{"url_path":"/sec/brqsf/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1650575/0001213900-26-057706-index.html","accession_number":"0001213900-26-057706","cik":"0001650575","ticker":"BRQSF","issuer_name":"Borqs Technologies, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1650575/0001213900-26-057706-index.html","primary_entity_key":"0001650575","primary_entity_name":"Borqs Technologies, Inc."},"word_count":10636,"has_tables":true,"body_markdown":"**ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n \n\nThe following discussion of\nthe results of our operations and our financial condition should be read in conjunction with the financial statements and the notes to\nthose statements included in “Item 18. Financial Statements”. This discussion contains forward-looking statements that involve\nrisks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements\nas a result of many factors, including those set forth in “Item 3. Key Information–D. Risk Factors”.\n\n \n\nSince we have completed the sale of our core businesses to Sasken on\nApril 9, 2026, the following discussions on the results of operations were related to the period from January 1 up to April 8, 2026.\n\n \n\nReferences in this Annual\nReport to “we,” “us,” or the “Company” refer to Borqs Technologies, Inc. References to our “management”\nor our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s\nfinancial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained\nelsewhere in this Annual Report. Certain information contained in the discussion and analysis set forth below includes forward-looking\nstatements that involve risks and uncertainties.\n\n \n\n36 \n\n \n\n \n\n**Management’s Discussion and Analysis\nof Financial Condition and Results of Operations**\n\n \n\n**Special Note Regarding Forward-Looking Statements**\n\n \n\n*This Annual Report includes\n“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities\nExchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially\nfrom those expected and projected. All statements, other than statements of historical fact included in this Annual Report including,\nwithout limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”\nregarding the Company’s financial position, business strategy and the plans and objectives of management for future operations,\nare forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,”\n“estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking\nstatements. Such forward-looking statements relate to future events or future performance but reflect management’s current beliefs,\nbased on information currently available. A number of factors could cause actual events, performance, or results to differ materially\nfrom the events, performance, and results discussed in the forward-looking statements. For information identifying important factors that\ncould cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors\nsection of this Annual Report. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website\nat www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update\nor revise any forward-looking statements, whether as a result of new information, future events or otherwise.*\n\n \n\n**Overview**\n\n \n\nBorqs Technologies, Inc. (“we”,\n“the Company” or “Borqs”) is a company focused on software, development services, and products providing customizable,\ndifferentiated and scalable Android-based smart connected devices and cloud service solutions. We are a leading provider of commercial-grade\nAndroid platform software for mobile chipset manufacturers, mobile device OEMs and mobile operators, as well as complete product solutions\nof mobile connected devices for enterprise and consumer applications. In recent years, we have been awarded significant business contracts\nfrom global customers. Particularly, significant contracts from Qualcomm were awarded to us in 2021, 2022 and also in 2023.\n\n \n\nPursuant to the Company’s\nacquisition of Borqs International Holding Corp (“Borqs International”) by way of merger, which was completed on August 18,\n2017, Borqs International became a wholly-owned subsidiary of the Company, with the Company adopting the business of Borqs International\nand its consolidated subsidiaries going forward and reporting the historical consolidated financial statements of Borqs International\non future SEC filings as those of the Company, which was renamed Borqs Technologies, Inc.\n\n \n\nOur Connected Solutions business\nunit works closely with chipset partners to develop new connected devices. Borqs developed the reference Android software platform and\nhardware platform for Intel and Qualcomm phones and tablets. We provide Connected Solutions customers with customized, integrated, commercial-grade\nAndroid platform software and service solutions to address vertical market segment needs through the targeted BorqsWare software platform\nsolutions. The BorqsWare software platform consists of BorqsWare Client Software and BorqsWare Server Software. The BorqsWare Client Software\nplatform has been used in Android phones, tablets, watches, and various Internet-of-things (“IoT”) devices. The BorqsWare\nServer Software platform consists of back-end server software that allows customers to develop their own mobile end-to-end services for\ntheir devices.\n\n \n\nIn the years ended December\n31, 2023, 2024, and 2025, Borqs generated 42.1%, 49.4%, and 64.6% of its Connected Solutions BU revenues from customers headquartered\noutside of China and 57.9%, 50.6% and 35.4% from customers headquartered in China. \n\n \n\nWe acquired 51% ownership\nof HHE on October 19, 2021. HHE designs, develops, integrates and installs solar power systems to residential and commercial customers\nincluding solar panels and lithium battery-based energy storage systems. As mandated by CFIUS, we had completely divested our ownership\nof HHE on March 6, 2024.\n\n \n\n37 \n\n \n\n \n\nWe have experienced volatile\nbusiness cycles since our inception in 2007. Net revenues from continuing operations of the Connected Solutions BU increased from $75.1\nmillion in 2015 to $85.4 million in 2016, to $122.2 million in 2017, to $128.4 million in 2018, but scaled back to $98.9 million in 2019.\nOur operations were significantly affected by the COVID-19 pandemic in 2020 and recorded only $26.8 million in revenues for the year 2020.\nWe grew back to $29.6 million, $52.5 million, and $32.0 million in revenues for the year 2021, 2022, and 2023, respectively. We recorded\na net loss of $12.8 million in 2017, which included non-cash merger-related costs of $14.5 million. In the year 2018 we incurred a net\nloss of $72.0 million which included $6.2 million in cost of goods for one transaction in which the related revenue was not recognized\nin 2018 due to uncertainty in collectability, non-recurring charges of $5.3 million in arbitration loss, write-off and provision for doubtful\naccounts and current assets of $30.1 million, write-down of historical inventory due to loss & obsolescence of $11.8 million, impairment\nof long-term investment of $13.0 million, deferred income tax benefits of $1.7 million, impairment of intangible assets due to the pending\nsale of the MVNO business unit of $0.8 million, share based compensation of $1 million, and $3.0 million in stock offering expenses. In\nthe year 2020, we incurred a net loss of $34.8 million which included professional fees of $3.6 million, salaries and welfare of $2.6\nmillion, non-recurring penalties of $1.1 million, share-based compensation expense of $20.0 million and contingency loss of $3.1 million\nand allowance for doubtful accounts of $4.4 million, offset by gain on disposal of Yuantel of $10.1 million. In the year 2021, we incurred\na net loss of $56.6 million which included professional fees of $2.1 million, salaries and welfare of $6.1 million, interest expense related\nto debt discount of $9.9 million, share-based compensation expense of $17.5 million and impairment loss of $1.3 million and loss on debt\nsettlement of $17.2 million, offset by reversal of contingency loss of $3.3 million and gain on debt forgiveness of $2.1 million. In the\nyear 2023, we incurred a net loss of $26.9 million, which consisted of loss from continuing operations of $28.2 million and income from\ndiscontinued operations of $1.3 million. For the loss from continued operation, which included professional fees of $2.4 million, salaries\nand welfare of $4.5 million, interest expense related to debt discount of $0.7 million, share-based compensation expense of $7.8 million.\nIn the year 2024, we generate a net income of $17.3 million, consisting of income from continuing operation of $17.4 million and loss\nfrom discontinued operation of $0.1 million. For the loss from continued operation included professional fees of $2.3 million, salaries\nand welfare of $4.5 million, and share-based compensation expense of $0.05 million. In the year 2025, we generated a net income of $5.6\nmillion, consisting of income from continuing operation of $9.7 million and loss from discontinued operation of $4.1 million. For the\nincome from continued operation included professional fees of $2.0 million, salaries and welfare of $7.8 million, and share-based compensation\nexpense of $2.4 million.