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What changed in HiTek Global Inc.'s 20-F — 2022 vs 2023

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Paragraph-level year-over-year comparison of HiTek Global Inc.'s 2022 and 2023 20-F annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+341 added−317 removedSource: 20-F (2024-04-05) vs 20-F (2023-04-27)

Top changes in HiTek Global Inc.'s 2023 20-F

341 paragraphs added · 317 removed · 261 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

129 edited+19 added−10 removed390 unchanged
Biggest changeFuture adverse economic developments in areas such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters could reduce discretionary spending and cause the industries where we operate to contract. 22 There may be changes in the regulations of PRC government bodies and agencies relating to VAT collection procedure and ACTCS business PRC laws, regulations and policies concerning VAT collection procedures and ACTCS business are evolving and the PRC government authorities may promulgate new laws, regulations and policies in the future.
Biggest changeFuture adverse economic developments in areas such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters could reduce discretionary spending and cause the industries where we operate to contract.
The PRC government may intervene or influence HiTek’s future operations in the PRC at any time, or may exert more control over offerings conducted overseas and/or foreign investment in companies like us.
The PRC government may intervene or influence HiTek’s future operations in the PRC at any time, or may exert more control over offerings conducted overseas and/or foreign investment in companies like us.
Although the CAC Revised Measures provides no further explanation on the extent of “network platform operator” and “foreign” listing, we do not believe we are obligated to apply for a cybersecurity review pursuant to the CAC Revised Measures, considering that (i) we are not in possession of or otherwise holding personal information of over one million users and it is also very unlikely that we will reach such threshold in the near future; (ii) as of the date of this this annual report, we have not received any notice or determination from applicable PRC governmental authorities identifying it as a critical information infrastructure operator.
Although the CAC Revised Measures provides no further explanation on the extent of “network platform operator” and “foreign” listing, we do not believe we are obligated to apply for a cybersecurity review pursuant to the CAC Revised Measures, considering that (i) we are not in possession of or otherwise holding personal information of over one million users and it is also very unlikely that we will reach such threshold in the near future; (ii) as of the date of this annual report, we have not received any notice or determination from applicable PRC governmental authorities identifying it as a critical information infrastructure operator.
As of the date this annual report, there is no clear sign of slow-down in our hardware and software sales. In early December 2022, China announced a nationwide loosening of its zero-COVID policy, and the country may face a wave in infections after the lifting of these restrictions.
As of the date of this annual report, there is no clear sign of slow-down in our hardware and software sales. In early December 2022, China announced a nationwide loosening of its zero-COVID policy, and the country may face a wave in infections after the lifting of these restrictions.
Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing application.
Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing application.
The revised Provisions is issued under the title the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, and came into effect on March 31, 2023 together with the Trial Measures.
The revised Provisions is issued under the title the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, and came into effect on March 31, 2023 together with the Trial Measures.
One of the major revisions to the revised Provisions is expanding its application to cover indirect overseas offering and listing, as is consistent with the Trial Measures.
One of the major revisions to the revised Provisions is expanding its application to cover indirect overseas offering and listing, as is consistent with the Trial Measures.
Any failure by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply with relevant requirements under these regulations could subject us to fines or sanctions imposed by the PRC government, including restrictions on our overseas or cross-border investment activities, restrictions on WFOE’s ability to pay dividends or make distributions to us and on our ability to increase our investment in the WFOE.
Any failure by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply with relevant requirements under these regulations could subject us to fines or sanctions imposed by the PRC government, including restrictions on our overseas or cross-border investment activities, restrictions on WFOE’s ability to pay dividends or make distributions to us and on our ability to increase our investment in WFOE.
There are uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances.
There are uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances.
The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.
The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.
The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations.
The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations.
The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies.
The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies.
However, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. 3 On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023.
However, since these statements and regulatory actions are new, it is uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange. 3 On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023.
If the PRC courts or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE Agreements will become invalid or unenforceable, and HiTek will not be treated as a VIE entity and we will not be entitled to treat HiTek’s assets, liabilities and results of operations as our assets, liabilities and results of operations, which could effectively eliminate the assets, revenue and net income of HiTek from our balance sheet, which would most likely require us to cease conducting our business and would result in the delisting of our Ordinary Shares from Nasdaq Capital Market and a significant impairment in the market value of our Ordinary Shares.
If the PRC courts or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE Agreements will become invalid or unenforceable, and HiTek will not be treated as a VIE entity and we will not be entitled to treat HiTek’s assets, liabilities and results of operations as our assets, liabilities and results of operations, which could effectively eliminate the assets, revenue and net income of HiTek from our balance sheet, which would most likely require us to cease conducting our business and would result in the delisting of our Class A Ordinary Shares from Nasdaq Capital Market and a significant impairment in the market value of our Class A Ordinary Shares.
If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. 34 Based on our operations and the composition of our assets we do not expect to be treated as a PFIC under the current PFIC rules.
If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Class A Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. 34 Based on our operations and the composition of our assets we do not expect to be treated as a PFIC under the current PFIC rules.
These regulatory agencies may impose fines and penalties on our operations in mainland China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from our initial public offering into mainland China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the Ordinary Shares.
These regulatory agencies may impose fines and penalties on our operations in mainland China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from our initial public offering into mainland China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the Class A Ordinary Shares.
According to relevant notice, the small-scale taxpayers for which sales amount did not exceed RMB 100,000 for each month are exempt from ACTCS or GTD technical service fee since 2019. Besides, the Company provides tax invoicing management services and charges service fee on an annual basis. The tax invoicing management service period is usually one year for RMB299.
According to relevant notice, the small-scale taxpayers for which sales amount did not exceed RMB 100,000 ($14,000) for each month are exempt from ACTCS or GTD technical service fee since 2019. Besides, the Company provides tax invoicing management services and charges service fee on an annual basis. The tax invoicing management service period is usually one year for RMB299.
As discussed in the previous risk factor, our Ordinary Shares are subject to the risk of being delisted under the HFCA Act and the Consolidated Appropriations Act, in the event that PCAOB determines it is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction for two consecutive years.
As discussed in the previous risk factor, our Class A Ordinary Shares are subject to the risk of being delisted under the HFCA Act and the Consolidated Appropriations Act, in the event that PCAOB determines it is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction for two consecutive years.
This could have a material and adverse effect on the value of your investment in us and the price of our Ordinary Shares. 24 There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
This could have a material and adverse effect on the value of your investment in us and the price of our Class A Ordinary Shares. 24 There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
However, we cannot assure you that the PRC government will not repeal or alter these measures or introduce new measures that will have a negative effect on us, or more specifically, we cannot assure you that the PRC government will not initiate possible governmental actions or scrutiny to us, which could substantially affect our operation and the value of our Ordinary Shares may depreciate quickly.
However, we cannot assure you that the PRC government will not repeal or alter these measures or introduce new measures that will have a negative effect on us, or more specifically, we cannot assure you that the PRC government will not initiate possible governmental actions or scrutiny to us, which could substantially affect our operation and the value of our Class A Ordinary Shares may depreciate quickly.
In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Ordinary Shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty).
In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Class A Ordinary Shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty).
The market price of our Ordinary Shares could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with significant operations in China that are listed in the U.S., regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.
The market price of our Class A Ordinary Shares could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with significant operations in China that are listed in the U.S., regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.
Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of the Ordinary Shares. PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitable.
Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of the Class A Ordinary Shares. PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitable.
Our directors may also decline to register any transfer of any share unless (i) the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; (v) the shares conceded are free of any lien in favor of us; or (vi) a fee of such maximum sum as Nasdaq Capital Market may determine to be payable, or such lesser sum as our board of directors may from time to time require, is paid to us in respect thereof.
Our directors may also decline to register any transfer of any share unless (i) the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our BOD may reasonably require to show the right of the transferor to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; (v) the shares conceded are free of any lien in favor of us; or (vi) a fee of such maximum sum as Nasdaq Capital Market may determine to be payable, or such lesser sum as our BOD may from time to time require, is paid to us in respect thereof.
We are subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and the value of Ordinary Shares may depreciate significantly or become worthless.
We are subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and the value of Class A Ordinary Shares may depreciate significantly or become worthless.
If WFOE, HiTek or their ownership structure or the VIE Agreements are determined to be in violation of any existing or future PRC laws, rules or regulations, or WFOE or HiTek fails to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including: ● revoking the business and operating licenses of WFOE or HiTek; ● discontinuing or restricting the operations of WFOE or HiTek; ● imposing conditions or requirements with which we, WFOE, or HiTek may not be able to comply; ● requiring us, WFOE, or HiTek to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our Ordinary Shares in the equity of HiTek; ● restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; and ● imposing fines.
If WFOE, HiTek or their ownership structure or the VIE Agreements are determined to be in violation of any existing or future PRC laws, rules or regulations, or WFOE or HiTek fails to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including: ● revoking the business and operating licenses of WFOE or HiTek; ● discontinuing or restricting the operations of WFOE or HiTek; ● imposing conditions or requirements with which we, WFOE, or HiTek may not be able to comply; ● requiring us, WFOE, or HiTek to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our Class A Ordinary Shares in the equity of HiTek; ● restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; and ● imposing fines.
Such concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other business combination, which could, in turn, have an adverse effect on the market price of our Ordinary Shares or prevent our shareholders from realizing a premium over the then-prevailing market price for their Ordinary Shares.
Such concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other business combination, which could, in turn, have an adverse effect on the market price of our Class A Ordinary Shares or prevent our shareholders from realizing a premium over the then-prevailing market price for their Class A Ordinary Shares.
PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our Ordinary Shares, or a complete hindrance of our ability to continue to offer our securities to investors.
PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance of our ability to continue to offer our securities to investors.
Although the PRC government has pursued been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses.
Although the PRC government has been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses.
To implement Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting. We are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of the internal controls.
To implement Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting (“ICFR”). We are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of the internal controls.
It is unclear whether holders of our Ordinary Shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise.
It is unclear whether holders of our Class A Ordinary Shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise.
However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. Delisting of our Ordinary Shares would force holders of our Ordinary Shares to sell their Ordinary Shares.
However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. Delisting of our Class A Ordinary Shares would force holders of our Class A Ordinary Shares to sell their Class A Ordinary Shares.
They have significant influence over a decision to enter into any corporate transaction and has the ability to prevent any transaction that requires the approval of shareholders, regardless of whether or not our other shareholders believe that such transaction is in our best interests.
They have significant influence over a decision to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of shareholders, regardless of whether or not our other shareholders believe that such transaction is in our best interests.
On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
On December 15, 2022, the PCAOB Board determined the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
China’s economic, political and social conditions, laws and regulations, as well as possible interventions and influences of any government policies and actions are uncertain and could have a material adverse effect on our business and the value of our Ordinary Shares.
China’s economic, political and social conditions, laws and regulations, as well as possible interventions and influences of any government policies and actions are uncertain and could have a material adverse effect on our business and the value of our Class A Ordinary Shares.
As a result, we may not discover any problems in a timely manner and current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Ordinary Shares.
As a result, we may not discover any problems in a timely manner and current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Class A Ordinary Shares.
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following: ● provisions that authorize our board of directors to issue shares with preferred, deferred or other special rights or restrictions without any further vote or action by our shareholders; and ● provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings 33 Our board of directors may decline to register transfers of Ordinary Shares in certain circumstances.
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following: ● provisions that authorize our board of directors (“BOD”) to issue shares with preferred, deferred or other special rights or restrictions without any further vote or action by our shareholders; and ● provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings 33 Our board of directors may decline to register transfers of Class A Ordinary Shares in certain circumstances.
If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, HiTek HK.
If we determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, HiTek HK.
As a result, we could be required to raise additional capital. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution of the shares held by existing shareholders.
As a result, we could be required to raise additional capital. To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution of the shares held by existing shareholders.
A. [RESERVED] B. Capitalization and indebtedness. Not applicable. C. Reasons for the offer and use of proceeds. Not applicable. 7 D. Risk factors. An investment in our ordinary shares involves a high degree of risk.
A. [RESERVED] B. Capitalization and indebtedness. Not applicable. C. Reasons for the offer and use of proceeds. Not applicable. 7 D. Risk factors. An investment in our Class A Ordinary Shares involves a high degree of risk.
While the VAT reporting service industry in China is a heavily regulated industry where new players must obtain approval by the relevant PRC government agencies before entering this industry, it is still highly possible that new competitors will enter into the market and have significantly greater financial and other resources than we have and may offer services that is more attractive and more advanced that we can provide for large business enterprises and SMEs.
While the VAT reporting service industry in China is a heavily regulated industry where new players must obtain approval by the relevant PRC government agencies before entering this industry, it is still highly possible that new competitors will enter into the market and have significantly greater financial and other resources than we have and may offer services that is more attractive and more advanced that we can provide for large business companies and SMEs.
As a result, our Ordinary Shares would be known as a “penny stock”, which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock.
As a result, our Class A Ordinary Shares would be known as a “penny stock”, which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock.
If securities or industry analysts do not publish research or reports about our business, or if the publish a negative report regarding our Ordinary Shares, the price of our Ordinary Shares and trading volume could decline.
If securities or industry analysts do not publish research or reports about our business, or if the publish a negative report regarding our Class A Ordinary Shares, the price of our Class A Ordinary Shares and trading volume could decline.
In addition, any failure to comply with applicable cybersecurity, privacy, and data protection laws and regulations could result in proceedings against us by government authorities or others, including notification for rectification, confiscation of illegal earnings, fines, or other penalties and legal liabilities against us, which could materially and adversely affect our business, financial condition, results of operations and the value of our Ordinary Shares.
In addition, any failure to comply with applicable cybersecurity, privacy, and data protection laws and regulations could result in proceedings against us by government authorities or others, including notification for rectification, confiscation of illegal earnings, fines, or other penalties and legal liabilities against us, which could materially and adversely affect our business, financial condition, results of operations and the value of our Class A Ordinary Shares.
If we are classified as a passive foreign investment company, United States taxpayers who own our Ordinary Shares may have adverse United States federal income tax consequences.
If we are classified as a passive foreign investment company, United States taxpayers who own our Class A Ordinary Shares may have adverse United States federal income tax consequences.
Although the law in this regard is unclear, we are treating HiTek as being owned by us for United States federal income tax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with HiTek, and as a result, we are treating HiTek as our wholly-owned subsidiary for U.S. federal income tax purposes.
Although the law in this regard is unclear, we are treating HiTek as being owned by us for U.S. federal income tax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with HiTek, and as a result, we are treating HiTek as our wholly-owned subsidiary for U.S. federal income tax purposes.
The electronic invoices enable FMCG enterprises to apply for, issue, transfer and check the invoices through the unified online electronic invoice management system of Chinese tax authorities. Electronic invoices are very useful in helping business entities reduce operating costs and streamline service process, since they do not involve printing, storage and postage procedures.
