{"url_path":"/sec/cdtg/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/1793895/0001731122-26-000740-index.html","accession_number":"0001731122-26-000740","cik":"0001793895","ticker":"CDTG","issuer_name":"CDT Environmental Technology Investment Holdings Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1793895/0001731122-26-000740-index.html","primary_entity_key":"0001793895","primary_entity_name":"CDT Environmental Technology Investment Holdings Ltd"},"word_count":11304,"has_tables":true,"body_markdown":"**ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**\n\n \n\n**A. Operating results**\n\n** **\n\n*You should read the following\ndiscussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements\nand the related notes included elsewhere in this annual report on Form 20-F. This discussion and other parts of this annual report on\nForm 20-F may contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties\nand assumptions. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking\nstatements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors”\nor in other parts of this annual report on Form 20-F. You should carefully read the “Item 3. Key Information—D. Risk Factors”\nsection of this annual report on Form 20-F to gain an understanding of the important factors that could cause actual results to differ\nmaterially from our forward-looking statements.*\n\n \n\n**Overview**\n\n \n\nWe, through our subsidiaries, are\na waste treatment company that generates revenue through design, development, manufacture, sales, installation, operation, and maintenance\nof sewage treatment systems and by providing sewage treatment services. We, through our subsidiaries, primarily engage in two business\nlines: sewage treatment systems and sewage treatment services in both urban and rural areas. Sewage treatment systems are sometimes also\nreferred to herein as rural sewage treatment, and sewage treatment services are sometimes also referred to herein as septic tank treatment.\nOur goal is to become one of the premier sewage treatment solution companies in China.\n\n \n\nFor sewage treatment systems, we\nsell and install our proprietary rural sewage treatment systems and provide on-going operation and maintenance services to our customers.\nFor sewage treatment services, we provide on-site treatment services with our mobile and fixed septic tank treatment systems.\n\n \n\nThe core of our business is our\nproprietary systems and technology, together with our experience and expertise in waste treatment services, particularly in rural sewage\ntreatment and septic tank treatment. As of December 31, 2025, we had 2 invention patents, 36 utility model patents and 3 trademarks. We\nare continually working to upgrade our quick separation technology and septic tank treatment systems through independent research and\ndevelopment and partnerships with third-party institutions to further develop our mobile septic tank treatment system.\n\n \n\nWe have grown since our inception.\nWe generate revenues primarily from establishment and setup of sewage treatment systems installation with government and non-government\ncontracts and providing sewage treatment services for sewage systems. Our total revenues decreased by approximately $11.5 million, or\n38.8%, to approximately $18.2 million for the year ended December 31, 2025 as compared to approximately $29.8 million for the year ended\nDecember 31, 2024. This decrease was primarily attributed to ongoing work related to two new projects during the year ended December 31,\n2025, compared to three new projects in the same period of 2024, and fewer projects in progress or completed in 2025. The reduced project\nactivity was largely driven by decreased demand for the Company’s services due to the economic downturn in the People’s Republic\nof China (the “PRC”).\n\n \n\nOur total revenues decreased by\napproximately $4.4 million, or 13.0%, to approximately $29.8 million for the year ended December 31, 2024 as compared to approximately\n$34.2 million for the year ended December 31, 2023. This decrease was primarily attributed to ongoing work related to three new projects\nduring the year ended December 31, 2024, compared to four new projects in the same period of 2023, and fewer projects in progress or completed\nin 2024. The reduced project activity was largely driven by decreased demand for the Company’s services due to the economic downturn\nin the People’s Republic of China (the “PRC”).\n\n \n\n61\n\n \n\n \n\nAs of March 31, 2026, we had three\nprojects in backlog: Phase VI of the Jimei Guankou Project, the Xiamen Xinglin Pipeline Network Renovation Project, and the Hubei Wuxue\nProject. Phase VI of the Jimei Guankou Project was signed in February 2025 and commenced construction in March 2025; the Xiamen Xinglin\nPipeline Network Renovation Project was signed in July 2025 and commenced construction in August 2025; and the Hubei Wuxue Project was\nsigned and commenced construction in March 2026. According to the project agreements, the total provisional contract value for these three\nprojects is approximately RMB 187 million (US$26.8 million), of which the provisional contract value for Phase VI of the Jimei Guankou\nProject is RMB 30 million (approximately US$4.3 million), the Xiamen Xinglin Pipeline Network Renovation Project has a provisional contract\nvalue of RMB 87 million (approximately $12.5 million), and the Hubei Wuxue Project has a provisional contract value of RMB 70 million\n(approximately $10 million), subject to the specific terms of the agreements. Key terms of the agreements for the three projects include:\n\n \n\n \n●\nthe project name and location;\n\n \n\n \n●\nduration, price and payment terms;\n\n \n\n \n●\nquality, safety and construction requirements; and\n\n \n\n \n●\nbreach of contract terms.\n\n \n\nIn addition, we are currently participating\nin the bidding process for two sewage treatment system projects, with results expected by the third quarter of 2026. There is no guarantee\nthat we will be awarded these contracts, nor is there any guarantee that, even if awarded, the projects will be completed on time or at\nall.\n\n \n\nThe Company is currently in discussions\nwith potential industry partners to convert organic solid waste into new energy and renewable energy to promote commercialization of market-ready\ninnovative energy solutions needed to achieve sustainable development goals and carbon neutrality, laying a foundation for the Company’s\nfuture growth. The Company is currently engaged in the planning stages of this new energy opportunity, and therefore a number of uncertainties\nexist relating to the successful launch of this new project and the ability of the Company to create a new revenue stream in the future.\n\n \n\n**Key Factors that Affect Operating Results**\n\n \n\nOur management has observed the\ntrends and uncertainties of government efforts to control sewage waste discharge, which we believe may have a direct impact on our operations\nin the near future.\n\n \n\nOur operating subsidiaries are\nincorporated, and our operations and assets are all located, in China. Accordingly, our results of operations, financial condition and\nprospects are affected by China’s economic and regulatory conditions, which could be influenced by the following factors: (a) an\neconomic downturn in China or any regional market in China; (b) economic policies and initiatives undertaken by the Chinese government;\n(c) changes in the Chinese or regional business or regulatory environment affecting our customers; and (d) changes in the Chinese government\npolicy on sewage waste discharge. Unfavorable changes could affect demand for services that we provide and could materially and adversely\naffect the results of operations. Although we have generally benefited from China’s economic growth and the policies to encourage\nthe improvement of reducing of sewage waste discharge, we are also affected by the complexity, uncertainties and changes in the Chinese\neconomic conditions and regulations governing the sewage industry.\n\n \n\n**Impact of Foreign Currency Fluctuation**\n\n** **\n\n See “Item 3. Key Information-D.\nRisk Factors-Risks Related to Doing Business in China- Fluctuations in exchange rates could have a material and adverse effect on our\nresults of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative Disclosures About Market\nRisk-Foreign Exchange Risk.\n\n \n\n**Recent Developments**\n\n** **\n\n****\n\nOn April 17, 2026, the Company\nentered into securities purchase agreements with certain investors for the issuance and sale of an aggregate of 62,000,000 ordinary shares\nof the Company at a purchase price of $0.105 per share, for aggregate gross proceeds of $6,510,000. As of the date of issuance of the\nconsolidated financial statements, the Company had completed the transaction and received the proceeds in full.