\n\n \n\n**Key Factors Affecting Results of Operations**\n\n \n\nRevenue mix impacts our overall\ngross profit and gross margin. In particular:\n\n \n\n**Connected Solutions\nBU**. Revenue from product sales is the largest component of Connected Solutions BU revenue. Product sales gross margin is\nprimarily affected by competition, cost of components, and intellectual property royalties. Gross margin for engineering design fees\nand software royalties tends to be higher because the associated cost of revenues is lower than that for hardware products, and\npricing is less subject to competitive pressure. In addition, because product sales and software royalties are generally calculated\non a per-unit basis, our revenue will vary depending on the volume of product sales. Engineering design fees are generally not\nrelated to the volume of product sales.\n\n \n\nConnected Solutions BU’s\nnet revenues and gross profits are affected by general factors in the highly competitive mobile industry, such as shifts in consumer preferences\nand customer demands, technological innovations, competing mobile operating systems, and pricing trends. Results are also affected by\ndevelopments in the Android platform and software market specifically, such as Google’s continued support of the Android platform,\ncontinued availability of a free and open-source software license for that platform, continued deployment of the Android platform, and\ncontinued outsourcing of software development to third-party providers. Unfavorable changes in any of these factors could affect market\ndemand for our solutions and materially adversely affect our revenues and results of operations. Revenues and gross profit in the Connected\nSolutions BU are also affected by Company-specific factors, including:\n\n \n\n \n●\nWe rely on a limited number of customers for a significant portion of our net revenues, particularly our relationship with a customer that is a prominent mobile chipset manufacturer. We also rely on this mobile chipset manufacturer from a strategic viewpoint since products that we develop for this customer may also be scaled to other mobile device OEM customers. We devote a significant portion of our research and development resources to this effort. Our results of operations would be significantly harmed if our collaboration with this customer were to decline or its Android-related product development efforts were not successful.\n\n \n\n \n●\nOur ability to grow our net revenues depends on our ability to expand our customer base, both in terms of the number of customers and geographic concentration, and also increase the number of projects we undertake for existing and new customers. Our ability to do so depends on the success of our products and services and those of our customers and on our marketing and sales performance.\n\n \n\n38 \n\n \n\n \n\n \n●\nOur ability to maintain our position as one of the largest independent Android platform software companies will require us to continue to strengthen our technology expertise and capabilities by focusing our research and development on maintaining technology leadership and offer advanced Android platform software and service solutions on our customers’ demanding timelines. In addition, our ability to grow our revenues will largely depend on how quickly we and our customers can roll out new products and services.\n\n \n\n \n●\nCompeting successfully in the Android platform and software market requires us to maintain a competitive pricing structure, including labor costs and operating expenses. Competition for software engineers is intense, particularly in mainland China and in India.\n\n \n\nAs of April 9, 2025, the Company\ncompleted the sale of its Connected Solutions business to Sasken.\n\n \n\n**Solar Power BU**. HHE\ndesigns, develops, integrates, and installs solar power systems for residential and commercial customers. The financial results of HHE\nfrom the date of acquisition up to December 31, 2021 were consolidated into Borqs’ financial statements. HHE recognizes revenues\nwhen the solar power projects are fully completed. During the period of consolidation, no solar power projects were completed, and consequently,\nno revenues from HHE were recognized.\n\n \n\nOn December 13, 2022, Borqs\nTechnologies received a letter from the Department of the Treasury on behalf of the Committee on Foreign Investment in the United States\n(“CFIUS”) stating that the Company is required to negotiate with CFIUS to fully divest its ownership interests and rights\nin Holu Hou Energy LLC (“HHE”) due to HHE’s solar energy storage system and EnergyShare technology for Multi-Dwelling\nResidential Units being deemed a potential national security risk.\n\n \n\nOn December 31, 2022, the\nCompany resolved that to comply fully with the requirements of the CFIUS Letter which involve multiple steps that the Company must adhere\nto, including: (i) Entering into a National Security Agreement with various departments of the US government with a plan that is effective,\nmonitorable and verifiable to divest Borqs’ investment interests and rights in HHE; (ii) Selection of a trustee and entering into\na Divestment Trust Agreement, and assigning the Company’s interest in HHE to the trustee; and, (iii) Selection of a nationally recognized\ninvestment bank as the exclusive agent for the divestment of HHE. Besides, the Group also resolved that as of December 31, 2022, terminate\nits control of HHE by (i) removal of all of the Company’s representatives from HHE’s Board of Directors, (ii) relinquishment\nof Class A Membership Unit voting rights, and (iii) reduction of the Company’s ownership of HHE from 51% down to 49% by assigning\n2% of the ownership back to HHE. By taking the above actions, the Company no longer has a controlling interest in HHE and resulting in\nthe deconsolidation of HHE.\n\n \n\nOn March 16, 2023, the Company\nand HHE entered into a National Security Agreement (“NSA”) with the Department of Defense and the Department of Treasury.\nThe NSA provides that the divestment shall occur within six months unless extended by the U.S. Government. The NSA also contains standstill\nprovisions which provide that the Company shall not acquire any additional ownership interest in HHE, merge with or into HHE, effect any\nchanges to the rights held by the Company, except as necessary to effect its obligations under the NSA, or acquire or take possession\nof any assets of HHE. Further, upon the completion of the Divestment, the Company shall terminate or irrevocably waive any information,\nconsent, board appointment, board observer, or other governance rights held by the Company, except for any rights that are determined\nby the U.S. Government to be necessary to effect the provisions of the NSA. The NSA outlines the steps to be taken concerning the Divestment:\nengaging a nationally recognized investment bank with experience in administering competitive sales and auction processes; assigning and\nhiring of security and monitoring personnel to directly communicate with the U.S. Government; removing all of Borqs’ administrative\nand technical influence over HHE; and creating a plan to divest all of Borqs’ investment interests and rights in HHE. Under the\nrequirement of the NSA, Borqs has assigned its interests in HHE into a Divestment Trust according to a Divestment Trust Agreement (“DTA”)\ndated March 20, 2023, entered into between Borqs, HHE and a trustee.\n\n \n\nThe Company’s solar\npower business met the criteria to be reported as a discontinued operation and, as a result, HHE’s historical financial results\nare reflected in the Company’s consolidated financial statements as a discontinued operation, and assets and liabilities were retrospectively\nreclassified as assets and liabilities held for sale for all periods presented.\n\n \n\nAs of March 6, 2024, the Company\ncompleted the divestiture of its ownership in HHE.\n\n \n\nThe aggregate amount of cash\nand cash equivalent and restricted cash are not materially affected by currency fluctuations because the majority of our revenues are\ndenominated in U.S. Dollars based on contracts made in Hong Kong. Financings from sales of equity and working capital loans are denominated\nin U.S. Dollars and executed in Hong Kong and the Cayman Islands, and repayments have been made in U.S. Dollars outside of China, thus\nnot requiring approval from the PRC State Administration of Foreign Exchange. Personnel and personnel-related expenses are primarily paid\nin the Indian and Chinese currencies, and costs of components used in the Connected Solutions and hardware revenues are primarily paid\nin U.S. Dollars. As of December 31, 2025, we held cash and cash equivalents totaling $2.6 million and short term investments of $4.9 million\non a consolidated basis.