The electronic invoices enable FMCG companies to apply for, issue, transfer and check the invoices through the unified online electronic invoice management system of Chinese tax authorities. Electronic invoices are very useful in helping business entities reduce operating costs and streamline service process, since they do not involve printing, storage and postage procedures.
High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company. The war in Ukraine could materially and adversely affect our business and results of operations.
High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company. The war in Ukraine and the Israel-Hamas war could materially and adversely affect our business and results of operations.
You should carefully consider the risks and uncertainties described below together with all other information contained in this annual report, including the matters discussed under the headings “Forward-Looking Statements” and “Operating and Financial Review and Prospects” before you decide to invest in our ordinary shares.
You should carefully consider the risks and uncertainties described below together with all other information contained in this annual report, including the matters discussed under the headings “Forward-Looking Statements” and “Operating and Financial Review and Prospects” before you decide to invest in our Class A Ordinary Shares.
Though it does not explicitly classify VIE Agreements as a form of foreign investment, there is no assurance that operations conducted by foreign investors or foreign-invested enterprises via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future.
Though it does not explicitly classify VIE Agreements as a form of foreign investment, there is no assurance that operations conducted by foreign investors or foreign-invested companies via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future.
In addition, the broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase. The broker/dealer must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our securities, and may negatively affect the ability of holders of our Ordinary Shares to resell them.
In addition, the broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase. The broker/dealer must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our securities, and may negatively affect the ability of holders of our Class A Ordinary Shares to resell them.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the U.S.. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition.
The value of the RMB against the USD and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the U.S.. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition.
We are subject to anti-corruption, anti-bribery, and similar laws, and noncompliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation. We are subject to the U.S. Foreign Corrupt Practices Act of 1977, and other anti-corruption, anti-bribery, anti-money laundering, and similar laws in China and the United States.
We are subject to anti-corruption, anti-bribery, and similar laws, and noncompliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation. We are subject to the U.S. Foreign Corrupt Practices Act of 1977, and other anti-corruption, anti-bribery, anti-money laundering, and similar laws in China and the U.S..
If additional funds are raised through the issuance of debt or equity securities, such securities may provide the holders certain rights, preferences, and privileges senior to those of shareholders holding Ordinary Shares, and the terms of any such debt securities could impose restrictions on our operations.
If additional funds are raised through the issuance of debt or equity securities, such securities may provide the holders certain rights, preferences, and privileges senior to those of shareholders holding Class A Ordinary Shares, and the terms of any such debt securities could impose restrictions on our operations.
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, reiterating past SEC and PCAOB statements on matters including the difficulty associated with inspecting accounting firms and audit work papers in China and higher risks of fraud in emerging markets and the difficulty of bringing and enforcing SEC, Department of Justice and other U.S. regulatory actions, including in instances of fraud, in emerging markets generally.
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, reiterating past SEC and PCAOB statements on matters including the difficulty associated with inspecting accounting firms and audit work papers in China and higher risks of fraud in emerging markets and the difficulty of bringing and enforcing SEC, Department of Justice and other U.S. regulatory actions, including in instances of fraud, in emerging markets generally. 20 On May 20, 2020, the U.S.
The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our Ordinary Shares could be considered to be a “penny stock”.
The SEC has regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our Class A Ordinary Shares could be considered to be a “penny stock”.
Even though our auditor is based in United States and under full inspection by the PCAOB and is not currently subject to the determinations announced by the PCAOB on December 16, 2021, if any PRC law relating to the access of the PCAOB to auditor files were to apply to a company such as HiTek or its auditor, the PCAOB may be unable to fully inspect our auditor, which may result in our securities being delisted or prohibited from being traded “over-the-counter” pursuant to the Holding Foreign Companies Accountable Act (the “HFCA Act”) and materially and adversely affect the value and/or liquidity of your investment.
Even though our auditor is based in U.S. and under full inspection by the PCAOB and is not currently subject to the determinations announced by the PCAOB on December 16, 2021, if any PRC law relating to the access of the PCAOB to auditor files were to apply to a company such as HiTek or its auditor, the PCAOB may be unable to fully inspect our auditor, which may result in our securities being delisted or prohibited from being traded “over-the-counter” pursuant to the Holding Foreign Companies Accountable Act (the “HFCA Act”) and materially and adversely affect the value and/or liquidity of your investment.
Furthermore, as an auditor of companies that are registered with the SEC and publicly traded in the United States and a firm registered with the PCAOB, our auditor, Wei, Wei & Co. LLP, is headquartered in the United States and is required under the laws of the United States to undergo regular inspections by the U.S.
Furthermore, as an auditor of companies that are registered with the SEC and publicly traded in the U.S. and a firm registered with the PCAOB, our auditor, Wei, Wei & Co. LLP, is headquartered in the U.S. and is required under the laws of the U.S. to undergo regular inspections by the U.S.
If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Agreements, we may be unable to pay dividends on our Ordinary Shares. 5 Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars.
If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Agreements, we may be unable to pay dividends on our Class A Ordinary Shares. 5 Cash dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars.
Yin and his wife Ms. Xiaoyang Huang, our Chief Executive Officer, holds 29.82% and 44.74% of HiTek’s outstanding equity, it may be difficult for us to change our corporate structure if such shareholders refuse to cooperate with us.
Yin and his wife Ms. Xiaoyang Huang, our Chief Executive Officer, holds 29.83% and 44.74% of HiTek’s outstanding equity, it may be difficult for us to change our corporate structure if such shareholders refuse to cooperate with us.
If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our Ordinary Shares and the trading volume to decline.
If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our Class A Ordinary Shares and the trading volume to decline.
As of the date of this annual report, as advised by Jingtian & Gongcheng, our PRC counsel, as our post-effective amendment to the registration statement on Form F-1 relating to our initial public offering was declared effective on March 30, 2023 and we have completed our initial public offering and listing prior to September 30, 2023, we are not required to complete the filing procedures pursuant to the Trial Measures for our initial public offering.
As of the date of this annual report, as advised by Jingtian & Gongcheng, our PRC counsel, as our post-effective amendment to the registration statement on Form F-1 relating to our initial public offering (“IPO”) was declared effective on March 30, 2023 and we completed our initial public offering and listing prior to September 30, 2023, we are not required to complete the filing procedures pursuant to the Trial Measures for our IPO.
The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.
The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our BOD may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.
The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. 30 Risks Relating to Our Ordinary Shares We do not intend to pay dividends for the foreseeable future.
The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. 30 Risks Relating to Our Class A Ordinary Shares We do not intend to pay dividends for the foreseeable future.
Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and our Ordinary Shares.
Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and our Class A Ordinary Shares.
As advised by Jingtian & Gongcheng, our PRC counsel, as our post-effective amendment to the registration statement on Form F-1 relating to our initial public offering was declared effective on March 30, 2023 and we have completed our initial public offering and listing prior to September 30, 2023, we are not required to complete the filing procedures pursuant to the Trial Measures for our initial public offering.
As advised by Jingtian & Gongcheng, our PRC counsel, as our post-effective amendment to the registration statement on Form F-1 for our IPO was declared effective on March 30, 2023 and we completed our IPO and listing prior to September 30, 2023, we are not required to complete the filing procedures pursuant to the Trial Measures for our initial public offering.
The Equity Interest Pledge Agreement has come into effect as of March 31, 2018. During the term of the pledge, WFOE is entitled to receive any dividends declared on the pledged equity interests of HiTek. The Equity Interest Pledge Agreement ends when all contractual obligations under the Exclusive Technical Consulting and Service Agreement have been fully performed.
The Equity Interest Pledge Agreement came into effect as of March 31, 2018. During the term of the pledge, WFOE is entitled to receive any dividends declared on the pledged equity interests of HiTek. The Equity Interest Pledge Agreement ends when all contractual obligations under the Exclusive Technical Consulting and Service Agreement have been fully performed.
The market price of our Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
Our lack of effective internal controls over financial reporting may affect our ability to accurately report our financial results or prevent fraud which may affect the market for and price of our Ordinary Share.
Our lack of effective internal controls over financial reporting may affect our ability to accurately report our financial results or prevent fraud which may affect the market for and price of our Class A Ordinary Share.
Prolonged unrest, intensified military activities or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on our business, financial condition, results of operations and prospects. 9 Increasing competition within our industry could have an impact on our business prospects.
Prolonged unrest, intensified military activities or more extensive sanctions impacting these regions could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on our business, financial condition, results of operations and prospects. 9 Increasing competition within our industry could have an impact on our business prospects.
Because our business is conducted in RMB and the price of our Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.
Because our business is conducted in RMB and the price of our Class A Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.
The Exclusive Technical Consulting and Service Agreement has come into effect as of March 31, 2018. For services rendered to HiTek by WFOE under this agreement, WFOE is entitled to collect a service fee that shall be paid per quarter of 100% of HiTek’s quarterly profit.
The Exclusive Technical Consulting and Service Agreement came into effect as of March 31, 2018. For services rendered to HiTek by WFOE under this agreement, WFOE is entitled to collect a service fee that shall be paid per quarter of 100% of HiTek’s quarterly profit.
As an auditor of companies that are registered with the SEC and publicly traded in the US (“U.S.”) and a firm registered with the PCAOB, our auditor is required under the laws of the U.S. to undergo regular inspections by the PCAOB to assess their compliance with the laws of the U.S. and professional standards.
As an auditor of companies that are registered with the SEC and publicly traded in the U.S. and a firm registered with the PCAOB, our auditor is required under the laws of the U.S. to undergo regular inspections by the PCAOB to assess their compliance with the laws of the U.S. and professional standards.
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” We became a public company after completion of our initial public offering and expect to incur significant legal, accounting and other expenses that we did not incur as a private company.
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” We became a public company after completion of our IPO and expect to incur significant legal, accounting and other expenses that we did not incur as a private company.
Although our articles of association does not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders, any shareholder may submit a proposal to our Board of Directors for consideration of inclusion in a proxy statement.
Although our articles of association does not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders, any shareholder may submit a proposal to our BOD for consideration of inclusion in a proxy statement.
Public Company Accounting Oversight Board (“PCAOB”) to assess their compliance with the laws of the United States and professional standards. Although we operate through HiTek in mainland China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor is currently inspected fully by the PCAOB.
Public Company Accounting Oversight Board (“PCAOB”) to assess their compliance with the laws of the U.S. and professional standards. Although we operate through HiTek in mainland China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor is currently inspected fully by the PCAOB.
For instance, under the FIL, “foreign investment’’ refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China.
For instance, under the FIL, “foreign investment’’ refers to the investment activities directly or indirectly conducted by foreign individuals, companies or other entities in China.
Substantially all of our revenues and costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars.
Substantially all of our revenues and costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into USD.
Shenping Yin, Chairman and his wife, Ms. Xiaoyang Huang, chief executive office of the Board are able to exercise more than 50% of the total voting power of our issued and outstanding share capital, Mr. Yin will have the ability to elect directors and approve matters requiring shareholder approval. Mr. Shenping Yin, Chairman of the Board, and his wife Ms.
Shenping Yin, Chairman of the Board, and his wife, Ms. Xiaoyang Huang, chief executive officer, are able to exercise more than 95% of the total voting power of our issued and outstanding share capital, Mr. Yin will have the ability to elect directors and approve matters requiring shareholder approval. Mr.
As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements.
As a result, both you and us face uncertainty about future actions by PRC regulatory authorities that could significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

31 edited+6 added−2 removed35 unchanged
Biggest changeSELECTED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the Year Ended December 31, 2022 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Revenues $ - $ - $ 353,836 $ 6,228,595 $ (153,823 ) $ 6,428,608 Cost of revenues $ - $ - $ (212,995 ) $ (2,832,393 ) $ 153,823 $ (2,891,565 ) Income for Non-VIE subsidiaries $ 1,798,894 $ 1,801,042 $ - $ - $ (3,599,936 ) $ - Income for VIE and its subsidiaries $ - $ - $ 1,684,992 $ - $ (1,684,992 ) $ - Net income $ 1,415,745 $ 1,798,894 $ 1,801,042 $ 1,684,992 $ (5,284,928 ) $ 1,415,745 Comprehensive income $ 1,415,745 $ 1,798,894 $ 1,803,198 $ 667,389 $ (5,284,928 ) $ 400,298 For the Year Ended December 31, 2021 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Revenues $ - $ - $ 53,344 $ 6,473,638 $ (65,819 ) $ 6,461,163 Cost of revenues $ - $ - $ (104,115 ) $ (2,542,922 ) $ 65,819 $ (2,581,218 ) Income for Non-VIE subsidiaries $ 1,994,595 $ 1,997,821 $ - $ - $ (3,992,416 ) $ - Income for VIE and its subsidiaries $ - $ - $ 2,061,517 $ - $ (2,061,517 ) $ - Net income $ 1,669,357 $ 1,994,595 $ 1,997,821 $ 2,061,517 $ (6,053,933 ) $ 1,669,357 Comprehensive income $ 1,669,357 $ 1,994,595 $ 1,996,896 $ 2,352,849 $ (6,053,933 ) $ 1,959,764 For the Year Ended December 31, 2020 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Revenues $ - $ - $ - $ 5,804,727 $ - $ 5,804,727 Cost of revenues $ - $ - $ - $ (2,633,455 ) $ - $ (2,633,455 ) Income for Non-VIE subsidiaries $ 1,733,051 $ 1,734,927 $ - $ - $ (3,467,978 ) $ - Income for VIE and its subsidiaries $ - $ - $ 1,735,341 $ - $ (1,735,341 ) $ - Net income $ 1,688,859 $ 1,733,051 $ 1,734,927 $ 1,735,341 $ (5,203,319 ) $ 1,688,859 Comprehensive income $ 1,688,859 $ 1,733,051 $ 1,734,901 $ 2,257,281 $ (5,203,319 ) $ 2,210,773 36 SELECTED CONDENSED CONSOLIDATING BALANCE SHEETS As of December 31, 2022 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Cash and cash equivalents $ 226,578 $ 6,457 $ 126,420 $ 843,705 $ - $ 1,203,160 Total current assets $ 586,420 $ 6,457 $ 242,429 $ 12,747,913 $ (1,481,061 ) $ 12,102,158 Investments in non-VIE subsidiaries $ 14,299,036 $ 14,399,652 $ - $ - $ (28,698,688 ) $ - Equity in the VIE and its subsidiaries Through the VIE Agreements $ - $ - $ 14,346,554 $ - $ (14,346,554 ) $ - Total non-current assets $ 14,299,036 $ 14,399,652 $ 14,350,741 $ 9,102,933 $ (43,049,429 ) $ 9,102,933 Total Assets $ 14,885,456 $ 14,406,109 $ 14,593,170 $ 21,850,846 $ (44,530,490 ) $ 21,205,091 Total Liabilities $ 1,358,930 $ 20,000 $ 193,518 $ 7,504,292 $ (1,398,175 ) $ 7,678,565 Total Shareholders’ Equity $ 13,526,526 $ 14,386,109 $ 14,399,652 $ 14,346,554 $ (43,132,315 ) $ 13,526,526 Total Liabilities and Shareholders’ Equity $ 14,885,456 $ 14,406,109 $ 14,593,170 $ 21,850,846 $ (44,530,490 ) $ 21,205,091 As of December 31, 2021 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Cash and cash equivalents $ 509,728 $ 8,605 $ 86,664 $ 1,486,311 $ - $ 2,091,308 Total current assets $ 969,570 $ 8,605 $ 218,969 $ 13,425,543 $ (1,655,548 ) $ 12,967,139 Investments in non-VIE subsidiaries $ 13,515,589 $ 13,740,060 $ - $ - $ (27,255,649 ) $ - Equity in the VIE and its subsidiaries Through the VIE Agreements $ - $ - $ 13,805,168 $ - $ (13,805,168 ) $ - Total non-current assets $ 13,515,589 $ 13,740,060 $ 13,809,284 $ 4,173,234 $ (41,064,933 ) $ 4,173,234 Total Assets $ 14,485,159 $ 13,748,665 $ 14,028,253 $ 17,598,777 $ (42,720,481 ) $ 17,140,373 Total Liabilities $ 1,358,930 $ 20,000 $ 288,193 $ 3,793,609 $ (1,446,587 ) $ 4,014,145 Total Shareholders’ Equity $ 13,126,229 $ 13,728,665 $ 13,740,060 $ 13,805,168 $ (41,273,894 ) $ 13,126,228 Total Liabilities and Shareholders’ Equity $ 14,485,159 $ 13,748,665 $ 14,028,253 $ 17,598,777 $ (42,720,481 ) $ 17,140,373 SELECTED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2022 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Net cash (used in) provided by operating activities $ (283,149 ) $ (2,148 ) $ 47,909 $ 4,061,438 $ - $ 3,824,050 Net cash (used in) provided by investing activities $ - $ - $ - $ (7,349,231 ) $ - $ (7,349,231 ) Net cash provided by financing activities $ - $ - $ - $ 2,749,498 $ - $ 2,749,498 37 For the Year Ended December 31, 2021 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Net cash (used in) provided by operating activities $ (276,777 ) $ (3,226 ) $ 69,801 $ (278,773 ) $ 274,400 $ (214,575 ) Net cash (used in) provided by investing activities $ (10,000 ) $ - $ - $ 392,254 $ 17,752 $ 400,006 Net cash provided by financing activities $ 280,300 $ 10,000 $ 7,752 $ - $ (298,052 ) $ - For the Year Ended December 31, 2020 Parent HiTek HK WFOE and its Subsidiary VIE and its Subsidiaries Eliminations Consolidated Net cash (used in) provided by operating activities $ (290,054 ) $ (1,876 ) $ (414 ) $ 1,527,162 $ 698,032 $ 1,932,850 Net cash used in investing activities $ - $ - $ - $ (981,392 ) $ 116,345 $ (865,047 ) Net cash provided by financing activities $ 745,570 $ - $ 7,345 $ - $ (752,915 ) $ - For the year ended December 31, 2022 and 2021, net cash provided by financing activities of HiTek Global Inc., or the “parent”, was $nil and $280,300, which was mainly because that parent received sales collection dominated in USD on behalf of the VIE and its subsidiaries.
