPENSES:
Selling and marketing
General and administrative
Provision for doubtful accounts
Research and development
Share based compensation
Total operating expenses
For the Years Ended
December 31,
2020
2019
Change
% Change
$
$
2,675,028 $
5,559,426
191,148
2,780,944
1,473,976
12,680,522 $
3,562,425 $
5,945,576
3,293,600
2,163,658
2,351,890
17,317,149 $
(887,397)
(386,150)
(3,102,452)
617,286
(877,914)
(4,636,627)
(24.9)%
(6.5)%
(94.2)%
28.5%
(37.3)%
(26.8)%
Our operating expenses consist of selling and marketing, general and administrative, research and development (“R&D”) expenses, provision for
doubtful accounts and stock-based compensation. Operating expenses decreased by approximately $4.6 million, or 26.8%, from approximately $17.3
million for the year ended December 31, 2019 to $12.7 million for the year ended December 31, 2020. The decrease in our operating expenses was
primarily due to $3.1 million decrease in provision for doubtful accounts, $0.9 million decrease in selling and marketing expense, $0.4 million decrease in
general and administrative expense and $0.9 million decrease in share-based compensation.
Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, and also
included entertainment, travel and transportation, and other expenses relating to our sales and marketing activities. Selling and marketing expenses
decreased by $0.9 million or 24.9% from $3.6 million in fiscal 2019 to $2.7 million in fiscal 2020. The decrease was primarily attributable to less
marketing consulting fees and marketing and promotional activities in fiscal 2020.
68
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 $0.4 million or 6.5% from approximately $5.9 million in fiscal 2019 to
approximately $5.6 million in fiscal 2020, due to less professional and consulting fees incurred relating to capital market development. As a percentage of
revenues, general and administrative expenses were 20.8% and 29.6% of our total revenue in fiscal 2020 and 2019, respectively.
Provision for doubtful accounts decreased by approximately $3.1 million from approximately $3.3 million in fiscal 2019 to approximately $0.2
million in fiscal 2020. In early 2020, Chinese government took strict and efficient measures to control and eliminate the spreading of COVID-19 pandemic
and many of our customers started to reopen business and bring operation to normal level in the second half of 2020. After evaluating the age of the
balance, the customer’s payment history, current credit-worthiness, and current economic trends, we reduced the provision for doubtful accounts for fiscal
2020.
R&D expenses primarily consisted of compensation and benefit expenses relating to our R&D personnel as well as office overhead and other
expenses relating to our R&D activities. Our R&D expenses increased by $0.6 million from $2.2 million in fiscal 2019 to $2.8 million in fiscal 2020,
representing 10.4% and 10.8% of our total revenues for fiscal 2020 and 2019, respectively. We expect to continue to invest in R&D. We expect that our
ability to effectively utilize our R&D capabilities significantly affect our results of operations in the future.
Stock-based compensation decreased by approximately $0.9 million from approximately $2.4 million in fiscal 2019 to approximately $1.5 million
in fiscal 2020.
Other Income (Expense)
Other income (expense) primarily consists of government subsidy income, interest income net of interest expense and other expenses. Our net
other expense was approximately $15.2 million in fiscal 2020, compared with a net other income of approximately $0.3 million in fiscal 2019. The increase
in net other expense is substantially attributable to a $15.3 million loss from change in the fair value of the convertible loan. The Company elected the fair
value option to account for its convertible loans. The Group engaged an independent valuation firm to assess the fair value of the convertible loan using the
binomial tree model. The convertible loans are classified as level 3 instruments as the valuation was determined based on unobservable inputs which are
supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. Significant estimates used in developing the
fair value of the convertible loans include time to maturity, risk-free interest rate, straight debt discount rate, probability to convert and expected timing of
conversion.
The following is a reconciliation of the beginning and ending balances for convertible loans measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of December 31, 2020:
Opening balance
Issuance of convertible loan
Loss on change in fair value of convertible loan
Conversion of convertible loan
Total
Provision for Income Taxes
2020
$
$
-
50,000,000
15,258,333
(65,258,333)
-
Income tax benefit was approximately $0.08 million in fiscal 2020, compared to income tax benefit of approximately $0.2 million in fiscal 2019.
Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. However, our major operating subsidiary -
Powerbridge Zhuhai was recognized as the “high-tech enterprise” status, which reduced its statutory income tax rate to 15%. The rest of our subsidiaries in
PRC are subject to income tax rate of 25%.
Net Loss
As a result of the foregoing, our net loss increased by $7.6 million, or 70.2%, from $10.8 million in fiscal 2019 to $18.4 million in fiscal 2020.
The increased net loss is mainly attributed to a $15.3 million loss in change of fair value of the convertible loan, offset by an increase of $3.3 million gross
profit and a decrease of $4.6 million total operating expenses.
Other comprehensive income (loss)
Foreign currency translation adjustments amounted to an income of approximately $0.8 million and a loss of $0.1 million for the years ended
December 31, 2020 and 2019, respectively. The balance sheet amounts with the exception of equity as of December 31, 2020 were translated at
RMB6.5250 to USD1.00 as compared to RMB6.9618 to USD1.00 as of December 31, 2019. The equity accounts were stated at their historical rate. The
average translation rates applied to the income statements accounts for the years ended December 31, 2020 and 2019 were RMB6.9042 to USD1.00 and
RMB6.9081 to USD1.00, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S,
dollar terms without giving effect to any underlying change in our business or results of operation.
69
For the years ended December 31, 2019 and 2018
The following table summarizes the results of our operations for the years ended December 31, 2019 and 2018, respectively, and provides
information regarding the dollar and percentage increase or (decrease) during such periods.
REVENUES:
Application development services
Consulting and technical support services
Subscription services
Total revenues
COST OF REVENUES:
Application development services
Consulting and technical support services
Subscription services
Total cost of revenues
GROSS PROFIT
OPERATING EXPENSES:
Selling and marketing
General and administrative
Provision for doubtful accounts
Research and development
Share based compensation
Total operating expenses
OPERATING (LOSS) INCOME FROM OPERATIONS
For the Years Ended
December 31,
2019
2018
Change
% Change
$
15,720,676 $
3,307,662
1,066,720
20,095,058
20,037,861 $
2,390,948
723,458
23,152,267
(4,317,185)
916,714
343,262
(3,057,209)
12,553,556
1,339,133
137,658
14,030,347
14,140,094
1,093,631
84,936
15,318,661
(1,586,538)
245,502
52,722
(1,288,314)
(21.5)%
38.3%
47.4%
(13.2)%
(11.2)%
22.4%
62.1%
(8.4)%
6,064,711
7,833,606
(1,768,895)
(22.6)%
3,562,425
5,945,576
3,293,600
2,163,658
2,351,890
17,317,149
(11,252,438)
2,144,588
2,316,058
368,125
1,992,228
-
6,820,999
1,012,607
1,417,837
3,629,518
2,925,475
171,430
2,351,890
10,496,150
(12,265,045)
66.1%
156.7%
794.7%
8.6%
-%
153.9%
(1211.2)%
OTHER INCOME
252,109
584,209
332,100
(56.8)%
(LOSS) INCOME BEFORE INCOME TAXES
(11,000,329)
1,596,816
(12,597,145)
(788.9)%
INCOME TAX (BENEFITS) EXPENSES
(213,347)
43,190
(256,537)
(594.0)%
NET (LOSS) INCOME
Revenues
$ (10,786,982) $
1,553,626 $ (12,340,608)
(794.3)%
We derive revenues from three sources: (1) revenue from application development services, (2) revenue from consulting and technical support
services, and (3) revenue from subscription services. Please refer to the Revenue portion of the table above for the dollar and percentage increase or
(decrease) of our revenues by our service lines ended December 31, 2019 and 2018, respectively.
The Company is focusing on developing global trade applications and solutions equipped with the Company’s new technology in SaaS platform,
Big Data, AI and IoT applications and BaaS platform. The Company believes new technology development is the key driver for the Company’s future
growth. In fiscal 2019, our revenue related to deploying our new technology including SaaS and big data analysis services accounted for 14.8% of our total
revenue (or approximately $3.0 million) compared to 17.4% of our total revenue (or approximately $4.0 million) in fiscal 2018.
70
For the year ended December 31, 2019, our total revenue was approximately $20.1 million as compared to $23.2 million for the year ended
December 31, 2018. The Company’s total revenue decreased by approximately $3.1 million, or 13.2%. The overall decrease in total revenue was primarily
attributable to $4.3 million decrease in revenue from application development services, in which, 6.8% of revenue from application development services
service is attributable to the Company’s SaaS and big data analysis related application development services in fiscal 2019, which was decreased from
15.6% in fiscal 2018.
Revenue from application development services
The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company to perform services
including project planning, project design, application development and system integration based on customers’ specific needs. These services also require
significant production and customization. Revenue from application development service is recognized as work is performed based on the ratio of costs
incurred to date to the total estimated costs at completion of the performance obligations.
For the year ended December 31, 2019, our application development service revenue was approximately $15.7 million as compared to $20.0
million for the year ended December 31, 2018. The decrease in application development service revenue was approximately $4.3 million or 21.5% due to
less projects completed in fiscal 2019 and reduced individual project size. In certain application development service arrangements, the Company sold IT
equipment prior to the delivery of the services. Such revenue was $1,554,428 in fiscal 2019, significantly decreased from $8,069,594 of related revenue in
fiscal 2018. In addition, in fiscal 2019, 6.8% (or approximately $1.1 million) of revenue from application development service were related to SaaS
platform development and big data analysis applications, comparing to 15.6% (or approximately $3.1 million) of the related revenue in fiscal 2018. Despite
to the temporary slowdown in SaaS platform and big data analysis related application development service revenue in fiscal 2019, we intend to continue
investing for long-term growth in the SaaS development and big data analysis market and we plan to continue to expand our ability to sell our applications
by investing in product development and customer support to address the business needs of local markets and continuous growth for these services.
Revenue from consulting and Technical Support Services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company to provide
professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its
service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12
to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and
technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
For the year ended December 31, 2019, our consulting and technical support service revenue was approximately $3.3 million as compared to $2.4
million for the year ended December 31, 2018, representing an increase of $0.9 million or 38.3%, which was due to more technical consulting services
requests from our existing clients. In addition, by providing application development services, we gain extensive understanding and knowledge of each
customer’s unique business needs, often resulting in opportunities for us to cross-sell our consulting and technical support services.
Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing the Company’s software-as-a-service applications.
The Company’s monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers. The subscription services
contracts typically include a single performance obligation. The revenue from subscription services is recognized over the contract term on a straight-line
basis or based on the actual usage as customers receive and consume benefits of such services.
71
For the year ended December 31, 2019, our subscription service revenue was approximately $1.1 million as compared to $0.7 million for the year
ended December 31, 2018. We introduced our SaaS subscription services in fiscal 2016 and continue to expand the scope of our services and enhance the
features and functionalities of our applications and improve our marketing efforts, we expect our subscription service revenue will grow with an expanded
offering and increased market awareness.
Cost of Revenues
Our cost of revenues mainly consists of compensation benefit expenses for our professionals, material cost and travel expenses related to revenue
contracts. Please refer to the Cost of Revenue portion of the table above for the dollar and percentage increase or (decrease) of our cost of revenues ended
December 31, 2019 and 2018, respectively.
Our cost of revenues decreased by $1.3 million or 8.4% to approximately $14.0 million in fiscal 2019 from approximately $15.3 million in fiscal
2018, which was mainly attributable to a decrease of $1.6 million in of cost of revenue from application development services in line with the reduced
application development service revenue. Our cost of revenue from consulting and technical support services was approximately $1.3 million in fiscal
2019, representing an increase of $0.2 million from $1.1 million in fiscal 2018. The increase was primarily due to more headcount in the expanded
technical service team to support the related growth in revenue. Our cost of revenue from subscription services was approximately $0.1 million in both
fiscal 2019 and 2018. We have established a stable SaaS development and service team and expect to expand the scope of our services and enhance the
features and functionalities of our applications and improve our marketing efforts.
Gross profit
GROSS PROFIT
Application development services
Consulting and technical support services
Subscription services
Total gross profit
For the Years Ended
December 31,
2019
Gross
Profit
3,167,120
1,968,529
929,062
6,064,711
$
$
Gross
Margin
20.1% $
59.5%
87.1%
30.2% $
2018
Gross
Profit
5,897,767
1,297,317
638,522
7,833,606
Gross
Margin
29.4%
54.3%
88.3%
33.8%
Our gross profit decreased by $1.8 million or 22.6% from $7.8 million in 2018 to $6.1 million in fiscal 2019. Gross margin as a percent of overall
revenue for fiscal 2019 and 2018 was 30.2% and 33.8%, respectively.
Gross profit for application development services decreased by $2.7 million or 46.3% from $5.9 million in 2018 to $3.2 million in fiscal 2019
mainly due to less application development service revenue in fiscal 2019. Gross profit margin for fiscal 2019 and 2018 was 20.1% and 29.4%,
respectively. The decrease in gross margin was primary due to increased headcount in developers during the year and expanded office facilities with the
related expense in fiscal 2019.
Gross profit for consulting and technical support services increased by $0.7 million or 51.7% from $1.3 million in 2018 to $2.0 million in fiscal
2019 mainly due to increased revenue from growing demands for our new SaaS and big data analysis services from our existing customers. Gross profit
margin for fiscal 2019 and 2018 was 59.5% and 54.3%, respectively.
Gross profit for subscription services increased by $0.3 million or 45.5% from $0.6 million in 2018 to $0.9 million in fiscal 2019, which is in line
with subscription services revenue growth. Gross profit margin for fiscal 2019 and 2018 was 87.1% and 88.3%, respectively.
72
Operating Expenses
OPERATING EXPENSES:
Selling and marketing
General and administrative
Provision for doubtful accounts
Research and development
Share based compensation
Total operating expenses
For the Years Ended
December 31,
2019
2018
Change
% Change
$
$
3,562,425 $
5,945,576
3,293,600
2,163,658
2,351,890
17,317,149 $
2,144,588 $
2,316,058
368,125
1,992,228
-
6,820,999 $
1,417,837
3,629,518
2,925,475
171,430
2,351,890
10,496,150
66.1%
156.7%
794.7%
8.6%
-%
153.9%
Our operating expenses consist of selling and marketing, general and administrative, research and development (“R&D”) expenses and stock
based compensation. Operating expenses increased by approximately $10.5 million, or 153.9%, from approximately $6.8 million for the year ended
December 31, 2018 to $17.3 million for the year ended December 31, 2019. The increase in our operating expenses was primarily due to $3.6 million
increase in general and administrative expense, $2.9 million increase in provision for doubtful accounts, $1.4 million increase in selling and marketing
expense and $2.4 million increase in share-based compensation.
Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, and also
included entertainment, travel and transportation, and other expenses relating to our sales and marketing activities. Selling and marketing expenses
increased by $1.4 million or 66.1% from $2.1 million in fiscal 2018 to $3.6 million in fiscal 2019. The increase was primarily attributable to additional
marketing consulting fees and marketing expense to support our expansion.
General and administrative expenses primarily consisted of salary and compensation expenses relating to our accounting, human resources and
executive office personnel, and included rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and
transportation costs. General and administrative expenses increased by $3.6 million or 156.7% from approximately $2.3 million in fiscal 2018 to
approximately $5.9 million in fiscal 2019, substantially all of which were attributable to the additional consulting fees was incurred relating to capital
market development and promotions. As a percentage of revenues, general and administrative expenses were 29.6% and 10.0% of our total revenue in
fiscal 2019 and 2018, respectively.
Provision for doubtful accounts increased by approximately $2.9 million from approximately $0.4 million in fiscal 2018 to approximately $3.3
million in fiscal 2019. In December 2019 and following in the first quarter of 2020, the COVID-19 pandemic and the actions taken by various governments
and our customers to combat the spread of COVID-19 (including, in some cases, mandatory quarantines and other suspensions of non-essential business
operations) have led to extensive temporary disruptions of businesses. Many of our customers have delayed their payments to us, which caused the
significant increase in our aged accounts receivable balance over one year and slow collection progress in the first quarter of 2020. Given the uncertainties
in the timing of the ultimate collection, we increased the estimated probability of default and credit loss, as a result, our provision for doubtful accounts
increased to $3.3 million in 2019 and we also wrote off approximately $2.0 million accounts receivable after our exhaustive collection efforts.
R&D expenses primarily consisted of compensation and benefit expenses relating to our R&D personnel as well as office overhead and other
expenses relating to our R&D activities. Our R&D expenses increased by $0.2 million from $2.0 million in fiscal 2018 to $2.2 million in fiscal 2019,
representing 10.8% and 8.6% of our total revenues for fiscal 2019 and 2018, respectively. We expect to continue to invest in R&D. We expect that our
ability to effectively utilize our R&D capabilities significantly affect our results of operations in the future.
73
Other Income (Expense)
Other income (expense) primarily consists of government subsidy income, interest income net of interest expense and other expenses. Our net
other income was approximately $0.3 million in fiscal 2019, compared with a net other income of approximately $0.6 million in fiscal 2018. The decrease
of other income is attributable to a $0.2 million decrease in other income offset by a $0.1 million increase in financing expense.
Provision for Income Taxes
Our provision for income tax was approximately $(0.2) million in fiscal 2019, decreased by $0.3 million comparing to fiscal 2018 due to loss
before taxes in fiscal 2019. Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. However, our major
operating subsidiary - Powerbridge Zhuhai was recognized as the “high-tech enterprise” status, which reduced its statutory income tax rate to 15%. The rest
of our subsidiaries in PRC are subject to income tax rate of 25%.
Net Income (Loss)
As a result of the foregoing, we incurred a net loss of approximately $10.8 million, compared with a net income of approximately $1.6 million for
fiscal 2018.
Other comprehensive income (loss)
Foreign currency translation adjustments amounted to a loss of approximately $102,000 and $339,000 for the years ended December 31, 2019 and
2018, respectively. The balance sheet amounts with the exception of equity as of December 31, 2019 were translated at RMB6.9618 to USD1.00 as
compared to RMB6.8755 to USD1.00 as of December 31, 2018. The equity accounts were stated at their historical rate. The average translation rates
applied to the income statements accounts for the years ended December 31, 2019 and 2018 were RMB6.9081 to USD1.00 and RMB6.6090 to USD1.00,
respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving
effect to any underlying change in our business or results of operation.
Liquidity and Capital Resources
Substantially all of our operations are conducted in China and all of our revenue, expenses, and cash are denominated in RMB. RMB is subject to
the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control
regulations that restrict our ability to convert RMB into U.S. dollars. As of December 31, 2020, cash of approximately $8.4 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 subsidiary in China are
permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.
Under PRC law, our subsidiary is required to set aside at least 10% of its after-tax profits each year based on PRC accounting standards, if any, to fund
certain statutory reserve funds until such reserve funds reach 50% of its registered capital. The statutory reserve funds are not distributable as cash
dividends. Remittance of dividends by our subsidiary out of China is subject to examination by the banks designated by SAFE. Our subsidiary has not paid
dividends and will not be able to pay dividends until it generates accumulated profits and meet the requirements for statutory reserve funds. In addition, we
would need to accrue and pay withholding taxes if we were to distribute funds from our subsidiary in China to us. We do not intend to repatriate such funds
in the foreseeable future, as we plan to use existing cash balance in PRC for general corporate purposes.
On April 4, 2019, the Company consummated its initial public offering (“IPO”) of 2,012,500 Ordinary Shares at a price of $5.00 per shares
including the exercise in full of the underwriters' over-allotment option of 262,500 ordinary shares at IPO price of $5.00 per share. The gross proceeds from
the IPO was $10,062,500 and the net proceeds was $8,021,987. As a result of the IPO, the Ordinary Shares now trade on the Nasdaq Capital Market under
the symbol “PBTS.”
74
For the year ended December 31, 2020, the Company had working capital of $1.3 million and incurred a net loss of $18.4 million. For fiscal 2020,
the Company had operation cash flow of $1.1 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. The COVID-19 pandemic created significant economic uncertainty and volatility in the credit and capital markets since December 2019. Many
customers have delayed their payments to the Company, which caused the significant increase in the Company’s aged accounts receivable balance over one
year in fiscal 2019. In early 2020, Chinese government took strict and efficient measures to control and eliminate the spreading of COVID-19 pandemic
and many of our customers started to reopen business and bring operation to normal level in the second half of 2020. After evaluating the age of the
balance, the customer’s payment history, current credit-worthiness, and current economic trends, the Company reduced the provision for doubtful accounts
for fiscal 2020.
In assessing its liquidity, the Company monitors and analyzes its cash on hand, its ability to generate sufficient revenue sources in the future and
its operating and capital expenditure commitments. As of December 31, 2020, the Company had cash of approximately $8.4 million. To support its
working capital, the Company entered into several securities purchase agreement in 2021. On January 8, 2021, the Company entered into a securities
purchase agreement with Uptown Capital, LLC, pursuant to which the Company issued an unsecured promissory note on in the original principal amount
of $1,650,000, convertible into ordinary shares, par value $0.00166667 per share, of the Company, for $1,500,000 in gross proceeds. On February 23, 2021,
the Company entered into a Sales Agreement with A.G.P./Alliance Global Partners, as sales agent, pursuant to which the Company may offer and sell up to
$30,000,000 of its ordinary shares, par value $0.00166667 per share. On April 9, 2021, the Company entered into a securities purchase agreement with YA
II PN, LTD., pursuant to which the Company sells convertible notes in the principal amount of US$7,000,000 and a warrant to purchase 571,429 Ordinary
Shares, for gross proceeds of approximately US$6,790,000. The Company believes that its cash on hand and financing cash flows will be sufficient to fund
its operations over at least the next 12 months from the date of this report. However, the Company may need additional cash resources in the future if the
Company experiences changed business conditions or other developments, and may also need additional cash resources in the future if the Company
wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements
exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.
The following summarizes the key components of our cash flows for the years ended December 31, 2020 and 2019.
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate change on cash and restricted cash
Net increase in cash and restricted cash
75
For the Years Ended
December 31,
2019
2020
2018
$
$
1,051,741 $
(65,904,533)
70,043,789
(2,745,717)
2,445,280 $
(3,260,594) $
(3,594,121)
7,884,405
(103,426)
926,264 $
2,930,295
(1,317,831)
598,491
(249,345)
1,961,610
Operating Activities
Net cash provided by operating activities was approximately $1.1 million for the year ended December 31, 2020, as compared to approximately
$3.3 million net cash used in operating activities for fiscal 2019. Cash provided by operating activities for the year ended December 31, 2020 mainly
consisted of approximately $18.4 million of net loss, adjustment of $18.3 million non-cash items, an increase of approximately $3.0 million in accounts
payable due to more purchase in 2020, offset by an increase of approximately $2.0 million in accounts receivable, an increase of $1.2 million prepayment,
deposits and other assets due to increasing purchase from our venders, and an increase of approximately $0.8 million in contract costs incurred for the
customer contracts.
Net cash used in operating activities was approximately $3.3 million for the year ended December 31, 2019. Cash used in operating activities for
the year ended December 31, 2019 mainly consisted of approximately $10.8 million of net loss, adjustment of $6.4 million non-cash items, and an increase
of approximately $3.0 million in contract assets, offset by an increase of approximately $3.8 million in accounts payable due to increased purchase for our
projects.
Cash provided by operating activities for the year ended December 31, 2018 mainly consisted of approximately $1.6 million of net income, the
increase of approximately $4.9 million of accounts payable, offset by the increase of approximately $3.5 million in accounts receivable due to increase of
revenue, the payments of approximately $0.8 million of prepayments, deposits and other assets.
Our accounts payable balance significantly increased from approximately $19.8 million as of December 31, 2019 to $24.3 million as of December
31, 2020. The increase in accounts payable was mainly due to increased purchase from our suppliers and subcontractors for the ongoing projects with our
customers. 84.5% and 72.2% of our accounts payable balances with suppliers are due when the Company received customer payment on the projects as of
December 31, 2020 and 2019, respectively. Based on the long-term relationship, we might be able to slow down payments based on the Company’s
working capital. We have never entered into any long-term financing arrangements with our suppliers.
The significant account receivable balances as of December 31, 2020 and 2019 was because of the increasing contract volume and contract
progress for certain large contracts with our customers. During fiscal 2020, the Company recognized revenue from 138 major contracts, compared with 133
major contracts in fiscal 2019. Most of large contracts are government related customized application development service contracts. The Company enters
into fixed-fee arrangements in standard multiple-phase customized application development service contracts with government related agencies and state-
owned companies. The billing term can vary depending on each specific project. Generally speaking, the Company bills the customer 20% to 30% of total
fee upon signing the contract, 20% to 30% of total fee upon completion of developing, implementing and testing the customized applications and the
remaining 30% to 50% of total fee is billed after the customer internally approves the project and signs off the acceptance form. The Company does not
specify the payment term in all contracts with customers, but, in practice, the Company’s billing term with customers are generally within 90 days. For
these large government related customized application development service contracts, the government’s acceptance and payment process requires multiple
levels of government officials’ approvals, including but not limited to approvals from ten national government bureaus at national level then final approval
from local government level. The timing of receiving the final approval and payment might be longer than the Company’s expectation. The billing terms
are typically agreed by the parties at the inception of the contract, not subsequently negotiated or modified. In most cases, the Company are entitled to
payments for the work performed and such payment are not conditioned on the final acceptance by our customer while under certain contracts with
government related agencies and stated-owned companies, customer acceptance is a condition to final payments. Nevertheless, in practice, the Company
tends to satisfy customers and is willing to perform additional work to receive a final acceptance from customers. Additional performance is considered
inconsequential or perfunctory, because the Company always implements the customized applications at the customers’ sites and complete the testing prior
to the customers’ acceptance. From past experience, the Company has never received rejections from its customers. The Company also has never entered
into extended payment terms or concessions with any of its customers for the years ended December 31, 2020 and 2019.
76
The aging of accounts receivables are as follows:
0-90 days
90-180 days
180-360 days
over one year
Sub total
Current (billed accounts receivable within payment terms)
Past due
Sub-total billed accounts receivable
Unbilled accounts receivable
Allowance for billed accounts receivable
Total accounts receivable, net
December 31,
2020
December 31,
2019
$
$
2,990,475 $
366,786
2,801,315
2,211,269
8,369,845
4,546,019
168,864
410,510
1,919,441
7,044,834
2,990,475
5,379,370
8,369,845
7,526,282
(1,581,142)
14,314,985 $
4,546,019
2,498,815
7,044,834
5,865,900
(1,669,658)
11,241,076
The net total accounts receivables increased by $3.1 million, or 27.3%, from $11.2 million for the year ended December 31, 2019 to $14.3 million
for the year ended December 31, 2020, which is mainly due to billings for multiple large size project contracts which was secured in prior to fiscal 2020
and rescheduled and executed in fiscal 2020.
The significant outstanding accounts receivable balances were mainly related to certain government customers. Due to multiple levels of the
government approval process for payments, from our past experience, it could take extra time for us to collect the full proceeds from government
customers. They generally negotiated to pay us in three or less phases through the contract term and a significant portion (50%) of contract amount usually
is billed in the last phase upon the completion of the related projects. The average accounts receivable turnover in days for the years ended December 31,
2020 and 2019 was 192 days and 261 days, respectively.
As of March 31, 2021, approximately $2.1 million (or 13.5%) of total accounts receivable as of December 31, 2020 was collected. It represented
23% of billed accounts receivable balance and 3% of unbilled accounts receivable balance as of December 31, 2020 were subsequently collected,
respectively.
Investing Activities
Net cash used in investing activities was approximately $65.9 million for fiscal 2020, as compared to approximately $3.6 million for fiscal 2019.
Cash used in investing activities for fiscal 2020 was mainly due to $1.6 million spending on purchases of property and equipment and $64.3 million
increase in working capital loan provided to Kezhi Technology Co., Ltd.(“Kezhi”) which will be repaid in two years and the repayment of the loan is
guaranteed by a third party.
Cash used in investing activities for fiscal 2019 was mainly due to approximately $2.9 million spending on capitalized development costs and
purchase of office equipment and furniture and approximately $0.7 million loan to third parties.
Cash used in investing activities for fiscal 2018 was mainly due to approximately $2.2 million spending on capitalized development costs and
purchase of office equipment and furniture, offset by approximately $0.8 million collection on loan to others.
Financing Activities
Net cash from financing activities was approximately $70.0 million for fiscal 2020, as compared to approximately $7.9 million for fiscal 2019.
Net cash provided by financing activities for the year ended December 31, 2020 was mainly from the proceeds of $50 million from issuance of convertible
note and $17.6 million from private placement, $6.5 million proceeds from bank loan, offset by repayment of $3.8 million on bank loan, and $0.3 million
repayment to related party.
Net cash provided by financing activities for the year ended December 31, 2019 mainly included $8.0 million net proceeds from IPO, $1.6 million
proceeds from bank loan, offset by repayment of $1.6 million bank loan.
Net cash from financing activities for the year ended December 31, 2018 was mainly due to proceeds from bank loan of $1.6 million offset by
repayment of bank loan of $0.2 million and repayment of related party advance of $0.8 million.
Capital Expenditures
The Company made capital expenditures of $1.6 million, $2.9 million and $2.2 million for the years ended December 31, 2020, 2019 and 2018,
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.