\n\n \n\n39 \n\n \n\n \n\n**Results of Operations**\n\n \n\nThe following table sets forth\na summary of the Company’s consolidated results of operations for the periods indicated. The activities indicated herewith were\nfrom our Connected Solutions BU, our continuing operations; they did not include activities from our Solar Power BU, which were classified\nas discontinued operations. This information should be read in conjunction with our consolidated financial statements and related notes\nincluded elsewhere or incorporated by reference in this Annual Report. The operating results in any period are not necessarily indicative\nof results that may be expected for any future period.\n\n \n\n**Comparisons of Fiscal Years Ended December\n31, 2023, 2024 and 2025**\n\n** **\n\n  \nFiscal Years Ended December 31, \n\nConsolidated Statement of Operations Data: \n2023  \n2024  \n2025 \n\n  \n($’000) \n\nNet revenues \n 20,567  \n 27,713  \n 13,602 \n\nCost of revenues \n (16,697) \n (21,927) \n (13,102)\n\nGross profit \n 3,870  \n 5,786  \n 500 \n\n  \n    \n    \n   \n\nOperating expenses \n (15,236) \n (9,320) \n (17,894)\n\nOther operating income \n 22  \n 396  \n - \n\nOperating loss \n (11,344) \n (3,138) \n (17,394)\n\n  \n    \n    \n   \n\nOther (expense) income \n (18,951) \n 20,608  \n 27,105 \n\n(Loss) income from continuing operations, before income taxes \n (30,295) \n 17,470  \n 9,711 \n\n  \n    \n    \n   \n\nIncome tax benefit (expense) \n 2,084  \n (8) \n (5)\n\nNet (loss) income from continuing operations \n (28,211) \n 17,462  \n 9,706 \n\n  \n    \n    \n   \n\nDiscontinued operations \n    \n    \n   \n\nIncome (loss) from operations of discontinued operations \n 2,368  \n (4) \n (4,999)\n\nIncome tax (expense) benefit \n (1,078) \n (135) \n 945 \n\nIncome (loss) on discontinued operations \n 1,290  \n (139) \n (4,054)\n\n  \n    \n    \n   \n\nNet (loss) income \n (26,921) \n 17,323  \n 5,652 \n\n  \n    \n    \n   \n\nLess: net (loss) income attributable to noncontrolling interests \n (454) \n 626  \n 287 \n\nNet (loss) income attributable to Borqs Technologies, Inc. \n (26,467) \n 16,836  \n 9,419 \n\n** **\n\n40 \n\n \n\n \n\nFor the year ended December\n31, 2023, we incurred a net loss of $26.9 million, which consisted of a loss from continuing operation of $28.2 million and income from\ndiscontinued operation of $1.3 million. The loss from continued operation, which included professional fees of $2.4 million, salaries\nand welfare of $4.5 million, interest expense related to debt discount of $0.7 million, share-based compensation expense of $7.8 million.\nFor the year ended December 31, 2024, we incurred a net income of $17.3 million, which consisted of income from continuing operation of\n$17.4 million and loss from discontinued operation of $0.1 million. For the loss from continued operation, which included professional\nfees of $2.3 million, salaries and welfare of $4.5 million, interest expense related to debt discount of $0.8 million, and impairment\nloss of $1.5 million, offset by gain from disposal of a subsidiary of $12.5 million and gain from cancellation of shares as compensation\nof $6.0 million. For the year ended December 31, 2025, we generated a net income of $5.6 million, consisting of income from continuing\noperation of $9.7 million and loss from discontinued operation of $4.1 million. For the income from continued operation included professional\nfees of $2.0 million, salaries and welfare of $7.8 million, and share-based compensation expense of $2.4 million.\n\n \n\n**Net Revenue**\n\n \n\nOur net revenues represent\nour gross revenues, less PRC value-added taxes and other deductions. Connected Solutions BU net revenues consist of engineering design\nfees, software royalties, and product sales.\n\n \n\nFor the year ended December\n31, 2025, net revenues from Connected Solutions BU were $13.6 million, representing a 50.9% decrease from the previous year. The decrease\nin business activities in 2024 was mainly attributable to the decrease in our hardware revenue. For the year ended December 31, 2024,\nnet revenues from Connected Solutions BU were $27.7 million, representing a 34.7% increase from the previous year. The increase in business\nactivities in 2024 was mainly attributable to the increase in our hardware revenue. For the year ended December 31, 2023, net revenues\nfrom Connected Solutions BU were $20.6 million, representing a 50.1% decrease from the previous year. The decrease in business activities\nin 2023 was mainly attributable to the decrease in our hardware revenue.\n\n \n\nAs our Connected Solutions\nBU did not engage in any retail activities in the countries where our customers were located, and also not within China, and we concluded\nthat the fluctuations in our revenues between the years were not indicative of market conditions. Instead, our hardware sales of our Connected\nSolution BU comprised of all made-to-order products with quantities as stipulated by our customers and also included consumer and industrial\nuse devices as well. As such, the orders we receive from our customers may not adhere to seasonality and therefore, fluctuations in our\nbusiness activity levels may not conform to any particular trend.\n\n \n\n**Net Revenues — Connected Solutions\nBU**\n\n \n\nConnected Solutions BU net\nrevenues mainly consist of product sales. It represents our continuing operation for the years ended December 31, 2023, 2024 and 2025.\n\n \n\nAs discussed more fully under\n“— Critical Accounting Policies and Estimates — Revenue Recognition — Project-Based Software Contracts,”\nthe Company’s project-based software contracts include post-contract support, or PCS, where the customer has the right to receive\nunspecified upgrades/enhancements on a when-and-if-available basis. Since we are unable to establish vendor-specific objective evidence\nof fair value of post-contract services, or PCS, revenues from project-based software contracts are recognized on a straight-line basis\nover the longest expected delivery period of undelivered elements of the arrangement, which is typically the PCS period. Project-based\nsoftware contracts that include PCS have a typical PCS period of 12 months. As a result of this revenue recognition method, some portion\nof the net revenue we report in each period is recognition of deferred revenues from contracts entered into in prior periods and for which\nthe research and development and engineering work has already been completed. In addition, a majority of the project-based software contracts\nprovide for usage-based royalties. We recognize royalties upon the receipt of quarterly usage reports provided by customers.\n\n \n\n41 \n\n \n\n \n\nThe following table sets forth\nour net revenues, as well as the components of such revenues, for the periods indicated, both in absolute amount and as a percentage of\ntotal net revenues:\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \n%  \n$  \n%  \n$  \n% \n\n  \n($’000) \n\nContinuing operation: \n  \n\nSoftware \n 1,516  \n 4.7% \n 1,601  \n 4.1% \n -  \n 0.0%\n\nHardware \n 19,051  \n 59.4% \n 26,112  \n 67.3% \n 13,602  \n 100.0%\n\nTotal \n 20,567  \n 64.1% \n 27,713  \n 71.4% \n 13,602  \n 100.0%\n\nDiscontinuing operation: \n    \n    \n    \n    \n    \n   \n\nSoftware \n 11,479  \n 35.9% \n 11,098  \n 28.6% \n 2,222  \n 100.0%\n\nTotal \n 11,479  \n 35.9% \n 11,098  \n 28.6% \n 2,222  \n 100.0%\n\nConnected Solutions BU net revenues \n 32,046  \n 100% \n 38,811  \n 100% \n 15,824  \n 100%\n\n \n\n*Software*\n\n \n\nSoftware net revenues generated\nfrom our continuing operation were $1.5 million, $1.6 million, and nil million in the years ended December 31, 2023, 2024, and 2025, respectively,\nrepresenting 4.7%, 4.1%, and 0.0% of our Connected Solutions BU total net revenues. Software net revenues generated from discontinuing\noperation were $11.5 million, $11.1 million, and $2.2 million in the years ended December 31, 2023, 2024, and 2025, respectively. \n\n \n\n*Hardware*\n\n \n\nHardware net revenues were\n$19.0 million, $26.1 million, and $13.6 million in the years ended December 31, 2023, 2024 and 2025, respectively. Again, as discussed\nabove, these fluctuations may not be attributed to any particular market trend since our sales were all made to order for our industrial\ncustomers. Types of products include wearables such as trackers and smart watches, ruggedized handsets, tablets and smart phones, and\nmobile connectivity modules. As described above, hardware sales comprised of all made-to-order products with quantities as stipulated\nby our customers and included consumer and industrial use devices as well. As such, the orders we receive from our customers may not adhere\nto seasonality and therefore fluctuations in our business activity levels may not conform to any particular trend.