Biggest changeSELECTED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the Year Ended December 31, 2023 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Revenues $ 36,402 $ - $ 191,738 $ 4,335,591 $ - $ 4,563,731 Cost of revenues $ - $ - $ (46,768 ) $ (2,595,723 ) $ - $ (2,642,491 ) Income for Non-VIE subsidiaries $ 1,222,415 $ 1,224,590 $ - $ - $ (2,447,005 ) $ - Income for VIE and its subsidiaries (1) $ - $ - $ 1,098,946 $ - $ (1,098,946 ) $ - Net income $ 1,047,641 $ 1,222,415 $ 1,224,590 $ 1,098,946 $ (3,545,951 ) $ 1,047,641 Comprehensive income $ 1,047,641 $ 1,222,415 $ 1,222,759 $ 770,661 $ (3,545,951 ) $ 717,525 For the Year Ended December 31, 2022 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Revenues $ - $ - $ 353,836 $ 6,228,595 $ (153,823 ) $ 6,428,608 Cost of revenues $ - $ - $ (212,995 ) $ (2,832,393 ) $ 153,823 $ (2,891,565 ) Income for Non-VIE subsidiaries $ 1,798,894 $ 1,801,042 $ - $ - $ (3,599,936 ) $ - Income for VIE and its subsidiaries (1) $ - $ - $ 1,684,992 $ - $ (1,684,992 ) $ - Net income $ 1,415,745 $ 1,798,894 $ 1,801,042 $ 1,684,992 $ (5,284,928 ) $ 1,415,745 Comprehensive income $ 1,415,745 $ 1,798,894 $ 1,803,198 $ 667,389 $ (5,284,928 ) $ 400,298 For the Year Ended December 31, 2021 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Revenues $ - $ - $ 53,344 $ 6,473,638 $ (65,819 ) $ 6,461,163 Cost of revenues $ - $ - $ (104,115 ) $ (2,542,922 ) $ 65,819 $ (2,581,218 ) Income for Non-VIE subsidiaries $ 1,994,595 $ 1,997,821 $ - $ - $ (3,992,416 ) $ - Income for VIE and its subsidiaries (1) $ - $ - $ 2,061,517 $ - $ (2,061,517 ) $ - Net income $ 1,669,357 $ 1,994,595 $ 1,997,821 $ 2,061,517 $ (6,053,933 ) $ 1,669,357 Comprehensive income $ 1,669,357 $ 1,994,595 $ 1,996,896 $ 2,352,849 $ (6,053,933 ) $ 1,959,764 Note: (1) It represents the technical consultation and service (“Consulting Fees”) income received from the VIE and its subsidiaries pursuant to the Exclusive Technical Consulting and Service (the “Agreement”). 36 SELECTED CONDENSED CONSOLIDATING BALANCE SHEETS As of December 31, 2023 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Cash and cash equivalents $ 8,236,065 $ 4,282 $ 29,281 $ 1,041,909 $ - $ 9,311,537 Due from inter companies (1) - - 10,846,775 - (10,846,775 ) - Total current assets $ 14,077,640 $ 4,282 $ 147,902 $ 11,941,416 $ (1,384,641 ) $ 24,786,599 Investments in non-VIE subsidiaries $ 14,621,943 $ 14,686,108 $ - $ - $ (29,308,051 ) $ - Net assets of the VIE and its subsidiaries through the VIE Agreements $ - $ - $ 14,509,197 $ - $ (14,509,197 ) $ - Total non-current assets $ 15,621,943 $ 14,686,108 $ 14,509,493 $ 9,641,441 $ (43,817,544 ) $ 10,641,441 Total Assets $ 29,699,583 $ 14,690,390 $ 14,657,395 $ 21,582,857 $ (45,202,185 ) $ 35,428,040 Due to inter companies (1) - - - 10,846,775 (10,846,775 ) - Total Liabilities $ 1,361,997 $ 20,000 $ (28,713 ) $ 7,073,660 $ (1,336,490 ) $ 7,090,454 Total Shareholders’ Equity $ 28,337,586 $ 14,670,390 $ 14,686,108 $ 14,509,197 $ (43,865,695 ) $ 28,337,586 Total Liabilities and Shareholders’ Equity $ 29,699,583 $ 14,690,390 $ 14,657,395 $ 21,582,857 $ (45,202,185 ) $ 35,428,040 As of December 31, 2022 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Cash and cash equivalents $ 226,578 $ 6,457 $ 126,420 $ 843,705 $ - $ 1,203,160 Due from inter companies (1) 10,000 - 9,747,829 1,383,988 (11,141,817 ) - Total current assets $ 586,420 $ 6,457 $ 242,429 $ 12,747,913 $ (1,481,061 ) $ 12,102,158 Investments in non-VIE subsidiaries $ 14,299,036 $ 14,399,652 $ - $ - $ (28,698,688 ) $ - Net assets of the VIE and its subsidiaries through the VIE Agreements $ - $ - $ 14,346,554 $ - $ (14,346,554 ) $ - Total non-current assets $ 14,299,036 $ 14,399,652 $ 14,350,741 $ 9,102,933 $ (43,049,429 ) $ 9,102,933 Total Assets $ 14,885,456 $ 14,406,109 $ 14,593,170 $ 21,850,846 $ (44,530,490 ) $ 21,205,091 Due to inter companies (1) 1,358,930 20,000 15,058 9,747,829 (11,141,817 ) - Total Liabilities $ 1,358,930 $ 20,000 $ 193,518 $ 7,504,292 $ (1,398,175 ) $ 7,678,565 Total Shareholders’ Equity $ 13,526,526 $ 14,386,109 $ 14,399,652 $ 14,346,554 $ (43,132,315 ) $ 13,526,526 Total Liabilities and Shareholders’ Equity $ 14,885,456 $ 14,406,109 $ 14,593,170 $ 21,850,846 $ (44,530,490 ) $ 21,205,091 Note: (1) As of December 31, 2023 and 2022, VIE and its subsidiaries owed WFOE and its subsidiaries technical consulting and service fees of $10,846,775 and $9,747,829, respectively.
Electronic invoices are very useful in helping business entities reduce operating costs and streamline service process, since they do not involve printing, storage and postage procedures. From January 21, 2021, new taxpayers can receive electronic tax control ukey for free from the Tax authority.
Electronic invoices are very useful in helping business entities reduce operating costs and streamline service process, since they do not involve printing, storage and postage procedures. From January 21, 2021, new taxpayers can receive electronic tax control ukey for free from the Tax authority.
As of the date of annual report, we have two lines of businesses— 1) services to small and medium businesses (“SMEs”), which consists of Anti-Counterfeiting Tax Control System (“ACTCS”) tax devices, including Golden Tax Disk (“GTD”) and printers, ACTCS services, and IT services, and 2) services to large businesses, which consists of hardware sales and software sales.
As of the date of this annual report, we have two lines of businesses— 1) services to small and medium businesses (“SMEs”), which consists of Anti-Counterfeiting Tax Control System (“ACTCS”) tax devices, including Golden Tax Disk (“GTD”) and printers, ACTCS services, and IT services, and 2) services to large businesses, which consists of hardware sales and software sales.
Selected Condensed Consolidating Financial Statements of Parent, Subsidiaries, VIE and its Subsidiaries The following tables present Selected condensed consolidating financial data of the Parent (HiTek Global Inc.), HiTek HK (HiTek Hong Kong Limited), WFOE and its Subsidiary (Tian Dahai (Xiamen) Information Technology Co.
Selected Condensed Consolidating Financial Statements of Parent, Subsidiaries, VIE and its Subsidiaries The following tables present Selected condensed consolidating financial data of the Parent (HiTek Global Inc.), HiTek HK (HiTek Hong Kong Limited), WFOE and its subsidiaries (Tian Dahai (Xiamen) Information Technology Co.
Our Technology We provide effective information technology services and secured tax solutions to business enterprises across a variety of monetization models. We have a dedicated team of three highly skilled in-house IT specialists, which includes three full-time IT professionals responsible for research and development. The following is a list of our self-developed software.
Our Technology We provide effective information technology services and secured tax solutions to business companies across a variety of monetization models. We have a dedicated team of three highly skilled in-house IT specialists, which includes three full-time IT professionals responsible for research and development. The following is a list of our self-developed software.
We are not able to adjust such pricing and as such our profit margin is limited. The Chinese tax regulators have been rolling out electronic invoicing starting from 2018. The electronic invoices enable enterprises to apply for, issue, transfer and check the invoices through the unified online electronic invoice management system of the Chinese Tax authority.
We are not able to adjust such pricing and as such our profit margin is limited. The Chinese tax regulators have been rolling out electronic invoicing starting from 2018. The electronic invoices enable companies to apply for, issue, transfer and check the invoices through the unified online electronic invoice management system of the Chinese Tax authority.
Secured Coordination System (“SCS”) April 10, 2013 June 16, 2015 SCS provides real-time backup for the invoicing information generated by the users. Communication Interface System (“CIS”) April 17, 2014 June 15, 2015 CIS is based on LINUX, which is a general embedded interface system used in petrochemical and coal enterprises.
Secured Coordination System (“SCS”) April 10, 2013 June 16, 2015 SCS provides real-time backup for the invoicing information generated by the users. Communication Interface System (“CIS”) April 17, 2014 June 15, 2015 CIS is based on LINUX, which is a general embedded interface system used in petrochemical and coal companies.
Complementing our physical service center, we started our developing online service platform in 2018 to enable businesses in the Xiamen metropolitan area to securely process VAT reporting and payment from their desktop virtually anytime and anywhere. Currently, our customers range from small, medium to large enterprises across industries in the Xiamen metropolitan area.
Complementing our physical service center, we started our developing online service platform in 2018 to enable businesses in the Xiamen metropolitan area to securely process VAT reporting and payment from their desktop virtually anytime and anywhere. Currently, our customers range from small, medium to large companies across industries in the Xiamen metropolitan area.
We expect to actively develop our system integration services and online service platform in the near future. Our vision is to become a one-stop consulting destination for holistic IT and other business consulting services in China. Value added tax (“VAT”) reporting is mandatory for all business enterprises in China.
We expect to actively develop our system integration services and online service platform in the near future. Our vision is to become a one-stop consulting destination for holistic IT and other business consulting services in China. Value added tax (“VAT”) reporting is mandatory for all business companies in China.
While we believe that one or more of our major customers could account for a significant portion of our sales for at least the year 2021, we anticipate that our customer base will continue to expand and that in the future we will be less dependent on major customers.
While we believe that one or more of our major customers could account for a significant portion of our sales for at least the year 2022, we anticipate that our customer base will continue to expand and that in the future we will be less dependent on major customers.
Such financial data include condensed consolidating balance sheets data as of December 31, 2022 and 2021 and the related condensed consolidating statements of operations and cash flows data for the years ended December 31, 2022, 2021 and 2020. The Parent records its investments in its subsidiaries under the equity method of accounting.
Such financial data include condensed consolidating balance sheets data as of December 31, 2023 and 2022 and the related condensed consolidating statements of operations and cash flows data for the years ended December 31, 2023, 2022 and 2021. The Parent records its investments in its subsidiaries under the equity method of accounting.
GTD is an ACTCS device necessary for normal operation of ACTCS software. The purchase of GTD is allowed only in conjunction with the use of the ACTCS software and its supporting services. Currently, there are three ACTCS services providers for Xiamen business enterprises, and we are one of them.
GTD is an ACTCS device necessary for normal operation of ACTCS software. The purchase of GTD is allowed only in conjunction with the use of the ACTCS software and its supporting services. Currently, there are three ACTCS services providers for Xiamen business companies, and we are one of them.
Property Our headquarters are located at Unit 304, No. 30 Guanri Road, Siming District, Xiamen City, Fujian Province, PRC, where we own the office building with a floor area of 495 square meters. This includes our sales and marketing, communication and business development personnel and our management and operations facilities and customer services.
