SEC Form 20-F filed by Euro Tech Holdings Company Limited

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-22113

(Translation of Registrant’s name into English) 

British Virgin Islands 

(Jurisdiction of incorporation or organization) 

Unit D, 18/F., Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong

(Address of principal executive offices) 

David YL Leung

FAX:852-28734887

Unit D, 18/F., Gee Chang Hong Centre

65 Wong Chuk Hang Road

 Hong Kong 

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person) 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None. 

(Title of Class) 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None. 

(Title of Class) 

Indicate the number of issued and outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report 7,723,632 Ordinary Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes     ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes     ☒ No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes     ☐ No

Indicate by check mark whether the registrant has submitted electronically and posed on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes     ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “ accelerated filer,” and “ emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

†The term “new or revised financial accounting standards” refers to any update by the Financial Accounting Standards Board to its accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act 15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17     ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes     ☒ No

TABLE OF CONTENTS

INTRODUCTION

In this Form 20-F, references to “us”, “we”, the “Company” and “Euro Tech” are to Euro Tech Holdings Company Limited and its subsidiaries unless otherwise expressly stated or the context otherwise requires.

Forward Looking Statements

This annual report contains forward looking statements. Additional written or oral forward looking statements may be made by the Company from time to time in filings with the Commission or otherwise. Such forward looking statements are within the meaning of that term in Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Such statements may include, but not be limited to, projections of revenues, income, or loss, capital expenditures, plans for future operations, financing needs or plans, and plans relating to products or services of the Company, as well as assumptions relating to the foregoing. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” and similar expressions identify forward looking statements, which speak only as of the date the statement was made. Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward looking statements.

These forward-looking statements include, but are not limited to, statements about:

We would like to caution you not to place undue reliance on forward-looking statements and you should read these statements in conjunction with the cautionary statements included in the sections entitled Part I, Item 3D. “Risk Factors” and Item 5. “Operating and Financial Review and Prospects” and the notes to the Company’s Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences. Those risks are not exhaustive. We operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

U.S. GAAP, Fiscal Year and Exchange Rate Information

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Our fiscal year ends on December 31. References in this annual report to fiscal year 2018, fiscal year 2019, fiscal year 2020, fiscal year 2021 and fiscal year 2022, or Fiscal 2018, Fiscal 2019, Fiscal 2020, Fiscal 2021 and Fiscal 2022, are to the fiscal years ended on December 31, 2018, 2019, 2020, 2021 and 2022 respectively.

The Company maintains its books and records in United States dollars (“US$” or “U.S. Dollars”). Its subsidiaries, retail shops and affiliates maintain their books and records either in US$, Hong Kong dollars (“HK$” or “Hong Kong Dollars”) or in Chinese Renminbi (“RMB” or “Renminbi”).

Our financial statements are expressed in U.S. Dollars, which is our reporting currency. Certain of our financial data in this annual report on Form 20-F is translated into U.S. Dollars solely for the reader’s convenience. Unless otherwise noted, all convenient translations from Renminbi to U.S. Dollars in this annual report were made for fiscal years 2022, 2021 and 2020 at 6.9061 RMB, 6.3757 RMB and 6.5249 RMB to US$1.00, respectively, and at 7.8000 HKD, 7.8000 HKD and 7.7526 HKD to US$1.00, respectively. The exchange rates were substantially the same as the middle rates published by the People’s Bank of China (“PBOC”) on December 31, 2022, 2021 and 2020 respectively.

We make no representation that any Renminbi, Hong Kong Dollars or U.S. Dollar amounts could have been, or could be, converted into U.S. Dollars, Hong Kong Dollars or Renminbi, as the case may be, at any particular rate, at the rate stated above, or at all.

GLOSSARY

The following glossary of terms may be helpful in understanding the terminology used in this Annual Report.

PART I

ITEM 3. KEY INFORMATION

China Section

Our Corporate Structure

As an investor, you hold an interest in Euro Tech Holdings Company Limited (the “Company” or “Euro Tech”). Euro Tech is a British Virgin Islands holding company and not an operating company. As a holding company with no material operations of its own, Euro Tech conducts its operations through its subsidiaries incorporated in Hong Kong, mainland China and the British Virgin Islands. As an investor, you directly hold an interest in Euro Tech, but you do not directly hold equity interest in Euro Tech’s subsidiaries, i.e. the operating companies of the Company’s business, and this structure involves risks to you.

The Company has one 100% owned subsidiary in Hong Kong, namely, Euro Tech (Far East) Limited (referred to hereinafter as “Far East”). Far East engages in the marketing and trading of water and waste water treatment related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems.

Far East has two 100% owned subsidiaries in mainland China, both of which are no longer in active business operations. One of such subsidiaries is Euro Tech Trading (Shanghai) Limited (referred to hereinafter as “ETTS”), which ceased its active business operations in 2021. The other one of such subsidiaries is Shanghai Euro Tech Limited (referred to hereinafter as “SET”), which ceased its active business operations in September, 2022. Before it ceases its active business operations, SET engages in the manufacturing of analytical and testing instruments. SET incurred losses from its business during the few years prior to the cessation of its operations, therefore we made the decision to cease its active business operations. Other than these two companies, Far East does not have any other 100% subsidiaries. 

Far East holds 58% of the total equity of Yixing Pact Environmental Technology Co., Ltd., a company incorporated in mainland China (referred to hereinafter as “Yixing”), and Pact Asia Pacific Limited, a company incorporated in the British Virgin Islands (referred to hereinafter as “Pact”), respectively. Yixing focuses on the design, manufacturing and operation of water and waste water treatment machinery and equipment, and Pact focuses on the sale of environmental protection equipment, undertaking environment protection projects and providing relevant technology advice, training and services.

Far East also holds 19.4% of the total equity of Zhejiang Tianlan Environmental Protection Technology Co. Ltd., a company incorporated in mainland China (referred to hereinafter as “Blue Sky”). Blue Sky focuses on the design, manufacturing, installation, testing of waste-gas treatment equipment and operation management of the treatment of waste gases.

The following diagram illustrates the corporate structure of us and our subsidiaries (including Blue Sky in which we hold only 19.4% of the total equity thereof), as of the date of the annual report:

In addition to the shareholder information disclosed in the chart above, we also note the following:

The shareholders of Yixing are listed below:

The shareholders of Pact are listed below:

The ten shareholders of Blue Sky with the largest shareholding percentage are listed below (Blue Sky is a public company in China and therefore has a number of other minority shareholders that are not publicly disclosed; the data below is obtained from Blue Sky’s latest semi-annual report dated August 22, 2022):

We acknowledge that Chinese regulatory authorities could disallow our holding company structure, which would likely result in a material change in our operations and/or a material change in the value of your securities, including that it could cause the value of such securities to significantly decline or become worthless. Please see “Item 3. Key Information – D. Risk Factors— Risks Related to the Company Itself – Chinese regulatory authorities could disallow our holding company structure” for a more detailed discussion on this matter.

Risks Associated with Being Based in and Having the Majority of Our Operations in China

We conduct a substantial portion of our business through our subsidiaries in mainland China and Hong Kong. We face legal and operational risks associated with being based in and having the majority of our operations in China. Changes in PRC economic, political or social conditions or government policies could materially adversely affect our business and results of operations. The PRC government has the authority to exert significant influence on the ability of a China-based company, including us, to conduct its business, and investors of Euro Tech and our business face potential uncertainty as a result. The PRC government may intervene or influence our operations at any time. For example, we face risks associated with PRC governmental authorities’ significant oversight and discretion over our businesses and financing activities, the requirement of regulatory approvals for offerings conducted overseas by and foreign investment in China-based issuers, the enforcement of anti-monopoly regime and data security rules, as well as the risk of delisting if the Public Company Accounting Oversight Board of the United States, or the PCAOB, determines at any time that it is unable to conduct complete inspection on our auditors, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States stock exchange. In addition, there are risks and uncertainties regarding the enforcement of laws in China, and the rules and regulations in China can change quickly with little advance notice. The materialization of these risks may result in a material adverse change to our business operations and financial condition, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause our shares to significantly decline in value or become worthless. See “Item 3. Key Information – D. Risk Factors— Certain Risks Relating to Doing Business in China — A substantial portion of our operations are located in China through our subsidiaries. Our ability to operate in China may be impaired by changes in Chinese laws and regulations, including those relating to taxation, environmental regulation, restrictions on foreign investment, and other matters”, “Item 3. Key Information – D. Risk Factors— Certain Risks Relating to Doing Business in China — Changes in the economic and political policies of the PRC government could have a material and adverse effect on our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies” and “Item 3. Key Information – D. Risk Factors — The PRC legal system embodies uncertainties which could limit the available legal protections and expand the government’s power” for a more detailed discussion on this matter. 

An investment in our shares involves a high degree of risk and should be considered speculative. You should carefully consider all risk factors set out in “Item 3. Key Information – D. Risk Factors” and other information before investing in our shares. If any event arising from these risks occurs, our business, prospects, financial condition, results of operations or cash flows could be materially adversely affected, the trading price of our shares could decline and all or part of your investment may be lost.

The Holding Foreign Companies Accountable Act

In January 2023, we appointed J&S Associate PLT, or J&S, as our independent registered public accounting firm for the fiscal year ending December 31, 2022. J&S is headquartered in Malaysia and will be subject to the inspections by the PCAOB. Therefore we believe the appointment of J&S will substantially reduce the risk of us being continued to be identified as “Commission-Identified Issuer” under the Holding Foreign Companies Accountable Act, or HFCAA, and the risk of our securities being prohibited from being traded on a national securities exchange or in the over the counter trading market in the United States due to rules under the HFCAA.

The HFCAA was enacted on December 18, 2020. Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB, for three consecutive years beginning in 2021, the SEC may prohibit our shares from being traded on a national securities exchange or in the over-the-counter market in the United States.

On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements under the HFCAA, pursuant to which the SEC will identify a “Commission-Identified Issuer” if an issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction, and will then impose a trading prohibition on an issuer after it is identified as a “Commission-Identified Issuer” for three consecutive years.

On December 16, 2021, the PCAOB issued its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions, and the PCAOB included in the report of its determination a list of the accounting firms that are headquartered in mainland China or Hong Kong. This list includes Union Power, the firm which audited our financial statements for the fiscal year ended December 31, 2021 and 2020, and subsequently we have been included on the conclusive list of “Commission-Identified Issuer” identified under the HFCAA on the website of the SEC. This means, if we remain on this list for three consecutive years as a “Commission-Identified Issuer”, the SEC may prohibit our securities from being traded on a national securities exchange or in the over the counter trading market in the United States.

However, as mentioned in the first paragraph in this section, we have appointed J&S as our independent registered public accounting firm for the fiscal year ending December 31, 2022. J&S is headquartered in Malaysia and will be subject to the inspections by the PCAOB. Therefore we believe the appointment of J&S will substantially reduce the risk of us being continued to be identified as “Commission-Identified Issuer” under the Holding Foreign Companies Accountable Act, or HFCAA.

In addition, on December 15, 2022, PCAOB Chair Erica Y. Williams released a statement stating that, for the first time in history, the PCAOB has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and the Board voted to vacate the previous determinations to the contrary. In addition, the statement mentioned that this is the beginning of the PCAOB’s work to inspect and investigate firms in mainland China and Hong Kong, not the end, and the PCAOB is continuing to demand complete access, and will act immediately to reconsider today’s determinations should China obstruct, or otherwise fail to facilitate PCAOB’s access, at any time.

If we continue to be included on the list of “Commission-Identified Issuer”, the ramifications of such identification includes volatility in the trading price of our securities. We are also subject to the additional compliance requirements under the HFCAA and potentially other requirements under related proposed rules. If our shares are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition would substantially impair your ability to sell or purchase our shares when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our shares. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.

See “Item 3. Key Information – D. Risk Factors— Risks Related to the Company Itself - The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board, and as such, our investors are deprived of the benefits of such inspection. In addition, the enactment of the Holding Foreign Companies Accountable Act and the adoption of any rules, legislations or other efforts to increase U.S. regulatory access to audit information could cause uncertainty and our securities listed on the NASDAQ could be delisted or prohibited from being traded “over-the-counter” if we are unable to meet the PCAOB requirement in time” for a more detailed discussion on this matter.

Permissions or Approvals Required to be Obtained from Chinese Authorities

Our business focuses on the design, sale and distribution of water and waste-water treatment tools and equipment. The group companies that are active in business operations are Far East in Hong Kong, Yixing in mainland China and Pact in the British Virgin Islands. Far East is the Company’s wholly-owned subsidiary. Far East holds 58% of the equity of Yixing and Pact respectively.

Based on our internal assessment, the Company and its subsidiaries are not required to obtain any permissions or approvals from the Chinese authorities in order to operate their respective business or offer the Company’s securities as currently conducted, except that the group companies located in Mainland China should obtain a business license to operate their respective business. As listed in the chart below, such group companies have received their business license. None of the Company and its subsidiaries has ever been requested by any Chinese authority to obtain any other permissions or approvals to conduct their respective business or to offer the Company’s securities. In addition, please note that Euro Tech Trading (Shanghai) Limited and Shanghai Euro Tech Limited listed have ceased their active business operations already.

We did not rely upon an opinion of counsel with respect to our conclusions regarding whether we need permissions and approvals to operate our business and to offer securities to investors. The basis of our assessment above is as follows: (1) the Company has been primarily a distributor of advanced water treatment equipment, laboratory instruments, analyzers, test kits and related supplies and power generation equipment (including recorders and power quality analyzers). We have been in this business for more than 20 years for now and have never been required to apply for any permissions or approvals from the Chinese authorities to conduct our business; (2) we are aware of the recent regulatory development relating to Chinese authorities’ focus on cross-border data transfer, as further described in “Item 4. Information on the Company — B. Business Overview – Recent Regulatory Update”. We do not believe our listing of ordinary shares requires permissions or approvals from the Chinese authorities. As a distributor of advanced water treatment equipment, laboratory instruments, analyzers, test kits and related supplies and power generation equipment (including recorders and power quality analyzers) to businesses (i.e. not end-customers), we and our subsidiaries are not subject to cybersecurity review with the Cyberspace Administration of China, or the CAC, and are not deemed as critical information infrastructure operator or online platform operators mentioned in China’s Cybersecurity Review Measures, which became effective on February 15, 2022, because all of our customers in China are corporate customers, rather than individuals. As a result, we do not currently have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures.

However it is possible that changes in law may render us to be subject to such rules and regulations. It is also possible that in practice the government agencies impose more stringent requirements on us, or that our interpretation of the rules and regulations turn out to be inaccurate. Notably, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. Please see “Item 3. Key Information – D. Risk Factor – A substantial portion of our operations are located in China through our subsidiaries. Our ability to operate in China may be impaired by changes in Chinese laws and regulations, including those relating to taxation, environmental regulation, restrictions on foreign investment, and other matters” and “Item 3. Key Information – D. Risk Factor -Our failure to comply with cybersecurity and data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results” for a more detailed discussion on this issue.

Transfer of Cash Through Our Organization

Euro Tech can transfer cash to its subsidiaries through capital contributions and/or intercompany loans, and Euro Tech’s subsidiaries can transfer cash to Euro Tech through dividends or other distributions and/or intercompany loans. Currently Euro Tech’s subsidiaries do not require loans or capital contributions from Euro Tech to fund their operations, and Euro Tech’s subsidiaries do not have any plan to pay any cash dividends in the near future.

Dividends

During the three fiscal years ended December 31, 2020, 2021 and 2022, Euro Tech made cash dividends in an amount of US$1,299,001, US$1,030,952 and US$463,928to its shareholders (including U.S. investors), respectively. The source of such cash dividends is cash dividends and distributions from Far East.

During the three fiscal years ended December 31, 2020, 2021 and 2022, Far East made cash dividends to Euro Tech in an amount of US$1,643,927, US$1,230,769 and US$628,205, respectively.

Please see “Item 10. Additional Information – E. Taxation” for the tax consequences of these dividend distributions.

Cash transfers for working capital purposes

During the three fiscal years ended December 31, 2020, 2021 and 2022, Far East made cash transfers for working capital purposes to its 100% owned subsidiaries in Shanghai, namely Shanghai Euro Tech Limited and Euro Tech Trading (Shanghai) Limited in an amount of US$192,000, US$210,000 and US$277,445, respectively.

Historical capital contributions

To date, Far East has made capital contribution of US$200,000 to its 100% owned subsidiary, Euro Tech Trading (Shanghai) Limited, to fulfil its obligation to pay in the registered capital of the latter.

To date, Far East has made capital contribution of US$350,000 to its 100% owned subsidiary, Shanghai Euro Tech Limited, to fulfil its obligation to pay in the registered capital of the latter.

During the past three fiscal years, other than the cash transfers described hereto, there were no transfer of other assets among Euro Tech and its subsidiaries.

Restrictions and Limitations on Transfer of Cash and Cash Dividend Distribution

Our cash dividends, if any, will be paid in U.S. dollars. The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. The majority of our income is received in Renminbi and shortages in foreign currencies may restrict our ability to pay dividends or other payments, or otherwise satisfy our foreign currency denominated obligations, if any.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange of China, or SAFE, as long as certain procedural requirements are met. Approval from appropriate government authorities is required if Renminbi is converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions in the future, and in such event we may not be able to pay dividends in foreign currencies to our shareholders.

If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax.

Relevant PRC laws and regulations permit the PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, the Company’s PRC subsidiaries can only distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to the statutory reserves. Under PRC laws, rules and regulations, each of our subsidiaries incorporated in mainland China is required to set aside at least 10% of its after-tax profits each year, after making up for previous years’ accumulated losses, if any, to fund certain statutory reserves, until the aggregate amount of such fund reaches 50% of its registered capital.

As a result of these and other restrictions under the PRC laws and regulations, our PRC subsidiaries are restricted to transfer a portion of their cash or assets to the Company. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s shareholders.

To the extent cash in the business is in a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of you or your subsidiaries by the PRC government to transfer cash. Please see “Item 3. Key Information – Risk Factors Summary” and “Item 3. Key Information – D. Risk Factors— The PRC Government Imposes Currency Controls” for details on this matter.

Cash Management Policies For Cash Transfer

Substantially similar cash management policies exist at Euro Tech and each of its subsidiaries. With respect to any transfer of funds, dividends or other distributions to affiliated companies, the finance department of the relevant group company (the “Finance Department”) should receive the requisite approval of the board of directors and/or resolutions of shareholders, before applying to the competent governmental agencies and banks to effectuate the intended transactions. If any of the aforesaid transactions involves payment to an overseas entity, the Finance Department should also submit payment application to Euro Tech’s CFO and Chairman and receive written approval of the transaction by email, thereafter the Finance Department can request the Chairman’s authorized representative (who is not an employee of the relevant group company) to stamp the payment application. With such stamped application, the Finance Department can effectuate the fund transfer through the bank. The Finance Department should also take actions to comply with the rules and requirements of the foreign exchange authority and tax bureau in China, if applicable.