\n\n \n\nAll hardware sales were contracted\nand made-to-order, and our sales were final without taking returns. Small percentages of replacement units and parts were provided to\ncustomers, and those costs were included in the cost of revenues. We provide engineering design work as specified by our customers, and\nproduction begins after the customer accepts the design. We are responsible for the procurement of all components, materials and tooling\nand for the selection of third-party factories for product assembly. Revenue is recognized when ownership of products is transferred to\nthe customers. We are not engaged in the marketing and distribution of hardware products.\n\n \n\n**Geographic Concentration**\n\n \n\nThe following table sets forth\nour net revenues from customers based on the location of the customer’s headquarters, both in absolute amount and as a percentage\nof net revenues. These figures do not take into account the geographic location of end-users of customer products:\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \n%  \n$  \n%  \n$  \n% \n\n  \n($’000) \n\nUnited States \n 4,136  \n 20.1% \n 3,948  \n 14.2% \n -  \n 0.0%\n\nChina \n 11,891  \n 57.9% \n 14,025  \n 50.6% \n 4,819  \n 35.4%\n\nRest of the world \n 4,540  \n 22.0% \n 9,740  \n 35.2% \n 8,783  \n 64.6%\n\nNet revenues \n 20,567  \n 100.0% \n 27,713  \n 100.0% \n 13,602  \n 100.0%\n\n \n\nThe Company’s net revenues\nfrom customers with headquarters in the United States are attributed to its ongoing collaboration with a prominent mobile chipset vendor\nand other mobile device OEMs. From 2021 to 2022, revenues from customers with headquarters in China increased mainly due to a customer\nnamed Metro (Suzhou) Technologies Co Ltd placed more orders during the year ended December 31, 2022. Our main customer in the United States\nfor the years 2021 and 2022 was GreatCall, Inc. From 2022 to 2023, revenue from customers with headquarters in China increased, while\nthe revenue with our main customer in India, Reliance Retail Limited, declined when compared with 2022. From 2023 to 2024, revenues from\ncustomers with headquarters in China increased when compared with 2023 due to Metro (Suzhou) Technologies Co Ltd placed more orders. From\n2024 to 2025, revenues decreased significantly when compared with 2024, primarily due to the disposal of the Company’s certain hardware\nand software services business on April 9, 2025.\n\n \n\n42 \n\n \n\n \n\n**Net Revenues from discontinued operations\n— Solar Power BU**\n\n \n\nFor our discontinued operations,\nSolar Power BU, HHE designs, develops, integrates, and installs solar power systems to the residential and commercial customers including\nsolar panels and lithium battery-based energy storage systems. HHE recognizes revenues when the solar power projects are fully completed.\nThe financial results of HHE for the year ended December 31, 2022, were classified as discontinued operations. The cash receipts from\ncustomers from ongoing projects and newly started projects were booked as deferred revenue.\n\n \n\n**Cost of Revenues**\n\n \n\nCost of our continuing operations\nConnected Solutions BU revenues primarily consist of personnel and personnel-related costs associated with engineering projects paid for\nby customers and costs of hardware components used to manufacture products. Cost of our discontinued operations Solar Power BU revenues\nprimarily consist of solar inverters, controllers, and panels.\n\n \n\nThe following table sets forth\nthe cost of revenues, both in absolute amount and as a percentage of total cost of revenues, for Connected Solutions BU revenue from our\ncontinuing operation and Solar Power BU revenue from our discontinued operations.\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \n%  \n$  \n%  \n$  \n% \n\n  \n($’000) \n\nContinuing operation: \n   \n   \n   \n   \n   \n  \n\nConnected Solutions BU \n 16,697  \n 69.7% \n 21,927  \n 71.8% \n 13,102  \n 85.8%\n\nDiscontinued operations: \n    \n    \n    \n    \n    \n   \n\nSolar Power BU \n -  \n -% \n -  \n -% \n -  \n -%\n\nConnected Solutions BU \n 7,256  \n 30.3% \n 8,594  \n 28.2% \n 2,166  \n 14.2%\n\nTotal cost of revenues \n 23,953  \n 100.0% \n 30,521  \n 100.0% \n 15,268  \n 100.0%\n\n \n\nConnected Solutions BU cost\nof revenues varied from 2023 to 2024 in attribution to similar changes in our volume of hardware products sales during these years. Our\ntotal cost of revenue increased $6.5 million or 27% when compared with that of fiscal 2023. It mainly attributes to the hardware cost\nincrease of $5.5 million, and the software cost increase of $1.0 million. Connected Solutions BU cost of revenues increased significantly\nfrom 2023 to 2024 in line with our revenue increase in Connected Solutions BU. Connected Solutions BU cost of revenues decreased from\n$21.9 million in 2024 to $13.1 million in 2025, primarily due to the disposal of certain business by the Company.\n\n \n\n**Gross Profit and Gross Margin**\n\n \n\nGross profit represents net\nrevenues and lower cost of revenue. Gross margin represents gross profit as a percentage of revenues.\n\n \n\nGross profits for our continuing\noperations Connected Solutions BU in the years ended December 31, 2023, 2024, and 2025 were a gross profit of $3.9 million, $5.8 million\nand $0.5 million, respectively. Gross profits for discontinuing operations Connected Solutions BU in the years ended December 31, 2023,\n2024, and 2025 were a gross profit of $4.2 million, $2.5 million, and $0.06 million, respectively.\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \n%  \n$  \n%  \n$  \n% \n\n  \n(Gross Profit in $’000, Gross Margin in %) \n\nContinuing operations: \n   \n   \n   \n   \n   \n  \n\nConnected Solutions BU \n 3,870  \n 18.8% \n 5,786  \n 20.9% \n 500  \n 3.7%\n\n \n\n43 \n\n \n\n \n\nConnected Solutions BU gross\nprofits include gross profits from software projects and gross profits from hardware projects. For the year ended December 31, 2023, our\ngross margins in software and hardware were 55.3% and 15.9%, respectively. For the year ended December 31, 2024, our gross margins in\nsoftware and hardware were 76.3% and 17.5%, respectively. For the year ended December 31, 2025, our gross margins in hardware were 3.7%.\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \n%  \n$  \n%  \n$  \n% \n\n  \n(Gross Profit in $’000, Gross Margin in %) \n\nSoftware \n 838  \n 55.3% \n 1,222  \n 76.3% \n -  \n N/A%\n\nHardware \n 3,032  \n 15.9% \n 4,564  \n 17.5% \n 500  \n 3.7%\n\nTotal \n 3,870  \n 18.8% \n 5,786  \n 20.9% \n 500  \n 3.7%\n\n \n\nSoftware projects are further\ncategorized as design, royalty, and service projects, reflecting the nature of the work:\n\n \n\n \n●\nDesign projects consist primarily of non-recurring engineering fees for which we provide customized work according to our clients’ required functionalities and needs.\n\n \n \n \n\n \n●\nRoyalty projects consist of per unit royalties based on customer usage of our previously completed software products; and\n\n \n \n \n\n \n●\nService projects where our engineers perform engineering services following the instructions of the customers, charging them hourly fees on a full-time equivalent basis.\n\n \n\nFor our discontinued operation\nof Connected BU, gross profits were $4.2 million, $2.5 million, and $0.06 million for the years ended December 31, 2023, 2024, and 2025,\nrespectively.\n\n \n\nThe gross margin as a percentage\nof sales is presented in the following table.\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \n%  \n$  \n%  \n$  \n% \n\n  \n(Gross Profit in $’000, Gross Margin in %) \n\nDiscontinued operations: \n   \n   \n   \n   \n   \n  \n\nConnected Solutions BU \n 4,223  \n 36.8% \n 2,504  \n 22.6% \n 56  \n 2.5%\n\n \n\n**Operating Expenses**\n\n \n\nFor our continuing operations,\nthe operating expenses principally consist of sales and marketing expenses, general and administrative expenses, and research and development\nexpenses. The following table sets forth operating expenses for the periods indicated, both in absolute amount and as a percentage of\nnet revenues:\n\n \n\n  \nFor the years ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n$  \nAs % of Revenue  \n$  \nAs % of Revenue  \n$  \nAs % of Revenue \n\n  \n($’000) \n\nSales and marketing expenses \n (494) \n 2.4% \n (534) \n 1.9% \n (204) \n 1.5%\n\nGeneral and administrative expenses \n (11,084) \n 53.9% \n (6,465) \n 23.3% \n (14,164) \n 104.1%\n\nResearch and development expenses \n (3,658) \n 17.8% \n (2,321) \n 8.4% \n (3,526) \n 25.9%\n\nTotal \n (15,236) \n 74.1% \n (9,320) \n 33.6% \n (17,894) \n 131.5%\n\n \n\n44 \n\n \n\n \n\nFor the year ended December\n31, 2023, general and administrative expenses were $11.1 million, which mainly included professional fees of $1.8 million, salaries and\nwelfare of $1.8 million, impairment loss of $1.1 million, and share-based compensation of $6.5 million. For the year ended December 31,\n2024, general and administrative expenses were $6.5 million, which mainly included professional fees of $2.3 million, salaries and welfare\nof $1.9 million, and impairment loss of $1.5 million. For the year ended December 31, 2025, general and administrative expenses were $14.2\nmillion, which mainly included professional fees of $2.0 million, salaries and welfare of $7.8 million, and share-based compensation of\n$2.4 million.