D. Property Our headquarters are located at Unit 304, No. 30 Guanri Road, Siming District, Xiamen City, Fujian Province, PRC, where we own the office building with a floor area of 495 square meters. This includes our sales and marketing, communication and business development personnel and our management and operations facilities and customer services. Item 4A.
As of December 31, 2022, we had 3 full-time R&D professionals. We were successful in developing 12 software products and had obtained 6 Registration of Computer Software Copyright Certificates (the “Certificates”) in 2015, 3 Certificates in 2017 and 3 Certificates in 2018. Our Certificates last indefinitely.
As of December 31, 2023, we had three full-time R&D professionals. We were successful in developing 12 software products and had obtained 6 Registration of Computer Software Copyright Certificates (the “Certificates”) in 2015, 3 Certificates in 2017 and 3 Certificates in 2018. Our Certificates last indefinitely.
Such investments are presented in the selected condensed consolidating balance sheets of the Parent as “investments in non-VIE subsidiaries” and “equity in the VIE and its subsidiaries through the VIE agreements” and the profit of the subsidiaries is presented as “Income for Non-VIE subsidiaries” and “Income for VIE and its subsidiaries” in the selected condensed consolidating statements of operations.
Such investments are presented in the selected condensed consolidating balance sheets of the Parent as “investments in non-VIE subsidiaries” and net assets of the VIE and its subsidiaries through the VIE agreements” and the profit of the subsidiaries is presented as “Income for Non-VIE subsidiaries” and “Income for VIE and its subsidiaries” in the selected condensed consolidating statements of operations.
Our Ordinary Shares started to trade on the Nasdaq Capital Market under the ticker symbol “HKIT” on March 31, 2023and on April 4, 2023, the Company completed its initial public offering of 3,200,000 Ordinary Shares at a public offering price of $5.00 per share.
Our Ordinary Shares started to trade on the Nasdaq Capital Market under the ticker symbol “HKIT” on March 31, 2023 and on April 4, 2023, the Company completed its IPO of 3,200,000 Ordinary Shares at a public offering price of $5.00 per share.
Revenue generated from our software sales was 31.8% and 33.0%, respectively, of the total revenue derived from our businesses for the years ended December 31, 2021 and 2022. 40 Hardware Sales We also generate revenue from our hardware sales, which includes sales of computer hardware such as laptops, printers, desktop computers and associated accessories, together with certain internet servers, cameras and monitors.
Revenue generated from our software sales was 33% and 17%, respectively, of total revenue derived from our businesses for the years ended December 31, 2022 and 2023. 40 Hardware Sales We also generate revenue from our hardware sales, which includes sales of computer hardware such as laptops, printers, desktop computers and associated accessories, together with certain internet servers, cameras and monitors.
We plan to market large scale hardware integration systems such as router for commercial use, industrial switch, server, large internet firewall etc. to large businesses in the future. Revenue generated from our hardware sales was 37.7% and 39.0%, respectively, of the total revenue derived from our businesses for the years ended December 31, 2021 and 2022.
We plan to market large scale hardware integration systems such as router for commercial use, industrial switch, server, large internet firewall etc. to large businesses in the future. Revenue generated from our hardware sales was 39% and 53%, respectively, of total revenue derived from our businesses for the years ended December 31, 2022 and 2023.
For ACTCS devices sales, we charge one a piece-by-piece basis. Revenue generated from our ACTCS device and services was 30.5% and 28.0%, respectively, of the total revenue derived from our businesses for the years ended December 31, 2021 and 2022.
For ACTCS devices sales, we charge one a piece-by-piece basis. Revenue generated from our ACTCS device and services was 28.0% and 30.2%, respectively, of the total revenue derived from our businesses for the fiscal years ended December 31, 2022 and 2023.
For the year ended December 31, 2021, two suppliers accounted for 21% of the total purchases. We enter into procurement agreements in the ordinary course of business with our suppliers, pursuant to a form of supply order typically on a “deal by deal” basis.
For the year ended December 31, 2022, four suppliers accounted for 55% of total purchases. We enter into procurement agreements in the ordinary course of business with our suppliers, pursuant to a form of supply order typically on a “deal by deal” basis.
Services For the year ended December 31, 2022, HiTek’s two business lines operated three revenue streams. Within the first business line, the services to large businesses, including the hardware sales, were 39% of the total revenue, and the software sales were for 33% of the total revenue.
For the year ended December 31, 2022, HiTek’s two business lines operated three revenue streams. Within the first business line, the services to large businesses, including the hardware sales, represented 39% of the total revenue, and the software sales represented 33% of total revenue. The second business line, ACTCS devices and services, represented 28% of total revenue.
Suppliers Aside from a set number of suppliers from whom we purchase general hardware for our resale business, we are required by the government to purchase our ACTCS devices from specific suppliers. For the year ended December 31, 2022, four suppliers accounted for 55% of the total purchases.
Suppliers Aside from a set number of suppliers from whom we purchase general hardware for our resale business, we are required by the government to purchase our ACTCS devices from specific suppliers. For the year ended December 31, 2023, one supplier accounted for 12% of total purchases.
We maintain a corporate website at http://www.xmhitek.com/ . The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report. C. Organizational Structure Our corporate structure as of the date of this annual report is as follows: 43 D.
We maintain a corporate website at http://www.xmhitek.com/ . The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report.
The second business line, ACTCS devices and services, were 31% of the total revenue. In recent years, the Chinese tax regulators have been rolling out an electronic invoicing system. Electronic invoices enable enterprises to apply for, issue, transfer and check invoices through the unified online electronic invoice management system of Chinese Tax authority.
In recent years, the Chinese tax regulators have been rolling out an electronic invoicing system. Electronic invoices enable companies to apply for, issue, transfer and check invoices through the unified online electronic invoice management system of Chinese Tax authority.
While we have benefited from the effects of word of mouth recommendation, digital advertising, and social media advertising, we are considering cooperating with professional advertising companies to initiate campaigns designed to further promote our brand and services. We will finalize a definitive plan for this marketing initiation after our initial public offering on NASDAQ.
While we have benefited from the effects of word of mouth recommendation, digital advertising, and social media advertising, we are considering cooperating with professional advertising companies to initiate campaigns designed to further promote our brand and services.
For the year ended December 31, 2022, two customers accounted for 49% of total HiTek’s revenues, the largest of which represented 36%. For the year ended December 31, 2021, two customers accounted for 42% of total HiTek’s revenues, the largest of which represented 28%.
For the year ended December 31, 2023, one customer accounted for 18% of total HiTek’s revenues. For the year ended December 31, 2022, two customers accounted for 49% of total HiTek’s revenues, the largest of which was 36%.
Our principal executive offices are located at Unit 304, No. 30 Guanri Road, Siming District, Xiamen City, Fujian Province, People’s Republic of China, and our phone number is +86 592-5395967. We maintain a corporate website at http://www.xmhitek.com/ . The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report.
Corporate Information Our principal executive offices are located at Unit 304, No. 30 Guanri Road, Siming District, Xiamen City, Fujian Province, PRC, and our phone number is +86 592-5395967. We maintain a corporate website at http://www.xmhitek.com/ .
The second business line, ACTCS devices and services, was 28% of the total revenue. For the year ended December 31, 2021, HiTek’s two business lines operated in three revenue streams. Within the first business line, the services to large businesses, including hardware sales, accounted for 38% of total revenue and the software sales were 32% of total revenue.
Services For the year ended December 31, 2023, HiTek’s two business lines operated three revenue streams. The first business line, services to large businesses, include hardware sales, representing 53% of total revenue, and the software sales, representing 17% of total revenue; and the second business line, ACTCS devices and services, represented 30% of total revenue.
LONG-TERM INVESTMENTS ROLL-FORWARD Investments in Non-VIE subsidiaries and VIE and its subsidiaries As of December 31, 2019 $ 8,975,622 Equity pick-up during the period 1,733,051 Foreign currency translation adjustment 521,914 As of December 31, 2020 11,230,587 Equity pick-up during the period 1,994,595 Foreign currency translation adjustment 290,407 As of December 31, 2021 $ 13,515,589 Equity pick-up during the period 1,798,894 Foreign currency translation adjustment (1,015,447 ) As of December 31, 2022 14,299,036 38 B.
LONG-TERM INVESTMENTS ROLL-FORWARD Investments in Non-VIE subsidiaries and VIE and its subsidiaries As of December 31, 2021 $ 13,515,589 Equity pick-up during the year 1,798,894 Foreign currency translation adjustment (1,015,447 ) As of December 31, 2022 14,299,036 Equity pick-up during the year 1,222,415 Deferred offering cost (569,392 ) Foreign currency translation adjustment (330,116 ) As of December 31, 2023 $ 14,621,943 38 B.
In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, such as use of confidentiality agreements with our employees and outside consultants. 42 Corporate Information Our principal executive offices are located at Unit 304, No. 30 Guanri Road, Siming District, Xiamen City, Fujian Province, PRC, and our phone number is +86 592-5395967.
In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, such as use of confidentiality agreements with our employees and outside consultants.
The total net proceeds to the Company from the initial public offering, after deducting discounts, expense allowance, and expenses, were approximately $13,523,140. 35 Our current registered office in Cayman Islands is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Our current registered office in Cayman Islands is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our principal executive offices are located at Unit 304, No. 30 Guanri Road, Siming District, Xiamen City, Fujian Province, PRC, and our phone number is +86 592-5395967.
Removed
Coupled with our first-mover advantage, this broad applicability has been driving our client base, resulting in around 54,872 active users, or approximately 27.3% of Xiamen’s tax collection market as of December 31, 2022, according to the Xiamen Province Taxation Bureau’s statistics.
Added
The total net proceeds to the Company from the IPO, after deducting discounts, expense allowance, and expenses, were approximately $13,523,140. 35 On February 5, 2024, our shareholders approved the re-designation and re-classification of Ordinary Shares of the Company beneficially held by Mr. Shenping Yin, our Chairman of the Board, and his wife, Ms.
Removed
We currently lease 83 square meters of office space at Room 101, NO.77 Tianhu Road, Siming District, Xiamen, China. The lease expires on November 19, 2023 and can be renewed subject to mutual agreements. In addition, the Company also leased three other locations in Xiamen as warehouses. Item 4A. Unresolved Staff Comments Not required.
Added
Xiaoyang Huang, our chief executive officer, into 8,192,000 Class B Ordinary Shares, each with 15 votes per share, and the Ordinary Shares held by other shareholders into 6,200,364 Class A Ordinary Shares, each with one vote per share, on a one for one basis.
Added
For the fiscal years ended December 31, 2023, 2022 and 2021, VIE and its subsidiaries owed WFOE and its subsidiaries Consulting Fees of $1,098,946, $1,684,992 and $2,061,517 million, respectively. The Consulting Fees have not been paid since 2018, and are planned to be paid in the fiscal year 2024.
Added
SELECTED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2023 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Net cash (used in) provided by operating activities $ (862,825 ) $ (2,175 ) $ (94,106 ) $ 897,257 $ (63 ) $ (61,912 ) Net cash used in investing activities $ (6,270,591 ) $ - $ - $ (675,964 ) $ - $ (6,946,555 ) Net cash provided by financing activities $ 15,142,902 $ - $ - $ - $ - $ 15,142,902 For the Year Ended December 31, 2022 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Net cash (used in) provided by operating activities $ (283,149 ) $ (2,148 ) $ 47,909 $ 4,061,438 $ - $ 3,824,050 Net cash (used in) provided by investing activities $ - $ - $ - $ (7,349,231 ) $ - $ (7,349,231 ) Net cash provided by financing activities $ - $ - $ - $ 2,749,498 $ - $ 2,749,498 37 For the Year Ended December 31, 2021 Parent HiTek HK WFOE and its Subsidiaries VIE and its Subsidiaries Eliminations Consolidated Net cash (used in) provided by operating activities $ (276,777 ) $ (3,226 ) $ 69,801 $ (278,773 ) $ 274,400 $ (214,575 ) Net cash (used in) provided by investing activities $ (10,000 ) $ - $ - $ 392,254 $ 17,752 $ 400,006 Net cash provided by financing activities $ 280,300 $ 10,000 $ 7,752 $ - $ (298,052 ) $ - For the year ended December 31, 2023 and 2022, net cash provided by financing activities of HiTek Global Inc., or the “parent”, was $15,142,902 and $nil, which was mainly because that parent received fund from issuance of ordinary shares and sales collection dominated in USD on behalf of the VIE and its subsidiaries.
Added
The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report. 42 C. Organizational Structure The following diagram illustrates our corporate structure as of the date of this annual report.
Added
All percentages in the following diagram reflect the voting ownership interests instead of the equity interests held by each of our shareholders given that each holder of Class B Ordinary Shares will be entitled to 15 votes per one Class B Ordinary Share and each holder of Class A Ordinary Shares will be entitled to one vote per one Class A Ordinary Share: (1) The equity of HiTek is 44.74% owned by Xiaoyang Huang, our Chief Executive Officer; 29.83% owned by Shenping Yin, our Chairman of the Board; 2.35% owned by Bo Shi, our Chief Technology Officer; 0.78% owned by Zhishuang Wang; 0.78% owned by Liuqing Huang; 3.02% owned by Jingru Li; 4.99% owned by Mian Tang; 2.0% owned by Ce Tian; 2.0% owned by Xianfeng Lin; 7.55% owned by Inner Mongolia Guangxin Investment Co., Ltd., a Chinese company of which its equity is 80% owned by Wei Cui, 10% owned by Yi Cui and 10 % owned by Lei Gao; 1.96% owned by Baotou Zhongzhe Hengtong Technology Co., Ltd., a Chinese company of which its equity is 95% owned by Jing Kong and 5% owned by Qingxia Kong.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

79 edited+44 added−36 removed85 unchanged
Biggest changeThe overall increase in revenue was mainly resulted from the increase of software sales as the business recovery from coronavirus outbreak in 2020. 55 Cost and Margin For the Years Ended December 31, Increase / Percentage 2021 2020 (Decrease) Change Total revenues $ 6,461,163 $ 5,804,727 $ 656,436 11.3 % Cost of revenues 2,581,218 2,633,455 (52,237 ) (2.0 )% Gross profit 3,879,945 3,171,272 708,673 22.3 % Margin % 60.1 % 54.6 % 5.5 % Cost of revenue is comprised of (i) the direct cost of our hardware products purchased from third parties; (ii) logistics-related costs, which primarily include product packaging and freight-in charges; (iii) third-party royalties paid related to the GTD; and (iv) compensation for the employees who handle the products and perform IT services and other costs that are necessary for us to provide the services to our customers.