Risk Factors Summary

An investment in our securities is subject to a number of risks, including risks related to our business and industry, risks related to our corporate structure, risks related to doing business in China and risks related to our securities. The following list summarizes some, but not all, of these risks. Please read the information in “Item 3. Key Information – D. Risk Factors” for a more thorough description of these and other risks.

A. [RESERVED]

B. CAPITALIZATION AND INDEBTEDNESS

This item does not apply to annual reports on Form 20-F.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

This item does not apply to annual reports on Form 20-F.

D. RISK FACTORS

An investment in our shares involves a high degree of risk. Below please find a summary of the principal risks we face, organized under relevant headings. You should carefully consider the risks described below, together with all of the other information included in this annual report, before making an investment decision. The risks below are not the only ones we face. Additional risks not currently known by us or that we deem immaterial may also impair our business operations. If any of the following and other risks actually occurs, our business, prospects, financial condition or results of operations could suffer. In that case, the trading price of our shares could decline, and you may lose all or part of your investment. This annual report also contains forward looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward looking statements as a result of certain factors, including the risks we face as described below and elsewhere. See “– Forward Looking Statements.”

Certain Risks Relating to Doing Business in China.

PRC Sovereignty over Hong Kong is Still Developing.

The Company’s executive and principal offices are located in Hong Kong, a Special Administrative Region of China (or “SAR;” Hong Kong is sometimes herein referred to as the “Hong Kong SAR”).

As provided in the Sino-British Joint Declaration on the Question of Hong Kong (the “Joint Declaration”) and the Basic Law of the Hong Kong SAR of China (the “Basic Law”), the Hong Kong SAR is provided a high degree of autonomy except in foreign and defense affairs. The formula for the preservation of Hong Kong’s independent legal and economic system under Chinese sovereignty has been referred to as “one country, two systems.” Under this principle of “one country, two systems,” the PRC’s political system and policies are not practiced in Hong Kong, and Hong Kong maintains a legal system that is based on common law and is different from that of the PRC.

There is friction between Hong Kong residents pressing for greater democracy and the PRC government. There appears to be a suspicion that Hong Kong’s democracy advocates are being manipulated by the United States to cause difficulties at China’s doorstep as regional tensions rise. The foregoing is raising concerns that civil liberties in Hong Kong may be eroded in the years to come.

At this point in time it is not possible to predict if this trend will continue and what effect it will have on the Company, if any. However, there can be no assurance that changes in political or economic conditions in Hong Kong and the PRC will not affect the Company adversely. The Company’s results of operations and financial condition may be influenced by the political situation in Hong Kong and by the general state of the Hong Kong economy. See — “Economic Stability Uncertain.”

Economic Stability in the Far East is Uncertain.

Some economies in the Far East have suffered from an economic instability. There can be no assurance that there will be a recovery, most especially in light of the recent global economic downturn. Continued growth in the PRC depends on an adequate supply of energy. There is no assurance that adequate supplies of energy can be developed or found to fuel the PRC’s continued economic growth.

A substantial part of our operations are located in China through our subsidiaries. Our ability to operate in China may be impaired by changes in Chinese laws and regulations, including those relating to taxation, environmental regulation, restrictions on foreign investment, and other matters.

We conduct a substantial portion of our business in China through our subsidiaries. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be impaired by changes in laws and regulations in the PRC. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our industry that could require us to seek permission from PRC authorities to continue to operate our business, which may adversely affect our business, financial condition and results of operations.

 Further, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even if such permission is obtained, whether it will be later denied or rescinded. No entity in our organization is currently (i) required to obtain permission from any Chinese authorities to list on any U.S. exchange or issue our ordinary shares to foreign investors or (ii) subject to permission requirements from the CSRC, the CAC, or any other entity that is required to approve of our PRC subsidiaries’ operations, and no entity in our organization has received any such permissions or any notice of denial of such permissions. However, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry, particularly in the event permission to list on U.S. exchanges becomes required, or if such permission may be withheld or rescinded once granted.

Governmental actions in China, including any decision to intervene or influence our operations at any time or to exert control over an offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to our operations, may limit or completely hinder our ability to offer or continue to offer securities to investors, and/or may cause the value of such securities to significantly decline or be worthless.

Changes in the economic and political policies of the PRC government could have a material and adverse effect on our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.

We conduct a substantial portion of our business in China through our subsidiaries. Accordingly, our results of operations, financial condition and prospects are to a significant extent affected by economic and political developments in China. In particular, the PRC government continues to exercise significant control over the economic growth of the PRC through allocating resources, controlling payments of foreign currency-denominated obligations, setting monetary policy and providing preferential treatments to particular industries or companies. In recent years, the PRC government has implemented measures emphasizing the utilization of market forces in reforming the economy. These economic reform measures may be adjusted or modified or applied inconsistently from industry to industry, or across different regions of the country. As a result, some of these measures may benefit the overall economy of the PRC, but may have an adverse effect on us.

The PRC has been one of the world’s fastest growing economies as measured by GDP in recent years. However, economic activity in the PRC has generally slowed down recently and it may not return to levels of previous years. According to the National Bureau of Statistics of China, China’s real GDP growth rate was 6.6%, 6.1%, 2.3%, 8.1% and 2.9% in 2018, 2019, 2020, 2021 and 2022, respectively. Although past predictions have not always proven reliable, if these predictions prove accurate, they, as well as future actions and policies of the PRC government, could suffer a material adverse effect.

Also, financial reporting suggests a real estate “bubble” exists in the PRC. If a real estate “bubble” truly exists in the PRC and it bursts, the PRC’s economy and the Company could suffer a material adverse effect.

The success of the Company’s activities in the PRC depends on the Company’s continued ability to overcome circumstances specifically effecting the industrial sector, including the relatively poor infrastructure, road transportation and communications network and an uncertain legal and regulatory environment.

Our failure to comply with cybersecurity and data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information and important data worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. For example, regulatory authorities in China have implemented and are considering a number of legislative and regulatory proposals concerning cybersecurity and data protection. 

The PRC Cyber Security Law, which took effect in June 2017, created China’s first national-level data protection regime for “network operators,” which may include all organizations in China that provide services over the internet or another information network. Specifically, the Cyber Security Law provides that China adopts a multi-level protection scheme, under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered. On September 14, 2022, the CAC published the Decision of Amending PRC Cybersecurity Law (Draft for Comments), or the Draft Amendment to PRC Cybersecurity Law, which, among other things, aggravated legal liabilities for violations of cybersecurity obligations and critical information infrastructure operators’ obligations. As of the date of this annual report, the Draft Amendment to PRC Cybersecurity Law was released for public comment only, and its respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty.

In addition, the PRC Data Security Law, which was promulgated by the Standing Committee of the National People’s Congress on June 10, 2021 and took effect on September 1, 2021. The Data Security Law establishes a tiered system for data protection in terms of their importance, data categorized as “important data,” which will be determined by governmental authorities in the form of catalogs, are required to be treated with higher level of protection. Specifically, the Data Security Law provides that operators processing “important data” are required to appoint a “data security officer” and a “management department” to take charge of data security. In addition, such operator is required to evaluate the risk of its data activities periodically and file assessment reports with relevant regulatory authorities. The Measures for Security Assessment for Outbound Data Transfer, which took effect on September 1, 2022, mandate mandatory government security review by the CAC in advance of cross-border transfer of “important data.”

Numerous regulations, guidelines and other measures have been or are expected to be adopted under the umbrella of, or in addition to, the Cyber Security Law and Data Security Law. For example, Regulations on the Security Protection of Critical Information Infrastructure, or the CII Protection Regulations, was promulgated by the State Council of the PRC on July 30, 2021 and became effective on September 1, 2021. According to the CII Protection Regulations, critical information infrastructure, or the CII, refers to any important network facilities or information systems of the important industry or field such as public communication and information service, energy, transportation, water conservancy, finance, public services, e-government affairs and national defense science, which may endanger national security, people’s livelihood and public interest in the case of damage, function loss or data leakage. Regulators supervising specific industries are required to formulate detailed guidance to recognize the CII in the respective sectors, and a critical information infrastructure operator, or a CIIO, must take the responsibility to protect the CII’s security by performing certain prescribed obligations. For example, CIIOs are required to conduct network security test and risk assessment, report the assessment results to relevant regulatory authorities, and timely rectify the issues identified at least once a year.

Additionally, in November 2021, the CAC issued the Cyber Data Security Administration Regulations (Draft for Comments), which, among other things, stipulates that a data processor that process “important data” or listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the relevant municipal counterpart of the CAC before January 31 of the following year. As of the date of this annual report, such administration regulations have not been adopted. In January 2022, the CAC and several other administrations also jointly promulgated the amended Cybersecurity Review Measures, or the Cybersecurity Review Measures, which became effective on February 15, 2022, and supersede and replace the current cybersecurity review measures that became effective since June 2020. Pursuant to the Cybersecurity Review Measures, a “critical information infrastructure operator”, or a CIIO, that purchases network products and services, or conducts data process activities, which affect or may affect national security will be subject to the cybersecurity review. The Cybersecurity Review Measures also expands the cybersecurity review to “internet platform operators” in possession of personal information of over one million users if such operators intend to list their securities in a foreign country. Alternatively, relevant governmental authorities in the PRC may initiate cybersecurity review if they determine an operator’s network products or services or data processing activities affect or may affect national security.

Furthermore, the recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities requires (i) speeding up the revision of the provisions on strengthening the confidentiality and archives management relating to overseas issuance and listing of securities and (ii) improving the laws and regulations relating to data security, cross-border data flow, and management of confidential information. The Personal Information Protection Law, which was promulgated by the Standing Committee of the National People’s Congress on August 20, 2021 and took effect on November 1, 2021, integrates the various rules with respect to personal information rights and privacy protection and applies to the processing of personal information within mainland China as well as certain personal information processing activities outside mainland China, including those for the provision of products and services to natural persons within China or for the analysis and assessment of acts of natural persons within China.

 We may have access to confidential or personal information in certain of our businesses. Although we endeavor to comply with our privacy policies and other documentation regarding the protection of personal information, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees or contractors fail to comply with these policies and documentation.

Moreover, the Cyber Security Law, Data Security Law and relevant regulations are relatively new, uncertainties still exist in relation to their interpretation and implementation. Any change in laws and regulations relating to privacy, data protection and information security and any enhanced and scrutinized governmental enforcement action of such laws and regulations could greatly increase our cost in providing our products and services, limit their use or adoption or require certain changes to be made to our operations. We cannot assure you that we will be compliant with these new laws and regulations described above in all respects, and we may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may materially and adversely affect our business, financial condition, and results of operations.

Specifically, given the uncertainties surrounding the interpretation and implementation of the Cyber Security Law, Data Security Law and relevant regulations, we cannot rule out the possibility that we, or certain of our customers or suppliers may be deemed as a CIIO, or an operator processing “important data.” First, if we are deemed as a CIIO, our purchase of network products or services, if deemed to be affecting or may affect national security, will need to be subject to cybersecurity review, before we can enter into agreements with relevant customers or suppliers, and before the conclusion of such procedure, these customers will not be allowed to use our products or services, and we are not allowed to purchase products or services from our suppliers. There can be no assurance that we would be able to complete the applicable cybersecurity review procedures in a timely manner, or at all, if we are required to follow such procedures. Any failure or delay in the completion of the cybersecurity review procedures may prevent us from using certain network products and services, and may result in fines of up to ten times the purchase price of such network products and services being imposed upon us, if we are deemed a CIIO using network products or services without having completed the required cybersecurity review procedures. If the reviewing authority is of the view that the use of such network products or services by us, or by certain of our customers or suppliers, involves risk of disruption, is vulnerable to external attacks, or may negatively affect, compromise, or weaken the protection of national security, we may not be able to provide such products or services to relevant customers, or purchase products or services from relevant suppliers. This could have a material adverse effect on our results of operations and business prospects. Second, the notion of “important data” is not clearly defined by the Cyber Security Law or the Data Security Law. In order to comply with the statutory requirements, we will need to determine whether we possess important data, monitor the important data catalogs that are expected to be published by local governments and departments, perform risk assessments and ensure we are complying with reporting obligations to applicable regulators. We may also be required to disclose to regulators business-sensitive or network security-sensitive details regarding our processing of important data, and may need to pass the government security review or obtain government approval in order to share important data with offshore recipients, which can include foreign licensors, or share data stored in China with judicial and law enforcement authorities outside of China. If judicial and law enforcement authorities outside China require us to provide data stored in China, and we are not able to pass any required government security review or obtain any required government approval to do so, we may not be able to meet the foreign authorities’ requirements. The potential conflicts in legal obligations could have adverse impact on our operations in and outside of China.

Economic Reforms May Not Continue or Impact Positively On the Company; Changing Business Environment.

Over the past several years, the PRC’s government has pursued economic reform policies including encouraging private economic activities and decentralization of economic deregulation. It appears that the PRC government may not continue to pursue these policies or may significantly alter them to our detriment from time to time without notice. Changes in policies by the PRC government resulting in changes in laws, regulations, or their interpretation, or the imposition of confiscatory taxes, restrictions on currency conversion and imports could materially and adversely affect our business and operating results. The nationalization or other expropriations of private enterprises by the PRC government could result in a loss of our investments in actual funds and time and effort, in China.

The Company’s results at times may also be adversely effected by: (1) changes in political, economic and social conditions in the PRC; (2) changes in government policies such as changes in laws and regulations (or their interpretation); (3) the introduction of additional measures to control inflation; (4) changes in the rate or method of taxation; (5) imposition of additional restrictions on currency conversion remittances abroad; (6) reduction in tariff protection and other import restrictions; and (7) a return to the more centrally-planned economy that existed previously.

We Are Subject To International Economic And Political Risks, Over Which We Have Little Or No Control.

Doing business entirely outside the United States subjects us to various risks, including changing economic and political conditions, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and taxation. We have no control over most of these risks and other unforeseeable risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter our business practice in time to avoid the adverse effect of any of these changes.

The International Financial Crisis and Economic Conditions May Have A Material Adverse Impact on Our Business and Financial Conditions.

With deteriorating worldwide economies, global markets have experienced significant turmoil and upheavals characterized by extreme volatility and the volatility in prices and securities and commodities, diminished credit availability, inability to access capital markets, waves of bankruptcies, high unemployment and declining consumer and business confidence. It appears that international economic deterioration has negatively impacted our revenue and other results of operation. We cannot predict the short and long-term impact of these events on our business and financial condition that may be materially and adversely affected in the future.

Our Revenue and Net Income may be Materially and Adversely Affected by any Economic Slowdown in China.

The PRC government has in recent years implemented a number of measures to control the rate of economic growth, including by raising interest rates and adjusting deposit reserve ratios for commercial banks as well as by implementing other measures designed to tighten credit and liquidity. These measures have contributed to a slowdown of the PRC economy. According to the National Bureau of Statistics of China, China’s real GDP growth rate was 6.6%, 6.1%, 2.3%, 8.1% and 2.9% in 2018, 2019, 2020, 2021 and 2022, respectively. Any continuing or worsening slowdown could significantly reduce domestic commerce in China. An economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which we may operate could have a material adverse effect on our business, financial condition and results of operations.

We May be Impacted by Inflation in PRC.

In recent years, the average inflation rate has increased by 2.1%, 2.9%, 2.5%, 0.9% and 2% in 2018, 2019, 2020, 2021 and 2022, respectively. Efforts by the PRC to curb inflation may also curb economic growth, increase our overhead costs and adversely affect our revenues. Inflationary increases cause a corresponding increase in our general overhead. If the PRC rate of inflation continues to increases, the Chinese government may introduce further measures intended to reduce the inflation rate in the PRC. Any such measures adopted by the Chinese government may not be successful in reducing or slowing the increase in the PRC’s inflation rate. A sustained or increased inflation in the PRC may have an adverse impact on the PRC’s economy and may materially and adversely affect our business and financial results.

The PRC legal system embodies uncertainties which could limit the available legal protections and expand the government’s power.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, these laws, regulations and legal requirements change frequently with little advance notice, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operations. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the media, ecommerce, education, advertising and retail industries, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, and our foreign investors, including you.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us, our management or the experts named in the annual report.

We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, our principal offices are located in Hong Kong and all of our directors and executive officers reside within Hong Kong and China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon some of our directors and senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, we understand that the PRC currently does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

Regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and create regulatory uncertainties that could restrict our overseas and cross-border investment activity, and a failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose our PRC resident shareholders to liability under PRC law.

China’s State Administration of Foreign Exchange, or SAFE, promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular No. 37, in July 2014. SAFE Circular No. 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No.37 as a “special purpose vehicle.” The term “control” under SAFE Circular No. 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular No. 37 further requires amendment to the registration in the event of any changes with respect to the basic information of the special purpose vehicle, such as changes in a PRC resident individual shareholder, name or operation period; or any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event.

 If the shareholders of the offshore holding company who are PRC residents do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions. In February 2015, SAFE issued SAFE Circular No. 13, which took effect on June 1, 2015. SAFE Circular No. 13 has delegated to the qualified banks the authority to register all PRC residents’ investment in “special purpose vehicle” pursuant to the SAFE Circular No. 37, except that those PRC residents who have failed to comply with the SAFE Circular No. 37 will remain to fall into the jurisdiction of the local SAFE branch and must make their supplementary registration application with the local SAFE branch.

We have requested PRC residents who we know hold direct or indirect interest in our company to make the necessary applications, filings and amendments as required under SAFE Circular No. 37 and other related rules. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements under SAFE Circular No. 37 or other related rules. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and we may also be prohibited from injecting additional capital into these subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.

If the custodians or authorized users of controlling non-tangible assets of our Company, including our corporate chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and adversely affected.

Under PRC law, legal documents for corporate transactions are executed using the chops or seals of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant branch of the Administration of Industry and Commerce.