\n\n \n\nFor our discontinued operations\nConnected BU, the operating expenses, which mainly consisted of administrative expenses and research and development expenses, were $3.2\nmillion, $3.7 million, and $4.7 million for the years ended December 31, 2023, 2024, and 2025, respectively.\n\n \n\n**Research and Development Expenses**\n\n \n\nResearch and development expenses\ninclude payroll, employee benefits, share-based compensation, and other headcount-related expenses associated with the development of\nthe BorqsWare software platform and solar power systems, as well as outsourcing and third-party service expenses. Research and development\nexpenses also include rent, depreciation, and other expenses for platform development and other projects that are not customer-specific.\n\n \n\n**Selling and Marketing Expenses**\n\n \n\nSelling and marketing expenses\ninclude payroll, employee benefits and other expenses relating to our sales and marketing personnel, travel, rent and other expenses relating\nto our marketing activities, including entertainment and advertising. For the discontinued operations Solar Power BU, the selling and\nmarketing expenses mainly consisted of payroll and other staff costs relating to the sales and marketing personnel.\n\n \n\n**General and Administrative Expenses**\n\n \n\nOur general and administrative\nexpenses include payroll, employee benefits, professional fees, rent, travel and other administrative costs.\n\n \n\nGeneral and administrative\nexpenses comprised 53.9%, 23.3%, and 104.1% of net revenues for the years ended December 31, 2023, 2024 and 2025, respectively.\n\n \n\nFor the year ended December\n31, 2023, general and administrative expenses included professional fees of $1.8 million, salaries and welfare of $1.8 million, impairment\nloss of $1.1 million, and share-based compensation expense of $6.5 million, offset by reversal of allowance for doubtful accounts of $0.5\nmillion. \n\n \n\nFor the year ended December\n31, 2024, general and administrative expenses included professional fees of $2.3 million, salaries and welfare of $1.9 million, and impairment\nloss of $1.5 million. \n\n \n\nFor the year ended December\n31, 2025, general and administrative expenses included professional fees of $2.0 million, salaries and welfare of $7.8 million, and share-based\ncompensation expense of $2.4 million. \n\n \n\n45 \n\n \n\n \n\n**Other Operating Income – or expenses**\n\n \n\nWe received subsidies from\nlocal government authorities in China as financial support for certain technology development projects. These subsidies are classified\nas “Other operating income”. We recognized nil, $0.4 million and nil of other operating income in the years ended December\n31, 2023, 2024, and 2025, respectively. Subsidies are recorded as a liability when received and recognized as other operating income when\nthe related projects are completed and the subsidies are not subject to future return. Under the requirements of the government subsidies,\nwe are obligated to make progress on the related technology development projects, based on the timetable established by the government\nauthorities, and to appropriately allocate the government subsidies for various purposes.\n\n \n\n**Other Income/Expense**\n\n** **\n\n  \nFiscal Years Ended December 31, \n\nOther income/expense \n2023  \n2024  \n2025 \n\n  \n   \n   \n  \n\nInterest income \n 60  \n 9  \n 9 \n\nInterest expense \n (1,271) \n (1,257) \n (44)\n\nOther income \n 617  \n 4,225  \n 1,542 \n\nOther expense \n (140) \n (210) \n (6,221)\n\n(Loss) gain on debt settlement \n 176  \n -  \n - \n\nLoss on repurchase of convertible notes \n -  \n (600) \n - \n\nLoss on additional compensation to HHE \n (5,400) \n -  \n - \n\nLoss related to equity financing \n (14,156) \n -  \n - \n\nGain on disposal of subsidiaries \n -  \n 12,564  \n 21,212 \n\nGain on cancellation of shares to HHE \n -  \n 5,950  \n - \n\nUnrealized loss on trading securities \n -  \n -  \n (830)\n\nRealized gain on sale of securities \n -  \n -  \n 1,104 \n\nForeign exchange (loss) gain \n 1,163  \n (73) \n (119)\n\nGain on reversal of accrued liabilities \n -  \n -  \n 10,452 \n\n \n\n**Interest expense**\n\n \n\nDuring the year ended December\n31, 2023, the interest expense of $1.3 million mainly consisted of interest expense related to our convertible notes discount of $0.7\nmillion.\n\n \n\nDuring the year ended December\n31, 2024, the interest expense of $1.3 million mainly consisted of interest expense related to our convertible notes discount of $0.8\nmillion. The debt discount, together with the related issuance cost, is amortized as interest expense, using the effective interest method,\nfrom the issuance date to the earliest maturity date.\n\n \n\nDuring the year ended December\n31, 2025, the interest expense of $0.04 million mainly consisted of interest expense related to loan interest.\n\n \n\n**Other income**\n\n \n\nDuring the year ended December\n31, 2023, other income of $617 thousand mainly included reversal of over-accrued expenses.\n\n \n\nDuring the year ended December\n31, 2024, other incomes of $4.2 million mainly included debt relief of $4.0 million. We recorded debt relief income for long-aging payable\nforgiveness with suppliers during the year ended December 31, 2024. There were long-aging balances of payable due to the counter-parties.\nThey were no longer in operation, and we wrote off $4.0 million of liabilities and recorded as other income in the consolidated statement\nof operations.\n\n \n\nDuring the year ended December\n31, 2025, other income of $1.5 million mainly included reversal of over-accrued expenses.\n\n \n\n46 \n\n \n\n \n\n**Other expense**\n\n \n\nDuring the year ended December\n31, 2023, we recorded other expenses of $0.1 million.\n\n \n\nDuring the year ended December\n31, 2024, we recorded other expense of $0.2 million.\n\n \n\nDuring the year ended December\n31, 2025, other expenses of $6.2 million mainly included an expense related to Youtong. The Company paid a settlement payment amount of\n$5.15 million to Chongqing Youtong. With the payment of this settlement, all obligations and claims between the Company and the Chongqing\nYoutong were fully settled.\n\n \n\n**Loss on repurchase of convertible notes**\n\n** **\n\n During the year ended\nDecember 31, 2024, the Company repurchased convertible notes and unexercised warrants from the investors, resulting in a loss on repurchase\nof convertible notes of $0.6 million.\n\n \n\n**Loss (gain) on debt settlement**\n\n** **\n\nDuring the year ended December\n31, 2023, we recorded $0.2 million gain on debt settlement, represented gain on a debt settlement with our ordinary shares issued.\n\n \n\nDuring the year ended December\n31, 2024 and 2025, we recorded nil on debt settlemen.\n\n \n\n**Loss on additional compensation to HHE**\n\n \n\nDuring the year ended December\n31, 2023, we recorded $5.4 million loss of additional compensation to HHE as the Company agreed to pay the $5.4 million cash to the former\nsubsidiary.\n\n \n\n**Loss on deconsolidation of a subsidiary**\n\n \n\nWe recorded a loss on deconsolidation\nof HHE of $3.6 million during the year ended December 31, 2022. The Company no longer had a controlling interest in HHE as of December\n31, 2022, and resulted in the deconsolidation of HHE. \n\n \n\n**Gain on disposal of subsidiaries**\n\n \n\nWe recorded a gain on disposal\nof HHE of $12.66 million during the year ended December 31, 2024. The Company completed the divestment of all of its interest in\nHHE, adhering to the requirements from the Commission on Foreign Investment in the United States.\n\n \n\nWe recorded a gain on disposal\nof certain business of $21.2 million during the year ended December 31, 2025. On April 9, 2025, we completed the sale of our core operating\nbusiness to Sasken Design Solutions Pte. Ltd.\n\n \n\n**Gain on cancellation of shares to HHE**\n\n** **\n\nWe recorded a gain on the\ncancellation of shares to HHE of $6.0 million during the year ended December 31, 2024. The Company issued additional shares to HHE for\nthe substantial loss in value and recorded a loss on additional acquisition cost in shares to HHE of $6.0 million during the year ended\nDecember 31, 2022. During the year ended December 31, 2024, the Company agreed with HHE to cancel the shares issued and reversed the loss.\n\n \n\n**Gain on reversal of accrued liabilities**\n\n** **\n\nWe recorded gain on reversal\nof accrued liabilities. It mainly consisted of reversal of payables of $10.0 million for share purchase consideration and reversal of\n$0.4 million in compensation payables to previous directors that were over-booked. For the consideration payable, following the bankruptcy\nof the counter-party, the Company determined that there was no longer any viable commercial reason to proceed with the investment. Accordingly,\nduring the year ended December 31, 2025, the Company reversed the entire balance and recognized as gain on reversal of accrued liabilities.