Biggest changeThe Company expects to expand tax control system risk investigation service for SMEs and also increase orders for software and hardware sales from major customers in 2024. 52 Cost and Margin Increase / Percentage 2023 2022 (Decrease) Change Total revenues $ 4,563,731 $ 6,428,608 $ (1,864,877 ) (29.0 )% Cost of revenues 2,642,491 2,891,565 (249,074 ) (8.6 )% Gross profit $ 1,921,240 $ 3,537,043 $ (1,615,803 ) (45.7 )% Margin % 42.1 % 55.0 % (12.9 )% Cost of revenue is comprised of (i) the direct cost of our hardware products purchased from third parties; (ii) logistics-related costs, which primarily include product packaging and freight-in charges; (iii) third-party royalties paid related to the Golden Tax Disk (“GTD”), an Anti-Counterfeiting Tax Control System (“ACTCS”) tax device; (iv) compensation for the employees who handle the products and perform Tax invoicing management services and other costs that are necessary for us to provide the services to our customers; and (v) outsourcing costs, which primarily include software outsourcing service cost to the third parties.
While we are confident that our competitive strengths will continue improving our business, we are keenly aware of the challenges that our business faces, especially the challenges in our services to SMEs which are stemmed from the ACTCS services.
While we are confident our competitive strengths will continue improving our business, we are keenly aware of the challenges that our business faces, especially the challenges in our services to SMEs which are stemmed from the ACTCS services.
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. Our management is confident in the collecting account receivables and other receivables.
The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. Our management is confident in collecting account receivables and other receivables.
The Company expects to expand tax control system risk investigation service for SMEs and also increase orders for software and hardware sales from major customers in 2023. 53 Cost and Margin Increase / Percentage 2022 2021 (Decrease) Change Total revenues $ 6,428,608 $ 6,461,163 $ (32,555 ) (0.5 )% Cost of revenues 2,891,565 2,581,218 310,347 12.0 % Gross profit 3,537,043 3,879,945 (342,902 ) (8.8 )% Margin % 55.0 % 60.1 % (5.1 )% Cost of revenue is comprised of (i) the direct cost of our hardware products purchased from third parties; (ii) logistics-related costs, which primarily include product packaging and freight-in charges; (iii) third-party royalties paid related to the GTD (iv) compensation for the employees who handle the products and perform Tax invoicing management services and other costs that are necessary for us to provide the services to our customers; and (v) outsourcing costs, which primarily include software outsourcing service cost to the third parties.
The Company expects to expand tax control system risk investigation service for SMEs and also increase orders for software and hardware sales from major customers in 2023. 54 Cost and Margin Increase / Percentage 2022 2021 (Decrease) Change Total revenues $ 6,428,608 $ 6,461,163 $ (32,555 ) (0.5 )% Cost of revenues 2,891,565 2,581,218 310,347 12.0 % Gross profit 3,537,043 3,879,945 (342,902 ) (8.8 )% Margin % 55.0 % 60.1 % (5.1 )% Cost of revenue is comprised of (i) the direct cost of our hardware products purchased from third parties; (ii) logistics-related costs, which primarily include product packaging and freight-in charges; (iii) third-party royalties paid related to the GTD (iv) compensation for the employees who handle the products and perform Tax invoicing management services and other costs that are necessary for us to provide the services to our customers; and (v) outsourcing costs, which primarily include software outsourcing service cost to the third parties.
CIS is a universal embedded interface system used in petrochemical and coal businesses to collect industrial, electricity, facility pressure and temperature statistics and convert to readable format for analytical purposes. 45 As part of our services provided to large businesses, Huasheng sold hardware such as laptops, printers, desktop computers and associated accessories, together with certain internet servers, cameras and monitors.
CIS is a universal embedded interface system used in petrochemical and coal businesses to collect industrial, electricity, facility pressure and temperature statistics and convert to readable format for analytical purposes. As part of our services provided to large businesses, Huasheng sold hardware such as laptops, printers, desktop computers and associated accessories, together with certain internet servers, cameras and monitors.
Allowance for inventory obsolescence is provided when the market value of certain inventory items is lower than the cost. Leases On December 31, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively “ASC 842”), using the modified retrospective method.
Allowance for inventory obsolescence is provided when the market value of certain inventory items is lower than the cost. 51 Leases On December 31, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively “ASC 842”), using the modified retrospective method.
The strategy purpose of establishing the new subsidiary is for the integration of tax invoicing management services from Hitek to Haitian Weilai. As part of the services to large businesses, HiTek currently sells Communication Interface System (“CIS”), its self-developed software which provides embedded system interface solutions for large businesses.
The strategy purpose of establishing the new subsidiary is for the integration of tax invoicing management services from Hitek to Haitian Weilai. 45 As part of the services to large businesses, HiTek currently sells Communication Interface System (“CIS”), its self-developed software which provides embedded system interface solutions for large businesses.
The Company expects to maintain the current ratio of general and administrative expenses to revenue in 2023. 54 Net Income Increase / Percentage 2022 2021 (Decrease) Change Operating income $ 1,627,210 $ 2,103,534 $ (476,324 ) (22.6 )% Total other income 241,753 108,676 133,077 122.5 % Income before income taxes 1,868,963 2,212,210 (343,247 ) (15.5 )% Income tax expense (453,218 ) (542,853 ) 89,635 (16.5 )% Net income $ 1,415,745 $ 1,669,357 $ (253,612 ) (15.2 )% Effective tax rate 24.2 % 24.5 % 0.3 % Operating income .
The Company expects to maintain the current ratio of general and administrative expenses to revenue in 2023. 55 Net Income Increase / Percentage 2022 2021 (Decrease) Change Operating income $ 1,627,210 $ 2,103,534 $ (476,324 ) (22.6 )% Total other income 241,753 108,676 133,077 122.5 % Income before income taxes 1,868,963 2,212,210 (343,247 ) (15.5 )% Income tax expense (453,218 ) (542,853 ) 89,635 (16.5 )% Net income $ 1,415,745 $ 1,669,357 $ (253,612 ) (15.2 )% Effective tax rate 24.2 % 24.5 % 0.3 % Operating income .
Pursuant to the PRC FIL, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council.
Pursuant to the PRC FIL, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign companies or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested companies in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of companies within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council.
We are not able to adjust such pricing and as such our profit margin is limited. The Chinese tax regulators have been rolling out the electronic invoicing system starting from 2018. The electronic invoices enable enterprises to apply for, issue, transfer and check the invoices through the unified online electronic invoice management system of Chinese Tax authority.
We are not able to adjust such pricing and as such our profit margin is limited. The Chinese tax regulators have been rolling out the electronic invoicing system starting from 2018. The electronic invoices enable companies to apply for, issue, transfer and check the invoices through the unified online electronic invoice management system of Chinese Tax authority.
We expect to actively develop our system integration services and online service platform in the near future. Our vision is to become a one-stop consulting destination for holistic IT and other business consulting services in China. VAT reporting is mandatory for all business enterprises in China.
We expect to actively develop our system integration services and online service platform in the near future. Our vision is to become a one-stop consulting destination for holistic IT and other business consulting services in China. VAT reporting is mandatory for all business companies in China.
We are also unaware of any known trends, uncertainties, demands, commitments or events for the year ended December 31, 2022 that are reasonably likely to have a material adverse effect on our revenues, net income, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions. E.
We are also unaware of any known trends, uncertainties, demands, commitments or events for the year ended December 31, 2023 that are reasonably likely to have a material adverse effect on our revenues, net income, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.
GTD is an ACTCS hardware necessary for normal operation of ACTCS software. The purchase of GTD is allowed only in conjunction with the use of the ACTCS software and its supporting services. Currently, there are three ACTCS services providers for Xiamen business enterprises, and we are one of them.
GTD is an ACTCS hardware necessary for normal operation of ACTCS software. The purchase of GTD is allowed only in conjunction with the use of the ACTCS software and its supporting services. Currently, there are three ACTCS services providers for Xiamen business companies, and we are one of them.
Each of HiTek and Baihengda funded RMB 20 million of the Loans ($2.89 million with an exchange rate of 0.1447 as of December 31, 2022). As of the date of this annual report, the aggregate outstanding principal amount of the Loans is RMB37 million ($5.36 million with an exchange rate of 0.1447 as of December 31, 2022).
Each of HiTek and Baihengda funded RMB 20 million of the Loans ($2.89 million with an exchange rate of 0.1447 as of December 31, 2022). As of the date of this annual report, the outstanding principal of the Loans is RMB37 million ($5.36 million with an exchange rate of 0.1447 as of December 31, 2022).
Revenues from software sales contracts are classified as “Revenue-Software” on the Company’s consolidated statements of operations. ● Tax Devices and Services Before January 21, 2021, all VAT general taxpayer businesses in China are required to purchase the Anti-Counterfeiting Tax Control System (“ACTCS” or Golden Tax Disk or GTD) tax devices to issue the VAT Invoice and for quarterly VAT filing.
Revenues from software sales contracts are classified as “Revenue” on the Company’s consolidated statements of operations. ● Tax Devices and Services Before January 21, 2021, all VAT general taxpayer businesses in China are required to purchase the Anti-Counterfeiting Tax Control System (“ACTCS” or Golden Tax Disk or GTD) tax devices to issue the VAT Invoice and for quarterly VAT filing.
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes to those statements included in this filing. In addition to historical financial information, this discussion may contain forward-looking statements reflecting our current plans, estimates, beliefs and expectations that involve risks and uncertainties.
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes to those statements included in this annual report. In addition to historical financial information, this discussion may contain forward-looking statements reflecting our current plans, estimates, beliefs and expectations that involve risks and uncertainties.
If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Agreements, we may be unable to pay dividends on our Ordinary Shares. Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars.
If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Agreements, we may be unable to pay dividends on our Class A Ordinary Shares or Class B Ordinary Shares. Cash dividends, if any, on our Class A Ordinary Shares or Class B Ordinary Shares will be paid in U.S. dollars.
If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, HiTek HK.
If we determine to pay dividends on any of our Class A Ordinary Shares or Class B Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, HiTek HK.
Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements. The following discussion of critical accounting policies addresses those policies that are both important to the portrayal of our financial condition and results of operations and require significant judgment and estimates.
Our significant accounting policies are disclosed in Note 2 to our CFS. The following discussion of critical accounting policies addresses those policies that are both important to the portrayal of our financial condition and results of operations and require significant judgment and estimates.
Hardware sales are classified as “Revenue-Hardware” on the Company’s consolidated statements of operations. ● Software sales HiTek also does business in software sales and focuses on the perpetual licenses sales for one of the self-developed software Communication Interface System(“CIS”). CIS is based on LINUX, which is a general embedded interface system used in petrochemical and coal enterprises.
Hardware sales are classified as “Revenue” in the Company’s consolidated statements of operations. ● Software sales HiTek also does business in software sales and focuses on the perpetual licenses sales for one of the self-developed software Communication Interface System (“CIS”). CIS is based on LINUX, which is a general embedded interface system used in petrochemical and coal companies.
For the year ended December 31, 2022, HiTek’s two business lines operated three revenue streams. The first business line, services to large businesses, include hardware sales, was 39.0% of the total revenue, and the software sales, was 33.0% of the total revenue, and the second business line, ACTCS devices and services, was 28.0% of the total revenue.
For the year ended December 31, 2022, HiTek’s two business lines operated three revenue streams. The first business line, services to large businesses, including hardware sales, represented 39% of total revenue, and the software sales, represented 33% of total revenue, and the second business line, ACTCS devices and services, represented 28% of total revenue.
General and Administrative Expenses . General and administrative expenses consist primarily of costs in salary and welfare expenses for our general administrative and management staff, facilities costs, depreciation expenses, professional fees, accounting fees, and other miscellaneous expenses incurred in connection with general operations.
General and administrative expenses consist primarily of salary and welfare for our general administrative and management staff, facilities costs, depreciation expenses, professional fees, accounting fees, directors and officers liability insurance, and other miscellaneous expenses incurred in connection with general operations.
The forward-looking statements included in this report are subject to a number of additional material risks and uncertainties, including but not limited to the risks described in our filings with the Securities and Exchange Commission.
The forward-looking statements included in this annual report are subject to a number of additional material risks and uncertainties, including but not limited to the risks described in our filings with the SEC.
Item 5. Operating and Financial Review and Prospects A. Operating Results The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains certain statements that may be deemed “forward-looking statements” within the meaning of United States of America securities laws.
Item 5. Operating and Financial Review and Prospects A. Operating Results The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes. 43 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This annual report contains certain statements that may be deemed “forward-looking statements” within the meaning of U.S. of America securities laws.
For IT outsourcing customers, the Company gives 18 months credit period. The accounts receivable, net balance was $nil and $64,478 as of December 31, 2022 and 2021, respectively. For small and medium customers, the Company gives six months credit period. The accounts receivable, net balance was $1,077,923 and $218,621 as of December 31, 2022 and 2021, respectively.
The accounts receivable, net balance was $nil and $64,478 as of December 31, 2022 and 2021, respectively. For small and medium customers, the Company gives six months credit period. The accounts receivable, net balance was $1,077,923 and $218,621 as of December 31, 2022 and 2021, respectively. Off-Balance Sheet Arrangements .
Performance Obligations - Software contracts with customers include multiple performance obligations such as sale of software license, installation of software, operation training service and warranty. The installation and operation training are essential to the functionality of the software which are provided to the clients prior to the acceptance of the software.
Performance Obligations - Software contracts with customers include multiple performance obligations such as sale of software license, installation of software, operation training service and warranty. The installation and operation training are essential to the functionality of the software which are provided to the clients prior to the acceptance of the software. The Company provides one-year warranty which mainly telephone supports.
To date, we have financed our operations primarily through cash flows from operations. With the uncertainty of the current market, our management believes it is necessary to enhance collection of outstanding accounts receivable and other receivables, and to be cautious on operational decisions and project selection. Our management believes that our current operations can satisfy our daily working capital needs.
To date, we have financed our operations primarily through cash flows from operations and third-party loans. With the uncertainty of the current market, our management believes it is necessary to enhance collection of outstanding accounts receivable and other receivables, and to be cautious on operational decisions and project selection.
The Company provides a one-year warranty which mainly telephone supports. The Company estimates that costs associated with warranty are de minimis to the overall contract. Therefore, the Company does not further allocate transaction price. The Company recognizes revenue when the software is accepted by the customer.
The Company estimates that costs associated with warranty are de minimis to the overall contract. Therefore, the Company does not further allocate transaction price. The Company recognizes revenue when the software is accepted by the customer.
Performance Obligations - Tax devices and services contracts with customers include multiple performance obligations such as delivery of products, installation and after-sales supporting services, tax control system risk investigation service, and tax invoicing management service, such as training service on issuing electronic invoice, complete tax declaration automatically and back up data online. 50 Revenue from sales of GTD devices is recognized when ownership is transferred to end customers.
Performance Obligations - Tax devices and services contracts with customers include multiple performance obligations such as delivery of products, installation and after-sales supporting services, tax control system risk investigation service, and tax invoicing management service, such as training service on issuing electronic invoice, complete tax declaration automatically and back up data online.
For the year ended December 31, 2022, we had $2,749,498 cash inflow from borrowing from third parties. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 As of December 31, 2021, and December 31, 2020, we had cash in the amount of approximately $2,091,308 and $1,861,554, respectively. Working Capital .
For the year ended December 31, 2022, we had $2,749,498 cash inflow from borrowing from third parties. 58 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 As of December 31, 2022 and 2021, we had cash of $1,203,160 and $2,091,308 respectively. Working Capital .