Although we usually utilize chops to enter into contracts, the designated legal representatives of each of our PRC subsidiaries and consolidated affiliated entities have the apparent authority to enter into contracts on behalf of such entities without chops and bind such entities. All designated legal representatives of our PRC subsidiaries and consolidated affiliated entities are members of our senior management team who have signed employment agreements with us or our PRC subsidiaries and consolidated affiliated entities under which they agree to abide by various duties they owe to us. In order to maintain the physical security of our chops of our PRC entities, we generally store these items in secured locations accessible only by the authorized personnel in the legal or finance department of each of our subsidiaries and consolidated affiliated entities. Although we monitor such authorized personnel, there is no assurance that such procedures will prevent all instances of abuse or negligence. Accordingly, if any of our authorized personnel misuse or misappropriate our corporate chops or seals, we could encounter difficulties in maintaining control over the relevant entities and experience significant disruption to our operations. If a designated legal representative obtains control of the chops in an effort to obtain control over any of our PRC subsidiaries or consolidated affiliated entities, we or our PRC subsidiary and consolidated affiliated entity would need to pass a new shareholder or board resolution to designate a new legal representative and we would need to take legal action to seek the return of the chops, apply for new chops with the relevant authorities, or otherwise seek legal redress for the violation of the representative’s fiduciary duties to us, which could involve significant time and resources and divert management attention away from our regular business. In addition, the affected entity may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.

 The PRC Government Imposes Currency Controls.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantial part of our revenues in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future.

If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax.

Relevant PRC laws and regulations permit the PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, the Company’s PRC subsidiaries can only distribute dividends upon approval of the shareholders after they have met the PRC requirements for appropriation to the statutory reserves. Under PRC laws, rules and regulations, each of our subsidiaries incorporated in mainland China is required to set aside at least 10% of its after-tax profits each year, after making up for previous years’ accumulated losses, if any, to fund certain statutory reserves, until the aggregate amount of such fund reaches 50% of its registered capital.

As a result of these and other restrictions under the PRC laws and regulations, our PRC subsidiaries are restricted to transfer a portion of their cash or assets to the Company. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries for working capital and other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries due to changes in business conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s shareholders.

To the extent cash in the business is in a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of you or your subsidiaries by the PRC government to transfer cash.

There is a Foreign Currency Risk.

The Company operates in Hong Kong, the PRC and trades with both local and overseas customers and suppliers, and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to purchases in, Hong Kong dollar, Renminbi, US dollars, the Japanese yen and Euro. Foreign exchange risk arises from committed and unmatched future commercial transactions, such as confirmed import purchase orders and sales orders, recognized assets and liabilities, and net investment in the PRC operations.

Because our revenues are generated in Renminbi and our results are reported in U.S. dollars, ongoing devaluation of the Renminbi could negatively impact our results of operations.

The value of the Renminbi against the U.S. Dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. In 2018, the value of the Renminbi depreciated by approximately 5.7% against the U.S. dollar. In 2019, the Renminbi further depreciated by approximately 1.3% against the U.S. dollar. In 2020, the value of the Renminbi appreciated by approximately 6.3% against the U.S. dollar. In 2021, the value of the Renminbi further appreciated by approximately 2.3% against the U.S. dollar. In 2022, the Renminbi depreciated by approximately 4.1% against the U.S. dollar. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuations of the Renminbi against the U.S. Dollar. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. Dollar in the future.

 Significant revaluation of the Renminbi may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. Dollar into Renminbi for our operations, appreciation of the Renminbi against the U.S. Dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. Dollar for the purpose of making payments for dividends on our ordinary shares, repaying our U.S. Dollar denominated notes or other payment obligations or for other business purposes, appreciation of the U.S. Dollar against the Renminbi would have a negative effect on the U.S. Dollar amount available to us. In addition, appreciation or depreciation in the value of the Renminbi relative to U.S. Dollar would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

The turbulent relations between the PRC and United States may adversely affect our business or the price of our capital stock

Recently, the United States and China have imposed new or higher tariffs on goods imported from the other’s country, and have threatened the imposition of additional tariffs in retaliation. The adoption and expansion of trade restrictions and tariffs, quotas and embargoes, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies, has the potential to adversely impact costs and the world economy in general, which in turn could have a material adverse effect on our business, results of operations and financial condition. In addition, changes in trade relations between the United States and China may trigger negative customer sentiment or retaliation towards companies in China with ties to the United States, potentially resulting in a negative impact on our results of operations and financial condition.

Differences between the United States and PRC governments on some political issues continue occasionally to color their relationship. These occasional controversies could materially and adversely affect our business and operations. Political or trade friction between the two countries could also materially and adversely affect the market price of our capital stock, whether or not they adversely affect our business.

Chinese regulatory authorities could disallow our holding company structure

The Company is a holding company and not an operating company. It owns 100% of the shares of Far East, which owns 100% of the equity of ETTS and SET in China, and 58% of the equity of Yixing in China and 58% of the equity of Pact in the British Virgin Islands. Far East also holds 19.4% of the equity of Blue Sky in China. ETTS and SET are no longer in active business operations. Far East, Yixing, Pact and Blue Sky are engaged in active business operations. As of the date of this annual report, Chinese law does not prohibit or restrict the Company from holding the equity of Far East, Yixing or Blue Sky. However we cannot assure you that Chinese regulatory authorities would never disallow our holding company structure, or otherwise prohibit or restrict the Company from holding the equity of Far East, Yixing or Blue Sky. If Chinese regulatory authorities do disallow our holding company structure as aforesaid, this would likely result in a material change in our operations and consequently a material change in the value of your securities, including that it could cause the value of such securities to significantly decline or become worthless.

Certain Risks Relating to the Company’s Business.

Our Operating Results may Fluctuate Significantly from Year to Year. We Cannot be Certain that we will Achieve or Maintain Profitability in the Future.

Our operating results historically have been difficult to predict and have at times significantly fluctuated from year to year due to a variety of factors, many of which are outside of our control.

During Fiscal 2022, the Company had revenues of US$14,949,000, operating income of US$114,000, and income before income taxes, equity in income of affiliates and non-controlling interests of US$150,000. In addition, we had income tax expense of US$24,000, equity in income of affiliates of US$413,000. As a result, we had a net income of US$539,000 for Fiscal 2022 before giving effect to the effect on our results attributable to our non-controlling interests. The principal reason for the operating income before income taxes, equity in income of affiliates and non-controlling interests for Fiscal 2022 was an increase in gross profit margin and a decrease in general and administrative expenses even though there was a decrease in revenues. After giving effect to the net income attributable to non-controlling interest, other comprehensive income/(loss) and comprehensive loss attributable to non-controlling interest, we had comprehensive income attributable to the Company of US$307,000 for Fiscal 2022.

During Fiscal 2021, the Company had revenues of US$21,388,000, operating income of US$771,000, and income before income taxes, equity in income of affiliates and non-controlling interests of US$921,000. In addition, we had income tax credit of US$90,000, equity in income of affiliates of US$355,000. As a result, we had a net income of US$1,366,000 for Fiscal 2021 before giving effect to the effect on our results attributable to our non-controlling interests. The principal reason for the operating income before income taxes, equity in income of affiliates and non-controlling interests for Fiscal 2021 was the increase in revenues and decrease in selling and administrative expenses. After giving effect to the net income attributable to non-controlling interest, other comprehensive income/(loss) and comprehensive loss attributable to non-controlling interest, we had comprehensive income attributable to the Company of US$925,000 for Fiscal 2021.

During Fiscal 2020, the Company had revenues of US$13,357,000, operating losses of US$272,000, and income before income taxes, equity in income of affiliates and non-controlling interests of US$63,000. In addition, we had income tax expense of US$96,000, equity in income of affiliates of US$435,000. As a result, we had a net income of US$402,000 for Fiscal 2020 before giving effect to the effect on our results attributable to our non-controlling interests. The principal reason for the operating income before income taxes, equity in income of affiliates and non-controlling interests for Fiscal 2020 was non-recurrent gain on disposal of a property of US$1,429,000 despite the decrease in revenues. After giving effect to the net loss attributable to non-controlling interest, other comprehensive income / (loss) and comprehensive loss attributable to non-controlling interest, we had comprehensive income attributable to the Company of US$721,000 for Fiscal 2020.

 As a result of these factors, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our operating expenses do not always vary directly with revenue and may be difficult to adjust in the short term. As a result, if revenue for a particular year or quarter is below our expectations, we may not be able to proportionately reduce operating expenses for that period, and therefore such a revenue shortfall would have a disproportionate effect on our operating results for that period.

The Russia-Ukraine conflicts may have already impacted and will likely impact the business operations of our suppliers and customers headquartered in Europe and elsewhere, and subsequently impact the terms of our business relationships with them.

Hostilities, political or social tensions involving Russia (including the invasion of Ukraine by Russia and ensuing actions that the United States and other countries have taken or may take in the future) and the resulting adverse effects on the global supply of oil and other natural resources, may have already adversely affected and will likely continue to adversely affect the results of operations of our customers headquartered in the Europe.  Subsequently, these customers will likely take longer to make decisions regarding whether to purchase our products, negotiate for more favorable commercial and financial terms in their dealings with us, and even postpone or cancel their new projects and purchase orders in China.

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

Our business could be materially and adversely affected by natural disasters, such as snowstorms, earthquakes, fires or floods, the outbreak of a widespread health epidemic, such as swine flu, avian influenza, severe acute respiratory syndrome (SARS), coronavirus or COVID-19, Ebola, Zika or other events, such as wars, acts of terrorism, environmental accidents, power shortage or communication interruptions. The occurrence of a disaster or a prolonged outbreak of an epidemic illness or other adverse public health developments in mainland China, Hong Kong or elsewhere in the world could materially disrupt our business and operations. These events could also significantly impact our industry and cause a temporary closure of the facilities we use for our operations, which would severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. Our operations could be disrupted if any of our employees or employees of our business partners were suspected of contracting an epidemic disease, since this could require us or our business partners to quarantine some or all of these employees or disinfect the facilities used for our operations. In addition, our revenue and profitability could be materially reduced to the extent that a natural disaster, health epidemic or other outbreak harms the global or PRC economy in general. Our operations could also be severely disrupted if our consumers, merchants or other participants were affected by natural disasters, health epidemics or other outbreaks.

In the past few years, the outbreak of the coronavirus, which causes the disease COVID-19, and the subsequent government efforts in China and elsewhere to contain the spread of the coronavirus through lockdowns of cities, business closures, restrictions on travel and emergency quarantines, among others, and responses by businesses and individuals to reduce the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at-home policies, among others, have caused significant disruptions to the global economy and normal business operations across a growing list of sectors and countries, including our business operations.

Since January 2023, the Chinese government has gradually lifted restrictions and quarantines that were imposed in response to the pandemic. We believe this has substantively reduced the risk of delay and other uncertainty to our business operations, except that it may be more difficult for us to recruit foreign talent at least in the near future, because such foreign talent may have left China and returned to their home country during the pandemic. It is also possible that if future outbreak occurs, the government will take similar actions which would adversely impact our business. In addition, the broader macro-economic implications the pandemic, including reduced levels of economic growth and possibly a global recession, likely still exist and will likely impact our future results of operations.

Actions to Increase Revenue, Decrease Losses and Achieve Profitability may be Unsuccessful.

The Company has implemented a number of measures to streamline its business activities, in order to stem the decline in its revenues. Specifically, the Company has reduced the number of its employees, consolidated its offices, and ceased the active business operations of its two wholly-owned subsidiaries in mainland China, namely, ETTS and SET, due to their decline in profitability.

The Company has also made an effort to obtain appropriate certifications and approvals from various governmental authorities in order to increase the credibility of its products. For example, the Company has obtained certification from China’s Classification Society (“CCS”); has obtained certification from the U.S. Coast Guard for its ballast water treatment system (“BWTS”) models 200, 300, 500, 750, 1200 and 1250 Cubic Meters per hour to be used as an Alternate Management Systems (“AMS”) in U.S. waters; and has obtained an RS type approval (Russian Maritime Register) for its 300 Cubic Meters per hour BWTS. The Company also received an anti-explosion certificate from China National Quality Supervision and Test Centre for Explosion Protected Electrical Products for its BWTS in 2017.

In 2018, the Company received a PRC government grant for the development of a ballast water port solution. The ballast water port solution is a system installed in port to offer ballast water treatment services for ocean going ships without their own ballast water treatment system (“BWTS”) and for those with damaged BWTS. The development of the ballast water port solution prototype has now been successfully completed.

The Company received its first order for the ballast water port solution system from Shanghai Yanshan port in 2020, and has since completed three other commercial port BWTS projects for Ningbo Zhoushan port, Taicang port and LianYunGan port in China respectively.

The Company conducts ongoing promotional activities for such systems in China, and elsewhere, where appropriate. However, the intake of orders may be affected by, among other things, the success of the Company’s marketing and sales efforts, and by the acceptance of the Company’s products by customers.

There can be no assurance that the Company’s continued efforts to streamline its business, to obtain certifications for its products, and to promote the sale of its ballast water treatment process, will be successful or, if successful, that these efforts will result in a reduction in losses, an increase in revenues and/or the achievement of profitability by the Company.

Increases in manufacturing and operating costs and/or the ability to achieve the savings anticipated from our structural cost improvement initiative may affect operating results.

Our costs are subject to fluctuations, particularly due to changes in commodity prices, the price of raw materials, cost of energy and related utilities and cost of labor. The achievement of our financial objectives is reliant on our ability to manage these fluctuations through cost savings or recovery actions and efficiency initiatives.

We may pursue a number of structural cost improvement initiatives from time to time, but these efforts may not improve our financial performance or produce the full efficiencies and benefits we expect due to delays or other factors affecting our execution of these initiatives.

We are subject to a variety of litigation and similar proceedings in the course of our business that could adversely affect our financial statements.

We may be subject to various litigations and similar proceedings incidental to our business that arise in the ordinary course of our business, including claims for damages arising out of the use of our products and claims relating to intellectual property matters, employment matters, tax matters, commercial disputes, environmental matters and personal injury. These lawsuits may include claims for compensatory damages, punitive and consequential damages and/or injunctive relief. The defense of these lawsuits may divert management’s attention, we may incur significant expenses in defending these lawsuits and we may be required to pay damage awards or settlements or become subject to equitable remedies that could adversely affect our consolidated financial statements. Moreover, any insurance or indemnification rights that we have may be insufficient or unavailable to protect us against such losses and expenses. In addition, developments in legal proceedings in any given period may require us to revise our expectations regarding the outcome of certain matters or adjust the loss contingency estimate that is recorded in our consolidated financial statements, which could adversely affect our results of operations or cash flows in any particular period. We cannot assure that our liabilities in connection with litigation and similar proceedings will not exceed estimates or adversely affect our consolidated financial statements or reputation.

Our business depends significantly on the strength of our product brands and corporate reputation; our failure to develop, maintain and enhance our product brands and corporate reputation may materially and adversely affect the level of market recognition of, and trust in, our products.

In China’s fragmented, developing and increasingly competitive consumer market, product brands and corporate reputation have become critical to the success of our new products and the continued popularity of our existing products. Our promotional activities may prove to be expensive and may fail to either effectively promote our product brands or generate additional sales.

In addition, our product brands, corporate reputation and product sales could be harmed if, for example:

We Have Made And May Make Further Acquisitions Without Your Approval.

Although we endeavor to evaluate the risks inherent in any particular acquisition, there can be no assurance that we will properly or accurately ascertain all such risks. We will have virtually unrestricted flexibility in identifying and selecting prospective acquisition candidates and in deciding if they should be acquired for cash, equity or debt, and in what combination of cash, equity and/or debt.

We have taken equity positions in related businesses. We will not seek stockholder approval for any additional acquisitions unless required by applicable law and regulations. Our stockholders may not have an opportunity to review financial and other information on acquisition candidates prior to consummation of any acquisitions under almost all circumstances.

Investors will be relying upon our management, upon whose judgment the investor must depend, with only limited information concerning management’s specific intentions.

There can be no assurance that the Company will locate and successfully complete any such additional acquisitions, or any acquisition will perform as anticipated, will not result in significant unexpected liabilities or will ever contribute significant revenues or profits to the Company or that the Company will not lose its entire investment in any acquisition.

Risks related to our existing and future joint ventures, acquisitions and investments also include, as applicable:

Any of these events could distract our management’s attention and result in our not obtaining the anticipated benefits of our joint ventures, acquisitions or investments and, in turn, negatively affect the performance of such joint ventures, acquisitions and investments and their respective contributions to our results of operations.

Dependence upon Management.

The Company is dependent upon the services of its executive officers, in particular Mr. T.C. Leung, the Chairman of the Company’s Board of Directors, and Mr. David YL Leung, the Chief Executive Officer. The business of the Company could be adversely affected by the loss of services of, or a material reduction in the amount of time devoted to the Company by its executive officers. The Company does not maintain “Key Man” life insurances on the lives of any of its officers and directors. See – Item 6. “Directors, Senior Management and Employees.”

We have limited general business insurance coverage and we may be subject to losses that might not be covered by our existing insurance policies, which may result in our incurring substantial costs and the diversion of resources.

We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased product transportation insurance covering risk of product loss during transportation, property insurance for our warehouse covering the risk of product loss in the warehouse, and third party liability insurance for certain contracts. We also provide social security insurance, including work-related injury insurance, and medical insurance for our employees. However, we do not maintain business liability, interruption or litigation insurance, nor do we maintain key-man life insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

Our sale of products could subject us to product liability claims, potential safety-related regulatory actions or product recalls. These events could damage our brand and reputation and the marketability of the products that we sell, divert our management’s attention and result in lower net revenues and increased costs.

The manufacture and sale of products, such as BWTS, could expose us to product liability claims for personal injuries related liability claims. Also, if our products are deemed by the PRC authorities to fail to conform to product quality or personal safety requirements in China, we could be subject to PRC regulatory action. Violation of PRC product quality and safety requirements by products sold by us may subject us to confiscation of the products, imposition of penalties or an order to cease sales of the violating products or to cease operations pending rectification. If the offense is determined to be serious, our business license could be suspended and subject to criminal liabilities. Any product liability claim or governmental regulatory action could be costly and time-consuming to defend. If successful, product liability claims may require us to pay substantial damages. Also, a material design, manufacturing or quality failure in the products sold by us, other safety issues or heightened regulatory scrutiny could each warrant a product recall by us and result in increased product liability claims. Furthermore, customers may not use the products sold by us in accordance with our product usage instructions, possibly resulting in customer injury. All of these events could materially harm our brand and reputation and marketability of our products, divert our management’s attention and result in lower net revenues and increased costs.

Material Adverse Effect upon the Company of PRC’s Credit Restrictions.

The Company faces increasing competition from other distributors of substantially similar products and manufacturers themselves, both foreign and Chinese. The Company faces its principal competition from foreign manufacturers and other distributors of their products situated in Hong Kong and mainland China. Competition may cause purchaser demands for price reductions and reduced profit margin.

Dependence on Vendors; Lack of Long Term Arrangements; Loss of Vendors.