77
Contractual Obligations
The Company had an outstanding bank loan of approximately $4.6 million as of December 31, 2020. The Company has also entered into non-
cancellable operating lease agreements for several offices and dormitory spaces for its employees. The leases are expiring through 2022.
The following table sets forth our contractual obligations and commercial commitments as of December 31, 2020:
Operating lease arrangements
Bank loans
Total
Off-Balance Sheet Arrangements
Payment Due by Period
Total
Less than
1 Year
1 – 3 Years
3 – 5 Years
More than
5 Years
$
$
285,455 $
4,597,701
4,883,156 $
204,442 $
4,597,701
4,802,143 $
81,013 $
-
81,013 $
- $
-
- $
-
-
-
There were no off-balance sheet arrangements for the years ended December 31, 2020 and 2019 that have or that in the opinion of management
are likely to have, a current or future material effect on our financial condition or results of operations.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions
that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes
made to the accounting estimates and assumptions in the past two years, we continually evaluate these estimates and assumptions based on the most
recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances.
Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes
in our estimates.
We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make
significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated
financial condition and results of operations.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated
financial statements include but not limited to the useful lives of property and equipment and capitalized development cost, impairment of long-lived
assets, valuation of accounts receivables, loans to third parties, revenue recognition and realization of deferred tax assets and uncertain tax positions. Actual
results could differ from these estimates.
Foreign currency translation
The functional currencies of the Company are the local currency of the county in which the subsidiaries operates. The Company’s financial
statements are reported using U.S. Dollars. The results of operations and the consolidated statements of cash flows denominated in foreign currencies are
translated at the average rates of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of
exchange at the time of capital contributions. Because cash flows are translated based on the average translation rates, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated
balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of
accumulated other comprehensive income (loss) included in consolidated statements of changes in equity. Gains and losses from foreign currency
transactions are included in the consolidated statement of operations and comprehensive income (loss).
78
Fair value measurement
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value
hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices
for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or
corroborated by observable market data.
● Level 3 — inputs to the valuation methodology are unobservable.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, notes and accounts receivable, due from related
parties, prepayments, deposits and other current assets, notes and accounts payable, customer deposits, salaries and benefits payables, due to related party
and taxes payable approximates their recorded values due to their short-term maturities. The fair value of the long-term prepayments, deposits and other
assets and loans to third parties approximate their carrying amounts because the deposits were paid in cash.
The Company elected the fair value option to account for its convertible loan. The Company engaged an independent valuation firm to perform
the valuation. The fair value of the convertible loans is calculated using the binomial tree model. The convertible loans are classified as level 3 instruments
as the valuation was determined based on unobservable inputs which are supported by little or no market activity and reflect the Company’s own
assumptions in measuring fair value. Significant estimates used in developing the fair value of the convertible loans include time to maturity, risk-free
interest rate, straight debt discount rate, probability to convert and expected timing of conversion. Refer to Note 10 for additional information.
As the inputs used in developing the fair value for level 3 instruments are unobservable, and require significant management estimate, a change in
these inputs could result in a significant change in the fair value measurement.
The following is a reconciliation of the beginning and ending balances for convertible loans measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of December 31, 2020:
Opening balance
Issuance of convertible loan
Loss on change in fair value of convertible loan
Conversion of convertible loan
Total
Accounts receivable, net
2020
$
$
-
50,000,000
15,258,333
(65,258,333)
-
Accounts receivable, net, is stated at the original invoiced amount net of write-offs and allowance for doubtful accounts. The Company reviews
the accounts receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. Past-due balances over
90 days are reviewed individually for collectability. In evaluating the collectability of individual accounts receivable balances, the Company considers
several factors, including the age of the balance, the customer’s payment history, current credit-worthiness, and current economic trends. Accounts
receivable balances are written off after all collection efforts have been exhausted. Typically, the Company includes unbilled receivables in accounts
receivable for contracts on which revenue has been recognized, but for which the customer has not yet been billed. Unbilled receivables, substantially all of
which are expected to be billed within one year are stated at their estimated realizable value and consist of costs and fees billable on contract completion or
the occurrence of contractual payment phase.
Prepayments, deposit and other assets
Prepayment, deposit and other assets, net, primarily consists of advances to suppliers for purchasing goods or services that have not been received
or provided; security deposits made to our customers; advances to employees and loan receivables from business partners. Prepayment, deposit and other
assets are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed
periodically to determine whether their carrying value has become impaired.
79
Property and equipment, net
Property and equipment, net, are mainly comprising furniture and furniture, vehicles, computer and equipment are stated at cost less accumulated
depreciation and impairment. Property and equipment are depreciated over the estimated useful lives of the assets on a straight-line basis, after considering
the estimated residual value.
The estimated useful lives are as follows:
Office equipment, fixtures, and furniture
Automobiles
Capitalized development costs and software acquired
Computer equipment
Useful Life
3-10 years
5-8 years
5-10 years
5 years
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and the related accumulated
depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is charged to the statement of income.
Capitalized development costs
The Company follows the provisions of Accounting Standards Codification (“ASC”) 350-40, “Internal Use Software.” ASC 350-40 provides
guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company expenses all costs incurred
during the preliminary project stage of its development, and capitalizes costs incurred during the application development stage. Costs incurred relating to
upgrades and enhancements to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the
application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management
evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact
the recoverability of these assets.
Impairment for long-lived assets
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.
Revenue recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019 using the modified retrospective
approach. Revenues for the year ended December 31, 2020 and 2019 were presented under ASC 606, and revenues for the years ended December 31, 2018
were not adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. There is no adjustment to the opening balance of retained
earnings at January 1, 2019 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606,
revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an
entity expects to be entitled to in exchange for those goods or services and is recorded net of value-added tax (“VAT”).To achieve that core principle, the
Group applies the following steps:
Step 1: Identify the contract (s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
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The Company derives its revenues from three sources: (1) revenue from application development services, (2) revenue from consulting and
technical support services, and (3) revenue from subscription services. All of the Company’s contracts with customer do not contain cancelable and refund-
type provisions.
(1) Revenue from application development service
The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company to perform services
including project planning, project design, application development and system integration based on customers’ specific needs. These services also require
significant production and customization. Upon delivery of the services, customer acceptance is generally required. In the same contract, the Company is
generally required to provide post-contract customer support (“PCS’) for a period from three months to three years (“PCS period”) after the customized
application development services are delivered. The type of services for PCS clause is generally not specified in the contracts or as stand-ready services on
when-and-if-available basis. The unspecified PCS is stand-ready service on when-and-if-available basis. It grants the customers on line and telephone
access to technical support personnel during the term of the service. Specified PCS includes specified service term in the contract such as training.
The Company’s application development service revenues are generated primarily from contracts with PRC government or related agencies and
state-owned enterprises. The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a
significant portion (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the
Company has enforceable right on payments for the work performed.
The Company sometimes provides a warranty for its application development service contracts. The warranty period is typically 12-36 months
upon the completion of the application development service. In accordance with ASC 606-10-25-19, the Company believes the warranty provision in the
contracts generally represents service-type warranty, which is a distinct performance obligation and the Company also provides the similar service on
standalone basis and customers can benefit from the related service-type warranty service. For the service warranty component, the customer
simultaneously receives and consumes the benefits provided by the company performance over the warranty term, therefore, the service warranty is
satisfied over time. The revenue allocated to the service warranty is recognized over the warranty period.
The Company assesses that application development service, PCS or specific service and service-type warranty service, if applicable, are distinct
performance obligations in the application development service contracts. The Company provides these services on standalone basis and customers are able
to benefit from each of the service on its own. In addition, the timing of delivery of these performance obligations can be separately identifiable in the
contracts. The transaction price is allocated to these identified performance obligations based on the relative standalone selling prices. The transaction price
allocated to PCS or unspecific service and service-type warranty, if applicable, on a straight-line method over the contractual period. Revenue allocated to
specified PCS is recognized as the related services are rendered. The transaction price allocated to application development service is recognized over time
as the Company’s performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. The
Company uses an input method based on cost incurred as the Company believes that this method most accurately reflects the Company’s progress toward
satisfaction of the performance obligation, which usually takes less than one year. Under this method, the transaction price allocated to application
development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the
performance obligations.
Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance,
such as indirect labor, supplies, and tools. Cost-based input method requires the Company to make estimates of revenues and costs to complete the
construction. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the application
development, including materials, labor, and other system costs. The Company’s estimates are based upon the professional knowledge and experience of
our engineers and project managers to assess the contract’s schedule, performance, technical matters. The Company has adequate cost history and
estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater
than the related revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.
Changes in estimates for application development services include but not limited to cost forecast changes and change orders. The cumulative effect of
changes in estimates is recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. To date, the
Company has not incurred a material loss on any contracts. However, as a policy, provisions for estimated losses on such engagements will be made during
the period in which a loss becomes probable and can be reasonably estimated. If contract modifications result in additional goods or services that are
distinct from those transferred before the modification, they are accounted for prospectively as if the Company entered into a new contract. If the goods or
services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for
revisions in estimated total contract costs and contract values.
81
In certain application development service arrangements, the Company sells and delivers IT equipment on standalone basis prior to the delivery of
the services. In these cases, the Company controls the IT equipment before they are transferred to the customer. The Company has the right to direct the
suppliers and control the goods or assets transferred to its customers. Thus, the Company considers it should recognize revenue as a principal in the gross
amount of consideration to which it is entitled in exchange for the IT equipment delivered. The Company assesses the sale of equipment is separately
identifiable from other promises in the contract and it is distinct performance obligation within the context of the contract. Accordingly, the revenue from
the related IT equipment based on its relative standalone selling price is recognized upon customer acceptance after delivery.
(2) Revenue from consulting and technical support services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company to provide
professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its
service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12
to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and
technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
(3) Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing the Company’s software-as-a-service applications
for a subscribed period. The Company’s monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers.
The subscription arrangements are considered service contracts because customers does 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.
Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. The
Company reports revenues net of value added tax (“VAT”). The Company’s subsidiary in PRC are subject to a 6% to 13% value added tax (“VAT”) and
related surcharges on the revenues earned from providing services.
Practical Expedient and Exemptions
The Company does not disclose the value of unsatisfied performance obligations within one year by applying the right to invoice practical
expedient provided by ASC 606-10-55-18.
Contract costs
Contract costs include contract acquisition costs and contract fulfillment costs which are all recorded within prepayments, deposits, and other
assets in the consolidated balance sheets.
82
Contract acquisition costs consist of incremental costs incurred by the Company to originate contracts with customers. Contract acquisition costs,
which generally include costs that are only incurred as a result of obtaining a contract, are capitalized when the incremental costs are expected to be
recovered over the contract period. All other costs incurred regardless of obtaining a contract are expensed as incurred. Contract acquisition costs are
amortized over the period the costs are expected to contribute directly or indirectly to future cash flows, which is generally over the contract term, on a
basis consistent with the transfer of goods or services to the customer to which the costs relate. Contract fulfillments costs consist of costs incurred by the
Company to fulfill a contract with a customer and are capitalized when the costs generate or enhance resources that will be used in satisfying future
performance obligations of the contract and the costs are expected to be recovered. Capitalized contract fulfillment costs generally include contracted
services, direct labor, materials, and allocable overhead directly related to resources required to fulfill the contract. Contract fulfillment costs are recognized
in cost of revenue during the period that the related costs are expected to contribute directly or indirectly to future cash flows, which is generally over the
contract term, on a basis consistent with the transfer of goods or services to the customer to which the costs are related. The contract fulfillment cost
amounted to $4,041,585 and $2,999,411 as of December 31, 2020 and 2019, respectively. There was no contract acquisition costs as of December 31, 2020
and 2019.
Contract balance
The accounts receivable includes both unbilled accounts receivable and billed accounts receivable. The Company records unbilled accounts
receivable for revenue that has been recognized in advance of billing the customer, which is common for application development service contracts. The
unbilled accounts receivable represents the Company’s right to consideration in exchange for the service that the Company has performed to the customer
before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when the Company has the right to invoice.
Contract liabilities are presented as customer deposits and deferred revenue on the consolidated balance sheet. Contract liabilities relate to payments
received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the completion of
performance obligations. As of December 31, 2020 and 2019, the balance of customer deposits amounted to $573,243 and $270,793, respectively. As of
December 31, 2020 and 2019, the balance of deferred revenue amounted to $1,095,279 and $869,396, respectively.
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized
when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions
not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended
December 31, 2020 and 2019. All of the tax returns of the Company’s subsidiary in China remain subject to examination by the tax authorities for five
years from the date of filing.
83
Recently issued accounting pronouncements
A list of recent relevant accounting pronouncements is included in Note 2 “Summary of Principal Accounting Policies” of our Consolidated
Financial Statements.
G. Safe Harbor
This Annual Report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information
currently available to us. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,”
“plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations,
business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:
● the timing of the development of future services;
● projections of revenue, earnings, capital structure and other financial items;
● the development of future company-owned branches;
● statements regarding the capabilities of our business operations;
● assumptions underlying statements regarding us or our business;
● statements regarding competition in our market; and
● statements of expected future economic performance.
You should thoroughly read this annual report and the documents that we refer to in this annual report with the understanding that our actual
results in the future may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary
statements. Other sections of this annual report include additional factors which could adversely affect our business and financial performance. Moreover,
we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all
risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements. Important risks and factors that could cause our actual
results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual
report.
The forward-looking statements made in this annual report relate only to events or information as of the date on which these statements are made
in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events
or otherwise, after the date of this annual report. You should not rely upon forward-looking statements as predictions of future events.
84
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Below is a list of our directors, senior management and any employees upon whose work we are dependent as of the date of this Annual Report,
and a brief account of the business experience of each of them. The business address for our directors and officers is 1st Floor, Building D2, Southern
Software Park, Tangjia Bay, Zhuhai, Guangdong 519080, China.
Age
63
58
43
46
53
64
38
Position
Co-CEO and co-Chairman of the Board
Co-CEO, CFO, President, and co-Chairman of the Board
Chief Marketing Officer
Chief Research and Development Officer
Independent Director
Independent Director
Independent Director
Name
Ban Lor
Stewart Lor
Liping Shu
Tianfei Feng
Wei Guan (1) (4)
Bo Wu (2)
Doreen Mak (3)
(1) Chair of the Audit Committee.
(2) Chair of the Nominating Committee.
(3) Chair of the Compensation Committee.
(4) Audit Committee financial expert.
Ban Lor is a founder of our Company and Powerbridge Zhuhai. He serves as our co-CEO and co-Chairman of the Board. From the inception of
the Company to October 2019, Mr. Lor served as our President, CEO and Chairman of the Board. Prior to founding our Company in 1997, Mr. Lor was a
founder and served as CEO and Chairman of the Board at Lorons International Corporation, a global trade and manufacturing company from August 1988
to October 1995. Mr. Lor holds a B.S. in Electrical Engineering from State University of New York at Stony Brook and a M.B.A in General Management
from New York Institute of Technology. We believe he is qualified to serve on the Board because of the perspective and experience he brings as our CEO
as well as his extensive experience managing global trade application and technology service business.
Stewart Lor is a co-founder of our Company and has been serving as our co-CEO, President, and co-Chairman of the Board since October 2019.
Mr. Lor has been serving on our board of directors and as our CFO since August 2018. Previously, he served on our board of directors and as our Chief
Operating Officer from October 1997 to September 2006. Mr. Lor served as President of Lorons International Corporation from August 1988 to October
1995. He had served various executive positions at Cmark Holdings Ltd. and Fanz Co., Ltd. from November 2006 to September 2017. He holds a B.S. in
Biochemistry from State University of New York at Stony Brook. We believe he is qualified to serve on the Board because of the perspective and
experience he brings as our cofounder and CFO.
Liping Shu has been working at Zhuhai Powerbridge, the wholly-owned subsidiary of the Company, since April 2004. Mr. Su has been the Chief
Marketing Officer of Zhuhai Powerbridge since March 2020 and the Executive Vice President of Zhuhai Powerbridge since March 2017. Before that, he
served as the General Manager of Business Department for Zhuhai Powerbridge from October 2006 to March 2017. From April 2004 to October 2006, Mr.
Shu worked as the Manager of Marketing Development Department for Zhuhai Powerbridge. Mr. Shu holds a bachelor degree in E-commerce from
University of Zhejiang and an Executive Master of Business Administration from University of Hunan.
Tianfei Feng has been serving as our Chief Research & Development Officer since August 2018. Prior to joining us, he served as Vice President
of Technology at Digital China Golden Vista and Bangtai United from June 2010 to September 2017, Director of Technology and Development at Ali
Health from November 2008 to May 2010, and Chief System Architect at Chinaport from April 2003 to October 2008. Mr. Feng holds a Ph.D. in
Aerospace and Astronavigation Engineering from Beihang University.
Wei Guan is an independent director of the Company. Mr. Guan has over twenty years of diverse experience in multiple disciplines, including
security brokerage service, investment banking, international trade and software applications. He has held several managerial positions at Huatai Securities,
Mando Corporation, Vanke Properties, and Jiujiu Technologies. Mr. Guan holds a Bachelor’s Degree in Management from Dongbei University of Finance
and Economics.
85
Bo Wu is an independent director of the Company. Mr. Wu served as Vice President at Capinfo, a provider of “digital and smart city” technology
services from September 2008 to September 2017. He served as General Manager at Credit & Risk Management, a provider of consumer and corporate
credit and risk information systems from March 2003 to August 2008. Mr. Wu held various management positions at Capinfo from October 2000 to
February 2003. He holds a B.E. and M.S. in Optical Engineering from Huazhong University of Science and Technology and a PhD in Optical
Instrumentation from a joint Ph.D. program by Institute of Applied Physics at Dalian University of Science and Technology and University of Bonn.
Doreen Mak is an independent director of the Company.Ms. Mak has over 11 years of experience in financial investment and management. From
2010 to date, she serves as the investment manager and senior investment analyst at a privately-owned investment company focusing on investment in the
secondary market. From 2006 to 2010, she served as a finance and investment analyst in the aforesaid privately-owned investment company. Ms. Mak
holds a bachelor’s degree in Commerce (Accounting and Finance) from the University of Melbourne, Australia.
None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years that is material to the evaluation of the ability or
integrity of any of our directors, director nominees or executive officers.
Limitation on Liability and Other Indemnification Matters
The Companies Law does not limit the extent to which the Fourth Amended and Restated Memorandum and Articles of Association may provide
for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public
policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Fourth Amended and Restated Memorandum
and Articles of Association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such
unless such losses or damages arise from dishonesty of such directors or officers willful default of fraud. This standard of conduct is generally the same as
permitted under the Delaware General Corporation Law for a Delaware corporation.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under
the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
B. Compensation of Directors and Executive Officers
Summary Compensation Table
Executive Compensation
The following table sets forth all cash compensation paid by us, as well as certain other compensation paid or accrued, in fiscal 2020 and 2019 to
each of the following named executive officers. The total amount was $0.9 million and $0.8 million in fiscal 2020 and 2019.
Name/principal position
Ban Lor/co-CEO (1)
Stewart Lor/co-CEO and CFO (2)
Xiuhe Jiang/Chief Product Officer (3)
Tianfei Feng/Chief Research and Development Officer (4)
Liping Shu/Chief Marketing Officer (5)
Nanfang Li/Chief Strategy Officer (6)
Year
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
Salary
Equity
Compensation
All Other
Compensation Total Paid
201,884 $
215,451
5,965 $
8,034
- $
207,809
223,485
154,321 $
198,086
50,704 $
68,292
- $
205,025
266,378
48,977 $
42,606
11,930 $
16,069
- $
60,907
58,675
71,847 $
97,472
28,335 $
38,163
- $
100,182
135,635
93,079 $
130,564
50,704 $
68,292
- $
143,783
198,856
$
$
$
$
$
$
49,218 $
29,826 $
40,171
- $
79,044
40,171
(1) Appointed Chairman, President and CEO effective as of August 2018 and resigned as President as of October 2019.
(2) Appointed CFO effective as of August 2018 and appointed as co-Chairman and co-CEO as of October 2019.
(3) Appointed Chief Product Officer effective as of August 2018. Xiuhe Jiang retired from his position as a Chief Product Officer at the Company on
March 2, 2021.
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(4) Appointed Chief Research and Development Officer as of August 2018.
(5) Appointed Chief Marketing Officer as of March, 2020.
(6) Appointed as Chief Strategy Officer as of August 2018 and resigned from such position in July 2019.
Under Chinese law, we may only terminate employment agreements without cause and without penalty by providing notice of non-renewal one
month prior to the date on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an
employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the
employee. We are, however, permitted to terminate an employee for cause without notice or penalty to our company, where the employee has committed a
crime or the employee’s actions or inactions have resulted in a material adverse effect to us.
Employment Agreements
Ban Lor Employment Agreement
On August 18, 2018, we entered into an employment agreement with Ben Lor pursuant to which he agreed to serve as our CEO. The agreement
provides for an annual base salary of RMB1,800,000 (approximately USD$263,462) payable in accordance with the Company’s ordinary payroll practices.
The term of the agreement shall expire on August 17, 2021, which term will automatically extend for additional 12-month periods unless a party to the
agreement terminates it upon 3-months’ notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive’s employment with
the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and
any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is
terminated at our election without cause or by him, the Company shall provide 3-months’ advanced notice or payment of 3-months’ salary in lieu of the
notice. Ban Lor has agreed not to compete with us for 2 years after the termination of his employment; he also executed certain non-solicitation,
confidentiality and other covenants customary for agreements of this nature.
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Stewart Lor Employment Agreement
On August 18, 2018, we entered into an employment agreement with Stewart Lor pursuant to which he agreed to serve as our CFO. The
agreement provides for an annual base salary of RMB1,600,000 (approximately USD$234,189) payable in accordance with the Company’s ordinary
payroll practices. The term of the agreement shall expire on August 17, 2021, which term will automatically extend for additional 12-month periods unless
a party to the agreement terminates it upon 3-months’ notice or proposes to re-negotiate the terms of the employment with the other party within 3 months
prior to the expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive’s
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of
his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his
employment is terminated at our election without cause or by him, the Company shall provide 3-months’ advanced notice or payment of 3-months’ salary
in lieu of the notice. Stewart Lor has agreed not to compete with us for 2 years after the termination of his employment; he also executed certain non-
solicitation, confidentiality and other covenants customary for agreements of this nature.
Tianfei Feng Employment Agreement
On August 18, 2018, we entered into an employment agreement with Tianfei Feng pursuant to which he agreed to serve as our Chief Research and
Development Officer. The agreement provides for an annual base salary of RMB480,000 (approximately USD$70,257) payable in accordance with the
Company’s ordinary payroll practices. The term of the agreement shall expire on August 17, 2019, which term will automatically extend for additional 3-
month periods unless a party to the agreement terminates it upon 30-days’ notice or proposes to re-negotiate the terms of the employment with the other
party within 30 days prior to the expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If
the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary
through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under
the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 30-days’ advanced notice or payment of
1-month’s salary in lieu of the notice. Tianfei Feng has agreed not to compete with us for 2 years after the termination of his employment; he also executed
certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
Liping Shu Offer Letter
Mr. Liping Shu has received an offer letter from the Company (the “Offer Letter”) on March 27, 2020, which sets his annual compensation of
US$76,000 with a target annual bonus equal to 60% of the base salary. The Offer Letter also grants Mr. Shu an option, to be issued under the Company’s
2018 Incentive Plan, to purchase an aggregate of 68,000 ordinary shares of the Company at a price no less than the market price of the Company’s ordinary
shares at issuance, subject to certain vesting schedule, and establishes other terms and conditions governing his service for the Company.
Director Compensation
The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or
prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or
committees of our board of directors or general meetings or separate meetings of any class of shares or of debenture of the Company or otherwise in
connection with the discharge of his or her duties as a director. Employee directors are entitled to receive $4,500 payable quarterly for their services. Non-
employee directors are entitled to receive stock option to purchase certain amount of Ordinary Shares under Company’s 2018 Stock Option Plan.
2018 Stock Option Plan
We adopted the 2018 Stock Option Plan (the “2018 Plan”) on April 4, 2019 (the “Effective Date”), which was further amended by the First
Amendment to the 2018 Plan (the “First Amendment”, and collectively with the 2018 Plan the “Plan”). The Plan is a stock-based compensation plan that
provides for discretionary grants of stock options to key employees, directors and consultants of the Company. The purpose of the Plan is to recognize
contributions made to our company and its subsidiaries by such individuals and to provide them with additional incentive to achieve the objectives of our
Company. Section 3(a) and 6(f) are amended as the following. The total number of Ordinary Shares issuable upon the exercise of all outstanding Options
granted under the Plan shall not exceed 20% of the total number of outstanding Ordinary Shares.
On April 4, 2019, the Board of Directors approved several restricted stock options grants to the members of executive management and the Board
of the Company pursuant to the terms of the Plan. Specifically, the Company granted an aggregate of 1,050,500 stock options to key employees and
directors under the Plan. Stock options granted to key employees and directors generally have a term of three years, but are subject to earlier termination in
connection with termination of continuous service to the Company. Stock options are valid for a period of 10 years from April 4, 2019 to April 5, 2029. As
at the grant date of April 4, 2019, the weighted-average fair value per share was $5.00 and the estimated total fair value of the restricted shares granted was
$5,252,500. No grants were made in fiscal year 2020.
On February 23, 2020, the Board approved to register all the shares issuable under the Company’s 2018 Amended Option Plan in a registration
statement on a Form S-8, representing 9,155,464 ordinary shares issuable under our Amended 2018 Stock Option Plan. As of the date hereof, the Company
has issued certain options to the employees, advisors, and consultants of the Company under Plan to purchase in an aggregate amount of 9,155,464
Ordinary Shares the grants have been made under the plan as of the date hereof. The following is a summary of the Plan and is qualified by the full text of
the Plan.
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Administration. The Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of
directors (we refer to body administering the Plan as the “Committee”).
Number of Ordinary Shares. The number of Ordinary Shares that may be issued under the Plan is the total number of Ordinary Shares in the
capital of the Company issuable upon the exercise of all outstanding Options granted under this Plan shall not at any time exceed 20% of the total number
of outstanding Ordinary Shares at the time of issuance, from time to time. If there is a forfeiture or termination without the delivery of Ordinary Shares or
of other consideration of any option made under the Plan, the Ordinary Shares underlying such option, or the number of Ordinary Shares otherwise counted
against the aggregate number of Ordinary Shares available under the Plan with respect to the option, to the extent of any such forfeiture or termination,
shall again be, or shall become, available for granting options under the Plan. The number of Ordinary Shares issuable under the Plan is subject to
adjustment, in the event in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off,
combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction.
Except as the board of director or the Committee determines, no issuance by the Company of shares of any class, or securities convertible into shares of any
class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Option. In the event of a
spin-off transaction, the board of director or the Committee may in its discretion make such adjustments and take such other action as it deems appropriate
with respect to outstanding Options under the Plan.
Eligibility. All persons as the board of directors or the Committee may select from among the employees, directors, and consultants of the
Company.
Stock Options. The board of directors or Committee shall determine the provisions, terms, and conditions of each option including, but not limited
to, the option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares, cashless settlement, or
other consideration) upon settlement of the option, payment contingencies and the exercise price; each option will last for the term stated in the option
agreement, provided, however that in the case of an option that is to qualify as an Incentive Share Option as such term is defined in Section 422 of the
Code, the term shall not exceed ten (10) years. It is intended that stock options qualify as “performance based compensation” under Section 162(m) of the
Code and thus be fully deductible by us for federal income tax purposes, to the extent permitted by law.
Payment for Stock Options and Withholding Taxes. The board of directors or Committee may make one or more of the following methods
available for payment of an option, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with
an award: (i) cash; (ii) cheque; (iii) with respect to options, payment through a broker-dealer sale and remittance procedure pursuant to which the optionee
(A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Ordinary Shares
and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Ordinary Shares and (B) shall provide written
directives to the Company to deliver the certificates for the purchased Ordinary Shares directly to such brokerage firm in order to complete the sale
transaction; (iv) cashless election; or (v) any combination of the foregoing methods of payment.
No Ordinary Shares shall be delivered under the Plan to any optionee or other person until such optionee or other person has made arrangements
acceptable to the board of directors or Committee for the satisfaction of any national, provincial or local income and employment tax withholding
obligations. Upon exercise of an option the Company shall have the right, but not the obligation (except as required by applicable law), to withhold or
collect from optionee an amount sufficient to satisfy such tax obligations. The optionee will be solely responsible for his/her own tax obligations.
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Transferability of Option. Options shall be transferable (i) at will and by the laws of succession and distribution; (ii) during the lifetime of the
Optionee, to the extent and in the manner authorized by the Administrator; and (iii) upon delivery of a written assignment of the Options duly executed by
the Optionee at the principal office of the Company, along with the Options and funds sufficient to pay any transfer taxes payable upon the making of such
transfer. The Optionee shall surrender its Options to the Company within seven (7) calendar days of the date on which the Optionee delivers the assignment
form to the Company assigning its Options. Upon such surrender and, if required, such payment, the Company shall execute and deliver new Options in the
name of the assignee and shall promptly cancel the surrendered Options. Notwithstanding the foregoing, the Optionee may designate one or more
beneficiaries of the Optionee’s Option in the event of the Optionee’s death on a beneficiary designation form provided by the Administrator”
Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The board of directors may at any time amend,
suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s shareholders to the extent
such approval is required by applicable laws, or if such amendment would adversely affect the right of any participant under any agreement in any material
way without the written consent of the participant. No option may be granted during any suspension of the Plan or after termination of the Plan. No
suspension or termination of the Plan shall adversely affect any rights under options already granted to an optionee. The Plan has become effective on the
date of the effectiveness of Company’s initial public offering. It shall continue in effect for a term of ten (10) years unless sooner terminated or unless
renewed for another period not to exceed ten (10) years pursuant to shareholder approval.