Tabular Disclosure of Contractual Obligations Below is a table setting forth all of our contractual obligations as of December 31, 2022: Payment Due by Period Less than More than Contractual Obligations Total 1 year 1 – 3 years 3 – 5 years 5 years Operating lease obligations $ 6,948 $ 3,474 $ 3,474 $ - $ - Loan Obligations Principal 2,677,628 506,578 2,171,050 - - Interest 285,855 285,855 - - - Total $ 2,970,431 $ 795,907 $ 2,174,524 $ - $ - Below is a table setting forth all of our contractual obligations as of December 31, 2021: Payment Due by Period Less than More than Contractual Obligations Total 1 year 1 – 3 years 3 – 5 years 5 years Operating lease obligations $ 44,256 $ 26,051 $ 18,205 $ - $ - Total $ 44,256 $ 26,051 $ 18,205 $ - $ - 48 Below is a table setting forth all of our contractual obligations as of December 31, 2020: Payment Due by Period Less than More than Contractual Obligations Total 1 year 1 – 3 years 3 – 5 years 5 years Operating lease obligations $ 84,059 $ 44,740 $ 39,319 $ - $ - Total $ 84,059 $ 44,740 $ 39,319 $ - $ - Consolidation The Company provides substantially all of its services to large businesses and SMEs in China via the VIE and its subsidiaries, due to PRC legal restrictions of foreign ownership in certain sectors.
Tabular Disclosure of Contractual Obligations Below is a table setting forth all of our contractual obligations as of December 31, 2023: Payment Due by Period Less than More than Contractual Obligations Total 1 year 1 – 3 years 3 – 5 years 5 years Operating lease obligations $ 3,382 $ 3,382 $ - $ - $ - Loan Obligations Principal 2,606,698 493,159 2,113,539 - - Interest 278,283 278,283 - - - Total $ 2,888,363 $ 774,824 $ 2,113,539 $ - $ - Below is a table setting forth all of our contractual obligations as of December 31, 2022: Payment Due by Period Less than More than Contractual Obligations Total 1 year 1 – 3 years 3 – 5 years 5 years Operating lease obligations $ 6,948 $ 3,474 $ 3,474 $ - $ - Loan Obligations Principal 2,677,628 506,578 2,171,050 - - Interest 285,855 285,855 - - - Total $ 2,970,431 $ 795,907 $ 2,174,524 $ - $ - 48 Consolidation The Company provides substantially all of its services to large businesses and SMEs in China via the VIE and its subsidiaries, due to PRC legal restrictions of foreign ownership in certain sectors.
The Company had made a payment of $119,405 (VAT included) in January 2022 for the development costs and will make the final payment of $12,531 in 2023. 57 On January 21, March 28 and June 14, 2022, the Company entered into three borrowing agreements of RMB15,000,000 ($2,171,050 with an exchange rate of 0.1447 as of December 31, 2022), RMB1,500,000 ($217,205 with an exchange rate of 0.1447 as of December 31, 2022) and RMB3,500,000 ($506,578 with an exchange rate of 0.1447 as of December 31, 2022) from another third party in a normal course of business.
On January 21, March 28 and June 14, 2022, the Company entered into three borrowing agreements of RMB15,000,000 ($2,171,050 with an exchange rate of 0.1447 as of December 31, 2022), RMB1,500,000 ($217,205 with an exchange rate of 0.1447 as of December 31, 2022) and RMB3,500,000 ($506,578 with an exchange rate of 0.1447 as of December 31, 2022) from another third party in a normal course of business.
The Company has not provided any financial support to the VIE and the VIE’s subsidiaries for the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022, the VIE and its subsidiaries accounted for 96% and 98% of our total assets and total liabilities, respectively.
The Company has not provided any financial support to the VIE and the VIE’s subsidiaries for the years ended December 31, 2023, 2022 and 2021. As of December 31, 2023, the VIEs accounted for 57% and 100% of the Company’s total assets and total liabilities, respectively.
As of December 31, 2022, the Company paid product development costs of $421,679 and the total contract amount was $434,210. In March 2021, the Company signed a supplementary agreement to postpone the official launch after closing of the Company’s initial public offering.
As of December 31, 2023, the Company paid product development costs of $410,509 and the total contract amount was $422,708. In March 2021, the Company signed a supplementary agreement to postpone the official launch of the software APP after the closing of the Company’s initial public offering.
The decrease was mainly due to a decrease in short-term investments of $906,667, advances to suppliers of $629,154 and deferred offering cost of $109,121 which offset by an increase in accounts receivable of $914,104, loan receivable of $808,716 and inventory of $21,649. Current liabilities amounted to $4,203,695 as of December 31, 2022, compared to $2,788,504 as of December 31, 2021.
Working capital as of December 31, 2022 was $7,898,463 compared to $10,178,635 as of December 31, 2021. The decrease was mainly due to a decrease in short-term investments of $906,667, advances to suppliers of $629,154 and deferred offering cost of $109,121 which offset by an increase in accounts receivable of $914,104, loan receivable of $808,716 and inventory of $21,649.
The following table sets forth the assets, liabilities, results of operations and changes in cash, cash equivalents the VIE and its subsidiaries taken as a whole, which were included in the Company’s consolidated balance sheets and statements of comprehensive income and statements of cash flows with intercompany transactions eliminated: As of December 31, 2022 2021 2020 Current assets $ 11,276,852 $ 11,779,996 $ 8,952,038 Total non-current assets $ 9,102,933 $ 4,173,234 $ 3,628,891 Total Assets $ 20,379,785 $ 15,953,230 $ 12,580,929 Total liabilities $ 5,329,843 $ 3,793,609 $ 3,238,595 Years Ended December 31, 2022 2021 2020 Revenues $ 6,228,595 $ 6,473,638 $ 5,804,727 Net income $ 1,684,991 $ 2,061,517 $ 1,735,340 Years Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ 4,016,852 $ (757,861 ) $ 3,025,193 Net cash (used in) provided by investing activities $ (7,349,231 ) $ 400,006 $ (865,047 ) Net cash provided by financing activities $ 2,749,498 $ - $ - 49 Revenue Recognition The Company follows ASU 2014-09, Topic 606, “Revenue from Contracts with Customers” and its related amendments (collectively referred to as “FASB ASC 606”) for its new revenue recognition accounting policy that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The following table sets forth the assets, liabilities, results of operations and changes in cash, cash equivalents the VIE and its subsidiaries taken as a whole, which were included in the Company’s consolidated balance sheets and statements of comprehensive income and statements of cash flows with intercompany transactions eliminated: As of December 31, 2023 2022 Current assets $ 10,571,775 $ 11,276,852 Total non-current assets $ 9,641,441 $ 9,102,933 Total Assets $ 20,213,216 $ 20,379,785 Total liabilities $ 7,073,660 $ 5,329,843 Years Ended December 31, 2023 2022 2021 Revenues $ 4,335,591 $ 6,228,595 $ 6,473,638 Net income $ 1,098,947 $ 1,684,991 $ 2,061,517 Years Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 834,596 $ 4,016,852 $ (757,861 ) Net cash (used in) provided by investing activities $ (675,964 ) $ (7,349,231 ) $ 400,006 Net cash provided by financing activities $ - $ 2,749,498 $ - Revenue Recognition The Company follows ASU 2014-09, Topic 606, “Revenue from Contracts with Customers” and its related amendments (collectively referred to as “ASC 606”) for its revenue recognition accounting policy that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The Company usually recognizes the revenue at the point in time when ownership is transferred to end customers. The Company’s revenue derived from sales of hardware is reported on a gross basis since the Company is primarily obligated in the transaction, bears inventory and credit risk and has discretion in establishing the prices.
The Company’s revenue from sales of hardware is reported on a gross basis since the Company is primarily obligated in the transaction, bears inventory and credit risk and has discretion to establish the prices.
For the year ended December 31, 2021, HiTek’s two business lines operated in three revenue streams the first business line, services to large businesses, include hardware sales, accounting for 37.7% of total revenue, and software sales, accounting for 31.8% of total revenue, and the second business line, ACTCS devices and services accounted for 30.5% of the total revenue.
For the year ended December 31, 2023, HiTek’s two business lines operated three revenue streams. The first business line, services to large businesses, including hardware sales, representing 53% of total revenue, and the software sales, representing 17% of total revenue; and the second business line, ACTCS devices and services, represented 30% of total revenue.
This was mainly due to the increase of sales in software, which has a relatively high gross profit margin compared with other revenue streams. The Company expects to continue to focus on projects with high gross profit such as services for SMEs, and at the same time, increase the hardware and software sales of large customers.
This was mainly due to the change in revenue mix, with fewer revenues being generated in 2023 from CIS software sales that have a higher profit margin. The Company expects to continue to focus on projects with high gross profit, such as services for SMEs, and at the same time, increase the hardware and software sales of large customers.
Years Ended December 31, 2022 2021 2020 Revenues Hardware $ 2,504,426 $ 2,434,694 $ 2,360,362 Tax devices and service 1,803,650 1,970,363 2,254,176 Software 2,120,532 2,056,106 1,053,467 IT services - - 136,722 Total revenues $ 6,428,608 $ 6,461,163 $ 5,804,727 ● Contract balances Prepayments received from customers before the services are performed are recorded as deferred revenue.
Revenue was comprised of the following. Years Ended December 31, 2023 2022 2021 Revenues Hardware $ 2,428,592 $ 2,504,426 $ 2,434,694 Tax devices and service 1,376,323 1,803,650 1,970,363 Software 758,816 2,120,532 2,056,106 Total revenues $ 4,563,731 $ 6,428,608 $ 6,461,163 ● Contract balances Prepayments received from customers before the services are performed are recorded as deferred revenue.
Under ASC 606, revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied.
In accordance with ASC 606, revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. 49 The Company generates its revenues primarily from three sources: (1) hardware sales, (2) software sales, and (3) tax devices and services.
Complementing our physical service center, we started developing online service platform in 2018. As of January 2019, the online service platform enables tens of thousands of businesses in the Xiamen metropolitan area to securely process.
Complementing our physical service center, we started developing online service platform in 2018. As of January 2019, the online service platform enables tens of thousands of businesses in the Xiamen metropolitan area to securely process. We plan to offer business management service, such as agent accounting services and online IT outsourcing services, to the SME clients using our ACTCS services.
We plan to offer business management service, such as agent accounting services and online IT outsourcing services, to the SME clients using our ACTCS services. We also plan to expand our service to large businesses to other geographic regions. In April 2021, WFOE established a wholly-owned subsidiary, Haitian Weilai under the laws of the PRC.
We also plan to expand our service to large businesses to other geographic regions. In April 2021, WFOE established a wholly-owned subsidiary, Haitian Weilai under the laws of the PRC.
The Company’s revenue derived from its gross billings is reported on a gross basis since the Company is primarily obligated in the transaction, is subject to inventory and credit risk and has several but not all of the indications that revenue should be recorded on the gross basis. Revenue was comprised of the followings.
Revenue is recognized based on each performance obligation’s standalone selling price that is sold separately and charged to customers at contract inception. 50 The Company’s revenue from its gross billings is reported on a gross basis since the Company is primarily obligated in the transaction, is subject to inventory and credit risk and has several but not all of the indications that revenue should be recorded on the gross basis.
Our historical reporting results are not necessarily indicative of the results to be expected for any future period.
Results of Operations The following consolidated results of operations include the results of operations of the Company, its wholly owned subsidiary and consolidated VIEs. Our historical reporting results are not necessarily indicative of the results to be expected for any future period.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
The Company uses a one-year time period as the basis for the separation of current and non-current assets. Inventories Inventories are stated at the lower of cost (weighted average basis) or net realizable value. The methods of determining inventory costs are used consistently from year to year.
Bad debts are written off as incurred. Inventories Inventories are stated at the lower of cost (weighted average basis) or net realizable value. The methods of determining inventory costs are used consistently from year to year.
The accounts receivable, net and the accounts receivable of related party, net balance was $7,480,764 and $399,465 as of December 31, 2022, respectively. Subsequent to April 25, 2023, the Company collected receivables of $1,145,325. The Company gives customers different credit periods considering the scale of the customer and past credit experience.
The accounts receivable, net and the accounts receivable of related party, net balance was $7,480,764 and $399,465 as of December 31, 2022, respectively. Subsequent to the filling of the annual report on Form 20-F with the SEC on April 27, 2023, the Company collected receivables of $1,145,325.
As a holding company with no material operations, our operations were conducted in China by our subsidiaries and through VIE Agreements, with HiTek and its subsidiaries. This is an offering of the ordinary shares of the offshore holding company in Cayman Islands. You are not investing in HiTek, the VIE. Neither we nor our subsidiaries own any share in HiTek.
As a holding company with no material operations, our operations were conducted in China by our subsidiaries and through VIE Agreements, with HiTek and its subsidiaries. Neither we nor our subsidiaries own any equity interests in the VIE. The VIE Agreements are designed so that the operations of the VIE are solely for the benefit of the Company.
If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations. 52 Recently issued accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).
If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations.
The loans will be due by January 20, 2024, and June 13, 2023, respectively. The Borrower can pre-pay the outstanding loan amount after twelve months without penalty. 58 (c) Financing Activities Net cash provided by financing activities was $2,749,498 and $nil for the years ended December 31, 2022 and 2021.
The Borrower can pre-pay the outstanding loan amount after twelve months without penalty. (c) Financing Activities Net cash provided by financing activities was $2,749,498 and $nil for the years ended December 31, 2022 and 2021. For the year ended December 31, 2022, we had $2,749,498 cash inflow from borrowing from third parties. Research and Development, Patents and Licenses, etc.
The Company provides the tax device after-sales supporting services and tax invoicing management service, charging the service fee on an annual basis because the service period is usually one year. Revenue related to its service is recognized as the services are performed and amounts are earned, using the straight-line method over the term of the related services agreement.
Revenue from the sales of GTD devices is recognized when ownership is transferred to end customers. The Company provides the tax device after-sales supporting services and tax invoicing management service, charging the service fee on an annual basis because the service period is usually one year.
This occurs when the control of the goods and services have been transferred to the customer. ● Hardware sales Hardware revenues are generated primarily from the sale of computer and network hardware to end users. The products include computers, printers, internet cables, certain internet servers, cameras and monitors. The sales of hardware represent a single performance obligation.
The Company recognizes revenue when performance obligations under the terms of a contract with its customers are satisfied. This occurs when the control of the goods and services have been transferred to the customer. ● Hardware sales Hardware revenues are generated primarily from the sale of computer and network hardware to end users.
Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. 57 Cash Flows Analysis (a) Operating Activities (1) Net cash used in operating activities was $61,912 for the year ended December 31, 2023, while net cash provided by operating activities was $3,824,050 for the year ended December 31, 2022 .
Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. 59 Cash Flows Analysis (a) Operating Activities (1) Net cash provided by operating activities was $3,824,050 for the year ended December 31, 2022, while, net cash used in operating activities was $214,575 for the year ended December 31, 2021.