The Company distributes supplies manufactured by a number of vendors. Thermo Fisher Scientific Group (“Thermo”), Stanford Research Systems, Inc. (“Stanford”), Hach Company (“Hach”), Hioki E.E. Corp. (“Hioki”), Peiport Scientific Aero Limited (“Peiport”) and Westermo Data Communications Pte Ltd. (“Westermo”) are among the Company’s largest suppliers in 2022, pursuant to short term arrangements. Although alternative sources of supply exist, there can be no assurance that the termination of the Company’s relationship with any of the above or other vendors would not have an adverse effect on the Company’s operations due to the Company’s dependence on these vendors. A substantial number of the Company’s suppliers have been selling their products into China directly and through other distributors. During Fiscal 2020, our sales revenue from trading activities decreased by approximately 20%. During Fiscal 2021, our sales revenue from trading activities increased by approximately 2%. During Fiscal 2022, our sales revenue from trading activities decreased by approximately 3%. A loss of a substantial vendor or substantial number of our other vendors and/or our competing with them would have a material adverse effect on our revenues from trading activities.

The loss of any of our key customers could reduce our revenues and our profitability.

For the year ended December 31, 2022, sales to our three largest customers amounted in the aggregate to approximately 33% of our total revenue. For the year ended December 31, 2021, sales to our three largest customers amounted in the aggregate to approximately 20% of our total revenue. For the year ended December 31, 2020, sales to our three largest customers amounted in the aggregate to approximately 23% of our total revenue. There can be no assurance that we will maintain or improve the relationships with these customers, or that we will be able to continue to supply these customers at current levels or at all. Any failure to pay by these customers could have a material negative effect on our company’s business. In addition, having a relatively small number of customers may cause our half yearly or annual results to be inconsistent, depending upon when these customers pay for outstanding invoices.

In the years ended December 31, 2020, 2021 and 2022, we had nil, 1 and 1 customers that accounted for 10% or more of our revenues, respectively.

Our continued failure to maintain long-term relationships with any of these major customers would lead to continued loss of our sales to them, which would have an adverse effect on our business, financial condition and results of operations.

We and our distributors are subject to various laws regulating our advertising and any violation of these laws by us or our distributors could result in fines, penalties and legal liabilities, harm our product brands and disrupt our business.

We advertise and market our products. Our distributors often advertise our products they distribute. PRC advertising laws and regulations require advertisers and advertising operators, such as us and our distributors, to ensure the contents of the advertisement they prepare, publish or broadcast are fair and accurate, are not misleading and are in full compliance with applicable laws, through independent review and verification before displaying the advertisement through print media, radio or Internet portals. PRC unfair competition law also prohibits us and our distributors from displaying misleading, false or inaccurate information with respect to quality, function, use, or other features of products, through advertising. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertising, orders to publish an advertisement correcting the misleading information and criminal liabilities. In circumstances involving serious violations, the PRC government may suspend or revoke a violator’s business license. Moreover, government actions and civil claims may be filed against us for misleading or inaccurate advertising, fraud, defamation, subversion, negligence, copyright or trademark infringement or other violations due to the nature and content of our advertising produced by us or our distributors.

Risks Related To the Company Itself.

The enactment of the Holding Foreign Companies Accountable Act and the adoption of any rules, legislations or other efforts to increase U.S. regulatory access to audit information could cause uncertainty and our securities listed on the NASDAQ could be delisted or prohibited from being traded ”over-the-counter” if we are unable to meet the PCAOB requirement in time.

The registered public accounting firms that issue the audit reports included in this annual report, as auditors of companies that are traded publicly in the United States and firms registered with the PCAOB are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards.

Our prior auditor is located in Hong Kong. On December 16, 2021, the PCAOB issued its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions, and the PCAOB included in the report of its determination a list of the accounting firms that are headquartered in mainland China or Hong Kong. This list includes our prior auditor, Union Power HK CPA Limited.

Inspections of other firms that the PCAOB has conducted outside China, including outside Hong Kong, have identified deficiencies in those firms’ audit procedures and quality control procedures, which can be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections in China, including Hong Kong, prevents the PCAOB from regularly evaluating our auditors’ audit procedures and quality control procedures as they relate to their work, and/or their affiliated independent registered public accounting firms’ work, in mainland China and Hong Kong.

In January 2023, we appointed J&S as our independent registered public accounting firm for the fiscal year ending December 31, 2022. J&S is headquartered in Malaysia and will be subject to the inspections by the PCAOB. Therefore we believe the appointment of J&S will substantially reduce the risk of us being continued to be identified as “Commission-Identified Issuer” and risk of our securities being prohibited from being traded on a national securities exchange or in the over the counter trading market in the United States.

On December 15, 2022, PCAOB Chair Erica Y. Williams released a statement stating that, for the first time in history, the PCAOB has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and the Board voted to vacate the previous determinations to the contrary. In addition, the statement mentioned that this is the beginning of the PCAOB’s work to inspect and investigate firms in mainland China and Hong Kong, not the end, and the PCAOB is continuing to demand complete access, and will act immediately to reconsider today’s determinations should China obstruct, or otherwise fail to facilitate PCAOB’s access, at any time.

In the unlikely event that we continue to be identified as “Commission-Identified Issuer”, the following risks may apply:

On December 18, 2020, the Holding Foreign Companies Accountable Act, or the HFCAA, was enacted. In essence, the HFCAA requires the SEC to prohibit foreign companies from listing securities on U.S. securities exchanges if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. The enactment of the HFCAA and any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants. If we continued to be affected despite our recent change of auditor, the market price of our ordinary shares and other securities could be materially adversely affected, and we could be delisted if we are unable to meet the PCAOB inspection requirement in time.

On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a Determination Report which reported that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.

On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.

Final rules implementing certain requirements of the HFCAA were adopted by the SEC on December 2, 2021 and generally become effective on January 10, 2022. The final rules implement the submission and disclosure requirements in the HFCAA. The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate, or Commission-Identified Issuers. The final rules require Commission-Identified Issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The final rules also require that a Commission-Identified Issuer that is a “foreign issuer” provide certain additional disclosures in its annual reports. Further, the SEC provided notice regarding the procedures the SEC has established to identify issuers and to impose trading prohibitions on the securities of certain Commission-Identified Issuers, as required by the HFCAA. The SEC will identify Commission-Identified Issuers for fiscal years beginning after December 18, 2020. A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. Under the HFCAA, our securities may be prohibited from trading on the NASDAQ or other U.S. stock exchanges and in over-the-counter markets if we are identified as a Commission-Identified Issuer for three consecutive years, and this ultimately could result in our ordinary shares being delisted from the NASDAQ.

Control by T.C. Leung and David YL Leung; Potential Conflict of Interests.

T.C. Leung, the Company’s Chairman of the Board, is the father of David YL Leung, the Chief Executive Officer of the Company. Therefore, as a practical matter, T.C. Leung and David YL Leung are able to nominate and cause the election of all the members of the Company’s Board of Directors, control the appointment of its officers and the day-to-day affairs and management of the Company. As a consequence, T.C. Leung and David YL Leung can have the Company managed in a manner that would be in their own interests and not in the interests of the other shareholders of the Company. See – Item 6. “Directors, Senior Management and Employees” and Item 7. “Major Shareholders and Related Party Transactions.”

The Company does not control certain joint ventures or associated companies in which it holds interests or invests, which could limit Company’s ability to identify and manage risks.

The Company holds interests and has invested, and may continue to hold interests and invest, in joint ventures or associated companies in which it has a non-controlling interest; for example, Zhejiang Tianlan Environmental Protection Technology Co., Ltd.. In these cases, Company has limited influence over, and limited or no control of, the governance, performance and cost of operations of such entities. Some of these entities may represent significant investments and potentially also use the Company’s brand. These entities that Company does not control may make business, financial or investment decisions contrary to Company’s interests or may make decisions different from those that Company itself may have made. Additionally, Company’s partners or members of a joint venture or associated company may not be able to meet their financial or other obligations, which could expose Company to additional financial or other obligations, as well as having a material adverse effect on the value of its investments in those entities or potentially subjecting Company to additional claims.

The Company’s inability to secure and maintain intellectual property rights for products, whilst maintaining overall competitiveness, could have a material adverse effect on its results.

The Company is dependent on its ability to obtain and maintain trademarks, patents, licenses and other intellectual property (IP) rights covering its products and its design and manufacturing processes. The IP portfolio is the result of an extensive patenting process that could be influenced by a number of factors, including innovation. The value of the IP portfolio is dependent on the successful promotion and market acceptance of standards developed or co-developed by Company.

Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company’s financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.

The Company may be subject to local laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In addition, the Company may have costs related to environmental remediation and restoration obligations associated with past and current sites as well as related to the Company’s past or current waste disposal practices or other hazardous materials handling. Although management will estimate and accrue liabilities for these obligations, it is reasonably possible that the Company’s ultimate cost with respect to these matters could be significantly higher, which could negatively impact the Company’s financial condition and results of operations. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.

Health and Safety: Increased concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on the environment as well as perceived impacts of plant biotechnology on health and the environment have resulted in more restrictive regulations and could lead to new regulations.

Concerns regarding the safe use of chemicals and plastics in commerce and their potential impact on health and the environment and the perceived impacts of plant biotechnology on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance and continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company’s products, the Company’s reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company’s results of operations.

Far East receives rental income from a property whose title has not yet been obtained by Far East from the PRC authority, which may result in legal proceedings and associated costs, expenses and liabilities. 

Far East has been earning annual rental income on a property in Beijing, China, which was expected to amount to US$39,000 annually as per the latest agreement. Far East has made payment for such property, but has not successfully obtained Certificate of Real Estate Ownership, and thus title, of such property from the PRC authority. The property’s book value as at December 31, 2022 was approximately US$84,000. Far East has made an effort to request the developer of the property to assist with obtaining the title, but those efforts have failed. Far East is still investigating various ways to obtain the title but has not formulated a specific plan as of the date of this Annual Report.

             In connection with the above, if the property is to be disposed, it is likely that Far East’s title to the property will be challenged, and in such case the Company and/or Far East will need to incur additional costs and expenses to confirm and defend its title to the property and the rental income it has collected. There is no assurance that Far East will succeed in its efforts to obtain the title to the property and the rental income it has collected. Far East’s failure in this regard could have material adverse effect on the Company’s financial position, results of operations, and cash flow.

Certain Legal Consequences of Incorporation in the British Virgin Islands; Rights of Shareholders Not As Extensive As In U.S. Corporations.

Principles of British Virgin Islands (“BVI”) corporate law relating to such matters as the validity of the Company procedures, the fiduciary duties of management and the rights of the Company’s shareholders may differ from those that would apply if the Company were incorporated in a jurisdiction within the United States.

The rights of shareholders under BVI law are not as extensive as the rights of shareholders under legislation or judicial precedent in many United States jurisdictions. Under United States law, majority and controlling shareholders generally have certain “fiduciary” responsibilities to the minority shareholders. United States shareholder action must be taken in good faith and actions by controlling shareholders in a United States jurisdiction and executive compensation which are obviously unreasonable may be declared null and void.

The BVI law protecting the interests of the minority shareholders is not as protective in all circumstances as the law protecting minority shareholders in United States jurisdictions. The shareholders of the Company may have more difficulty in protecting their interests in the face of actions by the Company’s Board of Directors, and may have more limited rights, than they might have as shareholders of a company incorporated in many United States jurisdictions.

Anti-Takeover Provisions.

The Company has 5,000,000 shares of “blank check preferred stock” authorized. The “blank check preferred stock” is intended to strengthen the Company’s ability to resist an unsolicited takeover bid and may be deemed to have an anti-takeover effect. The Board of Directors has the right to fix the rights, terms and preferences at the time of issue of “blank check preferred stock” without further action by our shareholders.

Uncertainty of Enforcing United States Judgments.

There is some uncertainty whether BVI courts would enforce judgments of the courts of the United States and of other foreign jurisdictions, or enforce actions brought in the BVI which are based upon the securities laws of the United States. A final monetary judgment obtained in the United States will be treated as a cause of action in itself by the BVI courts so that no retrial of the issues would be necessary, provided that material preconditions are met and the proceedings pursuant to which judgment was obtained were not contrary to the rules of natural justice.

All of the Company’s directors and executive officers reside outside of the United States, service of process upon the Company and such persons may be difficult to effect in the United States upon all such directors and officers.

All of the Company’s assets are and will be located outside of the United States, in Hong Kong and the PRC, and any judgment obtained in the United States may not be enforced in those jurisdictions. Hong Kong courts will not directly enforce against the Company or such persons judgments obtained in the United States. There is also substantial doubt as to the enforceability in the PRC of actions to enforce judgments of the United States’ courts arising out of or based on the ownership of the securities, including judgments arising out of or based on the civil liability provisions of United States federal or state securities laws or otherwise. See — “Certain Legal Consequences of Incorporation in the British Virgin Islands; Rights of Shareholders Not As Extensive As In U.S. Corporations.”

Being a Foreign Private Issuer Exempts Us from Certain SEC and NASDAQ Stock Market (“NASDAQ”) Requirements.

We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). As such, with certain limitations, we are exempt from certain provisions applicable to United States public companies including: (1) the rules under the Exchange Act requiring the filing with the Commission of quarterly reports on Form 10-Q or current reports on Form 8-K; (2) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (3) the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and (4) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months). Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

Our Securities Must Continue To Meet Qualitative And Quantitative Listing Maintenance Criteria For NASDAQ; Previous Deficiency Cured.

Our securities are quoted and traded on NASDAQ. There can be no assurance that we will continue to meet both the qualitative and quantitative criteria for continued quotation and trading of our securities on NASDAQ. One of NASDAQ’s listing requirements is the maintenance of a closing bid price of US$ 1.00 per share. During periods of time in 2008 and 2009 the Company was not in compliance with that requirement but NASDAQ had generally suspended that requirement and others due to market conditions and/or the US$1.00 per share bid price was not met for a sufficient period of time to cause a NASDAQ deficiency action.

On September 20, 2011, the Company was notified by NASDAQ that it was not in compliance with NASDAQ’s listing maintenance rule for failing to have a bid price of at least US$1.00 per share for the prior thirty trading days. In January 2012, the Company effected a combination or reverse stock split of its issued Ordinary Shares, and thereafter, in February 2012, the Company received a letter from NASDAQ advising that it had regained compliance with NASDAQ’s maintenance listing requirements.

No assurance can be given that we will continue to meet applicable NASDAQ continued listing standards. Failure to meet applicable NASDAQ continued listing standards could result in a delisting of our common stock. A delisting of our common stock from NASDAQ could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities. See— “We Are Also Required To Meet Certain, But Not All Corporate Governance Criteria Applicable to NASDAQ Listed Issuers.”

We Are Also Required To Meet Certain, But Not All, Corporate Governance Criteria Applicable To NASDAQ Listed Issuers.

Although, in the past, we have been able to satisfy corporate governance criteria applicable to NASDAQ listed issuers, those criteria are difficult to comply with and include, among other things: (a) a heightened degree of independence of members of the board of directors with independent directors to, among other things: hold regular meetings among themselves only; (b) establishment of a code of conduct addressing compliance with laws; and (c) a limit on payments to independent directors and their family members (other than for services on the board of directors).

These corporate governance requirements and a strict definition of “independent director” make it more difficult to find independent directors for our Board of Directors. There is intense competition for qualified independent directors, including those persons with accounting experience and financial statement acumen to serve on audit committees. We believe that continued compliance with the corporate governance requirements applicable to NASDAQ listed issuers may be difficult and increase our costs and expenses as the costs of finding and compensating independent directors escalate and the costs of administering their new powers and responsibilities is an added financial burden. If we are unable to attract and keep a sufficient number of independent directors willing to take on the responsibilities imposed by such rules on what we believe to be commercially reasonable terms, our securities may be delisted from NASDAQ. See— “Being a ‘Controlled Company’ Exempts Us from Certain Other Corporate Governance Criteria Applicable to NASDAQ Listed Issuers.”

Being A “Controlled Company” Exempts Us From Certain Other Corporate Governance Criteria Applicable To NASDAQ Listed Issuers.

As a result of T.C. Leung, the Company’s Chairman of the Board, beneficially owning the majority voting power of our Ordinary Shares, we are a “controlled company” as that term is defined in rules and regulations applicable to NASDAQ listed issuers. As a “controlled company,” we are not required to comply with certain NASDAQ corporate governance criteria including, among other things, the requirements that the majority of our Board be independent directors, and their having the authority to approve director nominations and executive officer compensation.

We Are Not Subject To Various Corporate Governance Measures, Which May Result In Shareholders Having Limited Protections.

The Sarbanes-Oxley Act of 2002 (“SOX”), has resulted in the adoption of various corporate governance measures by securities exchanges and NASDAQ designed to promote the integrity of the corporate management and the securities markets. Being a “controlled company,” we are exempt from many, but not all, of those requirements. Furthermore, the absence of such practices with respect to our Company may leave our shareholders without protections against interested director transactions, conflicts of interest and similar matters.

We May Be Exposed To Potential Risks Relating To Our Internal Controls Over Financial Reporting.

Pursuant to Section 404 of SOX, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal controls over financial reporting in their annual reports, including Form 20-F.

We expend significant resources in developing and maintaining the necessary documentation and testing procedures required by SOX, there is a risk that we will not maintain compliance with all of these requirements.

In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner our ability to obtain equity or debt financing could suffer and the market price of our shares could decline.

The market price of our Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the price you paid.

The trading price for our Ordinary Shares has fluctuated since we first listed our Ordinary Shares. During Fiscal 2022, the trading price of our Ordinary Shares has ranged from US$1.07 to US$2.65 per Ordinary Share, during Fiscal 2021, the trading price of our Ordinary Shares has ranged from US$1.3093 to US$3.2 per Ordinary Share. The last reported trading price on April 3, 2023 was US$1.125 per Ordinary Share. The market price of our Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the securities markets in the United States, China and elsewhere have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Ordinary Shares.

There Are Risks In Purchasing Low-Priced Securities.

If our securities were to be suspended or delisted from NASDAQ, they could be subject to rules under the Exchange Act which impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and “accredited investors.” For transactions covered by such rules, a broker-dealer must make a special suitability determination of the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. Consequently, such rules may affect the ability of broker-dealers to sell our securities and the ability to sell any of our securities in any secondary market that may develop for such securities. In the event our securities are no longer listed on NASDAQ or are not otherwise exempt from the provisions of the SEC’s “penny stock” rules, such rules may also affect the ability of broker-dealers and investors to sell our securities.