\nFor the compensation payables, management concluded that certain previous directors whose terms either expired or were ended by requests\nfrom the directors for personal reasons, that there were no disputes with the directors on any matters financial or otherwise. Accordingly,\nduring the year ended December 31, 2025, the Company revised the entire balance and recognized as gain on reversal of accrued liabilities.\n\n \n\n47 \n\n \n\n \n\n**Income Tax Expense**\n\n \n\nOur effective tax rate was\n-6.88%, -0.05% and 0.01% for the years ended December 31, 2023, 2024, and 2025, respectively. The fluctuation through these years was\nprimarily due to the fact that the loss experienced by certain of our subsidiaries could not be used to offset gains in other subsidiaries.\nThe Group recorded valuation allowance for the entities, which were considered more likely than not that a portion of the deferred tax\nassets will not be realized through sufficient future earnings.\n\n \n\n**Liquidity and Capital Resources**\n\n \n\nCash used in operating activities\nfor the year ended December 31, 2025 was $28.0 million, primarily consisted of net income of $5.6 million, provisions on accounts receivable\nand other current assets of $1.1 million, and adding back non-cash items including share-based compensation expenses to employees of $2.4\nmillion, depreciation of property and equipment of $0.02 million, amortization of right of used assets of $0.1 million, unrealized loss\non trading securities of $0.8 million, gain on disposal of subsidiaries of $21.2 million, realized gain on sale of securities of $1.1\nmillion, gain on reversal of accrued liabilities of $10.4 million. Cash generated from changes in operating assets and liabilities included\na decrease in accounts receivable of $4.7 million, and an increase in advances from customers and contract liabilities of $1.2 million,\nwhile cash used in changes in operating assets and liabilities included a decrease in accounts payable of $4.8 million, increase in short\nterm investments of $4.6 million, increase in prepaid expenses and other current assets of $0.4 million, and a decrease in accrued expenses\nof $0.3 million.\n\n \n\nCash generated by investing\nactivities for the year ended December 31, 2025 was $25.1 million, which was primarily attributable to cash proceeds from the disposal\nof subsidiaries of $22.5 million, receipt of time deposits from banks of $2.7 million, and receipt of matured time deposits of $3.5 million,\npartially offset by investment in time deposits of $3.4 million and purchases of property and equipment of $0.04 million.\n\n \n\nCash used in financing activities\nfor the year ended December 31, 2025 was $0.4 million, which included the repayment of short-term bank and other borrowings of $0.4 million.\n\n \n\nConvertible Notes Sold\n\n \n\nThe Company sold $1.5 million\nof convertible notes and accompanying warrants to an Australian institutional investor in August 2023.  With part of the proceeds\nfrom the divestment of HHE, which was completed as of March 1, 2024, the Company repurchased the $1.5 million convertible notes and unexercised\nwarrants from the investor as of March 9, 2024.\n\n \n\nAs of December 31, 2024, all\nconvertible notes and warrants the Company previously sold to investors had been converted, exercised, or repurchased by the Company,\nand there were no convertible notes or warrants outstanding.\n\n \n\nOur ability to meet the working\ncapital requirements is subject to the risks relating to the demand for and prices of our services in the market, the economic conditions\nin our target markets, the successful operation of our connected solution, the timely collection of payment from our customers, and the\navailability of additional funding. In the next 12 months, we may rely on the sale of convertible notes or other financial instruments\nto fund our acquisition needs.\n\n \n\nThe sale of equity and convertible\ndebt securities will result in dilution to our shareholders, and certain of those securities may have rights senior to those of our shares\nof capital stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities, or other debt financing,\nthese securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could\nrequire us to relinquish valuable rights. Economic conditions may affect the availability of funds and activity in equity markets. We\ndo not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding\nwhen needed, we may have to delay, reduce the scope of, eliminate or make changes to our operating plans.\n\n \n\n48 \n\n \n\n \n\n**Critical Accounting Policies**\n\n \n\nThe Company prepares its financial\nstatements under U.S. GAAP, which requires it to make judgments, estimates, and assumptions that affect the reported amounts of assets\nand liabilities and the disclosure of contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues\nand expenses during each fiscal period. The Company continually evaluates these judgments and estimates based on its own historical experience,\nknowledge and assessment of current business and other conditions, and expectations regarding the future based on available information\nand assumptions that it believes to be reasonable, which together form the basis for making judgments that are not readily apparent from\nother sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from\nthose estimates. Some of the Company’s accounting policies require a higher degree of judgment than others in their application.\n\n \n\nThe selection of critical\naccounting policies, the judgments and other uncertainties affecting the application of those policies, and the sensitivity of reported\nresults to changes in conditions and assumptions are factors that should be considered when reviewing the Company’s financial statements.\nThe Company believes the following accounting policies involve the most significant judgments and estimates used in the preparation of\nits financial statements.\n\n \n\n**Revenue Recognition**\n\n \n\nThe Company recognizes revenue\nwhen persuasive evidence of an arrangement exists, as evidenced by signed contracts, delivery has occurred, the sales price is fixed or\ndeterminable, and collection is reasonably assured.\n\n \n\n**Project-based Contracts**\n\n \n\nThe Company accounts for revenue\nfrom project-based software contracts as “Software” revenue. The Company’s project-based contracts are generally considered\nmultiple element arrangements since they include perpetual software licenses; development services, such as customization, modification,\nimplementation, and integration; and post-contract support where customers have the right to receive unspecified upgrades and enhancements\non a when-and-if-available basis.\n\n \n\nThe Company provides customized\nAndroid+ software platform solutions that are developed to maximize the commercial grade quality or performance of open source Android+\nsoftware for integration with particular chipsets. The Group also provides customized Android+ service platform solutions that are end-to-end\nsoftware developed for mobile operators to allow data synchronization between their platform and mobile devices. The Company charges its\ncustomers, mainly including mobile device manufacturers and mobile operators, fixed fees for project-based software contracts, as well\nas per chip or per mobile device royalty fees.\n\n \n\nAs of January 1, 2019, the\nCompany adopted ASC 606 for revenue recognition from contracts with customers. For the sales derived from software development projects\nin which the customer’s contract specifies the technical requirements of the software product, the Company recognizes revenue upon\nthe customer’s sign-off off the final acceptance, and the Company will probably collect the payments. For the sales derived from\nthis type of software development project with a post-contract service period (“PCS Period”), the Company recognizes revenue\nupon the PCS period ends, and the Company will probably collect the payments. The Company recognizes non-recurring engineering fees upon\nthe customers’ sign-off off the final acceptance, and it is probable that the Company will collect the payments (start of hardware\nproduct delivery schedule).\n\n \n\nAdditional discussions on\nASC 606 are provided below Note 2 of the Accompanying Notes to Financial Statements, under the heading (u) Revenue recognition.\n\n \n\n**Service Contracts**\n\n \n\nThe Company provides research\nand development services to certain customers to develop software, where fees are charged on a time and material basis, and the Company\nis not responsible for the outcome of such development projects. The revenue is recognized as the “Software” revenue as the\nservices are delivered.