As of December 31, 2020, the variable interest entities accounted for 87% and 100% of our total assets and total liabilities, respectively. As of December 31, 2022, 2021, and 2020, $955,941, $1,557,325 and $1,335,727 of cash was denominated in RMB, respectively.
As of December 31, 2022, the VIEs accounted for 96% and 98% of our total assets and total liabilities, respectively. As of December 31, 2021, the VIEs accounted for 93% and 100% of our total assets and total liabilities, respectively. As of December 31, 2023, 2022, and 2021, $1,041,909, $843,705 and $1,486,311 of cash was denominated in RMB, respectively.
This increase of liabilities was attributable mainly to an increase in accounts payable of $177,995, deferred revenue of $192,524, loan payable of $506,578 and tax payable of $372,175. Capital Resources and Capital Needs . To date, we have financed our operations primarily through cash flows from operations and third-party loans.
Current liabilities were $4,203,695 as of December 31, 2022, compared to $2,788,504 as of December 31, 2021. This increase of liabilities was attributable mainly to an increase in accounts payable of $177,995, deferred revenue of $192,524, loan payable of $506,578 and tax payable of $372,175. Capital Resources and Capital Needs .
For large customers such as large-scale oil and coal mine customers, the Company gives a two-year credit period starting from March 2019 because of these customers’ long repayment cycle. Net balance of the accounts receivable was $6,802,306 and $6,171,410 as of December 31, 2022 and 2021, respectively. Subsequent to April 25, 2023, the Company has collected receivables of $978,411.
Net balance of the accounts receivable was $6,802,306 and $6,171,410 as of December 31, 2022 and 2021, respectively. Subsequent to the filling of the annual report on Form 20-F with the SEC on April 27, 2023, the Company has collected receivables of $978,411. For IT outsourcing customers, the Company gives 18 months credit period.
Selling expenses consist primarily of shipping and handling costs for products sold and advertisement and marketing expenses for promotion of our products. Selling expenses increased by 3,701.0% or $74,465 to $76,477 in the year ended December 31, 2021 from $2,012 in the same period of 2020.
Selling expenses consist primarily of shipping and handling costs for products sold and advertising and marketing expenses for the promotion of our products. Selling expenses decreased by 99.9% or $436,537 to $648 for the year ended December 31, 2023 from $437,185 in 2022.
With the uncertainty of the current market, our management believes it is necessary to enhance collection of outstanding accounts receivable and other receivables, and to be cautious on operational decisions and project selection. Our management believes that our current operations can satisfy our daily working capital needs. During 2020, the Company engages an external vendor to develop software APP.
To date, we have financed our operations primarily through cash flows from operations, third-party loans and stock offering. With the uncertainty of the current market, our management believes it is necessary to enhance the collection of outstanding accounts receivable and other receivables, and to be cautious on operational decisions and project selection.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our CFS. Results of Operations The following consolidated results of operations include the results of operations of the Company, its wholly owned subsidiary and consolidated VIEs.
The guidance is to be applied prospectively, with an option for retrospective application. The Company is currently evaluating the impact of this new guidance on disclosures within its CFS. The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our CFS.
Operating income was $2,103,534 for the year ended December 31, 2021, compared to $1,753,776 for the same period of 2020. The increase in operating income in 2021was primary due to the increase in revenue and gross profit. Other income . Other income includes government subsidy income, net investment income (loss), and interest income and expenses.
Operating income was $101,061 for the year ended December 31, 2023, compared to $1,627,210 for 2022. The decrease in operating income in 2022 was primarily due to the decrease in CIS software sales. Other income . Other income includes government subsidy income, net investment income (loss), and interest income and expenses.
Among all the software we have developed, CIS is the only software product we are currently marketing and generated revenue. D. Trend information.
We have a dedicated team of three highly skilled in-house IT specialists, which includes three full-time IT professionals responsible for controlling the direction of outsourced R&D projects. Among all the software we have developed, CIS is the only software product we are currently marketing and generated revenue. Trend information.
For large customers such as large-scale oil and coal mine customers, the Company gave a two-year credit period starting from March 2019 because of these customers’ long repayment cycle. The account receivable, net balance was $6,171,410 and $4,769,470 as of December 31, 2021 and 2020, respectively. From January 2022 to April 2022, these companies have repaid $827,200.
The Company gives customers different credit periods considering the scale of the customer and past credit experience. For large customers such as large-scale oil and coal mine customers, the Company gives a two-year credit period starting from March 2019 because of these customers’ long repayment cycle.
The Company also charges a one-time service charge for each investigation request. Revenue related to tax control system risk investigation service is recognized at the point in time when the services are performed. Revenue is recognized based on each performance obligation’s standalone selling price that are sold separately and charged to customers at contract inception.
Revenue from its service is recognized as the services are performed and amounts are earned, using the straight-line method over the term of the related services agreement. The Company also charges a one-time service charge for each investigation request. Revenue from tax control system risk investigation service is recognized when the services are performed.
The increase was mainly because of the increase of the company’s sales commission in connection with obtaining new orders. Selling expenses were 1.18% of total revenue for the year ended December 31, 2021 and 0.03% of total revenue in the same period of 2020. The company expects to maintain the current ratio of Selling expenses to revenue in 2022.
The decrease was mainly attributable to the decrease in the Company’s sales commissions to obtain new orders in 2023. Selling expenses were 0.01% of total revenue for the year ended December 31, 2023 and 6.8% of total revenue in 2022. General and Administrative Expenses .
As of December 31, 2022 and December 31, 2021, $955,941, $1,557,325 and $1,335,727 of cash and equivalents were denominated in RMB, respectively.
As of December 31, 2023, 2022, and 2021, $1,041,909, $843,705 and $1,486,311 of cash was denominated in RMB, respectively.
Liquidity and Capital Resources Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 As of December 31, 2022 and 2021, we had cash of $1,203,160 and $2,091,308 respectively. Working Capital . Working capital as of December 31, 2022 was $7,898,463 compared to $10,178,635 as of December 31, 2021.
Liquidity and Capital Resources Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Our principal sources of liquidity come from cash generated from operating activities, equity financing and loans. As of December 31, 2023 and 2022, we had cash of $9,311,537 and $1,203,160, respectively. Working Capital .
We conduct substantially all of our business in China through contractual arrangements with Xiamen Hengda HiTek Computer Network Co., Ltd., the variable interest entity, and its subsidiaries. See “Business — Contractual Agreements between WFOE and HiTek” for a summary of these VIE arrangements.
In recent years, the Chinese tax regulators have been rolling out the electronic invoicing system. Holding Company Structure Overview We are a holding company with no material operations of our own. We conduct substantially all of our business in China through contractual arrangements with Xiamen Hengda HiTek Computer Network Co., Ltd., the VIE, and its subsidiaries.
Our gross profit increased to $3,879.945 for the year ended December 31, 2021 from $3,171,272 for the same period in 2020. Our gross profit as a percentage of revenue increased to 60.1% for the year ended December 31, 2021 from 54.6% for the same period in 2020.
Our gross profit decreased to $1,921,240 for the year ended December 31, 2023 from $3,537,043 for 2022. Our gross profit as a percentage of revenue decreased to 42.1% for the year ended December 31, 2023 from 55.0% for 2022.
The increase of $1,265,053 in net cash provided by investing activities for the year ended December 31, 2021 was mainly due to (1) an increase of $259,764 in advance payment for software development, (2) an increase of $317,059 in repayment from third-party loans, (3) an increase of $1,223,403 in purchase of Held-to-maturity investments.
The increase of $402,676 in net cash used in investing activities for the year ended December 31, 2023 was mainly due to (1) an increase of $9,067,920 in purchase of held-to-maturity investments; (2) an increase of $5,761,545 in loans lent to third parties; (3) an increase of $221,692 in advance payment for software development, (4) an increase of $186,499 for purchases of property, plant and equipment, and (5) an increase of $150,156 for office renovation.
The increase was mainly due to an increase in short term investments of $2,370,960, accounts receivable of $227,831, advances to suppliers of $ 208,463 and inventory of $289,212, which partially offset by a decrease in accounts receivable – related parties of $281,447 and prepaid expenses and other current assets of $714,647.
The increase was mainly due to an increase in the current portion of short-term investments of $4,547,097, loan receivable of $2,595,132, and prepaid expenses and other current assets of $257,994, which was offset by a decrease in accounts receivable of $1,551,945, inventories of $211,165 and advance to suppliers of $143,603.
Off-Balance Sheet Arrangements . We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our financial statements.
For small and medium customers, the Company gives a six months credit period. The accounts receivable, net balance was $264,139 as of December 31, 2023. Off-Balance Sheet Arrangements . We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.
As of December 31, 2021, the VIE and its subsidiaries accounted for 93% and 100% of our total assets and total liabilities, respectively. As of December 31, 2020, the VIEs accounted for an aggregate of 87% and 100% of our total assets and total liabilities, respectively.
See “Business — Contractual Agreements between WFOE and HiTek” for a summary of these VIE arrangements. As of December 31, 2023, the VIE and its subsidiaries (the “VIEs”) accounted for 57% and 100% of the Company’s total assets and total liabilities, respectively.
General and administrative expenses increased in 20.1% or $284,450 to $1,699,934 for the year ended December 31, 2021from $1,415,484 in the same period of 2020.
General and administrative expenses increased by 23.6% or $346,883 to $1,819,531 for the year ended December 31, 2023 from $1,472,648 in 2022.
Our management is confident in the collecting account receivables and other receivables. The account receivable, net and the account receivable of related party balance was $5,491,475 and $963,034 as of December 31, 2021, respectively. Subsequent to December 31, 2021 we had collected receivables in the total amount of $1,077,273 as of the date of the filing.
The Company reviews accounts receivable on a periodic basis and records credit losses when there is doubt as to the collectability of balances. Our management is confident in collecting account receivables and other receivables. The accounts receivable, net and the accounts receivable from related party, net balance was $2,118,738 and nil as of December 31, 2023, respectively.
Other income was $108,676 and $204,325 for the year ended December 31, 2021 and 2020, respectively. The decrease was primarily due to the Government subsidies in the amount of $101,965 for the year ended December 31, 2020, compared with the Government subsidies in the amount of $6,883 for the same period of 2021. Income tax expense .
Other income was $1,493,465 and $241,753 for years ended December 31, 2023 and 2022, respectively. The increase was primarily due to the increase in investment income of $349,915, government subsidies of $560,090 and interest income of $366,320. Income tax expense . Income tax expense was $546,885 for the year ended December 31, 2023, compared to $453,218 for 2022.
The normal payment period is approximately six months to one year after the customers received goods or were served. The Company gave customers different credit period considering the above factors. For large customers such as large-scale oil and coal mine customers, the Company gives a two-year credit period.
The Company gives customers different credit periods, depending on the scale of the customer and past credit experience. For large customers such as large-scale oil and coal mine customers, the Company gives a two-year credit period from March 2019 because of these customers’ long repayment cycle.
During 2020, we engaged an external vendor to develop software application. As of December 31, 2021, we paid product development costs totaled $333,717 and the total contract amount was $472,000. In March 2021, we signed a supplementary agreement to postpone the official launch after closing of our initial public offering.
Our management believes that our current operations can satisfy our daily working capital needs. During 2020, the Company engages an external vendor to develop software APP. As of December 31, 2022, the Company paid product development costs of $421,679 and the total contract amount was $434,210.
Removed
The VIE Agreements are designed so that the operations of the VIE are solely for the benefit of the Company.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

18 edited+11 added−6 removed29 unchanged
Biggest changeOrdinary Shares Beneficially Owned Number % Directors and Executive Officers: Shenping Yin 8,192,000 (1)(2) 57.74 % Xiaoyang Huang 8,192,000 (1)(2) 57.74 % Tianyu Xia - Bo Shi 431,000 (3) 3.04 % Wenhua Yang - Jianben Song - Lawrence Venick - All Directors and Executive Officers: 8,623,000 60.78 % 5% Shareholders: Fortune Enterprise Holdings Limited 8,192,000 (1)(2) 57.74 % (1) These Ordinary Shares are deemed as beneficially owned by Shenping Yin and Xiaoyang Huang as they are husband and wife.
Biggest changeClass A Number Class B Number Percent of Class A Percentage of Class B Percent of Total Voting Power* Directors And Executive Officers: Shenping Yin — 8,192,000 (1)(2) — 100 % 95.20 % Xiaoyang Huang — 8,192,000 (1)(2) — 100 % 95.20 % Tianyu Xia — — — — — Bo Shi 431,000 (3) — 6.95 % — 0.33 % Weijun Wang — — — — — Shuiqing Huang — — — — — Lawrence Venick — — — — — Directors and Executive Officers as a group (7 individuals): 431,000 8,192,000 6.95 % 100 % 95.53 % 5% Shareholders: Fortune Enterprise Holdings Limited — 8,192,000 (1)(2) — 100 % 95.20 % Bo Shi 431,000 (3) — 6.95 % — 0.33 % * Holders of Class A Ordinary Shares are entitled to one vote per one Class A Ordinary Share.
The nominating and corporate governance committee is responsible for, among other things: ● identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; ● reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us; ● identifying and recommending to our board the directors to serve as members of committees; ● advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
The nominating and corporate governance committee is responsible for, among other things: ● identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; 64 ● reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us; ● identifying and recommending to our BOD to serve as members of committees; ● advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
The compensation committee is responsible for, among other things: ● reviewing and approving to the board with respect to the total compensation package for our most senior executive officers; ● approving and overseeing the total compensation package for our executives other than the most senior executive officers; ● reviewing and recommending to the board with respect to the compensation of our directors; ● reviewing periodically and approving any long-term incentive compensation or equity plans; ● selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and ● programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. 64 Nominating and Corporate Governance Committee.
The compensation committee is responsible for, among other things: ● reviewing and approving to the board with respect to the total compensation package for our most senior executive officers; ● approving and overseeing the total compensation package for our executives other than the most senior executive officers; ● reviewing and recommending to the board with respect to the compensation of our directors; ● reviewing periodically and approving any long-term incentive compensation or equity plans; ● selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and ● programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
The beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power.
The beneficial ownership of Class A Ordinary Shares or Class B Ordinary Shares is determined in accordance with the rules of the SEC and generally includes any Class A Ordinary Shares or Class B Ordinary Shares over which a person exercises sole or shared voting or investment power.
Board Diversity The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
Board Diversity The table below provides certain information regarding the diversity of our BOD as of the date of this annual report.
The following table sets forth the numbers of our employees categorized by function as of December 31, 2022: Function: Management Department (HiTek) 8 Financial Department (HiTek) 4 Technical Service Department (HiTek) 11 Sales Training Department (HiTek) 7 Hotline Service Department (HiTek) 11 Research and Development Department (HiTek) 4 Operation and Maintenance Department (HiTek) 1 Financial Department (Huasheng) 1 Technical Service Department (Huasheng) 1 Management Department (Huoerguosi) 3 Operation and Maintenance Department (Huoerguosi) 2 Technical Service Department (weilai) 5 Financial Department (weilai) 2 Total 60 65 As of December 31, 2022, our employees were located in Xiamen , Fujian province and Huoerguosi, Xinjiang, China.
The following table sets forth the numbers of our employees categorized by function as of December 31, 2023: Function: Management Department (HiTek) 7 Financial Department (HiTek) 5 Technical Service Department (HiTek) 9 Sales Training Department (HiTek) 4 Hotline Service Department (HiTek) 5 Research and Development Department (HiTek) 4 Operation and Maintenance Department (HiTek) 1 Financial Department (Huasheng) 1 Technical Service Department (Huasheng) 1 Management Department (Huoerguosi) 3 Operation and Maintenance Department (Huoerguosi) 1 Technical Service Department (weilai) 5 Financial Department (weilai) 2 Total 48 65 As of December 31, 2023, our employees were located in Xiamen , Fujian province and Huoerguosi, Xinjiang, China.
For purposes of the table below, we deem shares subject to options, warrants or other exercisable or convertible securities that are exercisable or convertible currently or within 60 days of April 25, 2023, to be outstanding and to be beneficially owned by the person holding the options, warrants or other currently exercisable or convertible securities for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
For purposes of the table below, we deem shares subject to options, warrants or other exercisable or convertible securities that are exercisable or convertible currently or within 60 days of the date of this annual report , to be outstanding and to be beneficially owned by the person holding the options, warrants or other currently exercisable or convertible securities for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
Compensation Committee. Our compensation committee consists of Mr. Wenhua Yang, Mr. Jianben Song and Mr. Lawrence Venick. Mr. Song is the chairman of our compensation committee. We have determined that Mr. Yang, Mr. Song and Mr. Venick satisfy the “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules and Rule 10A-3 under the Securities Exchange Act.
Compensation Committee. Our compensation committee consists of Mr. Weijun Wang, Mr. Shuiqing Huang and Mr. Lawrence Venick. Mr. Huang is the chairman of our compensation committee. We have determined that Mr. Wang, Mr. Huang and Mr. Venick satisfy the “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules and Rule 10A-3 under the Securities Exchange Act.
E. Share ownership. The following table sets forth information regarding the beneficial of our ordinary shares as of April 25, 2023: ● each person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; ● each of our executive officers and directors; and ● all our executive officers and directors as a group.
Share ownership The following table sets forth information regarding the beneficial of our Class A Ordinary Shares and Class B Ordinary Shares as of the date of this annual report for: ● each person known by us to be the beneficial owner of more than 5% of our outstanding Class A Ordinary Shares or Class B Ordinary Shares; ● each of our executive officers and directors; and ● all our executive officers and directors as a group.
Our nominating and corporate governance committee consists of Mr. Wenhua Yang, Mr. Jianben Song and Mr. Lawrence Venick upon the effectiveness of their appointments. Mr. Venick is the chairperson of our nominating and corporate governance committee. Mr. Yang, Mr. Song and Mr.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Weijun Wang, Mr. Shuiqing Huang and Mr. Lawrence Venick upon the effectiveness of their appointments. Mr. Venick is the chairperson of our nominating and corporate governance committee. Mr. Wang, Mr. Huang and Mr.
Compensation Executive Compensation The following table represents compensation earned by our executive officers in the fiscal year ended December 31, 2022 and 2021: Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Share Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation Deferred Compensation Earnings Other Total ($) Xiaoyang Huang, 2022 12,484 56,476 0 0 0 0 0 68,960 Chief Executive Officer 2021 13,023 62,016 0 0 0 0 0 75,040 Bo Shi, 2022 28,706 29,724 58,430 Chief Technology Officer 2021 28,861 31,008 0 0 0 0 0 59,869 Tianyu Xia, 2022 53,504 0 0 0 0 0 0 53,504 Chief Financial Officer 2021 55,815 0 0 0 0 0 0 55,815 62 Grants of Plan Based Awards None.
Compensation Executive Compensation The following table shows compensation earned by our executive officers in the fiscal years ended December 31, 2023 and 2022: Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Share Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation Deferred Compensation Earnings Other Total ($) Xiaoyang Huang, 2022 12,484 56,476 - - - - - 68,960 Chief Executive Officer 2023 102,335 10,145 - - - - - 112,480 Bo Shi, 2022 28,706 29,724 58,430 Chief Technology Officer 2023 26,779 5,072 - - - - - 31,851 Tianyu Xia, 2022 53,504 - - - - - - 53,504 Chief Financial Officer 2023 65,481 - - - - - - 65,481 62 Grants of Plan Based Awards None.
Directors and Senior Management Our directors and executive officers are as follows: Name Age Position(s) Shenping Yin 53 Chairman of the Board Xiaoyang Huang 53 Chief Executive Officer and Director Tianyu Xia 33 Chief Financial Officer Bo Shi 48 Chief Technology Officer Wenhua Yang 54 Independent Director* Jianben Song 64 Independent Director* Lawrence Venick 50 Independent Director* * Appointment effective upon the closing of the Company’s initial public offering Below is a summary of the business experience of each of our executive officers and directors: Shenping Yin Mr.
Directors and Senior Management Our directors and executive officers are as follows: Name Age Position(s) Shenping Yin 54 Chairman of the Board Xiaoyang Huang 55 Chief Executive Officer and Director Tianyu Xia 34 Chief Financial Officer Bo Shi 50 Chief Technology Officer Weijun Wang 52 Independent Director Shuiqing Huang 59 Independent Director Lawrence Venick 51 Independent Director Below is a summary of the business experience of each of our executive officers and directors: Shenping Yin Mr.
Wenhua Yang is the chairman of our audit committee. We have determined that Mr. Yang, Mr. Song and Mr. Venick satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act. Our board also has determined that Mr.
Venick satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act. Our board also determined that Mr. Wang qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq Listing Rules.
Even though we are exempted from corporate governance standards because we are a Foreign Private Issuer (“FPI”), we have voluntarily adopted a charter for each of the three committees. Each committee’s members and functions are described below. Audit Committee . Our audit committee consists of Mr. Wenhua Yang, Mr. Jianben Song and Mr. Lawrence Venick. Mr.
Board Practices Committees of the Board of Directors We have three committees under the BOD: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Even though we are exempted from corporate governance standards because we are a Foreign Private Issuer (“FPI”), we have voluntarily adopted a charter for each of the three committees.
(2) These Ordinary Shares are held by Fortune Enterprise Holdings Limited, a British Virgin Islands company. Since Mr. Yin and Ms. Huang are the shareholders and directors of Fortune Enterprise Holdings Limited, they are deemed as the beneficial owners of these securities.
Yin and Ms. Huang are the shareholders and directors of Fortune Enterprise Holdings Limited, they are deemed as the beneficial owners of these securities. (3) Represents 431,000 Class A Ordinary Shares held by Star Discover Global Limited, a British Virgin Islands company which Bo Shi owns and controls 60% equity interest and voting power. 66 F.
He holds a Ph.D. in biophysics at the University of Rochester, New York. Lawrence Venick Mr. Lawrence Venick has been our independent director since April 4, 2023. Mr. Venick has been a Partner at Loeb & Loeb LLP since 2007.
Huang holds a bachelor’s degree in Literature and a master’s Degree in Science at Peking University. Lawrence Venick Mr. Lawrence Venick has been our independent director since April 4, 2023. Mr. Venick has been a Partner at Loeb & Loeb LLP since 2007.
Yang qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq Listing Rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.
The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.
Shi graduated from Wuhan University of Technology (formerly known as “Wuhan Automotive University”) in July 1996, with a bachelor’s degree in Computer Science and Application. 61 Wenhua Yang Mr. Wenhua Yang has been our independent director since April 4, 2023. He was the Vice President of Beijing Huaxia Bank, Guanghua Road Branch from July 2002 to May 2004.
Shi graduated from Wuhan University of Technology (formerly known as “Wuhan Automotive University”) in July 1996, with a bachelor’s degree in Computer Science and Application. 61 Weijun Wang Mr. Weijun Wang has served as the vice general manager of Shanghai UDH Technologies Co., Ltd since May 2022.
Removed
From June 2004 to September 2006, he served as the Vice President of Beijing Guangda Bank, Guanghua Road Branch. From April 2006 to date, he served as the general manager of Beijing Nengju Trading Development Co., Ltd. He has worked for 15 years in the banking and business industries. Mr.
Added
He worked for GOLDTECH Group Company for more than eight years, including working as a technical engineer, the director of the Nanchang and Wuhan office, and the vice general manager of the Fuzhou branch from May 1994 to July 2002.
Removed
Yang holds a Bachelor’s Degree in Accounting and a Master’s Degree in Business Management at Capital University of Economics and Business. Jianben Song Mr. Jianben Song has been our independent director since April 4, 2023. Mr. Song has been the data architect of Charter Communications since February 2013.
Added
From August 2002 to August 2003, he served as the manager of the marketing and sales department of Shanghai ShiWei Network System Engineering Co., Ltd. From September 2003 to October 2007, he served as the account manager of Cisco Systems (China) Research & Development Co Ltd., Shanghai branch.
Removed
From November 2010 to January 2013, he worked as a data architect for Bank of America, where he was responsible for designing databases. He has extensive experience in software engineering. Mr. Song graduated from Tsinghua University with a Bachelor’s degree in physics. He holds a Master’s degree in biophysics from the Institute of Biophysics, Academia China.
Added
From November 2007 to April 2009, he served as the development business manager of Shanghai Kingsway Co., Ltd. From May 2009 to July 2016, he served as the account manager of Cisco Systems (China) Research & Development Co Ltd., Shanghai and Fuzhou branch.
Removed
Board Practices Committees of the Board of Directors We have three committees under the board of directors on April 4, 2023, upon closing of Company’s initial public offering: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
Added
From August 2016 to April 2022, he served as the manager of different departments of Cisco China Company, Limited. Mr. Wang holds a bachelor’s degree in Agriculture Information at Nanjing Agricultural University. Shuiqing Huang Mr.
Removed
D. Employees We had 60, 66 and 75 employees as of December 31, 2022, 2021 and 2020, respectively.
Added
Shuiqing Huang has been working at Nanjing Agricultural University for more than 35 years, including working as an associate professor and professor of the Department of Information Management, the director of the Department of Humanities and Social Sciences, the dean of the School of Information Technology, and a doctoral supervisor, since February 1988. Mr.
Removed
(3) Represents 431,000 Ordinary Shares held by Star Discover Global Limited, a British Virgin Islands company which Bo Shi owns and controls 60% equity interest and voting power. 66 F. Disclosure of A Registrant’s Action to Recover Erroneously Awarded Compensation None.
Added
Each committee’s members and functions are described below. Audit Committee . Our audit committee consists of Mr. Weijun Wang, Mr. Shuiqing Huang and Mr. Lawrence Venick. Mr. Weijun Wang is the chairman of our audit committee. We have determined that Mr. Wang, Mr. Huang and Mr.
Added
Compensation Recovery Policy We have a compensation recovery policy to provide for the recovery of erroneously-awarded incentive compensation, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, final SEC rules, and applicable listing standards. D. Employees We had 48, 60 and 66 employees as of December 31, 2023, 2022 and 2021, respectively.
Added
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Class A Ordinary Shares or Class B Ordinary Shares shown as beneficially owned by them.
Added
Percentage of beneficial ownership of each listed person is based on 6,200,364 Class A Ordinary Shares outstanding and 8,192,000 Class B Ordinary Shares outstanding as of the date of this annual report.
Added
Holders of Class B Ordinary Shares are entitled to 15 votes per one Class B Ordinary Share. (1) These Class B Ordinary Shares are deemed as beneficially owned by Shenping Yin and Xiaoyang Huang as they are husband and wife. (2) These Class B Ordinary Shares are held by Fortune Enterprise Holdings Limited, a British Virgin Islands company. Since Mr.
Added
Disclosure of A Registrant’s Action to Recover Erroneously Awarded Compensation None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

4 edited+0 added−2 removed2 unchanged
Biggest changeAccounts receivables from related parties As of December 31, 2022, accounts receivable from Beijing Zhongzhe Yuantong Technology Co., Ltd. was $399,465. As of December 31, 2021, accounts receivable from Beijing Zhongzhe Yuantong Technology Co., Ltd. was $963,034.
Biggest changeAs of December 31, 2023, it was repaid by the Company. Accounts receivables from related parties As of December 31, 2022, accounts receivable from Beijing Zhongzhe Yuantong Technology Co., Ltd. was $399,465. As of December 31, 2023, it was collected by the Company.
Item 7. Major Shareholders and Related Party Transactions A. Major shareholder Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.” B. Related party transactions.
Item 7. Major Shareholders and Related Party Transaction A. Major shareholder Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.” B. Related party transactions.
Cost of revenues from related parties The Company purchased from Fengqi (Beijing) Zhineng Technology Co., Ltd., 3.04% owned by HiTek’s Chairman Mr. Shenping Yin, in hardware of $11,830, $52,961 and $nil for fiscal years ended December 31, 2022, 2021 and 2020. Employment Agreements See “Item 6.B — Compensation — Employment Agreements”. C. Interests of experts and counsel. Not applicable. 67
Cost of revenues from related parties The Company purchased from Fengqi (Beijing) Zhineng Technology Co., Ltd., 3.04% owned by HiTek’s Chairman Mr. Shenping Yin, in hardware of $8,480, $11,830 and $52,961 for the fiscal years ended December 31, 2023, 2022 and 2021. Employment Agreements See “Item 6.B — Compensation — Employment Agreements”. C. Interests of experts and counsel.
For a description of these contractual arrangements, see “Business — Our History and Corporate Structure”. B. Related Party Transactions Advances from Related Parties As of December 31, 2022, Company had outstanding advances owed to Fengqi (Beijing) Zhineng Technology Co., Ltd., 3.04% owned by HiTek’s Chairman Mr. Shenping Yin, in the amount $598.
For a description of these contractual arrangements, see “Business — Our History and Corporate Structure”. B. Related Party Transactions Advances from Related Parties As of December 31, 2022, Company had outstanding advances owed to Fengqi (Beijing) Zhineng Technology Co., Ltd., 3.04% owned by HiTek’s Chairman Mr. Shenping Yin, of $598. The advances are due on demand and non-interest bearing.
Removed
The advances are due on demand and non-interest bearing. As of December 31, 2021, Company had outstanding advances owed to Fengqi (Beijing) Zhineng Technology Co., Ltd., 5.7% owned by HiTek’s Chairman Mr. Shenping Yin, in the amount $4,163. The advances are due on demand and non-interest bearing.
Removed
Sales revenues from related parties The Company generated sales revenues from Beijing Zhongzhe Yuantong Technology Co., Ltd., which is under the same common control with Baotou Zhongzhe Hengtong Technology Co., Ltd., in hardware sales of $nil for fiscal year ended December 31,2022 and 2021, and $255,344 for fiscal year ended December 31, 2020; and software sales of $nil for fiscal year ended December 31, 2022 and 2021, and $353,977 for fiscal year ended December 31, 2020.

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