Notwithstanding the foregoing, neither the Plan nor any outstanding option agreement can be amended in a way that results in the repricing of a
stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other
stock options with a lower exercise price or other stock awards. (This prohibition on repricing without shareholder approval does not apply in case of an
equitable adjustment to the awards to reflect changes in the capital structure of the company or similar events.)
C. Board Practices
Composition of Board; Risk Oversight
Our board of directors presently consists of four (4) directors. Pursuant to our Fourth Amended and Restated Memorandum and Articles of
Association, the number of our board shall not be less than two (2). At any one time, at least majority of the board of directors shall be independent
directors. Our shareholders may elect new director either to fill in a vacancy or add additional member to the board via ordinary resolutions and the
directors may appoint any new director to fill a vacancy or as a member to the board until the next annual meeting of the Company. The directors have been
divided into two classes, being the class I directors (the “Class I Directors”) and the class II directors (the “Class II Directors”) immediately prior to the
consummation of Company’s IPO. The number of directors in each class shall be as nearly equal as possible. The Class I Directors shall stand elected for a
term expiring at the Company’s initial meeting after the adoption of the Fourth Amended and Restated Memorandum and Articles of Association and the
Class II Directors shall stand elected for a term expiring at the Company’s third annual general meeting following the initial meeting. Directors elected to
succeed those Class I Directors whose terms expire shall be elected for a term of office to expire at the first annual general meeting following their election
and directors elected to succeed those Class II Directors whose terms expire shall be elected for a term of office to expire at the third annual general
meeting following their election. The initial members of Class I Directors are Yuping Ouyang and Bo Wu. The initial members of Class II Directors are
Ban Lor and Stewart Lor. A director will be removed from office automatically if, among other things, the director becomes bankrupt or has a receiving
order made against him or suspends payment or compounds with his creditors, or becomes of unsound mind or dies. Except for the sibling relationship
between Mr. Ben Lor and Mr. Stewart Lor, there are no family relationships between any of our executive officers and directors. Officers are elected by,
and serve at the discretion of, the board of directors. Our Board may meet for the dispatch of business, adjourn and otherwise regulate its meetings as it
considers appropriate.
Under the NASDAQ rules, we are required to maintain a board of directors comprised of at least 50% independent directors, and an audit
committee of at least three members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Exchange Act.
There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general
meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated. However, the NASDAQ rules
permit a foreign private issuer like us to follow the corporate governance practices of its home country. We have utilized the exemption afforded by Nasdaq
Listing Rule 5615(a)(3) to follow home country practice in lieu of certain requirements, including (i) the independence requirements for compensation
committee and nomination committee as provided in Nasdaq Listing Rule 5605(d) and (e), (ii) the requirement that a majority of the board must be
independent as provided in Nasdaq Listing Rule 5615(b)(1), (iii) the requirement to hold annual general meeting as provided in Nasdaq Listing Rule
5620(a), and (iv) the requirement to obtain shareholder approval prior to a plan or other equity compensation arrangement is established or materially
amended as provided in Nasdaq Listing Rule 5635(c).
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Under our Fourth Amended and Restated Memorandum and Articles of Association, we shall hold an annual general meeting in each year other
than the year in which the Fourth Amended and Restated Memorandum and Articles of Association were adopted and shall specify the meeting as such in
the notices calling it. The annual general meeting shall be held at such time and place as the board of directors shall appoint.
Our board plays a significant role in our risk oversight. The board makes all relevant company decisions. As such, it is important for us to have
our CEO serve on the board as he plays key roles in the risk oversight or the Company. As a smaller reporting company with a small board of directors, we
believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
Director Independence
Our board has reviewed the independence of our directors, applying the NASDAQ independence standards. Based on this review, the board
determined that each of Yuping Ouyang and Bo Wu are “independent” within the meaning of the NASDAQ rules. In making this determination, our board
considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board deemed relevant in
determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet on a regular basis as
often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and
management.
Board Committees
Currently, three committees have been established under the board: the Audit Committee, the Compensation Committee and the Nominating
Committee.
The Audit Committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial
statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee
of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of
compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans).
The Nominating Committee of the board is responsible for the assessment of the performance of the board, considering and making recommendations to
the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion
and experience when nominating directors.
Audit Committee
The Audit Committee is responsible for, among other matters:
● appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;
● discussing with our independent registered public accounting firm the independence of its members from its management;
● reviewing with our independent registered public accounting firm the scope and results of their audit;
● approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim
and annual financial statements that we file with the SEC;
● reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and
regulatory requirements;
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● coordinating the oversight by our board of directors of our code of business conduct and our disclosure controls and procedures
● establishing procedures for the confidential and or anonymous submission of concerns regarding accounting, internal controls or auditing
matters; and
● reviewing and approving related-party transactions.
Currently, our Audit Committee consists of3 members, Bo Wu, Doreen Mak and Wei Guan, with Wei Guan serving as chair of the Audit
Committee. Our board has affirmatively determined that each of the members of the Audit Committee meets the definition of “independent director” for
purposes of serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. In addition, our board has determined that Yuping
Ouyang qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial
sophistication requirements of the NASDAQ rules.
Compensation Committee
The Compensation Committee is responsible for, among other matters:
● reviewing and approving, or recommending to the board of directors to approve the compensation of our CEO and other executive officers
and directors;
● reviewing key employee compensation goals, policies, plans and programs;
● administering incentive and equity-based compensation;
● reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and
● appointing and overseeing any compensation consultants or advisors.
Our Compensation Committee consists of 3 members, Bo Wu, Wei Guan and Doreen Mak, with Doreen Mak serving as the chair of
Compensation Committee. Our board has affirmatively determined that each of the members of the Compensation Committee meets the definition of
“independent director” for purposes of serving on Compensation Committee under NASDAQ rules.
Nominating Committee
The Nominating Committee is responsible for, among other matters:
● selecting or recommending for selection candidates for directorships;
● evaluating the independence of directors and director nominees;
● reviewing and making recommendations regarding the structure and composition of our board and the board committees;
● developing and recommending to the board corporate governance principles and practices;
● reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and
● overseeing the evaluation of the Company’s management
Our Nominating Committee consists of consists of 3 members, Doreen Mak, Wei Guanand and Bo Wu, with Bo Wu serving as chair of the
Nominating Committee. Our board has affirmatively determined that each of the members of the Nominating Committee meets the definition of
“independent director” for purposes of serving on a Nominating Committee under NASDAQ rules.
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Duties of Directors
Under Cayman Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a
duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care
to us, our directors must ensure compliance with our Fourth Amended and Restated Memorandum and Articles of Association. We have the right to seek
damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
● appointing officers and determining the term of office of the officers;
● giving to any person the right or option of requiring at a future date that an allotment shall be made to him of any share at par or at such
premium as may be agreed;
● exercising the borrowing powers of the company and mortgaging the property of the company;
● giving to any Directors, officers or employees of the Company an interest in any particular business or transaction or participation in the
profits thereof or in the general profits of the Company either in addition to or in substitution for a salary or other remuneration; and
● resolving that the Company be deregistered in the Cayman Islands and continued in a named jurisdiction outside the Cayman Islands subject
to the provisions of the Companies Law.
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is
interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction
we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written
resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to
be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary
to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive such remuneration as our board of directors may determine from time to time. For the services rendered by the
independent director in any capacity the company will a cash fee in the amount of USD$1,500 per month. Each director is entitled to be repaid or prepaid
for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees
of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation
committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the
powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock
and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.
D. Employees
As of the date of this Annual Report, we had a total of 236 full-time employees, of which 106 are in research and development, 39 are in sales and
marketing, 52 are in technical and customer services, and 39 are in general administration.
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We have standard employment, comprehensive confidentiality and non-compete agreements with our management and standard confidentiality
and non-compete terms with all other employees. As required by laws and regulations in China, we participate in various social security plans that are
organized by municipal and provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-
related injury insurance and housing fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of
the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.
We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our
employee is represented by a labor union or covered by collective bargaining agreements. We have not experienced any work stoppages.
E. Share Ownership
See Item 7 below.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following tables set forth certain information with respect to the beneficial ownership of our Ordinary Shares for:
● each stockholder known by us to be the beneficial owner of more than 5% of our outstanding Ordinary Shares;
● each of our directors;
● each of our named executive officers; and
● all of our directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, beneficial ownership includes any shares
over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to subscribe for within
60 days of the date of this Annual Report through the exercise of any warrants or other rights. Except as indicated by the footnotes below, we believe, based
on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the
economic benefit with respect to all Ordinary Shares that they beneficially own, subject to applicable community property laws. None of the stockholders
listed in the table are a broker-dealer or an affiliate of a broker dealer. None of the stockholders listed in the table are located in the United States and none
of the Ordinary Shares held by them are located in the United States. Applicable percentage ownership is based on 48,262,216 Ordinary Shares outstanding
as of June 30, 2021. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Powerbridge, c/o 1st Floor, Building
D2, Southern Software Park, Tangjia Bay, Zhuhai, Guangdong 519080, China.
Name of Beneficial Owner
Ban Lor (1)
Stewart Lor (2)
Wei Guan
Bo Wu
Liping Shu
Tianfei Feng
Doreen Mak
All directors and executive officers as a group
Hybridge Holdings Ltd. (1)
5% or greater beneficial owners as a group
*
Less than 1%.
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Beneficial Ownership
Ordinary
Shares
Percentage
4,054,119
1,309,383
0
0
*
0
0
5,363,502
3,486,053
3,486,053
8.40%
2.71%
-
-
*
-
0
11.11%
7.22%
7.22%
(1) Consists of (i) 3,138,169 Ordinary Shares held by Hybridge Holding Ltd., a British Virgin Islands company (“Hybridge”) which is 100% owned by
Ban Lor; (ii) 173,984 Ordinary Shares held by Sunbrook One Ltd., a British Virgin Islands company (“Sunbrook”) which Ban Lor, together with his
spouse, Mrs. Lor, owns and controls 87.85% equity interest and voting power; (iii) 180,569 Ordinary Shares held by Bitlakes Holdings Ltd., a British
Virgin Islands company (“Bitlakes”) which Ban Lor owns and controls 67.46% equity interest and voting power; and (iv) 213,513 Ordinary Shares
held by Foxbit Holdings Ltd., a British Virgin Islands company (“Foxbit”) which Ban Lor owns and controls 61.61% equity interest and voting power.
The principal office address for Hybridge, Sunbrook, Bitlakes and Foxbit is Sertus Incorporation (BVI) Limited, Sertus Chambers, P.O. Box 905,
Quastsky Building, Road Town, Tortola, British Virgin Islands.
(2) Includes 1,309,383 Ordinary Shares held by Hogstream International Ltd., a British Virgin Islands company wholly-owned by Stewart Lor
(“Hogstream”). Mr. Lor maintains sole voting control over the shares held by Hogstream, the principal office address of which is at Sertus
Incorporation (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastsky Building, Road Town, Tortola, British Virgin Islands.
As of the date of this Annual Report, there were 43 holders of record entered in our share register. The number of individual holders of record is
based exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one
person or institution who may be deemed to be the beneficial owner of a share or shares in our company.
To our knowledge, no other shareholder beneficially owns more than 5% of our shares. Our company is not owned or controlled directly or
indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. Our major shareholders do not have any
special voting rights.
B. Related Party Transactions
The following is a description of transactions since the beginning of the Company’s preceding three financial years up to the date hereof, in which
the amount involved in the transaction exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets as at the year-end for
the last two completed fiscal years, and to which any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any
immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Prepaid expense –related parties:
The Company had consulting fee prepayment of $121,144 to Guangzhou Powerbridge Blockchain Co., Ltd. as of December 31, 2019, which the
Company has significant influence over with. In 2020, both parties negotiated to terminate the consulting service. The balance of $129,254 as of December
31, 2020 was reclassified to due from related party and fully allowanced in 2020.
For the year ended December 31, 2019, the Company incurred consulting fee prepayment $685,167 to Hengqin Baisheng Investment, GP, which
was a non-controlling shareholder of Powerbridge Ningbo. The balance of $622,222 as of December 31, 2020 was reclassified to due from related party in
2020.
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Due from related party.
As of December 31, 2020, the Company had $129,254 due from Guangzhou Powerbridge Blockchain Co., Ltd., which was fully allowanced in
2020. As of December 31, 2020, the Company had $622,222 due from Hengqin Baisheng Investment, GP.
As of December 31, 2020 and 2019, the Company advanced $30,651 and $370,000 to Mr. Zongbo Jiang, the legal representative of Guangzhou
Hongqiao Blockchain Co., Ltd, which the Company has significant influence over with. The balance was collected in 2020.
Due to related party.
Due to related party as of December 31, 2020 amounted to $71,020, which included $8,855 unpaid expenses to Ling Lor, wife of CEO and
director of the Company and $62,165 unpaid expenses to Hong Yu, shareholder of Chongqing Power.
Due to related party as of December 31, 2019 amounted to $6,538, which represents unpaid expenses to Ling Lor, wife of CEO and director of the
Company.
Short term bank loan.
On April 25, 2019, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,149,095 for a term of
one year and at a floating rate based on prime borrowing rate in PRC. The bank loan was unsecured and guaranteed by Mr. Ban Lor, the Chairman and
CEO of the Company, and his family member. The loan was fully repaid upon maturity.
On March 16, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,532,532 for a term of
half year and at a fixed annual interest rate of 5.003%. The bank loan was unsecured and guaranteed by Mr. Ban Lor, the Chairman and CEO of the
Company, and his family member. The loan was fully repaid October 8, 2020.
On November 5, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,532,567 for a term
of one year and at a fixed annual interest rate of 4.5675%. The bank loan was unsecured and guaranteed by a third party.
On February 1, 2019, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $430,923 for a term of one year
and at a fixed annual interest rate of 4.6%. The bank loan was guaranteed by Mr. Ban Lor and secured by a restricted cash deposit of $172,369 as of
December 31, 2019. The loan was fully repaid upon maturity.
On January 9, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $766,284 for a term of one year
and at a fixed annual interest rate of 4.45%. The bank loan was guaranteed by Mr. Ban Lor and secured by a restricted cash deposit of $114,943 as of
December 31, 2020. The loan was fully repaid on December 25, 2020.
On March 4, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $459,770 for a term of one year and
at a fixed annual interest rate of 4.55%. The bank loan was guaranteed by Mr. Ban Lor. The loan was fully repaid upon maturity.
On December 14, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $306,514 for a term of one year
and at a fixed annual interest rate of 4.55%. The bank loan was guaranteed by Mr. Ban Lor.
On January 2, 2020, Powerbridge Zhuhai entered into a loan agreement with Guangfa Bank to obtain a loan of $2,298,851 for a term of one year
and at a fixed annual interest rate of 4.6%. The bank loan was guaranteed by Mr. Ban Lor and the company’s account receivable of some programs was
pledged to secure the loan. The loan was fully repaid upon maturity.
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C. Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18 for our audited consolidated financial statements.
Legal Proceedings
From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a
party to any legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse effect on our business, financial
condition or results of operations.
Dividend Policy
The holders of our Ordinary Shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our
board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to
pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our
operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries may, from time to time, be subject to restrictions on their
ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into
U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our Ordinary
Shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.
B. Significant Changes
Except as disclosed elsewhere in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated
financial statements included in this Annual Report.
Item 9. THE OFFER AND LISTING
A. Offering and Listing Details.
The Registration Statement became effective on March 28, 2019. Our Ordinary Shares are currently listed on NASDAQ Capital Market under the
symbol PBTS.
B. Plan of Distribution
Not applicable.
C. Markets
Our Ordinary Shares are currently listed on NASDAQ Capital Market under the symbol PBTS.
D. Selling Shareholders
Not applicable.
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E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Amended and Restated Memorandum and Articles of Association
Our Fourth Amended and Restated Memorandum and Articles of Association were filed as Exhibit 10.1 of Form 6-K filed on November 6, 2020
and are hereby incorporated by reference into this Annual Report. The following description of our memorandum and articles of association, as amended
and restated from time to time, are summaries and do not purport to be complete. Reference is made to our Fourth Amended and Restated Memorandum
and Articles of Association, effective on September 30, 2020 (respectively, the “Memorandum” and the “Articles”). We were incorporated as an exempted
company with limited liability under the Companies Law (2018 Revision) of the Cayman Islands, (“Cayman Companies Law”), on July 27, 2018. A
Cayman Islands exempted company:
● is a company that conducts its business mainly outside the Cayman Islands;
● is prohibited from trading in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the exempted
company carried on outside the Cayman Islands (and for this purpose can effect and conclude contracts in the Cayman Islands and exercise in
the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands);
● does not have to hold an annual general meeting;
● does not have to make its register of members open to inspection by shareholders of that company;
● may obtain an undertaking against the imposition of any future taxation;
● may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
● may register as a limited duration company; and
● may register as a segregated portfolio company.
All of our issued and outstanding Ordinary Shares are fully paid and non-assessable. Our Ordinary Shares are issued in registered form, and are
issued when registered in our register of members. Unless and until the directors resolve to issue share certificates, no share certificate shall be issued, and
the records of the shareholdings of each shareholder shall be in uncertified book entry form. Our shareholders who are non-residents of the Cayman Islands
may freely hold and vote their Ordinary Shares. We may not issue shares or warrants to bearer.
As of the date of this report, the authorized share capital of the Company is US $500,000 divided into 300,000,000 shares of US $0.00166667 par
value each. Subject to the provisions of the Cayman Companies Law and the provisions, if any, of the Articles, and any directions given by any ordinary
resolution and the rights attaching to any class of existing shares, the directors may issue, allot, grant options over or otherwise dispose of shares (including
any fractions of Shares) and other securities of our company at such times, to such persons, for such consideration and on such terms as the directors may
determine. Such authority could be exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to
ordinary shares provided that if such operates to vary the rights of holders of ordinary shares then the sanction of a special resolution of the affected class is
required. No share may be issued at a discount except in accordance with the provisions of the Cayman Companies Law. The directors may refuse to accept
any application for shares, and may accept any application in whole or in part, for any reason or for no reason.
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Ordinary Shares
General. The unissued shares of the Company shall be at the disposal of the Board, under its absolute discretion, at such times and for such
consideration and upon such terms and conditions and for any reason, without limitation, but so that no shares shall be issued at a discount to par value.
Except as otherwise expressly provided in the resolution or resolutions providing for the establishment of any class or series of preferred shares, no vote of
the holders shall be a prerequisite to the issuance of any shares of any class or series of the preferred shares authorized by and complying with the
conditions of the Memorandum and Articles of Association. The board may issue options, warrants, convertible securities or other similar nature securities.
Dividends. The holders of our Ordinary Shares are entitled to such dividends as may be declared by our board of directors. Our Third Amended
and Restated Memorandum and Articles of Association provide that our board of directors may declare and pay dividends out of the profits of the
Company, realized or unrealized, or from any reserve set aside from profits which the directors determine is no longer needed, or out of share premium
account or any other fund or account which can be authorized for this purpose in accordance with the Law.
Voting Rights. In respect of all matters subject to a shareholders’ vote, at any general meeting on a show of hands every Shareholder present in
person (or being a corporation, is present by a duly authorized representative), or by proxy shall have one vote and on a poll every Shareholder present in
person or by proxy or, in the case of a Shareholder being a corporation, by its duly authorized representative shall have one vote for every share of which
he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as
paid up on the share. A quorum required for a meeting of shareholders consists of one shareholder who holds at least one-third of our issued voting shares.
Shareholders’ meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting.
Extraordinary general meetings may be called by a majority of our board of directors or upon a requisition of shareholders holding at the date of deposit of
the requisition not less one-tenth of such of the paid-up share capital of our company that carries the right to vote at a general meeting, forthwith proceed to
convene an extraordinary general meeting. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple
majority of the votes attaching to the Ordinary Shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of
the votes attaching to the Ordinary Shares cast at a meeting. A special resolution will be required for important matters such as making changes to our
Third Amended and Restated Memorandum and Articles of Association.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her Ordinary
Shares by an instrument of transfer in the usual or common form prescribed by the NASDAQ Stock Market (the “Designated Stock Exchange”) or in or
any other form approved by our board of directors. Our board of directors may, in its absolute discretion, decline to register any transfer of any Ordinary
Shares only where such share is not a fully paid up share (and being transferred to a person of whom it does not approve), or any share issued under any
share incentive scheme for employees or pursuant to any other agreement, contract or other such arrangement. If the Board refuses to register a transfer of
any share, it shall, within three months after the date on which the transfer was lodged with the Company, send to each of the transferor and transferee
notice of the refusal. The registration of transfers of shares or of any class of shares may, subject to compliance with any notice requirement of the
Designated Stock Exchange, be suspended at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as the Board may
determine.
Inspection of Books and Records. Holders of our Ordinary Shares have no general right under our Third Amended and Restated Memorandum
and Articles of Association to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with
annual audited financial statements. See “Where You Can Find Additional Information.”
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Issuance of Additional Shares. Our memorandum of association authorizes our board of directors to issue additional Ordinary Shares from time
to time as our board of directors shall determine, to the extent of available authorized but unissued shares. Our memorandum of association also authorizes
our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference
shares, the terms and rights of that series, including:
● the designation of the series to be issued;
● the number of shares of the series;
● the dividend rights, conversion rights, voting rights; and
● the liquidation preferences.
Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these
shares may dilute the voting power of holders of Ordinary Shares.
Anti-Takeover Provisions. Some provisions of our Third Amended and Restated Memorandum and Articles of Association may discourage, delay
or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of
directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares
without any further vote or action by our shareholders.
Differences in Corporate Law
The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the
Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of some of the significant
differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements. The Companies Law permits mergers and consolidations between Cayman Islands companies and between
Cayman Islands companies and non-Cayman Islands companies. For these purposes, a “merger” means the merging of two or more constituent companies
and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and a “consolidation” means the
combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such
companies to the consolidated company.
In order to effect a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation,
which must then be authorized by a special resolution of the shareholders of each constituent company, and such other authorization, if any, as may be
specified in such constituent company’s articles of association.
The plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the
solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the
certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger and
consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares if they follow
the required procedures under the Companies Law subject to certain exceptions. The fair value of the shares will be determined by the Cayman Islands
court if it cannot be agreed among the parties. Court approval is not required for a merger or consolidation effected in compliance with these statutory
procedures.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is
approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition
represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy
at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand
Court of the Cayman Islands.
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While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be
expected to approve the arrangement if it determines that:
● the statutory provisions as to the required majority vote have been met;
● the shareholders have been fairly represented at the meeting in question;
● the arrangement is such that an intelligent and honest man of that class acting in respect of his interest would reasonably approve; and
● the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.
When a take-over offer is made and accepted by holders of not less than 90% of the shares within four months, the offer, or may, within a two-
month period conversing on the expiration of such four months period, require the holders of the remaining shares to transfer such shares on the terms of
the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad faith or
collusion.
If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which
would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the
judicially determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule a
derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive
authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
● a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders;
● the act complained of, although not ultra vires, could only be duly effected if authorized by more than a simple majority vote that has not been
obtained; and
● those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. The Companies Law does not limit the extent to which a
company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may
be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of
committing a crime. Our Third Amended and Restated Memorandum and Articles of Association permit indemnification of officers and directors for
losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty of such directors or officers
willful default of fraud. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware
corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us
under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its
shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the
care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to
shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner
he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty
prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed
by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been
made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this
presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a
director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation. As a matter of
Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that
he or she owes the following duties to the company: a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or
her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the
company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty
to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than
may reasonably be expected from a person of his or her knowledge and experience. However, courts are moving towards an objective standard with regard
to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to
act by written consent by amendment to its certificate of incorporation. Cayman Islands law provides that shareholders may approve corporate matters by
way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting
without a meeting being held. Our Third Amended and Restated Memorandum and Articles of Association provides that anything which may be done by
resolution of the Company in general meeting or by resolution of a meeting of any class of the shareholders may be done without a meeting by written
resolution in accordance with such Third Amended and Restated Memorandum and Articles of Association. A written resolution is passed when it is signed
by (or in the case of a shareholder that is a corporation, on behalf of) all the shareholders, or all the shareholders of the relevant class thereof, entitled to
vote thereon, or in the case of an ordinary resolution, the requisite majority, and may be signed in as many counterparts as may be necessary.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting
of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or
any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. The Companies Law
provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before
a general meeting. However, these rights may be provided in articles of association. Our Third Amended and Restated Memorandum and Articles of
Association allow our shareholders holding not less than 10% of the share capital in issue to requisition a shareholder’s meeting. Other than this right to
requisition a shareholders’ meeting, a shareholder may give notice to the Company of business proposed to be brought before an annual general meeting.
As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the
corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on
a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases
the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the Companies Law
but our Third Amended and Restated Memorandum and Articles of Association do not provide for cumulative voting.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a may be removed with the approval of a
majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Third Amended and Restated
Memorandum and Articles of Association, directors may be removed by way of a special resolution of our shareholders at any time before the expiration of
his or her period of office.
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Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to
Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of
incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such
person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the
target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the
target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder
becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person
becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction
with the target’s board of directors. The Companies Law has no comparable statute. As a result, we cannot avail ourselves of the types of protections
afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its
significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate
purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,
dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of
directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its
certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the Companies Law, a
company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to
pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances
including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Law and our Third Amended and Restated
Memorandum and Articles of Association, our company may be dissolved, liquidated or wound up by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the
approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Companies Law and our
Third Amended and Restated Memorandum and Articles of Association, if our share capital is divided into more than one class of shares, we may vary the
rights attached to any class with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended
with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by the
Companies Law, our Third Amended and Restated Memorandum and Articles of Association may only be amended with a special resolution of our
shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our Third Amended and Restated Memorandum and
Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no
provisions in our Third Amended and Restated Memorandum and Articles of Association governing the ownership threshold above which shareholder
ownership must be disclosed.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4.
Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” or elsewhere in this annual
report on Form 20-F.
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D. Exchange Controls
Under Cayman Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions
that affect the remittance of dividends, interest or other payments to nonresident holders of our shares.
E. Taxation
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our Ordinary Shares
is based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change. This summary does
not deal with all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences under state, local and other tax
laws.
Cayman Islands Taxation
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no
taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the
Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The
Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by the Company. There are no exchange control
regulations or currency restrictions in the Cayman Islands.
Material PRC Income Tax Considerations
Under the new EIT Law and the Implementing Rules, an enterprise established outside of the PRC with “de facto management bodies” within the
PRC is considered as a resident enterprise and will be subject to a PRC income tax rate of 25% on its global income. According to the Implementing Rules,
“de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business
operations, personnel, accounting, properties, etc. of an enterprise.” Accordingly, our holding company may be considered a resident enterprise and may
therefore be subject to a PRC income tax on our global income. The State Administration of Taxation issued the Notice Regarding the Determination of
Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on
April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore
incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those invested
in by individuals or foreign enterprises, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position
on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are
controlled by PRC enterprises or controlled by or invested in by individuals or foreign enterprises. If we are considered a resident enterprise and earn
income other than dividends from our PRC subsidiary, such PRC income tax on our global income could significantly increase our tax burden and
materially and adversely affect our cash flow and profitability.
We do not believe that Powerbridge meets all of the conditions required for PRC resident enterprise. The Company is a company incorporated
outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including
the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other
entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax
authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC
government will ultimately take a view that is consistent with ours.
However, if the PRC tax authorities determine that Powerbridge is a PRC resident enterprise for enterprise income tax purposes, we may be
required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be
reduced by applicable tax treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible
for the benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In addition, non-
resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ordinary shares, if such income is
treated as sourced from within the PRC.
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It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC
individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would
generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders
of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is
treated as a PRC resident enterprise.
Provided that our Cayman Islands holding company, Powerbridge, is not deemed to be a PRC resident enterprise, our shareholders who are not
PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares.
However, under Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity
interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the
transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using
a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial
purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be
subject to PRC enterprise income tax, and the transferee would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of
equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under
Circular 7, and we may be required to expend valuable resources to comply with Bulletin 37, or to establish that we should not be taxed under Circular 7
and Bulletin 37.
Prospective investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income
tax treaties, and any available foreign tax credits.
Material U.S. Tax Considerations
The following is a summary of the material U.S. federal income tax consequences of owning and disposing of our Ordinary Shares. The
discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of our shares that is for U.S. federal
income tax purposes:
● an individual citizen or resident of the United States;
● a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of
the United States, any state thereof or the District of Columbia;
● an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or
● a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a
U.S. person.
If a beneficial owner of our shares is not described as a U.S. Holder in one of the four bullet points above and is not an entity treated as a
partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder.” The U.S. federal income
tax consequences applicable to Non-U.S. Holders is described below under the heading “Tax Consequences to Non-U.S. Holders of Ordinary Shares.”
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing Treasury regulations
promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations,
possibly on a retroactive basis.
105
This discussion does not address all aspects of U.S. federal income taxation that may be relevant to us or to any particular holder of our shares
based on such holder’s individual circumstances. In particular, this discussion considers only holders that own our shares as capital assets within the
meaning of Section 1221 of the Code. This discussion also does not address the potential application of the alternative minimum tax or the U.S. federal
income tax consequences to holders that are subject to special rules, including:
● financial institutions or financial services entities;
● broker-dealers;
● taxpayers who have elected mark-to-market accounting;
● tax-exempt entities;
● governments or agencies or instrumentalities thereof;
● insurance companies;
● regulated investment companies;
● real estate investment trusts;
● certain expatriates or former long-term residents of the United States;
● persons that actually or constructively own 5% or more of our voting shares;
● persons that acquired our shares pursuant to the exercise of employee stock options, in connection with employee stock incentive plans or
otherwise as compensation;
● persons that hold our shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or
● persons whose functional currency is not the U.S. dollar.
This discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax
laws. Additionally, this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities
through such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our shares,
the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership.
This discussion also assumes that any distribution made (or deemed made) in respect of our shares and any consideration received (or deemed received) by
a holder in connection with the sale or other disposition of such shares will be in U.S. dollars.
We have not sought, and will not seek, a ruling from the Internal Revenue Service (or “IRS”), or an opinion of counsel as to any U.S. federal
income tax consequence described herein. The IRS may disagree with one or more aspects of the discussion herein, and its determination may be upheld by
a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the
accuracy of the statements in this discussion.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER
OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH HOLDER OF OUR SECURITIES IS URGED TO
CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S.
FEDERAL TAX LAWS AND APPLICABLE TAX TREATIES.
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Tax Consequences to U.S. Holders of Ordinary Shares
Taxation of Distributions Paid on Ordinary Shares
Subject to the passive foreign investment company (or “PFIC”), rules discussed below, a U.S. Holder generally will be required to include in gross
income as ordinary income the amount of any cash dividend paid on our Ordinary Shares. A cash distribution on such shares will be treated as a dividend
for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined for U.S.
federal income tax purposes). Any distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis
in its Ordinary Shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such Ordinary Shares. With respect to
corporate U.S. Holders, dividends on our shares will not be eligible for the dividends-received deduction generally allowed to domestic corporations in
respect of dividends received from other domestic corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends on our shares will be taxed at the lower long-term
capital gains rate applicable to qualified dividend income (see “— Taxation on the Disposition of Ordinary Shares” below), provided that (1) our Ordinary
Shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a Chinese “resident enterprise”
under the EIT Law, we are eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the
People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the “U.S.-PRC
Tax Treaty,” (2) we are not a PFIC, as discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (3)
certain holding period requirements are met. Under published IRS authority, shares are considered for purposes of clause (1) above to be readily tradable on
an established securities market in the United States only if they are listed on certain exchanges, which presently include the Nasdaq Stock Market. U.S.
Holders should consult their own tax advisors regarding the tax treatment of any dividends paid with respect to our Ordinary Shares, including the effects
of any change in law after the date of this Annual Report.
If PRC taxes apply to dividends paid to a U.S. Holder on our Ordinary Shares, such U.S. Holder may be entitled to a reduced rate of PRC tax
under the U.S-PRC Tax Treaty. In addition, such PRC taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax
liability (subject to certain limitations). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their
eligibility for the benefits of the U.S.-PRC Tax Treaty.
Taxation on the Disposition of Ordinary Shares
Upon a sale or other taxable disposition of our Ordinary Shares, and subject to the PFIC rules discussed below, a U.S. Holder will recognize
capital gain or loss in an amount equal to the difference between the amount realized in U.S. dollars and the U.S. Holder’s adjusted tax basis in the
Ordinary Shares. Capital gains recognized by U.S. Holders generally are subject to U.S. federal income tax at the same rate as ordinary income, except that
long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at a maximum rate of 20%. Capital gain
or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the Ordinary Shares exceeds one year. The deductibility of
capital losses is subject to various limitations. If PRC taxes would otherwise apply to any gain from the disposition of our Ordinary Shares by a U.S.
Holder, such U.S. Holder may be entitled to a reduction in or elimination of such taxes under the U.S.-PRC Tax Treaty. Any PRC taxes that are paid by a
U.S. Holder with respect to such gain may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to
certain limitations that could reduce or eliminate the available tax credit). U.S. Holders should consult their own tax advisors regarding the creditability of
any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.
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Passive Foreign Investment Company Rules
A foreign (i.e., non-U.S.) corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its
pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively,
a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market
value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the
shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other
than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
Based on our current composition and assets, we do not expect to be treated as a PFIC under the current PFIC rules. We must make a separate
determination each year as to whether we are a PFIC. As such, our PFIC status, will not be determinable until after the end of each taxable year.
Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the
amount of cash we raise in the IPO, together with any other assets held for the production of passive income, it is possible that, for our 2019 taxable year or
for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination
following the end of any particular tax year. If we are determined to be a PFIC and a U.S. Holder did not make either a timely qualified electing fund (or
“QEF”), election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) Ordinary Shares, or a mark-to-market election,
as described below, such holder generally will be subject to special rules with respect to:
● any gain recognized by the U.S. Holder on the sale or other disposition of its Ordinary Shares; and
● any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder
that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Ordinary Shares during the three
preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the Ordinary Shares).
Under these rules,
● the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares;
● the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to
the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary
income;
● the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the
highest tax rate in effect for that year and applicable to the U.S. Holder; and
● the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year of the U.S.
Holder.
In general, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our Ordinary Shares by making a timely QEF
election to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a
current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. There can be no
assurance, however, that we will pay current dividends or make other distributions sufficient for a U.S. Holder who makes a QEF election to satisfy the tax
liability attributable to income inclusions under the QEF rules, and the U.S. Holder may have to pay the resulting tax from its other assets. A U.S. Holder
may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be
subject to an interest charge.
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder
generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company
or Qualified Electing Fund), to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections
generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. In order
to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will
endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFIC annual
information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timely
knowledge of our status as a PFIC in the future or of the required information to be provided.
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If a U.S. Holder has made a QEF election with respect to our Ordinary Shares, and the special tax and interest charge rules do not apply to such
shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares), any gain
recognized on the appreciation of our Ordinary Shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above,
U.S. Holders of a QEF are currently taxed on their pro rata shares of a PFIC’s earnings and profits, whether or not distributed. In such case, a subsequent
distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to those U.S. Holders who
made a QEF election. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts
distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S.
Holder is treated under the applicable attribution rules as owning shares in a QEF.
Although a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for
subsequent years to a U.S. Holder who held Ordinary Shares while we were a PFIC, whether or not we meet the test for PFIC status in those years. A U.S.
Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our
Ordinary Shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S.
Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of ours that ends within or with a taxable year of the
U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC
and the U.S. Holder holds (or is deemed to hold) our Ordinary Shares, the PFIC rules discussed above will continue to apply to such shares unless the
holder makes a purging election, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election
period.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may
make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first
taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in us and for which we are determined to be a PFIC, such
holder generally will not be subject to the PFIC rules described above in respect to its Ordinary Shares. Instead, in general, the U.S. Holder will include as
ordinary income each year the excess, if any, of the fair market value of its Ordinary Shares at the end of its taxable year over the adjusted basis in its
Ordinary Shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its Ordinary Shares
over the fair market value of its Ordinary Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a
result of the mark-to-market election). The U.S. Holder’s basis in its Ordinary Shares will be adjusted to reflect any such income or loss amounts, and any
further gain recognized on a sale or other taxable disposition of the Ordinary Shares will be treated as ordinary income.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, or
on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market
value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our
Ordinary Shares under their particular circumstances.
If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion
of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution
from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S.
Holder no later than 90 days after the request the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC.
However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC or will be able to cause the lower-tier PFIC to
provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs. If a U.S.
Holder owns (or is deemed to own) shares during any year in a PFIC, such holder may have to file an IRS Form 8621 (whether or not a QEF election or
mark-to-market election is made). The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by
various factors in addition to those described above. Accordingly, U.S. Holders of our Ordinary Shares should consult their own tax advisors concerning
the application of the PFIC rules to our Ordinary Shares under their particular circumstances.
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Tax Consequences to Non-U.S. Holders of Ordinary Shares
Dividends paid to a Non-U.S. Holder in respect to its Ordinary Shares generally will not be subject to U.S. federal income tax, unless the
dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our
Ordinary Shares, unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States) or the Non-U.S. Holder is an
individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in
which case, such gain from United States sources generally is subject to tax at a 30% rate or a lower applicable tax treaty rate).
Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required
by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax in the
same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to
an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
Backup Withholding and Information Reporting
In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our Ordinary Shares within the
United States to a non-corporate U.S. Holder and to the proceeds from sales and other dispositions of our Ordinary Shares by a non-corporate U.S. Holder
to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will be subject to
information reporting in limited circumstances. In addition, backup withholding of United States federal income tax, currently at a rate of 24%, generally
will apply to dividends paid on our Ordinary Shares to a non-corporate U.S. Holder and the proceeds from sales and other dispositions of shares by a non-
corporate U.S. Holder, in each case who (a) fails to provide an accurate taxpayer identification number; (b) is notified by the IRS that backup withholding
is required; or (c) in certain circumstances, fails to comply with applicable certification requirements. A Non-U.S. Holder generally may eliminate the
requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed
applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a
Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished
to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedure for
obtaining an exemption from backup withholding in their particular circumstances.
Individual U.S. Holders may be required to report ownership of our Ordinary Shares and certain related information on their individual federal
income tax returns in certain circumstances. Generally, this reporting requirement will apply if (1) the Ordinary Shares are held in an account of the
individual U.S. Holder maintained with a “foreign financial institution” or (2) the Ordinary Shares are not held in an account maintained with a “financial
institution,” as such terms are defined in the Code. The reporting obligation will not apply to an individual, however, unless the total aggregate value of the
individual’s foreign financial assets exceeds US$50,000 during a taxable year. For avoidance of doubt, this reporting requirement should not apply to
Ordinary Shares held in an account with a U.S. brokerage firm. Failure to comply with this reporting requirement, if it applies, will result in substantial
penalties. In certain circumstances, additional tax and other reporting requirements may apply, and U.S. Holders of our Ordinary Shares are advised to
consult with their own tax advisors concerning all such reporting requirements.
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F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have previously filed the Registration Statement with the SEC.
Documents concerning us that are referred to in this document may be inspected at c/o 1st Floor, Building D2, Southern Software Park, Tangjia
Bay, Zhuhai, Guangdong 519080, China. In addition, we file annual reports and other information with the Securities and Exchange Commission. We file
annual reports on Form 20-F and submit other information under cover of Form 6-K. As a foreign private issuer, we are exempt from the proxy
requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are exempt from the insider short-swing disclosure
and profit recovery rules of Section 16 of the Exchange Act. Annual reports and other information we file with the Commission may be inspected at the
public reference facilities maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof
may be obtained from such offices upon payment of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms and you can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In
addition, the Commission maintains a web site that contains reports and other information regarding registrants (including us) that file electronically with
the Commission which can be assessed at http://www.sec.gov.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company — A. History and Development of the Company.”
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest income generated by excess cash, which is mostly held in interest-bearing bank
deposits. While interest-earning instruments carry a degree of interest rate risk, we have not been exposed, nor do we anticipate being exposed, to material
risks due to changes in market interest rates.
Foreign Currency Risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets
and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are
required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in
currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which
require certain supporting documentation in order to affect the remittance.
Our functional currency is the RMB, and our financial statements are presented in U.S. dollars. The RMB depreciated by 1.3% in fiscal year 2019
and appreciated by 6.3% in fiscal year 2020.. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate
between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported
in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our assets, liabilities, revenues
and costs are denominated in RMB.
To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes,
appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely,
if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other
business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
With the exception of Items 12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this
Item 12 is not applicable, as the Company does not have any American Depositary Shares.
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Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Part II
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged
Use of Proceeds
The following “Use of Proceeds” information relates to the Registration Statement, in relation to our initial public offering of 2,012,500 Ordinary
Shares (including the full exercise of the over-allotment option by the underwriters to purchase an additional 262,500 Ordinary Shares on May 10, 2019).
The Ordinary Shares were sold at an offering price of $5.00 per share, generating gross proceeds of approximately $10.06 million, and net proceeds of
approximately $8.0 million. The registration statement relating to the IPO also covered the underwriters’ common stock purchase warrants and the
Ordinary Shares issuable upon the exercise thereof in the total amount of 122,500 Ordinary Shares.
We have earmarked and have been using the proceeds of the initial public offering as follows: approximately $4.0 million for research and
development; approximately $1.0 million for sales and marketing effort; and approximately $3.0 million for working capital and general corporate
purposes. We used a portion of the proceeds from the IPO to accelerate our R&D in order to expedite our service offerings to drive product adoption. We
believe our domain knowledge, product expertise and customer relationships will enable us to capture significant market share with Powerbridge BaaS
Services when we start our commercialization of such services. Powerbridge BaaS Services is currently available to limited customers with designated use
case and is still under development for better use case.
Item 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we
carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of
December 31, 2020. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2020 were not
effective at the reasonable assurance level due to the material weakness described below.
In connection with the audit of our financial statements for the years ended December 31, 2020, 2019 and 2018, we and our independent registered
public accounting firms identified material weakness in our internal control over financial reporting, as defined in the standards established by the Public
Company Accounting Oversight Board of the United States. The material weakness identified consisted of (i) a lack of accounting staff and resources with
appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and
procedures, specifically those related to period-end expenses cut-off and accruals; (iii) inadequate controls with respect to the maintenance of sufficient
documentation for, and the evaluation of the accounting implications of, significant and non-routine payment transactions; (iv) a lack of sufficient
documented financial closing policies and procedures, specifically those related to period-end expenses cut-off and accruals; as defined in the standards
established by the Public Company Accounting Oversight Board of the United States.
112
We have already taken some steps and have continued to implement measures to remediate the material weakness identified, including but not
limited to providing trainings to staff, changing to a new and well-established accounting system, and continue to monitor the internal control over financial
reporting. However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future. See “Item 3.
Key Information—D. Risk Factors— If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate
financial statements or comply with applicable regulations could be impaired.”
Notwithstanding there are material weaknesses identified as described above, we believe that our consolidated financial statements contained in
this annual report on Form 20-F fairly present our financial position, results of operations and cash flows for the years covered thereby in all material
respects.
(b) Management’s Annual Report on Internal Control over Financial Reporting Attestation Report of the Registered Public Accounting Firm
Our management made an annual assessment regarding our internal control over financial reporting. The material weaknesses identified by us and
our independent registered public accounting firm related to (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and
SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures, specifically those related to
period-end expenses cut-off and accruals; (iii) inadequate controls with respect to the maintenance of sufficient documentation for, and the evaluation of the
accounting implications of, significant and non-routine payment transactions. (iv) a lack of sufficient documented financial closing policies and procedures,
specifically those related to period-end expenses cut-off and accruals. Neither we nor our independent registered public accounting firm undertook a
comprehensive assessment of our internal control under the Sarbanes-Oxley Act for purposes of identifying and reporting any weakness in our internal
control over financial reporting. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered
public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.
Remediation of Material Weaknesses
To remediate our identified material weaknesses, we intend to adopt several measures to improve our internal control over financial reporting,
including (i) hiring more qualified accounting personnel, including a financial controller, with relevant U.S. GAAP and SEC reporting experience and
qualifications to strengthen the financial reporting function and setting up a financial and system control framework; (ii) implementing regular and
continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) setting up an
internal audit function as well as engaging an external consulting firm to assist us with assessment of Sarbanes-Oxley compliance requirements and
improvement of overall internal controls; (iv) preparing comprehensive accounting policies, manuals and closing procedures to improve the quality and
accuracy of our period-end financial closing process; (v) setting up and maintaining a control process for the accounting implication assessment of all
significant payment transactions, particularly those that are non-routine; (vi) setting up and maintaining a control process for maintaining all supporting
documentation regarding non-routine transactions; (vii) updating the approval requirements for non-routine transactions to ensure that they match our
transaction approval policies in place on our other accounts; and (viii) partnering with third party service providers and a custodian bank to assist with
borrower bank account management.
We believe that the actions we are taking, as listed above, will help remedy the material weaknesses referred to above, and help strengthen our
general internal controls and procedures over financial reporting. However, the process of designing and implementing an effective financial reporting
system represents a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and
to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. While we have developed a
remediation plan to address these material weaknesses, this remediation plan or any additional plan we plan to implement may be insufficient to address
our material weaknesses and additional material weaknesses may be discovered in the future. We plan to continue to address and remediate additional
control deficiencies we may identify during our evaluation process in 2021. If we fail to implement and maintain an effective system of internal controls or
fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may be unable to accurately report
our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be
materially and adversely affected.”
(c) Attestation Report on Internal Control over Financial Reporting of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report on Internal Control over Financial Reporting of our independent registered
public accounting firm because we qualified as an “emerging growth company” as defined under the JOBS Act as of December 31, 2020.
(d) Changes in Internal Control over Financial Reporting
Other than those disclosed above, there were no changes in our internal controls over financial reporting that occurred during the period covered
by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. RESERVED
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Yuping Ouyang is an audit committee financial expert as that term is defined in Item 16A(b) of Form
20-F, and “independent” as that term is defined in the NASDAQ listing standards.
Item 16B. CODE OF ETHICS
Our Board has adopted a code of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available
on our website: www.powerbridge.com.
113
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table represents the approximate aggregate fees for services rendered by Onestop Assurance PAC, B F Borgers CPA PC, and
Friedman LLP for the periods indicated:
Audit Fees
- Onestop Assurance PAC
- B F Borgers CPA PC
- Friedman LLP
All Other Fees
Total Fees
December 31,
2020
December 31,
2019
$
$
220,000 $
150,000
-
-
370,000 $
-
190,000
-
190,000
“Audit-related fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and
are not reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur in the
regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
“Tax fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance and tax advice
on actual or contemplated transactions.
“Other fees” include fees for services rendered by our independent registered public accounting firm with respect to government incentives and
other matters.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by our independent auditor including audit services,
audit-related services, tax services and other services.
Our Audit Committee evaluated and approved in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit
and non-audit services.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
As described under Item 16G, we have relied on and intend to continue relying on home country practice, our audit committee consists of two
members (both of whom are independent directors) instead of three members as required under NASDAQ listing rules. Other than above, we have not
asked for, nor have we been granted, an exemption from the applicable listing standards for our Audit Committee.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
114
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Dismissal of Friedman LLP
On September 30, 2020 we dismissed Friedman LLP (“Friedman”) as our independent registered public accounting firm, effective immediately.
On October 2, 2020, BF Borgers CPA PC (“BFB”) has been engaged as our independent registered public accounting firm. The audit committee of our
board of directors (the “Audit Committee”) approved the dismissal of Friedman and the engagement of BFB as the independent registered public
accounting firm. Friedman served as the independent registered public accounting firm for us since 2018. The auditor’s report of Friedman on the
Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2019 and 2018 did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the two most recent fiscal years and through the subsequent interim period preceding the dismissal of Friedman, there were no (i)
“disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) between the Company and Friedman on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Friedman
would have caused Friedman to make reference to the subject matter thereof in its reports for such fiscal years and interim period, or (ii) “reportable
events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.
We furnished a copy of this disclosure to Friedman and have requested that Friedman furnish us with a letter addressed to the SEC stating whether
such firm agrees with the above statements or, if not, stating the respects in which it does not agree. We have received the requested letter from Friedman,
and a copy of the letter is filed as Exhibit 16.1 to this Form 20-F.
We file a report on Form 6-K on October 6, 2020 (the “October 2020 6-K”) to disclose the dismissal. We furnished a copy of the October 2020
6-K to Friedman which contained the verbatim statement as the immediate precedent paragraph and requested that Friedman furnish us with a letter
addressed to the SEC stating whether it agrees with such statements as the immediate precedent paragraph or, if not, stating the respects in which it does
not agree. We received the requested letter from Friedman, and a copy of the letter was filed as Exhibit 99.1 to the October 2020 6-K.
Dismissal of BF Borgers CPA PC
On April 19, 2021, we dismissed BFB as our independent registered public accounting firm, effective immediately. The Company engaged BFB
during the period from October 2, 2020 to April 19, 2021 (the “Engagement Period”). During the Engagement Period, BFB did not issue an audit reports on
the Company’s consolidated financial statements.
During the two most recent fiscal years and through the subsequent interim period preceding the dismissal of BFB, there were no (i)
“disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) between the Company and BFB on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of BFB would have
caused BFB to make reference to the subject matter thereof in its reports for such fiscal years and interim period, or (ii) “reportable events” as that term is
described in Item 304(a)(1)(v) of Regulation S-K.
115
Item 16G. CORPORATE GOVERNANCE
As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq listing standards. However, the Nasdaq
Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. We have utilized the exemption
afforded by Nasdaq Listing Rule 5615(a)(3) to follow home country practice in lieu of certain requirements, including (i) the independence requirements
for compensation committee and nomination committee as provided in Nasdaq Listing Rule 5605(d) and (e), (ii) the requirement that a majority of the
board must be independent as provided in Nasdaq Listing Rule 5615(b)(1), (iii) the requirement to hold annual general meeting as provided in Nasdaq
Listing Rule 5620(a), and (iv) the requirement to obtain shareholder approval prior to a plan or other equity compensation arrangement is established or
materially amended as provided in Nasdaq Listing Rule 5635(c). Our shareholders may be afforded less protection than they would otherwise enjoy under
the Nasdaq listing standards applicable to U.S. domestic issuers given our reliance on the home country practice exception.
See “Item 3. Key Information-D. Risk Factors-Risks Related to Our Corporate Structure-As an exempted company incorporated in the Cayman
Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq
listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with such corporate governance
listing standards.”
See “Item 6. Directors, Senior Management and Employees” for more information.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
116
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
Part III
The consolidated financial statements of Powerbridge Technologies Co., Ltd., and its subsidiaries are included at the end of this annual report.
Item 19. EXHIBITS
Exhibit
1.1
Exhibit title
Form of Underwriting Agreement(1)
EXHIBIT INDEX
3.1
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
Fourth Amended and Restated Memorandum and Articles of Association(5)
Specimen Ordinary Share Certificate(4)
Form of Underwriter Warrant(4)
2018 Stock Option Plan
Form of Employment Agreement(2)
Unofficial English Translation of Technical Development (Commission) Contract between Zhuhai Powerbridge Technology Co., Ltd and
Wuhan New Port Management Committee dated as of July 21, 2017(2)
Unofficial English Translation of Contract for the Public Tender Procurement Project for the Information Platform of Comprehensive
Bonded Logistics Industry Construction Management Office of Wuhan Airport Economic Development Zone between Zhuhai
Powerbridge Technology Co., Ltd and Comprehensive Bonded Logistics Industry Construction Management Office of Wuhan Airport
Economic Development Zone dated as of December 13, 2016(2)
Unofficial English Translation of Government Procurement Contract between Zhuhai Powerbridge Technology Co., Ltd and Chenzhou
High-tech Investment Holding Co., Ltd dated as of September 22, 2017(2)
Unofficial English Translation of Wuhan New Port Airport Comprehensive Bonded Zone (Yangluogang Park) Information Software and
Integration Contract between Zhuhai Powerbridge Technology Co., Ltd and Wuhan New Port Yangluo Bonded Park Development
Management Co., Ltd dated as of November 23, 2016(2)
117
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Unofficial English Translation of Technical Development (Commission) Contract between Zhuhai Powerbridge Technology Co., Ltd and
Guangxi Nanning Dangdai Fengyun Investment Management Co., Ltd dated as of July 27, 2016(2)
Unofficial English Translation of Government Procurement Contract among Department of Commerce of Guangxi Zhuang Autonomous
Region, Zhuhai Powerbridge Technology Co., Ltd, and Beijing Xinchengtong Digital Technology Co., Ltd dated as of November 15,
2016(2)
Unofficial English Translation of Government Procurement Contract between Department of Commerce of Guangxi Zhuang Autonomous
Region and Zhuhai Powerbridge Technology Co., Ltd dated as of November 28, 2016(2)
Unofficial English Translation of Government Procurement Contract of Guangxi Zhuang Autonomous Region between Department of
Commerce of Guangxi Zhuang Autonomous Region and Zhuhai Powerbridge Technology Co., Ltd dated as of September 25, 2015(2)
Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Cyberspace Great Wall
Internet System Application (Wuhan) Co., Ltd dated as of August 16, 2017(2)
Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Cyberspace Great Wall
Internet System Application Co., Ltd dated as of December 18, 2016(2)
Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Guangdong Aotong
Technology Co., Ltd dated as of May 7, 2015(2)
Unofficial English Translation of Purchasing Contract between Zhuhai Powerbridge Technology Co., Ltd and Hunan Jintong Technology
Co., Ltd dated as of June 11, 2014(2)
Independent Director Offer Letter between Powerbridge Technologies Co., Ltd. and Yuping Ouyang dated as of October 23, 2018(2)
Independent Director Offer Letter between Powerbridge Technologies Co., Ltd. and Guoguan Wang dated as of October 22, 2018(2)
Independent Director Offer Letter between Powerbridge Technologies Co., Ltd. and Bo Wu dated as of October 22, 2018(2)
Director Offer Letter between Powerbridge Technologies Co., Ltd. and Ban Lor dated as of October 23, 2018(2)
Director Offer Letter between Powerbridge Technologies Co., Ltd. and Stewart Lor dated as of October 23, 2018(2)
Employment Agreement between Powerbridge Technologies Co., Ltd. and Ban Lor dated as of August 18, 2018(2)
Employment Agreement between Powerbridge Technologies Co., Ltd. and Stewart Lor dated as of August 18, 2018(2)
Employment Agreement between Powerbridge Technologies Co., Ltd. and Xuehe Jiang dated as of August 18, 2018(2)
Employment Agreement between Powerbridge Technologies Co., Ltd. and Tianfei Feng dated as of August 18, 2018(2)
118
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
Employment Agreement between Powerbridge Technologies Co., Ltd. and Nanfang Li dated as of August 18, 2018(2)
Unofficial English Translation of Technology Development Agreement between Zhuhai Powerbridge Technologies Co., Ltd. and Project
Department of Guiyang Gaimao Railway Port Construction (Phase I project) of No.3 Engineering Company of China Railway No.8
Engineering Group Co., Ltd. dated as of September 1, 2019(6)
Unofficial English Translation of Sales Agreement between Zhuhai Powerbridge Technologies Co., Ltd. and Wuhan Borui Int Technology
Co., LTD. dated as of June 28, 2019(6)
Form of Securities Purchase Agreement(7)
Form of Securities Purchase Agreement(8)
Form of Unsecured Convertible Promissory Note(8)
Unofficial English Translation of the Leasing Agreement dated September 25, 2020 by and between Shenzhen Honghao Internet
Technology Co. Ltd. and Shenzhen Kezhi Technology Co., Ltd.(9)
Unofficial English Translation of the Supplemental Agreement to Leasing Agreement dated November 20, 2020 by and between
Shenzhen Honghao Internet Technology Co. Ltd. and Shenzhen Kezhi Technology Co., Ltd.(10)
Sales Agreement, dated February 23, 2021, by and between Powerbridge Technologies Co., Ltd. and A.G.P./Alliance Global Partners(11)
Securities Purchase Agreement by and between Powerbridge Technologies Co., Ltd. and Uptown Capital, LLC dated as of January 8,
2021(12)
Convertible Promissory Note dated January 8, 2021(12)
Securities Purchase Agreement dated April 9, 2021 by and between the Company and the Investor(13)
Form of Convertible Note(13)
Form of Warrant(13)
Unofficial English Translation of the Supplemental Agreement to the Leasing Agreement dated March 30, 2021 by and between Shenzhen
Honghao Internet Technology Co. Ltd. and Shenzhen Kezhi Technology Co., Ltd.
10.39
Unofficial English Translation of the Void Confirmation for the Supplemental Agreement by and between Shenzhen Honghao Internet
Technology Co. Ltd. and Shenzhen Kezhi Technology Co., Ltd.
10.40
Unofficial English Translation of the Second Supplemental Agreement to the Leasing Agreement dated May 12, 2021 by and between
Shenzhen Honghao Internet Technology Co. Ltd. and Shenzhen Kezhi Technology Co., Ltd.
10.41
Unofficial English Translation of the Third Supplemental Agreement to the Leasing Agreement dated May 16, 2021 by and between
Shenzhen Honghao Internet Technology Co. Ltd. and Shenzhen Kezhi Technology Co., Ltd.
12.1
12.2
Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
amended.
Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
amended.
119
13.1
14.1
15.1
16.1
21.1
24.1
99.1
99.2
99.3
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Code of Conduct and Ethics(2)
Consent of Audit Onestop Assurance PAC
Letter From BF Borgers CPA PC regarding Item 16F (change in Certifying Accountant), dated May 17, 2021
List of Subsidiaries of the Registrant
Power of Attorney (included on signature page) (1)
Charter of the Audit Committee(2)
Charter of the Compensation Committee(2)
Charter of the Nominating and Corporate Governance Committee(2)
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
(1) Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128)
filed with the Securities and Exchange Commission on March 21, 2019
(2) Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128)
filed with the Securities and Exchange Commission on January 4, 2019
(3) Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128)
filed with the Securities and Exchange Commission on February 19, 2019.
(4) Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-229128)
filed with the Securities and Exchange Commission on March 12, 2019.
(5) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on November 6, 2020.
(6) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 20-F filed with the Securities and Exchange
Commission on June 24, 2020.
(7) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on August 28, 2020.
(8) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on September 8, 2020.
(9) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on October 6, 2020.
(10) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on November 25, 2020.
(11) Previously filed; incorporated by reference to Exhibit 1.01 of the Company’s Registration Statement on Form F-3 filed with the SEC on February 23,
2021.
(12) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on February 23, 2021.
(13) Previously filed; incorporated by reference to the identically named exhibit filed with the Form 6-K filed with the Securities and Exchange
Commission on April 9, 2021.
120
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
SIGNATURES
Powerbridge Technologies Co., Ltd.
/s/ Ban Lor
By:
Name: Ban Lor
Title: Co-Chief Executive Officer
(Principal Executive Officer)
Dated: July 13, 2021
121
POWERBRIDGE TECHNOLOGIES CO., LTD.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Operations and Comprehensive (loss) Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7 – F-33
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Powerbridge Technologies Co., Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Powerbridge Technologies Co., Ltd. (collectively, the “Company”) as of December 31,
2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years ended December
31, 2020, 2019 and 2018, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of
its operations and its cash flows for the years ended December 31, 2020, 2019 and 2018, in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Audit OneStop Assurance PAC
We have served as the Company’s auditor since 2021.
Singapore
July 12, 2021
F-2
POWERBRIDGE TECHNOLOGIES CO., LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalent
Restricted cash
Notes receivable
Accounts receivable, net
Prepaid expense – related parties
Due from related parties
Loans to third parties
Contract costs
Prepayments, deposits and other current assets, net
Total Current Assets
Property and equipment, net
Prepayments, deposits and other assets, net
Loan receivable – long term
Deferred tax assets
Total Assets
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Bank loans
Accounts payable
Customer deposits
Deferred revenue
Salaries and benefits payable
Due to related party
Taxes payable
Total Current Liabilities
COMMITMENTS AND CONTINGENCIES
EQUITY:
Ordinary Shares, 0.00166667 par value; 300,000,000 shares authorized, 45,777,318 and 8,967,748 shares issued
and outstanding as of December 31, 2020 and 2019
Additional Paid-in Capital
Accumulated deficit
Accumulated other comprehensive (loss) income
Total Powerbridge Technologies Co., Ltd.’s Shareholders’ Equity
Non-controlling interest
Total Equity
Total Liabilities and Equity
December 31, December 31,
2020
2019
$
8,389,704 $
-
-
14,314,985
-
652,873
5,365,517
4,041,585
1,999,281
34,763,945
7,184,101
385,607
63,434,483
415,131
$ 106,183,267 $
5,772,055
172,369
215,462
11,241,076
806,311
370,000
740,000
2,999,411
551,013
22,867,697
6,564,640
759,397
-
309,111
30,500,845
$
4,597,701 $
24,282,921
573,243
1,095,279
2,170,651
71,020
698,935
33,489,750
1,580,018
19,773,556
270,793
869,396
1,219,584
6,538
869,913
24,589,798
76,296
100,149,397
(28,234,492)
814,343
72,805,544
(112,027)
72,693,517
$ 106,183,267 $
14,946
15,878,438
(9,980,835)
(1,487)
5,911,062
(15)
5,911,047
30,500,845
The accompanying notes are an integral part of these consolidated financial statements.
F-3
POWERBRIDGE TECHNOLOGIES CO., LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
REVENUES:
Application development services
Consulting and technical support services
Subscription services
Total revenues
COST OF REVENUES
Cost of application development services
Cost of consulting and technical support services
Cost of subscription services
Total cost of revenues
GROSS PROFIT
OPERATING EXPENSES
Sales and marketing
General and administrative
Provision for doubtful accounts
Research and development
Share based compensation
Total operating expenses
OPERATING (LOSS) INCOME
OTHER INCOME (EXPENSE)
Other income
Change in fair value of convertible debt
Total other expense
For the Years Ended
December 31,
2019
2020
2018
$
21,985,214 $
3,797,354
881,443
26,664,011
15,720,676 $
3,307,662
1,066,720
20,095,058
20,037,861
2,390,948
723,458
23,152,267
15,320,446
1,803,239
147,631
17,271,316
12,553,556
1,339,133
137,658
14,030,347
14,140,094
1,093,631
84,936
15,318,661
9,392,695
6,064,711
7,833,606
2,675,028
5,559,426
191,148
2,780,944
1,473,976
12,680,522
3,562,425
5,945,576
3,293,600
2,163,658
2,351,890
17,317,149
2,144,588
2,316,058
368,125
1,992,228
-
6,820,999
(3,287,827)
(11,252,438)
1,012,607
106,026
(15,258,333)
(15,152,307)
252,109
-
252,109
584,209
-
584,209
(LOSS) INCOME BEFORE INCOME TAXES
(18,440,134)
(11,000,329)
1,596,816
INCOME TAX (BENEFITS) EXPENSES
(80,532)
(213,347)
43,190
NET (LOSS) INCOME
Less: (loss) income attributable to non-controlling interests
NET (LOSS) INCOME ATTRIBUTABLE TO POWERBRIDGE
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment
COMPREHENSIVE (LOSS) INCOME
Less: comprehensive (loss) income attributable to non-controlling interest
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO POWERBRIDGE
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES *
Basic and diluted
(LOSS) EARNINGS PER SHARE
Basic and diluted
(18,359,602)
(10,786,982)
1,553,626
(105,945
(18,253,657)
(145)
(10,786,837)
7,336
1,546,290
809,672
(17,549,930)
(112,103)
(101,857)
(10,888,839)
(144)
$ (17,437,827) $ (10,888,695) $
(339,238)
1,214,388
6,928
1,207,460
16,150,065
8,388,481
6,905,248
$
(1.13) $
(1.29) $
0.22
*
Shares and per share data are presented on a retroactive basis to reflect the nominal share issuance and share split on August 18, 2018 and February 10,
2019.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
POWERBRIDGE TECHNOLOGIES CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Shares* Amount
Share
subscription
receivable
Additional
Paid-in
Capital
Retained
Earnings
(accumulated
deficit)
Non-
controlling
interest
Accumulated
other
comprehensive
income (loss) Total equity
6,905,248
-
11,509
-
(11,509)
-
5,519,507
-
(740,288)
1,546,290
(6,928)
7,336
439,201
5,211,492
1,553,626
-
-
-
-
-
(408)
(338,830)
(339,238)
Balance, December 31,
2017
Net income for the year
Foreign currency
translation adjustment
Balance, December 31,
2018
6,905,248 $
11,509 $
(11,509) $
5,519,507 $
806,002 $
- $
100,371 $ 6,425,880
Issuance of shares –initial
public offering, net of
issuance costs
Capital contribution by
non-controlling
shareholder
Restricted shares issued
for services
Options granted for
services
Net loss for the year
Foreign currency
translation adjustment
Balance, December 31,
2,012,500
3,354
11,509
8,007,124
-
-
-
8,021,987
-
-
50,000
83
-
-
-
-
-
-
-
-
-
-
-
-
18,347
-
-
2,333,460
-
- (10,786,837)
129
-
-
(145)
-
129
-
18,430
-
2,333,460
- (10,786,982)
-
-
1
(101,858)
(101,857)
2019
8,967,748 $
14,946 $
- $ 15,878,438 $ (9,980,835) $
(15) $
(1,487) $
5,911,047
Issuance of shares for
private placement
Conversion of convertible
8,800,000
14,667
17,585,333
note
27,777,776
46,297
- 65,212,036
Restricted shares issued
for services
Options granted
Capital contribution by
non-controlling
shareholder
Net loss for the year
Foreign currency
translation adjustment
Balance, December 31,
231,794
-
386
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 17,600,000
- 65,258,333
-
-
487,347
986,629
486,961
986,629
-
-
- (18,253,657)
91
(105,945)
-
91
- (18,359,602)
-
-
(6,158)
815,830
809,672
2020
45,777,318 $
76,296 $
- $ 100,149,397 $ (28,234,492) $ (112,027) $
814,343 $ 72,693,517
*
Shares and per share data are presented on a retroactive basis to reflect the nominal share issuance and share split on August 18, 2018 and February
10, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
POWERBRIDGE TECHNOLOGIES CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2019
2020
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income from operations to net cash provided by (used in) operating
$ (18,359,602) $ (10,786,982) $
1,553,626
activities:
Depreciation and amortization
Provision (recovery) for doubtful accounts
Share based compensation
Loss from disposal of property and equipment
Deferred tax (benefit) provision
Change in fair value of convertible debt
Changes in assets and liabilities:
Notes receivable
Accounts receivable
Contract costs
Prepayments, deposits and other assets
Accounts payable
Notes payable
Salaries and benefits payable
Prepaid expense – related parties
Taxes payable
Deferred revenue
Customer deposits
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to third parties
Purchases of property and equipment
Proceeds from disposal of property and equipment
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans
Repayments of bank loans
Proceeds from Initial Public Offering
Payment of Initial Public Offering costs
Proceeds from private placement
Proceeds from issuance of convertible note
Payments to related parties
Proceeds from related parties
Capital contribution by non-controlling shareholder
NET CASH PROVIDE BY (USED IN) FINANCING ACTIVITIES
1,451,572
191,148
1,473,976
1,548
(80,641)
15,258,333
217,259
(2,004,618)
(795,174)
(1,196,470)
3,010,706
-
860,110
813,038
(216,624)
158,474
268,706
1,051,741
952,204
3,293,600
2,351,890
18,916
(224,511)
-
91,197
714,690
(3,022,727)
616,243
3,772,182
(465,598)
395,781
(812,579)
13,160
(312,305)
144,245
(3,260,594)
643,265
368,125
-
1,994
(69,898)
-
(322,288)
(3,515,181)
-
(766,322)
4,949,114
486,669
(217,606)
-
(331,381)
451,325
(301,147)
2,930,295
(64,281,291)
(1,623,312)
70
(65,904,533)
(692,230)
(2,901,891)
-
(3,594,121)
844,554
(2,162,385)
-
(1,317,831)
6,517,739
(3,765,757)
-
-
17,600,000
50,000,000
(308,284)
-
91
70,043,789
1,592,300
(1,519,955)
10,062,500
(2,040,513)
-
-
(370,000)
159,944
129
7,884,405
1,588,742
(226,963)
-
-
-
-
(763,288)
-
-
598,491
EFFECT OF EXCHANGE RATE CHANGES
(2,745,717)
(103,426)
(249,345)
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH
2,445,280
926,264
1,961,610
CASH AND RESTRICTED CASH - beginning of year
5,944,424
5,018,160
3,056,550
CASH AND RESTRICTED CASH - end of year
$
8,389,704 $
5,944,424 $
5,018,160
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest
Income taxes
$
$
203,289 $
15,706 $
123,278 $
107,074 $
19,385
296,487
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
Reclassification of deferred offering costs to additional paid in capital
Warrants issued to placement agents in connection with the Company’s Initial Public Offering
-
-
400,640
356,200
-
-
RECONCILIATION TO AMOUNTS ON CONSOLIDATED BALANCE SHEETS:
Cash
Restricted cash
Total cash and restricted cash
$
$
8,389,704 $
-
8,389,704 $
5,772,055 $
172,369
5,944,424 $
4,348,635
669,525
5,018,160
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Note 1 — Nature of business and organization
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Powerbridge Technologies Co., Ltd. (“Powerbridge” 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 “Company”), is a provider of software application and
technology services to corporate and government customers engaged in global trade. Mr. Ban Lor, the Company’s Chairman of the Board and Chief
Executive Officer (“CEO”), together with his brother, Mr. Stewart Lor, the Company’s Chief Financial Officer (“CFO”) are the ultimate Controlling
Shareholders of the Company.
Initial Public Offering
On April 4, 2019, the Company consummated its initial public offering (“IPO”) of 2,012,500 Ordinary Shares at a price of $5.00 per shares
including the exercise in full of the underwriters' over-allotment option of 262,500 ordinary shares at IPO price of $5.00 per share. The gross proceeds from
the IPO was $10,062,500 and the net proceeds was $8,021,987. As a result of the IPO, the Ordinary Shares now trade on the Nasdaq Capital Market under
the symbol “PBTS.”
COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly to many parts of the PRC and other parts
of the world in the first quarter of 2020, which has caused significant volatility in the PRC and international markets. The ongoing COVID-19 pandemic
has resulted in a reduction in economic activity by adversely affecting production, creating supply chain and market disruption. Substantially most of our
revenues and our workforce are concentrated in China. Consequently, the Company has experienced delayed customer payments and rescheduled customer
orders. Since the COVID-19 pandemic has been gradually contained in China, our revenue and gross margin for the year ended December 31, 2020 has not
been adversely affected. However, any potential impact to the Company’s results will depend on, to a large extent, future developments and new
information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to
contain the COVID-19 or treat its impact, almost all of which are beyond the Company’s control.
Reorganization
A reorganization of the Company’s legal structure was completed on August 27, 2018. The reorganization involved the incorporation of
Powerbridge, a Cayman Islands holding company, and its wholly owned subsidiaries, Powerbridge Technologies Co., Limited (“Powerbridge HK”), a
holding company incorporated on July 27, 2018 under the laws of Hong Kong; and the transfer of all equity ownership of Zhuhai Powerbridge Technology
Co., Ltd. (“Powerbridge Zhuhai”) to Powerbridge HK from the former shareholders of Powerbridge Zhuhai through an investment holding company. In
consideration of the transfer, the Company issued 11,508,747 shares of the Company with par value 0.001 per share to the former shareholders of
Powerbridge Zhuhai. On February 10, 2019, the board of directors approved a reverse stock split of the Company’s authorized number of Ordinary Shares
at a ratio of 1-0.6. After the reverse stock split, the Company’s authorized number of Ordinary Shares was 30,000,000 shares with par value of
$0.00166667 per share and 6,905,248 shares were issued and outstanding immediately after the reverse stock split. The Company has retroactively adjusted
all shares and per share data for all the periods presented.
Prior to the reorganization, Powerbridge Zhuhai’s equity interests were held by the former shareholders through an investment holding company,
of which the Controlling Shareholders owned 84.9% of equity interest of Powerbridge Zhuhai. Powerbridge Zhuhai was incorporated on October 30, 1997
in Zhuhai, Guangdong province under the laws of the People’s Republic of China (the “PRC” or “China”). Powerbridge Zhuhai is an operating subsidiary
that provides global trade software application and technology services to corporate and government customers located in the PRC. Beijing Powerbridge
Technology Co., Ltd. (“Powerbridge Beijing”), a company conducting engineering and IT research and development activities, was incorporated on
September 28, 2017 in Beijing under the laws of PRC, with Powerbridge Zhuhai owning 55% and Mr. Tianfei Feng owning 45% of equity interest. Since
inception, Powerbridge Zhuhai and Mr. Tianfei Feng have only made nominal investments in Powerbridge Beijing and no substantial business operations
have occurred; as a result, Powerbridge Zhuhai and Mr. Tianfei Feng agreed to deregister the entity. Mr. Tianfei Feng later became the Company’s Chief
Research and Development Officer and the technology research and development activities originally conducted in Powerbridge Beijing are now conducted
through the Beijing branch of Powerbridge Zhuhai. Powerbridge Beijing was deregistered on October 25, 2018.
F-7
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature of business and organization (continued)
Reorganization - continued
On August 7, 2018, the former shareholders transferred their 100% ownership interest in Powerbridge Zhuhai to Powerbridge HK, which is 100%
owned by Powerbridge. After the reorganization, Powerbridge owns 100% equity interests of Powerbridge HK and Powerbridge Zhuhai. All shareholders
have the same ownership interest in Powerbridge as in Powerbridge Zhuhai prior to the reorganization.
Since the Company and its subsidiaries are effectively controlled by the same group of the shareholders before and after the reorganization, they
are considered under common control. The above mentioned transactions were accounted for as a recapitalization. The consolidation of the Company and
its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the
beginning of the first period presented in the consolidated financial statements.
For the year ended December 31, 2020, the details of the Company's principal subsidiaries are as follows:
Major subsidiaries
Powerbridge Technologies Co., Ltd. (“Powerbridge HK”)
Hongding Technology Co., Ltd
Zhuhai Powerbridge Technologies Co., Ltd. (“Powerbridge
Zhuhai”)
Percentage of
Ownership
100%
100%
100%
Date of
Incorporation
July 27, 2018
July 28, 2020
October 30, 1997
Shenzhen Hongding Interconnect Technology Co., Ltd
100%
October 21, 2020
Shantou Hongrui Information Tehcnology Co.,
Ltd. (“Shantou Hongrui”)*
Ningbo Powerbridge Pet Product Cross-border E-Commerce
Service Co., Ltd. (“Ningbo Powerbridge”)
Shenzhen Honghao Internet Technology Co., Ltd
(“Honghao”)
38%
On August 19, 2019
60%
September 29, 2019
100%
July 28, 2020
the PRC
Wuhan Honggang Tehcnology Co., Ltd (“Honggang”)
60%
June 21, 2019
the PRC
Chongqing Powerbridge Zhixin Technology Co., Ltd*
(“Zhixin”)
45%
September 2, 2019
the PRC
Place of
Incorporation
Major Operation
the PRC
the PRC
Hong Kong, PRC Investment holding
Hong Kong, PRC Investment holding
software application
and technology
services
software application
and technology
services
software application
and technology
services
E-commerce
the PRC
the PRC
software application
and technology
services
software application
and technology
services
software application
and technology
services
* Certain third-party shareholders of Shantou Hongrui and Zhixin signed consents with the Company for the year ended December 31, 2020, which stated
that the Company has the power and control to direct the activities that most significantly impact Shantou Hongrui and Zhixin and they unconditionally
vote by consensus with the Company in all the board decisions. As such, the Company consolidates the financial results of Shantou Hongrui and Zhixin
based on the voting power.
F-8
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and
balances are eliminated upon consolidation. All significant intercompany transactions and balances between the Company and its subsidiaries are
eliminated upon consolidation.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to
govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the
meeting of directors.
Non-controlling interest represents the portion of the net assets of a subsidiaries attributable to interests that are not owned by the Company. The
non-controlling interest is presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-
controlling interest’s operating result is presented on the face of the consolidated statements of income and comprehensive income as an allocation of the
total income for the year between non-controlling shareholders and the shareholders of the Company.
Liquidity
For the year ended December 31, 2020, the Company had working capital of $1.3 million and incurred a net loss of $18.4 million. For fiscal 2020,
the Company had operation cash flow of $1.1 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. The COVID-19 pandemic created significant economic uncertainty and volatility in the credit and capital markets since December 2019. Many
customers have delayed their payments to the Company, which caused the significant increase in the Company’s aged accounts receivable balance over one
year in fiscal 2019. In early 2020, Chinese government took strict and efficient measures to control and eliminate the spreading of COVID-19 pandemic
and many of our customers started to reopen business and bring operation to normal level in the second half of 2020. After evaluating the age of the
balance, the customer’s payment history, current credit-worthiness, and current economic trends, the Company reduced the provision for doubtful accounts
for fiscal 2020.
In assessing its liquidity, the Company monitors and analyzes its cash on hand, its ability to generate sufficient revenue sources in the future and
its operating and capital expenditure commitments. As of December 31, 2020, the Company had cash of approximately $8.4 million. To support its
working capital, the Company entered into several securities purchase agreement in 2021. On January 8, 2021, the Company entered into a securities
purchase agreement with Uptown Capital, LLC, pursuant to which the Company issued an unsecured promissory note on in the original principal amount
of $1,650,000, convertible into ordinary shares, par value $0.00166667 per share, of the Company, for $1,500,000 in gross proceeds. On February 23, 2021,
the Company entered into a Sales Agreement with A.G.P./Alliance Global Partners, as sales agent, pursuant to which the Company may offer and sell up to
$30,000,000 of its ordinary shares, par value $0.00166667 per share. On April 9, 2021, the Company entered into a securities purchase agreement with YA
II PN, LTD., pursuant to which the Company sells convertible notes in the principal amount of US$7,000,000 and a warrant to purchase 571,429 Ordinary
Shares, for gross proceeds of approximately US$6,790,000. The Company believes that its cash on hand and financing cash flows will be sufficient to fund
its operations over at least the next 12 months from the date of this report. However, the Company may need additional cash resources in the future if the
Company experiences changed business conditions or other developments, and may also need additional cash resources in the future if the Company
wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements
exceed the Company’s amounts of cash on hand, the Company may seek to issue debt or equity securities or obtain a credit facility.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated
financial statements include but not limited to the useful lives of property and equipment and capitalized development cost, impairment of long-lived
assets, valuation of accounts receivables, loans to third parties, revenue recognition and realization of deferred tax assets and uncertain tax positions. Actual
results could differ from these estimates.
F-9
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Foreign currency translation
The functional currencies of the Company are the local currency of the county in which the subsidiaries operates. The Company’s financial
statements are reported using U.S. Dollars. The results of operations and the consolidated statements of cash flows denominated in foreign currencies are
translated at the average rates of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of
exchange at the time of capital contributions. Because cash flows are translated based on the average translation rates, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated
balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of
accumulated other comprehensive income (loss) included in consolidated statements of changes in equity. Gains and losses from foreign currency
transactions are included in the consolidated statement of operations and comprehensive income (loss).
Fair value measurement
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value
hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices
for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or
corroborated by observable market data.
● Level 3 — inputs to the valuation methodology are unobservable.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, notes and accounts receivable, due from related
parties, prepayments, deposits and other current assets, notes and accounts payable, customer deposits, salaries and benefits payables, due to related party
and taxes payable approximates their recorded values due to their short-term maturities. The fair value of the long-term prepayments, deposits and other
assets and loans to third parties approximate their carrying amounts because the deposits were paid in cash.
The Company elected the fair value option to account for its convertible loan. The Company engaged an independent valuation firm to perform
the valuation. The fair value of the convertible loans is calculated using the binomial tree model. The convertible loans are classified as level 3 instruments
as the valuation was determined based on unobservable inputs which are supported by little or no market activity and reflect the Company’s own
assumptions in measuring fair value. Significant estimates used in developing the fair value of the convertible loans include time to maturity, risk-free
interest rate, straight debt discount rate, probability to convert and expected timing of conversion. Refer to Note 9 for additional information.
As the inputs used in developing the fair value for level 3 instruments are unobservable, and require significant management estimate, a change in
these inputs could result in a significant change in the fair value measurement.
The following is a reconciliation of the beginning and ending balances for convertible loans measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of December 31, 2020:
Opening balance
Issuance of convertible loan
Loss on change in fair value of convertible loan
Conversion of convertible loan
Total
F-10
2020
$
$
-
50,000,000
15,258,333
(65,258,333)
-
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Cash and cash equivalent
Cash and cash equivalent comprise cash at banks and on hand, which includes deposits with original maturities of three months or less with
commercial banks in PRC. As of December 31, 2020 and 2019, cash balances were $8,389,704 and $5,772,055, respectively.
Restricted cash
Restricted cash mainly represents security deposits as required by certain customers on the Company’s projects. The deposits in restricted bank
accounts cannot be withdrawn until the Company completes the related projects. Restricted cash is classified as either current or non-current based on when
the funds will be released in accordance with the terms of the respective agreements. As of December 31, 2020 and 2019, restricted cash consists of cash
equivalents of $nil and $172,369 used as collateral to secure bank borrowings (Note 8). The Company is required to keep certain amounts on deposit that
are subject to withdrawal restrictions. Upon the maturity of the bank borrowings, the Company is required to deposit the remainder to the escrow account
to settle the bank borrowings. The bank borrowings are generally short term in nature due to their short maturity period of three months to one year; thus,
the related restricted cash is classified as a current asset.
Accounts receivable, net
Accounts receivable, net, is stated at the original invoiced amount net of write-offs and allowance for doubtful accounts. The Company reviews
the accounts receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. Past-due balances over
90 days are reviewed individually for collectability. In evaluating the collectability of individual accounts receivable balances, the Company considers
several factors, including the age of the balance, the customer’s payment history, current credit-worthiness, and current economic trends. Accounts
receivable balances are written off after all collection efforts have been exhausted. Typically, the Company includes unbilled receivables in accounts
receivable for contracts on which revenue has been recognized, but for which the customer has not yet been billed. Unbilled receivables, substantially all of
which are expected to be billed within one year are stated at their estimated realizable value and consist of costs and fees billable on contract completion or
the occurrence of contractual payment phase.
Notes receivable
Notes receivable represents guaranteed bank drafts that are non-interest bearing and due within six months. Such bank drafts have been arranged
by certain customers with the related financial institutions to settle their purchases from the Company. The carrying amount of notes receivable
approximates fair value.
Prepayments, deposits and other assets, net
Prepayment, deposit and other assets, net, primarily consists of advances to suppliers for purchasing goods or services that have not been received
or provided; security deposits made to our customers; advances to employees and loan receivables from business partners. Prepayment, deposit and other
assets are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed
periodically to determine whether their carrying value has become impaired.
F-11
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Property and equipment, net
Property and equipment, net, mainly comprise furniture and furniture, vehicles, computer and equipment are stated at cost less accumulated
depreciation and impairment. Property and equipment are depreciated over the estimated useful lives of the assets on a straight-line basis, after considering
the estimated residual value.
The estimated useful lives are as follows:
Office equipment, fixtures and furniture
Automobiles
Capitalized development costs and software acquired
Computer equipment
Useful Life
3-10 years
5-8 years
5-10 years
5 years
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and the related accumulated
depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is charged to the statement of income and
comprehensive income.
Capitalized development costs
The Company follows the provisions of Accounting Standards Codification (“ASC”) 350-40, “Internal Use Software.” ASC 350-40 provides
guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company expenses all costs incurred
during the preliminary project stage of its development, and capitalizes costs incurred during the application development stage. Costs incurred relating to
upgrades and enhancements to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the
application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management
evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact
the recoverability of these assets.
Impairment for long-lived assets
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 years
ended December 31, 2020, 2019 and 2018, the Company recognized nil impairment for the long-lived assets.
F-12
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Revenue recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019 using the modified retrospective
approach. Revenues for the year ended December 31, 2019 were presented under ASC 606, and revenues for the years ended December 31, 2018 were not
adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. There is no adjustment to the opening balance of retained earnings at
January 1, 2019 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenue is
recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expects
to be entitled to in exchange for those goods or services and is recorded net of value-added tax (“VAT”).To achieve that core principle, the Group applies
the following steps:
Step 1: Identify the contract (s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Company derives its revenues from three sources: (1) revenue from application development services, (2) revenue from consulting and
technical support services, and (3) revenue from subscription services. All of the Company’s contracts with customer do not contain cancelable and refund-
type provisions.
(1) Revenue from application development service
The Company’s application development service contracts are primarily on a fixed-price basis, which require the Company to perform services
including project planning, project design, application development and system integration based on customers’ specific needs. These services also require
significant production and customization. Upon delivery of the services, customer acceptance is generally required. In the same contract, the Company is
generally required to provide post-contract customer support (“PCS’) for a period from three months to three years (“PCS period”) after the customized
application development services are delivered. The type of services for PCS clause is generally not specified in the contracts or as stand-ready services on
when-and-if-available basis. The unspecified PCS is stand-ready service on when-and-if-available basis. It grants the customers on line and telephone
access to technical support personnel during the term of the service. Specified PCS includes specified service term in the contract such as training.
The Company’s application development service revenues are generated primarily from contracts with PRC government or related agencies and
state-owned enterprises. The contracts contain negotiated billing terms which generally include multiple payment phases throughout the contract term and a
significant portion (30% - 50%) of contract amount usually is billed upon the completion of the related projects. Pursuant to the contract terms, the
Company has enforceable right on payments for the work performed.
The Company sometimes provides a warranty for its application development service contracts. The warranty period is typically 12-36 months
upon the completion of the application development service. In accordance with ASC 606-10-25-19, the Company believes the warranty provision in the
contracts generally represents service-type warranty, which is a distinct performance obligation and the Company also provides the similar service on
standalone basis and customers can benefit from the related service-type warranty service. For the service warranty component, the customer
simultaneously receives and consumes the benefits provided by the company performance over the warranty term, therefore, the service warranty is
satisfied over time. The revenue allocated to the service warranty is recognized over the warranty period.
The Company assesses that application development service, PCS or specific service and service-type warranty service, if applicable, are distinct
performance obligations in the application development service contracts. The Company provides these services on standalone basis and customers are able
to benefit from each of the service on its own. In addition, the timing of delivery of these performance obligations can be separately identifiable in the
contracts. The transaction price is allocated to these identified performance obligations based on the relative standalone selling prices. The transaction price
allocated to PCS or unspecific service and service-type warranty, if applicable, on a straight-line method over the contractual period. Revenue allocated to
specified PCS is recognized as the related services are rendered. The transaction price allocated to application development service is recognized over time
as the Company’s performance creates or enhances the project controlled by the customer and the control is transferred continuously to our customers. The
Company uses an input method based on cost incurred as the Company believes that this method most accurately reflects the Company’s progress toward
satisfaction of the performance obligation, which usually takes less than one year. Under this method, the transaction price allocated to application
development service is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the
performance obligations.