\n\n \n\n49 \n\n \n\n \n\n**Connected Devices Sales Contracts**\n\n \n\nThe Company accounts for revenue\nfrom sales of connected devices as “Hardware” revenue. Revenue is recognized when sale of each final hardware product to the\ncustomers is delivered.\n\n \n\nWarranty is provided to all\nconnected device customers as an integral part of the product sales. The Company has determined that the likelihood of claims arising\nfrom warranties is remote based on historical experience. The basis for the warranty accrual is reviewed periodically based on experience.\n\n \n\nAs of April 9, 2025, the Company\ncompleted its sale of the contracted businesses to Sasken.\n\n** **\n\n**Solar Power Solutions**\n\n \n\nOn October 19, 2021, the Company\npurchased 51% controlling interest in Holu Hou Energy, LLC (HHE). HHE engages in the design and installation of solar power systems, including\nsolar panels and energy storage systems for residential and commercial use. On December 13, 2022, Borqs Technologies received a letter\nfrom the Department of the Treasury on behalf of the Committee on Foreign Investment in the United States (CFIUS) stating that the Company\nis required to fully divest its ownership interests and rights in HHE due to HHE’s solar energy storage system and EnergyShare technology\nfor Multi-Dwelling Residential Units being deemed a potential national security risk.\n\n \n\nDue to the mandates from the\nCFIUS, HHE was deconsolidated on December 31, 2022. Assets and liabilities related to HHE, which the Group acquired in October 2021, were\nreclassified as held for sale as of December 31, 2021 and 2022, and revenues and expenses related to the Solar Energy segment were reclassified\nas discontinued operations for all periods presented. HHE was deconsolidated as of December 31, 2022.\n\n \n\nAs of March 6, 2024, the Company\ncompleted the divestiture of its ownership in HHE.\n\n** **\n\n**Discontinued operations**\n\n \n\nA component of a reporting\nentity or a group of components of a reporting entity that are disposed or meet the criteria to be classified as held for sale, such as\nthe management, having the authority to approve the action, commits to a plan to sell the disposal group, should be reported in discontinued\noperations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial\nresults. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished,\noperationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed\nof, if the component either (1) represents a strategic shift or (2) have a major impact on an entity’s financial results and operations.\nIn the consolidated statement of operations, results from discontinued operations are reported separately from the income and expenses\nfrom continuing operations, and prior periods are presented on a comparative basis. Cash flows for discontinued operations are presented\nseparately. Assets and liabilities of the discontinued operations are classified as held for sale when the carrying amounts will be recovered\nprincipally through a sale transaction.\n\n \n\n**Income Taxes**\n\n \n\nIn preparing its consolidated\nfinancial statements, the Company must estimate its income taxes in each of the jurisdictions in which it operates. The Company estimates\nactual tax exposure and assesses temporary differences resulting from different treatment of items for tax and accounting purposes. These\ndifferences result in deferred tax assets and liabilities, which is included in the consolidated balance sheet. The Company must then\nassess the likelihood that it will recover its deferred tax assets from future taxable income. If the Company believes that recovery is\nnot likely, it must establish a valuation allowance. To the extent it establishes a valuation allowance or increases this allowance, the\nCompany must include an expense within the tax provision in its consolidated statement of operations. If actual results differ from these\nestimates or the Company adjusts these estimates in future periods, it may need to establish an additional valuation allowance, which\ncould materially impact its financial position and results of operations.\n\n \n\n50 \n\n \n\n \n\nU.S. GAAP requires that an\nentity recognize the impact of an uncertain income tax position on the income tax return at the largest amount that is more likely than\nnot to be sustained upon audit by the relevant tax authority. If the Company ultimately determines that payment of these liabilities will\nbe unnecessary, it will reverse the liability and recognize a tax benefit during that period. Conversely, the Company records additional\ntax charges in a period in which it determines that a recorded tax liability is less than the expected ultimate assessment. The Company\ndid not recognize any significant unrecognized tax benefits during the periods presented in this Annual Report.\n\n \n\nUncertainties exist with respect\nto the application of the EIT Law and its implementation rules to the Company’s operations, specifically with respect to tax residency\nstatus. The EIT Law specifies that legal entities organized outside of the PRC will be considered residents for PRC income tax purposes\nif their “de facto management bodies” are located within the PRC. The EIT Law’s implementation rules define the term\n“de facto management bodies” as establishments that carry out substantial and overall management and control over the manufacturing\nand business operations, personnel, accounting, properties, etc. of an enterprise. On April 22, 2009, the Notice Regarding the Determination\nof Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises based on De Facto Management Bodies, or Circular\n82, was issued. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a\nChinese-controlled offshore-incorporated enterprise is located in China. Further, the Administrative Measures of Enterprise Income Tax\nof Chinese controlled Offshore Incorporated Resident Enterprises (Trial), or Bulletin No. 45, took effect on September 1, 2011, and provides\nmore guidance on the implementation of Circular 82.\n\n \n\nAccording to Circular 82,\na Chinese-controlled offshore-incorporated enterprise will be regarded as a PRC tax resident by having a “de facto management body”\nin China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions set forth in\nCircular 82 are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s\nfinancial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s\nprimary assets, accounting books and records, company seals and board and shareholder resolutions are located or maintained in the PRC;\nand (iv) at least 50.0% of voting board members or senior executives habitually reside in the PRC. In addition, Bulletin No. 45 provides\nclarification in resident status determination, post-determination administration, and competent tax authorities. It also specifies that\nwhen provided with a copy of Chinese tax resident determination certificate from a resident Chinese-controlled offshore- incorporated\nenterprise, the payer should not withhold 10% income tax when paying certain Chinese-sourced income, such as dividends, interest, and\nroyalties to the Chinese-controlled offshore-incorporated enterprise.\n\n \n\nAlthough both the circular\nand the bulletin only apply to offshore enterprises controlled by PRC enterprises and not those by PRC or foreign individuals, the determination\ncriteria set forth in the circular and administration clarification made in the bulletin may reflect the SAT’s general position\non how the “de facto management body” test should be applied in determining the tax residency status of offshore enterprises\nand the administration measures should be implemented, regardless of whether they are controlled by PRC enterprises or PRC individuals.\n\n \n\nDespite the uncertainties\nresulting from limited PRC tax guidance on the issue, the Company does not believe that its legal entities organized outside of the PRC\nare tax residents under the EIT Law. If one or more of its legal entities organized outside of the PRC were characterized as PRC tax residents,\nthe Company’s results of operations would be materially and adversely affected.\n\n \n\n**Recent Accounting Pronouncements**\n\n \n\nRefer to Note 2, Summary\nof Significant Accounting Policies - Recent accounting pronouncements, of the notes to our consolidated financial statements included\nin this Annual Report for information regarding the effect of newly adopted accounting pronouncements on our financial statements.\n\n \n\n**Off-Balance Sheet Arrangements**\n\n \n\nWith the exception of items\ndiscussed under “Contractual Obligations” below, we do not have any off-balance sheet arrangements that have or are reasonably\nlikely to have a current or future effect on our financial condition, results of operations, liquidity, or capital resources that are\nmaterial to investors.\n\n \n\n51 \n\n \n\n \n\n**Contractual Obligations**\n\n \n\nAs of December 31, 2025, payment\nobligations under short-term and long-term debt, operating leases, and other long-term liabilities were as follows:\n\n \n\n  \nAmount\n($’000) \n\nObligations less than one year \n  \n\nOperating facilities leases \n$12 \n\nShort-term borrowing \n$- \n\n  \n   \n\nObligations from 1 to 3 years \n   \n\nOperating facilities leases \n$30 \n\n  \n   \n\nObligations from 3 to 5 years \n   \n\nOperating facilities leases \n$- \n\n \n\n**Related Party Transactions**\n\n \n\nThe Group had no significant\nrelated party transactions for the years ended December 31, 2023, 2024, and 2025.\n\n \n\n**Quantitative and Qualitative Disclosures\nabout Market Risk**\n\n \n\n**Credit Risk**\n\n \n\nThe Company is subject to\nthe risk of loss arising from the credit risk related to the possible inability of its customers to pay for the products and services\nthat it sells to them. The Company attempts to limit its credit risk by monitoring the creditworthiness of the Company’s customers\nto whom it extends credit and establishing credit limits in accordance with its credit policy. The Company performs credit evaluations\non substantially all customers requesting credit and will not extend credit to customers for whom it has substantial concerns, and will\ndeal with those customers on a cash basis. The Company offers billing terms that allow certain customers to remit payment during a period\nof time ranging from 3 to 6 months.\n\n \n\nThe Company has cash held\nby Silicon Valley Bank as of December 31, 2022. On March 10, 2023, the California Department of Financial Protection and Innovation closed\nSilicon Valley Bank and appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. On March 12, 2023, the U.S.\nDepartment of the Treasury, the Federal Reserve, and the FDIC released a joint statement confirming that all depositors of Silicon Valley\nBank would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.\nThe Company received full access to the funds in its deposit and money market accounts on March 13, 2023. In light of actions by the federal\ngovernment to fully protect deposit accounts, the Company has not experienced any credit losses on its deposits of cash.\n\n \n\n**Liquidity Risk**\n\n \n\nThe Company is also exposed\nto liquidity risk, which is the risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and\nbusiness needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary,\nthe Company will turn to other financial institutions for supply chain financing, which can be costly and negatively affect the gross\nmargin. If adequate working capital funding is not available, or not available at acceptable terms, we may have to decline the capital-intensive\nhardware projects.\n\n \n\n**Interest Rate Risk**\n\n \n\nThe Company does not enter\ninto investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate\nrisk exposure. The Company has not been exposed nor does it anticipate being exposed to material risks due to changes in interest rates.\nA hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on the Company’s\nconsolidated financial statements. \n\n \n\n52 \n\n \n\n \n\n**Foreign Currency Risk**\n\n \n\nThe majority of our revenues\nare denominated in US Dollars, while about half of our costs are denominated in Renminbi, which is not freely convertible into foreign\ncurrencies. All foreign exchange transactions take place either through the People’s Bank of China (“PBOC”) or other\nauthorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory\ninstitutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of\nRenminbi is subject to changes in central government policies and to international economic and political developments affecting supply\nand demand in the foreign exchange markets.\n\n \n\nA hypothetical 10% change\nin foreign exchange rates during any of the preceding periods presented would have had an insignificant effect on our consolidated financial\nstatements.\n\n \n\n**Certain Transactions for the Years Ended December\n31, 2023, 2024, and 2025, and Subsequent Transactions**\n\n \n\n**Convertible Notes Sold**\n\n \n\nThe Company sold $1.5 million\nof convertible notes and accompanying warrants to an Australian institutional investor in August 2023.  With part of the proceeds\nfrom the divestment of HHE which was completed as of March 1, 2024, the Company repurchased the $1.5 million convertible notes and unexercised\nwarrants from the investor as of March 9, 2024.\n\n \n\nAs of December 31, 2024, all\nconvertible notes and warrants the Company previously sold to investors had been converted, exercised, or repurchased by the Company,\nand there were no convertible notes or warrants outstanding.\n\n \n\n**Divestment of Holu Hou Energy**\n\n \n\nThe Company acquired 51% ownership\nin Holu Hou Energy (HHE), LLC. in October 2021, a Delaware limited liability company that brings state-of-the-art energy storage systems\nto both residential and commercial markets. With operations in Hawaii, Wisconsin, and California, HHE designs and develops proprietary\nstorage systems and software and control platform solutions. The HHE team is made up of renewable energy industry veterans, engineering\nand deploying energy storage systems that enable greater energy independence.\n\n \n\nOn December 13, 2022, Borqs\nTechnologies received a letter from the Department of the Treasury on behalf of the Committee on Foreign Investment in the United States\n(“CFIUS”) stating that the Company is required to negotiate with CFIUS to fully divest its ownership interests and rights\nin Holu Hou Energy LLC (“HHE”) due to HHE’s solar energy storage system and EnergyShare technology for Multi-Dwelling\nResidential Units being deemed a potential national security risk.\n\n \n\nOn March 16, 2023, the Company\nand HHE entered into a National Security Agreement (“NSA”) with the Department of Defense and the Department of Treasury.\nThe NSA provides that the divestment shall occur within six months unless extended by the U.S. Government. The NSA also contains standstill\nprovisions which provide that the Company shall not acquire any additional ownership interest in HHE, merge with or into HHE, effect any\nchanges to the rights held by the Company, except as necessary to effect its obligations under the NSA, or acquire or take possession\nof any assets of HHE. Further, upon the completion of the Divestment, the Company shall terminate or irrevocably waive any information,\nconsent, board appointment, board observer, or other governance rights held by the Company, except for any and all rights that are determined\nby the U.S. Government to be necessary to effect the provisions of the NSA. The NSA outlines the steps to be taken with respect to the\nDivestment: engaging a nationally recognized investment bank with experience in administering competitive sales and auction processes;\nassigning and hiring of security and monitoring personnel to directly communicate with the U.S. Government; removing all of Borqs’\nadministrative and technical influence over HHE; and creating a plan to divest all of Borqs’ investment interests and rights in\nHHE. Pursuant to the requirement of the NSA, Borqs has assigned its interests in HHE into a Divestment Trust according to a Divestment\nTrust Agreement (“DTA”) dated March 20, 2023, entered into between Borqs, HHE, and a trustee.\n\n \n\nHHE was deconsolidated on\nDecember 31, 2022, and reclassified as held for sale as of December 31, 2021, 2022 and 2023, for the carrying amounts will be recovered\nprincipally through a sale and revenues and expenses related to HHE have been reclassified in the accompanying consolidated financial\nstatements as discontinued operations for fiscal 2022.\n\n \n\nAs of March 6, 2024, the Company\ncompleted the divestiture of its ownership in HHE.\n\n \n\n53 \n\n \n\n \n\n**April 2025 Share Purchase Agreement**\n\n \n\nOn November 11, 2024, the\nCompany announced that Sasken, a leading global product engineering and digital transformation services company based in India, signed\na Letter of Intent with the Company to acquire the Group’s certain hardware and software services business. On April 8, 2025, the\nCompany signed the SPA with Sasken Design Solutions Pte. Ltd, a wholly owned subsidiary of Sasken. The SPA provided for Sasken’s\nacquisition of the Company’s core business through the purchase of BORQS International Holding Corp, the Company’s wholly\nowned subsidiary. The transactions contemplated by the Sale were consummated on April 9, 2025. Included in the Sale are all of the Company’s\nembedded software design and customized hardware manufacturing of products for the IoT activities, customer contracts, technology licenses,\nintellectual property, employment agreements with key personnel and assets required for the Company’s operations. Sasken agreed\nto pay the Company an aggregate purchase price of $40 million, subject to adjustments for working capital, amounts withheld for taxes\npayable and certain earnout payments linked to performance in 2025. As such, for the year ended December 31, 2024, the Group classified\nrelated assets and liabilities as held for sale and reported in discontinued operation for the years ended December 31, 2023, 2024, and\n2025."}