We May Be Considered To Be A Passive Foreign Investment Company For The 2022 Calendar Year And May Be A Passive Foreign Investment Company For Future Years, Which Would Result In Adverse U.S. Federal Income Tax Consequences To U.S. Holders Of Our Ordinary Shares.

A non-U.S. corporation will be considered a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, for any taxable year if either (i) at least 75% of its gross income is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. The annual PFIC determination to be made by a U.S. holder of our ordinary shares is an inherently factual determination based upon the application of complex U.S. federal income tax rules (which are subject to differing interpretations), the composition of our income and assets from time to time, and the nature of the activities performed by our officers and employees. We currently hold a substantial amount of cash and cash equivalents, and investments in PRC enterprises, and the value of our goodwill and other assets may be based in part on the market price of our ordinary shares, which has experienced significant fluctuations. Although the determination of PFIC status is subject to factual uncertainties because it depends upon the valuation of our ordinary shares, as well as our goodwill and other assets and income, and because there are uncertainties in the application of the relevant rules, we are uncertain if we would be considered to be a PFIC for 2022. In addition, as the determination of PFIC status is made on an annual basis and depends on variables over which we have limited control, there can be no assurance that we will not be a PFIC for 2023 or any future years. If we are a PFIC in any year, a U.S. holder will be subject to certain adverse United States federal income tax consequences, and are urged to consult with his, her or its tax advisor. See— Item 10. “Taxation—United States Federal Income Taxation.”

 If We Become Directly Subject to the Recent Scrutiny Involving U.S.-Listed Chinese Companies, We May Have to Expend Significant Resources to Investigate and/or Defend the Matter, Which Could Harm our Business Operations, Stock Price and Reputation and Could Result in a Complete Loss of Your Investment in Us.

U.S. listed companies that have substantial operations in China have been the subject of intense scrutiny by investors, financial commentators and regulatory agencies. Much of the scrutiny has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial reporting and, in many cases, allegations of fraud. As a result of the scrutiny, the publicly traded stock of many U.S. listed China-based companies that have been the subject of such scrutiny has sharply decreased in value. Many of these companies are now subject to shareholder lawsuits and/or SEC enforcement actions that are conducting internal and/or external investigations into the allegations. If we become the subject of any unwarranted scrutiny, even allegations that are not true, we may have to expend significant resources to investigate such allegations and/or defend the Company. Such investigations or allegations will be costly and time-consuming and distract our management from our business plan and could result in our reputation being harmed and our stock price could decline as a result of such allegations, regardless of the truthfulness of the allegations.

ITEM 6.F. Disclosure of A Registrant’s Action to Recover Erroneously Awarded Compensation.

Not Applicable

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

The Company was organized under the laws of the BVI on September 30, 1996 for the purposes of raising capital and for acquiring all the outstanding capital stock of Euro Tech (Far East) Limited (“Far East”), a Hong Kong corporation. In March 1997, the Company acquired all the issued and outstanding capital stock of Far East. Since then, Far East has been a wholly-owned subsidiary and the primary operational entity of the Company. Far East has primarily been engaged in the distribution of advanced water treatment equipment.

Yixing Pact Environmental Technology Company Limited, a Chinese company (“Yixing”) and Pact Asia Pacific Limited, a BVI company (“Pact,” collectively with “Yixing”, “Pact-Yixing”), which have engaged in the water and waste-water treatment solution business, became our majority-owned subsidiaries in 2005. We acquired additional two percent (2%) and five percent (5%) equity interests in Pact and Yixing in January 2010 and July 2011, respectively, through Far East. Since then, Far East has been the holder of fifty-eight percent (58%) equity interests in Pact and Yixing respectively. In 2020, Pact-Yixing successfully developed and launched a ballast water port solution system for ship vessels and port harbors. This makes Pact-Yixing one of the first few companies in Asia which can develop and sell such system for commercial use.

Far East also owns a 19.4% equity interest in Zhejiang Tianlan Environmental Protection Technology Co. Ltd. (“Blue Sky”), founded in 2000. Blue Sky provides design and general contracting services, equipment manufacturing, installation, testing and operation management for the purification treatment of industrial waste gases (specifically as desulphurization, flue gas de-nitration, dust removal) emitted from various boilers and industrial furnaces of power plants, steelworks and chemical plants. By securing an equity stake in Blue Sky’s business, we have a strategic partner to work within China’s environmental protection business. With Blue Sky’s technology and technical support, we believe we are able to provide services and environmental solutions not only for water and waste-water treatment but also for air pollution control for industrial clients in China. Blue Sky’s revenue increased in Fiscal 2020 as compared to Fiscal 2019, increased in Fiscal 2021 as compared to Fiscal 2020, and increased in Fiscal 2022 as compared to Fiscal 2021. Blue Sky’s net income increased in Fiscal 2020 as compared to Fiscal 2019, decreased in Fiscal 2021 as compared to Fiscal 2020, and increased in Fiscal 2022 as compared to Fiscal 2021. Blue Sky listed its shares on the New Third Board since November 17, 2015 and it suspended trading from August 15, 2017 and resumed trading on February 2, 2018 and suspended trading from November 24, 2020 and resumed trading on January 6, 2021.The New Third Board in the PRC, a national over-the-counter market in the PRC regulated by the China Securities Regulatory Commission, serves as a trading platform for small and medium-sized enterprises. Any new issuance of Blue Sky’s shares on the New Third Board will dilute our ownership in Blue Sky. On the other hand, the New Third Board provides us with an exit channel to sell our position in Blue Sky if the price is attractive.

In Fiscal 2022, Blue Sky made an income contribution of US$413,000 to the Company. The source of such income contribution in Fiscal 2022 was operating income. In Fiscal 2021, Blue Sky made an income contribution of US$355,000 to the Company. The source of such income contribution in Fiscal 2021 was operating income. In Fiscal 2020, Blue Sky made an income contribution of US$435,000 to the Company. The source of such income contribution in Fiscal 2020 was principally the recovery of the accounts receivables for which impairment loss provision was made in previous years. China’s 13th Five Year Plan promotes a cleaner and greener economy, with strong commitments to environmental management and protection, clean energy and emissions controls, ecological protection and security, and the development of green industries. This demonstrates a clear focus on charting a sustainable course for the economy in the long-term and the desire to play a global role in curbing greenhouse gas emissions. Thus, management believes the development in the Chinese government policy may benefit our business as well as the business of its affiliate, Blue Sky.

We previously had a 20% equity interest in Zhejiang Jia Huan Electronic Co. Ltd., a company incorporated in the PRC (“Jia Huan”), with total cost of investment US$2,486,000. Jia Huan was engaged in the environmental protection business since 1969. On March 5, 2018, we entered into an Equity Transfer Agreement to sell this 20% equity stake of Jia Huan for a purchase price of RMB31,312,500 to Ms. Jin Lijuan (the “Purchaser”), the wife of the holder of the remaining 80% equity stake of Jia Huan. In accordance with the terms of the Agreement, all approvals and registrations with the relevant governmental authorities were obtained, the closing of the transaction has been completed, and the Purchaser paid the purchase price to us, in full in May 2018. As a result, we recognized a net gain of US$1,522,000 on the disposal of our equity interest in Jia Huan.

We dissolved Chongqing Euro Tech Rizhi Technology Co., Ltd., Rizhi Euro Tech Instrument (Shaanxi) Co., Ltd. and Guangzhou Euro Tech Environmental Equipment Co., Ltd. in 2019. We closed the representative sales office of Shanghai Euro Tech Limited located in Beijing in January 2021. We dissolved Shanghai Euro Tech Environmental Engineering Company Ltd. (“Shanghai Environmental”) on July 2, 2021, in order to avoid duplication of costs and efforts as we have a 58% equity interest in Pact-Yixing which operate similar business activities. Before its dissolution, Shanghai Environmental was our wholly-owned subsidiary organized under the laws of the PRC and its principal business was water and waste-water treatment engineering business. It was established to carry on our environmental engineering department with that line of business and its personnel transferred from our subsidiary, Far East. Shanghai Environmental had made an operating (loss) / income of (US$110,000) in Fiscal 2020 and US$106,000 in Fiscal 2021. We also ceased the active business operations of ETTS and SET in 2021 and 2022 respectively. Before it ceases its active business operations, SET engages in the manufacturing of analytical and testing instruments. However SET incurred losses from its business during the few years prior to the cessation of its operations, therefore we made the decision to cease its active business operations.

Our principal place of business is located at Unit D, 18/F., Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong, China and the telephone number is 852-28140311. The SEC maintains an Internet site that contains reports, proxy and other information regarding issuers that file electronically with the SEC (such as the Company) and the address of that site is http://www.sec.gov. The Company maintains a website at http://www.euro-tech.com.

B. BUSINESS OVERVIEW

COVID-19 Update

In December 2019, a novel strain of coronavirus, or COVID-19 or the coronavirus, surfaced and it has spread rapidly to many parts of China and other parts of the world, including the United States. The COVID-19 pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China and several other parts of the world, including the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic.

All of our revenue is concentrated in China through our subsidiaries. Consequently, our revenues were impacted by COVID-19 and were significantly lower in 2020 as compared to the same period of 2019. We had to comply with the temporary closure of stores and facilities, or the “shelter in place” order, in China in the first quarter of 2020. As a result, we closed our facilities in January 2020 and re-opened them in late March 2020. The COVID-19 outbreak materially adversely affected our business operations, financial condition and operating results for 2020, including but not limited to material negative impact on our total revenues, slower collection of accounts receivables and additional allowance for doubtful accounts. The Company has not incurred significant disruptions from COVID-19 in 2021.

In early 2022, COVID-19 outbreak started again in China. From February to December in 2022, China has taken a number of actions in response to such outbreak, which actions include the implementation of a lockdown policy in certain cities, including Shanghai, where we are located, pursuant to which buildings and facilities were temporarily shut down from time to time, and the government has also imposed strict travel restrictions and quarantine requirements at time. As a result, our supply chain has been materially and adversely affected, and the number of purchase orders we received dropped significantly. In addition, many of our employees and their family members became infected with COVID-19 in December, 2022 and had to take sick leave, which led to further adverse impact on our business operations.

Starting from January 2023, the Chinese government has gradually lifted restrictions and quarantines that were imposed in response to the pandemic. We believe this has substantively reduced the risk of delay and other uncertainty to our business operations, except that it may be more difficult for us to recruit foreign talent going forward, especially in the near, because such foreign talent may have returned to their home country during the pandemic. It is also possible that if future outbreak occurs, the government will take similar actions which would adversely impact our business. In addition, the broader macro-economic implications the pandemic, including reduced levels of economic growth and possibly a global recession, likely still exist and may impact our future results of operations.

Recent Regulatory Update

Potential CSRC Approval Required for the Listing of our Ordinary Shares

On July 6, 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities. Theses opinions call for strengthened regulation over illegal securities activities and supervision on overseas listings by China-based companies and propose to take effective measures, such as promoting the development of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.

On February 17, 2023, China Securities Regulatory Commission (the “CSRC”) issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which became effective on March 31, 2023. These Trial Measures stipulate that PRC domestic companies that seek to offer and list securities in overseas markets directly or indirectly are required to fulfill the filing procedures with and report relevant information to the CSRC. Pursuant to these Trial Measures, if the issuer meets the following conditions, its offering and listing will be determined as an “indirect overseas offering and listing by a PRC domestic company” and is therefore subject to the filing requirement: (i) the revenues, profits, total assets or net assets of the Chinese operating entities in the most recent financial year accounts for more than 50% of the corresponding data in the issuer’s audited consolidated financial statements for the same period; (ii) the majority of senior management in charge of business operation are Chinese citizens or have domicile in PRC, and its principal place of business is located in PRC or main business activities are conducted in PRC.

On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which became effective on March 31, 2023. The Confidentiality Provisions outline obligations of issuers listed in overseas markets with operations in China when they provide information involving state secrets or sensitive information to their securities service providers (e.g., auditors) and overseas regulators. In addition, under the Confidentiality Provisions, such issuers will also be required to obtain approval from the CSRC and other PRC authorities before accepting any investigation or inspection by overseas regulators. As the Confidentiality Provisions were recently promulgated and have not taken effect, there are uncertainties with respect to their interpretation and implementation.

We cannot assure you that we will not be required to obtain the approval of the CSRC or of potentially other regulatory authorities to maintain the listing status of our ordinary shares on the Nasdaq Stock Market or to conduct offerings of securities in the future. We have been closely monitoring regulatory developments in China regarding any necessary approvals from the CSRC or other PRC regulatory authorities required for overseas listings. As of the date of this annual report, we have not received any inquiry, notice, warning, sanctions or regulatory objection from the CSRC.

Cybersecurity Review Measures

In January 2022, the Cyberspace Administration Commission (the “CAC”) and several other administrations jointly promulgated the amended Cybersecurity Review Measures, or the Cybersecurity Review Measures, which became effective on February 15, 2022, and supersede and replace the current cybersecurity review measures that became effective since June 2020. Pursuant to the Cybersecurity Review Measures, a “critical information infrastructure operator,” or CIIO, that purchases network products and services, or conducts data process activities, which affect or may affect national security will be subject to the cybersecurity review. The Cybersecurity Review Measures also expands the cybersecurity review to “internet platform operators” in possession of personal information of over one million users if such operators intend to list their securities in a foreign country. Alternatively, relevant governmental authorities in the PRC may initiate cybersecurity review if they determine an operator’s network products or services or data processing activities affect or may affect national security.

As of the date of this annual report, uncertainties still exist in relation to the interpretation and implementation of the Cybersecurity Review Measures. Though given the nature of our products, the possibility that we, or certain of our customers or suppliers are deemed as a CIIO is low, we cannot completely rule out this possibility. If we are deemed as a CIIO, our purchase of network products or services, if deemed to be affecting or may affect national security, will need to be subject to cybersecurity review, before we can enter into agreements with relevant customers or suppliers, and before the conclusion of such procedure, these customers will not be allowed to use our products or services, and we are not allowed to purchase products or services from our suppliers.

 As of the date of this annual report, we have not been involved in any investigations or become subject to a cybersecurity review initiated by the CAC based on the Cybersecurity Review Measures, and we have not received any inquiry, notice, warning, sanctions in such respect of any regulatory objections to our listing status from the CAC. See – Item 3D. “Key Information — Risk Factors - Our failure to comply with cybersecurity and data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.”

Principal Activities

The Company has primarily been a distributor of a wide range of advanced water treatment equipment, laboratory instruments, analyzers, test kits and related supplies and power generation equipment (including recorders and power quality analyzers). The Company acts as an exclusive or non-exclusive distributor for well-known manufacturers of such equipment, primarily to commercial customers and governmental agencies or instrumentalities in Hong Kong and mainland China, but also to commercial customers in certain other regions such as Macau. The Company distributes products primarily through Far East, its wholly-owned subsidiary in Hong Kong.

For the past three financial years, the Company’s main categories of products distributed by Far East include:

Pact-Yixing, in which Far East holds 58% equity interests, provides customers with solutions to engineering problems. Pact-Yixing conducts industrial water and waste-water treatment projects, mostly for large multinational manufacturing facilities located in the PRC that are run by companies based in USA, Europe and Japan. Pact-Yixing also conducts process design projects for its clients. With respect to the process design projects, the procedures involving mechanical and electrical engineering are completed in-house and the procedures involving manufacturing are contracted to approved fabricators of components. Fabrication drawings are also done in-house for submittal to said fabricators under the supervision of Pact-Yixing’s quality control engineers. Pact-Yixing’s clients come from a varied spectrum of industries covering semiconductor, pharmaceutical, petrochemicals, auto and auto parts, steel, food and beverage and beauty products.

The water and waste-water treatment processes applied at Pact-Yixing cover chemical, physical, biological and membrane separation. Combinations of those processes are normally used to treat a specific industrial process feed or effluent. With respect to the water treatment side of Pact-Yixing’s business, they design and build filtration equipment, ion-exchange softeners and demineralizers, reverse osmosis, electro-deionization, chemical treatment systems and package type mobile water treatment plants. As for waste-water treatment, Pact-Yixing design and build biological treatment systems, oil coalescers, dissolved air flotation, lamella clarifiers, chemical reactor tanks, ultrafiltration, microfiltration, dewatering systems and package type mobile sewage treatment plants. Biological treatment plants cover both aerobic and anaerobic processes. State-of-the-art aerobic processes of SBR (sequential batch reactors) and MBR (membrane biological reactors) are technologies also covered by Pact-Yixing. See – “Glossary.”

Revenues from our trading activities have fallen-off as a substantial number of our suppliers have been selling their products into China directly and through other distributors. Many of these other distributors are local Chinese companies and can operate with a lower overhead.

Therefore, we have been in a process of shifting our emphasis from the distribution of instruments and equipment to engineering and manufacturing activities.

Notably, Pact-Yixing manufactures its own self-developed BWTS for maritime industry, it includes shipowners, shipyard, and port harbours operators, etc.

In 2020, Pact-Yixing sold the first ballast water port solution system for commercial sale. This makes Pact-Yixing one of the first few companies that can complete ballast water port solution system in Asia. Pact-Yixing will continue to promote this technology, for commercial sale to companies located in countries participating the Belt and Road Initiative.

With this new development, we plan to gradually transform ourselves from a company that is heavily reliant engineering and manufacturing, to a technology driven company. We will continue to identify potential new markets for more business opportunities, given that we believe our development of the ballast water port solution system can address the pain point in certain markets. We will also continue to look for distributors and partners located in Asian countries to promote our ballast water treatment system products and EPC water treatment / equipment services. We may seek additional capital through various means to fund our development. While our efforts to refine and promote the new development may incur additional cost and expenses and impact our results of operations in the short term, we believe it will, in the long run, provides the Company with more competitive advantage.

During Fiscal 2020, there was decrease in revenues from trading and manufacturing activities. Revenue from Pact-Yixing in 2020 was US$4,246,000, while Shanghai Environmental had an operating loss of US$111,000. In addition, we incurred research and development costs of US$493,000 in 2020 relating to BWTS for the IMO revised G8 requirements compliance and Pact-Yixing incurred an operating loss of US$916,000. This resulted in operating loss from engineering activities of US$1,027,000.

During Fiscal 2021, there was slight increase in revenues from trading and manufacturing activities. Revenue from Pact-Yixing in 2021 was US$12,161,000, while Shanghai Environmental had an operating income of US$106,000. In addition, we incurred research and development costs of US$61,000 in 2021 relating to BWTS and Pact-Yixing had an operating income of US$739,000. This resulted in operating income from engineering activities of US$846,000. We closed Shanghai Environmental in 2021.