\n\n** **\n\n****\n\n**Results of Operations**\n\n \n\n**Comparison of the years ended December 31, 2025\nand 2024**\n\n \n\n****\n\n \n \nFor the Years Ended December 31,\n\n \n \n \n \n \n \n \n \nPercentage\n\n \n \n2025\n \n2024\n \nChange\n \nChange\n\nRevenues\n \n$\n18,225,819\n \n \n$\n29,765,205\n \n \n$\n(11,539,386\n)\n \n \n(38.8\n)%\n\nCost of revenues\n \n \n10,666,862\n \n \n \n18,518,728\n \n \n \n(7,851,866\n)\n \n \n(42.4\n)%\n\nGross profit\n \n \n7,558,957\n \n \n \n11,246,477\n \n \n \n(3,687,520\n)\n \n \n(32.8\n)%\n\nSelling expenses\n \n \n162,602\n \n \n \n108,637\n \n \n \n53,965\n \n \n \n49.7\n%\n\nGeneral and administrative expenses\n \n \n2,160,434\n \n \n \n2,164,457\n \n \n \n(4,023\n)\n \n \n(0.2\n)%\n\nResearch and development expenses\n \n \n47,602\n \n \n \n61,786\n \n \n \n(14,184\n)\n \n \n(23.0\n)%\n\nStock-based compensation\n \n \n2,145,000\n \n \n \n454,250\n \n \n \n1,690,750\n \n \n \n372.2\n%\n\nProvision for credit losses, net\n \n \n14,694,723\n \n \n \n6,459,240\n \n \n \n8,235,483\n \n \n \n127.5\n%\n\nIncome from operations\n \n \n(11,651,404\n)\n \n \n1,998,107\n \n \n \n(13,649,511\n)\n \n \n(683.1\n)%\n\nOther income (expense), net\n \n \n19,296\n \n \n \n(129,782\n)\n \n \n149,078\n \n \n \n(114.9\n)%\n\nIncome tax expense\n \n \n(1,266,021\n)\n \n \n462,043\n \n \n \n(1,728,064\n)\n \n \n(374.0\n)%\n\nNet income\n \n$\n(10,366,087\n)\n \n$\n1,406,282\n \n \n$\n(11,772,369\n)\n \n \n(837.1\n)%\n\n \n\n62\n\n \n\n \n\n**Revenues**\n\n \n\nOur revenues are derived from sewage\ntreatment systems and related services in both urban and rural areas. Total revenues decreased by approximately $11.5 million, or 38.8%,\nto approximately $18.2 million for the year ended December 31, 2025, compared to approximately $29.8 million for the same period in 2024.\nThe decline was primarily attributable to reduced demand for the Company’s services amid the ongoing economic downturn in the PRC.\n\n \n\nOur revenues from our revenue categories\nare summarized as follows:\n\n \n\n \n \nFor the Year Ended\n \nFor the Year Ended\n \n \n \n \n\n \n \nDecember 31,\n2025\n \nDecember 31,\n2024\n \nChange\n \nChange (%)\n\nRevenues\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSewage treatment systems\n \n$\n17,279,031\n \n \n$\n28,417,150\n \n \n$\n(11,138,119\n)\n \n \n(39.2\n)%\n\nSewage treatment services\n \n \n946,788\n \n \n \n1,348,055\n \n \n \n(401,267\n)\n \n \n(29.8\n)%\n\nTotal revenues\n \n$\n18,225,819\n \n \n$\n29,765,205\n \n \n$\n(11,539,386\n)\n \n \n(38.8\n)%\n\n \n\n*Sewage treatment systems revenues*\n\n \n\nRevenues from sewage treatment\nsystem installations decreased by approximately $11.1 million, or 39.2%, to approximately $17.3 million for the year ended December 31,\n2025, from approximately $28.4 million for the same period in 2024. This decline is primarily attributable to delays in the progress of\nprojects initiated between 2021 and 2024, which were mainly caused by prolonged local government review and approval processes that pushed\nproject timelines beyond initial expectations, as well as a decrease in the number of new projects secured in 2025 compared to the previous\nyear. For the year ended December 31, 2025, we initiated two new projects with a total contract value of approximately $16.8 million and\ncompleted one project initiated in 2023 and three projects initiated in 2024. However, the majority of revenue from projects completed\nduring the year had already been recognized during the earlier construction phases. Meanwhile, as of December 31, 2025, three projects\nremained in progress. By comparison, during 2024, we initiated three new projects with a total contract value of approximately $19.5 million\nand completed two projects that had been initiated in 2023. As of April 30, 2026, the uncompleted projects are expected to be completed\nwithin the next twelve months.\n\n \n\n*Sewage treatment services revenues*\n\n \n\nRevenues from sewage treatment\nservices decreased by approximately $0.4 million, or 29.8%, to approximately $0.9 million for the year ended December 31, 2025, from approximately\n$1.3 million for the year ended December 31, 2024. The decrease was primarily due to reduced demand for our services as a result of the\nongoing economic downturn in the PRC.\n\n \n\n**Cost of Revenues**\n\n \n\nTotal cost of revenues decreased\nby approximately $7.9 million, or 42.4% to approximately $10.7 million for the year ended December 31, 2025 as compared to approximately\n$18.5 million for the year ended December 31, 2024. The decrease in cost of revenues is a direct result of our decline in revenue.\n\n \n\nOur cost of revenues from our revenue\ncategories are summarized as follows:\n\n \n\n \n \nFor the Year Ended December 31, 2025\n \nFor the Year Ended December 31,\n2024\n \nChange\n \nChange (%)\n\nCost of Revenues\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nCost of sewage treatment systems\n \n$\n10,074,628\n \n \n$\n17,779,226\n \n \n$\n(7,704,598\n)\n \n \n(43.3\n)%\n\nCost of sewage treatment services\n \n \n592,234\n \n \n \n739,502\n \n \n \n(147,268\n)\n \n \n(19.9\n)%\n\nTotal cost of revenue\n \n$\n10,666,862\n \n \n$\n18,518,728\n \n \n$\n(7,851,866\n)\n \n \n(42.4\n)%\n\n \n\nOur cost of revenues from sewage\ntreatment systems was mainly comprised of labor and material. Our cost of revenues from sewage treatment system decreased by approximately\n$7.7 million, or 43.3%, to approximately $10.1 million for the year ended December 31, 2025, from approximately $17.8 million for the\nyear ended December 31, 2024. The decrease in cost of revenues for the sewage treatment system is primarily attributable to the decline\nin revenue from the sewage treatment system.\n\n \n\n63\n\n \n\n \n\nOur cost of revenues from sewage\ntreatment services decreased by approximately $0.1 million, or 19.9%, to approximately $0.6 million for the year ended December 31, 2025,\nfrom approximately $0.7 million for the year ended December 31, 2024. The decrease in the cost of revenues from sewage treatment services\nwas primary attributable to decrease in revenue from sewage treatment services.\n\n \n\n**Gross Profit**\n\n \n\nOur gross profit from our major\nrevenue categories are summarized as follows:\n\n \n\n \n \nFor the Year Ended\nDecember 31, 2025\n \nFor the Year Ended\nDecember 31, 2024\n \nChange\n \nChange (%)\n\nSewage treatment systems\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGross profit margin\n \n$\n7,204,403\n \n \n$\n10,637,924\n \n \n$\n(4,313,267\n)\n \n \n(32.3\n)%\n\nGross profit percentage\n \n \n41.7\n%\n \n \n37.4\n%\n \n \n4.3\n%\n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSewage treatment services\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGross profit margin\n \n$\n354,554\n \n \n$\n608,553\n \n \n$\n(253,999\n)\n \n \n(41.7\n)%\n\nGross profit percentage\n \n \n37.4\n%\n \n \n45.1\n%\n \n \n(7.7\n)%\n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nTotal\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGross profit margin\n \n$\n7,558,957\n \n \n$\n11,246,477\n \n \n$\n(3,687,520\n)\n \n \n(32.8\n)%\n\nGross profit percentage\n \n \n41.5\n%\n \n \n37.8\n%\n \n \n3.7\n%\n \n \n \n \n\n \n\nOur gross profit decreased by approximately\n$3.7 million, or 32.8%, to approximately $7.6 million for the year ended December 31, 2025 from approximately $11.2 million for the year\nended December 31, 2024. The decrease in gross profit was primarily attributable to the decline in revenue from the sewage treatment system\nand sewage treatment system services as discussed above.\n\n \n\nFor the years ended December 31,\n2025 and 2024, our overall gross profit margin was 41.5% and 37.8%, respectively. The 3.7% increase was primarily attributable to (1)\nan increase in the gross profit percentage for our sewage treatment systems business from 37.4% to 41.7%, primarily due to a higher proportion\nof more profitable projects completed during 2025, partially offset by (2) a decrease in the gross profit percentage for our sewage treatment\nservices business from 45.1% to 37.4%, primarily due to increased labor costs incurred in providing such services.\n\n \n\n**Operating Expenses**\n\n \n\nTotal operating expenses increased\nby approximately $10.0 million or 107.7% to approximately $19.2 million for the year ended December 31, 2025 from approximately $9.2 million\nfor the year ended December 31, 2024. The increase was mainly attributable to the following:\n\n \n\nApproximately $54,000 increase\nin selling expenses which mainly was attributed to an increase in advertising expenses.\n\n \n\nApproximately $1.7 million increase\nin share-based compensation was primarily due to the issuance of share-based compensation to one employee and two consultants as equity-based\ncompensation related to 2025 Equity Incentive Plan (the “2025 Plan”).\n\n \n\nWe recorded a provision for credit\nlosses, approximately $14.7 million, net of recoveries, for the year ended December 31, 2025, compared to a net recovery of approximately\n$6.5 million for the same period in 2024. The increase was primarily due to higher provisions made in 2025 in response to increased credit\nrisk and collectability concerns.\n\n \n\n**Other (expense) income, net**\n\n \n\nFor the year ended December 31,\n2025, we incurred approximately $19,000 in other income, net, compared to net other expenses of approximately $0.1 million for the year\nended December 31, 2024. The change was primarily attributable to an approximate $0.1 million increase in gain from disposal of business\nin 2025 compared to 2024.\n\n \n\n64\n\n \n\n \n\n**Income tax expense**\n\n \n\nFor the year ended December 31,\n2025, our income tax provision was a tax benefit of approximately $1.3 million, representing a decrease of approximately $1.7 million\nfrom the income tax expense of approximately $0.5 million recorded in 2024. The decrease was primarily attributable to the deferred tax\nbenefit recognized as a result of the additional credit loss allowances provided by the Company’s PRC subsidiaries.\n\n \n\n**Net income**\n\n \n\nOur net income decreased by approximately\n$11.8 million, or 837.1%, to net loss of approximately $10.3 million for the year ended December 31, 2025, from approximately $1.4 million\nnet income for the same period in 2024. Such change was due to the factors discussed above.\n\n \n\n**Comparison of Years Ended December 31, 2024 and\n2023**\n\n \n\n \n \nFor the Years Ended December 31,\n\n \n \n \n \n \n \n \n \nPercentage\n\n \n \n2024\n \n2023\n \nChange\n \nChange\n\nRevenues\n \n$\n29,765,205\n \n \n$\n34,209,919\n \n \n$\n(4,444,714\n)\n \n \n(13.0\n)%\n\nCost of revenues\n \n \n18,518,728\n \n \n \n22,825,033\n \n \n \n(4,306,305\n)\n \n \n(18.9\n)%\n\nGross profit\n \n \n11,246,477\n \n \n \n11,384,886\n \n \n \n(138,409\n.)\n \n \n(1.2\n)%\n\nSelling expenses\n \n \n108,637\n \n \n \n106,147\n \n \n \n2,490\n \n \n \n2.3\n%\n\nGeneral and administrative expenses\n \n \n2,164,457\n \n \n \n2,674,519\n \n \n \n(510,062\n)\n \n \n(19.1\n)%\n\nResearch and development expenses\n \n \n61,786\n \n \n \n80,948\n \n \n \n(19,162\n)\n \n \n(23.7\n)%\n\nStock-based compensation\n \n \n454,250\n \n \n \n—\n \n \n \n454,250\n \n \n \n100.0\n%\n\nProvision for (recovery from) credit losses, net\n \n \n6,459,240\n \n \n \n(88,221\n)\n \n \n6,547,461\n \n \n \n(7421.7\n)%\n\nIncome from operations\n \n \n1,998,107\n \n \n \n8,611,493\n \n \n \n(6,613,386\n)\n \n \n(76.8\n)%\n\nOther (expense) income, net\n \n \n(129,782\n)\n \n \n(183,559\n)\n \n \n53,777\n \n \n \n(29.3\n)%\n\nIncome tax expense\n \n \n462,043\n \n \n \n1,403,880\n \n \n \n(941,837\n)\n \n \n(67.1\n)%\n\nNet income\n \n$\n1,406,282\n \n \n$\n7,024,054\n \n \n$\n(5,617,772\n)\n \n \n(80.0\n)%\n\n \n\n**Revenues**\n\n \n\nOur revenues are derived from sewage\ntreatment systems and related services in both urban and rural areas. Total revenues decreased by approximately $4.4 million, or 13.0%,\nto approximately $29.8 million for the year ended December 31, 2024, compared to approximately $34.2 million for the same period in 2023.\nThe decline was primarily attributable to reduced demand for the Company’s services amid the ongoing economic downturn in the PRC.\n\n \n\nOur revenues from our revenue categories\nare summarized as follows:\n\n \n\n \n \nFor the Year Ended\n \nFor the Year Ended\n \n \n \n \n\n \n \nDecember 31,\n2024\n \nDecember 31,\n2023\n \nChange\n \nChange (%)\n\nRevenues\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSewage treatment systems\n \n$\n28,417,150\n \n \n$\n32,267,593\n \n \n$\n(3,850,443\n)\n \n \n(11.9\n)%\n\nSewage treatment services\n \n \n1,348,055\n \n \n \n1,942,326\n \n \n \n(594,271\n)\n \n \n(30.6\n)%\n\nTotal revenues\n \n$\n29,765,205\n \n \n$\n34,209,919\n \n \n$\n(4,444,714\n)\n \n \n(13.0\n)%\n\n \n\n*Sewage treatment systems revenues*\n\n* *\n\nRevenues from sewage treatment\nsystem installations decreased by approximately $3.9 million, or 11.9%, to approximately $28.4 million for the year ended December 31,\n2024, from approximately $32.3 million for the same period in 2023. The decrease was primarily attributed to delays in the progress of\nprojects initiated between 2021 and 2023 mainly due to prolonged local government inspection and approval processes, which extended project\ntimelines beyond original expectations, as well as fewer new projects undertaken during 2024 compared to the prior year. For the year\nended December 31, 2024, we initiated three new projects with a total contract value of approximately $19.5 million and completed two\nprojects initiated in 2023. Meanwhile, six projects remained in progress as of December 31, 2024. In contrast, during 2023, we initiated\nfour new projects with a total contract price of approximately $35.4 million and completed six projects originally launched between 2020\nand 2022. As of April 30, 2025, one outstanding project as of December 31, 2024 has been completed, and the remaining are expected to\nbe finalized within the next twelve months. Despite ongoing economic uncertainty in the PRC, we expect revenues from sewage treatment\nsystem installations to remain stable in 2025 and beyond, as this business segment demonstrates resilience amid macroeconomic challenges.\n\n \n\n65\n\n \n\n \n\n*Sewage treatment services revenues*\n\n \n\nRevenues from sewage treatment\nservices decreased by approximately $0.6 million, or 30.6%, to approximately $1.3 million for the year ended December 31, 2024, from approximately\n$1.9 million for the year ended December 31, 2023. The decrease was primarily due to reduced demand for our services as a result of the\nongoing economic downturn in the PRC.\n\n \n\n**Cost of Revenues**\n\n \n\nTotal cost of revenues decreased\nby approximately $4.3 million, or 18.9% to approximately $18.5 million for the year ended December 31, 2024 as compared to approximately\n$22.8 million for the year ended December 31, 2023. The decrease in cost of revenues is a direct result of our decrease of revenues.\n\n \n\nOur cost of revenues from our revenue\ncategories are summarized as follows:\n\n \n\n \n \nFor the Year Ended December 31, 2024\n \nFor the Year Ended December 31,\n2023\n \nChange\n \nChange (%)\n\nCost of Revenues\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nCost of sewage treatment systems\n \n$\n17,779,226\n \n \n$\n21,630,216\n \n \n$\n(3,850,990\n)\n \n \n(17.8\n)%\n\nCost of sewage treatment services\n \n \n739,502\n \n \n \n1,194,817\n \n \n \n(455,315\n)\n \n \n(38.1\n)%\n\nTotal cost of revenue\n \n$\n18,518,728\n \n \n$\n22,825,033\n \n \n$\n(4,306,305\n)\n \n \n(18.9\n)%\n\n \n\nOur cost of revenues from sewage\ntreatment systems was mainly comprised of labor and material. Our cost of revenues from sewage treatment system decreased by approximately\n$3.9 million, or 17.8%, to approximately $17.8 million for the year ended December 31, 2024, from approximately $21.6 million for the\nyear ended December 31, 2023. The decrease in the cost of revenues from sewage treatment systems was primary attributable to decrease\nin revenue from sewage treatment systems.\n\n \n\nOur cost of revenues from sewage\ntreatment services decreased by approximately $0.5 million, or 38.1%, to approximately $0.7 million for the year ended December 31, 2024,\nfrom approximately $1.2 million for the year ended December 31, 2023. The decrease in the cost of revenues from sewage treatment services\nwas in line for the decrease in revenue from sewage treatment services.\n\n \n\n**Gross Profit**\n\n \n\nOur gross profit from our major\nrevenue categories is summarized as follows:\n\n \n\n \n \nFor the Year Ended\nDecember 31, 2024\n \nFor the Year Ended\nDecember 31, 2023\n \nChange\n \nChange (%)\n\nSewage treatment systems\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGross profit margin\n \n$\n10,637,924\n \n \n$\n10,637,377\n \n \n$\n547\n \n \n \n0.0\n%\n\nGross profit percentage\n \n \n37.4\n%\n \n \n33.0\n%\n \n \n4.4\n%\n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSewage treatment services\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGross profit margin\n \n$\n608,553\n \n \n$\n747,509\n \n \n$\n(138,956\n)\n \n \n(18.6\n)%\n\nGross profit percentage\n \n \n45.1\n%\n \n \n38.5\n%\n \n \n6.7\n%\n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nTotal\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGross profit margin\n \n$\n11,246,477\n \n \n$\n11,384,886\n \n \n$\n(138,409\n)\n \n \n(1.2\n)%\n\nGross profit percentage\n \n \n37.8\n%\n \n \n33.3\n%\n \n \n4.5\n%\n \n \n \n \n\n \n\nOur gross profit decreased by approximately\n$0.1 million, or 1.2 %, to approximately $11.2 million for the year ended December 31, 2024 from approximately $11.4 million for the year\nended December 31, 2023. The decrease in gross profit is primarily due to the decrease of sewage treatment systems services revenue as\ndiscussed above.\n\n \n\nFor the years ended December 31,\n2024 and 2023, our overall gross profit margin was 37.8% and 33.3%, respectively. The 4.5% increase was primarily attributable to improved\noperational efficiency, including more effective utilization of labor costs in both sewage treatment system installations and sewage treatment\nservices.\n\n \n\n66\n\n \n\n \n\n**Operating Expenses**\n\n \n\nTotal operating expenses increased\nby approximately $6.5 million or 233.5% to approximately $9.2 million for the year ended December 31, 2024 from approximately $2.8 million\nfor the year ended December 31, 2023. The increase was mainly attributable to the following:\n\n \n\nApproximately $2,500 increase in\nselling expenses which mainly attributed to an increase in advertising expenses.\n\n \n\nApproximately $0.5 million decrease\nin general and administrative expenses which is primarily attributable to a decrease of approximately $0.8 million in salary, travel,\nand other office-related expenses as part of our efforts to improve operational efficiency. This decrease was partially offset by an increase\nin professional fees of approximately $0.3 million, primarily related to higher professional service costs associated with regulatory\ncompliance.\n\n \n\nThe approximately $0.5 million\nincrease in stock-based compensation was primarily due to the issuance of stock-based compensation to two consulting firms we engaged\nto support our brand awareness.\n\n \n\nWe recorded a provision for credit\nlosses, net of recoveries, of approximately $6.5 million for the year ended December 31, 2024, compared to a net recovery of approximately\n$88,000 for the same period in 2023. The increase was primarily due to higher provisions made in 2024 in response to increased credit\nrisk and collectability concerns.\n\n \n\n**Other (expense) income, net**\n\n \n\nFor the year ended December 31,\n2024, we incurred approximately $0.1 million in other expenses, net, compared to approximately $0.2 million for the year ended December\n31, 2023. Such a change was mainly attributable to approximately $0.1 million gain from the disposal of two of our subsidiaries during\nthe year ended December 31, 2024.