F-13
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Revenue recognition - continued
Incurred costs include all direct material, labor and subcontract costs, and those indirect costs related to application development performance,
such as indirect labor, supplies, and tools. Cost-based input method requires the Company to make estimates of revenues and costs to complete the
construction. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the application
development, including materials, labor, and other system costs. The Company’s estimates are based upon the professional knowledge and experience of
our engineers and project managers to assess the contract’s schedule, performance, technical matters. The Company has adequate cost history and
estimating experience, and with respect to which management believes it can reasonably estimate total development costs. If the estimated costs are greater
than the related revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.
Changes in estimates for application development services include but not limited to cost forecast changes and change orders. The cumulative effect of
changes in estimates is recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. To date, the
Company has not incurred a material loss on any contracts. However, as a policy, provisions for estimated losses on such engagements will be made during
the period in which a loss becomes probable and can be reasonably estimated. If contract modifications result in additional goods or services that are
distinct from those transferred before the modification, they are accounted for prospectively as if the Company entered into a new contract. If the goods or
services in the modification are not distinct from those in the original contract, sales and gross profit are adjusted using the cumulative catch-up method for
revisions in estimated total contract costs and contract values.
In certain application development service arrangements, the Company sells and delivers IT equipment on standalone basis prior to the delivery of
the services. In these cases, the Company controls the IT equipment before they are transferred to the customer. The Company has the right to direct the
suppliers and control the goods or assets transferred to its customers. Thus, the Company considers it should recognize revenue as a principal in the gross
amount of consideration to which it is entitled in exchange for the IT equipment delivered. The Company assesses the sale of equipment is separately
identifiable from other promises in the contract and it is distinct performance obligation within the context of the contract. Accordingly, the revenue from
the related IT equipment based on its relative standalone selling price is recognized upon customer acceptance after delivery.
(2) Revenue from consulting and technical support services
Revenue from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company to provide
professional consulting and technical support services over contract terms beginning on the commencement date of each contract, which is the date its
service is made available to customers. Billings to the customers are generally on a monthly or quarterly basis over the contract term, which is typically 12
to 24 months. The consulting and technical support services contracts typically include a single performance obligation. The revenue from consulting and
technical support services is recognized over the contract term on a straight-line basis as customers receive and consume benefits of such services.
(3) Revenue from subscription services
Revenue from subscription services is comprised of subscription fees from customers accessing the Company’s software-as-a-service applications
for a subscribed period. The Company’s monthly or quarterly billing to customer is on the basis of number of uses or the actual usage by the customers.
The subscription arrangements are considered service contracts because customers does 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.
F-14
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Revenue recognition - continued
Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. The
Company reports revenues net of value added tax (“VAT”). The Company’s subsidiary in PRC are subject to a 6% to 13% value added tax (“VAT”) and
related surcharges on the revenues earned from providing services.
Practical Expedient and Exemptions
The Company does not disclose the value of unsatisfied performance obligations within one year by applying the right to invoice practical
expedient provided by ASC 606-10-55-18.
Contract costs
Contract costs include contract acquisition costs and contract fulfillment costs which are all recorded within prepayments, deposits, and other
assets in the consolidated balance sheets.
Contract acquisition costs consist of incremental costs incurred by the Company to originate contracts with customers. Contract acquisition costs,
which generally include costs that are only incurred as a result of obtaining a contract, are capitalized when the incremental costs are expected to be
recovered over the contract period. All other costs incurred regardless of obtaining a contract are expensed as incurred. Contract acquisition costs are
amortized over the period the costs are expected to contribute directly or indirectly to future cash flows, which is generally over the contract term, on a
basis consistent with the transfer of goods or services to the customer to which the costs relate. Contract fulfillments costs consist of costs incurred by the
Company to fulfill a contract with a customer and are capitalized when the costs generate or enhance resources that will be used in satisfying future
performance obligations of the contract and the costs are expected to be recovered. Capitalized contract fulfillment costs generally include contracted
services, direct labor, materials, and allocable overhead directly related to resources required to fulfill the contract. Contract fulfillment costs are recognized
in cost of revenue during the period that the related costs are expected to contribute directly or indirectly to future cash flows, which is generally over the
contract term, on a basis consistent with the transfer of goods or services to the customer to which the costs are related. The contract fulfillment cost
amounted to $4,041,585 and $2,999,411 as of December 31, 2020 and 2019, respectively. There was no contract acquisition costs as of December 31, 2020
and 2019.
Contract balance
The accounts receivable includes both unbilled accounts receivable and billed accounts receivable. The Company records unbilled accounts
receivable for revenue that has been recognized in advance of billing the customer, which is common for application development service contracts. The
unbilled accounts receivable represents the Company’s right to consideration in exchange for the service that the Company has performed to the customer
before payment is due and the unbilled account receivable will be reclassified into billed accounts receivable when the Company has the right to invoice.
Contract liabilities are presented as customer deposits and deferred revenue on the consolidated balance sheet. Contract liabilities relate to payments
received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the completion of
performance obligations. As of December 31, 2020 and 2019, the balance of customer deposits amounted to $573,243 and $270,793, respectively. As of
December 31, 2020 and 2019, the balance of deferred revenue amounted to $1,095,279 and $869,396, respectively.
F-15
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Government subsidies
Government subsidies mainly represent amounts granted by local government authorities as an incentive for companies to promote development
of the local technology industry. The Company receives government subsidies related to government sponsored projects, and records such government
subsidies as a liability when it is received. The Company records government subsidies as other income when there is no further performance obligation.
Advertising expenditures
Advertising expenditures are expensed as incurred and such expenses were minimal for the periods presented. Advertising expenditures have been
included as part of selling and marketing expenses. For the years ended December 31, 2020, 2019 and 2018, the advertising expense amounted to $53,445,
$61,174 and 21,168, respectively.
Operating leases
A lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee as an operating
lease. All leases of the Company are currently classified as operating leases. The Company records the total expenses on a straight-line basis over the lease
term.
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized
when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions
not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended
December 31, 2020, 2019 and 2018. All of the tax returns of the Company’s subsidiary in China remain subject to examination by the tax authorities for
five years from the date of filing.
Value added tax
Revenue represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 13%, depending on
the type of service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT
liabilities. Net VAT balance between input VAT and output VAT is recorded in taxes payable. All of the VAT returns filed by the Company’s subsidiary in
China, have been and remain subject to examination by the tax authorities for five years from the date of filing.
F-16
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Employee defined contribution plan
Full time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to
which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees.
Chinese labor regulations require that the Company make contributions to the government for these benefits based on a certain percentage of the
employee’s salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount was expensed as incurred.
(Loss) earnings per share
The Company computes (loss) earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to
present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common share outstanding for the period. Diluted
EPS presents the dilutive effect on a per share basis of the potential Ordinary Shares (e.g., convertible securities, options and warrants) as if they had been
converted at the beginning of the periods presented, or issuance date, if later. Potential Ordinary Shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the year ended December 31, 2020 and 2019,
since the company had a loss, basic and dilutive loss per share are the same. For the years ended December 31, 2018, there were nil potential dilutive
ordinary shares.
Share-Based compensation
The Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of
ASC 718, Compensation—Stock Compensation, and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation
—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted,
for employee stock-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as
expense with graded vesting on a straight-line basis over the requisite service period for the entire award. For the non-employee stock-based awards, the
fair value of the awards to non-employees are measured every reporting period based on the value of the Company’s common stock.
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive
income (loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from
net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar
as its functional currencies.
Statement of Cash Flows
In accordance with ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations are formulated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheets.
Commitments and Contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that
relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it
determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making
these assessments including historical and the specific facts and circumstances of each matter.
F-17
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Segment reporting
The Company’s chief operating decision maker (“CODM”) has been identified as its CEO, who reviews the consolidated results when making
decisions about allocating resources and assessing performance of the Company as a whole and hence, the Company has only one reportable segment. The
Company does not distinguish between markets or segments for the purpose of internal reporting. The Company’s long-lived assets are substantially all
located in the PRC and all of the Company’s revenues are derived from the PRC. Therefore, no geographical segments are presented.
Concentrations of Risks
(a) Concentration of credit risk
Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash, restricted cash, accounts
receivable and other current assets. The maximum exposure of such assets to credit risk is their carrying amounts as at the balance sheet dates. As of
December 31, 2020 and 2019, the aggregate amount of cash and restricted cash of $8,365,573 and $5,606,425, respectively, were held at major financial
institutions in PRC, which the management believes are of high credit quality. On May 1, 2015, China’s new Deposit Insurance Regulation came into
effect, pursuant to which banking financial institutions, such as commercial banks, established in China are required to purchase deposit insurance for
deposits in RMB and in foreign currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for
the Group’s accounts, as its aggregate deposits are much higher than the compensation limit. However, the Group believes that the risk of failure of any of
these Chinese banks is remote. Bank failure is uncommon in China and the Group believes that those Chinese banks are financially sound based on public
available information. The Company conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security
from them. The Company establishes an accounting policy for allowance for doubtful accounts on the individual customer’s and supplier’s financial
condition, credit history, and the current economic conditions.
(b) Foreign currency risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets
and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are
required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in
currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which
require certain supporting documentation in order to affect the remittance.
The Company’s functional currency is the RMB, and the Company’s financial statements are presented in U.S. dollars. The RMB depreciated by
1.3% in fiscal year 2019 and appreciated by 6.3% in fiscal year 2020. It is difficult to predict how market forces or PRC or U.S. government policy may
impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our
financial results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our
assets, liabilities, revenues and costs are denominated in RMB. To the extent that the Company needs to convert U.S. dollars into RMB for capital
expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount
the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments
for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the
U.S. dollar amount available to the Company.
F-18
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of significant accounting policies (continued)
Concentrations of Risks - continued
(c) Significant customers
For the year ended December 31, 2020, one customer accounted for 25.7% of the Company’s total revenues. For the year ended December 31,
2019, two customers accounted 21.8% and 10.7% of the Company’s total revenues. For the year ended December 31, 2018, no customer accounted for
more than 10% of the Company’s total revenues. As of December 31, 2020, no customer accounted for more than 10% of the Company’s accounts
receivable. As of December 31, 2019, one customer accounted 12.8% of the Company’s accounts receivable.
(d) Significant suppliers
For the year ended December 31, 2020, one supplier accounted for 21.3% of the Company’s total purchases. For the year ended December 31,
2019, one supplier accounted for 22.7% of the Company’s total purchases. For the year ended December 31, 2018, three suppliers accounted for 12.9%,
11.2% and 10.3% of the Company’s total purchases. As of December 31, 2020, one supplier accounted for 11.9% of the Company’s total accounts payable.
As of December 31, 2019, one supplier accounted for 11.4% of the Company’s total accounts payable.
Recently issued accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new
accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended ("the JOBS Act"), the Company meets the
definition of an emerging growth company, or EGC, and has elected the extended transition period for complying with new or revised accounting
standards, which delays the adoption of these accounting standards until they would apply to private companies.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and lease liability
on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The guidance also expands the quantitative and
qualitative disclosure requirements. In July 2018, the FASB issued updates to the lease standard making transition requirements less burdensome. The
update provides an option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented
in the company’s financial statements. The new guidance requires the lessee to record operating leases on the balance sheet with a right-of-use asset and
corresponding liability for future payment obligations. FASB further issued ASU 2018-11 “Target Improvement” and ASU 2018-20 “Narrow-scope
Improvements for Lessors.” In June 2020, the FASB issued ASU No. 2020-05, “Revenue from Contracts with Customers (Topic 606) and Leases (Topic
842) Effective Dates for Certain Entities” (“ASU 2020-05”) in response to the ongoing impacts to businesses in response to the coronavirus (COVID-19)
pandemic. ASU 2020-05 provides a limited deferral of the effective dates for implementing previously issued ASU 842 to give some relief to businesses
and the difficulties they are facing during the pandemic. ASU 2020-05 affects entities in the “all other” category and public Not-For-Profit entities that have
not gone into effect yet regarding ASU 2016-02, Leases (Topic 842). Entities in the “all other” category may defer to fiscal years beginning after December
15, 2021, and interim periods within fiscal years beginning after December 15, 2022. As an emerging growth company, the Company will adopt this
guidance effective January 1, 2022. The Company is evaluating the impact on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures
(Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities
under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and
purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company beginning January 1, 2021. The Company does not expect
this guidance will have a material impact on its consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the
consolidated financial position, statements of operations and cash flows.
F-19
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Accounts receivable, net
Accounts receivable, net, consists of the following:
Accounts receivable
Less: Allowance for doubtful accounts
Total accounts receivable, net
As of December 31
2020
2019
$
$
15,896,127 $
(1,581,142)
14,314,985 $
12,910,734
(1,669,658)
11,241,076
Unbilled accounts receivable included in accounts receivable above amounted to $7,526,282 and $5,865,900 as of December 31, 2020 and 2019,
respectively. The unbilled accounts receivables as of December 31, 2020 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 March 31, 2021, approximately $2.1 million (or 13.5%) of total accounts receivable as of December 31, 2020 was collected. It represented
23.0% of billed accounts receivable balance and 3.0% of unbilled accounts receivable balance as of December 31, 2020 were subsequently collected,
respectively.
Movement of allowance for doubtful accounts is as follows:
Beginning balance
Provision (reverse) for doubtful accounts
Recovery
Written-off
Foreign currency translation adjustments
Ending balance
2020
As of December 31,
2019
2018
$
$
1,669,658 $
-
(189,286)
-
100,770
1,581,142 $
392,533 $
3,276,200
-
(1,984,244)
(14,831)
1,669,658 $
36,285
372,635
-
-
(16,387)
392,533
For the year ended December 31, 2019, the Company wrote off $1,984,244 accounts receivable related to two customers.
Note 4 — Prepayments, deposits and other assets, net
Prepayments, deposits and other assets, net consisted of the following:
Security deposits (1)
Advances to suppliers
Advances to employees
Prepaid expense
Others
Less: Long term portion
Allowance for doubtful accounts
Prepayments, deposits and other assets – current portion
As of December 31,
2020
2019
$
$
385,607 $
1,508,022
215,735
293,573
288,464
2,691,401
(385,607)
(306,513)
1,999,281 $
755,886
31,449
18,159
377,501
158,554
1,341,549
(759,397)
(31,139)
551,013
(1) Security deposits represent contract fulfillment deposits required by customer for specific projects, rent deposits and etc.
F-20
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Prepayments, deposits and other assets, net (continued)
Movement of allowance for doubtful accounts is as follows:
Beginning balance
Provision(recovery) for doubtful accounts
Foreign currency translation adjustments
Ending balance
Note 5 — Loans to third parties
Loans to third parties consisted of the following:
Unsecured loan receivable from third parties (1)
Guaranteed loan receivable from media business (2)
Less: Long term portion
Prepayments, deposits and other assets – current portion
2020
As of December 31,
2019
2018
$
$
31,139 $
258,280
17,094
306,513 $
14,047 $
17,400
(308)
31,139 $
19,422
(4,510)
(865)
14,047
As of December 31,
2020
2019
$
$
704,981 $
68,095,019
68,800,000
(63,434,483)
5,365,517 $
740,000
-
740,000
-
740,000
(1) The Company had unsecured, interest-bearing loan receivables from various third parties. The maturity of these loans are generally within one year. As
of December 31, 2020 and 2019, the loans to third parties amounted to $704,981 and $740,000 with annual interest rates approximately 8% and 5.3%.
(2) Pursuant to the agreement with Shenzhen Kezhi Technology Co., Ltd.(“Kezhi”) on September 25, 2020 and a series of amendments entered during the
period from September 25, 2020 to May 16, 2021, the Company intends to expand to media business through Kezhi. The Company originally planned
to acquire certain media business assets from Kezhi, however, due to uncertainties in COVID-19, the Company and Kezhi ultimately reached into a
final agreement (“Final agreement”) on May 16, 2021. Pursuant to the Final agreement, the Company agreed to extend a working capital support loan
to Kezhi in aggregated of $68,095,019 with expected annual returns over two years and coupon interest rate of 5%. The expected annual return is as
follows:
Twelve months ending December 31,
2021
2022
Total return payments (including principal and interest)
Expected
annual return
schedule
$
$
4,660,536
70,243,985
74,904,521
The effective annual interest rate based on the expected annual return schedule was approximately 5%. The repayment of loan is guaranteed by a
third-party company. As of December 31, 2020, based on the above repayment plan, the Company included $4,660,536 principal portion of the loan
receivable in the current portion of loans to third parties and included $63,434,483 in the non-current portion of loans to third parties.
F-21
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 — Property and equipment, net
Property and equipment, net, consist of the following:
Computer equipment
Office equipment, fixtures and furniture
Capitalized development cost and software acquired
Automobiles
Subtotal
Less: accumulated depreciation and amortization
Total
As of December 31,
2020
2019
$
$
494,803 $
2,084,615
8,081,105
165,149
10,825,672
(3,641,571)
7,184,101 $
409,346
1,953,259
6,027,310
154,788
8,544,703
(1,980,063)
6,564,640
Depreciation and amortization expense for the years ended December 31, 2020, 2019 and 2018 amounted to $310,845, $299,959 and $272,458,
respectively. The Company capitalized development costs related to its core supporting modules of the global trade applications and solutions for internal
use incurred during the application development stage. The amortization expense for the years ended December 31, 2020, 2019 and 2018 totaled
$1,140,727, $652,245 and $370,807, respectively.
The estimated amortization of capitalized development cost is as follows:
Twelve months ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
Note 7 — Related party balances and transactions
Related party transactions and balances
a. Prepaid expense – related parties
Estimated
amortization
expense
$
$
1,513,352
1,385,346
1,203,410
911,125
390,387
16,003
5,419,623
The Company had consulting fee prepayment of $121,144 to Guangzhou Powerbridge Blockchain Co., Ltd. as of December 31, 2019, which the
Company has significant influence over with. In 2020, both parties negotiated to terminate the consulting service. The balance of $129,254 as of December
31, 2020 was reclassified to due from related party and fully allowanced in 2020.
For the year ended December 31, 2019, the Company incurred consulting fee prepayment $685,167 to Hengqin Baisheng Investment, GP, which
was a non-controlling shareholder of Powerbridge Ningbo. The balance of $622,222 as of December 31, 2020 was reclassified to due from related party in
2020.
F-22
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 — Related party balances and transactions (continued)
Related party transactions and balances - continued
b. Due from related parties:
As of December 31, 2020, the Company had $129,254 due from Guangzhou Powerbridge Blockchain Co., Ltd., which was fully allowanced in
2020. As of December 31, 2020, the Company had $622,222 due from Hengqin Baisheng Investment, GP.
As of December 31, 2020 and 2019, the Company advanced $30,651 and $370,000 to Mr. Zongbo Jiang, the legal representative of Guangzhou
Hongqiao Blockchain Co., Ltd, which the Company has significant influence over with. The balance collected in 2020.
b. Due to related party:
Due to related party as of December 31, 2020 amounted to $71,020, which included $8,855 unpaid expenses to Ling Lor, wife of CEO and
director of the Company and $62,165 unpaid expenses to Hong Yu, shareholder of Chongqing Power.
Due to related party as of December 31, 2019 amounted to $6,538, which represents unpaid expenses to Ling Lor, wife of CEO and director of the
Company.
Note 8 — Bank loans
Outstanding balance of short-term bank loans consisted of the following:
Loan from Bank of Communication
Loan from Bank of China
Loan from Guangfa Bank
December 31,
2020
December 31,
2019
$
$
1,532,567 $
766,284
2,298,850
4,597,701 $
1,149,095
430,923
-
1,580,018
On April 25, 2019, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,149,095 for a term of
one year and at a floating rate based on prime borrowing rate in PRC. The bank loan was unsecured and guaranteed by Mr. Ban Lor, the Chairman and
CEO of the Company, and his family member. The loan was fully repaid upon maturity.
On March 16, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,532,532 for a term of
half year and at a fixed annual interest rate of 5.003%. The bank loan was unsecured and guaranteed by Mr. Ban Lor, the Chairman and CEO of the
Company, and his family member. The loan was fully repaid October 8, 2020.
On November 5, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of Communication to obtain a loan of $1,532,567 for a term
of one year and at a fixed annual interest rate of 4.5675%. The bank loan was unsecured and guaranteed by a third party.
F-23
Note 8 — Bank loans (continued)
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 1, 2019, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $430,923 for a term of one year
and at a fixed annual interest rate of 4.6%. The bank loan was guaranteed by Mr. Ban Lor and secured by a restricted cash deposit of $172,369 as of
December 31, 2019. The loan was fully repaid upon maturity.
On January 9, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $766,284 for a term of one year
and at a fixed annual interest rate of 4.45%. The bank loan was guaranteed by Mr. Ban Lor and secured by a restricted cash deposit of $114,943 as of
December 31, 2020. The loan was fully repaid on December 25, 2020.
On March 4, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $459,770 for a term of one year and
at a fixed annual interest rate of 4.55%. The bank loan was guaranteed by Mr. Ban Lor. The loan was fully repaid upon maturity.
On December 14, 2020, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $306,514 for a term of one year
and at a fixed annual interest rate of 4.55%. The bank loan was guaranteed by Mr. Ban Lor.
On January 2, 2020, Powerbridge Zhuhai entered into a loan agreement with Guangfa Bank to obtain a loan of $2,298,851 for a term of one year
and at a fixed annual interest rate of 4.6%. The bank loan was guaranteed by Mr. Ban Lor and the company’s account receivable of some programs was
pledged to secure the loan. The loan was fully repaid upon maturity.
For the years ended December 31, 2020, 2019 and 2018, interest expense was $203,289, $123,278 and $19,385, respectively, with the weighted
average interest rate of 4.7%, 4.9% and 5.9%, respectively.
F-24
Note 9 — Convertible note
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 7 2020, the Company entered into certain securities purchase agreement (the “Note SPA”) with certain “non-U.S. Person” (the
“Investor”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company agreed to sell
unsecured convertible promissory note in the aggregate principal amount of $50,000,000 (the “Note”) with a maturity date of 12 months, an interest rate of
6.0% per annum, and a conversion price (“Holder Conversion Price”) equal to the lesser of i) $2.00 per share or ii) 75% of the daily VWAPs (as reported
by Bloomberg) for the ten (10) consecutive trading days ending on the trading day that is immediately prior to the date of Holder Conversion Notice, which
shall not be lower than $1.80 (the “Floor Price”). Pursuant to the Note, the Investor has the right at any time 7 days after the date of the issuance of the
Note (the “Issuance Date”) until the outstanding balance of the Note (the “Outstanding Balance”) has been paid in full (such date, the “Conversion Date”),
at its election, to convert (the “Holder Conversion”) all or any part of the Outstanding Balance into shares (each instance of conversion is referred herein as
“Conversion Shares”, together with the Note, the “Securities”) of fully paid and non-assessable Ordinary Shares of the Company.
Conversion of convertible note
All Note Holders delivered the Conversion Notices to the Company on November 12, 2020 and the Company issued an aggregate of 27,777,776
restricted ordinary shares, par value $0.00166667 per share, of the Company, to the Note Holders. The fair value of the conversion note was assessed at
$65,258,333 upon conversion based on the binomial model assessed by the independent valuation firm (Note 11).
The Company has elected to recognize the convertible loan at fair value and therefore there was no further evaluation of embedded features for
bifurcation. The Company engaged third party valuation firm to perform the valuation of convertible loans. The fair value of the convertible loans is
calculated using the binomial tree model based on probability of remaining as straight debt using discounted cash flow with the following assumptions
Risk-free interest rate
Expected life
Discount rate
Expected volatility
Expected dividend yield
Fair value
November 12,
2020
0.12%
0.96 year
6.23%
77.6%
0%
$ 65,258,333
The convertible loans are classified as level 3 instruments as the valuation was determined based on unobservable inputs which are supported by
little or no market activity and reflect the Group’s own assumptions in measuring fair value. Significant inputs used in developing the fair value of the
convertible loans include time to maturity, risk-free interest rate, straight debt discount rate, probability to convert and expected timing of conversion.
For the year ended December 31, 2020, the Company recognized a loss of change in fair value of convertible loan of $15,258,333. Prior to the
conversion on November 16, 2020, the fair value of the convertible loan was assessed at $65,258,333, which was reclassified to equity upon conversion of
the convertible loan on November 16, 2020.
F-25
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Taxes
(a)
Income tax
Cayman Islands
Powerbridge was incorporated in the Cayman Islands and is not subject to tax on income or capital gains under the laws of Cayman Islands.
Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
Hong Kong
Powerbridge HK is established in Hong Kong. Under the Hong Kong tax laws, Powerbridge HK is exempted from income tax on its foreign-
derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Powerbridge Zhuhai is governed by the Enterprise Income Tax (“EIT”) laws of PRC. Under EIT laws of PRC, domestic enterprises and Foreign
Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax
exemption may be granted on case-by-case basis. EIT grants preferential tax treatment to certain High and New Technology Enterprises (“HNTEs”). Under
this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three
years. Powerbridge Zhuhai, the Company’s operating subsidiary in PRC, has been approved as HNTEs in 2014 and successfully renewed it in 2020, which
reduced its statutory income tax rate to 15%. The rest of the Company’s subsidiaries in PRC are subject to income tax rate of 25%.
The impact of the preferred tax treatment noted above decreased income taxes by $25,735, $595,556 and $158,167 for the fiscal year 2020, 2019
and 2018, respectively. The benefit of the preferred tax treatment on net income per share (basic and diluted) was nil, 0.07 and $0.02 for the years ended
December 31, 2020, 2019 and 2018, respectively.
Significant components of the provision for income taxes are as follows:
For the years ended December 31,
2019
2020
2018
Current
Deferred
Total income tax (benefits) expenses
$
$
109 $
(80,641)
(80,532) $
11,164 $
(224,511)
(213,347) $
113,088
(69,898)
43,190
F-26
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Taxes (continued)
(a)
Income tax - continued
The following table reconciles China statutory rates to the Company’s effective tax rate:
For the years ended December 31,
2019
2018
2020
PRC statutory rates
Preferential tax rates
R&D credits
Change in valuation allowance and others
Effective tax rate
25.0%
(25.0)%
1.7%
(1.3)%
0.4%
25.0%
(16.9)%
(3.4)%
(2.8)%
1.9%
25.0%
(9.9)%
(4.0)%
1.6%
2.7%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant components of the deferred tax assets are as follows:
Deferred tax assets:
Provision for doubtful accounts
Depreciation and amortization
Net operating loss carryforward
Valuation allowance
Total deferred tax assets
As of December 31,
2020
2019
$
$
302,536 $
112,595
517,537
(517,537)
415,131 $
255,119
53,992
272,815
(272,815)
309,111
As of December 31, 2020, the Company has approximately $3.3 million net operating loss (“NOL”) carryforwards with expirations by 2025. 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 $517,537 and $272,815 valuation allowance against the deferred tax assets that the Company does not expect to
realize at December 31, 2020 and 2019, respectively.
(b) Value added tax
Enterprises who sell goods in the PRC are subject to a value added tax in accordance with PRC laws. VAT standard rates are 6% to 13% of the
gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the
Company’s finished products can be used to offset the VAT due on sales of the finished products and services. Powerbridge Zhuhai obtained a VAT
preferential status for its technology development business, accordingly, the certain Company’s technology development business is exempted from VAT.
F-27
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Taxes (continued)
(c) Tax payable
Taxes payable consists of the following:
Income taxes payable
VAT and other tax payable
Totals
Uncertain tax positions
As of December 31,
2020
2019
$
$
565,506 $
133,429
698,935 $
539,437
330,476
869,913
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits,
and measure the unrecognized benefits associated with the tax positions. As of December 31, 2020 and 2019, the Company did not have any significant
unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the years
ended December 31, 2020 and 2019. The Company also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next
12 months from December 31, 2020.
Note 11 — Equity
Ordinary Shares
Powerbridge was established under the laws of Cayman Islands on July 27, 2018. The original authorized number of Ordinary Shares was
500,000,000 shares with a par value of $0.0001 per share. On August 18, 2018, in order to optimize the Company’s share capital structure, the board of
directors approved a reverse stock split of the Company’s authorized number of Ordinary Shares at a ratio of 10-1. After the reverse stock split, the
Company’s authorized number of Ordinary Shares became 50,000,000 shares with par value of $0.001 per share and 11,508,747 shares were issued on
August 27, 2018 at par value to the original shareholders of Powerbridge Zhuhai, the equivalent to share capital of $11,509. On February 10, 2019, the
board of directors further approved a reverse stock split of the Company’s authorized number of Ordinary Shares at a ratio of 1-0.6. After the reverse stock
split, the Company’s authorized number of Ordinary Shares was 30,000,000 shares with par value of $0.00166667 per share and 6,905,248 shares were
issued and outstanding immediately after the reserve stock split. The Company believes it is appropriate to reflect these share issuances as nominal share
issuance on a retroactive basis similar to stock split pursuant to ASC 260. The Company has retroactively adjusted all shares and per share data for all the
periods presented.
On September 30, 2020, the Company held its 2020 special general meeting of shareholders (the “Meeting”). At the Meeting, the Company’s
shareholders approved the Company’s amended and restated Memorandum and Articles of Association (“A&R M&A”) to increase the authorized share
capital. As a result, the Company’s authorized share capital is US$500,000 divided into 300,000,000 shares of a par value of US$0.00166667 each, with an
increase of an additional 270,000,000 shares of a par value of US$0.00166667 each.
The Company had 45,777,318 and 8,967,748 ordinary shares issued and outstanding as of December 31, 2020 and 2019, respectively.
F-28
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Equity (continued)
Ordinary Shares - continued
● IPO
On April 4, 2019, the Company consummated its initial public offering (“IPO”) of 2,012,500 Ordinary Shares at a price of $5.00 per shares
including the exercise in full of the underwriters' over-allotment option of 262,500 ordinary shares at IPO price of $5.00 per share. The gross proceeds from
the IPO was $10,062,500 and the net proceeds was $8,021,987. As a result of the IPO, the Ordinary Shares now trade on the Nasdaq Capital Market under
the symbol “PBTS.”
● Public Offering Warrants
In connection with the IPO on April 4, 2019, the Company issued warrants totaling 122,500 units to the placement agents (the “Public Offering
Warrants”). The warrants carry a term of five years and shall be exercisable at $5.50 per share. Management determined that these warrants are equity
instruments because the warrants are both a) indexed to its own stock; and b) classified in shareholders’ equity. The warrants were recorded at their fair
value on the date of grant as a component of shareholders’ equity. No warrants were exercised for the year ended December 31, 2020 and 2019. As of
December 31, 2020 and 2019, the total number of warrants outstanding was 122,500 with weighted average remaining life of 3.25 years and 4.26 years,
respectively. No warrants were exercised as of December 31, 2020 and 2019. The fair value of this Public Offering Warrants was $356,200, which was
considered a direct cost of IPO and included in additional paid-in capital. The fair value has been estimated using the Black-Scholes pricing model with the
following weighted-average assumptions: market value of underlying share of $5.00, risk free rate of 2.2%; expected term of 5 years; exercise price of the
warrants of $5.5, volatility of 71.9%; and expected future dividends of nil.
● Ordinary shares issued for consulting services
On September 30, 2019, the Company entered into a marketing development service agreement with an external consultant for service term of
three years and agreed to 50,000 restricted shares as compensation. On November 28, 2019, the Company entered into a marketing development service
agreement with another external consultants for service term of three years and agreed to 57,540 restricted shares as compensation. The aggregated fair
value of those restricted shares was assessed at $335,469 based on the stock price of contract dates. For the year ended December 31, 2019, the Company
recorded a consulting fee expense of $18,430 included in the share based compensation expense. As of December 31, 2019, there were unrecognized share
based compensation expense related to the restricted shares issued for consulting services amounted to $317,039. As of December 31, 2019, the Company
issued 50,000 restricted shares and issued the remaining 57,450 restricted shares in January 2020. For the year ended December 31, 2019, the aggregated of
107,540 restricted shares was included in the calculation of basic earning per shares in accordance with ASC 260-10-45-13.
On March 15, 2020, the Company signed a consulting agreement with an independent marketing professional with term of one year. Pursuant to
the agreement, the Company agreed to pay total of 150,000 ordinary shares as compensation for the services after signing of the agreement. The Company
issued 150,000 restricted ordinary shares on April 14, 2020. The fair value of those shares was assessed at approximately $332,100 based on the stock price
of contract date. On July 30, 2020, the Company issued 24,254 ordinary shares as compensation to an advisory firm for the related investor relations
advisory service during the period ended from January 2020 to July 2020. The fair value of those shares was assessed at approximately $65,001 based on
the stock price of contract date. On September 26, 2020, the Company signed a consulting agreement with a third party consultant. Pursuant to the
agreement, the Company agreed to pay a total of 100,000 ordinary shares as compensation for new business segment strategic positioning and planning
services. The Company has not issued the above 100,000 shares as of December 31, 2020. On August 17, 2020, the Company signed a consulting
agreement with a third party consultant. Pursuant to the agreement, the Company agreed to pay a total of 10,000 ordinary shares as compensation for
services. The Company has not issued the above 10,000 shares as of December 31, 2020.
For the year ended December 31, 2020, the Company recorded a consulting fee expense of $487,347 included in the share based compensation
expense. As of December 31, 2020, there were unrecognized share based compensation expense related to the restricted shares issued for consulting
services amounted to $490,094. For the year ended December 31, 2020, the aggregated of 110,000 shares legally issuable to the two third party consultants
were included in the calculation of basic earning per shares in accordance with ASC 260-10-45-13.
F-29
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Equity (continued)
2018 Stock option plan
On August 18, 2018 and further amended on February 10, 2019, the Board of Directors (“Board”) approved an amended the 2018 Stock Option
Plan (the “2018 Plan”). The Plan provides for discretionary grants of stock options to key employees, directors and consultants of the Company. The
purpose of the Plan is to attract and retain the best available personnel and to promote the success of the Company’s business. The Board authorized that
the maximum aggregate number of ordinary shares reserved and available pursuant to this Plan shall be the aggregate of (i) 1,035,787 shares, and (ii) on
each January 1, starting with January 1, 2019, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of ordinary shares
(on a fully-diluted basis) on the immediately preceding December 31, and (B) such lower number of ordinary shares as may be determined by the
Committee. The Plan shall become effective on the effective date of the Company’s contemplated initial public offering is completed, which was on April
4, 2019. The grants under the Plan generally have a maximum contractual term of ten years from the date of grant. Stock option awards granted under the
plan at the determination of the Board shall be effective and exercisable after the Company’ completion of IPO of its securities. The terms of individual
agreements for various grants under the Plan will be determined by the Board (or its Compensation Committee) and might contain both service and
performance conditions. The Company believes the options contain an explicit service condition and a performance condition. On July 2, 2020, the Board
approved to amend the 2018 Plan to adjust that the maximum aggregate number of ordinary shares reserved and available pursuant to the 2018 Plan shall
not at any time exceed 20% of the total number of outstanding Ordinary Shares at the time of issuance, from time to time. Such amendment was approved
during shareholders’ annual meeting on July 27, 2020.
On April 4, 2019, the Board approved to issue 1,050,500 stock options to its employees under 2018 stock option plan with exercise price of $5.0
per share. These options generally have vesting periods of 1-3 years and will expire no later than April 3, 2024.
On April 4, 2019, the Board approved to issue 300,000stock options to an external consultant under 2018 stock option plan with exercise price of
$3.75 per share. These options were fully vested upon grant and will expire no later than April 3, 2029.
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, 2020, assumptions used to estimate the fair value of stock options on the grant dates are as follows:
Risk-free interest rate
Expected life of the options
Expected volatility
Expected dividend yield
Fair value
F-30
Options
granted in
April 2019
2.3%-2.5%
5-10 years
71.9%
0%
$
4,376,500
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Equity (continued)
2018 Stock option plan
A summary of activities of the stock options for the years ended December 31, 2019 and 2020 is presented as follows:
Outstanding as of January 1, 2019
Granted
Expired, forfeited or cancelled
Outstanding as of December 31, 2019
Granted
Expired, forfeited or cancelled
Outstanding as of December 31, 2020
Exercisable as of December 31, 2020
Number of
Share
Options
Weighted
Average
Exercise
Price
US$
Weighted
Average
Remaining
Contractual
Term
Year
Aggregate
Intrinsic
Value
US$
-
1,350,500
-
1,350,500
-
-
1,350,500
760,667
-
4.72
-
4.72
-
-
4.72
4.51
-
-
-
5.37
-
-
4.37
5.23
-
-
-
-
-
-
-
-
For the year ended December 31, 2020 and 2019, total share-based compensation expenses recognized for the share options granted were
$986,629 and $2,333,460, respectively. As of December 31, 2020 and 2019, there were $1,056,410 and $2,043,040 unrecognized share-based
compensation expenses related to the share options granted, respectively.
2020 Private placement
On August 24, 2020, Company closed certain non-broker securities purchase agreements (the “SPAs”) with certain “non-U.S. Persons” (the
“Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which the Company agreed to sell an
aggregate of 8,800,000 ordinary shares, $0.00166667 par value per share of the Company (“Share”), at a per share purchase price of $2.00 (the “Offering”).
The net proceeds to the Company from such Offering was $17.6 million.
2020 Conversion of convertible loan
On November 16, 2020, the Company issued an aggregate of 27,777,776 restricted ordinary shares, par value $0.00166667 per share, of the
Company, to the conversion note holders (Note 10). The fair value of the conversion note was assessed at $65,258,333 upon conversion based on the
binomial model assessed by the independent valuation firm.
Additional paid-in capital
As of December 31, 2020 and 2019, additional paid-in capital in the consolidated balance sheet represented the combined contributed capital of
the Company’s subsidiaries.
F-31
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Equity (continued)
Statutory reserve
Under PRC law, the Company’s subsidiary located in the PRC (collectively referred as the (“PRC entities”) are required to provide for certain
statutory reserves. The PRC entities are required to allocate at least 10% of their after-tax profits on an individual company basis as determined under PRC
accounting standards to the statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of
registered capital on an individual company basis.
The Company’s subsidiaries in PRC had accumulated deficits for the years ended December 31, 2020 and 2019, as a result, the statutory reserve
balances were Nil as of December 31, 2020 and 2019.
Note 12 — Commitments and contingencies
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business.
Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material
adverse impact on its financial position, results of operations or liquidity.
Lease commitment
The Company has entered into non-cancellable operating lease agreements for several offices and dormitory spaces for its employees. The leases
are expiring through 2022. The Company’s commitments for minimum lease payment under these operating leases as of December 31, 2020 are as follow:
Twelve months ending December 31,
2021
2022
2023
Total
Minimum
lease payment
204,442
59,446
21,567
285,455
$
$
Rent expense for the years ended December 31, 2020, 2019 and 2018 were $305,832, $492,530 and $386,076, respectively.
Note 13 — Segment reporting
For the years ended December 31, 2020 and 2019, the Company’s CODM reviewed the financial information of the business carried out by the
Company on a consolidated basis. Therefore, the Company has one operating segment, which is the provision of global trade software application and
technology services. The Company operates solely in the PRC and all of the Company’s long-lived assets are located in the PRC.
The following table presents revenues by the service lines:
REVENUES:
Application development services*
Consulting and technical support services
Subscription services
Total revenues
For the Years Ended
December 31,
2019
2020
2018
$
$
21,985,214 $
3,797,354
881,443
26,664,011 $
15,720,676 $
3,307,662
1,066,720
20,095,058 $
20,037,861
2,390,948
723,458
23,152,267
*
For the year ended December 31, 2020 and 2019, certain application development service arrangements included sales of IT equipment. Such revenue
of $6,299,982 and $1,554,428 was included in the application development service revenue for years ended December 31, 2020 and 2019, respectively.
F-32
POWERBRIDGE TECHNOLOGIES CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — Subsequent events
On January 8, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Uptown Capital, LLC, a Utah
limited liability company (the “Investor”), pursuant to which the Company issued the Investor an unsecured promissory note on January 8, 2021 in the
original principal amount of $1,650,000 (the “Note”), convertible into ordinary shares, par value $0.00166667 per share, of the Company (the “Ordinary
Shares”), for $1,500,000 in gross proceeds. The transaction contemplated by the Purchase Agreement closed on January 8, 2021. The Note bears interest at
a rate of 9% per annum compounding daily. All outstanding principal and accrued interest on the Note will become due and payable twelve months after
the purchase price of the Note is delivered by Purchaser to the Company (the “Purchase Price Date”). The Note includes an original issue discount of
$150,000 along with $20,000 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the Note. The
Company may prepay all or a portion of the Note at any time by paying 120% of the outstanding balance elected for pre-payment.
On February 23, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners, as sales agent
(the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, as sales agent and/or principal (the
“Offering”) up to $30,000,000 of its ordinary shares, par value $0.00166667 per share (the “Shares”). Any Shares offered and sold in the Offering will be
issued pursuant to the Company’s Registration Statement on Form F-3 (the “Registration Statement”) filed with the Securities and Exchange Commission
(the “SEC”) on February 23, 2021, and the sales agreement prospectus that forms a part of such Registration Statement, following such time as the
Registration Statement is declared effective by the SEC, for an aggregate offering price of up to $200 million.
On February 23, 2020, the Board approved to register all the shares issuable under the Company’s 2018 Amended Option Plan in a registration
statement on a Form S-8, representing 9,155,464 ordinary shares issuable under our Amended 2018 Stock Option Plan. As of the date hereof, the Company
has issued certain options to the employees, advisors, and consultants of the Company under Plan to purchase in an aggregate amount of 9,155,464
Ordinary Shares the grants have been made under the plan as of the date hereof.
On April 9, 2021, the Company entered into a securities purchase agreement with YA II PN, LTD. (the “Investor”), pursuant to which the Investor
purchases convertible notes (the “Notes”) in the principal amount of US$7,000,000 (the “Principal”), which shall be convertible into the Company’s
ordinary shares (the “Ordinary Shares”) par value $0.00166667 per share, and a warrant (the “Warrant”) to purchase 571,429 Ordinary Shares (the
“Offering”), for gross proceeds of approximately US$6,790,000. The Notes have a conversion price (the “Conversion Price”) of the lower of (i) US$3.675
per Ordinary Shares (the “Fixed Conversion Price”), or (ii) 90% of the lowest daily VWAP (as defined in the Note) during the 10 consecutive trading days
immediately preceding the conversion date or other date of determination, but not lower than the floor price of US$1.50 per ordinary share. The Principal
will become due and payable 12 months from the date of closing (the “Maturity Date”) and bears an annual interest rate of 6% unless earlier converted or
redeemed by the Company. At any time before the Maturity Date, the Investor may convert the Notes at its option into Ordinary Shares at the Conversion
Price. The Company has the right, but not the obligation, to redeem (“Optional Redemption”) a portion or all amounts outstanding under the Notes prior to
the Maturity Date at a cash redemption price equal to the outstanding Principal balance to be redeemed, plus the applicable redemption premium, plus
accrued and unpaid interest; provided that the trading price of the ordinary shares is less than the Fixed Conversion Price and the Company provides
Investor with at least 15 business days’ prior written notice of its desire to exercise an Optional Redemption. The Investor may convert all or any part of the
Notes after receiving a redemption notice, in which case the redemption amount shall be reduced by the amount so converted. No public market currently
exists for the Notes, and the Company does not intend to apply to list the Notes on any securities exchange or for quotation on any inter-dealer quotation
system. The Notes contain customary events of default, indemnification obligations of the Company and other obligations and rights of the parties. The
Warrant is subject to anti-dilution provisions to reflect stock dividends and splits, and future securities offerings at lower prices with certain exception. The
Offering will be conducted in two closings. The first closing consists of offer and sale of a Note in the principal amount of $4,000,000. The first closing
occurred on April 9, 2021. The second closing consists of offer and sale of a Note in the principal amount of $3,000,000 and the Warrant. The second
closing is expected to occur within five (5) trading days of the Company files its Form 20-F with the Securities and Exchange Commission (“SEC”) for the
fiscal year ended December 31, 2020 in compliance with applicable rules and regulations promulgated by the SEC and is subject to various conditions. The
Warrant will be exercisable immediately following the date of issuance for a period of five years at an initial exercise price of $3.675. The Warrant is
subject to anti-dilution provisions to reflect stock dividends and splits, and future securities offerings at lower prices with certain exception. No public
market currently exists for the Warrant, and the Company does not intend to apply to list the Warrant on any securities exchange or for quotation on any
inter-dealer quotation system. The Notes and Warrant are and will be offered pursuant to the Company’s effective registration statement on Form F-3
(Registration Statement No. 333-253395) previously filed with the SEC and prospectus supplements thereunder.
On March 9, 2021, Powerbridge Zhuhai entered into a loan agreement with Bank of China to obtain a loan of $459,770 for a term of one year and at
a fixed annual interest rates of 4.5%. The bank loan was guaranteed by Mr. Ban Lor.
On March 10, 2021, Powerbridge Zhuhai entered into a loan agreement with Guangfa Bank to obtain a loan of $2,298,851 for a term of one years
and at a fixed annual interest rate of 5.3%, The bank loan was guaranteed by Mr. Ban Lor and the company’s account receivable of some programs was
pledged to secure the loan.
F-33
POWERBRIDGE TECHNOLOGIES CO., LTD.
Amended 2018 Stock Option Plan
Exhibit 10.1
1. Purposes of the Plan. The purposes of this Plan are to attract and retain the best available personnel, to provide additional incentives to Employees,
Directors and Consultants and to promote the success of the Company’s business.
2. Definitions. The following definitions shall apply as used herein and in the individual Stock Option Agreements except as defined otherwise in an
individual Stock Option Agreement. In the event a term is separately defined in an individual Stock Option Agreement, such definition shall supersede
the definition contained in this Section.
(a) “Administrator” means the Board or any of the Committees appointed to administer the Plan or such Officer or Officers as authorized by the
Board or any of the Committees appointed to administer the Plan.
(b) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) “Applicable Laws” means the legal requirements relating to the Plan and the Options under applicable provisions of the corporate and securities
laws of any jurisdiction, the Code, the rules of any applicable stock exchange or national market system, and the rules of any jurisdiction applicable
to Option granted to residents therein.
(d) “Appointment Letter” refers to documentation that describes the terms and conditions in which each Employee, Director, or Consultant is
employed, appointed, or enlisted to service the Company and/or its subsidiaries and affiliated companies.
(e) “Articles” refers to the Company’s Memorandum of Articles of Association (Approved at the general meeting dated August 18, 2018).
(f) “Board” means the Board of Directors of the Company.
(g) “Change in Control” means a change in ownership or control of the Company effected through either of the following transactions:
i.
the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a
Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control
with, the Company) of beneficial ownership (within the meaning of Rule13d-3 of the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made
directly to the Company’s shareholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not
recommend such shareholders accept, or
ii.
a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded
up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who
are Continuing Directors.
(h) “Code” means the Internal Revenue Code of 1986, as amended.
(i) “Committee” means any committee composed of members of the Board appointed by the Board to administer the Plan, including but not limited to
the Compensation Committee as appointed by the Board.
(j) “Company” means Powerbridge Technologies Co., Ltd., an exempt company incorporated in Cayman Islands.
(k) “Consultant” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a
Consultant) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.
(l) “Continuing Directors” means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36)
months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the
Board.
(m) “Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or
Consultant (collectively, “Service Provider”) is not interrupted or terminated. In jurisdictions requiring notice in advance of an effective termination
as an Employee, Director or Consultant, Continuous Service shall be deemed terminated upon the actual cessation of providing services to the
Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director or
Consultant can be effective under Applicable Laws. An Optionee’s Continuous Service shall be deemed to have terminated either upon an actual
termination of Continuous Service or upon the entity for which the Optionee provides services ceasing to be a Related Entity. Continuous Service
shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any
successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the
Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Option Agreement). An
approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.
(n) “Corporate Transaction” means any of the following transactions, provided, however, that the Administrator shall determine under parts (iv) and
(v) whether multiple transactions are related, and its determination shall be final, binding and conclusive:
i.
a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to
change the jurisdiction in which the Company is incorporated;
ii.
the sale, transfer or other disposition of all or substantially all of the assets of the Company;
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iii.
the complete liquidation or dissolution of the Company;
iv. any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a
reverse merger) in which the Company is the surviving entity but (A) the Ordinary Shares outstanding immediately prior to such merger are
converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which
securities possessing more than forty percent (40%) of the total combined voting power of the Company’s outstanding securities are
transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction
culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be
a Corporate Transaction; or
v.
acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-
sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction
or series of related transactions that the Administrator determines shall not be a Corporate Transaction.
(o) “Director” means a member of the Board or the board of directors of any Related Entity.
(p) “Disability” means as defined under the long-term disability policy of the Company or the Related Entity to which the Optionee provides services
regardless of whether the Optionee is covered by such policy. If the Company or the Related Entity to which the Optionee provides service does not
have a long-term disability plan in place, “Disability” means that an Optionee is unable to carry out the responsibilities and functions of the position
held by the Optionee by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive
days. An Optionee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the
Administrator in its discretion.
(q) “Effective Date” means the date the Plan is adopted and approved by the shareholders of the Company, whether it be the first time the Plan is
approved, or each date the Plan is renewed pursuant to shareholder approval in subsequent terms.
(r) “Employee” means any person, including an Officer or Director, who is in the employment of the Company or any Related Entity, subject to the
control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance. The
payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.
3
(s) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t) “Fair Market Value” means, as of any date, the value of the subject Shares determined as follows:
i.
ii.
If the Shares at issue are listed on one or more established stock exchanges or national market systems, including without limitation the
American Stock Exchange or The Nasdaq Global Market, its Fair Market Value shall be the closing sales price for such shares (or the closing
bid, if no sales were reported) as quoted on the principal exchange or system on which the subject Shares are listed (as determined by the
Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last
trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;
If the subject Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities
dealer, its Fair Market Value shall be the closing sales price for such shares as quoted on such system on the date of determination, but if
selling prices are not reported, the Fair Market Value of the subject Shares shall be the mean between the high bid and low asked prices for the
Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in
The Wall Street Journal or such other source as the Administrator deems reliable; or
iii.
In the absence of an established market for the subject Shares of the type described in (i) and (ii), above, the Fair Market Value thereof shall
be determined by the Administrator in good faith.
(u) “Listing” refers to a successful initial public offering in the Company’s Ordinary Shares to be traded on a globally accredited stock exchange.
(v) “Incentive Share Option” means an Option that is to qualify as an Incentive Share Option as such term is defined in Section 422 of the Code.
(w) “Officer” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(x) “Option” means an option to purchase Ordinary Shares pursuant to an Option Agreement granted under the Plan.
(y) “Optionee” means an Employee, Director or Consultant who receives an Option under the Plan.
(z) “Ordinary Shares” means the Ordinary Shares in the capital of the Company having a par value of USD0.00166667 each having rights, and
subject to the restrictions provided in the Company’s Articles. One Ordinary Share shall equate to one vote per share for each share held by the
shareholder and cannot be converted to any other class of share at any time.
4
(aa) “Plan” means this Powerbridge Technologies Co., Ltd. 2018 Stock Option Plan, as amended from time to time.
(bb) “Related Entity” means any Parent or Subsidiary of the Company and any business, corporation, partnership, limited liability company or other
entity in which the Company or a Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or indirectly.
(cc) “Replaced” means that pursuant to a Corporate Transaction the Option is replaced with a comparable share Option or a cash incentive program of
the Company, the successor entity (if applicable) or Parent of either of them which preserves the compensation element of such Option existing at
the time of the Corporate Transaction and provides for subsequent payout in accordance with the same (or a more favorable) vesting schedule
applicable to such Option. The determination of Option comparability shall be made by the Administrator and its determination shall be final,
binding and conclusive.
(dd) “Share” or “Shares” means Ordinary Shares of the Company.
(ee) “Stock Option Agreement” or “Option Agreement” means the written agreement evidencing the grant of an Option executed by the Company
and the Optionee, including any amendments thereto.
(ff)
“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(gg) “Trading Market Approval” means the pre-approval required from the globally accredited stock exchange or other stock exchange on which the
Company’s Shares are then listed for trading for certain Share issuances.
3. Shares Subject to the Plan.
(a)
Subject to the provisions of Section 10 below, the total number of Ordinary Shares in the capital of the Company issuable upon the exercise of all
outstanding Options granted under this Plan shall not at any time exceed 20% of the total number of outstanding Ordinary Shares, from time to
time.
(b) Further, if, after the Effective Date of the Plan, any Shares underlying an Option are forfeited, or if an Option otherwise terminates without the
delivery of Shares or of other consideration, then the Shares underlying such Option, or the number of Shares otherwise counted against the
aggregate number of Shares available under the Plan with respect to the Option, to the extent of any such forfeiture or termination, shall again be,
or shall become, available for granting options under the Plan.
5
4. Administration of the Plan.
(a) Plan Administrator.
i. Administration with Respect to Directors and Officers. With respect to grants of Options to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or (B) the Compensation Committee designated by the Board,
which Compensation Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Compensation
Committee shall continue to serve in its designated capacity contingent to its members’ ongoing fulfillment of obligations, the terms of
termination of Committee members as stipulated by their Appointment Letters, or until otherwise directed by the Board. In the case of
Options for Employees or Consultants who are neither Directors nor Officers of the Company, the Board may authorize one or more Officers
to grant such Options and may limit such authority as the Board determines from time to time.
ii. Administration Errors. In the event an Option is granted in a manner inconsistent with the provisions of this subsection (a), such Option shall
be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws, especially but not limited to those regarding shareholders approval, and the provisions of
the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall
have the authority, in its discretion:
i.
To select the Employees, Directors and Consultants to whom Options may be granted;
ii. To determine whether and to what extent Options are granted hereunder;
iii. To determine the number of Shares or the amount of other consideration to be covered by each Option granted hereunder;
iv. To approve forms of Option Agreements for use under the Plan;
v. To determine the terms and conditions of any Option subject to the terms and conditions contained herein
vi. To amend the terms of any outstanding Option granted under the Plan, provided that (A) any amendment that would adversely affect the
Optionee’s rights under an outstanding Option shall not be made without the Optionee’s written consent, (B) the reduction of the exercise
price of any Option shall be subject to the Optionee’s written consent and (C) canceling an Option at a time when its exercise price exceeds
the Fair Market Value of the underlying Shares, in exchange for another Option shall be subject to the Optionee’s approval, unless the
cancellation and exchange occurs in connection with a Corporate Transaction. Notwithstanding the foregoing, canceling an Option in
exchange for another Option with an exercise price, purchase price that is equal to or greater than the exercise price of the original Option
shall not be subject to the Optionee’s approval;
6
vii. To construe and interpret the terms of the Plan and Options, including without limitation, any notice of Option or Option Agreement, granted
pursuant to the Plan;
viii. To take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
(c)
Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the
Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act
for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on
an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any
claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with the Plan, or any Option granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim,
investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or
proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within thirty (30) days after
the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the
Company’s expense to defend the same.
For the purpose of this clause “gross negligence” means in relation to a person a standard of conduct constituting extreme carelessness, beyond
ordinary negligence, whereby that person’s actions or inactions demonstrate reckless disregards for the duty of care owed to another.
5. Eligibility. The Optionees shall be such persons as the Administrator may select from among the Employees, Directors, and Consultants.
6. Terms and Conditions of Options.
a. Designation of Option. Each Option shall be designated in the Option Agreement.
b. Conditions of Option. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Option
including, but not limited to, the Option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, cashless settlement, or other consideration) upon settlement of the Option, payment contingencies and the exercise price.
7
c. Deferral of Option Payment. The Administrator may establish one or more programs under the Plan to permit selected Optionees the opportunity to
elect to defer receipt of consideration upon exercise of an Option, or other event that absent the election would entitle the Optionee to payment or
receipt of Shares or other consideration under an Option. The Administrator may establish the election procedures, the timing of such elections, the
mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other
terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.
d. Early Exercise. The Option Agreement may, but need not, include a provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Option prior to full vesting of the Option. Any unvested Shares received pursuant to such
exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to
be appropriate.
e. Term of Option. The term of each Option shall be the term stated in the Option Agreement, provided, however that in the case of an option that is to
qualify as an Incentive Share Option, the term shall not exceed ten (10) years.
f. Transferability of Options. Options shall be transferable (i) at will and by the laws of succession and distribution; (ii) during the lifetime of the
Optionee, to the extent and in the manner authorized by the Administrator; and (iii) upon delivery of a written assignment of the Options duly
executed by the Optionee at the principal office of the Company, along with the Options and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. The Optionee shall surrender its Options to the Company within seven (7) calendar days of the date on which the
Optionee delivers the assignment form to the Company assigning its Options. Upon such surrender and, if required, such payment, the Company
shall execute and deliver new Options in the name of the assignee and shall promptly cancel the surrendered Options. Notwithstanding the
foregoing, the Optionee may designate one or more beneficiaries of the Optionee’s Option in the event of the Optionee’s death on a beneficiary
designation form provided by the Administrator
g. Termination of Employment Other than by Death or Disability.
i.
If an Optionee ceases to be an Employee for any reason other than his or her death or disability, the Optionee shall have the right, subject to
the provisions of this Section 6, to exercise any Option held by the Optionee at any time within sixty (60) days after his or her termination of
employment, but not beyond the otherwise applicable term of the Option and only to the extent that on such date of termination of
employment the Optionee’s right to exercise such Option has vested.
ii. For purposes of this Section 6(j), the employment relationship shall be treated as continuing intact while the Optionee is an active Employee
of the Company or any Affiliate, or is on military leave, sick leave, or other bona fide leave of absence to be determined in the sole discretion
of the Administrator.
8
h. Death of Optionee. If an Optionee dies while an Employee, or after ceasing to be an Employee but during the period while he or she could have
exercised an Option under Section 6(j), any Option granted to the Optionee may be exercised, to the extent it had vested at the time of death and
subject to the Plan, at any time within six (6) months after the Optionee’s death, by the executors or administrators of his or her estate or by any
person or persons who acquire the Option by will or the laws of succession and distribution, but not beyond the otherwise applicable term of the
Option.
i. Disability of Optionee. If an Optionee ceases to be an Employee due to becoming totally and permanently disabled within the meaning of Section
22(e)(3) of the Code, any Option granted to the Optionee may be exercised to the extent it had vested at the time of cessation and, subject to the
Plan, at any time within three (3) months after the Optionee’s termination of employment, but not beyond the otherwise applicable term of the
Option.
j.
Time of Granting Options. The date of grant of an Option shall for all purposes be on the date which the Administrator makes the determination to
grant such Option, or such other date as is determined by the Administrator.
7. Option Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The Administrator shall determine the exercise or purchase price in accordance with the Applicable Laws and/or
pursuant to the Option Agreement to be executed between the Company and Optionee, if applicable or other relevant agreement between such
parties.
(b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Option
including the method of payment shall be determined by the Administrator. In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following:
i.
cash;
ii.
cheque;
iii. with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee (A) shall provide
written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to
the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives
to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction;
iv. cashless election; or
v.
any combination of the foregoing methods of payment.
9
(c) Taxes. No Shares shall be delivered under the Plan to any Optionee or other person until such Optionee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any national, provincial or local income and employment tax withholding obligations. Upon
exercise of an Option the Company shall have the right, but not the obligation (except as required by applicable law), to withhold or collect from
Optionee an amount sufficient to satisfy such tax obligations. The Optionee will be solely responsible for his/her own tax obligations.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder.
i. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement.
ii. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and when the Company receives full payment for the Shares with respect to which
the Option is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as
provided in Section 7(b)(iii).
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to
such compliance.
(b) As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any Applicable Laws.
10. Adjustments upon Changes in Capitalization.
Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of
Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the
Plan, the exercise or purchase price of each such outstanding Option, the maximum number of Shares with respect to which Options may be granted to
any Optionee in any fiscal year of the Company, as well as any other terms that the Administrator determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of issued Ordinary Shares resulting from a share split, reverse share split, share
dividend, combination or reclassification of the Ordinary Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the
number of issued Ordinary
10
Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction
with respect to Ordinary Shares including a corporate merger, consolidation, acquisition of property or equity, separation (including a spin-off or other
distribution of shares or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that
conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such
adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no
issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall
be made with respect to, the number or price of Shares subject to an Option. In the event of a spin-off transaction, the Administrator may in its
discretion make such adjustments and take such other action as it deems appropriate with respect to outstanding Options under the Plan, including but
not limited to: (i) adjustments to the number and kind of shares, the exercise or purchase price per share and the vesting periods of outstanding
Options, (ii) prohibit the exercise of Options during certain periods of time prior to the consummation of the spin-off transaction, or (iii) the
substitution, exchange or grant of Options to purchase securities of the Subsidiary; provided that the Administrator shall not be obligated to make any
such adjustments or take any such action hereunder.
11. Corporate Transactions and Changes in Control.
(a) Termination of Option to Extent Not Assumed in Corporate Transaction. Effective upon the consummation of a Corporate Transaction, all
outstanding Options under the Plan shall terminate; provided, however, that to extent any Options are assumed in connection with the Corporate
Transaction (“Assumed”), such Options shall not terminate.
(b) Acceleration of Option Upon Corporate Transaction or Change in Control.
i. Corporate Transaction. The Administrator may determine, in the event of a Corporate Transaction, for the portion of each Option that is
neither Assumed nor Replaced, such portion of the Option shall automatically become fully vested and exercisable and be released from any
repurchase or forfeiture rights (other than repurchase rights exercisable at Fair Market Value) for all of the Shares (or other consideration) at
the time represented by such portion of the Option, immediately prior to the specified effective date of such Corporate Transaction, provided
that the Optionee’s Continuous Service has not terminated prior to such date.
ii. Change in Control. The Administrator may determine, in the event of a Change in Control (other than a Change in Control which also is a
Corporate Transaction), each Option which is at the time outstanding under the Plan automatically shall become fully vested and exercisable
and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at Fair Market Value), immediately prior to
the specified effective date of such Change in Control, for all of the Shares (or other consideration) at the time represented by such Option,
provided that the Optionee’s Continuous Service has not terminated prior to such date.
11
12. Effective Date and Term of Plan.
The Plan shall become effective on the date of the Company’s contemplated initial public offering is completed (“IPO”). It shall continue in effect for a
term of ten (10) years unless sooner terminated or unless renewed for another period not to exceed ten (10) years pursuant to shareholder approval.
Subject to Section 17, below, and Applicable Laws, Options may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval
of the Company’s shareholders to the extent such approval is required by Applicable Laws, or if such amendment would change any of the
provisions of Section 3(a), Section 4(b)(vi) or this Section 13(a).
(b) No Option may be granted during any suspension of the Plan or after termination of the Plan.
(c) No suspension or termination of the Plan (including termination of the Plan under Section 12 above) shall adversely affect any rights under Options
already granted to an Optionee.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times reserve and keep available out of its authorized but unissued Shares, such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s
counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship.
The Plan shall not confer upon any Optionee any right with respect to the Optionee’s Continuous Service, nor shall it interfere in any way with his or
her right or the right of the Company or any Related Entity to terminate the Optionee’s Continuous Service at any time, with or without Cause, and
with or without notice. The ability of the Company or any Related Entity to terminate the employment of an Optionee who is employed at will is in no
way affected by its determination that the Optionee’s Continuous Service has been terminated for Cause for the purposes of this Plan. For Cause shall
have the meaning and conditions set forth under Termination clauses, where applicable, in each such Optionee’s Appointment Letter with the
Company.
12
16. No Effect on Retirement and Other Benefit Plans.
Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Options shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under
any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of
compensation. The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.
17. Shareholder and Trading Market Approval.
(a) Subject to the Applicable Laws, including but not limited to Nasdaq Rule 5635(c), once this Plan is approved by the shareholders of the Company,
the granting of individual Options hereunder will not require any further shareholder approvals, unless such approval is required under Applicable
Laws.
(b) If required by the Applicable Laws, no Options shall be granted unless and until the Company received Trading Market Approval of such Options
and the Shares underlying such Options.
18. Unfunded Obligation.
Optionees shall have the status of general unsecured creditors of the Company. Any amounts payable to Optionees pursuant to the Plan shall be
unfunded and unsecured obligations for all purposes. Neither the Company nor any Related Entity shall be required to segregate any monies from its
general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times
beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any
investments or the creation or maintenance of any trust or any Optionee account shall not create or constitute a trust or fiduciary relationship between
the Administrator, the Company or any Related Entity and an Optionee, or otherwise create any vested or beneficial interest in any Optionee or the
Optionee’s creditors in any assets of the Company or a Related Entity. The Optionees shall have no claim against the Company or any Related Entity
for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.
19. Shareholder Rights
Except as otherwise provided in this Plan an Optionee shall have none of the rights of a shareholder of the Company with respect to the Shares covered
by any Option until the Optionee becomes the recorded owner of such Shares.
20. Construction.
Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except
when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not
intended to be exclusive, unless the context clearly requires otherwise.
13
21. Information to Optionees.
Each Optionee shall be provided with such information regarding the Company as the Board or the Committee from time to time deems necessary or
appropriate; provided, however, that each Optionee shall at all times be provided with such information as is required to be provided from time to time
pursuant to applicable regulatory requirements.
22. Governing Law
The Plan and any Agreements under the Plan hereunder shall be administered, interpreted and enforced under the laws of the Cayman Islands without
regard to conflicts of laws thereof.
(The remainder of this page is intentionally left blank)
14
Second Supplemental Agreement for Advertising Space Leasing Agreement
(“Second Supplemental Agreement”)
Exhibit 10.38
Party A (Lessor): Shenzhen Kezhi Technology Co., Ltd.(“Kezhi”)
Number of Business License: 91440300MA5G10WT71
Party B (Lessee): Shenzhen Honghao Internet Technology Co. Ltd. (“Honghao”)
Number of Business License: 91440300MA5GANXX8H
All terms in this agreement, unless otherwise stated, its definition is the same as the definition in the Advertising Space Leasing Agreement executed
by both parties on September 25, 2020.
Whereas:
1. Party A and Party B entered into an Advertising Space Leasing Agreement (“Original Agreement”) on September 25, 2020, and entered into
a Supplemental Agreement for Advertising Space Leasing Agreement (“First Supplemental Agreement”) on November 20, 2020.
2. Party A and Party B confirm that the total amount of RMB¥440,000,000 has been paid to Party A’s bank account by bank transfer, and details
are as follows:
(1) Leasing fee: RMB¥430,000,000 as the first installment of 20-year buyout rents for advertising space management rights and advertising
publishing rights;
(2) Contract bonds: RMB¥10,000,000 as the contract bonds of the Original Agreement.
3. Affected by factors such as COVID-19, Party A and Party B intend to adjust the media business operation strategy under the Original Agreement and
First Supplemental Agreement. To ensure Party B’s business operating results, starting from the execution date of this Second Supplemental
Agreement, Party A and Party B no longer involve the transfer of advertising space management rights and advertising publishing rights, and further
decide to transfer the above-mentioned leasing fees to loans.
To this end, Party A and Party B signed this Second Supplemental Agreement on March 30, 2021, through friendly negotiation.
(1) The leasing fee RMB¥440,000,000 paid by Party B pursuant to the Original Contract and the First Supplemental Agreement is hereby transferred
to the loan made by Party B to Party A (the “Loan”). The period of Loan is six years, starting from the effective date of this Second Supplemental
Agreement. Party A can repay the Loan in advance, but Party A shall notify Party B in writing five business days in advance.
(2) The annual interest rate for the Loan is five percent (5%). In the event that Party A repays the Loan on the day following the expiration of the loan
period, Party A shall repay the principal and interest in the total amount RMB¥572,000,000. In the event that Party A repays the Loan in advance, the
interest payable by the Party A shall be calculated by the principal of Loan and actual loan period.
(3) In the event that Party A fails to repay the principal and interest of the Loan, starting from the overdue date, the overdue payment interest shall be
six percent (6%) per annum.
(4) Party A shall invest the Loan in three sectors, outdoor media, digital media, and real estate investment. Party A promises and guarantees that
through its own business and resources, Party A will generate profits no less than RMB¥96,000,000 or equivalent assets value per year for Party B
during the period of the Loan, which means that Party A shall generate profits no less than RMB¥572,000,000 or equivalent assets value during the
period of the Loan. The value of equivalent assets shall be evaluated and determined by a legally qualified third-party asset appraisal company.
(5) In order for Party A to repay the Loan to Party B in accordance with this Second Supplemental Agreement and fulfill its commitment in Article 4,
Party A promises that Nanjing Jinjiahu Culture Media Co., Ltd (“Nanjing Jinjiahu”) will generate no less than RMB¥30,000,000 profits or equivalent
assets value each year for Party B pursuant to Party A’s contract with Nanjing Jinjiahu; Guangzhou Hongtan Commercial Real Estate Investment
Partnership (limited partnership) (“Guangzhou Hongtan”) will generate no less than RMB¥48,000,000 profits or equivalent assets value each year for
Party B through Party A’s contract with Guangzhou Hongtan; Party A will generate no less than RMB¥18,000,000 profits or equivalent assets value
each year for Party B through Party A’s outdoor advertising business with Shenzhen Lianfake Network Technology Co., Ltd. For the payment batch,
please refer to Attachment 4: Honghao payment batch.
(6) If the profits generated by Party B, Nanjing Jinjiahu and Guangzhou Hongtan can meet the promised standard for two consecutive years, the three
companies (Kezhi, Nanjing Jinjiahu and Guangzhou Hongtan) agree to be acquired by Party B at a price-to-earnings ratio of 10 times, and the
valuation of the targets shall be at least RMB¥960,000,000. The assets value of the acquisition shall be evaluated and determined by a legally qualified
third-party asset appraisal company.
(7) Party A shall mortgage its own Huanghua pear assets worth RMB¥475,630,000 to Party B as a guarantee for repayment of the principal and
interest of the Loan. The valuation report and mortgage agreement are attached hereto.
(8) In the event that Party A fails to enable Party B to receive a profit of more than RMB¥572,000,000 or equivalent asset value or company value
before the expiration of the Loan period, Party A shall make up to Party B the remaining sum of Loan in cash, including principal and interest
stipulated in Article 2 of this Second Supplemental Agreement.
(9) This Second Supplemental Agreement will take effect upon Party A and Party B have stamped it, and is binding to both parties. After this
supplemental agreement becomes effective, it will become an integral part of the Original Agreement. In the event that the Original Agreement and the
First Supplemental Agreement conflict with this Second Supplemental Agreement, this Second Supplemental Agreement shall prevail.
(10) In the event of a dispute arising from the execution and performance of this supplemental agreement, both parties shall resolve the dispute
according to the dispute resolution mechanism set forth in the Original Agreement.
4.ThisSecond Supplemental Agreement is made in two original copies and held by Party A and Party B.
[The Remainder of this page is intentionally left blank and stamp pages follow]
2
Party A: Shenzhen Kezhi Technology Co., Ltd. (Stamp)
Party B: Shenzhen Honghao Internet Technology Co. Ltd. (Stamp)
Date: March 30, 2021
3
Void Confirmation of Second Supplemental Agreement for Advertising Space Leasing Agreement
Exhibit 10.39
Party A (Lessor): Shenzhen Kezhi Technology Co., Ltd.(“Kezhi”)
Number of Business License: 91440300MA5G10WT71
Party B (Lessee): Shenzhen Honghao Internet Technology Co. Ltd. (“Honghao”)
Number of Business License: 91440300MA5GANXX8H
Regarding the Second Supplemental Agreement for Advertising Space Leasing Agreement attached hereto(“Second Supplemental Agreement”)
executed by Party A and Party B on March 30, 2021, both parties hereby reach an agreement that the Second Supplemental Agreement is void, and it is not
binding on both parties from the beginning of the execution. Neither party may claim any rights to the other party in relation to the Second Supplemental
Agreement.
Party A and Party B further confirm that, once the Second Supplemental Agreement is void, both parties will re-execute a Second Supplemental
Agreement for Advertising Space Leasing Agreement to replace the original Second Supplemental Agreement.
This Void Confirmation is made in two original copies and held by Party A and Party B.
Party A: Shenzhen Kezhi Technology Co., Ltd. (Stamp)
Party B: Shenzhen Honghao Internet Technology Co. Ltd. (Stamp)
Date: May 12, 2021
Second Supplemental Agreement for Advertising Space Leasing Agreement
(“Second Supplemental Agreement”)
Exhibit 10.40
Party A (Lessor): Shenzhen Kezhi Technology Co., Ltd.(“Kezhi”)
Number of Business License: 91440300MA5G10WT71
Party B (Lessee): Shenzhen Honghao Internet Technology Co. Ltd. (“Honghao”)
Number of Business License: 91440300MA5GANXX8H
All terms in this agreement, unless otherwise stated, its definition is the same as the definition in the Advertising Space Leasing Agreement executed
by both parties on September 25, 2020.
Whereas:
1. Party A and Party B entered into an Advertising Space Leasing Agreement (“Original Agreement”) on September 25, 2020, and entered into a
Supplemental Agreement for Advertising Space Leasing Agreement (“First Supplemental Agreement”) on November 20, 2020.
2. Party A and Party B confirm that the total amount of RMB¥444,320,000 has been paid to Party A’s bank account by bank transfer, and details are as
follows:
(1) Leasing fee: RMB¥434,320,000 as the first installment of 20-year buyout rents for advertising space management rights and advertising
publishing rights;
(2) Contract bonds: RMB¥10,000,000 as the contract bonds of the Original Agreement.
3. Affected by factors such as COVID-19, Party A and Party B intend to adjust the media business operation strategy under the Original Agreement and
First Supplemental Agreement. To ensure Party B’s business operating results, starting from the execution date of this Second Supplemental Agreement,
Party A and Party B no longer involve the transfer of advertising space management rights and advertising publishing rights, and further decide to transfer
the above-mentioned paid leasing fees as the working capital of Party A.
To this end, Party A and Party B signed this Second Supplemental Agreement on May 12, 2021, through friendly negotiation.
(1) The leasing fee RMB¥440,320,000 paid by Party B pursuant to the Original Contract and the First Supplemental Agreement is hereby transferred
to the working capital of Party A (the “Dedicated Fund”). The use period of the Dedicated Fund is six years, starting from the effective date of this
Second Supplemental Agreement. During the use period of the Dedicated Fund, Party A shall use the Dedicated Fund for the purposes and usages as
stipulated in the Article 5 of this Second Supplemental Agreement to ensure that Party B can receive equivalent assets value.
(2) Party B may repay the Dedicated Fund in advance, but Party A shall notify Party B in writing five business days in advance and shall not affect the
promise and guarantee made by Party A under the Article 6 of this Second Supplemental Agreement. In the event that Party A violates the provision
of this Second Supplemental Agreement, Party B shall have the right to request Party A to return the principal and occupation fees of such working
capital by notifying Party B in writing with five business days in advance.
(3) Party A agrees and confirms that, during the period of the Dedicated Funds, Party A shall pay Party B the occupation fees of non-operating funds
occupied by Party A. The occupation fees of such non-operating funds occupied by Party A shall be calculated at five percent (5%) of the principal of
the Dedicated Funds. In the event that Party A returns the Dedicated Funds on the day following the expiration date of the use period of the Dedicated
Funds, Party A shall return the principal and the occupation fees of non-operating funds occupied by Party A in the total amount RMB¥577,616,000. If
Party A returns all or part of the Dedicated Funds in advance, the occupation fee shall be calculated based on the principal of Dedicated Funds and
actual occupied period.
(4) If Party A fails to return the principal of Dedicated Funds and pay the occupation fees, starting from the date of overdue, the interest on the overdue
payment will be calculated at six percent (6%) per annum.
5. Party A shall invest the Dedicated Funds in three sectors, outdoor media, digital media, and real estate investment. Party A promises and guarantees
that through its own business and resources, Party A will generate no less than RMB¥96,000,000 equivalent assets value per year for Party B during
the use period of the Dedicated Funds, which means that Party A shall generate no less than RMB¥577,600,000 equivalent assets value during the use
period of the Dedicated Funds. The value of equivalent assets shall be evaluated and determined by a legally qualified third-party asset appraisal
company.
(6) In order for Party A to return the Dedicated Funds to Party B in accordance with this Second Supplemental Agreement and fulfill its commitment
in Article 6, Party A promises that Nanjing Jinjiahu Culture Media Co., Ltd (“Nanjing Jinjiahu”) will generate no less than RMB¥30,000,000
equivalent assets value each year for Party B through Party A’s business cooperation with Nanjing Jinjiahu; Guangzhou Hongtan Commercial Real
Estate Investment Partnership (limited partnership) (“Guangzhou Hongtan”) will generate no less than RMB¥48,000,000 equivalent assets value each
year for Party B through Party A’s business cooperation with Guangzhou Hongtan; and Party A will generate no less than RMB¥18,000,000 equivalent
assets value each year for Party B through Party A’s outdoor advertising business. For the payment batch, please refer to Attachment 1: Honghao return
batch.
(7) If Party A, Nanjing Jinjiahu and Guangzhou Hongtan can meet the promised standard as above for two consecutive years, Party B shall have
priority right to acquire the above three companies based on the price-to-earnings ratio evaluated and determined by a legally qualified third-party asset
appraisal company. The valuation of the target companies shall be evaluated and determined by a legally qualified third-party asset appraisal company.
(8) Party A shall mortgage its own Huanghua pear assets worth RMB¥475,630,000 to Party B as a guarantee for return of the principal and occupation
fees of the Dedicated Funds. The valuation report and mortgage agreement are attached hereto.
In the event that Party A fails to enable Party B to obtain RMB¥57,760,000 or more equivalent asset value or company value before the expiration of
use period of the Dedicated Funds, Party A shall make up to Party B the remaining sum of Dedicated Funds, including principal and occupation fees of
Dedicated Funds as stipulated in Article 1 of this Second Supplemental Agreement, by cash.
(10). This Second Supplemental Agreement will take effect upon Party A and Party B stamp it, and is binding to both parties. After this Second
Supplemental Agreement becomes effective, it will become an integral part of the Original Agreement. In the event that the Original Agreement and
the First Supplemental Agreement conflict with this Second Supplemental Agreement, this Second Supplemental Agreement shall prevail.
(11). In the event of a dispute arising from the execution and performance of this Second Supplemental Agreement, both parties shall resolve the
dispute according to the dispute resolution mechanism set forth in the Original Agreement.
4.This Second Supplemental Agreement is made in two original copies and held by Party A and Party B.
[The Remainder of this page is intentionally left blank and stamp pages follow]
2
Party A: Shenzhen Kezhi Technology Co., Ltd. (Stamp)
Party B: Shenzhen Honghao Internet Technology Co. Ltd. (Stamp)
Date: May 12, 2021
3
Attachment 1: Honghao return batch
Return Payment (RMB￥million)
Project
Nanjing Jinjiahu
Guangzhou Hongtan
Party A outdoor advertising business
Project
Nanjing Jinjiahu
Guangzhou Hongtan
Party A outdoor advertising business
Project
Nanjing Jinjiahu
Guangzhou Hongtan
Party A outdoor advertising business
2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2
2
10
14
4.41
5
10
4.41
5
10
4.41
10
14
4.41
10
14
4.54
5
10
4.54
5
10
4.54
2023Q3 2023Q4 2024Q1 2024Q2 2024Q3 2024Q4 2025Q1 2025Q2 2025Q3
10
14
4.65
10
14
4.69
10
14
4.65
5
10
4.65
5
10
4.69
5
10
4.69
10
14
4.54
5
10
4.65
10
14
4.69
2025Q4 2026Q1 2026Q2 2026Q3 2026Q4 2027Q1 2027Q2 2027Q3 Total
5.60 185.6
288
104
5
14
2.19
10
14
4.63
10
11
4
10
14
4
5
14
4
10
14
4
10
13
4
4
4
RMB 577.6 million
THE THIRD SUPPLEMENTAL AGREEMENT TO ADVERTISING SPACE LEASE CONTRACT
Party A (The Lessor): Shenzhen Kezhi Technology Co., Ltd.
Business license number: 91440300MA5G10WT71
Party B (Lessee): Shenzhen Honghao Hulian Technology Co., Ltd.
Business license number: 91440300MA5GANXX8H
All terms used in this Agreement, unless otherwise stated, have the same definitions as those in the Advertising Space Lease Contract signed between A
and B on September 25, 2020 (the “Original Agreement”).
Exhibit 10.41
Whereas:
I. Party A and Party B have entered into the Second Supplementary Agreement to the Original Agreement (hereinafter referred to as the “Second
Supplementary Agreement”) on May 12, 2021.
II. Pursuant to the Original Agreement and the Supplementary Agreement II, the leasing fee paid by Party B to Party A in RMB four hundred and forty
thousand four million three hundred and twenty thousand yuan (RMB¥444,320,000) as working capital support to Party B (hereinafter referred to as
“Dedicated Fund”), and the term of use of the Dedicated Fund was six years.
III. Party A shall invest the Dedicated Fund in the operation of outdoor media, digital media and real estate advertising platform. Party A promises and
guarantees that, through its own business and resources, it will generate no less than RMB¥96 million or equivalent asset value to Party B every year
during the use term of the Dedicated Fund. That is, during the term of use, Party B shall generate an equivalent asset value of no less than RMB¥577.6
million. The asset value shall be assessed and determined by a legally qualified third-party asset appraisal company.
IV. Pursuant to the Second Supplemental Agreement, In order to return the Dedicated Fund and meet its commitments under Article 6 of the Second
Supplemental Agreement, Party A promises that, through its own business, and its business cooperation with Nanjing Jinjiahu Culture Media Co., Ltd.
(hereinafter referred to as the “Nanjing Jinjiahu”) and Guangzhou Hongtan Commercial Real Estate Investment Partnership (Limited Partnership)
(hereinafter referred to as “Guangzhou Hongtan”), Nanjing Jinjiahu will generate at least RMB30 million yuan of equivalent asset value for Party B and
Guangzhou Hongtan will generate at least RMB¥48 million of equivalent asset value for Party B every year. Party A will generate at least RMB¥18 million
yuan equivalent asset value for Party B every year through its outdoor advertising business.
2
1. Party A shall mortgage its own Huanghuali Assets worth RMB¥475,630,000 to Party B as a guarantee to repay the Dedicated Funds principal and
occupancy fee. See the Attachment for Huanghuali Valuation Report and Mortgage Agreement.
Therefore, Party A and Party B, by amicable agreement, have entered this Third Supplemental Agreement to the Original Agreement (the “Third
Supplemental Agreement”) on May 16, 2021.
I. Party B agrees and confirms that Party A shall cancel the business cooperation with Nanjing Jinjiahu and Guangzhou Hongtan, and shall not provide the
working capital support for Nanjing Jinjiahu and Guangzhou Hongtan, nor shall Party B use the Dedicated Funds for its outdoor advertising business.
II. Party B requires Party A to promise and return RMB¥444,320,000 in cash or equivalent asset value within two years, and the fund occupancy expense
shall be calculated at five percent (5%) of the principal of the Dedicated Funds, totally RMB¥488,752,000. Party A shall return RMB¥30,410,000 in cash
or equivalent asset value in the first year and RMB¥458,342,000 in cash or equivalent asset value in the second year. The asset value shall be subject to the
appraisal report issued by a legally-qualified independent third-party appraisal company.
3
III. Party A cancels the mortgage guarantee of Huanghuali Asset valuing RMB¥475,630,000, and with the agreement of both parties. The return of
Dedicated Funds and its occupancy expense is guaranteed by Shenzhen Qinghaihuai Construction Material Company, which guarantees that Party A is able
to return RMB¥488,752,000 in cash or equivalent asset value. See Attachment for the guarantee agreement.
This Third Supplemental Agreement shall come into force upon being sealed by Party A and Party B and shall be binding upon both parties. This Third
Supplemental Agreement shall form an integral part of the Original Contract after it comes into force. In case of conflict with the Original Contract and
Second Supplementary Agreement, this Third Supplemental Agreement shall prevail.
Any dispute arising from the execution and performance of this Third Supplemental Agreement shall be settled by both parties in accordance with the
dispute settlement method agreed in the original Contract.
IV. This Third Supplemental Agreement is made in duplicate, with Party A and Party B executing one copy each.
- The following is the sealed page of both parties without text –
4
Party A: Shenzhen Kezhi Technology Co., Ltd. (Seal)
Party B: Shenzhen Honghao Hulian Technology Co., Ltd. (Seal)
Date: May 16, 2021
5
Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.1
I, Ban Lor, certify that:
1.
I have reviewed this annual report on Form 20-F of Powerbridge Technologies Co., Ltd;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date:
July 13, 2021
/s/ Ban Lor
Name: Ban Lor
Title: Co-Chief Executive Officer
(Principal Executive Officer)
Certification by the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.2
I, Stewart Lor, certify that:
1.
I have reviewed this annual report on Form 20-F of Powerbridge Technologies Co., Ltd;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date:
July 13, 2021
/s/ Stewart Lor
Name: Stewart Lor
Title: Chief Financial Officer
(Principal Financial Officer)
Certifications Pursuant to 18 U.S.C. Section 1350
Exhibit 13.1
Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
each of the undersigned officers of Powerbridge Technologies Co., Ltd (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2020 of the Company fully complies, in all material respects, with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Dated: July 13, 2021
Dated: July 13, 2021
/s/ Ban Lor
Ban Lor
Co-Chief Executive Officer
(Principal Executive Officer)
/s/ Stewart Lor
Stewart Lor
Chief Financial Officer
(Principal Financial Officer)
Exhibit 15.1
Onestop Assurance PAC
10 Anson Road
#13-09 International Plaza
Singapore 079903
Tel: 9644 9531
Email:audit@onestop-ca.com
Website: www.onestop-ca.com
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the following Registration Statements:
1. Registration Statement (Form F-3 No. 333-253395) pertaining to offering, issuance and sales of Securities from time to time by Powerbridge
Technologies Co., Ltd and its shareholders; and
2. Registration Statement (Form S-8 No. 333-253408) pertaining to Securities to be offered to employees in employee benefit plans;
of our report dated July 13, 2021 relating to the consolidated financial statements of Powerbridge Technologies Co., Ltd. as of December 31, 2020 and
2019 and the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for the years ended December 31,
2020, 2019 and 2018. We also consent to the reference to our firm under the heading “Experts” in such Registration Statement.
/s/ Audit OneStop Assurance PAC
Singapore
July 13, 2021
Exhibit 16.1
5400 W Cedar Ave
Lakewood, CO 80226
Telephone: 303.953.1454
Fax: 303.945.7991
May 17, 2021
U.S. Securities and Exchange Commission
Office of the Chief Accountant
100 F Street NE
Washington, D.C. 20549
Re: Powerbridge Technologies Co., Ltd.
Ladies and Gentlemen:
We have read the statements in the Form 20-F dated May 17, 2021, of Powerbridge Technologies Co., Ltd. (the “Company”) to be filed with the Securities
and Exchange Commission and we agree with such statements therein as related to our firm. We have no basis to and, therefore, do not agree or disagree
with the other statements made by the Company in the Form 20-F.
Sincerely,
/s/ B F Borgers CPA PC
Lakewood, Colorado
May 17, 2021
Powerbridge Technologies Co., Ltd.
Subsidiaries of the Registrant
Exhibit 21.1
Name of Subsidiary
Jurisdiction of Incorporation or Organization
Powerbridge Technologies Co., Limited
Zhuhai Powerbridge Technologies Co., Ltd
Ningbo Powerbridge Pet Products Cross- border E-Commerce Servise Co., Ltd.
Shenzhen Honghao Internet Technology Co., Ltd.
Wuhan Honggang Technology Co., Ltd.
Chongqnig Hongqiao Zhixin Technology Co., Ltd.
Ningbo Zhijing Tong Service Technology Co., Ltd.
Hongding Technology Hong Kong Co., Limited
Shenzhen Hongding Hulian Technologies Co., Ltd.
Hong Kong
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
Hong Kong
People’s Republic of China