During Fiscal 2022, there was slight decrease in revenues from trading and manufacturing activities. Revenue from Pact-Yixing in 2022 was US$5,617,000. Pact-Yixing had an operating income of US$506,000 from engineering activities. We ceased the operation of Shanghai Euro Tech Limited in 2022.

Principal Markets: Mainland China and Hong Kong

The Company’s operations are located almost entirely within, and revenues are almost entirely generated from mainland China and Hong Kong. Set forth below are the approximate percentage of the Company’s revenue from customers in mainland China and Hong Kong for the fiscal years indicated:

Sales to customers situated in Macau and elsewhere through Fiscal 2020, Fiscal 2021 and Fiscal 2022 were nil, nil and13% respectively. This makes the Company particularly susceptible to changes in the political and economic climate of either mainland China or Hong Kong.

 Hong Kong. Hong Kong has been one of the prime centers for commercial activity and economic development recently in Southeast Asia. On July 1, 1997, sovereignty over Hong Kong was transferred from the United Kingdom to the PRC. As provided in the Sino-British Joint Declaration and the Basic Law, the Hong Kong SAR is provided a high degree of autonomy except in foreign and defense affairs. The Basic Law provides that the Hong Kong SAR is to have its own legislature, legal and judicial system and full economic autonomy for 50 years after the transfer of sovereignty. Based on the current political conditions and the Company’s understanding of the Basic Law, the Company does not believe that the transfer of sovereignty over Hong Kong has had or will have an adverse impact on its financial and operating environment. Although the Chinese government has pledged to maintain the economic and political autonomy of Hong Kong over its internal affairs, there is no assurance that such pledge will continue to be honored if there are changes in the Chinese political or economic climate. Revenue in Hong Kong, expressed as a percentage of our revenue, increased by 2% in Fiscal 2020 as compared with Fiscal 2019. Revenue in Hong Kong, expressed as a percentage of our revenue, decreased by 23% in Fiscal 2021 as compared with Fiscal 2020 as a result of significant increase in revenue in mainland China. Revenue in Hong Kong, expressed as a percentage of our revenue, increased by 11% in Fiscal 2022 as compared with Fiscal 2021 because of a decrease in revenue in mainland China. See – Item 3D. “Key Information — Risk Factors.”

PRC. The PRC has been a socialist state since 1949. For more than half a century, the PRC’s economy has been, and presently continues to be, a socialist economy operating under government controls promulgated under various state plans adopted by central Chinese government authorities and implemented, to a large extent, by provincial and local authorities who may set production and development targets. However, since approximately the early 1980s, the PRC’s national government has undertaken certain reforms to permit greater provincial and local economic autonomy and private economic activities. Any change in political or economic conditions may substantially adversely affect these reform initiatives and, in turn, the Company. Revenue in mainland China, expressed as a percentage of total revenue, decreased by 2% in Fiscal 2020 as compared with Fiscal 2019. Revenue in mainland China, expressed as a percentage of total revenue, increased by 24% in Fiscal 2021 as compared with Fiscal 2020. The increase was primarily due to the significant increase in revenue for completion of engineering projects in mainland China. Revenue in mainland China, expressed as a percentage of total revenue, decreased by 23% in Fiscal 2022 as compared with Fiscal 2021 because of a decrease in revenue from completion of engineering projects in mainland China. See – Item 3D. “Key Information — Risk Factors.”

Our Growth Strategy

We are focusing our trading activities in Hong Kong, Macau and Guangdong, China. These cities are located close to our Hong Kong headquarters, which makes it easier to provide customer support to customers located in these cities. For example, traveling to these cities to serve the customers there will incur less travel expenses. Therefore it will be more cost-efficient for us to support distributorships in these cities as opposed to distributorships throughout China. We operate with a focus to control costs and enhance operational efficiency.

In 2018, the Company received a PRC government grant to fund the development of a prototype of ballast water port solution. We have completed the development of the ballast water port solution prototype in 2019 and have completed developing the system for commercial use in 2020. The port solution system is a system installed in port to offer ballast water treatment services for ocean going ships without their own ballast water treatment system (“BWTS”) and for those with damaged BWTS. In Fiscal 2020, we sold one set of BWTS for ports and another set of BWTS for ship vessels. In Fiscal 2021, we sold 4 sets and 8 sets of BWTS for ports and ship vessels respectively. In Fiscal 2022, we sold 27 sets of BWTS for ship vessels, with a majority of them exported to countries other than China. In Fiscal 2022, we did not sell any BWTS for ports, due to the impact of COVID-19 on ports in China and elsewhere.

The Company is now embarking on promotion activities for port solution systems in China and South East Asia to explore the growing demand, although no assurance can be given that we will be able to do so. We continue to promote our BWTS products that currently treated ballast water at rates of 200, 300, 500, 750, 1,200 and 1,250 cubic meters per hour and port solution system. We obtained the utility model patents and are applying for the invention patents for this port solution system in China. In addition, we also continue to invest a portion of our resources to developing our BWTS for the global market, and, based upon Pact-Yixing’s competitive prices and the high quality of its services, feel positive about our ability to expand our worldwide customer base by working closely and actively with some international engineering companies. However, no assurance can be given that these efforts will be successful. We also plan to participate more overseas maritime /water tradeshows in 2023 to capture more potential sales distributors located overseas. In addition, we intend to continue to assemble and/or manufacture additional products, and seek opportunities with our suppliers to assemble their products.

Future Planning and Expansion

We continuously search for products and equipment with substantial market potential for design and development. For example, international shipping ballast water cargo stowaway species and microorganisms that create unpredictable ecosystem contaminations as ballast water tanks are emptied or refilled at ports of call. Pact has been attempting to develop a non-chemical BWTS since late 2010. In 2012, Pact successfully completed and passed the land based test requirement, and, in 2014, Pact passed ship board testing and obtained CCS certification in the PRC and compliance with the IMO convention. In September 2016, the International Maritime Organization received acceptance from 52 States, representing approximately 35% of world merchant shipping tonnage. This triggered the applicability of the entry into force of the Ballast Water Management Convention, which occurred on September 8, 2017. In July 2017, IMO decided that the phase-in period for ballast water system retrofits started on September 8, 2019. The IMO convention stipulates that type approval for revised G8 requirements must be obtained for all BWTS installed on or after October 28, 2020, and we have been in compliance with such requirements. In order to expand its market coverage, we have been undergoing the procedures to apply for type approval certificates for its BWTS from a number of European and Asian Classification Societies. We have received type approval certificates from Lloyds and RINA respectively.

We anticipate that the costs of any acquisition or product development would be drawn from our general working capital and, possibly, by seeking strategic partners such as companies in the BWM Convention shipping industries or funding raising from substantial investors, and by private sales of our securities. We have no commitments or received no indications of interest for the private sales of our securities.

Product Distribution and Other Services

Scientific Instruments. The Company distributes analytical instruments, environmental quality monitoring instruments, sample pre-treatment equipment and general purpose laboratory instruments. Analytical instruments include, but are not limited to, chromatographs, mass spectrometers, flow injector analyzers, automated sample preparation workstations and atomic spectrometers. Environmental monitoring instruments include both air and water quality monitoring instruments. Air quality monitoring instruments are generally divided into those which monitor ambient (i.e., atmospheric) air, and those which monitor pollution sources. The revenue from sales of air quality monitoring instruments is nominal as the Company has not been able to acquire a distributorship for air quality instruments from brand name manufactures that we believe engage in direct customer sales or rely on their existing distributors. Sample pre-treatment equipment is used to clean-up the sample prior to chemical analysis for checking pesticides and drug residues in food. Additionally, the Company offers general purpose laboratory instruments including a variety of water quality monitoring and analysis equipment, such as continuous reading process analyzers, process turbidimeters, pH controllers, and test kits for monitoring chemical content in water (i.e., chlorine, fluorides, etc.). See – “Glossary.”

Customers for the analytical instruments include government agencies, academic and research institutions, major laboratories and beverage producers, including analytical system to the Hong Kong Government Laboratory for analysis of persistent organic pollutants (POPs) and pesticides in the environment. Customers for water quality monitoring instruments also include government agencies. The Company derived approximately 52.6%, 65.9% and 58.8% of its revenues from the sale of scientific instruments during Fiscal 2022, 2021 and 2020 respectively.

Power Solutions and Process Automation Products. The Company distributes general testing and measuring equipment including multi-channel digital and analogue recorders, signal amplifiers and calibration equipment for energy conservation, renewable energy equipment, power quality analyzers and continuous emissions monitoring systems to industries including power plants, railway and aero-space industries, utilities, educational institutions and telecommunications companies.

The Company also provides process control systems specifically designed for the industrial needs of clients including sensors, temperature gauges, pressure gauges, power and energy consumption meters, flow meters, valves, temperature and pressure transmitters and control devices, temperature and pressure calibrators, moisture, power, energy and harmonic analyzers. Customers for the foregoing distributed products include government water supply agencies, water treatment facilities, power and electric companies, petrochemical plants and instrument manufacturers.

In conjunction with the distribution of products such as programmable logic controllers, telemetry units and supervisory control and data acquisition (SCADA) systems and software, the Company also provides systems engineering to government agencies, waste-water treatment and power generation plants and beverage producers. Specific services provided include automated control system design, the operation and management of various waste-water, water and power generation projects. We endeavor to introduce, develop, and promote new and advanced technologies, products, and appropriate technical developments from abroad. We have also been cooperating with established technology companies and engage in systems and special projects in Programmable Logic Control, Telemetry unit, SCADA systems, Human Machine Interface Software and Sequential Event Recording.

The Company derived approximately 45%, 32.2% and 39.6% of revenues from the sale of power solutions and process during Fiscal 2022, 2021 and 2020 respectively.

Technical Support. The Company’s technical support staff provides customers with maintenance, installation assistance, and calibration services, and assists sales personnel in giving technical advice to and performing product demonstrations for customers. The Company derived approximately 2.4%, 1.9% and 1.6% of its revenues from technical support operations during Fiscal 2022, 2021 and 2020 respectively.

Customers. During Fiscal 2022, the Company distributed products to approximately 1,000 customers located in Hong Kong, mainland China and Macau, such as Hong Kong Water Supplies Department, Government Laboratory, Drainage Services Department, universities and public utilities agencies. For the year ended December 31, 2022, sales to our three largest customers amounted in the aggregate to approximately 33% of our total revenue, with one of such customers accounting for 18% of our total revenue.

During Fiscal 2021, the Company distributed products to approximately 1,000 customers, located in Hong Kong, the PRC and Macau such as the Hong Kong Food and Environmental Hygiene Department, Hong Kong Water Supplies Department, Government Laboratory, Drainage Services Department, and various Environmental Monitoring Centers in the PRC. For the year ended December 31, 2021, sales to our three largest customers amounted in the aggregate to approximately 20% of our total revenue, with one of such customers accounting for 15% of our total revenue.

During Fiscal 2020, the Company distributed products to approximately 1,000 customers, located in Hong Kong, the PRC and Macau such as the Hong Kong Food and Environmental Hygiene Department, Hong Kong Water Supplies Department, Government Laboratory, Drainage Services Department, and various Environmental Monitoring Centers in the PRC. For the year ended December 31, 2020, sales to our three largest customers amounted in the aggregate to approximately 23% of our total revenue, with one of such customers accounting for 9% of our total revenue.

 Manufacturing and Product Assembly Operations

The Company has developed a handheld ballast water checker which is the first handheld rapid indicative compliance instrument made in China, based on well accepted PAM fluorescence Technology. The instrument is a very powerful screening tool for ship owners, compliance officers, ship builders and BWTS providers. The company was one of the few qualified local and foreign candidates to participate in China Marine Safety Administration’s (“MSA”) evaluation of indicative testing instruments to be used by Port State Control officers for compliance test according to IMO D2 standard. The unofficial reports of comparison data between our instrument and lab test results indicated that our instrument readings trend followed the actual lab test results closely. We obtained patent approval in China and got the environmental testing certificate according to Chinese Standard GB/T 11606-2007 from Shanghai Institute of Measurement and Technology. We carried out testing of this instrument at the land-based test facility of one of the Chinese National Engineering Laboratories for Ballast Water Testing and type approval according to IMO guidelines and got a certified test report from this approved laboratory. We are doing the ground work of promoting our instrument to ship owners, shipping service and equipment providers, ship builders, BWTS manufacturers and local MSA. We also participated in a number of trade shows and exhibitions. Although the regulation is not enforced now, we are getting market awareness of our product application. We may subcontract the manufacturing of handheld ballast water checker if we receive substantial orders.

Sources of Supply

The Company distributes products manufactured by a substantial number of major American, European and Japanese corporations, including Thermo, Stanford, Hach and Hioki, which are the Company’s largest suppliers, with purchases from them accounting for approximately 30%, 10%, 9% and 6% during Fiscal 2020; 42%, 13%, 6% and 6% during Fiscal 2021; and 33%, 21%, 6% and 5% during Fiscal 2022 respectively. The Company has exclusivity agreements for specified geographic areas with many of its suppliers for certain products. Those agreements do not encompass all products distributed by the Company or all of the market areas serviced by the Company. In addition, some of these agreements are memorialized not as formal contracts but rather through other acknowledgements or correspondence which may contain a vague, if any, description of the terms and conditions of such agreement or arrangement, and therefore may be unenforceable. The Company has an authorization certification from Thermo granting the Company rights to sell Thermo’s Mass Spec Products to the Government and hospitals in Hong Kong which will expire on December 31, 2023. The Company has an Authorization Letter from Stanford appointing the Company as Stanford’s sales representative in the PRC and Hong Kong. The Company has an Authorization Letter from Hioki appointing the Company as Hioki’s sole agent in Hong Kong and Macau. The Company has an Authorization Letter from Westermo appointing the Company as its local distributor in Hong Kong. Although alternative sources of supply exist, there can be no assurance that the termination of the Company’s relationship with any of the above or other vendors would not have an adverse effect on operations.

Regulatory Environment

Concerns about and awareness of pollution problems and environmental issues have grown at all levels of PRC government as the PRC experienced economic growth. Environmental protection laws and strict regulations have been enacted and are buttressed by increased budget allocations for environmental regulation, monitoring and enforcement. The PRC’s primary environmental protection agency is the Ministry of Ecology and Environment (“MEE”) which replaced the Ministry of Environmental Protection (“MEP”) after the 13th National People’s Congress was held in March 2018.The new streamlined ministry is a sign of China’s upgraded dedication to the task of improving its environment.

In the 14th Five-Year Plan (2021-2025), it is stated that China will continue to promote the rectification of ecological and environmental problems and improve sewage, waste treatment and ship pollution treatment in the Yangtze River basin and the Yellow River basin, and form an environmental infrastructure network extending from cities to towns and villages. After the successful implementation of Yangzi River Basin Protection Law, MEE rolled out Yellow River Basin Protection Law in April 2023. MEE organized investigation and remediation in about four thousand wastewater discharge points in Shanxi, Inner Mongolia, Shandong, Henan, Sichuan, Shaanxi, Gansu, Qinghai and Ningxia. Focus on PM_2.5 and Ozone control, reduction of nitrous oxide (NO_x) and volatile organic carbons (VOCs) emission. Strengthen integrated pollution control in borders of Jiangsu, Anhui, Shandong and Henan Provinces. MEE encouraged service providers to use new technology to renovate exhaust gas especially VOCs treatment facilities. In August 2020, the PRC’s Ministry of Transport (“MT”) issued the “Measures for the Prevention and Control of Water Pollution from Inland River Vessels under 400 GT”, which requires that ships generating domestic sewage should set up treatment devices or storage facilities and equipment to prevent domestic sewage from polluting the water, and port management departments and maritime management agencies should also urge port and shipping enterprises to speed up the construction and renovation of facilities.

Subsequently, in March 2021, MT, together with MEE and other departments, issued the “Opinions on Establishing a Long-term Mechanism for the Prevention and Control of Pollution from Ships and Ports in the Yangtze River Economic Zone,” which states that China will complete such renovation involving ships to prevent domestic sewage from polluting the water by the end of May 2022, thereby implementing the relevant requirements of the Water Pollution Prevention and Control Law of PRC and the Yangtze River Protection Law of PRC.

On December 30, 2022, the Chinese legislature issued Draft Amendment to the Marine Environmental Protection Law for public comment, from which it can be seen that China will strengthen the supervision and management of marine environment pollution from ships in the port area.

Competition

The Company faces competition from other distributors who distribute products similar to ours as well as the manufacturers of our products or products similar to ours in the Chinese market and elsewhere. The Company faces its principal competition from manufacturers and other distributors of its core products, which are located in Hong Kong and mainland China.

During Fiscal 2022, 2021 and 2020, the Company’s gross profit margins were approximately 31%, 27% and 28%, respectively. The Company believes that it competes with the Chinese manufacturers on the basis of quality and technology. The Company believes the foreign-manufactured products it distributes are of higher quality and are incorporated with more advanced technology than the products manufactured by the Chinese manufacturers. The Company believes that it competes with foreign manufacturers and other distributors of similar products on the basis of the Company’s established reputation. Pact-Yixing focuses on a market of providing water and waste water treatment services to multinational companies. The Company competes in this market based upon the quality of its products and having a knowledgeable staff, but faces competition from large PRC and multinational engineering companies, that, in the Company’s view, market their services based upon lower pricing as opposed to quality of service.

Sales and Marketing

The Company distributes products through its principal office located in Hong Kong. Our main marketing channels are through the work of our marketing and sales force. For Fiscal 2022, 2021 and 2020, the Company had a marketing and sales force consisting of 7, 11 and 13 individuals respectively. These individuals are paid a salary plus a sales-based commission. Our sales staff assists customers in selecting the equipment, auxiliary parts and products to suit customer specifications.

Major Customers

Maintaining major customers is important to us. For the year ended December 31, 2022, sales to our three largest customers amounted in the aggregate to approximately 33% of our total revenue. For the year ended December 31, 2021, sales to our three largest customers amounted in the aggregate to approximately 20% of our total revenue. For the year ended December 31, 2020, sales to our three largest customers amounted in the aggregate to approximately 23% of our total revenue.

Seasonality

Our business is affected by seasonality. Construction of our treatment systems is typically slower during winter seasons due to inclement weather and around Chinese holidays due to the closure of government agencies and other facilities.

Litigation

From time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not currently a party to any legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse effect on our business, financial condition or results of operations.

C. ORGANIZATIONAL STRUCTURE

Euro Tech Holdings Company Limited was incorporated in the British Virgin Islands on September 30, 1996.

Far East is the principal operating subsidiary of the Company. It is principally engaged in the marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems in Hong Kong and in the PRC.