\n\n \n\n**Income tax expense**\n\n \n\nOur provision for income taxes\ndecreased by approximately $0.9 million to approximately $0.5 million for the year ended December 31, 2024, from approximately $1.4 million\nfor the year ended December 31, 2023. The decrease was primarily due to an increase of approximately $1.0 million in deferred tax benefits\nrecognized in connection with additional credit loss provisions recorded by our PRC subsidiaries. This was partially offset by an increase\nof approximately $71,000 in current income tax expense, resulting from higher taxable income generated by our PRC subsidiaries.\n\n \n\n**Net income**\n\n \n\nOur net income was decreased by\napproximately $5.6 million, or 80.0%, to net income of approximately $1.4 million for the year ended December 31, 2024, from approximately\n$7.0 million net income for the same period in 2023. Such change was due to the reasons as discussed above.\n\n \n\n**B. Liquidity and Capital Resources**\n\n** **\n\nIn assessing our\nliquidity, we monitor and analyze our cash on-hand, operating requirements, and capital expenditure commitments. Our liquidity needs are\nto meet our working capital requirements, operating expenses, and capital expenditure obligations.\n\n \n\nWe engage in installing\nsewage treatment systems and providing sewage treatment services in both urban and rural areas. Our business is capital intensive. Working\ncapital was approximately $26.4 million as of December 31, 2025, as compared to approximately $26.0 million as of December 31, 2024. As\nof December 31, 2025, cash on-hand balance was approximately $66,686. In addition to cash on-hand, we also have other current assets mainly\ncomposed of accounts receivable and contract assets. We had accounts receivable, net, of approximately $44.1 million, and contract assets\n– current of approximately $39.3 million as of December 31, 2025, all of which are short-term in nature and should be collected\nand utilized within our operating cycle to be used to support our working capital needs.\n\n \n\nOn April 22, 2024,\nwe completed the initial public offering (“IPO”) of 1,500,000 ordinary shares at an initial public offering price of $4.0\nper share, resulting in net proceeds to us of approximately $4.3 million after deducting underwriting discounts and commissions and other\nexpenses, and including net proceeds in the amount of $600,000 that were placed in an escrow account for 24-months following the closing\nof the IPO. As of December 31, 2025, the restrictions on such funds had been early released. Accordingly, the balance of the escrow account\nrelated to the IPO was $0 as of December 31, 2025, compared to $600,000 as of December 31, 2024.\n\n \n\nAlthough we believe\nthat it can realize its current assets in the normal course of business, its ability to repay its current obligations will depend on the\nfuture realization of its current assets. We have considered historical experience, the economic environment, trends in the sewage treatment\nindustry, and the expected collectability of accounts receivable and contract assets as of December 31, 2025. We expect to realize these\noutstanding balances, net of allowance within the normal operating cycle of twelve-months. As of the date of the issuance of these consolidated\nfinancial statements, we have received approximately $1.9 million of its accounts receivable. If we are unable to realize its current\nassets within the normal twelve-month operating cycle, we may have to consider supplementing its available sources of funds through the\nfollowing:\n\n \n\n67\n\n \n\n \n\n \n●\nFinancing from our officers and shareholders; and\n\n \n\n \n●\nOther available sources of financing from PRC banks, other financial institutions and related parties, given our credit history.\n\n \n\nBased on the above\nconsiderations, we believe that we have sufficient funds to meet its working capital requirements and debt obligations, for at least the\nnext 12 months from the filing date of these consolidated financial statements. However, there is no assurance that we will be successful\nin their plans. There are a number of factors that could potentially arise that could undermine our plans, such as changes in the demand\nfor its services, economic conditions, competitive pricing in the sewage treatment services industry, its operating results may deteriorate\nand its banks and shareholders may not provide continued financial support.\n\n \n\nThe following summarizes the key\ncomponents of our cash flows for the years ended December 31, 2025, 2024 and 2023:\n\n \n\n \n \nFor the year ended December 31, 2025\n \nFor the year ended December 31, 2024\n \nFor the year ended December 31, 2023\n\n \n \n \n \n \n \n \n\nNet cash used in operating activities\n \n$\n(1,490,957\n)\n \n$\n(1,987,028\n)\n \n$\n(3,132,666\n)\n\nNet cash provided by investing activities\n \n \n1,067\n \n \n \n545,167\n \n \n \n243,586\n \n\nNet cash provided by financing activities\n \n \n1,398,302\n \n \n \n1,018,726\n \n \n \n2,990,160\n \n\nEffect of exchange rate change on cash\n \n \n33,895\n \n \n \n279,412\n \n \n \n(32,842\n)\n\nNet change in cash\n \n$\n(57,693\n)\n \n$\n(143,723\n)\n \n$\n68,238\n \n\n \n\nWe anticipate that current cash\nresources and opportunities will be insufficient for us to execute our business plan for twelve months after the date these financial\nstatements are issued. It is possible that if future financing is not obtained, we will not be able to operate as a going concern. We\nbelieve that securing additional sources of financing is possible, but there is no assurance of our ability to secure such financing.\nA failure to obtain additional financing could prevent us from making necessary expenditures for advancement and growth to partner with\nbusinesses and hire additional personnel. If we raise additional financing by selling equity, or convertible debt securities, the relative\nequity ownership of our existing investors could be diluted, or the new investors could obtain terms more favorable than previous investors.\nIf we raise additional funds through debt financing, we could incur significant borrowing costs and be subject to adverse consequences\nin the event of a default. Any equity capital raised may result in substantial dilution in the number of outstanding shares of our Class\nA ordinary shares.\n\n \n\n**Operating activities**\n\n \n\nNet cash used in operating activities\nwas approximately $1.5 million for the year ended December 31, 2025 and was primarily attributable to (i) a net loss of approximately\n$10.4 million; and (ii) an increase in accounts receivable of approximately $12.1 million, the reasons for which are detailed in the discussion\nunder “Accounts Receivable” below; (iii) an increase in prepayments and other current assets of approximately $0.1 million,\ndue to an increase in prepayments for purchases; and (iv) non-cash items of approximately $2.2 million, such as deferred income tax gains\nand gains on the disposal of subsidiaries, offset by the following factors: (i) a net decrease of approximately $1.7 million in contract\nassets, as described in the “Contract Assets” sections below; (ii) non-cash items totaling approximately $17.1 million, including\ndepreciation and amortization, loss on disposal of equipment, net provision for (and recovery of) credit losses, and stock-based compensation\nexpense; (iii) an increase of approximately $1.8 million in accounts payable, as detailed in the discussion under “Accounts Payable”\nbelow; (iv) an increase of approximately $0.1 million in other payables and accrued liabilities, resulting from the accrual of additional\noperating-related expenses; and (v) an increase of approximately $2.6 million in taxes payable, primarily attributable to an increase\nin income taxes payable.\n\n \n\nNet cash used in operating activities\nwas approximately $2.0 million for the year ended December 31, 2024 and was primarily attributable to (i) an approximately $1.4 million\nnet increase in contract assets and contract costs, which was due to the reasons discussed below under the section “contract assets”\nand “contract costs”, and (ii) approximately $23.1 million increase in accounts receivable which was due to the reason discussed\nbelow under the section “accounts receivable”, (iii) approximately $0.6 million increase in other receivables for additional\nservice deposits with our third party service provider and advances to our employee for operational purposes, and (iv) approximately $1.1\nmillion in non-cash items such as deferred tax benefit, and gain on disposal of subsidiaries, offset by (i) a net income of approximately\n$1.4 million, (ii) approximately $7.3\n\n68\n\n \n\nmillion in non-cash items such as depreciation and amortization, loss on disposal of equipment,\nprovision for (recovery from) credit loss, net, and stock-based compensation, (iii) an approximately $13.0 million increase in accounts\npayable, which was due to the reasons discussed below under the section “accounts payable”, (iv) an approximately $50,000\ndecrease in prepayments and other current assets as we utilized prepayment made in prior period for contractor labor, material in current\nsewage treatment systems projects , (v) approximately $0.4 million increase in other payables and accrued liabilities as we incurred more\naccrued expense related to our operation, and (vi) approximately $2.1 million increase in taxes payable which was attributable to increase\nin income taxes payable.\n\n \n\nNet cash used in operating activities\nwas approximately $3.1 million for the year ended December 31, 2023 and was primarily attributable to (i) an approximately $12.7 million\nnet increase in contract assets and contract costs, which was due to the reasons discussed below under the section “contract assets”\nand “contract costs”, and (ii) approximately $9.2 million increase in accounts receivable which was due to the reason discussed\nbelow under the section “accounts receivable”, (iii) approximately $0.2 million increase in other receivables for additional\nservice deposits with our third party service provider and advances to our employee for operational purposes, offset by (i) net income\nof approximately $7.0 million, (ii) approximately $0.6 million in non-cash items such as depreciation and amortization, loss on disposal\nof equipment, and deferred tax expense, (iii) an approximately $9.2 million increase in accounts payable, which was due to the reasons\ndiscussed below under the section “accounts payable”, (iv) an approximately $1.7 million decrease in prepayments and other\ncurrent assets as we utilized prepayment made in prior period for contractor labor, material in current sewage treatment systems projects,\nand (v) approximately $0.6 million increase in taxes payable which was attributable to increase in income taxes payable due to increase\nof our current taxable income.\n\n \n\nAccounts receivable\n\n \n\nOur accounts receivable increased\nby approximately $12.1 million during the year ended December 31, 2025. The increase was primarily due to a longer collection cycle for\nthe year ended December 31, 2025, driven by delays in the government billing approval process as a result of the ongoing economic downturn\nin the PRC.\n\n \n\nOur accounts receivable increased\nby approximately $23.1 million during the year ended December 31, 2024. The increase was primarily due to a longer collection cycle for\nthe year ended December 31, 2024, driven by delays in the government billing approval process as a result of the ongoing economic downturn\nin the PRC.\n\n \n\nOur accounts receivable increased\nby approximately $9 million for the year ended December 31, 2023. The increase was mainly due to the increase of revenue during the year\nended December 31, 2023.\n\n \n\nOur days sales outstanding are\nas follows:\n\n \n\nPeriod\n \nDays Sales\nOutstanding\n\n \nYear Ended December 31, 2018\n \n \n \n180\n \n\n \nYear Ended December 31, 2019\n \n \n \n306\n \n\n \nYear Ended December 31, 2020\n \n \n \n615\n \n\n \nYear Ended December 31, 2021\n \n \n \n204\n \n\n \nYear Ended December 31, 2022\n \n \n \n220\n \n\n \nYear Ended December 31, 2023\n \n \n \n262\n \n\n \nYear Ended December 31, 2024\n \n \n \n455\n \n\n \nYear Ended December 31, 2025\n \n \n \n894\n \n\n \n\nOur days sales outstanding (“DSO”)\nincreased from 180 days at December 31, 2018 to 306 days at December 31, 2019, further rising to 615 days at December 31, 2020. DSO then\ndecreased to 204 days at December 31, 2021, followed by an increase to 220 days at December 31, 2022, 262 days at December 31, 2023, 455\ndays at December 31, 2024, and further to 894 days at December 31, 2025.\n\n \n\nOur current sewage treatment system\nprojects are primarily funded by local governments, who are also the primary end users of our systems. The payment approval process from\nlocal governments is complex and typically time-consuming, requiring completion of multiple procedures and submission of inspection documents\nbefore payment is released. In addition, other contractors often work on non-sewage-related portions of the same projects, and full project\ninspections may be delayed until those sections are completed.\n\n \n\nOur DSO increased to 306 days in\n2019 as we began recognizing revenue from sewage treatment systems in late 2018. In 2020, the impact of the COVID-19 pandemic led to a\nsignificant increase in DSO to 615 days. With the easing of the pandemic in the PRC during the second half of 2021 and proactive communication\nwith local governments, DSO improved to 204 days by the end of 2021. However, DSO increased again to 220 days in 2022, 262 days in 2023\nand 455 days in 2024, as we experienced higher revenue levels and delays in payment approvals or project inspections. By December 31,\n2025, DSO further increased to 894 days, primarily due to prolonged delays in the government payment approval process amid the ongoing\neconomic downturn in the PRC.\n\n \n\n69\n\n \n\n \n\nWe are required to make estimates\nof the expected credit losses relating to our accounts receivable. In establishing the allowance for credit loss accounts, we have changed\nour methodology during the year ended December 31, 2025 from our previous aging-based approach to the expected credit loss model under\nASC 326 (CECL), which requires the use of historical loss experience, current economic conditions, and reasonable and supportable forward-looking\ninformation. Management believes the new methodology provides a more timely and accurate estimate of expected credit losses.\n\n \n\nUnder the CECL model, we perform\na migration analysis using historical aging data from 2021 to 2025 to derive default probabilities (22.4% for within one year, 41.2% for\none to two years, and 100.0% for beyond two years), apply a loss given default rate of 61.7% (based on Moody’s data) to receivables\naged within two years, and adjust for forward-looking economic conditions using a factor of 114.0% derived from China’s PMI and\nindustrial value-added data. These inputs yield the provision rates applied to our aging buckets.\n\n \n\nBased on this methodology, after\nreviewing the historical collection data from 2021 to 2025, we provide a provision of 15.1% for accounts receivable aged within one year,\n29.0% for accounts receivable aged between one and two years, and 100% for accounts receivable aged beyond two years. In addition, after\napplying the above aging method, we also use the specific identification method to determine our allowance for credit loss accounts when\nwe believe it is necessary.\n\n \n\nAs a result of this change in methodology,\nwe provided 9.4% and 17.0% allowance for credit loss accounts of our total accounts receivable as of December 31, 2023 and 2024, respectively,\nunder our previous aging-based approach. As of December 31, 2025, under the new CECL model, we provided 35.5% allowance for credit loss\naccounts of our total accounts receivable. The increase in the allowance rate for 2025 was primarily attributable to the migration of\ncertain progress billings into longer aging buckets and the application of the forward-looking factor, rather than a deterioration in\nthe actual credit quality of our customers.\n\n \n\nWe expect our DSO to be between\n300 days to 365 days in future periods, mainly because the payment approval process from local governments is complex as it requires us\nto go through several procedures and typically takes a longer period of time as all of the proper inspection documents must be provided\nin order for funds to be released. The payment process normally takes less than one year while the local governments usually approve and\nsettle the outstanding balances during the second half of each calendar year based on the municipal administration on budget and payment\npractices. Historically, it took us approximately 417 days to collect 99.3% of our 2018 progress billings of our sewage treatment systems\nrevenue, approximately 442 days to collect 99.8% of our 2019 progress billings of our sewage treatment system revenues, approximately\n612 days to collect 98.4% of our 2020 progress billing of our sewage treatment systems revenue, approximately 586 days to collect 72.8%\nof our 2021 progress billing, approximately 372 days to collect 75.6% of our 2022 progress billing, approximately 372 days to collect\n52.4% of our 2023 progress billing, approximately 283 days to collect 9.9% of our 2024 progress billing, and approximately 45 days to\ncollect 3.1% of our 2025 progress billing of our sewage treatment systems revenue, which we believe proves that we are able to collect\nsubstantially all of our receivables. The liquidity of our operations highly depends on the timing of payments from our major customers,\nand should there be any delay in payment, our operations and liquidity may be impacted.\n\n \n\nThe specific identification method\nincludes evaluation of historical collection experience from each individual customer as well as the credit worthiness of our customers.\nWe have determined that historical collection experience from each individual customer is a relevant and supportable indicator in calculating\nour allowance for credit loss accounts. Furthermore, in evaluating the credit worthiness of our customers, we first consider whether they\nare state-owned companies, local governments or business property management companies. If our customers are state-owned companies or\nlocal governments, and they have been constantly communicating with us without ignoring our collection efforts and are able to provide\ntheir estimated payment date in writing, we would also exclude the amount in calculating the allowance since the end users of our products\nare from the local governments of which the payment process normally takes a longer process as it may potentially take approximately 441\ndays to collect from our past experience. In addition, historically, our collection experience for those customers with updated payment\nplans are usually paid timely as promised. If our customers are business property management companies, we will only consider their payment\nhistory and current creditworthiness in calculating the allowance for credit loss accounts without consideration of their payment plan\nas they are not backed by a local government. We believe our current allowance policy is reasonable because we have never experienced\nany significant losses on collections from our historical experience. Since our sewage treatment systems customers are mainly state-owned\ncompanies, which are backed by the local governments, we believe our current allowance policy is reasonable as of December 31, 2025.\n\n \n\n70\n\n \n\n \n\n As of December 31, 2025,\nour accounts receivable aging is as follows:\n\n \n\n \n \n \n \n1-90\n \n91-180\n \n181-270\n \n271-360\n \n361-720\n \nOver 720\n\n \n \nBalance\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n\nAccounts receivable\n \n$\n68,385,857\n \n \n$\n9,868,559\n \n \n$\n2,577,452\n \n \n$\n9,756,887\n \n \n$\n2,785,080\n \n \n$\n33,803,301\n \n \n$\n9,594,578\n \n\nAllowance for credit loss accounts\n \n \n(23,159,906\n)\n \n \n(1,492,322\n)\n \n \n(389,761\n)\n \n \n(1,475,433\n)\n \n \n(421,159\n)\n \n \n(9,786,653\n)\n \n \n(9,594,578\n)\n\nSpecific account adjustments\n \n \n(1,097,018\n)\n \n \n(1,097,018\n)\n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n—\n \n\nAccounts receivable, net\n \n$\n44,128,933\n \n \n$\n7,279,219\n \n \n$\n2,187,691\n \n \n$\n8,281,454\n \n \n$\n2,363,921\n \n \n$\n24,016,648\n \n \n$\n—\n \n\n \n\nAs of December 31, 2024, our accounts\nreceivable aging is as follows:\n\n \n\n \n \n \n \n1-90\n \n91-180\n \n181-270\n \n271-360\n \n361-720\n \nOver 720\n\n \n \nBalance\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n\nAccounts receivable\n \n$\n54,456,082\n \n \n$\n28,275,522\n \n \n$\n2,026,987\n \n \n$\n9,698,204\n \n \n$\n236,757\n \n \n$\n9,794,560\n \n \n$\n4,424,052\n \n\nAllowance for credit loss accounts\n \n \n(6,908,206\n)\n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n(35,514\n)\n \n \n(2,448,640\n)\n \n \n(4,424,052\n)\n\nSpecific account adjustments\n \n \n(2,359,645\n)\n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n8,464\n \n \n \n(2,451,481\n)\n \n \n83,372\n \n\nAccounts receivable, net\n \n$\n45,188,231\n \n \n$\n28,275,522\n \n \n$\n2,026,987\n \n \n$\n9,698,204\n \n \n$\n209,707\n \n \n$\n4,894,441\n \n \n$\n83,372\n \n\n \n\nAs of December 31, 2023, our accounts\nreceivable aging is as follows:\n\n \n\n \n \n \n \n1-90\n \n91-180\n \n181-270\n \n271-360\n \n361-720\n \nOver 720\n\n \n \nBalance\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n\nAccounts receivable\n \n$\n32,085,912\n \n \n$\n18,126,057\n \n \n$\n3,953\n \n \n$\n3,680,109\n \n \n$\n568,851\n \n \n$\n3,314,884\n \n \n$\n6,392,058\n \n\nAllowance for credit loss accounts\n \n \n(7,306,107\n)\n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n(85,328\n)\n \n \n(828,721\n)\n \n \n(6,392,058\n)\n\nSpecific account adjustments\n \n \n4,296,744\n \n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n21,178\n \n \n \n4,275,566\n \n\nAccounts receivable, net\n \n$\n29,076,549\n \n \n$\n18,126,057\n \n \n$\n3,953\n \n \n$\n3,680,109\n \n \n$\n483,523\n \n \n$\n2,507,341\n \n \n$\n4,275,566\n \n\n \n\nAs of April 30, 2026, we have collected\napproximately $1.9 million, which represented 2.8%, of our December 31, 2025 accounts receivable or 4.3% excluding the allowance for credit\nlosses. We believe our current allowance for credit loss accounts is a reasonable estimate of our expected losses of our accounts receivable.\nOur management will continue to evaluate the reasonableness of our allowance policy and will update it as necessary.\n\n \n\nAs of April 30, 2026, we had collected\napproximately 0.0% of the outstanding balances from our five major customers as of December 31, 2025. All five of our major customers\nare projects funded by local governments and are awaiting inspection reports and payment approvals. Based on our historical collection\npatterns, we believe the collectability of our accounts receivable is probable. Our historical collection rates for progress billings\nrelated to sewage treatment systems revenues were 99.3%, 99.8%, 98.4%, 72.8%, 75.6%, 52.4%, 9.9% and 3.1% for the years 2018, 2019, 2020,\n2021, 2022, 2023, 2024, and 2025, respectively. The liquidity of our operations highly depends on the timing of payments from our major\ncustomers. Any delay in payment from them could materially impact our operations and liquidity.\n\n \n\nContract assets\n\n \n\nFor the year ended December 31,\n2025, our contract assets decreased by $1.7 million, primarily due to the completion and final acceptance of projects from prior years.\nFor the years ended December 31, 2024 and 2023, our contract assets increased by approximately $1.4 million and $13.6 million, respectively.\nThese increases were primarily attributable to projects that were in progress or had been completed during the current period, for which\nwe had not yet reached the billing milestones specified in the contract terms.\n\n \n\nContract assets balance as of December\n31, 2025 were mainly attributable the Zhongshan, Guankou, Lianjiang, Jianyang, Xinjiang, and Xiamen projects, amounting to approximately\n$8.5 million, $6.2 million, $4.9 million, $2.6 million, $2.6 million, and $3.1 million, respectively, while contract assets balance as\nof December 31, 2024 were mainly attributable to the Zhongshan, Guankou, Wuyishan, Lianjiang, Jianyang, Xinjiang, and Sichuan Anya projects,\nwhich amounted to approximately $9.2 million, $13.9 million, $1.5 million, $4.5 million, $3.8 million, $3.7 million, and $2.9 million,\nrespectively.\n\n \n\nDue to the delay of construction\ninspection which involved multi-government departments approval, the billing process pertained to aforementioned projects has fallen behind.\nAs a result, the unbilled portion of these projects remained as contract assets.\n\n \n\n71\n\n \n\n \n\nAs of December 31, 2025, our contract\nassets aging is as follows:\n\n \n\n \n \n \n \n1-90\n \n91-180\n \n181-270\n \n271-360\n \n361-720\n \nOver 720\n\n \n \nBalance\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n\nContract assets\n \n$\n39,309,995\n \n \n$\n3,527,490\n \n \n$\n930,425\n \n \n$\n3,068,428\n \n \n$\n708,626\n \n \n$\n31,075,026\n \n \n$\n—\n \n\n \n\n As of December 31, 2024,\nour contract assets aging is as follows:\n\n \n\n \n \n \n \n1-90\n \n91-180\n \n181-270\n \n271-360\n \n361-720\n \nOver 720\n\n \n \nBalance\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n\nContract assets\n \n$\n39,989,358\n \n \n$\n8,594,751\n \n \n$\n—\n \n \n$\n2,139,831\n \n \n$\n—\n \n \n$\n29,254,776\n \n \n$\n—\n \n\n \n\nAs of December 31, 2023, our contract\nassets aging is as follows:\n\n \n\n \n \n \n \n1-90\n \n91-180\n \n181-270\n \n271-360\n \n361-720\n \nOver 720\n\n \n \nBalance\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n \ndays\n\nContract assets\n \n$\n39,165,839\n \n \n$\n20,503,410\n \n \n$\n—\n \n \n$\n3,065,821\n \n \n$\n15,596,608\n \n \n$\n—\n \n \n$\n—\n \n\n \n\nAccounts payable\n\n \n\nOur accounts payable increased\nby approximately $1.8 million, $13.0 million and $9.2 million for the year ended December 31, 2025, 2024 and 2023, respectively. The major\nreason for the significant increase in such balance is mainly due to the fact that we had purchased raw materials on account to support\nour growth of sewage treatment system projects.\n\n \n\n**Investing activities**\n\n \n\n Net cash provided by investing\nactivities was approximately $0.6 million for the year ended December 31, 2025, mainly attributable to approximately $ 0.6 million released\nfrom escrow accounts.\n\n \n\n Net cash provided by investing\nactivities was approximately $0.5 million for the year ended December 31, 2024 was mainly attributable to approximately $9,600 of loan\nto related parties, approximately $3,900 of equipment purchases, and approximately $41,000 cash release from disposal of two subsidiaries,\noffset by approximately $0.6 million of deposit from IPO proceed into escrow.\n\n \n\nNet cash provided by investing\nactivities was approximately $0.2 million for the year ended December 31, 2023 was mainly attributable to approximately $57,000 repayments\nreceived from loan to third party, approximately $170,000 repayments received from loan to related parties.\n\n \n\n**Financing activities**\n\n \n\nNet cash provided by financing\nactivities was approximately $0.8 million for the year ended December 31, 2025, and was primarily attributable to an aggregate total of\napproximately $2.6 million in proceeds from short-term loans, long-term bank loans, and short-term loans from third parties, approximately\n$0.2 million in proceeds from short-term loans from related parties, and approximately $0.6 million in net proceeds from our IPO, offset\nby approximately $2.6 million in repayments of short-term bank loans, long-term bank loans, and other payables to related parties.\n\n \n\nNet cash provided by financing\nactivities was approximately $1.0 million for the year ended December 31, 2024, and was primarily attributable to an aggregate total of\napproximately $2.5 million proceeds received from short-term loans, long-term bank loans, and short-term loan – third parties, and\napproximately $4.3 million net proceeds from IPO, offset by an aggregate total of approximately $5.2 million repayments to short-term\nloans – bank, long-term loan bank, other payables – related parties, and short-term loan-related parties, and approximately\n$0.6 million was withdrawn from IPO proceeds and deposited into escrow.\n\n \n\nNet cash provided by financing\nactivities was approximately $3.0 million for the year ended December 31, 2023 and was primarily attributable to approximately $2.4 million\nproceeds received from short-term and long-term bank loans, and approximately $1.2 million proceeds received from other payables-related\nparties, and short-term loans- related parties, offset by approximately $0.6 million of repayments of short-term and long-term bank loans,\nand repayments of short-term loan third parties, net.\n\n \n\n**Commitments and Contingencies**\n\n \n\nIn the normal course of business,\nwe are subject to loss contingencies, such as legal proceedings and claims arising out of our business, that cover a wide range of matters,\nincluding, among others, government investigations and tax matters. In accordance with FASB ASC No. 450-20, “Loss Contingencies”,\nwe will record accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can\nbe reasonably estimated. For the years ended December 31, 2025, 2024 and 2023, we did not record any accruals for loss contingencies.\n\n \n\n72\n\n \n\n \n\nThe following table summarizes\nour contractual obligations as of December 31, 2025:\n\n \n\n \n \nPayments due by period\n\nContractual obligations\n \nTotal\n \nLess than 1 year\n \n1 – 3 years\n \n3 – 5 years\n\nShort-term loans - banks\n \n$\n1,153,654\n \n \n$\n1,153,654\n \n \n$\n—\n \n \n$\n—\n \n\nLong-term loans - banks\n \n \n357,495\n \n \n \n—\n \n \n \n357,495\n \n \n \n—\n \n\nShort-term loans - third parties\n \n \n2,057,311\n \n \n \n2,057,311\n \n \n \n—\n \n \n \n—\n \n\nShort-term loans – related parties\n \n \n2,560,675\n \n \n \n2,560,675\n \n \n \n—\n \n \n \n—\n \n\nTotal\n \n$\n6,129,135\n \n \n$\n5,771,640\n \n \n$\n357,495\n \n \n$\n—\n \n\n \n\n**Capital Expenditures**\n\n \n\nWe purchased equipment of approximately\n$2,000, $4,000, and $22,000 for the year ended December 31, 2025, 2024 and 2023, respectively, mainly for the use in our septic tank treatment\noperations. Subsequent to December 31, 2025 and as of the date of this annual report, we did not purchase any material equipment for operational\nuse. We do not have any other material commitments for capital expenditures as of December 31, 2025.\n\n \n\n**Off-Balance Sheet Arrangements**\n\n \n\nWe have no off-balance sheet arrangements\nincluding arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.\n\n \n\n**Critical Accounting Policies and Estimates**\n\n \n\nFinancial statements and accompanying\nnotes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements and accompanying notes requires us\nto make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure\nof contingent assets and liabilities. Estimates are based on historical experience and on various other assumptions that are believed\nto be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets\nand liabilities that are not readily apparent from other sources. We have identified certain accounting policies that are significant\nto the preparation of financial statements. These accounting policies are important for an understanding of our financial condition and\nresults of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and\nresults of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make\nestimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates\nare particularly sensitive because of our significance to financial statements and because of the possibility that future events affecting\nthe estimate may differ significantly from management’s current judgments. Our significant accounting policies are more fully described\nin Note 3 to the consolidated financial statements, but we believe that the following critical accounting policies involve the most significant\nestimates and judgments used in the preparation of our financial statements.\n\n \n\n**Use of Estimates and Assumptions**\n\n \n\nThe preparation of consolidated\nfinancial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts\nof assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements\nand the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s\nconsolidated financial statements mainly include, but are not limited to, allowance for credit losses, standalone selling price of each\ndistinct performance obligation in revenue recognition.\n\n \n\nManagement bases the estimates\non historical experience and on various other assumptions as discussed elsewhere to the consolidated financial statements that are believed\nto be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. On an\nongoing basis, management evaluates its estimates based on information that is currently available. Changes in circumstances, facts and\nexperience may cause the Company to revise its estimates. Changes in estimates are recorded in the period in which they become known.\nActual results could materially differ from these estimates.\n\n \n\n73\n\n \n\n \n\n**Revenue Recognition**\n\n \n\n*Sewage treatment systems*\n\n \n\nSales relating to the installation\nof sewage treatment systems are generally recognized based on our efforts or inputs to the satisfaction of our performance obligations\nover time as work progresses because of the continuous transfer of control to the customer and we have the right to bill the customer\nas costs are incurred. The performance obligation includes the sewage treatment system and equipment that we sell as well as the continuous\nsystem installation to be performed. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative\nto total estimated costs at completion) to measure progress. We generally use the cost-to-cost measure of progress method because\nit best depicts the transfer of control to the customer which occurs as we incur costs on the contracts. Under the cost-to-cost measure\nof progress method, the extent of progress towards completion is measured based on the ratio of total costs incurred to date to the total\nestimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally\nas costs are incurred.\n\n \n\n*Sewage treatment services*\n\n \n\nRevenue from sewage treatment services\ncontracts require us to render treatment services on a one-time basis or based upon a specified treatment period, which is generally one\nyear or less. Our performance obligations are generally satisfied over time because customers receive and consume the benefits of such\nservices and we have the right to bill the customer as services are performed. Revenue generated from sewage treatment service is recognized\nusing an input measure method, (i.e., labor costs incurred to date relative to total estimated labor cost at completion) to measure progress.\nUnder the labor cost measure of progress method, the extent of progress towards completion is measured based on the ratio of total labor\ncost incurred to date to the total estimated labor cost at completion of the performance obligation. Revenue, including estimated fees\nor profits, are recorded proportionally as labor costs are incurred. We consider labor time as the best available indicator of the pattern\nand timing in which contract obligations are fulfilled. We have a long history of sewage treatment services resulting in our ability to\nreasonably estimate the service hours expected to be incurred and the progress toward completion on each fixed-price contract based on\nthe proportion of service hours incurred to date relative to total estimated service hours at completion. Estimated contract costs are\nbased on the budgeted service hours, which are updated based on the progress toward completion on a monthly basis. Pursuant to the contract\nterms, we have enforceable rights to payments for the work performed. Provisions for estimated losses, if any, on uncompleted contracts\nare recorded in the period in which such losses become probable based on the current contract estimates. Costs of sewage treatment services\nare expensed in the period in which they are incurred.\n\n \n\n**Allowance for credit loss**\n\n \n\nIn establishing the required allowance\nfor credit loss accounts, we consider historical collection experience, aging of the receivables, the economic environment, industry trend\nanalysis, and the credit history and financial condition of the customers. Management reviews its receivables on a regular basis to determine\nif the allowance for credit loss accounts is adequate and adjusts the allowance when necessary. Delinquent account balances are written-off\nagainst allowance for credit loss accounts after management has determined that the likelihood of collection is not probable. Our allowance\nfor credit loss against our account receivable were $24,256,924, $9,267,851 and $3,009,363 as of December 31, 2025, 2024 and 2023, respectively,\nrepresenting 35.5%, 17.0% and 9.4% of our gross accounts receivable, respectively. Our allowance for credit loss for other receivables,\nwere $773,594, $468,219 and $500,857 as of December 31, 2025, 2024 and 2023, respectively. The allowance for credit losses is based on\na review of specifically identified customer accounts in addition to an overall aging analysis which is applied to accounts pooled on\nthe basis of similar risk characteristics. Judgments are made with respect to the collectability of accounts receivable within each pool\nbased on historical experience, current payment practices and current economic trends based on our expectations over the expected life\nof the receivable, which is generally ninety days or less. Although actual losses have not differed materially from our previous estimates,\nfuture losses could differ from our current estimates.\n\n \n\n**Contract assets and contract liabilities**\n\n \n\nProjects with performance obligations\nrecognized over time that have revenue recognized to date in excess of cumulative billings are reported on our consolidated balance sheets\nas “Contract assets”. Provisions for estimated losses of contract assets on uncompleted contracts are made in the period in\nwhich such losses are determined.\n\n \n\nContract assets having billing\nterms with unconditional rights to be billed beyond one year are classified as non-current assets.\n\n \n\nContract liabilities on uncompleted\ncontracts represent an entity's obligation to transfer goods or services to a customer for which the entity has received consideration\n(or an amount of consideration is due) from the customer, which typically arises when cash is collected or billings occur in advance of\nperformance.\n\n \n\n74\n\n \n\n \n\n**Deferred Income taxes**\n\n \n\nDeferred taxes are accounted for\nusing the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets\nand liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit.\nIn principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the\nextent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred\ntax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled. Deferred\ntax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which\ncase the deferred tax is also dealt with in equity. Net deferred tax assets are reduced by a valuation allowance when, in the opinion\nof management, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Current income\ntaxes are provided for in accordance with the laws of the relevant taxing authorities.\n\n \n\nAn uncertain tax position is recognized\nas a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax\nexamination being presumed to occur. The amount recognized is the largest amount of tax benefit that has greater than 50% likelihood of\nbeing realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.\nNo penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.\n\n \n\n**Recent Accounting Pronouncements**\n\n \n\nSee Note 3 of the notes to the\nconsolidated financial statements included elsewhere in this annual report on Form 20-F for a discussion of recently issued accounting\nstandards.\n\n \n\n**C. Research and development, patents and licenses, etc.**\n\n** **\n\n**Research and Development**\n\n** **\n\n We are committed to researching\nand developing our sewage treatment technologies and septic tank treatment systems in order to meet the demands of our customers in the\nwaste treatment market. We collect feedback from our completed projects and modify our integrated equipment and technologies based on\nprevious experiences. We believe scientific and technological innovations will aid us to achieve our long-term strategic objective of\nbecoming one of the premier waste treatment solution companies in China. For this reason, we devote significant financial and personnel\nresources to research and development. Our current research and development efforts are primarily focused on improving the efficiency\nof the microorganisms in our rural sewage treatment system and exploring the combination of membrane and quick separation technology to\nmaximize the proficiency of water treatment. Our research and development team is comprised of highly skilled engineers and scientists\nwith extensive experience in sewage and septic technologies, chemistry, and design. To supplement our internal expertise, we have also\ncollaborated with third-party institutions to whom we provided funds for research and development purposes. For the new septic tank treatment\nservices for septic tank sewage collection stations, we continually conduct research to create an efficient and compact system. We are\nalso exploring the combination of different sewage treatment methods to maximize the quality of water outflow.\n\n \n\nOur research and development expense\nwas $47,602 during the year ended December 31, 2025, $61,786 during the year ended December 31, 2024, and $80,948 during the year ended\nDecember 31, 2023. We intend to continue to invest in research and development to support and enhance our existing products and services\nand to develop future product and service offerings to enhance our position in the market.\n\n \n\nIntellectual Property\n\n \n\nOur success and future\nrevenue growth may depend, in part, on our ability to protect our intellectual property as products that are material to our operating\nresults incorporate patented technology.\n\n \n\nWe have pursued protections\nfor our intellectual property rights since our founding in 2012 and we focus our intellectual property efforts in China. Our patent strategy\nis designed to provide a balance between the need for coverage in our strategic market and the need to maintain reasonable costs.\n\n \n\n75\n\n \n\n \n\nWe believe our patents\nand other intellectual property rights serve to distinguish and protect our products from infringement and contribute to our competitive\nadvantages. As of December 31, 2025, we had 2 invention patents, 36 utility model patents and 3 trademarks.\n\n \n\nWe cannot assure you\nthat any patents will be issued from any of our pending applications. In addition, any rights granted under any of our existing or future\npatents may not provide meaningful protection or any commercial advantage to us. With respect to our other proprietary rights, it may\nbe possible for third parties to copy or otherwise obtain and use our proprietary technology without authorization or to develop similar\ntechnology independently. We may in the future initiate claims or litigation against third parties to determine the validity and scope\nof proprietary rights of others. In addition, we may in the future initiate litigation to enforce our intellectual property rights or\nto protect our trade secrets. Additional information about the risks relating to our intellectual property is provided under “Item\n3. Key Information-D. Risk Factors-Risks Related to Intellectual Property.”\n\n \n\n**D. Trend information**\n\n** **\n\nOther than as described elsewhere\nin this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have\na material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would\ncause our reported financial information not necessarily to be indicative of future operation results or financial condition.\n\n \n\n**E. Critical Accounting Estimates**\n\n** **\n\nOur financial statements and accompanying\nnotes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements and accompanying notes requires us\nto make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure\nof contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed\nto be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets\nand liabilities that are not readily apparent from other sources. We have identified certain accounting estimates that are significant\nto the preparation of our financial statements. These estimates are important for an understanding of our financial condition and results\nof operation. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because\nof the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe\nthe following critical accounting estimates involve the material estimates and judgments used in the preparation of our financial statements.\n\n \n\nSignificant accounting estimates\nreflected in our consolidated financial statements include the estimated cost or input measure method used to calculate the revenue recognized\nin our sewage treatment systems and sewage treatment services, allowance for credit loss accounts, the useful lives of property and equipment,\nimpairment of long-lived assets, realization of deferred tax assets and uncertain tax positions. Actual results could differ from these\nestimates.\n\n \n\nJOBS Act\n\n \n\nAs a Company with less than $1.235\nbillion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our\nBusiness Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise\napplicable to public companies. These provisions include, but are not limited to:\n\n \n\n●being permitted to present\nonly two years of audited financial statements and only two years of related\nManagement’s Discussion and Analysis of Financial Condition and Results of Operations\nin our filings with the SEC;\n\n \n\n●not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;\n\n \n\n●reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements\nand exemptions from the requirements\nof holding a nonbinding\nadvisory vote on executive compensation\nand shareholder approval of\nany golden parachute payments not previously approved.\n\n \n\n76\n\n \n\n \n\nWe may take advantage of these\nprovisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our ordinary shares\npursuant to our initial public offering. However, if certain events occur before the end of such five-year period, including if we become\na “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible\ndebt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.\n\n \n\nIn addition, Section 107 of the\nJOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section\n7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. We\nhave elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge\nsuch election is irrevocable pursuant to Section 107 of the JOBS Act.\n\n \n\n**F. Tabular disclosure of contractual obligations**\n\n** **\n\nIn the normal course of business,\nwe are subject to loss contingencies, such as legal proceedings and claims arising out of our business, that cover a wide range of matters,\nincluding, among others, government investigations and tax matters. In accordance with FASB ASC No. 450-20, “Loss Contingencies”,\nwe will record accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can\nbe reasonably estimated. For the years ended December 31, 2025, 2024 and 2023, we did not record any accruals for loss contingencies.\n\n \n\nThe\nfollowing table summarizes our contractual obligations as of December 31, 2025:\n\n \n\n \n \nPayments due by period\n\nContractual obligations\n \nTotal\n \nLess than 1 year\n \n1 – 3 years\n \n3 – 5 years\n\nShort-term loans - banks\n \n$\n1,153,654\n \n \n$\n1,153,654\n \n \n$\n—\n \n \n$\n—\n \n\nLong-term loans - banks\n \n \n357,495\n \n \n \n—\n \n \n \n357,495\n \n \n \n—\n \n\nShort-term loans - third parties\n \n \n2,057,311\n \n \n \n2,057,311\n \n \n \n—\n \n \n \n—\n \n\nShort-term loans – related parties\n \n \n2,560,675\n \n \n \n2,560,675\n \n \n \n—\n \n \n \n—\n \n\nTotal\n \n$\n6,129,135\n \n \n$\n5,771,640\n \n \n$\n357,495\n \n \n$\n—\n \n\n \n\n**G. Safe harbor**\n\n** **\n\nSee “Forward-Looking Statements”\nbeginning on page iii of this annual report."}