Details of the Company’s current principal subsidiaries are summarized as follows:

D. PROPERTY, PLANTS AND EQUIPMENT

Since 1990, our principal executive offices have been located at Unit C and D, 18/F., Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. At this location, the Company occupies approximately 7,000 square feet of office and warehouse storage space pursuant to a lease which will expire in May 2023subject to renewal. The Company pays a monthly rental payment of approximately US$8,308 under such lease. The warehouse storage space is used to hold products for distribution to our customers via common carriers.

Euro Tech Trading (Shanghai) Limited occupies approximately 55 square meters of office space in Shanghai pursuant to a short term lease, at a monthly rent of approximately US$330.

Yixing occupies a facility in Shanghai, pursuant to a three-year lease which will expire in December 2024, at a monthly rent of approximately US$7,674. The size of the facility is 464 square meters and the facility is used for office space.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included in this annual report and in particular, “Item 4. Information on the Company — B. Business Overview.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” and elsewhere in this annual report. We have prepared our consolidated financial statements in accordance with U.S. GAAP.

A. OPERATING RESULTS

Overview.

We organize our business in two operating segments:

For the trading and manufacturing segment, the Company is a distributor of a wide range of advanced water treatment equipment, laboratory instruments, analyzers, test kits and related supplies and power generation equipment (including recorders and power quality analyzers).

For the engineering segment, the Company, through its majority owned subsidiary, Pact-Yixing and its minority owned affiliate, Blue Sky, also engages in water and waste-water treatment engineering and air pollution control business.

Our total revenue increased by 60.1% from US$13,357,000 in fiscal year 2020 to US$21,388,000 in fiscal year 2021, and decreased by 30.1% to US$14,949,000 in fiscal year 2022. Our net income increased by 28.6% from net income of US$769,000 in fiscal year 2020 to US$989,000 in fiscal year 2021, and decreased by 62.6% to US$369,000 in fiscal year 2022.

The impact of COVID-19 pandemic. Our business has been adversely impacted by the outbreak of COVID-19, especially during the first quarter of year 2020, and during the period starting from February to December of 2022. In Fiscal 2022, our revenue decreased significantly due to the decrease in sales orders from China, our major market, as the Chinese government has imposed lock down policies in response to the outbreak of COVID-19. Since January, 2023, we have seen a gradual recovery of our overall business resulting from the lifting by the Chinese government of various measures in response to the pandemic. Currently we expect to see limited impact of COVID-19 on our future results of operations. However given the unpredictable nature of the pandemic, it is not impossible COVID-19 outbreak will take place again in the future and the Chinese government will take similar lock down policies, which will impact our results of operations adversely.

The following sets forth key factors that affect our future growth, operating results and financial condition.

Results from Operations

The following operating and financial review should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this Annual Report. All financial data referred to in the following discussion has been prepared in accordance with U.S. GAAP.

The following table presents selected statement of operations data expressed in thousands of US$ and as a percentage of revenue for the Company’s fiscal years indicated below:

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended December 31, 2021

Revenue; Gross Profit and Cost of Revenue. Revenue decreased by US$6,439,000 or 30.1% to US$14,949,000 in Fiscal 2022 from US$21,388,000 in Fiscal 2021. Revenue from trading and manufacturing activities and engineering activities decreased by US$287,000 and US$6,152,000, respectively. Pact-Yixing’s revenues of US$5,617,000 and US$12,161,000 were included in our revenues in Fiscal 2022 and Fiscal 2021, respectively and the decrease was principally due to adverse impacts of the COVID-19 pandemic and Shanghai’s lockdown in 2022.

Gross profit decreased by US$1,077,000 or 18.9% to US$4,618,000 for Fiscal 2022 as compared to US$5,695,000 for Fiscal 2021. During Fiscal 2022, the Company’s cost of revenues was US$10,331,000 or 69.1% of revenues, in comparison to US$15,693,000 or 73.4% for Fiscal 2021. Cost of revenue expressed as a percentage of revenue decreased by 4.3% in Fiscal 2022 as compared with Fiscal 2021. Cost of revenues from trading and manufacturing activities increased by US$407,000 and engineering activities decreased by US$5,769,000. The overall change was principally due to decrease in revenue. Pact-Yixing contributed US$2,631,000 to our gross profit in Fiscal 2022, a decrease of US$272,000 from Fiscal 2021.

Selling and Administrative Expenses. Selling and administrative expenses were US$4,490,000 in Fiscal 2022, a decrease of US$421,000 or 8.6% from US$4,911,000 in Fiscal 2021. The decrease was principally due to decrease in expenses related to sales and control over overheads.

Equity in Income of Affiliates. Equity in income of affiliates was income of US$413,000 in Fiscal 2022, an increase of US$58,000 from income of affiliates of US$355,000 in Fiscal 2021.

Interest Income. Interest income in Fiscal 2022 was US$23,000 as compared to US$23,000 in Fiscal 2021.

Other income / (losses). Other income decreased by US$114,000 to US$13,000 in Fiscal 2022 from US$127,000 in Fiscal 2021. The decrease in other income was principally due to exchange loss incurred.

Income Taxes. Tax expense of US$24,000 in Fiscal 2022 as compared to tax credit of US$90,000 in Fiscal 2021. The change in tax expense was principally due to the increase in assessable profit.

Net Income. Profit from continuing operations was profit of US$369,000 in Fiscal 2022 as compared to US$989,000 in Fiscal 2021. This change was primarily due to decrease in sales orders and revenue as affected by COVID-19.

Fiscal Year Ended December 31, 2021 Compared to Fiscal Year Ended December 31, 2020

Revenue; Gross Profit and Cost of Revenue. Revenue increased by US$8,031,000 or 60.1% to US$21,388,000 in Fiscal 2021 from US$13,357,000 in Fiscal 2020. Revenue from trading and manufacturing activities and engineering activities increased by US$143,000 and increased by US$7,888,000, respectively. Pact-Yixing’s revenues of US$12,161,000 and US$4,246,000 were included in our revenues in Fiscal 2021 and Fiscal 2020, respectively and the increase was principally due to the increase in revenue generated by BWTS sales and the completion of prior years’ projects as the COVID-19 situation became stable in the PRC.

Gross profits increased by US$2,010,000 or 54.5% to US$5,695,000 for Fiscal 2021 as compared to US$3,685,000 for Fiscal 2020. During Fiscal 2021, the Company’s cost of revenues was US$15,693,000 or 73.4% of revenues, in comparison to US$9,672,000 or 72.4% for Fiscal 2020. Cost of revenue expressed as a percentage of revenue increased by 1% in Fiscal 2021 as compared with Fiscal 2020. Cost of revenues from trading and manufacturing activities decreased by US$110,000 and engineering activities increased by US$6,131,000. The overall change was principally due to increase in revenues. Pact-Yixing contributed US$2,903,000 to our gross profit in Fiscal 2021, an increase of US$1,646,000 from Fiscal 2020.

Selling and Administrative Expenses. Selling and administrative expenses were US$4,911,000 in Fiscal 2021, a decrease of US$463,000 or 8.6% from US$5,374,000 in Fiscal 2020. The decrease was principally due to decrease in research and development costs and redundancy provision.

Equity in Income of Affiliates. Equity in income of affiliates was income of US$355,000 in Fiscal 2021, a decrease of US$80,000 from income of affiliates of US$435,000 in Fiscal 2020.

Interest Income. Interest income in Fiscal 2021 was US$23,000 as compared to US$28,000 in Fiscal 2020.

Other income / (losses). Other income decreased by US$180,000 to US$127,000 in Fiscal 2021 from US$307,000 in Fiscal 2020. The decrease in other income was principally due to decrease in exchange gain of US$24,000, and the non-recurrent government subsidies for salaries of US$147,000 in Fiscal 2020.

Income Taxes. Tax credit of US$90,000 in Fiscal 2021 as compared to tax expense of US$96,000 in Fiscal 2020. The decrease in tax expense was principally due to decrease in assessable profits and recognition of deferred tax asset of tax losses.

Net Income. Profit from continuing operations was profit of US$989,000 in Fiscal 2021 as compared to US$769,000 in Fiscal 2020. This change was primarily due to increase in operating income which far exceeded the non-recurrent gain on disposal of a property of US$1,429,000 in Fiscal 2020. 

B. LIQUIDITY AND CAPITAL RESOURCES

The Company has primarily used its own funds to finance accounts receivable, net, contract assets, inventories, and capital expenditures including purchases of property, office furniture and equipment, computers and calibration equipment. The Company has historically met its cash requirements from cash flows from operations, short-term borrowings, bank lines of credit, and long-term mortgage bank loans. The Company expects, but can make no assurances that its present cash reserves, cash from operations and existing available bank credit facilities exercises would be sufficient to fund its future capital expenditure requirements. Working capital at the end of Fiscal 2022, Fiscal 2021 and Fiscal 2020 were US$4,980,000, US$5,099,000 and US$4,915,000, respectively.

 As of December 31, 2022, we had US$5,628,000 in cash and cash equivalents, compared to US$5,269,000 in cash and cash equivalents as of December 31, 2021 and US$3,519,000 in cash and cash equivalents as of December 31, 2020.

Net cash provided by / (used in) operating activities

Net cash provided by operating activities was US$461,000 for the year ended December 31, 2022, as compared to net cash provided by operating activities was US$2,201,000 for the year ended December 31, 2021.

Net cash provided by operating activities for the year ended December 31, 2022 was primarily the result of the net income of US$369,000, an increase in accounts receivable of US$2,045,000, increase in prepayments, and other assets of US$86,000. These amounts were partially offset by the decrease in contract assets of US$143,000, decrease in inventories of US$56,000, decrease in accounts payables of US$872,000, decrease in contract liabilities of US$451,000, decrease in other payables and accrued expenses of US$354,000, decrease in income tax payable of US$42,000 and decrease in right-of-use assets and operating lease liabilities of US$62,000. Non-cash adjustments consisting of depreciation of property, plant and equipment of US$33,000, loss on disposal of property, plant and equipment of US$7,000, stock-based compensation expense of US$45,000, Non-controlling interests in income (loss) of subsidiaries of US$170,000, equity in profit of affiliates of US$413,000 and deferred tax expense of US$34,000. 

Net cash provided by operating activities was US$2,201,000 for the year ended December 31, 2021 as compared to net cash used in operating activities US$2,035,000 for the year ended December 31, 2020.

Net cash provided by investing activities

Net cash provided by investing activities for the year ended December 31, 2022 was US$232,000, as compared to net cash provided by investing activities for the year ended December 31, 2021 was US$358,000. During the year ended December 31, 2022, the Company paid US$7,000 to acquire property, plant and equipment and received dividend of US$239,000 from affiliates.

Net cash provided by investing activities for the year ended December 31, 2021 was US$358,000, as compared to net cash provided by investing activities for the year ended December 31, 2020 was US$2,043,000. During the year ended December 31, 2021, the Company paid US$4,000 to acquire property, plant and equipment and received dividend of US$362,000 from affiliates.

Net cash (used in) / provided by financing activities

Net cash used in financing activities for the year ended December 31, 2022 was US$618,000, as a result of proceeds from bank borrowings related to trade finance purchases of US$868,000, and dividend payment of US$464,000 and repayments of US$1,022,000 to bank borrowings.

Net cash used in financing activities for the year ended December 31, 2021 was US$1,016,000, as a result of proceeds from bank borrowings related to trade finance purchases of US$782,000, and dividend payment of US$1,031,000 and repayments of US$767,000 to bank borrowings.

The Company had various banking facilities available for overdraft, import and export credits and foreign exchange contracts from which the Company could have accessed up to US$897,000 at December 31, 2022. These credit facilities were obtained on the conditions that, among other things, the Company pledge bank deposit of US$897,000, not create a charge or lien on its other assets in favor of third parties without such bank’s consent, and the Company maintaining a certain level of net worth.

Cash increased to US$5,628,000 at the end of Fiscal 2022, and the principal reason for the increase in cash was net cash provided by operating activities. Cash increased from US$3,519,000 at the end of Fiscal 2020 to US$5,269,000 at the end of Fiscal 2021, and the principal reason for the increase in cash was net cash inflow in financing activities.

The Company’s accounts receivable, net decreased from US$3,199,000 at the end of Fiscal 2020 to US$3,631,000 at the end of Fiscal 2021 and decreased to US$1,586,000 at the end of Fiscal 2022. The amount of accounts receivable, net subject to collection is expected to be received under normal commercial trading terms.

The Company’s inventories decreased from US$342,000 at the end of Fiscal 2020 to US$547,000 at the end of Fiscal 2021 and increased to US$603,000 at the end of Fiscal 2022.

Capital expenditure

The Company’s capital expenditures were US$7,000, US$4,000 and US$11,000 in Fiscal 2022, 2021 and Fiscal 2020, respectively. Capital expenditures during Fiscal 2022, Fiscal 2021 and Fiscal 2020 were incurred primarily in connection with the purchase of office equipment, and furniture and fixtures. The Company continues to develop new products. If such products developments are indeed made, the Company may expect to incur significantly larger capital expenditures, for which the Company presently intends, but as to which no assurance can be made, to use existing cash reserves, cash from operations and available bank credit facilities.

Goodwill

Annual impairment assessment - For our 2022 annual impairment test we performed a qualitative assessment, using information as of December 31, 2022. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. We determined there were no factors indicating the need to perform a quantitative goodwill impairment test and concluded that it is more likely than not the fair value of our reporting units is greater than their carrying value and thus there was no impairment to goodwill.

 Anticipated Future Resources and Uses of Cash

The Company has historically funded its working capital, capital expenditure, investing and expansions needs from operations, available bank credit facilities and proceeds from the issuances of our ordinary shares and expects to continue funding these requirements from operations and available bank credit facilities. The Company may use its funds to form strategic alliances with third parties, invest in product research and development, or expand its sales offices or, with third parties, seek to acquire new products or form strategic alliances. The Company expects, but can make no assurances that its present cash reserves, cash from operations and existing available bank credit facilities would be sufficient to fund its future cash requirements.

Inflation

The Company believes generally that past declining rates of inflation in the PRC have had a positive effect on its results from operations. As a result of the recent rise in the rate of inflation in the PRC, we anticipate increases in the overhead costs of our PRC affiliates and offices. The Company believes, although no assurance can be given, that as credit restrictions are gradually lifted, it will be able to increase prices in the market for its products and thus realize increased profit margins.

Holding Company Structure

Euro Tech Holdings Company Limited is a holding company with no operations of its own. We conduct our operations in Hong Kong and China mainly through our subsidiaries and operating companies. Under our current corporate structure, our BVI holding company may rely on dividend payments from Far East, which is a wholly owned enterprise incorporated in Hong Kong, to fund any cash and financing requirements we may have.

Under applicable PRC laws and regulations, our PRC subsidiaries are permitted to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to allocate at least 10% of their accumulated profits each year, if any, to fund statutory reserves of up to 50% of the registered capital of the enterprise. Statutory reserves are not distributable as cash dividends except in the event of liquidation. For the fiscal years of 2020, 2021 and 2022, no dividends were distributed from our PRC subsidiaries to Far East.

Unless otherwise specified in this annual report, within the organization, cash to fund our operations is transferred from Far East, our BVI holding company, down through Far East to our operating subsidiaries in China.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any obligation under a derivative instrument. We do not have any obligation arising out of a variable interest in any unconsolidated entity that is held by, and material to, us which provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Contractual Obligations

The future undiscounted minimum lease payments, as reconciled to the discounted minimum lease obligation indicated on the Group’s consolidated balance sheets, under current portion of operating lease obligations and operating lease obligations, net of current maturities, as of December 31, 2022 were as follows:

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

During Fiscal 2022, 2021 and 2020, the Company incurred cost of nil, US$61,000 and US$497,000 respectively, on the research and development of its products, particularly BWTS.

D. TREND INFORMATION

In August 2020, the PRC’s Ministry of Transport (“MT”) issued the “Measures for the Prevention and Control of Water Pollution from Inland River Vessels under 400 GT”, which requires that ships generating domestic sewage should set up treatment devices or storage facilities and equipment to prevent domestic sewage from polluting the water, and port management departments and maritime management agencies should also urge port and shipping enterprises to speed up the construction and renovation of facilities. On December 30, 2022, the Chinese legislature issued Draft Amendment to the Marine Environmental Protection Law for public comment, from which it can be seen that China will strengthen the supervision and management of marine environment pollution from ships in the port area. See “Item 4. Information on the Company — B. Business Overview – Regulatory Environment”. Therefore we anticipate that there will be increasing demand from ports and shipyards to take actions to stay compliant with these regulations. In addition, more and more companies in China and elsewhere now have started to adopt their internal ESG (i.e. Environmental, Social and Governance) goals or face external ESG requirements, which will also likely increase these companies’ demand to take actions in this respect. We have also observed the trend towards the increasing use of renewable energy (such as green hydrogen, biofuel) for transportation (including for ship vessels and ports). Furthermore, certain companies, such as companies in the LNG (i.e. liquefied natural gas) industry, would make use of pure or demineralized water as produced water for their internal production process.

As more environmental regulations are being promulgated and enforced, and as ESG goals take more prominence, we anticipate customers would have increasing awareness of the importance of legal compliance and taking care of our environment as being a responsible steward. Subsequently it is likely that they increase their budget for improving and upgrading their environmental protection solutions. All these will likely present increasing opportunities for the Company. For example, part of the Company’s focus is on water treatment, and the Company may have more opportunities to work with new strategic partners to provide customized water solution for our customers, especially those in those sectors that would use water as their fundamental raw material to produce energy or as a key element of their production process, and ultimately, to increase our revenue. Furthermore, we also believe our technical skills in water would be helpful to both green hydrogen and biofuel production process, as water is a raw material in such production and water’s purification is an important component of the production process. The Company, therefore, would be able to add value to the supply chain of renewable energy. As our experience in this sector accumulates, it may open doors for us to serve the LNG industry.

We do see and anticipate to see additional distributors and manufacturers of water treatment products to compete with us. The Company will also likely incur additional expenses to design and development new products, and such increases in cost may not be outpaced by increases in revenue in the near future.

Other than as disclosed in the foregoing disclosures and elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year 2022 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. CRITICAL ACCOUNTING ESTIMATES

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting estimates of the Group require a higher degree of judgment than others in their application. These include the recognition of revenue and earnings from engineering contracts over time, the valuation of goodwill, and contract assets and contract liabilities. Management continually evaluates all of its estimates and judgments based on available information and experience; however, actual results could differ from these estimates.

Revenue Recognition

Our revenue is derived from long-term contracts for customers in our engineering segment, as well as short-term contracts for customers in our trading and manufacturing segment. Accounting treatment for these contracts in accordance with Accounting Standards Update (“ASU”) 2014-09 (Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customer), is as follows:

Performance obligations satisfied over time (Engineering services)

Recognition of performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Engineering service projects typically span between several days to over 5 years. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, is not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (engineering).

Revenues are recognized as our obligations are satisfied over time, by reference to the progress towards complete satisfaction of that performance obligation.

If the Group expects the reference to progress certificates issued by the customers, with additional adjustments where necessary, depicts the Group’s performance in transferring control of goods or services promised to customers for individual projects, the Group satisfies the performance obligation over time and therefore, recognises revenue over time in accordance with the output method for measuring progress. Under output method, revenue recognition is based on the stage of completion of the contracts, provided that the stage of contract completion and the gross billing value of contracting work can be measured reliably. The stage of completion of a contract is established by reference to the construction works certified by customers. 

Remaining performance obligations (“RPOs”)

RPOs represent the amount of revenues we expect to recognize in the future from our contract commitments on projects and are hereafter referred to as “Backlog”. Backlog includes the entire expected revenue values for subsidiary we consolidate. Backlog may not be indicative of future operating results, and projects included in Backlog may be canceled, modified or otherwise altered by customers.

Variable consideration

Contract modifications through change orders, claims and incentives are routine in the performance of the Group’s contracts to account for changes in the contract specifications or requirements. In most instances, contract modifications are not distinct from the existing contract due to the significant integration service provided in the contract and are accounted for as a modification of the existing contract and performance obligation. Either the Group or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Change orders that are unapproved as to both price and scope are evaluated as claims. The Group considers claims to be amounts in excess of approved contract prices that the Group seeks to collect from its customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs.

The Group estimates variable consideration for a performance obligation at the most likely amount to which the Group expects to be entitled (or the most likely amount the Group expects to incur in the case of liquidated damages), utilizing estimation methods that best predict the amount of consideration to which the Group will be entitled (or will be incurred in the case of liquidated damages). The Group includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. The Group’s estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Group.

The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in the Group’s favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.

Performance obligations satisfied at a point-in-time (Trading and manufacturing)

Revenue for our trading and manufacturing contracts is recognized at a point in time. Sales are recognized when control of the products has transferred, being when the products are delivered to the customer. Delivery occurs when the products have been delivered to the point of receipt by customer.

Classification of contract assets and liabilities

For revenue recognized associated with its contracts with customers over time, for which the Group has an enforceable right to receive compensation. Many of our contracts contain specific provisions that determine when the Group can bill for its work performed under these contracts.

Any revenue earned on a contract that has not yet been billed to the customer is recorded as a contract asset on the Group’s consolidated balance sheets. 

The Group’s consolidated balance sheets present contract liabilities that contain deferred revenue that represent any costs incurred on contracts in process for which revenue has not yet been recognized.

Rental Income

Rental income from operating leases is recognized in consolidated statements of operations and comprehensive income/ (loss) on a straight-line basis over the term of the relevant lease.

Investments in Affiliates

We account for our interest in an investment using the equity method of accounting per Accounting Standards Codification (“ASC”) No. 323, “Investments - Equity Method and Joint Ventures” if we are not the primary beneficiary of a VIE or do not have a controlling interest. The investment is recorded at cost and the carrying amount is adjusted periodically to recognize our proportionate share of income or loss, additional contributions made and dividends and capital distributions received. We record the effect of any impairment or other than temporary decrease in the value of the investment.

In the event a partially owned equity affiliate were to incur a loss and our cumulative proportionate share of the loss exceeded the carrying amount of the equity method investment, application of the equity method would be suspended and our proportionate share of further losses would not be recognized unless we committed to provide further financial support to the affiliate. We would resume application of the equity method once the affiliate became profitable and our proportionate share of the affiliate’s earnings equals our cumulative proportionate share of losses that were not recognized during the period the application of the equity method was suspended.

Goodwill

Goodwill is not amortized. The Group performs either a qualitative or quantitative assessment to review goodwill for impairment on an annual basis. This assessment is performed at the beginning of the fourth quarter, or when circumstances change, such as a significant adverse change in the business climate or the decision to sell a business, both of which would indicate that impairment may have occurred.

A qualitative assessment considers financial, industry, segment and macroeconomic factors, if the qualitative assessment indicates a potential for impairment, a quantitative assessment is performed to determine if impairment exists. The quantitative assessment begins with a comparison of the fair value of the reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss would be recognized in an amount equal to that excess, limited to the total amount of the goodwill allocated to the reporting unit. If the carrying value of goodwill exceeds its implied fair value, an impairment charge would be recorded in the statement of operations and comprehensive income / (loss).

Income Taxes

The Group follows the liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recorded for future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the underlying assets or liabilities are recovered or settled. The Group also evaluates whether the recorded deferred tax assets and valuation allowances can be realized and, when necessary, reduces the amounts to what is expected to be realized.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

Information concerning the Directors and Executive Officers of the Company are as follows:

Set forth below is a brief background of the executive officers and directors based upon the information supplied by them to the Company:

T.C. Leung has served as the Chairman of the Board of Directors of both the Company and Far East since their respective inception. Mr. Leung also served as the Chief Executive Officer of both the Company and Far East from their respective inception until February 1, 2022. Before establishing Far East, Mr. Leung was an engineer for English Electric in England, from 1965 to 1968, and Lockheed Aircraft in Hong Kong, from 1968 to 1970. Mr. Leung also served as managing director of Eurotherm (Far East) Ltd. (“Eurotherm”) between 1971 and 1992. From 1988 until his retirement in February 2005, Mr. Leung also served as managing director of Eurotherm Hong Kong. Mr. Leung received a Master’s degree in Business Administration from the University of East Asia, Macau in 1986 and is a Chartered Engineer, a title bestowed upon a member of the Council of Engineering Institutions in the United Kingdom.

David YL Leung has served as the Chief Executive Officer of both the Company an Far East since February 1, 2022, has served as a Director of the Company since March, 2019, and has served as the General Manager of Yixing since 2011. Mr. Leung’s responsibility as the General Manager of Yixing includes management of engineering, sales, marketing, projects, and procurement. Before joining Yixing, Mr. Leung was the Business Development Manager of Euro Tech (Far East) Limited, the parent company of Yixing Pact in Hong Kong, and has been working for the parent company for more than 10 years. Mr. Leung has gained a solid sales and marketing experience in distributing power, analytical and scientific testing equipment in Hong Kong and Macau. He has also worked for a high tech Japanese company focused on power and electrical testing instrument in Japan from 2000 and 2001 as a trainee. Mr. Leung is an environmental studies graduate from Carleton University, Ottawa, Canada (1997) with a special focus on Environmental Impact Assessment, and a Master of Management graduate from Macquarie Graduate School of Management, Sydney Australia (2010).

Jerry Wong has served as the Chief Financial Officer and a Director of the Company since its inception. Mr. Wong also served as the Chief Financial Officer and a Director of Far East since 1994 and has been with Far East since 1987. From 1985 until 1987, Mr. Wong worked for MUA Agencies Ltd., a subsidiary of a Hong Kong publicly listed company engaged in the insurance business, as deputy manager of its secretarial, legal and accounting department. From 1981 until 1985, Mr. Wong served as a senior accountant in Price Waterhouse-Hong Kong. He is a Fellow of the Association of Chartered Certified Accountants in the United Kingdom and a Certified Public Accountant in Hong Kong. 

Alex Sham has been a Director of the Company since its inception. Mr. Sham joined Far East in 1988 and has been its Sales Manager since 1993 and became a Director of Far East in 1996. Mr. Sham received a Bachelor of Science in Applied Chemistry from Hong Kong Baptist University in 1990. Prior to joining Far East, Mr. Sham was employed by the Environmental Protection Department of the Hong Kong Government from 1986 until 1988. Mr. Sham received a Master’s Degree in Business Administration from the University of Adelaide in 2003.

Y.K. Liang has been a Director of the Company since February 1998. Mr. Liang was a director of Wong Liang Consultants Ltd., a general business consulting firm, and a member of the certified public accounting firm of Y.K. Liang & Co.. Mr. Liang has been a director of Sammy Lau CPA Limited for more than the past ten years.

Fu Ming Chen has been a Director of the Company since August 24, 2015. Mr. Chen has a background in accounting and tax. He served as the Finance and Tax Manager of Shanghai Huaxiang Woolen Dressing Co., Ltd. from 1995 to 2013. Prior to that, from 1978 to 1994, he served as the Chief Accountant at Gulu Chemical Factory, where he was a member of the senior management. He held a County Township Audit Certificate issued by Shanghai ChuanSha County People’s Government from 1991 to 2001 which authorized him to carry out audit of Township and Village Enterprises in Shanghai ChuanSha County on behalf of local tax authority. He also holds a Certificate of Accounting Professional – Intermediate Level Accountant as well as a Higher Professional Education Certificate issued by Shanghai Television University.

Janet Cheang has been a Director of the Company since July 11, 2017. She is currently director of Metta Fine Arts Ltd., an online art gallery specializing in the promotion and trading of contemporary arts. From 2007 to 2017, she founded and operated Pinpoint Consultancy Limited, a business consultancy firm specializing in business development and executive coaching for companies operating in Hong Kong and mainland China. From 2003 to 2007, she was founding partner and managing director of Culture Tainment Services Ltd., responsible for business and brand development consultancy and training projects. From 1997 to 2002, she had worked for Estee Lauder (Hong Kong) Ltd. as the Brand General Manager for Estee Lauder brand in Hong Kong and mainland China. She holds a Master of Arts in Practical Philosophy, Lingnan University, Hong Kong (2013), Master of Arts in Training and Human Resource Development, University of Technology Sydney, Sydney (2006) and Bachelor of Arts in Economics & Political Science, Carleton University, Ottawa (1978).

Directors of the Company serve until the next annual meeting of shareholders of the Company and until their successors are elected and duly qualified. Officers of the Company are elected annually by the Board of Directors and serve at the discretion of the Board of Directors.

Currently to our knowledge, there is no material legal proceeding involving any director, officer or holder of more than five percent of the Company’s Ordinary Shares.

Mr. David YL Leung, the Chief Executive Officer, is the son of Mr. T.C. Leung, the Company’s Chairman of the Board. There are no other family relationships among any of our current or former directors or executive officers. There was no arrangement or understanding with any major shareholders, customers, suppliers or others pursuant to which any person above was selected as a director or member of senior management.

Key Employees

George Hayek, Managing Director. He is the founder of Pact-Yixing and is a civil engineer (1967) and post-graduate certificate holder in sanitary engineering and environmental management from the American University of Beirut and the University of California at Irvine (in 1971 and 1988, respectively). Since 1971, he has occupied several key posts in water and waste-water treatment companies in the USA, the UK, Spain, Cyprus, The Middle East, Southeast Asia and the PRC. From 1998 to now, he has been the managing director of Pact-Yixing. His international experience helped Pact in securing most of the contracts with European and American multinational industries in the PRC. 

B. COMPENSATION.

From the Company and its subsidiaries, for services rendered in all capacities to the Company and its subsidiaries during Fiscal 2022, T.C. Leung, the Chairman of the Board received a yearly salary of US$236,000; David YL Leung, the Chief Executive Officer received an annual salary of US$300,000; Jerry Wong, the Chief Financial Officer, received a yearly salary of US$135,000; and George Hayek, a Key Employee of Yixing, received a yearly salary of US$59,000 and received reimbursement for actual travel and lodging expenses in Shanghai. There is no other information with respect to the compensation paid by the Company and its subsidiaries, for services rendered in all capacities to the Company and its subsidiaries during Fiscal 2022 to the Chairman of the Board and Chief Executive Officer and a Key Employee of the Company. No other executive officer or employee received in excess of US$100,000 as compensation during Fiscal 2022.

Compensation of Directors. Directors of the Company do not receive compensation for their services as directors; however, Board of Directors authorize the payment of compensation to the Directors for their attendance at regular and annual meetings of the Board and for attendance at committee meetings of the Board as is customary for similar companies. Directors are reimbursed for their reasonable out-of-pocket expenses in connection with their duties to the Company.

Pension Plan. Prior to December 1, 2000, Far East had only one defined contribution pension plan for all its Hong Kong employees. Under this plan, all employees were entitled to pension benefits equal to their own contributions plus 50% to 100% of individual fund account balances contributed by Far East, depending on their years of service with Far East. Far East was required to make specific contributions at approximately 10% of the basic salaries of the employees to an independent fund management company.

With the introduction of the Mandatory Provident Fund Scheme (“MPF scheme”), a defined contribution scheme managed by an independent trustee on December 1, 2000, Far East and its employees who joined Far East subsequently make monthly contributions to the scheme at 5% of the employee’s cash income as defined under the Mandatory Provident Fund Schemes Ordinance. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$30,000. Contributions to the plan vest immediately.

As stipulated by the rules and regulations in the PRC, the PRC’s subsidiaries contributes to state-sponsored retirement plans for its employees in Mainland China. PRC’s subsidiaries’ contribution approximately 16% of the basic salaries of its employees, and have no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees.

During the year ended December 31, 2022 the aggregate contributions of the Group to the aforementioned pension plans and retirement benefit schemes was US$302,000.

Company’s Stock Option Plans.

2019 Stock Option and Incentive Plan

In April 2019, the Board of Directors approved the adoption of the 2019 Stock Option and Incentive Plan (the “Plan”). The Plan was also subsequently approved under a resolution of the Company’s shareholders. The Plan provides for the granting of up to 300,000 (500,000 after bonus shares adjustment) Ordinary Shares (the “Share Limit”), in the form of options to Officers, Directors and Key Employees who perform services which contribute to the successful performance of the Company and its subsidiaries. In addition, the Plan provides that, on the first day of each fiscal year commencing on January 1, 2020, the Share Limit shall automatically be increased by that number of shares equal to 5% of the number of Ordinary Shares outstanding as of such date. 

The Board of Directors or a committee (the “Committee”) appointed by the Board of Directors administers the Plan.

Appropriate adjustment in the maximum number of Ordinary Shares issuable pursuant to this Plan, the maximum number of Ordinary Shares with respect to which options may be granted within any 12-month period to any participant during the duration of this Plan, the number of shares subject to options granted under this Plan, and the exercise price with respect to options, shall be made to give effect to any increase or decrease in the number of issued Ordinary Shares resulting from a subdivision or consolidation of shares whether through reorganization, recapitalization, division of shares, reverse share split, spin-off, split-off, spin-out, or other distribution of assets to shareholders, issue of bonus shares or combination of shares, assumption and conversion of outstanding options due to an acquisition by the Company of the shares, stock or assets of any other company or corporation, other increase or decrease in the number of such shares outstanding effected, without receipt of consideration by the Company, or any other occurrence for which the Committee determines an adjustment is appropriate.

The purchase price per share of the Ordinary Shares to be paid upon the exercise of the option must be at least 100% of the fair market value of an Ordinary Shares on the date on which the option was granted. Under the Plan, if the Ordinary Shares are principally traded on a national securities exchange or the Nasdaq Global Market or Capital Market at the time of grant, the Company is required to use, at fair market value, the average of the closing prices of the Ordinary Shares for the ten consecutive trading days immediately before the date of grant. If the Ordinary Shares are traded on a national securities exchange or the Nasdaq Stock Global Market or Capital Market, but no closing prices are reported for such ten-day period, or if the Ordinary Shares are principally traded in the over-the-counter market, the Company is required to use, as fair market value, the average of the mean between the bid and asked prices reported for the Company’s Ordinary Shares at the close of trading during such ten-day period before the date of grant. If the Ordinary Shares are traded neither on a national securities exchange, one of the Nasdaq’s Markets nor in the over-the-counter market or if bid and asked prices are otherwise not available, the fair market value of the Ordinary Shares on the date of grant will be determined in good faith by the Committee or the Board of Directors, as the case may be.

The Board of Directors or the Committee, as the case may be, determines, at the time of grant, when each option granted under the Plan will become exercisable. Notwithstanding the foregoing, all options held by a key employee of the Company or its subsidiaries become immediately exercisable, whether or not exercisable at the time, upon the death or disability, and shall be exercisable within twelve (12) months after the date of death or disability, but in no event later than the expiration date of such Options.

No option is to be exercisable more than ten years from the date the option is granted.

Payment of Exercise Price for Options. Under the Plans, payment for shares purchased upon exercise of an option may be made by any of the following methods, subject to certain requirements: (i) in cash, (ii) in Ordinary Shares which have been held by the participant for not less than six months prior to the exercise of the option, valued at its Fair Market Value (as defined) on the date of exercise, (iii) in cash by a broker-dealer to whom the holder of the option has submitted an exercise notice consisting of a fully endorsed option, or (iv) by such other medium of payment as the Board or the Committee, as applicable, in its sole discretion, shall authorize, or by any combination of (i), (ii), or (iii), at the sole discretion of the Board or the Committee, as applicable, or in any manner provided in the option agreement, except by directing the Company to withhold Ordinary Shares otherwise issuable upon the exercise of the Option in payment of the exercise price.

Transfer of Options. Under the Plans, an option may not be sold, assigned or otherwise transferred except to:

These assignments are only permitted if the assigning option holder does not receive any compensation in connection with the assignment and the assignment is expressly approved by the Board or Committee, as the case may be.

The Company indemnifies the members of any Committee and its delegates and the Chief Executive Officer against (a) the reasonable expenses (as such expenses are incurred), including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding (or in connection with any appeal therein), to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any option granted under the Plan; and (b) all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member or delegatee, as applicable, is liable for gross negligence or gross misconduct in the performance of his or her duties; provided that within 60 days after institution of any such action, suit or proceeding a Committee member or delegatee shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same.

The Board may terminate, suspend, or amend the Plan at any time without the authorization of shareholders to the extent allowed by law or the rules of any market on which the Company’s shares are then listed or quoted.

During the year ended December 31, 2019, the Company granted such options to its officers, directors and employees, which allow them to purchase up to 51,000 ordinary shares. The exercise price of all options granted is US$2.6 per share. The stock options granted became exercisable on January 1, 2022 and will terminate on April 18, 2029. The Company estimated the fair value of the options granted under the Binomial pricing model at US$2.324 per share.

During the year ended December 31, 2022, the Company granted such options to its officers, directors and employees, which allow them to purchase up to 80,000 ordinary shares. The exercise price of all options granted is US$2.80 per share. The stock options granted will become exercisable on April 1, 2024 and terminate on April 18, 2029. The Company has estimated the fair value of the options granted under the Binomial pricing model at US$1.3055 per share.

During the year ended December 31, 2022, 41,250 options were cancelled as those options became non-exercisable when those related employees left from the Company.

Changes in outstanding stock options under plans mentioned above were as follows: