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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, 2023

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

EURO TECH HOLDINGS COMPANY LIMITED
(Exact name of Registrant as specified in its charter)

(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.

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
ordinary shares, no par value |  | CLWT |  | NASDAQ Capital Market

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

None.

(Title of Class)

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

None.

(Title of Class)

Indicate the number of 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 this annual report 7,716,299 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).

Large accelerated filer | ☐ | Non-accelerated Filer | ☒
Accelerated filer | ☐ | Emerging Growth Company | ☐

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

†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:

U.S. GAAP | ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other | ☐

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

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

TABLE OF CONTENTS

INTRODUCTION |  | 3 |
FORWARD LOOKING STATEMENTS |  | 3 |
GLOSSARY |  | 4 |
PART I
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |  |  |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |  |  |
ITEM 3. | KEY INFORMATION |  | 5 |
ITEM 4. | INFORMATION ON THE COMPANY |  | 34 |
ITEM 4A. | UNRESOLVED STAFF COMMENTS |  | 54 |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |  | 54 |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |  | 63 |
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |  | 71 |
ITEM 8. | FINANCIAL INFORMATION |  | 71 |
ITEM 9. | THE OFFER AND LISTING |  | 72 |
ITEM 10. | ADDITIONAL INFORMATION |  | 73 |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |  | 80 |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |  | 80 |
PART II
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |  | 81 |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS |  | 81 |
ITEM 15. | CONTROLS AND PROCEDURES |  | 81 |
ITEM 16. | [RESERVED] |  | 82 |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |  | 82 |
ITEM 16B. | CODE OF ETHICS |  | 82 |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |  | 83 |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE |  | 83 |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY ISSUER AND AFFILIATED PURCHASERS |  | 83 |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |  | 84 |
ITEM 16G. | CORPORATE GOVERNANCE |  | 84 |
ITEM 16H. | MINE SAFETY DISCLOSURE |  | 84 |
PART III
ITEM 17. | FINANCIAL STATEMENTS |  | 88 |
ITEM 18. | FINANCIAL STATEMENTS |  | 88 |
ITEM 19. | EXHIBITS |  | 89 |

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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:

| · | our goals, business plans and growth strategies;
| · | our expectations regarding demand for and market acceptance of the products we distribute;
| · | competition in our industries;
| · | our future business development, results of operations and financial condition;
| · | expected changes in our revenues and certain cost and expense items and our margins;
| · | government policies and regulations relating to our corporate structure, business and industry;
| · | the regulatory environment in which we operate in China and globally;
| · | our ability to comply with the continued listing standards on the exchange or trading market on which our ordinary shares is listed for trading;
| · | the impact of the COVID-19 pandemic;
| · | general economic and business condition in China and elsewhere;
| · | the impact of the Russian-Ukraine conflicts;
| · | assumptions underlying or related to any of the foregoing.

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.

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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 2019, fiscal year 2020, fiscal year 2021, fiscal year 2022 and fiscal year 2023, or Fiscal 2019, Fiscal 2020, Fiscal 2021, Fiscal 2022 and Fiscal 2023, are to the fiscal years ended on December 31, 2019, 2020, 2021, 2022 and 2023 respectively.

The Company maintains its books and records in United States dollars (“US$” or “U.S. Dollars”). Its subsidiaries and affiliates maintain their books and records either in US$, 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 or Hong Kong Dollars to U.S. Dollars in this annual report were made for fiscal years 2023, 2022 and 2021 at 7.0684 RMB, 6.9061 RMB and 6.3757 RMB to US$1.00, respectively, and at 7.8000 HKD, 7.8000 HKD and 7.8000 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, 2023, 2022 and 2021 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 clarify the terminology used in this annual report.

Ambient Air: |  | Atmospheric air (outdoor as opposed to indoor air).
Anaerobic: |  | Treating wastewater biologically in the absence of air.
Atomic Spectrometer: |  | An analytical instrument used to measure the presence of an element in a substance by testing a sample which is aspirated into a flame and atomized. The amount of light absorbed or emitted is measured. The amount of energy absorbed or emitted is proportional to the concentration of the element in the sample.
Coalescer: |  | A process that coalesces smaller oil particles to form larger oil particles that can readily float to a tank’s surface.
Colorimeter: |  | An analytical instrument that measures substance concentration by color intensity when the substance reacts to a chemical reagent.
Human Machine Interface Software: |  | A type of software to interface (or coordinate) the interaction between machine or equipment and a human being.
Lamella: |  | Synthetic media installed in a clarifier tank to assist in particle flocculation (coming together in a “floc” or “flakes”).
Mass Spectrometer: |  | An analytical instrument that separates and identifies chemical constituents according to their mass-to-charge ratios and is used to identify organic compounds.
Membrane Biological Reactor (MBR): |  | A suspended-growth bioreactor combined with a membrane liquid/solids separation unit. The “MBR” uses an advanced membrane technology that treats biological wastes to a quality level which in many industries is sufficient for reuse or low-cost disposal to sewers.
pH Controller: |  | A process instrument that measures and controls the acidity or alkalinity of a fluid.
Reagent: |  | A chemical substance used to cause a chemical reaction and detect another substance.
Sequential Batch Reactor (SBR): |  | A waste-water treatment process that combines aeration and settling in one reactor tank thus saving on space. Used for the treatment of industrial waste-water as well as municipal sewage. The SBR is a batch process that is ideal for waste-waters of changing characteristics.

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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. 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 to overseas buyers, as well as 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.

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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:

|  | Shareholders |  | Ownership Percentage
1 |  | Euro Tech (Far East) Limited |  | 58%
2 |  | Tamworth Industrial Ltd. |  | 42%

The shareholders of Pact are listed below:

|  | Shareholders |  | Ownership Percentage
1 |  | Euro Tech (Far East) Limited |  | 58%
2 |  | Tamworth Industrial Ltd. |  | 42%

Blue Sky is a public company in mainland China and therefore has a number of minority shareholders that are not publicly disclosed. The ten shareholders of Blue Sky with the top ten largest shareholding percentage are listed in the table below. We obtained the information in the table below from Blue Sky’s latest semi-annual report dated August 22, 2023:

|  | Shareholders |  | Ownership Percentage
1 |  | Zhongbiao WU |  | 25.30%
2 |  | Euro Tech (Far East) Limited |  | 19.42%
3 |  | Zhineng WANG |  | 13.65%
4 |  | Deming WANG |  | 11.37%
5 |  | Yueai FENG |  | 4.70%
6 |  | Shan ZHONG |  | 3.94%
7 |  | Yuling ZHOU |  | 3.93%
8 |  | Huaming SUN |  | 3.53%
9 |  | Hangzhou Helan Technology Co. |  | 2.87%
10 |  | Changjie CHENG |  | 2.48%

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.

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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 various 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

The Holding Foreign Companies Accountable Act, or 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 the PCAOB is unable to inspect or investigate completely 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 would 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.

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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 on June 14, 2022, we were added to the conclusive list of “Commission-Identified Issuer” identified under the HFCAA on the website of the SEC. On December 29, 2022, the United States enacted the Consolidated Appropriations Act, 2023, which amended the HFCAA to require the SEC to prohibit an issuer’s securities from trading in the United States if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three.

In January 2023, we appointed J&S Associate PLT (“J&S”), as our independent registered public accounting firm for the fiscal year ending December 31, 2022 and J&S remains our independent registered public accounting firm for the fiscal year ending December 31, 2023. J&S is headquartered in Malaysia and subject to the inspections by the PCAOB, therefore we believe the appointment of J&S would substantially reduce the risk of us being continued to be identified as “Commission-Identified Issuer” under the 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.

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. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of this annual report.

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. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.

If we continue to be identified as a “Commission-Identified Issuer”, the ramification 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.

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Based on our internal assessment, the Company and its subsidiaries are not required to obtain any permissions or approvals from the Chinese authorities 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 respective 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.

Company | Permission/Approval | Issuing Authority | Validity
Euro Tech Trading (Shanghai) Limited | Business License | Market Supervision Administration of Free Trade Pilot Zone (Shanghai) | May 13, 2047
Shanghai Euro Tech Limited | Business License | Market Supervision Administration of Shanghai | December 8, 2029
Yixing Pact Environmental Technology Co., Ltd. | Business License | Market Supervision Administration of Yixing City | Long term

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 recent regulatory developments 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 are not deemed as a critical information infrastructure operator or online platform operator which are subject to more stringent requirements under China’s Cybersecurity Review Measures which became effective on February 15, 2022. Our customers in mainland China are corporate customers rather than individual customers, therefore 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, 2021, 2022 and 2023, Euro Tech made cash dividends in an amount of US$1,030,952, US$463,928 and nil to its shareholders (including U.S. investors), respectively. The source of such cash dividends is cash dividends and distributions from Far East. For mainland China and United States federal income tax considerations in connection with an investment in our ordinary shares, see “Item 10. Additional Information—E. Taxation.”

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During the three fiscal years ended December 31, 2021, 2022 and 2023, Far East made cash dividends to Euro Tech in an amount of US$1,230,769, US$628,205 and nil, respectively.

Cash transfers for working capital purposes

During the three fiscal years ended December 31, 2021, 2022 and 2023, 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$210,000, US$277,445 and US$129,200, 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.

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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

Euro Tech and its subsidiaries have adopted substantially similar cash management policies that are described hereinafter in this paragraph. 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 Chairman and Chief Financial Officer, or CFO, and receive written approval of the transaction from them by email, thereafter the Finance Department can request the Chairman’s authorized representative (who should not be 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.

| · | Risks may arise from the legal system in China, including risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with little advance notice. See “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.
| · | Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer securities to investors and cause the value of such securities to significantly decline or be worthless. See “Item 3. Key Information – D. Risk Factors — A substantial part of our operations is 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” for a more detailed discussion on this matter.
| · | We conduct a substantial portion of our business through our subsidiaries in mainland China and Hong Kong. Adverse changes in the PRC economic, political and social conditions as well as laws and government policies, may materially and adversely affect our business, financial condition, results of operations and growth prospects. 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” and “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.”
| · | The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. 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. See “Item 3. Key Information – D. Risk Factors—Risks Relating to Doing Business in China—The PRC Government Imposes Currency Controls.”

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| · | The Company has taken actions to streamline its business by reducing its staff, consolidating office and increasing staff efficiencies in order to stem the decline in its revenue, however there is no assurance that these efforts will be successful and that revenue will increase. See “Item 3. Key Information – D. Risk Factors—Risks Relating to the Company’s Business—Actions to Increase Revenue, Decrease Losses and Achieve Profitability may be Unsuccessful.”
| · | The Company distributes products manufactured by a number of vendors but do not have long-term supply arrangement with such vendors. While alternative source of supply exists, the termination of any existing supply arrangement may still adversely affect the Company’s business. See “Item 3. Key Information – D. Risk Factors— Risks Relating to the Company’s Business—Dependence on Vendors; Lack of Long Term Arrangements; Loss of Vendors.”
| · | In the event that we identify deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, our ability to obtain financing could suffer and the market price of our shares could decline. See “Item 3. Key Information – D. Risk Factors— Risks Relating to the Company Itself— We may be exposed to potential risks relating to our internal controls over financial reporting.”
| · | The market price of our ordinary shares may fluctuate significantly in response to many factors, including without limitation, changes in the general environment and the outlook of the segments in which we operate, regulatory developments in the segment in which we operate, etc. See “Item 3. Key Information – D. Risk Factors— Risks Relating to the Company Itself—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 rising inflation and energy cost in Europe, caused largely by the Russia-Ukraine conflicts, will likely affect the business operations of our customers headquartered in 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 their purchase orders in China. See “Item 3. Key Information – D. Risk Factors— Certain Risks Relating to the Company’s Business —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.”

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.

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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.

A substantial part of our operations is 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, whose operations are governed by PRC laws, rules, and regulations. The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Because PRC laws, rules and regulations are relatively new and quickly evolving, and because of the limited number of published decisions and the non-precedential nature of these decisions, and because the laws, rules and regulations often give the relevant regulator certain discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. Therefore, it is possible that our existing operations may be found not to be in full compliance with relevant laws and regulations in the future. In addition, 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, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

The PRC government has significant oversight and discretion over the conduct of our business, and may intervene in or influence our operations through adopting and enforcing rules and regulatory requirements. In recent years, the PRC government has 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. In addition, in recent years the PRC government has enhanced regulation in areas such as anti-monopoly, anti-unfair competition, cybersecurity and data privacy. The PRC government may further promulgate relevant laws, rules and regulations that may impose additional and significant obligations and liabilities on Chinese companies. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, change to our business practices, regulatory investigations, penalties, increased cost of operations, or otherwise affect our business. As a result, our business, financial condition and results of operations could be adversely affected and the trading prices of our ordinary shares could decline.

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The PRC government has also enhanced its regulatory oversight of Chinese companies listing overseas, including enhanced oversight of overseas equity financing and listing by Chinese companies. 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) required to obtain permission from China Securities Regulatory Commission, or CSRC, Cyberspace Administration Commission, or CAC, or any other governmental authority, 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 growth of China’s economy has slowed in recent years compared to prior years. There have also been concerns about the relationships among China and other Asian countries, and the relationship between China and the United States, which may result in or intensify potential conflicts in relation to territorial, regional security and trade disputes. The COVID-19 pandemic has severely disrupted business operations, supply chain and workforce availability across the world, leading to substantial declines in business activities that have negatively impacted and may continue to negatively impact our business, financial condition and results of operations. The Russia-Ukraine conflict has resulted in significant disruptions to supply chains, logistics and business activities in the region that have negatively affected the business and operations of some of our customers located in Europe, and subsequently have adverse impact on our business. The conflict has also caused, and continues to intensify, significant geopolitical tensions in Europe and across the globe. The resulting sanctions imposed are expected to have significant impacts on the economic conditions of the countries and markets targeted by such sanctions, and may have unforeseen, unpredictable secondary effects on global energy prices, supply chains and other aspects of the global economy, which increases logistics costs and negatively affects our business operations. Any disruptions or continuing or worsening slowdown, whether as a result of trade conflicts, the COVID-19 pandemic, the Russia-Ukraine conflict or other reasons, could significantly reduce commerce activities in China and globally, which could lead to significant reduction in demand for and spending on the various products and services we offer. Moreover, rising inflation could result in higher costs of services and supplies and a decrease in consumer spending, which could negatively affect our business operations and financial results. An economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in any market in which we operate could have a material adverse effect on business and consumer spending and, as a result, adversely affect our business, financial condition and results of operations.

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.

Regulatory authorities in China and around the world have recently implemented, and may in the future continue to implement, further legislative and regulatory proposals concerning privacy and data protection, particularly relating to the protection of personal information, cybersecurity and cross-border data transmission. These laws and regulations can be complex and the interpretation and application of these laws and regulations are often uncertain, in flux and complicated.

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The PRC Cybersecurity Law, which took effect in June 2017, generally governs the construction, operation, maintenance and use of networks in China, subjects network operators to various security protection-related obligations. In addition, the PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and imposes heightened regulation and additional security obligations on operators of critical information infrastructure. We believe we are neither a network operator nor an operator critical information infrastructure and are compliant with the PRC Cybersecurity Law. However if we are determined by the PRC government to fail to comply with the PRC Cybersecurity Law, we could be subject to fines, suspension of businesses, and revocation of business licenses. 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 whether and when it would be promulgated and take effect are 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, requires mandatory government security review by the CAC prior to 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 PRC Cybersecurity Law and PRC 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.

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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.

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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 6.1%, 2.3%, 8.1%, 2.9% and 5.2 % in 2019, 2020, 2021, 2022 and 2023, 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 2.9%, 2.5%, 0.9%, 2% and 0.2 % in 2019, 2020, 2021, 2022 and 2023, 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.

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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.

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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.

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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 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. In 2023, the Renminbi depreciated by approximately 4.55% 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.

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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.

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. Pursuant to the Sino-British Joint Declaration on the Question of Hong Kong (the “Joint Declaration”) and the Basic Law of Hong Kong (the “Basic Law”), Hong Kong is given 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.

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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 2023, the Company had revenues of US$17,940,000, operating loss of US$249,000, and loss before income taxes, equity in income of affiliates and non-controlling interests of US$232,000. In addition, we had income tax expense of US$45,000, and equity in income of affiliates of US$1,927,000. As a result, we had a net income of US$1,650,000 for Fiscal 2023 before giving effect to the effect on our results attributable to our non-controlling interests. The principal reason for the operating losses before income taxes, equity in income of affiliates and non-controlling interests for Fiscal 2023 was primarily an decrease in the gross profit margin of our engineering-related operations. 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$1,836,000 for Fiscal 2023.

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.

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.

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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 and has now completed lifted such restrictions and quarantines. 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.

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The Company received its first order for the ballast water port solution system from Shanghai Yanshan port in 2020, and has since completed four other commercial port BWTS projects for Ningbo Zhoushan port, Taicang port, LianYunGang port and Zhangjiang chemical 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:

| · | our advertisements, or the advertisements of the owners of the third-party brands that we market or those of our distributors, are deemed to be misleading or inaccurate;
| · | our products fail to meet customer expectations;
| · | we provide poor or ineffective customer service;
| · | our products contain defects or otherwise fail; or
| · | consumers confuse our products with inferior or counterfeit products.

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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:

| · | our ability to enter into, exit or acquire additional interests in our joint ventures or other acquisitions or investments may be restricted by or subject to various approvals under PRC law or may not otherwise be possible, may result in a possible dilutive issuance of our securities or may require us to secure financing to fund those activities;
| · | we may disagree with our joint venture partner(s) or other investors on how the venture or business investment should be managed and/or operated;
| · | to the degree we wish to do so, we may be unable to integrate and retain acquired employees or management personnel; incorporate acquired products, or capabilities into our business; integrate and support pre-existing manufacturing or distribution arrangements; consolidate duplicate facilities and functions; or combine aspects of our accounting processes, order processing and support functions; and
| · | the joint venture or investment could suffer losses and we could lose our total investment, which would have a negative effect on our operating results.

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.

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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”), and Hioki E.E. Corp. (“Hioki”) are among the Company’s largest suppliers in 2023, 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 2021, our sales revenue from trading activities increased by approximately 2%. During Fiscal 2022, our sales revenue from trading activities decreased by approximately 3%. During Fiscal 2023, our sales revenue from trading activities increased by approximately 30%. 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.

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

For the year ended December 31, 2023, sales to our three largest customers amounted in the aggregate to approximately 31% of our total revenue. 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 41% 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, 2021, 2022 and 2023, we had 2, 1 and 2 customers that accounted for 10% or more of our revenues, respectively.

Customer Name |  | Year Ended December 31,2023 |  |  | Year Ended December 31,2022 |  |  | Year Ended December 31,2021 |
Customer A |  |  | 14 | % |  |  | 18 | % |  |  | 15 | %
Customer B |  |  | 10 | % |  | N.A. |  |  |  | 17 | %

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.

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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 Holding Foreign Companies Accountable Act, or 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 the PCAOB is unable to inspect or investigate completely 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 would 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.

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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 on June 14, 2022, we were added to the conclusive list of “Commission-Identified Issuer” identified under the HFCAA on the website of the SEC. On December 29, 2022, the United States enacted the Consolidated Appropriations Act, 2023, which amended the HFCAA to require the SEC to prohibit an issuer’s securities from trading in the United States if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three.

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 and J&S remains our independent registered public accounting firm for the fiscal year ending December 31, 2023. J&S is headquartered in Malaysia and subject to the inspections by the PCAOB, therefore we believe the appointment of J&S would substantially reduce the risk of us being continued to be identified as “Commission-Identified Issuer” under the 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.

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. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of this annual report.

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. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.

If we continue to be identified as a “Commission-Identified Issuer”, the ramification 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.

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.

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Failure to deal effectively with fraudulent or illegal activities by our employees, business partners or service providers would harm our business.

Illegal, fraudulent, corrupt or collusive activities or misconduct, whether actual or perceived, by our employees, representatives, agents, business partners or service providers could subject us to liability or negative publicity, which could severely damage our brand and reputation. We have implemented and continue to improve internal controls and policies with regard to the review and approval of merchant accounts, interactions with business partners and government officials, account management, sales activities, data security and other relevant matters. However, there can be no assurance that our controls and policies will prevent fraud, corrupt or illegal activity or misconduct by our employees, representatives, agents, business partners or service providers or that similar incidents will not occur in the future. Alleged or actual failure to comply or ensure our employees, representatives, agents, business partners and service providers to comply with these requirements could subject us to regulatory investigations and liabilities, which would materially and adversely affect our business operations, customer relationships, reputation and the trading prices of our shares.

Security breaches and attacks against our systems and network, and any potentially resulting breach or failure to otherwise protect personal, confidential and proprietary information, could damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results of operations.

Our cybersecurity measures may not detect, prevent or control all attempts to compromise our systems or risks to our systems, including distributed denial-of-service attacks, viruses, Trojan horses, malicious software, break-ins, phishing attacks, third-party manipulation, security breaches, employee misconduct or negligence or other attacks, risks, data leakage and similar disruptions that may jeopardize the security of data stored in and transmitted by our systems or that we otherwise maintain. Moreover, if we fail to implement adequate encryption of data transmitted through the networks of the telecommunications and Internet operators we rely upon, there is a risk that telecommunications and Internet operators or their business partners may misappropriate our data. Breaches or failures of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of user information, or denial-of-service or other interruptions to our business operations. If the security of domain names is compromised, we will be unable to use the domain names in our business operations.

We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving cyber-attacks. As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us, there can be no assurance that we will be able to anticipate, or implement adequate measures to protect against, these attacks. We could also be subject to an attack, breach or leakage, which we do not discover at the time or the consequences of which are not apparent until a later point in time. We do not carry any cybersecurity insurance and actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts and consultants.

Cyber-attacks and security breaches could subject us to negative publicity, regulatory investigations and significant legal and financial liability, harm our reputation and result in substantial revenue loss from lost sales and customer dissatisfaction, materially decrease our revenue and net income, and negatively affect the trading prices of our shares.

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$38,000 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 of December 31, 2023 was approximately US$80,000. 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.

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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.

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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.

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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 been volatile and is likely to continue to fluctuate widely in response to a variety of factors, many of which are beyond our control. For example, during Fiscal 2023, the trading price of our ordinary shares has ranged from US$1.06 to US$1.89 per Ordinary Share; and during Fiscal 2022, the trading price of our ordinary shares has ranged from US$1.07 to US$2.65 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:

| · | changes in the general environment and the outlook of the segments in which we operate;
| · | regulatory developments in the segments in which we operate;
| · | actual or anticipated fluctuations in our half yearly or annual results of operations;
| · | changes in financial estimates by securities research analysts;
| · | negative market studies or reports;
| · | changes in performance and valuation of our peer or comparable companies;
| · | announcements by us or our competitors of new services, acquisitions, strategic relationships, joint ventures or capital commitments;
| · | changes in pricing we or our competitors adopt;
| · | changes in our senior management;
| · | litigation and regulatory allegations or proceedings that involve us or our ecosystem participants;
| · | sales or anticipated sales of additional ordinary shares; and
| · | fluctuations in the exchange rate between the Renminbi and the U.S. Dollar.

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.

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We may be considered to be a passive foreign investment company for the 2023 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 2023. 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 2024 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 is 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 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.

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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 positions Pact-Yixing to be one of the first few companies in Asia capable of developing and selling such system for commercial use in the port and harbor sector.

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 2021 as compared to Fiscal 2020, increased in Fiscal 2022 as compared to Fiscal 2021, and decreased in Fiscal 2023 as compared to Fiscal 2022. Blue Sky’s net income decreased in Fiscal 2021 as compared to Fiscal 2020, increased in Fiscal 2022 as compared to Fiscal 2021, and increased in Fiscal 2023 as compared to Fiscal 2022. Blue Sky listed its shares on the New Third Board in the PRC since November 17, 2015. It suspended trading from August 15, 2017 and resumed trading on February 2, 2018. It 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 2023, Blue Sky made an income contribution of US$1,927,000 to the Company. The source of such income contribution in Fiscal 2023 consisted primarily of non-recurrent income from the disposal of 2 desulfurization treatment plants for a “Build-operate-transfer” project located in Shanxi, China. 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. 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 has been 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 relevant 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 engaged 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.

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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

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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 :

| · | Laboratory instruments, analyzers and test kits are used to analyze the chemical content and ascertain the level of impurities or other contaminants in water. The Company distributes analytical re-agents and chemicals to support testing systems of laboratory and portable instruments, process analyzers and portable test kits and assist in the analysis process. The Company offers a wide variety of test kits to test water quality. The Company believes that these portable test kits are easy to use and pre-adapted for rugged field use. These test kits are used to monitor drinking water distribution systems.
| · | Laboratory and portable instruments generally consist of analytical instruments including, but not limited to the following: spectrophotometers, colorimeters, turbidimeters, ion-selective electrodes, chemical oxygen demand apparati, digestion apparati, and precision re-agent dispensing devices which are used to test and monitor impurities and contaminants in water systems. See – “Glossary.”
| · | The Company also distributes continuous-reading process analyzers, process turbidimeters, pH controllers and analyzer accessories. These products are generally used to monitor and control drinking water quality to ensure that water treatment procedures comply with regulatory standards. See – “Glossary.”

Pact-Yixing, in which Far East holds 58% equity interests, provides customers with solutions to engineering problems as well as ballast water treatment technology. 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 the U.S., 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.

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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 positions Pact-Yixing to be one of the first few companies that can complete ballast water port solution system in Asia. Pact-Yixing will continue promoting this technology for commercial sale to companies located in countries participating in the Belt and Road Initiative as well as certain maritime cities in the Middle East, Southeast Asia and Europe, etc. Pact-Yixing will focus on promoting two ballast water product lines, including on-board shipping application and mobile port ballast water treatment reception facilities application.

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 2021, there was slight increase in revenues from trading and manufacturing activities. In Fiscal 2021, 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 in Fiscal 2021. We dissolved Shanghai Environmental in 2021.

During Fiscal 2022, there was slight decrease in revenues from trading and manufacturing activities. Revenue from Pact-Yixing in Fiscal 2022 was US$5,617,000. Pact-Yixing had an operating income of US$590,000 from engineering activities in Fiscal 2022. We ceased the operation of Shanghai Euro Tech Limited in 2022.

During Fiscal 2023, there was increase in revenues from trading and manufacturing activities. Revenue from Pact-Yixing in 2023 was US$5,797,000. In Fiscal 2023, Pact-Yixing had an operating loss of US$438,000 from engineering activities.

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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:

Fiscal Year |  | Mainland China |  |  | Hong Kong |
2021 |  |  | 62 | % |  |  | 37 | %
2022 |  |  | 39 | % |  |  | 48 | %
2023 |  |  | 40 | % |  |  | 55 | %

Sales to customers situated in Macau and elsewhere through Fiscal 2021, Fiscal 2022 and Fiscal 2023 were 1%, 13% and 5% 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, Hong Kong is given a high degree of autonomy except in foreign and defense affairs. The Basic Law provides that Hong Kong 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, 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. Revenue in Hong Kong, expressed as a percentage of our revenue, increased by 7% in Fiscal 2023 as compared with Fiscal 2022. 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, 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. Revenue in mainland China, expressed as a percentage of total revenue, increased by 1% in Fiscal 2023 as compared with Fiscal 2022. 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 completed the development of the ballast water port solution prototype in 2019 and 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. Our achievement with respect to the port solution system has strengthened our image and helped us gain word of mouth reputation in the maritime and shipping industry in China, Southeast Asia and Middle East, etc. 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. In 2023, we sold a total of 35 sets of BWTS, among which 34 sets are BWTS for ship vessels that were sold in China and overseas to destinations such as Dubai, Turkey, Thailand and Singapore, and 1 set is a mobile containerized port BWTS reception facility unit for a subsidiary located in Zhangjiang, China of a renowned German chemical company.

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The Company is now embarking on promotional activities for port solution systems in China and Southeast 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.

Beyond our product development plan, the Company will continue to seek suitable distributors and/ or strategic partners in maritime cities or countries to capture the market growth. For example, we have already found a strategic OEM partner in Greece to exclusively distribute our products for 20 countries in Europe in 2024. Additionally, we will expand our reach to more potential growth markets worldwide, including the Middle East and Southeast Asia regions, to diversify our business risks.

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 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.”

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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 60.8%, 52.6%, and 65.9% of its revenues from the sale of scientific instruments during Fiscal 2023, 2022 and 2021 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 37.6%, 45% and 32.2% of revenues from the sale of power solutions and process during Fiscal 2023, 2022 and 2021 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 1.6%, 2.4% and 1.9% of its revenues from technical support operations during Fiscal 2023, 2022 and 2021 respectively.

Customers. During Fiscal 2023, the Company distributed products to approximately 380 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, 2023, sales to our three largest customers amounted in the aggregate to approximately 31% of our total revenue, with one of such customers accounting for 14% of our total revenue.

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, mainland China 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 41% of our total revenue, with one of such customers accounting for 17% of our total revenue.

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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 have participated in a number of trade shows and exhibitions to promote this product to ship owners, shipping service and equipment providers, ship builders, BWTS manufacturers, and local MSA. So far we have not received any order for this product yet, but we will continue to promote it.

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 42%, 13%, 6% and 6% during Fiscal 2021; 33%, 21%, 6% and 5% during Fiscal 2022; and 42%, 23%, 7% and 5% during Fiscal 2023 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 March 31, 2025. 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 Hach authorizing the Company as its distributor in Hong Kong and Macau. The Company has an Authorization Letter from Hioki appointing the Company as Hioki’s sole agent in Hong Kong and Macau. 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 PM2.5 and Ozone control, reduction of nitrous oxide (NOx) 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.

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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 January 1, 2024, the Chinese legislature promulged the Amendment to the Marine Environmental Protection Law, pursuant to which China is strengthening 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 2023, 2022 and 2021, the Company’s gross profit margins were approximately 22%, 31% and 27%, 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 2023, 2022 and 2021, the Company had a marketing and sales force consisting of 7, 7 and 11 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, 2023, sales to our three largest customers amounted in the aggregate to approximately 31% of our total revenue. 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 41% 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.

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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.

Regulations

Regulations on Corporate Governance

On December 29, 2023, the Standing Committee of the National People’s Congress promulgated the amended PRC Company Law, or the Amended PRC Company Law, which will come into effect on July 1, 2024, to supersede the existing PRC Company Law which was previously amended in October 2018. The Amended PRC Company Law has made material amendments on corporate governance and shareholders rights of the PRC companies, including, among others, the statutory period for payment of registered capital, the setting of the board of directors and the board of supervisors, and transfer of equity interests in a company.

With respect to the period for payment of the registered capital, pursuant to the Amended PRC Company Law, all shareholders of a PRC limited liability company shall fully pay up the registered capital subscribed for by such shareholders within five years since the date of establishment of such PRC limited liability company, unless otherwise provided by laws and regulations. With respect to any company established before the effective date of the Amended PRC Company Law, the period of capital contribution provided in its articles of association shall be amended to meet the time limit provided in the Amended PRC Company Law if such period of capital contribution in its articles of association exceeds that as required by the Amended PRC Company Law; with respect to any company whose period of capital contribution or amount of the registered capital are obviously abnormal, the competent governmental authority may require such company to adjust its period of capital contribution or amount of the registered capital in a timely manner. The Amended PRC Company Law provides that the detailed implementation measures for the aforesaid provisions will be formulated by the State Council of the PRC. If any shareholder fails to make capital contributions on schedule and in full as provided in the articles of association, the company shall send a written notice requesting such shareholder to pay up all overdue registered capital within a grace period no less than sixty days from the issuance date of such notice. If, upon the expiration of the foregoing grace period, such shareholder still hasn’t fulfilled the obligation of capital contribution with respect to such overdue registered capital, the company may, upon adoption of the resolution of the board of directors, send a notice of forfeiture to such shareholder in writing. Since the issuance date of the foregoing notice, such shareholder shall forfeit the equity interests for which the capital contribution has not been paid up. The forfeited equity interests shall be transferred or cancelled in accordance with the applicable laws. On February 6, 2024, the SAMR issued a draft of the Provisions of the State Council on Implementing the Registered Capital Registration and Management System under the PRC Company Law for public comments until March 5, 2024, which further specify the detailed requirements and measures of the registration and management of registered capital under the Amended PRC Company Law. Pursuant to such draft provisions, there shall be a three-year interim period from July 1, 2024 to June 30, 2027 for the existing companies to adjust their periods of capital contribution. If the period of capital contribution of a company established before the effective date of the Amended PRC Company Law exceeds the period prescribed under the Amended PRC Company Law, such company shall make an adjustment within the foregoing interim period to meet the requirements under the Amended PRC Company Law. The adjusted period of capital contribution shall be recorded in such company’s articles of association and publicized through the national enterprise credit information publicity system in accordance with laws. If a limited liability company established before the effective date of the Amended PRC Company Law fails to adjust its period of capital contribution during the interim period, the competent registration authority may require it to make adjustment within ninety days so that this company’s period of capital contribution shall not exceed five years commencing from July 1, 2027 in accordance with laws.

With respect to the board of directors and the board of supervisors, the Amended PRC Company Law eliminates the upper limit on the number of the directors of a limited liability company, and stipulates that the board of directors of a limited liability company without a board of supervisors including an employee representative among its members, but with more than 300 employees shall have an employee representative acting as a director, who shall be democratically elected by the company’s employees through a general assembly of employees or other democratic forms. In addition, after the effective date of the Amended PRC Company Law, limited liability companies, joint stock limited companies with small scale or a small number of shareholders and wholly state-owned companies may set up an audit committee to replace the functions and powers of the board of supervisors, and such companies may not set the board of supervisors or any supervisor.

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With respect to the transfer of equity interest of a limited liability company, the Amended PRC Company law stipulates that the shareholders of a limited liability company may transfer the equity interest without the consent of other shareholders, provided that such shareholder shall notify other shareholders in writing with respect to transfer of such equity interest. Other shareholders will be regarded as giving up the right of first refusal if they fail to reply within 30 days after receiving the written notice. If a shareholder transfers the equity interest held by it, it shall notify the company in writing to request the company (i) to change the register of shareholders and (ii) to register the change with the competent enterprise registration authority. If the company refuses or fails to respond, the transferee and transferor may file a lawsuit with the competent court.

Regulations on Intellectual Property Rights

Patent

Patents in mainland China are principally protected under the PRC Patent Law, which was initially promulgated by the Standing Committee of the National People’s Congress in 1984 and was most recently amended in 2020. A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs. As of December 31, 2023, we had registered 6 patents and have 6 patents in application in mainland China.

Trademark

Registered trademarks are protected under the PRC Trademark Law, which was adopted by the Standing Committee of the National People’s Congress in 1982 and most recently amended in 2019, the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and most recently amended in 2014 and other related rules and regulations. The State Intellectual Property Office, formerly known as the Trademark Office of the State Administration for Industry and Commerce, handles trademark registrations and grants a protection term of ten years to registered trademarks. Such term may be renewed for another ten-year period upon request by the trademark owner. As of December 31, 2023, we have registered 8 trademarks and have 6 trademarks in application in mainland China with the State Intellectual Property Office.

Domain Names

Domain names are protected under the Administrative Measures on Internet Domain Names promulgated by the MIIT on August 24, 2017 and effective since November 1, 2017. Domain name registrations are handled through domain name service agencies established under the applicable regulations, and applicants become domain name holders upon successful registrations. On November 27, 2017, the MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Regulating the Use of Domain Names in Providing Internet-based Information Services, which took effect on January 1, 2018. Pursuant to the notice, the domain name used by an internet-based information service provider in providing internet-based information services must be registered and owned by such provider in accordance with the law. If the internet-based information service provider is an entity, the domain name registrant must be the entity (or any of the entity’s shareholders), or the entity’s principal or senior manager. As of December 31, 2023, we had registered 4 domain names in mainland China.

Regulations on Internet Information Security, Censorship and Privacy Protection

The PRC Cybersecurity Law, which was promulgated on November 7, 2016 by the Standing Committee of the National People’s Congress and took effect on June 1, 2017, provides that network operators shall meet their cyber security obligations and shall take technical measures and other necessary measures to protect the safety and stability of their networks. Under the PRC Cybersecurity Law, network operators are subject to various security protection-related obligations, including: (i) network operators shall comply with certain obligations regarding maintenance of the security of internet systems; (ii) network operators shall verify users’ identities before signing agreements or providing certain services such as information publishing or real-time communication services; (iii) when collecting or using personal information, network operators shall clearly indicate the purposes, methods and scope of the information collection, the use of information collection, and obtain the consent of those from whom the information is collected; (iv) network operators shall strictly preserve the privacy of user information they collect, and establish and maintain systems to protect user privacy; (v) network operators shall strengthen management of information published by users, and when they discover information prohibited by laws and regulations from publication or dissemination, they shall immediately stop dissemination of that information, including taking measures such as deleting the information, preventing the information from spreading, preserving records, and reporting to the competent governmental agencies. In addition, the PRC Cyber Security Law requires that critical information infrastructures operators generally shall store, within the territory of mainland China, the personal information and important data collected and produced during their operations in mainland China and their purchase of network products and services that affect or may affect national securities shall be subject to national cybersecurity review.

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On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which became effective in September 2021. The PRC Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data shall designate the personnel and the management body responsible for data security, carry out risk assessments for its data processing activities and file the risk assessment reports with the competent authorities. In addition, the PRC Data Security Law provides a national security review procedure for those data activities which affect or may affect national security and imposes export restrictions on certain data and information.

The PRC government promulgated the Measures for Cybersecurity Review in April 2020, which took effect in June 2020. Under these measures, critical information infrastructure operators must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, jointly released the Revised Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Revised Cybersecurity Review Measures, operators of critical information infrastructure that intend to purchase network products and services that affect or may affect national security must apply for a cybersecurity review. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or the risk of a large amount of personal information being influenced, controlled or maliciously used by foreign governments after going public, and cyber information security risk. The Revised Cybersecurity Review Measures set out certain general factors which would be the focus in assessing the national security risk during a cybersecurity review. 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, and we have not received any inquiry, notice, warning, sanctions in such respect or any regulatory objections to our listing status from the CAC.

On July 30, 2021, the PRC State Council promulgated the Regulations on Security Protection of Critical Information Infrastructures, which took effect on September 1, 2021 and provide that “critical information infrastructures” shall mean any important network facilities or information systems of important industries or fields such as public communication and information service, energy, communications, water conservation, finance, public services, e-government affairs and national defense science, and any other important network facilities or information systems which may endanger national security, people’s livelihood and public interest in case of damage, function loss or data leakage. In addition, the administration departments for each critical industry and sector shall be responsible to formulate eligibility criteria and determine the critical information infrastructure operator in the respective industry or field. The operators shall be informed about the final determination as to whether they are categorized as critical information infrastructure operators. The regulations further require critical information infrastructures operators, (i) to report to the competent administration departments in a timely manner when the identification result may be affected due to material changes in the critical information infrastructures; (ii) to plan, construct or put into use the security protection measures and the critical information infrastructures simultaneously; and (iii) to report to the competent administration departments in a timely manner in the event of merger division or dissolution, and deal with critical information infrastructures as required by the competent administration departments, among other things. Operators in violation of the regulations may be ordered to rectify, subject to warnings, fines and other administrative penalties or even criminal liabilities, and the directly responsible personnel in charge may also be imposed on fines or other liabilities. As of the date of this annual report, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we have not received any inquiry, notice, warning, or sanctions in such respect.

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On November 14, 2021, the CAC published a discussion draft of Regulations on the Administration of Cyber Data Security for public comments, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. The Draft Cyber Data Security Regulations also provide that operators of large internet platforms that set up headquarters, operation centers or R&D centers overseas shall report to the national cyberspace administration and competent authorities. In addition, the Draft Cyber Data Security Regulations also require that data processors processing important data or going public overseas shall conduct an annual data security self-assessment or entrust a data security service institution to do so, and submit the data security assessment report of the previous year to the local branch of the CAC before January 31 each year. As of the date of this annual report, this draft has not been formally adopted. Substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation. Based on the facts that, (i) the Revised Cybersecurity Review Measures were newly adopted and the discussion draft of Regulations on the Administration of Cyber Data Security have not been formally adopted, and the implementation and interpretation of both are subject to uncertainties, and (ii) we have not been involved in any investigations on cyber security review made by the CAC on such basis, nor have we received any inquiries, notices, warnings, or sanctions from any competent PRC regulatory authorities related to cybersecurity, data security and personal data protection, we believe, as of the date of this annual report, we are in compliance with the existing PRC laws and regulations on cybersecurity, data security and personal data protection issued by the CAC.

The PRC government authorities also further enhanced the supervision and regulation of cross-border data transmission. On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, which took effect on September 1, 2022. In accordance with such measures, data processors will be subject to security assessment conducted by the CAC prior to any cross-border transfer of data if the transfer involves (i) important data; (ii) personal information transferred overseas by operators of critical information infrastructure or a data processor that has processed personal data of more than one million persons; (iii) personal information transferred overseas by a data processor which has already provided personal data of 100,000 persons or sensitive personal data of 10,000 persons overseas since January 1 of the preceding year; or (iv) other circumstances as required by the CAC. In addition, any cross-border data transfer activities conducted in violation of the Measures for the Security Assessment of Cross-border Data Transfer before the effectiveness of such measures are required to be rectified within six months of the effectiveness date thereof. Since these measures are relatively new, there are still substantial uncertainties with respect to the interpretation and implementation of these measures in practice and how they will affect our business operation.

On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Personal Information Protection Law, which took effect on November 1, 2021. Pursuant to the PRC Personal Information Protection Law, personal information refers to the information related to an identified or identifiable individual recorded electronically or by other means, excluding the anonymized information, and processing of personal information includes, among other things, the collection, storage, use, handling, transmission, provision, disclosure, deletion of personal information. The PRC Personal Information Protection Law explicitly sets forth the circumstances where it is allowed to process personal information, including (i) the consent from the individual has been obtained; (ii) it is necessary for the conclusion and performance of a contract under which an individual is a party, or it is necessary for human resource management in accordance with the labor related rules and regulations and the collective contracts formulated or concluded in accordance with laws; (iii) it is necessary to perform statutory duties or statutory obligations; (iv) it is necessary to respond to public health emergencies, or to protect the life, health and property safety of individuals in emergencies; (v) carrying out news reports, public opinion supervision and other acts for the public interest, and processing personal information within a reasonable scope; (vi) processing personal information disclosed by individuals or other legally disclosed personal information within a reasonable scope in accordance with this law; or (vii) other circumstances stipulated by laws and administrative regulations. In addition, this law emphasizes that individuals have the right to withdraw their consent to process their personal information, and the processors must not refuse to provide products or services on the grounds that the individuals do not agree to the processing of their personal information or withdraw their consent, unless processing of personal information is necessary for the provision of products or services. Before processing the personal information, the processors should truthfully, accurately and completely inform individuals of the following matters in a conspicuous manner and in clear and easy-to-understand language: (i) the name and contact information of the personal information processor; (ii) the purpose of processing personal information, processing method, type of personal information processed, and the retention period; (iii) methods and procedures for individuals to exercise their rights under this law; (iv) other matters that should be notified according to laws and administrative regulations. Furthermore, the law provides that personal information processors who use personal information to make automated decisions should ensure the transparency of decision-making and the fairness and impartiality of the results, and must not impose unreasonable differential treatment on individuals in terms of transaction prices and other transaction conditions.

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In addition, the law provides rules for cross-border provision of personal information. In particular, it is provided that the operators of critical information infrastructures and the personal information processors that process personal information up to the number prescribed by the national cyberspace administration shall store personal information collected and generated within mainland China. If it is really necessary to provide such personal information overseas, they shall pass the security assessment organized by the national cyberspace administration, except as otherwise stipulated by laws, administrative regulations and the national cyberspace administration. Any processor in violation of this law may be subject to administrative penalties including rectifications, warnings, fines, confiscation of illegal gains, suspension of the apps illegally processing personal information or suspension of the business, revocation of business operation permits or business licenses, civil liabilities or even criminal liabilities. The directly responsible personnel in charge and other directly responsible personnel may be imposed with fines and prohibited from serving as directors, supervisors, senior management personnel and personal information protection officers of related companies within a certain period of time.

While we take measures to comply with all applicable data privacy and protection laws and regulations, we cannot guarantee the effectiveness of the measures undertaken and those implemented by our business partners. As certain laws and regulations, including the PRC Data Security Law and the PRC Personal Information Protection Law, were recently promulgated, we may be required to make further adjustments to our business practices to comply with these laws and regulations.

Regulations on Foreign Exchange

General Administration of Foreign Exchange

Under the PRC Foreign Exchange Administration Rules promulgated on January 29, 1996 and most recently amended on August 5, 2008 and various regulations issued by SAFE and other PRC government authorities, Renminbi is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside mainland China for of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office.

Payments for transactions that take place within mainland China must be made in Renminbi. Unless otherwise approved, mainland China companies may not repatriate foreign currency payments received from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.

Pursuant to the Circular of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or SAFE Circular 59 promulgated by SAFE on November 19, 2012, which took effect on December 17, 2012 and was further amended on May 4, 2015 and on October 10, 2018, approval is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments. SAFE Circular 59 also simplified foreign exchange-related registration required for the foreign investors to acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for foreign-invested enterprises.

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Pursuant to the Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or SAFE Circular 13, which was promulgated by SAFE on February 13, 2015 and took effect on June 1, 2015, and was later amended on December 30, 2019, which cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration, the investors shall register with banks for direct domestic investment and direct overseas investment. The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or SAFE Circular 19, which was promulgated by SAFE on March 30, 2015 and took effect on June 1, 2015, provides that a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to SAFE Circular 19, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capitals on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.

The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, which was promulgated by SAFE and took effect on June 9, 2016, provides that enterprises registered in mainland China may also convert their foreign debts from foreign currency into Renminbi on self-discretionary basis. SAFE Circular 16 also provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis, which applies to all enterprises registered in mainland China.

In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial statements, and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover, pursuant to SAFE Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment.

On October 23, 2019, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or SAFE Notice 28, which permits non-investment foreign-invested enterprises to use their capital funds to make equity investments in mainland China, with genuine investment projects and in compliance with effective foreign investment restrictions and other applicable laws. However, as SAFE Notice 28 was newly issued, there are still substantial uncertainties as to its interpretation and implementations in practice.

Based on SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign-invested enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the foreign-invested enterprise, including, without limitation any increase in its registered capital or total investment, the foreign invested enterprise shall register such changes with the bank located at its registered place after obtaining the approval from or completing the filing with competent authorities. Pursuant to foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application.

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Based on the foregoing, if we intend to provide funding to our wholly foreign owned subsidiaries through capital injection at or after their establishment, we shall register the establishment of and any follow-on capital increase in our wholly foreign owned subsidiaries with the SAMR or its local counterparts, file such via the foreign investment comprehensive management information system and register such with the local banks for the foreign exchange related matters.

Regulations on Dividend Distribution

The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in mainland China include the Company Law of the PRC, as amended in 2004, 2005, 2013 and 2018, the Foreign Investment Law and the Regulation on Implementing the Foreign Investment Law. Under the current regulatory regime in mainland China, foreign-invested enterprises in mainland China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A mainland China company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A mainland China company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

Regulations on Taxation

Enterprise Income Tax

On March 16, 2007, the Standing Committee of the National People’s Congress promulgated the Enterprise Income Tax Law, which was amended on February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Law on Enterprise Income Tax, which took effect on January 1, 2008 and was amended on April 23, 2019. Under the Enterprise Income Tax Law and its implementing regulations, both resident enterprises and non-resident enterprises are subject to tax in mainland China. Resident enterprises are defined as enterprises that are established in mainland China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within mainland China. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside mainland China, but who have established institutions or premises in mainland China or income generated from inside mainland China. Under the Enterprise Income Tax Law and the implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in mainland China, or if their permanent establishment or premises in mainland China have no actual relationship to the income derived in mainland China, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside mainland China.

Value-Added Tax

The Provisional Regulations of the PRC on Value-added Tax were promulgated by the State Council on December 13, 1993 and took effect on January 1, 1994 which were subsequently amended on November 10, 2008 and took effect on January 1, 2009 and most recently amended on February 6, 2016 and November 19, 2017. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) was promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011, or collectively, VAT Law. On November 19, 2017, the State Council promulgated The Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the PRC on Value-added Tax. According to the VAT Law and these decisions, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of mainland China are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 17%, 11%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%. The Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates was promulgated on April 4, 2018 and took effect on May 1, 2018. The notice adjusted the VAT tax rates of 17% and 11% to 16% and 10%, respectively. According to the Announcement on Relevant Policies for Deepening Value-Added Tax Reform, with effect from April 1, 2019, the VAT tax rate of 16% and 10% are changed into 13% and 9%, respectively.

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As of the date of this annual report, our mainland China subsidiaries are generally subject to 3%, 6%, 9% or 13% VAT rate and related surcharges.

Dividend Withholding Tax

The Enterprise Income Tax Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-mainland China resident enterprise investors which do not have an establishment or place of business in mainland China, or which have an establishment or place of business that is not effectively connected with the relevant income, to the extent such dividends are derived from sources within mainland China.

Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the conditions and requirements under such arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a mainland China resident enterprise may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or SAT Circular 81, issued on February 20, 2009 by the State Administration of Taxation, if the PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which took effect on April 1, 2018, when determining the applicant’s status as a “beneficial owner” with respect to the tax treatment of dividends, interest or royalties under certain tax treaties, several factors, including whether the applicant is obligated to pay more than 50% of his or her income over a twelve-month period to residents of a third country or region, whether the business operated by the applicant constitutes actual business activities; and whether the counterparty country or region to the tax treaty does not levy any tax, exempts the relevant income from tax or levies tax at an extremely low rate, will be taken into account and be analyzed according to the actual circumstances of specific cases. This circular further provides that applicants who intend to prove his or her “beneficial owner” status shall submit the required documents to the tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.

Tax on Indirect Transfer

On February 3, 2015, the State Administration of Taxation issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises. Pursuant to this circular, an “indirect transfer” of assets, including equity interests in a mainland China resident enterprise, by a non-mainland China resident enterprise, may be recharacterized and treated as a direct transfer of mainland China taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of mainland China enterprise income tax. As a result, gains derived from such indirect transfer may be subject to mainland China enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the offshore enterprise derives directly or indirectly from mainland China taxable assets; whether the assets of the offshore enterprise mainly consist of direct or indirect investments in mainland China, or whether its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries that directly or indirectly hold mainland China taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure. According to the circular, where the payor fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. The circular does not apply to sales of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the State Administration of Taxation issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which was amended on June 15, 2018. SAT Circular 37 further elaborates the implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of the circular. The circular may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.

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Regulations on Employment and Social Welfare

Labor Contract Law

The PRC Labor Contract Law which took effect on January 1, 2008 and was amended on December 28, 2012, is primarily aimed at regulating rights and obligations of employer and employee relationships, including the establishment, performance and termination of labor contracts. Pursuant to the PRC Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance with national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and shall be paid to employees timely.

Social Insurance and Housing Fund

According to the PRC Social Insurance Law implemented on July 1, 2011 and most recently amended on December 29, 2018 and the Regulations on the Administration of Housing Funds, which was promulgated by the State Council in 1999 and most recently amended in 2019, employers in mainland China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, and medical insurance and housing funds.

Employee Stock Incentive Plan

Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or SAFE Circular 7, which was issued by SAFE on February 15, 2012, employees, directors, supervisors, and other senior management who participate in any stock incentive plan of a publicly listed overseas company and who are mainland China citizens or non-mainland China citizens residing in mainland China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE through a qualified domestic agent, which may be a mainland China subsidiary of such overseas listed company, and complete certain other procedures.

In addition, the State Administration of Taxation has issued certain circulars concerning employee stock options and restricted shares. Under these circulars, employees working in mainland China who exercise stock options or are granted restricted shares will be subject to mainland China individual income tax. The mainland China subsidiaries of an overseas listed company are required to file documents related to employee stock options and restricted shares with the tax authorities and to withhold individual income taxes of employees who exercise their stock option or purchase restricted shares. If the employees fail to pay or the mainland China subsidiaries fail to withhold income tax in accordance with the laws and regulations, the mainland China subsidiaries may face sanctions imposed by the tax authorities or other PRC governmental authorities.

M&A Rules and Overseas Listing

On August 8, 2006, six PRC governmental and regulatory agencies, including the Ministry of Commerce and the China Securities Regulatory Commission, or the CSRC, promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, governing the mergers and acquisitions of domestic enterprises by foreign investors that took effect on September 8, 2006 and was revised on June 22, 2009. The regulations, among other things, requires that if an overseas company established or controlled by mainland China companies or individuals, or mainland China citizens, intends to acquire equity interests or assets of any other mainland China domestic company affiliated with the mainland China citizens, such acquisition must be submitted to the Ministry of Commerce for approval. The regulations also requires that an offshore SPV formed for overseas listing purposes and controlled directly or indirectly by the mainland China citizens shall obtain the approval of the CSRC prior to overseas listing and trading of such SPV’s securities on an overseas stock exchange. On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law. The opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of regulatory systems will be taken to deal with the risks and incidents of China-based overseas listed companies, and cybersecurity and data privacy protection requirements and other regulatory requirements. The opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future.

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Furthermore, on February 17, 2023, the CSRC published the Interim Administrative Measures on Overseas Securities Offering and Listing by the Domestic Enterprises, or the Overseas Listing Measures, which took effect on March 31, 2023. Under the Overseas Listing Measures, a filing-based regulatory system will be applied to “indirect overseas offerings and listings” of PRC domestic companies, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a domestic company that operates its main business domestically in mainland China. The Overseas Listing Measures state that, any overseas offering of securities, including issuance of shares, convertible notes and other similar securities, by a PRC domestic company, and listing by a PRC domestic company in an overseas market, shall be subject to filing requirement within three business days after the completion of such offering or listing. On February 17, 2023 the CSRC also published the Notice on the Administrative Arrangements for the Filing of Overseas Securities Offering and Listing by the Domestic Enterprises, which provides that issuers who have already been listed in an overseas market by March 31, 2023, the date on which the Overseas Listing Measures took effect, such as our company, are not required to make any immediate filing. However, such issuers will be required to comply with the filing requirements under Overseas Listing Measures if and when they pursue any future securities offerings and listings outside of mainland China, including but not limited to follow-on offerings, secondary listings and going private transactions.

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:

Name of entity |  | Ownership interest held by the Group |  | Place of incorporation and principal place of operation |  | Principal activities
Subsidiaries: |  |  |  |  |  |
Euro Tech (Far East) Limited |  | 100% |  | Hong Kong |  | Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems
Euro Tech Trading (Shanghai) Limited |  | 100% |  | PRC |  | Inactive
Shanghai Euro Tech Limited |  | 100% |  | PRC |  | Inactive
Yixing Pact Environmental Technology Co., Ltd |  | 58% |  | PRC |  | Design, manufacturing and operation of water and wastewater treatment and water desalination machinery and equipment
Pact Asia Pacific Limited |  | 58% |  | British Virgin Islands |  | Selling of environmental protection equipment, undertaking environment protection projects and providing relevant technology advice, training and services
Affiliate: |  |  |  |  |  |
Zhejiang Tianlan Environmental Protection Technology Co. Ltd. |  | 19.4% |  | PRC |  | Design, general contract, equipment manufacturing, installation, testing and operation management of the treatment of waste gases emitted

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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 2025 subject to renewal. The Company pays a monthly rental payment of approximately US$8,910 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$322.

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. Yixing also occupies a workshop in Shanghai pursuant to a lease which will expire in June 2026, at a monthly rent of approximately US$3,300. The size of the workshop is 929 square meters and the workshop is used for assembly of BWTS.

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:

| · | Trading and manufacturing; and
| · | Engineering.

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 decreased by 30.1% to US$14,949,000 in fiscal year 2022 and increased by 20.0% to US$17,940,000 in fiscal year 2023. Our net income decreased by 62.6% to US$369,000 in fiscal year 2022 and increased by 395.3% to US$1,828,000 in fiscal year 2023.

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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. Although we believe our business may not have been directly affected by COVID-19 in 2023, our wastewater treatment operations may have been materially adversely affected by COVID-19. Many of the customers and potential customers of our wastewater treatment systems are the Chinese subsidiaries of foreign companies, and some of them have delayed or suspended their business operations due to the impact of COVID-19, some have even relocated their operations outside China, consequently our wastewater treatment business has experienced a contraction during fiscal year 2023.

In contract, our BWTS business has thrived both in China and internationally during fiscal year 2023. We believe this growth is mainly driven by the increasing demand in the maritime industry, spurred by IMO policy and local environmental regulations related to Environmental Impact Assessment. Notably, we have seen expansion of our BWTS business in energy-related shipping industry in the Middle East and petrochemical ports in China.

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

| · | an economic downturn in China or any regional market in China;
| · | economic policies and initiatives undertaken by the Chinese government;
| · | changes in the Chinese or regional business or regulatory environment affecting our customers; and
| · | changes in the Chinese government policy on our industries. Unfavorable changes could affect demand for services that we provide and could materially and adversely affect the results of operations.

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:

|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |
Revenue |  | $ | 17,940 |  |  |  | 100 | % |  | $ | 14,949 |  |  |  | 100 | % |  | $ | 21,388 |  |  |  | 100 | % |  | $ | 13,357 |  |  |  | 100 | % |  | $ | 17,399 |  |  |  | 100 | %
Cost of revenue |  | $ | 14,079 |  |  |  | 78.5 | % |  | $ | 10,331 |  |  |  | 69.1 |  |  | $ | 15,693 |  |  |  | 73.4 | % |  | $ | 9,672 |  |  |  | 72.4 | % |  | $ | 12,982 |  |  |  | 74.6 | %
Gross profit |  | $ | 3,861 |  |  |  | 21.5 | % |  | $ | 4,618 |  |  |  | 30.9 | % |  | $ | 5,695 |  |  |  | 26.6 | % |  | $ | 3,685 |  |  |  | 27.6 | % |  | $ | 4,417 |  |  |  | 25.4 | %
Selling and administrative expenses |  | $ | 4,103 |  |  |  | 22.9 | % |  | $ | 4,490 |  |  |  | 30.0 | % |  | $ | 4,911 |  |  |  | 23.0 | % |  | $ | 5,374 |  |  |  | 40.2 | % |  | $ | 4,853 |  |  |  | 27.9 | %
(Loss) gain on disposal of property, plant and equipment |  | $ | - |  |  |  | - |  |  | $ | (7 | ) |  |  | - |  |  | $ | (10 | ) |  |  | - | % |  | $ | 1,429 |  |  |  | 10.7 |  |  | $ | (5 | ) |  |  | - |
(Loss) / income before income taxes, equity in income / (loss) of affiliates and non-controlling interests |  | $ | (232 | ) |  |  | -1.3 | % |  | $ | 150 |  |  |  | 1.0 | % |  | $ | 921 |  |  |  | 4.3 | % |  | $ | 63 |  |  |  | 0.5 | % |  | $ | (310 | ) |  |  | -1.8 | %
Income tax (expense) credit |  | $ | (45 | ) |  |  | -0.3 | % |  | $ | (24 | ) |  |  | -0.2 | % |  | $ | 90 |  |  |  | 0.4 | % |  | $ | (96 | ) |  |  | -0.7 | % |  | $ | (37 |  |  |  | -0.2 | %
Equity in income / (loss) of affiliates |  | $ | 1,927 |  |  |  | 10.7 | % |  | $ | 413 |  |  |  | 2.8 | % |  | $ | 355 |  |  |  | 1.7 | % |  | $ | 435 |  |  |  | 3.3 | % |  | $ | 137 |  |  |  | 0.8 | %
Net income / (loss) |  | $ | 1,650 |  |  |  | 9.2 | % |  | $ | 539 |  |  |  | 3.6 | % |  | $ | 1,366 |  |  |  | 6.4 | % |  | $ | 402 |  |  |  | 3.0 | % |  | $ | (210 | ) |  |  | -1.2 | %
Net loss / (income) attributable to non-controlling interests |  | $ | 178 |  |  |  | 1.0 | % |  | $ | (170 | ) |  |  | -1.1 | % |  | $ | (377 | ) |  |  | -1.8 | % |  | $ | 367 |  |  |  | 2.7 | % |  | $ | 64 |  |  |  | 0.4 | %
Net income / (loss) attributable to Euro Tech Holding Company Limited’s shareholders |  | $ | 1,828 |  |  | 10.2 | % |  | $ | 369 |  |  |  | 2.5 | % |  | $ | 989 |  |  |  | 4.6 | % |  | $ | 769 |  |  |  | 5.7 | % |  | $ | (146 | ) |  |  | -0.8 | %

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Fiscal Year Ended December 31, 2023 Compared to Fiscal Year Ended December 31, 2022

Revenue; Gross Profit and Cost of Revenue. Revenue increased by US$2,991,000 or 20.0% to US$17,940,000 in Fiscal 2023 from US$14,949,000 in Fiscal 2022. Revenue from trading and manufacturing activities and engineering activities increased by US$2,811,000 and US$180,000, respectively. Increase in revenue from trading activities was mainly a result of recovery from the COVID-19 pandemic disruption. Pact-Yixing’s revenues of US$5,797,000 and US$5,617,000 were included in our revenues in Fiscal 2023 and Fiscal 2022, respectively.

Gross profit decreased by US$757,000 or 16.4% to US$3,861,000 for Fiscal 2023 as compared to US$4,618,000 for Fiscal 2022. During Fiscal 2023, the Company’s cost of revenues was US$14,079,000 or 78.5% of revenues, in comparison to US$10,331,000 or 69.1% for Fiscal 2022. Cost of revenue expressed as a percentage of revenue increased by 9.4% in Fiscal 2023 as compared with Fiscal 2022. Cost of revenues from trading and manufacturing activities increased by US$2,406,000 and engineering activities increased by US$1,342,000. The overall change was principally due to increase in revenue. Pact-Yixing contributed US$1,469,000 to our gross profit in Fiscal 2023, a decrease of US$1,162,000 from Fiscal 2022. The decrease was principally due to continuous economy slowdown in Mainland China and adverse impacts of the COVID-19 pandemic.

Selling and Administrative Expenses. Selling and administrative expenses were US$4,103,000 in Fiscal 2023, a decrease of US$387,000 or 8.6% from US$4,490,000 in Fiscal 2022. The decrease was principally due to cessation of business operation of Shanghai Euro Tech Ltd. in Fiscal 2022.

Equity in Income of Affiliates. Equity in income of affiliates was income of US$1,927,000 in Fiscal 2023, an increase of US$1,514,000 from income of affiliates of US$413,000 in Fiscal 2022. The increase was primarily due to non-recurrent income from the disposal of 2 desulfurization treatment plants for a “Build-operate-transfer” project located in Shanxi, China.

Interest Income. Interest income in Fiscal 2023 was US$37,000 as compared to US$23,000 in Fiscal 2022.

Other (losses) / income. Other income decreased by US$33,000 to other losses of US$20,000 in Fiscal 2023 from US$13,000 in Fiscal 2022. The decrease in other income was principally because there was non-recurrent government subsidies in Fiscal 2022.

Income Taxes. Tax expense of US$45,000 in Fiscal 2023 as compared to US$24,000 in Fiscal 2022. The change in tax expense was principally due to increase in assessable profits.

Net Income. Profit from continuing operations was profit of US$1,828,000 in Fiscal 2023 as compared to US$369,000 in Fiscal 2022. This change was primarily due to increase in equity in income of affiliates.

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.

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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 2023, Fiscal 2022 and Fiscal 2021 were US$4,949,000, US$4,980,000 and US$5,099,000, respectively.

As of December 31, 2023, we had US$5,453,000 in cash and cash equivalents, compared to US$5,628,000 in cash and cash equivalents as of December 31, 2022 and US$5,269,000 in cash and cash equivalents as of December 31, 2021.

Net cash (used in )/ provided by operating activities

Net cash used in operating activities was US$80,000 for the year ended December 31, 2023. Net cash provided by operating activities was US$461,000 for the year ended December 31, 2022. Net cash provided by operating activities US$2,201,000 for the year ended December 31, 2021.

Net cash used in operating activities for the year ended December 31, 2023 was primarily the result of the net income of US$1,828,000, an increase in accounts receivable of US$1,278,000,increase in inventories of US$120,000, and decrease in other payables and accrued expenses of US$107,000. These amounts were partially offset by the decrease in prepayments, and other assets of US$240,000, decrease in contract assets of US$151,000, increase in accounts payables of US$1,177,000, increase in contract liabilities of US$25,000, increase in income tax payable of US$42,000 and increase in right-of-use assets and operating lease liabilities of US$57,000. Non-cash adjustments consisting of depreciation of property, plant and equipment of US$15,000, stock-based compensation expense of US$47,000, Non-controlling interests in (loss) of subsidiaries of US$178,000, equity in profit of affiliates of US$1,927,000 and deferred tax expense of US$5,000.

Net cash provided by investing activities

Net cash provided by investing activities for the year ended December 31, 2023 was US$317,000. Net cash provided by investing activities for the year ended December 31, 2022 was US$232,000. Net cash provided by investing activities for the year ended December 31, 2021 was US$358,000.

During the year ended December 31, 2023, the Company paid US$5,000 to acquire property, plant and equipment and received dividend of US$322,000 from affiliates. 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 (used in) financing activities

Net cash used in financing activities for the year ended December 31, 2023 was US$82,000, as a result of proceeds from bank borrowings related to trade finance purchases of US$666,000, and purchase of treasury stock of US$14,000 and repayments of US$734,000 to bank borrowings.

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.

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 as of December 31, 2023. 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 from US$5,269,000 at the end of Fiscal 2021 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 decreased to US$5,453,000 at the end of Fiscal 2023, and the principal reason for the decrease in cash was an increase in cash collaterals for bank guarantees obtained in the ordinary course of our business for the benefit of our customers to guarantee the Company’s payment obligations or the performance of other obligations to such customers.

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The Company’s accounts receivable, net decreased from US$3,631,000 at the end of Fiscal 2021 to US$1,586,000 at the end of Fiscal 2022, and increased to US$2,864,000 at the end of Fiscal 2023. The amount of accounts receivable, net subject to collection is expected to be received under normal commercial trading terms.

The Company’s inventories increased from US$547,000 at the end of Fiscal 2021 to US$603,000 at the end of Fiscal 2022, and increased to US$723,000 at the end of Fiscal 2023.

Capital expenditure

The Company’s capital expenditures were US$5,000, US$7,000 and US$4,000 in Fiscal 2023, 2022 and Fiscal 2021, respectively. Capital expenditures during Fiscal 2023, Fiscal 2022 and Fiscal 2021 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 2023 annual impairment test we performed a qualitative assessment, using information as of December 31, 2023. 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 2021, 2022 and 2023, no dividends were distributed from our PRC subsidiaries to Far East.

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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, 2023 were as follows:

|  |  |  |  | Payment due by December 31, (in US$ thousands) |
|  | Total |  |  | 2024 |  |  | 2025 |  |  | 2026 |  |  | 2027 and after |
Operating lease commitments |  |  | 214 |  |  |  | 170 |  |  |  | 44 |  |  |  | - |  |  |  | - |
Total |  |  | 214 |  |  |  | 170 |  |  |  | 44 |  |  |  | - |  |  |  | - |

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

During Fiscal 2023, 2022 and 2021, the Company incurred cost of nil, nil and US$61,000 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 January 1, 2024, the Chinese legislature promulgated Amendment to the Marine Environmental Protection Law, pursuant to which China is strengthening 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.

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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 seeing 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 2023 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 both short and 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 long-term 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. 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, recognizes 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 stages of works certified by customers. Generally, invoices are billed upon fulfilment of the measurable performance obligation. The Company evaluates the progress towards completion of the performance obligation at each phase of the contract and bills the customer in accordance with the price agreed upon on the contract.

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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.

In the event that customer requests a change of order (such as an upgrade of specifications, materials or additional work) before the completion of the project, the Group will negotiate and sign a subcontract with the customer subject to mutual agreement. The subcontract has its own terms and conditions for the variable consideration and is generally integrated with the original master contract. This will normally result in an increase in additional billing to the customer and rarely a reduction in the total value of the contract.

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 costs incurred or any payment received for a long-term contract, for which revenue has not been recognized due to impracticability or inability to measure the performance obligation, is recorded as a contract asset and contract liability, respectively, on the Group’s consolidated balance sheets. Revenue will be recognized when the performance obligation can be measured reliably and the criteria as stipulated under ACS 606 are met.

The Group’s consolidated balance sheets present contract cost assets that represent our rights to receive payment for completed but not yet billed work and include costs incurred for contracts with customers as at financial year end less amounts received in advance from those customers at financial year end.

The Group’s consolidated balance sheets present contract liabilities that contain deferred revenue that represent amounts received in advance from customers at financial year end in excess of any costs incurred on those contracts, which are in progress at year end, for which revenue has not yet been recognized.

Contract assets and contract liabilities arising from the same individual contract are presented net as either a single net contract asset or single net contract liability for presentation purposes.

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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. We consider our representation on the board of directors of our affiliate as a factor when determining whether we have significant influence over such affiliate. 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 was 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).

Accounts receivable and allowance for doubtful accounts

The Group does not charge interest to its customers and carries its customer receivables at their face amounts, less an allowance for doubtful accounts. As is common practice in the industry, the Group classifies all accounts receivable as current assets.

The Group grants trade credit, on a non-collateralized basis, to its customers and is subject to potential credit risk related to changes in business and overall economic activity. The Group analyzes specific accounts receivable balances, historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the event that a customer balance is deemed to be uncollectible, the account balance is written-off against the allowance for doubtful accounts.

Inventories

Inventories are measured using the first-in, first-out method and are stated at the lower of cost or net realizable value. Cost of finished goods comprise direct material, direct production costs and an allocated portion of production overhead costs based on normal operating capacity. Allowance is made for obsolete, slow moving or defective items, where appropriate.

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.

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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:

Name |  | Age |  | Position
T.C. Leung |  | 80 |  | Chairman of the Board of Directors
David YL Leung |  | 50 |  | Director and Chief Executive Officer
Jerry Wong |  | 65 |  | Director and Chief Financial Officer
Alex Sham |  | 60 |  | Director
Y.K. Liang |  | 94 |  | Director
Fu Ming Chen |  | 75 |  | Director
Janet Cheang |  | 68 |  | Director

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 and 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.

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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.

For the fiscal year ended December 31, 2023, we paid an aggregate of US$840,000 in cash to our executive officers and directors.

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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, 2023 the aggregate contributions of the Group to the aforementioned pension plans and retirement benefit schemes was US$310,000.

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.

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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:

| · | the spouse or lineal descendant of a plan participant;
| · | the trustee of a trust for the primary benefit of a plan participant’s spouse or lineal descendant;
| · | a partnership of which a plan participant and lineal descendants are the only partners; or
| · | a tax exempt organization.

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.

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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 the Company.

During the year ended December 31, 2023, the Company did not grant any options to its officers, directors and employees.

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

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | Number of Options |  |  | Weighted average exercise price |  |  | Number of Options |  |  | Weighted average exercise price |  |  | Number of Options |  |  | Weighted average exercise price |
Outstanding, beginning of year |  |  | 206,250 |  |  |  | 1.52 |  |  |  | 85,000 |  |  |  | 1.56 |  |  |  | 51,000 |  |  |  | 2.60 |
Granted |  |  | - |  |  |  | - |  |  |  | 80,000 |  |  |  | 2.80 |  |  |  | - |  |  |  | - |
Cancelled |  |  | - |  |  |  | - |  |  |  | (41,250 | ) |  |  | (1.04 | ) |  |  |  |  |  |  |  |
Bonus shares adjustment |  |  | - |  |  |  | - |  |  |  | 82,500 |  |  |  | 0.72 |  |  |  | 34,000 |  |  |  | (1.04 | )
Outstanding, end of year |  |  | 206,250 |  |  |  | 1.52 |  |  |  | 206,250 |  |  |  | 1.52 |  |  |  | 85,000 |  |  |  | 1.56 |
Exercisable, end of year |  |  | 86,250 |  |  |  | 1.04 |  |  |  | 86,250 |  |  |  | 1.04 |  |  |  | - |  |  |  | - |

As of December 31, 2023, there was no unrecognized stock-based compensation expense related to unvested stock options. The compensation expense for Fiscal 2023 is US$47,000.

The Group applies the provisions of ASC 718-10, which requires to recognize expense related to the fair value of stock-based compensation awards, including employee stock options.

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Issuance of Bonus Shares

We did not issue any bonus shares during fiscal year 2023.

We issued bonus shares on January 21, 2022 to shareholders of record as of January 7, 2022; such shareholders received one (1) ordinary share for every two (2) ordinary shares held. All issuances resulting in a fractional share will be rounded down to the next whole share.

We issued bonus shares on March 2, 2021 to shareholders of record as of February 23, 2021; such shareholders received two (2) ordinary shares for every three (3) ordinary shares held. All issuances resulting in a fractional share were rounded down to the next whole share.

C. BOARD PRACTICES

Terms of Directors and Executive Officers

Our board consisted of seven directors for fiscal year 2023. The term of each of the Company’s directors expires at the election and qualification of their successors at the next annual meeting of the Company’s shareholders, anticipated to be held in November of this year. The Company’s directors were re-elected at the Company’s last annual meeting of shareholders in November 2023. In addition, the service agreement between us and the directors do not provide benefits upon termination of their services.

Our officers are elected by and serve at the discretion of the board of directors. The executive officers shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors. Any vacancy occurring in any office may be filled by resolutions of directors.

The Company had 3 meetings of its Board of Directors during Fiscal 2023.

Board Committee

The Board has a standing Audit Committee to assist the Board in carrying out its duties. The Audit Committee has a written charter approved by the Board. The chair of the Audit Committee determines the meeting agenda of the Audit Committee. The Audit Committee members receive materials in advance of Committee meetings allowing them to prepare for the meeting. During Fiscal 2023, our Audit Committee had 4 meetings.

The Audit Committee currently consists of Y.K. Liang, Janet Cheang and Fu Ming Chen. The Audit Committee’s “financial expert” is Y.K. Liang. The Board has determined that the membership of the Audit Committee meets the current independence requirements of the NASDAQ listing standards as same applies to private foreign issuers and the applicable rules and regulations of the SEC because they are not currently employed by us, and do not fall into any of the enumerated categories of who cannot be considered independent in NASDAQ’s listing standards.

The Audit Committee assists the Board in monitoring the Company’s financial accounting, internal controls, planning and reporting. Among its duties, the Audit Committee:

| · | reviews the Company’s auditing, accounting and financial reporting process;
| · | reviews the adequacy of the Company’s internal controls;
| · | reviews the independence, fee arrangements, audit scope, and performance of the Company’s independent auditors, and recommends the appointment or replacement of independent auditors to the Board of Directors;
| · | reviews and approves all non-audit work, if any, to be performed by the auditors;
| · | reviews the adequacy of the organizational structure;

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| · | reviews, before release, the audited consolidated financial statements and operating and financial review and prospects contained in the Company’s Annual Report on Form 20-F, and recommends that the Board of Directors submit these items to the shareholders’ meeting for approval;
| · | provides an open avenue of communication among the Company’s independent auditors, financial and senior management, and the Board of Directors;
| · | reviews and updates the Company’s Code of Business Conduct and Ethics and ensure that there is a system to enforce the same and that this Code complies with all applicable rules and regulations;
| · | ensures that the Company’s management and auditors assess current financial reporting issues and practices; and
| · | reviews and pre-approves both audit and non-audit services to be provided by the Company’s auditors.

Board Diversity Matrix

Board Diversity Matrix
Country of Principal Executive Offices | China
Foreign Private Issuer | Yes
Disclosure Prohibited Under Home Country Law | No

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D. EMPLOYEES

On March 31, 2024, the Company (exclusive of Yixing-Pact) had 23 full-time employees. The Company’s employees are located at Hong Kong and mainland China. On December 31, 2023, 2022, and 2021, staffing levels at the Company (exclusive of Yixing-Pact) were as follows respectively:

|  | 2023 |  |  | 2022 |  |  | 2021 |
Marketing and sales |  |  | 7 |  |  |  | 7 |  |  |  | 11 |
Administrative |  |  | 13 |  |  |  | 13 |  |  |  | 16 |
Technical |  |  | 3 |  |  |  | 4 |  |  |  | 11 |
Total full-time employees |  |  | 23 |  |  |  | 24 |  |  |  | 38 |

On March 31, 2024, Pact-Yixing had 24 full-time employees. On December 31, 2023, 2022 and 2021, staffing levels at Pact-Yixing were as follows respectively:

|  | 2023 |  |  | 2022 |  |  | 2021 |
Administrative |  |  | 6 |  |  |  | 6 |  |  |  | 7 |
Technical |  |  | 18 |  |  |  | 19 |  |  |  | 22 |
Total full time employees |  |  | 24 |  |  |  | 25 |  |  |  | 29 |

None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced any employment related work stoppages, and we consider our relations with our employees to be good. The Company’s management consists of its officers and directors.

E. SHARE OWNERSHIP

The following table sets forth information concerning the beneficial ownership of the Company’s ordinary shares as of April 15, 2024 by (i) each person known to the Company to own 5% or more of the outstanding ordinary shares, (ii) each director and executive officer of the Company, and (iii) all officers and directors of the Company as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to, or the power to receive the economic benefit of ownership of, the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option or other right or the conversion of any other security. These Shares, however, are not included in the computation of the percentage ownership of any other person. The calculations of percentage ownership in the table below are based on 7,716,299 ordinary shares outstanding as of April 15, 2024.

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None of our existing shareholders have different voting rights from other shareholders. To our knowledge, we are not owned or controlled, directly or indirectly, by another corporation, by any foreign government or by any other natural or legal persons, severally or jointly. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

|  | Amount And Nature of Beneficial Ownership |  |  | Approximate Percentage Of Ordinary Shares Owned |
T.C. Leung (1) |  |  | 3,994,647 |  |  |  | 51.8 | %
Alex Sham(1) |  |  | 201,452 |  |  |  | 2.6 | %
Jerry Wong(1) |  |  | 130,742 |  |  |  | 1.7 | %
Y.K. Liang(1) |  |  | — |  |  |  | — |
Fu Ming Chen(1) |  |  | — |  |  |  | — |
Janet Cheang(1) |  |  | — |  |  |  | — |
David YL Leung(1) |  |  | 18,750 | (2) |  |  | * |
All Executive Officers and Directors of the Company as a group (7 persons) |  |  | 4,345,591 |  |  |  | 56.3 | %

* This person beneficially owns less than 1% of our outstanding ordinary shares.

(1) | The address for the Company’s officers and directors is c/o Euro Tech (Far East) Ltd., Unit D, 18/F., Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong.
(2) | This includes the share option which is exercisable from January 1, 2022 to April 18, 2029 to purchase 18,750 ordinary shares at the purchase price of $1.04 per share. This share option is granted under our 2019 Stock Option and Incentive Plan.

F. D ISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION

Not applicable.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

See – Item 6E. Share Ownership.

B. RELATED PARTY TRANSACTIONS

See – Item 6B. Compensation.

C. INTERESTS OF EXPERTS AND COUNSEL

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

ITEM 8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Item 8A.1 |  | See – Item 18.
Item 8A.2 |  | See – Item 18.
Item 8A.3 |  | See – Report of Independent Registered Public Accounting Firm, page F-2.
Item 8A.4 |  | We have complied with this requirement.
Item 8A.5 |  | Not applicable.
Item 8A.6 |  | Not applicable.
Item 8A.7 |  | Legal Proceedings. See – Item 4B. Business Overview-Litigation.
Item 8A.8 |  | Dividend Policy.

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Dividend Policy

On June 17, 2021, we declared a special cash dividend of an aggregate of US$1,030,951.80, which dividend was paid to all holders of record of our ordinary shares as of June 28, 2021. On May 31, 2022, we declared a special cash dividend of an aggregate of US$463,927.92, which dividend was paid to all holders of record of our ordinary shares as of June 13, 2022. We did not declare any dividend in fiscal year 2023. The payment of cash dividends, if any, in the future is within the discretion of the Board of Directors. The payment of cash dividends, if any, in the future will depend upon the Company’s earnings, capital requirements and financial conditions and other relevant factors. The Company’s Board of Directors does not presently intend to declare any cash dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company and Far East’s business operations.

We are a holding company incorporated in the British Virgin Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC, Hong Kong and British Virgin Islands regulations may restrict the ability of our PRC, Hong Kong and British Virgin Islands subsidiaries to pay dividends to us.

B. SIGNIFICANT CHANGES

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS

The Company has one class of securities presently registered: ordinary shares. These securities are presently traded on the NASDAQ’s Capital Market under the trading symbols “CLWT”.

B. PLAN OF DISTRIBUTION

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

C. MARKETS

See – Item 9A. “Listing Details.”

D. SELLING SHAREHOLDERS

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

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E. DILUTION

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

F. EXPENSES OF THE ISSUE

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

ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL

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

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

On January 1, 2005, the BVI Business Companies Act, as amended, (the “BC ACT”) came into force, with the objective of replacing the now repealed International Business Companies Act ( the “IBC” Act ) over a 2 year transitional period. The Company was incorporated under the IBC Act, on January 1, 2007, the Company was automatically re-registered under the BC Act as a BVI Business Company. Companies that were automatically re-registered on January 1, 2007 were not required to submit a new Memorandum and Articles of Association and certain key sections of the IBC Act were “grandfathered” into the BC Act: these are known as the “Transitional Provisions”. The Transitional Provisions ensure that well established and recognized concepts from the IBC Act, such as “authorized capital”, “capital accounts” and “surplus accounts”, remain relevant until such time as that company elects to adopt and register a New Memorandum and Articles of Association that fully conform with the BC Act. In November 2011 and January 2012, the Company filed an Amended and Restated Memorandum and Articles of Association with the Registry of Corporate Affairs of the BVI Financial Services Commission that on November 29, 2011 and January 30, 2012 that became as of filing with the BVI authorities to, among other things, (i) not apply the Transitional Provisions and (ii) remove these concepts from the Company’s charter documents eliminating a layer of requirements that would otherwise apply to share divisions (splits), combinations (reverse splits), redemptions and dividends. The Company’s accounting treatment of share capital need not change. Changes in the Company’s Amended and Restated Memorandum are summarized in the Company’s Forms 6-K filed with the SEC on November 30, 2011 and February 6, 2012.The foregoing Forms 6-K are hereby incorporated by reference as if fully stated herein. Set forth below is a summary of certain terms of the Amended and Restated Memorandum and Articles of Association and the BC Act relating to the Company’s securities. This description and the descriptions contained in the Forms 6-K incorporated by reference does not purport to be complete and is qualified in its entirety by reference to BVI statutory law and the Amended and Restated Memorandum and Articles of Association.

Holders of the Company’s ordinary shares are entitled to one vote for each whole share on all matters to be voted upon by shareholders, including the election of directors. Holders of ordinary shares do not have cumulative voting rights in the election of directors. All shares of ordinary shares are equal to each other with respect to liquidation and dividend rights. In the event of the liquidation of the Company, all assets available for distribution to the holders of ordinary shares are distributable among them according to their respective share holdings. All of the outstanding shares of ordinary shares of the Company are duly authorized, validly issued, fully paid and non-assessable.

Pursuant to the Company’s Memorandum and Articles of Association and pursuant to the laws of the BVI, the Company’s Memorandum and Articles of Association may be amended by a resolution of the Board of Directors without shareholder approval. This includes amendments to increase or reduce the authorized capital stock of the Company or to increase or reduce the par value of its shares. The ability of the Company to amend its Memorandum and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in control of the Company without any further action by the shareholders including but not limited to, a tender offer to purchase the Common Stock at a premium over then current market prices.

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Under United States law, majority and controlling shareholders generally have certain “fiduciary” responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders 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. While BVI law does not permit a shareholder of a BVI company to sue its directors derivatively, i.e., in the name of and for the benefit of the Company, and to sue the Company and its directors for his benefit and the benefit of others similarly situated, the circumstances in which any such action may be brought that may be available in respect of any such action may result in the rights of shareholders of a British Virgin Island company being more limited than those rights of shareholders in a United States company.

The Board of Directors of the Company, without further shareholder action, may issue shares of Preferred Stock in any number of series and may establish as to each such series the designation and number of shares to be issued and the relative rights and preferences of the shares of each series, including provisions regarding voting powers, redemption, dividend rights, rights upon liquidation and conversion rights. The issuance of shares of Preferred Stock by the Board of Directors could adversely affect the rights of holders of ordinary shares by, among other matters, establishing preferential dividends, liquidation rights and voting power. The Company has not issued any shares of Preferred Stock and has no present intention to issue shares of Preferred Stock. The issuance thereof could discourage or defeat efforts to acquire control of the Company through acquisition of ordinary shares.

Share Register and Voting Restrictions. The Company maintains a share register at its registered office in the BVI. The Company’s registered number is 200960. The objects of the Company are to engage in any act or activity that is not prohibited under any law of the BVI. Under the Articles, the Company is not required to treat the holder of a registered share in the Company as a shareholder until that person’s name has been entered in the share register. The holders of ordinary shares have one vote for each Ordinary Share held of record. The holders of Preferred Shares have such voting powers, full or limited, or no voting powers and such restrictions as may be stated and expressed in the resolution providing for the issuance of the Preferred Shares.

Shareholders Meeting. The directors of the Company may convene meetings of the shareholders of the Company at such times and in such manner and places within or outside the BVI as the directors consider necessary or desirable. Upon the written request of the shareholders holding ten (10%) percent or more of the outstanding voting shares in the Company the directors must convene a meeting of shareholders.

A shareholder may participate at a meeting of shareholders by telephone or other electronic means, as long as all shareholders participating in the meeting are able to hear each other.

A meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than fifty (50%) percent of the votes of the shares or class series of shares entitled to vote on resolutions of shareholders to be considered at the meeting. If a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.

Any action that may be taken by the shareholders at a meeting may also be taken by a resolution of shareholders consented to in writing or by written electronic communication by a majority or greater number of shares entitled to vote, without the need for any notice, but if not an unanimous writing, a copy of such resolution shall be sent to all non-consenting shareholders.

Pre-emptive Rights. The holders of ordinary shares and preferred shares are not entitled to any pre-emptive or similar rights.

Conflict of Interests. No agreement or transaction between the Company and one or more of its directors or any person in which any director has a financial interest or to whom any director is related, including as a director of that other person, is void and avoidable for this reason only, or by reason only that the director is present at the meeting of directors, or at the meeting of the committee of directors that approves the agreement or transaction, or that the vote or consent of the director is counted for that purpose, if the material facts of the interest of each director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith, or are known by the other directors. A director who has an interest in any particular business to be considered at a meeting of directors or shareholders may be counted for purposes of determining whether the meeting is duly constituted.

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Generally, no purchase, redemption or other acquisition of shares shall be made unless the directors determine that immediately after purchase, redemption or other acquisition the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the Company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved.

Duration, Liquidation, Merger. The Company shall continue until wound-up and dissolved by a resolution of shareholders, or under the terms of any insolvency or liquidation laws in force in the BVI. Under BVI law the Company may merge with another company, including a parent company or subsidiary, incorporated in the BVI, or in a jurisdiction outside of the BVI where the laws of that jurisdiction permit the merger. A merger must be authorized by the directors of the Company and approved by the shareholders.

Board of Directors. The business and affairs of the Company are managed by the directors who may exercise all such powers of the Company as are not by BVI law or by the Company’s Articles reserved to the shareholders of the Company.

C. MATERIAL CONTRACTS

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.

D. EXCHANGE CONTROLS

There are no exchange control restrictions on payment of dividends on the Company’s ordinary shares or on the conduct of the Company’s operations either in Hong Kong, where the Company’s principal executive offices are located, or the BVI, where the Company is incorporated. There are no BVI laws which impose foreign exchange controls on the Company or that effect the payment of dividends, interest, or other payments to non-resident holders of the Company’s securities. BVI laws and the Company’s Memorandum and Articles of Association impose no limitations on the right of non-resident or foreign owners to hold the Company’s securities or vote the Company’s ordinary shares. The PRC government has established a unified exchange rate system and system of exchange controls to which the Company is subject.

E. TAXATION

The following summary of the material British Virgin Islands, Hong Kong, People’s Republic of China and United States federal income tax consequences of an investment in our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local and other tax laws.

BVI

The Company and Pact Asia Pacific Limited are exempted from taxation in the BVI.

HONG KONG

In 2023, the Company’s subsidiary organized in Hong Kong, Far East, provides for Hong Kong profits tax at a rate of 8.25% on assessable profits up to US$256,000 and 16.5% on any part of assessable profits over US$256,000 on the basis of their income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for profits tax purposes.

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PRC

Euro Tech Trading (Shanghai) Limited (“ETTS”), a subsidiary of Far East, has been subject to PRC Enterprise Income Tax (“EIT”) at a rate of 25% in 2023 after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes. As of December 31, 2023, ETTS had an assessable loss carried forward of US$51,000 as agreed by the local tax authority to offset its profit for the forth coming years. Such loss will expire in 5 years. ETTS ceased its active business operations in 2021.

Shanghai Euro Tech Limited (“SET”), a subsidiary of Far East, has been subject to the PRC Enterprise Income Tax of 25% in 2023. SET ceased its active business operations in 2022.

Yixing Pact Environmental Technology Co. Ltd. (“Yixing”) has been subject to PRC Enterprise Income Tax at a rate of 25% in 2023, after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes. As of December 31, 2023, Yixing had an assessable loss carried forward of US$1,330,000 as agreed by the local tax authority to offset its profit for the forth coming years. Such loss will expire in 5 years.

Under the New Enterprise Income Tax Law and the implementation rules, profits of the PRC subsidiaries earned on or after January 1, 2008 and distributed by the PRC subsidiaries to foreign holding company are subject to a withholding tax at a rate of 10% unless reduced by tax treaty. Aggregate undistributed earnings of Far East’s subsidiaries located in the PRC that are available for distribution to Far East of approximately US$0.6 million on December 31, 2023 are intended to be reinvested, and accordingly, no deferred taxation has been made for the PRC dividend withholding taxes that would be payable upon the distribution of those amounts to Far East. Distributions made out of pre-January 1, 2008 retained earnings will not be subject to the withholding tax.

The items comprising the difference between income taxes computed at the Hong Kong profits tax and PRC EIT statutory tax rates in effect for 2023, 2022, and 2021 and our effective income taxes rates were as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Income before income taxes |  |  | 1,695 |  |  |  | 563 |  |  |  | 1,276 |
Computed tax using respective companies’ statutory tax rates |  |  | 78 |  |  |  | 131 |  |  |  | 158 |
Change in valuation allowances |  |  | (79 | ) |  |  | 58 |  |  |  | 349 |
Under-provision for income taxes in prior years |  |  | - |  |  |  | - |  |  |  | (12 | )
Non-deductible expenses |  |  | (44 | ) |  |  | (213 | ) |  |  | (405 | )
Income taxes (expense) / credit at effective tax rate |  |  | (45 | ) |  |  | (24 | ) |  |  | 90 |

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PRC STATUTORY RESERVES.

Under the relevant PRC laws and regulations, the PRC subsidiaries are required to appropriate certain percentage of their respective net income to two statutory funds (i.e., the statutory reserve fund and the statutory staff welfare fund). The PRC subsidiaries can also appropriate certain amount of their net income to the enterprise expansion fund.

(i) Statutory reserve fund.

Pursuant to applicable PRC laws and regulations, the PRC subsidiaries are required to allocate at least 10% of its net income to the statutory reserve fund until such fund reaches 50% of its registered capital. The statutory reserve fund can be utilized upon the approval by the relevant authorities, to offset accumulated losses or to increase its registered capital, provided that such fund is maintained at a minimum of 25% of its registered capital.

Under the PRC laws and regulations, the PRC subsidiaries are restricted in their ability to transfer certain of their net assets in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital and statutory reserves, as determined pursuant to PRC generally accepted accounting principles, totaling US$2,500,000 as of December 31, 2023.

(ii) Statutory staff welfare fund.

Pursuant to applicable PRC laws and regulations, the PRC subsidiaries are required to allocate certain amount of its respective net income to the statutory staff welfare funds determined by it. The statutory staff welfare funds can only be used to provide staff welfare facilities and other collective benefits to their employees. This fund is non-distributable other than upon liquidation of the PRC subsidiaries.

(iii) Enterprise expansion fund.

The enterprise expansion fund shall only be used to make up losses, expand the PRC subsidiaries’ production operations, or increase the capital of the subsidiaries. The enterprise expansion fund can be utilized upon approval by relevant authorities, to convert into registered capital and issue bonus capital to existing investors, provided that such fund is maintained at a minimum of 25% of its registered capital.

UNITED STATES FEDERAL INCOME TAXATION

The following discussion is a summary of the material United States federal income tax considerations that may be relevant to the purchase, holding, ownership, disposition or sale of our ordinary shares.

This discussion applies only to U.S. Holders (as defined below) that hold the ordinary shares as capital assets. This discussion is general in nature and does not discuss all aspects of U.S. federal income taxation which may be important to particular investors in light of their individual circumstances, including investors subject to special U.S. taxation rules (such as banks, other financial institutions, insurance companies, tax-exempt entities, retirement plans, regulated investment companies, partnerships, dealers in securities or currencies, brokers, traders in securities electing to mark to market, financial institutions, U.S. expatriates, persons who have acquired our ordinary shares as part of a straddle, hedge, conversion transaction or other integrated investment, persons that have a “functional currency” other than the U.S. dollar or persons that own (or are deemed to own) 10% or more of our stock by vote or value). This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift, Medicare contribution tax applicable to net investment income of certain non-corporate U.S. Holders (as defined below) or alternative minimum tax.

A “U.S. Holder” for purposes of this discussion is a beneficial owner of ordinary shares that is, for U.S. federal income tax purposes: (a) a citizen or resident of the United States; (b) a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; (c) an estate the income of which is subject to U.S. federal income taxation, regardless of its source; or (d) a trust if it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. If a partnership holds our ordinary shares, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. A partner of a partnership holding our ordinary shares is urged to consult its own tax advisor regarding an investment in our ordinary shares.

A U.S. Holder holding or considering acquiring or disposing of our ordinary shares is urged to consult his or her own tax advisor concerning the U.S. federal, state, local and non-U.S. income and other tax consequences of the holding, ownership, purchase, disposition or sale of our ordinary shares in light of such U.S. Holder’s particular circumstances.

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Passive foreign investment company rules. We will be considered a passive foreign investment company (“PFIC”) for any taxable year in which either (a) at least 75% of our gross income is passive income or (b) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived in the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s 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. 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 2023. 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 classified as a PFIC for 2023 or any future calendar years.

If we are determined to be a PFIC for any taxable year, a U.S. Holder that holds our ordinary shares may experience certain adverse tax consequences. Such U.S. Holder could be liable for additional taxes and interest charges upon (i) distributions received by the U.S. Holder on our ordinary shares during the year, but only to the extent that the aggregate of distributions for the taxable year exceeds 125% of the average amount of distributions received by the U.S. Holder during the shorter of the preceding three years or the U.S. Holder’s holding period for the ordinary shares, or (ii) upon a sale or other disposition of the ordinary shares at a gain, whether or not we continue to be a PFIC (each an “excess distribution”). The tax will be determined by allocating the excess distribution ratably to each day of the U.S. Holder’s holding period. The amount allocated to the current taxable year and any taxable year with respect to which we were not a PFIC will be taxed as ordinary income (rather than capital gain) earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates applicable to ordinary income for such taxable years and, in addition, an interest charge will be imposed on the amount of such taxes.

A U.S. Holder that holds our ordinary shares in any year in which we are classified as a PFIC may make a “deemed sale” election with respect to such ordinary shares in a subsequent taxable year in which we are not classified as a PFIC. If you make a valid deemed sale election with respect to your ordinary shares, you will be treated as having sold all of your ordinary shares for their fair market value on the last day of the last taxable year in which we were a PFIC and such ordinary shares will no longer be treated as PFIC stock. You will recognize gain (but not loss), which will be subject to tax as an “excess distribution” received on the last day of the last taxable year in which we were a PFIC. Your basis in the ordinary shares would be increased to reflect gain recognized, and your holding period would begin on the day after we ceased to be a PFIC.

Also, a U. S. Holder may be required to file certain forms with the U.S. Treasury Department.

Prospective investors should consult their own tax advisors regarding the U.S. federal income tax consequences of an investment in a PFIC.

Sale or Other Disposition of Ordinary Shares. Subject to the discussion above under “Passive foreign investment company rules”, a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of our ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ordinary shares. Any such capital gain or loss will be long-term if the ordinary shares have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. The deductibility of capital losses is subject to significant limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign withholding tax is imposed on a disposition of the ordinary shares, including the availability of the foreign tax credit under such U.S. Holder’s particular circumstances.

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Foreign Financial Asset Reporting. Certain U.S. Holders are required to report information to the Internal Revenue Service relating to an interest in “specified foreign financial assets,” including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds $50,000 (or a higher dollar amount prescribed by the Internal Revenue Service), subject to certain exceptions. These rules also impose penalties if a holder is required to submit such information to the Internal Revenue Service and fails to do so. U.S. Holders are urged to consult their tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.

Backup Withholding Tax and Information Reporting Requirements. Proceeds paid from the sale or other disposition of a U.S. Holder’s ordinary shares may be subject to information reporting to the Internal Revenue Service and, possibly, to U.S. federal backup withholding. Certain exempt recipients are not subject to these information reporting requirements. Backup withholding will not apply to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification, or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide Internal Revenue Service Form W-9 (Request for Taxpayer Identification Number and Certification).

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service in a timely manner and furnishing any required information.

Prospective investors should consult their own tax advisors as to their qualification for an exemption from backup withholding and the procedure for obtaining this exemption.

F. DIVIDENDS AND PAYING AGENT

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

G. STATEMENT BY EXPERTS

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

H. DOCUMENTS ON DISPLAY

We have filed this Annual Report on Form 20-F with the SEC under the Exchange Act. Statements made in this Annual Report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act as a foreign private issuer and file reports and other information with the SEC. Reports and other information filed by us with the SEC, including this Annual Report on Form 20-F, may be inspected and copied at the public reference room of the SEC at 100 F. Street, N.E., Washington D.C. 20549. You can also obtain copies of this Annual Report on Form 20-F by mail from the Public Reference Section of the SEC, 100 F. Street, N.E., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the SEC’s Internet site at http://www.sec.gov. The SEC’s telephone number is 1-800-SEC-0330. In accordance with NASDAQ Stock Market Rule 5250(d), we will also post this annual report on Form 20-F on our website at www.euro-tech.com. In addition, we will provide hardcopies of our annual report free of charge to shareholders upon request.

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As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

I. SUBSIDIARY INFORMATION

For information on the Company’s subsidiaries see – Item 4C. The separate financial statements of Blue Sky as required under Regulation S-X 210.3-09, an entity in which the Company owns a 19.4% equity interest are attached to this annual report.

J.ANNUAL REPORT TO SECURITY HOLDERS

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risks

The Company is exposed to risk from changing foreign currency exchange rates. The Company’s sales are denominated either in Hong Kong Dollars or Renminbi. The majority of the Company’s expenses and cost of revenue are denominated in Hong Kong Dollars, followed by Renminbi, U.S. Dollars, Japanese yen and the Euro. The Company is subject to a variety of risks associated with changes among the relative value of the U.S. Dollar, Hong Kong Dollar, Renminbi, Japanese yen and the Euro. The Company does not currently adequately hedge its foreign exchange positions. Any material increase in the value of the Hong Kong Dollar, Renminbi, Japanese yen and the Euro relative to the U.S. Dollar would increase the Company’s expenses and cost of revenue and therefore would have a material adverse effect on the Company’s business, financial condition and results of operations.

Inflation

The Company cannot determine the precise effect of inflation on its operations; however, it does not believe inflation has had a material effect on revenues or results of operations during the past several years. Efforts by the PRC to curb inflation may also curb economic growth, increase our overhead costs and adversely affect our revenues. If the PRC rate of inflation continues to increase, 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. 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 Company is currently not exposed to material future earnings or cash flow exposures from changes in interest rates on debt obligations as the Company had no material bank indebtedness in Fiscal 2023. The Company does not currently anticipate entering into interest rate swaps and/or similar instruments.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. DEBT SECURITIES

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

B. WARRANTS AND RIGHTS

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

C. OTHER SECURITIES

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

D. AMERICAN DEPOSITARY SHARES

Not applicable.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

In November 2011 and February 2012, the Company restated its Memorandum and Articles of Association. In January of 2012, the Company combined or reverse split each eleven of its outstanding ordinary shares into two shares of its ordinary shares. The reason for the foregoing was to comply with NASDAQ Listing Rules.

On September 20, 2011, the Company received a deficiency letter from NASDAQ that the Company was no longer 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 order to regain compliance, in January 2012, the Company effected a combination or reverse split of its ordinary shares.

To facilitate the combination, Company changed the par value of its ordinary shares from US$0.01 per share to no par value.

The Company had been originally incorporated under the International Business Companies Act (the “IBC” Act). On January 1, 2005 the BVI Business Companies Act, (as amended, the “BC Act”) came into force, with the objective of replacing the IBC Act over a 2 year transitional period.

On January 1, 2007, the Company was automatically re-registered under the BC Act as a BVI Business Company. Companies that were so automatically re-registered were not required to submit new Memorandum and Articles of Association and certain key sections of the IBC Act were “grandfathered” into the BC Act. See – Item 10B. Memorandum and Articles of Association. In December 2011 and January 2012, the Company filed Amended and Restated Memorandum and Articles of Association with the Registry of Corporate Affairs of the BVI Financial Services Commission to, among other things, (i) not apply the Transitional Provisions and (ii) remove these concepts from the Company’s charter documents eliminating a layer of requirements that would otherwise apply to share divisions (splits), combinations (reverse splits), redemptions and dividends. The Company’s accounting treatment of share capital need not change. Changes in the Company’s Amended and Restated Memorandum are summarized in the Company’s Forms 6-K filed with the SEC on November 30, 2011 and February 6, 2012.

ITEM 15. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 20-F.

Disclosure controls and procedures are defined under SEC rules as controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include controls and procedures designed to ensure that information is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

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Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, they used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management have concluded that, as of December 31, 2023, our internal control over financial reporting was effective.

Notwithstanding the foregoing, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems were determined to be effective they may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Y.K. Liang, one of our independent directors (under the standards set forth in Rule 10A-3 of the Exchange Act and the NASDAQ listing rules) and a member of our Audit Committee, meets the criteria for an “audit committee financial expert” as such term is defined in Item 407 of Regulation S-K promulgated by the SEC.

ITEM 16B.CODE OF ETHICS

Our Board of Directors has adopted a code of business conduct and ethics that applies to our directors, officers and employees, including certain provisions that specifically apply to our chief executive officer, chief financial officer and any other persons who perform similar functions for us. The Company agrees to undertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request addressed to our offices set forth on the cover page of this annual report.

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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by J&S, our principal external auditor for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below.

|  | For the Year Ended December 31 |
|  | 2023 |  |  | 2022 |
|  | US$ |  |  | US$ |
Audit fees (1) |  |  | 150,000 |  |  |  | 150,000 |
Audit-related fees(2) |  |  | - |  |  |  | — |
Tax fees(3) |  |  | - |  |  |  | — |
All other fees |  |  | - |  |  |  | — |
Total |  |  | 150,000 |  |  |  | 150,000 |

Our Audit Committee has adopted a pre-approval policy for the engagement of our independent accountant to perform permitted audit and non-audit services. Under this policy, which is designed to assure that such engagements do not impair the independence of our auditor, the Audit Committee pre-approves annually a range of specific audit and non-audit services in the categories of Audit Service, Audit-Related Services, Tax Services and other services that may be performed by our independent accountants, and the maximum pre-approved fees that may be paid as compensation for each pre-approved service in those categories. Any proposed services exceeding the maximum pre-approved fees require specific approval by the Audit Committee.

(1) | “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditor for the audit of our annual financial statements.
(2) | “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our principal auditor that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit-related fees” involve principally the performance of certain agreed upon procedures for the years ended December 31, 2023 and 2022, respectively.
(3) | “Tax fees” means the aggregated fees billed in each of the years listed for professional services rendered by our principal auditor for tax compliance, tax advice and tax planning.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

The Company is a “Controlled Company” as defined in NASDAQ’s corporate governance rules as a majority of our shares are owned by a “control person,” T.C. Leung, who has disclosed his “control person” status in his filings with the Commission. So long as that “controlled company” status remains in effect, the Company will be exempt from certain NASDAQ corporate governance rules that, including among other things, would require: (a) a majority of our directors be independent; (b) the compensation of our chief executive officer be determined or recommended by independent directors; and (c) director nominations be determined or recommended by independent directors.

The Company believes it is in compliance with NASDAQ’s corporate governance rules as in effect and intends to comply with the changes to said rules no later than the date that they become effective.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Share Repurchase Program

On April 18, 2023, our board of directors authorized a share repurchase program to repurchase up to 230,000 ordinary shares, for an aggregate purchase price of not more than US$300,000 over a period of one year.

During fiscal year 2023, we repurchased approximately 10,700 of our ordinary shares for approximately US$14,011 under the share repurchase program.

The table below summarizes the repurchases we made in the periods indicated.

Period | (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans or programs | (d) Maximum number of shares that may yet be purchased under the plans or programs
January, 2023 |  |  |  |
February, 2023 |  |  |  |
March, 2023 |  |  |  |
April, 2023 | 7,500 | 1.29 | 7,500 | 222,500
May, 2023 | 1,000 | 1.33 | 1,000 | 221,500
June, 2023 |  |  |  |
July, 2023 |  |  |  |
August, 2023 |  |  |  |
September, 2023 | 300 | 1.47 | 300 | 221,200
October, 2023 | 1,900 | 1.35 | 1,900 | 219,300
November, 2023 |  |  |  |
December, 2023 |  |  |  |

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ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Please see disclosure made under Item 16F of our annual report on Form 20-F that was filed with the SEC on May 12, 2023.

ITEM 16G. CORPORATE GOVERNANCE

We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Because our ordinary shares are listed on NASDAQ, we are subject to NASDAQ’s corporate governance requirements. In addition, because we are incorporated in the BVI, our corporate governance practices are also governed by applicable BVI law and our memorandum and articles of association.

We currently follow NASDAQ’s corporate governance requirements.

Nasdaq Marketplace Rule 5605(c)(2)(A) provides that each listed company must have, and will continue to have, an audit committee of at least three members. Nasdaq Listing Rule 5615(a)(3)(A) provides (with certain exceptions not relevant to the conclusions expressed herein) that a foreign private issuer may follow its home country practice in lieu of the requirements of the Rule 5600 Series. Our BVI counsel, Maples and Calder, has provided a letter to NASDAQ certifying that the Company’s practice of following the provisions of the laws of the British Virgin Islands and its memorandum and articles of association in lieu of certain Nasdaq Stock Market Marketplace Rules is not prohibited under any statutory legal provision of the British Virgin Islands.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

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ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION

The Company presently wholly owns Euro Tech (Far East) Limited, or Far East, which directly owns all or majority of the equity of a few entities as listed in Exhibit 8.1 of this annual report. Other than Far East and these entities (collectively, the “Subsidiaries” and each, a “Subsidiary”), the Company does not have any other consolidated foreign operating entities. The Company does not use a variable-interest entity structure.

The Company hereby discloses that,

(1) Union Power HK CPA Limited, or Union Power, audited its financial statements for the fiscal year ended December 31, 2021, and J&S Associate PLT, or J&S, audited its financial statements for the fiscal year ended December 31, 2022 and 2023 respectively. Union Power is headquartered in Hong Kong and that the Public Company Accounting Oversight Board has previously determined it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. J&S is headquartered in Malaysia;

(2) no governmental entity in the British Virgin Islands, Hong Kong, mainland China or Malaysia owns any shares of the Company or any Subsidiary;

(3) no governmental entity in the British Virgin Islands, Hong Kong, mainland China or Malaysia has any controlling financial interest with respect to the Company or any Subsidiary;

(4) none of the Company and the Subsidiaries has any director who is an official of the Chinese Communist Party; and

(5) none of the Memorandum and Articles of Association or equivalent charter documents of the Company and the Subsidiaries contains any charter of the Chinese Communist Party, including the text of any such charter.

The Company identifies the shareholders of the Company and the Company’s consolidated foreign operating entities as follows based on the relevant register of shareholders or similar corporate record.

Entity | Shareholders
Euro Tech Holdings Company Limited | T.C. Leung, Alex Sham, Jerry Wong, other shareholders that are not directors of the Company, none of which holds a majority of shares of the Company except T.C. Leung (please refer to Item 6.E of this annual report for details)
Euro Tech (Far East) Limited | Euro Tech Holdings Company Limited
Euro Tech Trading (Shanghai) Limited | Euro Tech (Far East) Limited
Shanghai Euro Tech Limited | Euro Tech (Far East) Limited
Yixing Pact Environmental Technology Co., Ltd. | Euro Tech (Far East) Limited, Tamworth Industrial Ltd.
Pact Asia Pacific Limited | Euro Tech (Far East) Limited, Tamworth Industrial Ltd.

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The individuals listed above (except other shareholders of the Company who are not directors of the Company) have provided written confirmation to the Company stating that they are not affiliated with any governmental entity in any jurisdiction.

To the Company’s knowledge based on the information provided by Tamworth Industrial Ltd., a BVI company, the shareholders of Tamworth Industrial Ltd. are JIN Min Qi (who holds a majority of the shares of Tamworth Industrial Ltd.), CHEN Jian Jun and JI Ming. Each of the three shareholders has provided written confirmation to the Company, confirming that he or she is not affiliated with any governmental entity in any jurisdiction.

The Company identifies the members of the board of the Company and the Company’s consolidated foreign operating entities as follows based on the relevant register of directors, or similar corporate record, and relevant shareholders’ or directors’ resolutions.

Entity | Directors
Euro Tech Holdings Company Limited | T.C. Leung, David YL Leung, Jerry Wong, Alex Sham, Y.K. Liang, Fu Ming Chen, Janet Cheang
Euro Tech (Far East) Limited | T.C. Leung, Jerry Wong, Alex Sham, Sai Ho LAI, Wai Man CHAN
Euro Tech Trading (Shanghai) Limited | T.C. Leung, Alex Sham, Jerry Wong
Shanghai Euro Tech Limited | T.C. Leung, Alex Sham, Jerry Wong
Yixing Pact Environmental Technology Co., Ltd. | David YL Leung, T.C. Leung, Jerry Wong, Xiaohong Xia, George Hayek
Pact Asia Pacific Limited | T.C. Leung

To the Company’s knowledge based on written confirmations from the individuals listed above, none of these individuals listed above is an official of the Chinese Communist Party, and none of them has any current or prior memberships on, or affiliations with, committees of the Chinese Communist Party.

ITEM 16J. INSIDER TRADING POLICIES

Not applicable

ITEM 16K. CYBERSECURITY

Risk Management and Strategy

We have implemented robust processes for assessing, identifying and managing material risks from cybersecurity threats and monitoring the prevention, detection, mitigation and remediation of material cybersecurity incident. We have also integrated cybersecurity risk management into our overall enterprise risk management system.

We have established a dynamic and multi-layered cybersecurity defense system to effectively mitigate both internal and external cybersecurity threats. This comprehensive system spans multiple security domains, including network, host, and application layers. It integrates a range of security capabilities such as threat defense, continuous monitoring, in-depth analysis and rapid response. Our approach to managing cybersecurity risks and safeguarding sensitive data is multi-faceted, involving technological safeguards, procedural protocols, a rigorous program of surveillance on our corporate network, ongoing internal and external evaluations of our security measures, a solid incident response framework, and regular cybersecurity training sessions for our employees. Our cybersecurity department is actively engaged in continuous monitoring of our applications, platforms and infrastructure to ensure prompt identification and response to potential issues, including emerging cybersecurity threats.

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As part of the aforementioned processes, we regularly engage third parties to assess our internal cybersecurity programs and compliance with applicable practices and standards. The bug bounty program we have established enables independent security researchers to aid us in identifying potential vulnerabilities and further mitigating risks. We have implemented a set of procedures to ensure effective management of the cybersecurity risks associated with the use of third-party service providers. These procedures include, but are not limited to, conducting cybersecurity assessments and tracking the capabilities and qualifications of third-party security service providers through our supplier assessment process. Additionally, for independent security researchers, we require adherence to the security-related agreement when submitting vulnerabilities.

As of the date of this annual report, we have not experienced any material cybersecurity incidents or identified any material cybersecurity threats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.

Governance

Our board of directors is responsible for overseeing our cybersecurity risk management. Our board of directors shall (i) maintain oversight of the disclosure related to cybersecurity matters in current reports or periodic reports of our company, (ii) review updates to the status of any material cybersecurity incidents or material risks from cybersecurity threats to our company, and the disclosure issues, if any, presented by our cybersecurity officer on a quarterly basis, and (iii) review disclosure concerning cybersecurity matters in our annual report on Form 20-F presented by our cybersecurity officer.

At management level, our cybersecurity committee is responsible for overseeing the process of assessing, identifying and managing material risks from cybersecurity threats to our company and monitoring the prevention, detection, mitigation and remediation of material cybersecurity incident. Our cybersecurity officer, as the management representative of our cybersecurity committee, reports to our board of directors on (i) a quarterly basis on updates to the status of any material cybersecurity incidents or material risks from cybersecurity threats to our company, and the disclosure issues, if any, and (ii) on disclosure concerning cybersecurity matters in our annual report on Form 20-F.

If a cybersecurity incident occurs, our cybersecurity department will promptly organize personnel for internal assessment and report to our cybersecurity committee. If it is further determined that the incident could potentially be a material cybersecurity event, our cybersecurity officer will promptly report the incident and assessment results to our disclosure committee and external legal counsel to the extent appropriate. Our cybersecurity officer shall prepare disclosure material on the cybersecurity incident for review and approval by our disclosure committee and board of directors, before it is disseminated to the public.

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PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The consolidated financial statements of each of Euro Tech Holdings Company Limited and Zhejiang Tianlan Environmental Protection Technology Company Limited are included at the end of this annual report.

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ITEM 19. EXHIBITS

Lists of Exhibits

Exhibit No. |  | Description
3.1 |  | Amended and Restated Memorandum and Articles of Association (1)
3.2 |  | Amendments to Exhibit 3.1 (2)
4.11 |  | Registrant’s Audit Committee Charter (3)
4.13 |  | Euro Tech Holdings Company Limited 2019 Stock Option and Incentive Plan (4)
8.1 |  | List of Subsidiaries *
12.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
12.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
13.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
13.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101 .INS* |  | XBRL Instance Document
101 .SCH* |  | XBRL Taxonomy Extension Schema Document
101 .CAL* |  | XBRL Taxonomy Extension Calculation Linkbase Document
101 .DBF* |  | XBRL Taxonomy Extension Definition Linkbase Document
101 .LAB* |  | XBRL Taxonomy Extension Label Linkbase Document
101 .PRE* |  | XBRL Taxonomy Extension Presentation Linkbase Document

* Filed with this Annual Report on Form 20-F.

1. | Incorporated by reference, previously filed as an Exhibit to Registrant’s Form 6-K on November 30, 2011.
2. | Incorporated by reference, previously filed as an Exhibit to Registrant’s Form 6-K on February 6, 2012.
3. | Incorporated by reference, previously filed as an Exhibit to Registrant’s Form 20-F filed on August 19, 2002.
4. | Incorporated by reference, previously filed as an Exhibit to Registrant’s Form 6-K on April 25, 2019.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorize the undersigned to sign this annual report on its behalf.

| EURO TECH HOLDINGS COMPANY LIMITED |
| (REGISTRANT) |
April 30, 2024 | By: | /s/ David YL Leung |
|  | David YL Leung |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

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EURO TECH HOLDINGS COMPANY LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

| Page
Report of Independent Registered Public Accounting Firm – J&S Associate PLT (PCAOB ID:6743) | F-2
Report of Independent Registered Public Accounting Firm – Union Power HK CPA Limited (PCAOB ID:3004) | F-4
Consolidated Balance Sheets | F-6
Consolidated Statements of Operations and Comprehensive Income | F-7
Consolidated Statements of Cash Flows | F-8
Consolidated Statements of Changes in Shareholders’ Equity | F-9
Notes to Consolidated Financial Statements | F-10 – F-37

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| J&S ASSOCIATE PLT 202206000037 (LLP0033395-LCA) & AF002380 (Registered with PCAOB and MIA) B-11-14, Megan Avenue II 12, Jalan Yap Kwan Seng, 50450, Kuala Lumpur, Malaysia | Tel: +603-4813 9469 Email : info@jns-associate.com Website : jns-associate.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Euro Tech Holdings Company Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Euro Tech Holdings Company Limited (the “ Company”) and its subsidiaries (the “Group”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive income, consolidated statement of changes in shareholders’ equity, and consolidated statements of cash flows for the year ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current year audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Note 2 to the consolidated financial statements, the Group adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). We assessed the revenue recognition as a critical audit matter in relation to the complexity and judgment involved in applying ASC 606 to the Group’s revenue streams from different type of contracts.

The Group’s revenue is derived from both short and long-term contracts for customers in their engineering segment, as well as short-term contracts for customers in their trading and manufacturing segment.

Performance obligations satisfied over time (engineering services)

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 the Group’s long-term 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.

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Our key consideration in our evaluation of revenue recognition involves assessing the appropriateness of the Group’s application of ASC 606, including the identification and measurement of performance obligations, the determination of the stages of works certified by customers, and the classification of contract assets and liabilities. Our audit procedures to assess the above include:

| 1. | Understand and evaluate the Group’s revenue recognition policies and procedures including the adoption and application of ASC 606;
| 2. | Evaluate the identification and measurement of performance obligations, including the Group’s determination of whether they are distinct or combined;
| 3. | Assess the methodology used to measure progress towards complete satisfaction of performance obligations over time, including the use of the output method and reliance on customer-certified progress;
| 4. | Verify and review the classification and control of contract assets and liabilities;
| 5. | Test samples of contracts and evidence to ensure reasonable accuracy and completeness of revenue recognition;
| 6. | Validate costs incurred for projects not yet completed at year end, revenue earned but not yet billed to the customer (contract assets), and validate amounts received in advance from customers for work not yet completed (contract liabilities);
| 7. | Validate invoices billed to customers subsequent to financial year end for revenue earned as at financial year end and validate receipt of payments for these invoices;
| 8. | Consider consistency of evidence obtained in other areas of the audit;
| 9. | Assess the adequacy of the Group’s disclosures related to revenue recognition under ASC 606.

Uncertain Property Title in the PRC

As described in Note 21 (ii) to the consolidated financial statements, The Group, through its subsidiary, Far East has been earning annual rental income on a property in Beijing, China, which was expected to amount to US$38,000 annually as per the latest agreement. However, the Group has not successfully obtained Certificate of Real Estate Ownership, and thus title of the property from the PRC authority. The property’s book value as at December 31, 2023 was approximately US$80,000.

Failure to obtain the title could have a material adverse impact on the Group’s financial position, results of operations, and cash flow. We ascertain that the uncertain property by title in the PRC is a critical audit matter due to its significant and the potential material adverse effect on the financial statements. The outcome of this matter could impact the Group’s future financial periods.

We evaluated management’s actions to resolve the property title issue and assessed the potential impact on the financial statements. Our audit procedures included, among others, reviewing relevant documentation including verifying rental agreements and its entitlements, assess expert’s opinion on the ownership, and evaluating the reasonableness of management’s efforts in obtaining the title.

/s/ J&S Associate PLT

Certified Public Accountants

PCAOB Number: 6743

We have served as the Company’s auditor since 2023.

Kuala Lumpur, Malaysia

April 30, 2024

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Euro Tech Holdings Company Limited

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of operations and comprehensive income / (loss), shareholders’ equity, and cash flows of Euro Tech Holdings Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its consolidated operations and its consolidated cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Restatement of the 2021 Consolidated Financial Statements

As discussed in Note 2 (ai) to the consolidated financial statements, the 2021 consolidated financial statements have been restated to correct a misstatement.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Report of Independent Registered Public Accounting Firm (Cont’d)

To the Board of Directors and Shareholders of

Euro Tech Holdings Company Limited

Critical Audit Matter (Cont’d)

Revenue Recognition

As described further in Note 2 to the consolidated financial statements, revenues derived from long-term contracts in the engineering segments are recognized as the performance obligations are satisfied over time. The Group uses output method to recognize revenue. The Group’s contracts may include variable consideration related to contract modifications through change orders or claims, and management must also estimate the variable consideration the Group expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time to be a critical audit matter.

The principal considerations for our determination that revenue recognized over time is a critical audit matter is that auditing management’s estimate of the progress toward completion of its projects was complex and subjective. In addition, auditing the Group’s measurement of variable consideration is also complex and highly judgmental and can have a material effect on the amount of revenue recognized.

Our audit procedures related to revenue recognized over time included the following, among others.

· | We obtained an understanding and evaluated the design on the operating effectiveness of the Group’s processes and controls related to contract revenue recognition;
· | We tested the estimated variable consideration by evaluating the appropriate application of the most likely amount method, and tracing amounts to supporting documentation;
· | We evaluated management’s ability to reasonably estimate costs by performing a comparison of the actual costs to prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the estimated costs;
· | We evaluated management’s methodologies and the consistency of management’s methodologies over the life of the contracts;
· | We tested the original estimated costs and profit margins on engineering projects that were commenced and completed during the year ended December 31, 2021, by obtaining the original estimates, compare to the actual costs and profit margin for the completed contracts and investigate significant changes; and
· | We tested the estimated costs to complete engineering projects that were not completed during the year ended December 31, 2021 by comparing the estimated cost to complete at December 31, 2021 to actual cost incurred subsequent to December 31, 2021.

/s/ Union Power HK CPA Limited

We have served as the Company’s auditor since 2018.

Hong Kong, the People’s Republic of China

May 13, 2022, except for the effects of the restatement discussed in Note 2 (ai) to the consolidated financial statements, as to which the date is September 23, 2022

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EURO TECH HOLDINGS COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

|  | As of December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
ASSETS |  |  |  |  |  |
Current asset: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 5,453 |  |  | $ | 5,628 |
Restricted cash |  |  | 1,193 |  |  |  | 930 |
Accounts receivable, net |  |  | 2,864 |  |  |  | 1,586 |
Prepayments and other current assets |  |  | 246 |  |  |  | 486 |
Contract assets |  |  | 66 |  |  |  | 217 |
Inventories |  |  | 723 |  |  |  | 603 |
Total current assets |  |  | 10,545 |  |  |  | 9,450 |
Non-current assets: |  |  |  |  |  |  |  |
Property, plant and equipment, net |  |  | 168 |  |  |  | 179 |
Investments in affiliates |  |  | 9,856 |  |  |  | 8,251 |
Goodwill |  |  | 1,071 |  |  |  | 1,071 |
Operating lease right-of-use assets, net |  |  | 233 |  |  |  | 219 |
Deferred tax assets |  |  | 103 |  |  |  | 108 |
Restricted cash |  |  | 144 |  |  |  | 85 |
TOTAL ASSETS |  | $ | 22,120 |  |  | $ | 19,363 |
LIABILTIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Bank borrowings |  | $ | 154 |  |  | $ | 222 |
Accounts payable |  |  | 3,456 |  |  |  | 2,279 |
Contract liabilities |  |  | 650 |  |  |  | 625 |
Other payables and accrued expenses |  |  | 1,124 |  |  |  | 1,231 |
Current portion of long-term operating lease liabilities |  |  | 170 |  |  |  | 113 |
Income tax payable |  |  | 42 |  |  |  | - |
Total current liabilities |  |  | 5,596 |  |  |  | 4,470 |
Non-current liabilities: |  |  |  |  |  |  |  |
Deferred tax liabilities |  |  | - |  |  |  | - |
Long-term operating lease liabilities, net of current portion |  |  | 44 |  |  |  | 87 |
TOTAL LIABILITIES |  |  | 5,640 |  |  |  | 4,557 |
Commitments and contingencies |  |  | - |  |  |  | - |
SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Ordinary share, 20,000,000 shares authorized and no par value; 7,899,832 and 7,899,832 issued and outstanding as of December 31, 2023 and 2022 |  |  | 123 |  |  |  | 123 |
Additional paid-in capital |  |  | 9,762 |  |  |  | 9,715 |
Treasury stock, 178,400 and 167,700 shares at cost, as of December 31, 2023 and 2022, respectively |  |  | (800 | ) |  |  | (786 | )
PRC statutory reserve |  |  | 342 |  |  |  | 362 |
Accumulated other comprehensive loss |  |  | 733 |  |  |  | 725 |
Retained earnings |  |  | 5,481 |  |  |  | 3,633 |
Total shareholders’ equity attributable to Euro Tech Holdings Company Limited |  |  | 15,641 |  |  |  | 13,772 |
Noncontrolling interests |  |  | 839 |  |  |  | 1,034 |
Shareholders’ equity |  |  | 16,480 |  |  |  | 14,806 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 22,120 |  |  | $ | 19,363 |

See accompanying notes to consolidated financial statements.

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EURO TECH HOLDINGS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

|  | Years ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Revenue, net: |  |  |  |  |  |  |  | (Restated) |
Trading and manufacturing |  | $ | 12,143 |  |  | $ | 9,332 |  |  | $ | 9,619 |
Engineering |  |  | 5,797 |  |  |  | 5,617 |  |  |  | 11,769 |
|  |  | 17,940 |  |  |  | 14,949 |  |  |  | 21,388 |
Cost of revenue: |  |  |  |  |  |  |  |  |  |  |  |
Trading and manufacturing |  |  | (9,751 | ) |  |  | (7,345 | ) |  |  | (6,938 | )
Engineering |  |  | (4,328 | ) |  |  | (2,986 | ) |  |  | (8,755 | )
|  |  | (14,079 | ) |  |  | (10,331 | ) |  |  | (15,693 | )
Gross profit |  |  | 3,861 |  |  |  | 4,618 |  |  |  | 5,695 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
Finance costs |  |  | (7 | ) |  |  | (7 | ) |  |  | (3 | )
General and administrative expenses |  |  | (4,103 | ) |  |  | (4,490 | ) |  |  | (4,911 | )
Loss on disposal of property, plant and equipment |  |  | - |  |  |  | (7 | ) |  |  | (10 | )
|  |  | (4,110 | ) |  |  | (4,504 | ) |  |  | (4,924 | )
(LOSS) INCOME FROM OPERATION |  |  | (249 | ) |  |  | 114 |  |  |  | 771 |
Other income: |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 37 |  |  |  | 23 |  |  |  | 23 |
Equity in income of affiliates |  |  | 1,927 |  |  |  | 413 |  |  |  | 355 |
Other income, net |  |  | (20 | ) |  |  | 13 |  |  |  | 127 |
Total other income, net |  |  | 1,944 |  |  |  | 449 |  |  |  | 505 |
INCOME BEFORE INCOME TAXES |  |  | 1,695 |  |  |  | 563 |  |  |  | 1,276 |
Income tax (expense) credit |  |  | (45 | ) |  |  | (24 | ) |  |  | 90 |
NET INCOME |  |  | 1,650 |  |  |  | 539 |  |  |  | 1,366 |
Net loss (income) attributable to noncontrolling interests |  |  | 178 |  |  |  | (170 | ) |  |  | (377 | )
Net income attributable to Euro Tech Holdings Company Limited |  | $ | 1,828 |  |  | $ | 369 |  |  | $ | 989 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | 1,650 |  |  |  | 539 |  |  |  | 1,366 |
Foreign currency adjustment loss |  |  | (9 | ) |  |  | (115 | ) |  |  | (52 | )
COMPREHENSIVE INCOME |  |  | 1,641 |  |  |  | 424 |  |  |  | 1,314 |
Comprehensive income (loss) attributable to noncontrolling interests |  |  | 195 |  |  |  | (117 | ) |  |  | (389 | )
Comprehensive income attributable to Euro Tech Holdings Company Limited |  | $ | 1,836 |  |  | $ | 307 |  |  | $ | 925 |
Net income per ordinary share attributable to Euro Tech Holdings Company Limited |  |  |  |  |  |  |  |  |  |  |  |
– Basic and Diluted |  | $ | 0.24 |  |  | $ | 0.05 |  |  | $ | 0.13 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |  |  |
– Basic and Diluted |  |  | 7,726,118 |  |  |  | 7,732,132 |  |  |  | 7,732,132 |

See accompanying notes to consolidated financial statements.

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EURO TECH HOLDINGS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Years ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  |  |  |  |  |  |  | (Restated) |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |
Net income |  | $ | 1,828 |  |  | $ | 369 |  |  | $ | 989 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities |  |  |  |  |  |  |  |  |  |  |  |
Depreciation of property, plant and equipment |  |  | 15 |  |  |  | 33 |  |  |  | 38 |
Loss on disposal of property, plant and equipment |  |  | - |  |  |  | 7 |  |  |  | 10 |
Stock-based compensation expense |  |  | 47 |  |  |  | 45 |  |  |  | 55 |
Non-controlling interests in (loss) / income of subsidiaries |  |  | (178 | ) |  |  | 170 |  |  |  | 377 |
Equity in profit of affiliates |  |  | (1,927 | ) |  |  | (413 | ) |  |  | (355 | )
Deferred tax expenses (credit) |  |  | 5 |  |  |  | 34 |  |  |  | (145 | )
Change in non-current assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Long-term operating lease obligations |  |  | (43 | ) |  |  | 46 |  |  |  | (53 | )
Operating lease right-of-use assets |  |  | (14 | ) |  |  | 19 |  |  |  | (5 | )
Change in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  |  | (1,278 | ) |  |  | 2,045 |  |  |  | (432 | )
Prepayments and other current assets |  |  | 240 |  |  |  | 86 |  |  |  | 942 |
Contract assets |  |  | 151 |  |  |  | (143 | ) |  |  | 128 |
Inventories |  |  | (120 | ) |  |  | (56 | ) |  |  | (205 | )
Accounts payables |  |  | 1,177 |  |  |  | (872 | ) |  |  | 757 |
Contract liabilities |  |  | 25 |  |  |  | (451 | ) |  |  | 13 |
Other payables and accrued expenses |  |  | (107 | ) |  |  | (354 | ) |  |  | (8 | )
Income tax payable |  |  | 42 |  |  |  | (42 | ) |  |  | 38 |
Right-of-use assets and operating lease liabilities |  |  | 57 |  |  |  | (62 | ) |  |  | 57 |
Net cash (used in) provided by operating activities |  |  | (80 | ) |  |  | 461 |  |  |  | 2,201 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Payment to acquire property, plant and equipment |  |  | (5 | ) |  |  | (7 | ) |  |  | (4 | )
Dividend received from affiliates |  |  | 322 |  |  |  | 239 |  |  |  | 362 |
Net cash provided by investing activities |  |  | 317 |  |  |  | 232 |  |  |  | 358 |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Dividend paid |  |  | - |  |  |  | (464 | ) |  |  | (1,031 | )
Purchase of treasury stock |  |  | (14 | ) |  |  | - |  |  |  | - |
Proceeds from bank borrowings |  |  | 666 |  |  |  | 868 |  |  |  | 782 |
Repayment to bank borrowings |  |  | (734 | ) |  |  | (1,022 | ) |  |  | (767 | )
Net cash used in financing activities |  |  | (82 | ) |  |  | (618 | ) |  |  | (1,016 | )
Foreign currency translation adjustment |  |  | (8 | ) |  |  | (112 | ) |  |  | (54 | )
Net change in cash, cash equivalents and restricted cash |  |  | 147 |  |  |  | (37 | ) |  |  | 1,489 |
BEGINNING OF YEAR |  |  | 6,643 |  |  |  | 6,680 |  |  |  | 5,191 |
END OF YEAR |  | $ | 6,790 |  |  | $ | 6,643 |  |  | $ | 6,680 |
Represented by: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 5,453 |  |  | $ | 5,628 |  |  | $ | 5,269 |
Restricted cash |  |  | 1,337 |  |  |  | 1,015 |  |  |  | 1,411 |
|  | $ | 6,790 |  |  | $ | 6,643 |  |  | $ | 6,680 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid for income taxes |  | $ | 1 |  |  | $ | 42 |  |  | $ | 20 |
Cash paid for interest |  | $ | 7 |  |  | $ | 7 |  |  | $ | 3 |

See accompanying notes to consolidated financial statements.

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EURO TECH HOLDINGS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

|  | Euro Tech Holdings Company Limited’s Shareholders |  |  |  |  |  |  |  |  |  |
|  | Ordinary Share |  |  | Additional |  |  |  |  |  | Accumulated other comprehensive |  |  | PRC |  |  |  |  |  | Non- |  |  | Total |
|  | No. of shares |  |  | Amount |  |  | paid-in capital |  |  | Treasure stock |  |  | (loss) income |  |  | statutory reserve |  |  | Retained earnings |  |  | controlling interests |  |  | shareholders’ equity |
Balance as of December 31, 2020 (restated) |  |  | 7,899,832 |  |  | $ | 123 |  |  | $ | 9,615 |  |  | $ | (786 | ) |  | $ | 851 |  |  | $ | 316 |  |  | $ | 3,816 |  |  | $ | 528 |  |  | $ | 14,463 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (64 | ) |  |  | - |  |  |  | - |  |  |  | 12 |  |  |  | (52 | )
Dividend paid |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,031 | ) |  |  | - |  |  |  | (1,031 | )
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 55 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 55 |
Net income (loss) for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 989 |  |  |  | 377 |  |  |  | 1,366 |
Balance as of December 31, 2021 (restated) |  |  | 7,899,832 |  |  | $ | 123 |  |  | $ | 9,670 |  |  | $ | (786 | ) |  | $ | 787 |  |  | $ | 316 |  |  | $ | 3,774 |  |  | $ | 917 |  |  | $ | 14,801 |
Balance as of January 1, 2022 |  |  | 7,899,832 |  |  | $ | 123 |  |  | $ | 9,670 |  |  | $ | (786 | ) |  | $ | 787 |  |  | $ | 316 |  |  | $ | 3,774 |  |  | $ | 917 |  |  | $ | 14,801 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (62 | ) |  |  |  |  |  |  | - |  |  |  | (53 | ) |  |  | (115 | )
Dividend paid |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (464 | ) |  |  | - |  |  |  | (464 | )
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 45 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 45 |
Appropriation to statutory reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 46 |  |  |  | (46 | ) |  |  | - |  |  |  | - |
Net income for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 369 |  |  |  | 170 |  |  |  | 539 |
Balance as of December 31, 2022 |  |  | 7,899,832 |  |  | $ | 123 |  |  | $ | 9,715 |  |  | $ | (786 | ) |  | $ | 725 |  |  | $ | 362 |  |  | $ | 3,633 |  |  | $ | 1,034 |  |  | $ | 14,806 |
Balance as of January 1, 2023 |  |  | 7,899,832 |  |  | $ | 123 |  |  | $ | 9,715 |  |  | $ | (786 | ) |  | $ | 725 |  |  | $ | 362 |  |  | $ | 3,633 |  |  | $ | 1,034 |  |  | $ | 14,806 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8 |  |  |  | - |  |  |  | - |  |  |  | (17 | ) |  |  | (9 | )
Purchase 10,700 shares of treasury stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (14 | ) |  |  | - |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  | (14 | )
Stock-based compensation expense |  |  | - |  |  |  | - |  |  |  | 47 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 47 |
Appropriation to statutory reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (20 | ) |  |  | 20 |  |  |  | - |  |  |  | - |
Net income for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,828 |  |  |  | (178 | ) |  |  | 1,650 |
Balance as of December 31, 2023 |  |  | 7,899,832 |  |  | $ | 123 |  |  | $ | 9,762 |  |  | $ | (800 | ) |  | $ | 733 |  |  | $ | 342 |  |  | $ | 5,481 |  |  | $ | 839 |  |  | $ | 16,480 |

See accompanying notes to consolidated financial statements.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 1: Organization and Business Background

Euro Tech Holdings Company Limited (the “Company” or “CLWT”) was incorporated in the British Virgin Islands on September 30, 1996.

Euro Tech (Far East) Limited (“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 People’s Republic of China (the “PRC”).

The Company’s principal subsidiaries at December 31, 2023 and 2022 are set out below.

Description of subsidiaries

Company name |  | Place of incorporation and principal place of operation |  | Principal activities and place of operation |  | Effective interest held
|  |  |  |  |  | 2023 |  | 2022
Euro Tech (Far East) Limited |  | Hong Kong |  | Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems |  | 100% |  | 100%
Euro Tech Trading (Shanghai) Limited |  | The PRC |  | Inactive |  | 100% |  | 100%
Shanghai Euro Tech Limited |  | The PRC |  | Manufacturing of analytical and testing equipment |  | 100% |  | 100%
Yixing Pact Environmental Technology Co., Ltd. |  | The PRC |  | Design, manufacturing and operation of water and wastewater treatment and water desalination machinery and equipment |  | 58% |  | 58%
Pact Asia Pacific Limited |  | The British Virgin Islands |  | Sale of environmental protection equipment, undertaking environment protection projects and providing relevant technology advice, training and services |  | 58% |  | 58%
Non-consolidating affiliate: |  |  |  |  |  |
Zhejiang Tianlan Environmental Protection Technology Co. Ltd (“Blue Sky”) * |  | The PRC |  | Design, general contract, equipment manufacturing, installation, testing and operation management of the treatment of waste gases emitted |  | 19.4% |  | 19.4%

* The Company’s interest in Blue Sky has been counted for as an affiliate using the equity method as the Company has representation on both the Board and Executive Committee of Blue Sky, and the ability to participate in the decision-making process and exercise significant influence.

The Company and its subsidiaries are hereinafter referred to as (the “Group”).

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 2: Summary of Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements and notes.

· | Use of 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.

· | Basis of consolidation

The accompanying consolidated financial statements include the results of operations of the Company and its subsidiaries. Significant intercompany transactions and balances have been eliminated.

· | Subsidiaries

Subsidiaries are all entities over which the Group has control; has the power to appoint or remove the majority of the members of the board of directors; has the right to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

· | 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. We consider our representation on the board of directors of our affiliate as a factor when determining whether we have significant influence over such affiliate. 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.

· | Non-controlling interests

For entities that are consolidated, but not 100% owned, a portion of the income or loss and equity is allocated to owners other than the Group. The aggregate of the income or loss and corresponding equity that is not owned by the Group is included within non-controlling interests in the consolidated financial statements.

Non-controlling interests is presented as a separate component of equity in the consolidated balance sheets. Net income includes the net income attributable to the holders of non-controlling interests in the consolidated statements of operations and comprehensive income / (loss). Profits and losses are allocated to non-controlling interests in proportion to their relative ownership interests regardless of their basis.

· | Non-controlling interest – put option

The management evaluates all of its financial instruments, including issued put options, to determine their appropriate classification as either liabilities or equity, following the criteria's outlined in ASC 480, " Distinguishing Liabilities from Equity". The Group has determined that the put option held by non-controlling interest will be recorded as equity if the fair value of the put option becomes material.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

· | Segment information

The Group reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Group’s reportable segments. The Group categorizes its operations into two business segments: Trading and manufacturing, and Engineering.

· | Revenue recognition

Our revenue is derived from both short and 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 long-term 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. 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, recognizes 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 stages of works certified by customers. Generally, invoices are billed upon fulfilment of the measurable performance obligation. The Company evaluates the progress towards completion of the performance obligation at each phase of the contract and bills the customer in accordance with the price agreed upon on the contract.

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.

The Group had the following backlog:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Engineering segment |  |  | 4,200 |  |  |  | 6,000 |

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Unrecognized contract revenue which is expected to be recognized in next 12 months is approximately US$4,200,000 (2022: US$6,000,000).

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.

In the event that customer requests a change of order (such as an upgrade of specifications, materials or additional work) before the completion of the project, the Group will negotiate and sign a subcontract with the customer, subject to mutual agreement. The subcontract has its own terms and conditions for the variable consideration and is generally integrated with the original master contract. This will normally result in an increase in additional billing to the customer and rarely a reduction in the total value of the contract. 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)

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 costs incurred or any payment received for a long-term contract, for which revenue has not been recognized due to impracticability or inability to measure the performance obligation, is recorded as a contract asset and contract liability, respectively, on the Group’s consolidated balance sheets. Revenue will be recognized when the performance obligation can be measured reliably and the criteria as stipulated under ACS 606 are met.

The Group’s consolidated balance sheets present contract cost assets that represent our rights to receive payment for completed but not yet billed work and include costs incurred for contracts with customers as at financial year end less amounts received in advance from those customers at financial year end.

The Group’s consolidated balance sheets present contract liabilities that contain deferred revenue that represent amounts received in advance from customers at financial year end in excess of any costs incurred on those contracts, which are in progress at year end, for which revenue has not yet been recognized.

Contract assets and contract liabilities arising from the same individual contract are presented net as either a single net contract asset or single net contract liability for presentation purposes.

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.

· | Research and development costs

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Research and development costs (“R&D” costs) are expensed as incurred. The R&D costs amounted to approximately US$Nil, US$Nil and US$61,000 for the years ended December 31, 2023, 2022 and 2021 respectively and were included in “Selling and administrative expenses” in the Group’s consolidated statements of operations and comprehensive income / (loss).

· | Advertising and promotional expenses

Advertising and promotional expenses (“A&P” expenses) are expensed as incurred. The A&P expenses amounted to approximately US$29,000, US$9,000 and US$7,000 for the years ended December 31, 2023, 2022 and 2021 respectively and were included in “Selling and administrative expenses” in the Group’s consolidated statements 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.

The accounting guidance on accounting for uncertainty in income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods. The Group does not believe it has any uncertain tax positions through the periods ended December 31, 2023, 2022 and 2021 respectively which would have a material impact on the Group’s consolidated financial statements.

Interest and penalties related to uncertain income tax positions are included in income tax expense on the Group’s consolidated statements of operations and comprehensive income / (loss). Interest and penalties actually incurred are charged to interest expense and the other income, respectively if applicable.

The Group files tax returns in Hong Kong and the PRC. The tax returns for 2023, 2022 and 2021 are subject to examination by Hong Kong and PRC taxing authorities, commencing with the first year filed.

· | Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, and bank deposits with original maturities of three months or less, all of which are unrestricted as to withdrawal. There were no cash equivalents as of December 31, 2023 and 2022.

· | Restricted cash

Restricted cash represents cash deposits retained with banks in the PRC for issuance of performance bonds and guarantees to the customers and cash deposited by the Group into separate accounts and designated as collateral for standby letters of credit in the same amount in accordance with contractual agreements.

· | Accounts receivable and allowance for doubtful accounts

The Group does not charge interest to its customers and carries its customer receivables at their face amounts, less an allowance for doubtful accounts. As is common practice in the industry, the Group classifies all accounts receivable as current assets.

The Group grants trade credit, on a non-collateralized basis, to its customers and is subject to potential credit risk related to changes in business and overall economic activity. The Group analyzes specific accounts receivable balances, historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the event that a customer balance is deemed to be uncollectible, the account balance is written-off against the allowance for doubtful accounts.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

· | Inventories

Inventories are measured using the first-in, first-out method and are stated at the lower of cost or net realizable value. Cost of finished goods comprise direct material, direct production costs and an allocated portion of production overhead costs based on normal operating capacity. Allowance is made for obsolete, slow moving or defective items, where appropriate.

· | Property, plant and equipment

Property, plant and equipment is carried at cost. Major modifications or refurbishments which extend the useful life of the assets are capitalized and depreciated over the adjusted remaining useful life of the assets. Upon retirement or disposition of property, plant and equipment, the cost and related accumulated depreciation are removed and any resulting gain or loss is recognized in consolidated income from operations. The cost of maintenance and repairs is charged to expense as incurred. Property, plant and equipment is reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value of property, plant and equipment exceeds its fair value, an impairment charge would be recorded in the consolidated statement of operations.

Depreciation of property, plant and equipment are computed using the straight-line method over the assets’ estimated useful lives as follows:

|  | Expected useful life
Office premises |  | 47 to 51 years
Leasehold improvements |  | Over terms of the leases or the useful lives whichever is less
Furniture, fixtures and office equipment |  | 3 to 5 years
Motor vehicles |  | 4 years
Testing equipment |  | 3 years

· | Impairment of long lived assets

Long-lived assets such as property, plant and equipment with finite lives are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. There was no impairment of long lived assets during 2023, 2022 and 2021, respectively.

· | Long-term investment

The Group has elected to apply the measurement alternative to equity securities without readily determinable fair values. As such, the Group’s non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the investee.

· | Leases arrangements

In the ordinary course of business, the Group enters into a variety of operating lease arrangements.

Operating right-of-use leases are included in operating lease right-of-use assets, current portion of long-term operating lease obligations and long-term operating lease obligations, net of current maturities on the Group’s consolidated balance sheets, as appropriate. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Group’s leases do not provide an implicit rate to calculate present value, the Group determines this rate by estimating the Group’s incremental borrowing rate, utilizing the borrowing rates associated with the Group’s various debt instruments. The operating lease right-of-use asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

· | 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 consolidated statements of operations and comprehensive income / (loss).

As a result of the annual qualitative review process in 2023 and 2022, the Group determined it was not necessary to perform a quantitative assessment.

· | Foreign currency translation

The assets and liabilities of the Group’s subsidiaries denominated in currencies other than U.S. dollars are translated into U.S. dollars using the applicable exchange rates at the consolidated balance sheet date. For consolidated statements of operations and comprehensive income/(loss)’ items, amounts denominated in currencies other than U.S. dollars were translated into U.S. dollars using the average exchange rate during the period. Equity accounts were translated at their historical exchange rates. Net gains and losses resulting from translation of foreign currency on consolidated financial statements are included in the consolidated statements of shareholders’ equity as accumulated other comprehensive income. Foreign currency transaction gains and losses are reflected in the consolidated statements of operations and comprehensive income / (loss).

· | Comprehensive income

We account for comprehensive income in accordance with ASC 220, “Comprehensive Income”, which specifies the computation, presentation and disclosure requirements for comprehensive income. Comprehensive income consists of net income and foreign currency translation adjustments, primarily from fluctuations in foreign currency exchange rates of our foreign subsidiaries with a functional currency other than the U.S. dollar.

· | Ordinary share

On November 22, 2011, the Company filed Amended and Restated Memorandum and Articles of Association with the Registry of Corporate Affairs of the BVI Financial Services Commission that on November 29, 2011 became effective as of the filing date to amend the Company’s ordinary shares of US$0.01 par value capital stock to no par value capital stock. Treasury stock is accounted for using the cost method. When treasury stock is reissued, the value is computed and recorded using a weighted-average basis.

On October 8, 2019, the Company had stock split in the form of bonus shares at the rate of one ordinary share for every two ordinary shares held, creating 1,030,950 new shares of common stock.

On March 3, 2021, the Company had stock split in the form of bonus shares at the rate of two ordinary shares for every three ordinary shares held, creating 2,061,900 new shares of common stock.

The effect of the above stock splits have been reflected retroactively in the financial statements and net income per ordinary share computations.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

· | Net income per ordinary share

The Group computes net income per ordinary share using the treasury stock method. Under the treasury stock method, basic earnings per share attributable to Euro Tech Holdings Company Limited are computed by dividing net income attributable to Euro Tech Holdings Company Limited by the weighted average number of ordinary shares outstanding during the period. The Group reports both basic earnings per share, which is based on the weighted average number of ordinary shares outstanding, and diluted earnings per share, which is based on the weighted average number of ordinary shares outstanding and all dilutive potential ordinary shares outstanding.

Outstanding stock options are the only dilutive potential shares of the Company.

· | Stock-based compensation

The Group determines compensation expense for stock-based awards based on the estimated fair values at the grant date and recognizes the related compensation expense over the vesting period. The Group uses the straight-line amortization method to recognize compensation expense related to stock-based awards that have only service conditions. This method recognizes stock compensation expense on a straight-line basis over the requisite service period for the entire award.

· | Related parties

Related parties are affiliates of the Group; entities for which investments are accounted for by the equity method by the Group; trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; principal owners of the Group; its management; members of the immediate families of principal owners of the Group and its management; and other parties with which the Group may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. Another party also is a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

· | Concentration

Financial instruments that potentially subject the Group to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable, net. The Group maintains substantially all of its cash and cash equivalent balances with large financial institutions which are believed to be high quality institutions.

The Group is subject to a concentration of risk because it derives a significant portion of its revenues from a few customers. The Group’s top customers accounting for more than 5% of the Group’s revenue generated approximately 41%, 33% and 48% of consolidated revenues for the years ended December 31, 2023, 2022 and 2021, respectively.

The Group grants trade credit under contractual payment terms, generally without collateral, to its customers, which include high credit quality electric utilities, general contractors, owners and managers of industrial properties and government departments.

Consequently, the Group is subject to potential credit risk related to changes in business and economic factors. At December 31, 2023, Nil (2022: three) of the Group’s customers individually exceeded 10.0% of accounts receivable, net. The Group believes the terms and conditions in its contracts, billing and collection policies are adequate to minimize the potential credit risk.

· | Finance costs

Interest relating to loans repaid is expensed in the period the repayment occurs.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

· | Warranties

The suppliers of the Group offer a standard one-year warranty to end customers of the Group. In certain contracts, a specific percentage is designated as warranty, and management has retained it as a “retainer fee” for potential warranty claims within an effective period subsequent to project completion. In the event that a warranty claim is made, the amount will be deducted from the retainer fee accordingly. This balance remains on the balance sheet in contract liabilities, until the expiration of the warranty period, after which it will be recognized as revenue if it has not been fully utilized. Historically, claims on warranties have been insignificant.

· | Shipping and handling costs

Amounts billed to customers related to shipping and handling are classified as revenues, and the Group’s shipping and handling costs are included in cost of revenues.

· | Retirement plan costs

Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying statements of operation as the related employee service are provided.

· | Statutory reserves

The Group is required to make appropriation to reserve funds, comprising the statutory reserve fund and statutory staff welfare fund, based on after-tax net income determined with generally accepted accounting principles of the PRC (“PRC GAAP”).

Appropriations to the statutory reserve fund is required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve fund is equal to 50% of the entities’ registered capital.

· | Fair value measurements

The Company applies the provisions of ASC 820-10, “Fair Value Measurements”, for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements.

The Group uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs used in measuring fair value based upon their degree of availability in external active markets. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 31, 2023 and 2022, the Group determined that the carrying values of cash and cash equivalents, restricted cash, accounts receivable, net, prepayments and other current assets, contract assets, bank borrowings, accounts payable, contract liabilities, other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments. The Group has also determined that the fair value of non-controlling interest - put option is nil as of December 31, 2023, and is nil for 2022.

· | Recent accounting pronouncements

Changes to GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s ASC. The Group considers the applicability and impact of all ASUs. The Group, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Group or may have minimal impact on its consolidated financial statements.

Recently adopted accounting pronouncements

In June 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments". The new standard requires the measurement and recognition of expected credit losses using the current expected credit loss model for financial assets held at amortized cost, which includes the Group’s accounts receivable, contract assets and non-current assets. It replaces the existing incurred loss impairment model with an expected loss methodology. The recorded credit losses are adjusted each period for changes in expected lifetime credit losses. The standard requires a cumulative effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective. ASC 326, Financial Instruments — Credit Losses is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2019. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard is effective for the Group from January 1, 2023. The Group is in the process determining the impact of the adoption of this standard on its consolidated financial statements.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which simplifies the accounting for income taxes. This guidance became effective for the first quarter of 2021 on a prospective basis. The implementation of ASU 2019-12 in the year ended December 31, 2021, did not have a material impact on the Group’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805)". ASU 2021-08 creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. Under this exception, an acquirer applies ASC 606 to recognize and measure contract assets and contract liabilities on the acquisition date. ASC 805 generally requires the acquirer in a business combination to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The ASU 2021-08 will become effective for fiscal years beginning after December 15, 2022. The adoption of this ASU is not expected to have a material impact on the Group’s consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". This ASU defers the sunset date of Topic 848, which provides relief to entities affected by reference rate reform. The ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2025. The standard is effective immediately and the Group adopted the standard in December 2022 with no financial impact. The Group is currently assessing the impact ASU 2020-04, for which this ASU 2022-06 relates, will have on its consolidated financial statements.

The Group has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

· | Reclassification

Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

· | Effect of the Restatement on the Consolidated Financial Statements for the year ended December 31, 2022

Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2021 on May 13, 2022, certain errors were identified,

(i) | (loss) / gain on disposal of property, plant and equipment not included in operating income / (loss)
(ii) | bonus share issuances were not accounted for and disclosed as stock splits in the consolidated statements of shareholders' equity, earnings per share computations for all periods presented

The impact of the restatement on the December 31, 2021 financial statements is reflected in the following tables:

CONSOLIDATED BALANCE SHEETS |  | December 31, 2021
|  | As Previously Reported |  | As Restated
Ordinary share |  | 5,322,459 no par value shares issued as of December 31, 2021 (2020: 3,260,559) |  | 7,899,832 no par value shares issued as of December 31, 2022 and 2021

F-19
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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS) |  | December 31 |
|  | As Previously Reported |  |  | As Restated |
|  | US$’000 |  |  | US$’000 |
Operating income / (loss) |  |  |  |  |  |
2021 |  |  | 781 |  |  |  | 771 |
2020 |  |  | (1,701 | ) |  |  | (272 | )
Net income / (loss) per ordinary share attributable to Euro Tech Holdings Company Limited’s shareholders |  |  |  |  |  |  |  |
- Basic |  |  |  |  |  |  |  |
2021 |  | US$ 0.19 |  |  | US$ 0.13 |
2020 |  | US$ 0.25 |  |  | US$ 0.10 |
- Diluted |  |  |  |  |  |  |  |
2021 |  | US$ 0.19 |  |  | US$ 0.13 |
2020 |  | US$ 0.25 |  |  | US$ 0.10 |
Weighted average number of ordinary shares outstanding |  |  |  |  |  |  |  |
- Basic |  |  |  |  |  |  |  |
2021 |  |  | 5,154,759 |  |  |  | 7,732,132 |
2020 |  |  | 3,092,859 |  |  |  | 7,732,132 |
- Diluted |  |  |  |  |  |  |  |
2021 |  |  | 5,154,759 |  |  |  | 7,732,132 |
2020 |  |  | 3,092,859 |  |  |  | 7,732,132 |

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |  | December 31 |
|  | As Previously Reported |  |  | As Restated |
Number of ordinary share |  |  |  |  |  |
Balance at December 31, 2020 |  |  | 3,260,559 |  |  |  | 7,899,832 |
Balance at December 31, 2021 |  |  | 5,322,459 |  |  |  | 7,899,832 |

Commensurate adjustments have been made to Notes 2 (s), 11, 16 and 24 to the consolidated financial statements.

Note 3: Segment information

(i) The Group reports under two segments: Trading and manufacturing, and Engineering.

Operating income represents total revenues less operating expenses, excluding other expense, interest and income taxes. The identifiable assets by segment are those used in each segment’s operations. Intersegment transactions are not significant and have been eliminated to arrive at consolidated totals.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Revenue |  |  |  |  |  |  |  |  |
Trading and manufacturing |  |  | 12,143 |  |  |  | 9,332 |  |  |  | 9,619 |
Engineering |  |  | 5,797 |  |  |  | 5,617 |  |  |  | 11,769 |
|  |  | 17,940 |  |  |  | 14,949 |  |  |  | 21,388 |
Operating (loss) / income |  |  |  |  |  |  |  |  |  |  |  |
Trading and manufacturing |  |  | 377 |  |  |  | (246 | ) |  |  | 130 |
Engineering |  |  | (438 | ) |  |  | 590 |  |  |  | 846 |
Unallocated corporate expenses |  |  | (188 | ) |  |  | (230 | ) |  |  | (205 | )
|  |  | (249 | ) |  |  | 114 |  |  |  | 771 |

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Depreciation: |  |  |  |  |  |  |  |  |
Trading and manufacturing |  |  | 11 |  |  |  | 28 |  |  |  | 32 |
Engineering |  |  | 4 |  |  |  | 5 |  |  |  | 6 |
|  |  | 15 |  |  |  | 33 |  |  |  | 38 |
Capital expenditures, gross |  |  |  |  |  |  |  |  |  |  |  |
Trading and manufacturing |  |  | 3 |  |  |  | 2 |  |  |  | 1 |
Engineering |  |  | 2 |  |  |  | 5 |  |  |  | 3 |
|  |  | 5 |  |  |  | 7 |  |  |  | 4 |

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Assets |  |  |  |  |  |
Trading and manufacturing |  |  | 8,229 |  |  |  | 13,637 |
Engineering |  |  | 13,891 |  |  |  | 5,726 |
|  |  | 22,120 |  |  |  | 19,363 |
Liabilities |  |  |  |  |  |  |  |
Trading and manufacturing |  |  | 3,605 |  |  |  | 1,300 |
Engineering |  |  | 2,035 |  |  |  | 3,257 |
|  |  | 5,640 |  |  |  | 4,557 |

(ii) Geographical analysis of revenue by customer location is as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Revenue - |  |  |  |  |  |  |  |  |
The PRC |  |  | 7,125 |  |  |  | 5,878 |  |  |  | 13,217 |
Hong Kong |  |  | 9,879 |  |  |  | 7,174 |  |  |  | 7,937 |
Others |  |  | 936 |  |  |  | 1,897 |  |  |  | 234 |
|  |  | 17,940 |  |  |  | 14,949 |  |  |  | 21,388 |

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

(iii) Long-lived assets (1)

Geographical analysis of long-lived assets is as follows:

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Hong Kong |  |  | 6 |  |  |  | 8 |
The PRC |  |  | 162 |  |  |  | 171 |
|  |  | 168 |  |  |  | 179 |

(1) Long-lived assets represent property, plant and equipment, net.

(iv) Major suppliers

Details of individual suppliers accounting for more than 5% of the Group’s purchases are as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Supplier A |  |  | 42 | % |  |  | 33 | % |  |  | 42 | %
Supplier B |  |  | 23 | % |  |  | 21 | % |  |  | 13 | %
Supplier C |  |  | 7 | % |  |  | 6 | % |  |  | 6 | %
Supplier D |  |  | 5 | % |  |  | 5 | % |  |  | 6 | %
Supplier E |  |  | - |  |  |  | - |  |  |  | 5 | %
Supplier F |  |  | - |  |  |  | 5 | % |  |  | - |
Supplier G |  |  | - |  |  |  | 5 | % |  |  | - |

(v) Major customers

Details of individual customers accounting for more than 5% of the Group’s revenue are as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Customer A |  |  | 14 | % |  |  | 18 | % |  |  | 15 | %
Customer B |  |  | 10 | % |  |  | 9 | % |  |  | - |
Customer C |  |  | 7 | % |  |  | - |  |  |  | - |
Customer D |  |  | 5 | % |  |  | - |  |  |  | - |
Customer E |  |  | 5 | % |  |  | 6 | % |  |  | - |
Customer F |  |  | - |  |  |  | - |  |  |  | 17 | %
Customer G |  |  | - |  |  |  | - |  |  |  | 9 | %
Customer H |  |  | - |  |  |  | - |  |  |  | 7 | %

Note 4: Accounts receivable, net

Accounts receivable, net consisted of the following at December 31,:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Contract receivables |  |  | 2,864 |  |  |  | 1,614 |
Less: allowance for doubtful accounts |  |  | - |  |  |  | (28 | )
|  |  | 2,864 |  |  |  | 1,586 |

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The roll-forward of activity in the allowance for doubtful accounts was as follows for the years ended December 31:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Balance at beginning of period |  |  | 28 |  |  |  | 30 |
Less : reversal in allowances |  |  | (28 | ) |  |  | (2 | )
Balance at end of period |  |  | - |  |  |  | 28 |

The following is an aging analysis of accounts receivable, net at December 31:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Current |  |  | 1,175 |  |  |  | 710 |
Past due |  |  |  |  |  |  |  |
1-30 days |  |  | 603 |  |  |  | 477 |
31-60 days |  |  | 548 |  |  |  | 311 |
61-90 days |  |  | 341 |  |  |  | 32 |
Greater than or equal to 91 days |  |  | 197 |  |  |  | 56 |
|  |  | 1,689 |  |  |  | 876 |
|  |  | 2,864 |  |  |  | 1,586 |

Note 5: Prepayments and other current assets

Prepayment and other current assets mainly represent deposits paid for purchases and services, rental and utilities deposits, and prepaid expenses.

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Deposits paid |  |  | 40 |  |  |  | 255 |
Prepayments |  |  | 68 |  |  |  | 76 |
Other receivables |  |  | 134 |  |  |  | 152 |
Other tax recoverable |  |  | 4 |  |  |  | 3 |
|  |  | 246 |  |  |  | 486 |

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 6: Contract assets and liabilities

Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms.

The Group’s consolidated balance sheets present contract assets which contains earned unbilled revenue associated with contract work that has been completed but not paid by customers, that are generally due once the job is completed and approved.

Contract assets consisted of the following at December 31:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Unbilled revenue |  |  | 66 |  |  |  | 217 |

The Group’s consolidated balance sheets present contract liabilities which contains deferred revenue (previously identified as billings in excess of costs on uncompleted contracts) and unearned warranty revenue.

Contract liabilities consisted of the following at December 31:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Deferred revenue |  |  | 650 |  |  |  | 625 |

The following table provides information about contract assets and contract liabilities from contracts with customers:

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Contract assets |  |  | 66 |  |  |  | 217 |
Contract liabilities |  |  | (650 | ) |  |  | (625 | )
Net contract liabilities |  |  | (584 | ) |  |  | (408 | )

The difference between the opening and closing balances of the Group’s contract assets and contract liabilities primarily results from the timing of the Group’s billings in relation to its performance of work. The amounts of revenue recognized in the period that were included in the opening contract liability balances were US$492,000 and US$212,000 for the years ended December 31, 2023 and 2022, respectively. The revenue consists primarily of work performed on previous billings to customers.

The net liabilities position for contracts in process consisted of the following at December 31:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Costs incurred in contracts in process |  |  | 229 |  |  |  | 682 |
Revenue earned but not yet billed |  |  | 26 |  |  |  | 68 |
Less: billings to date |  |  | (839 | ) |  |  | (1,158 | )
|  |  | (584 | ) |  |  | (408 | )

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

The net liabilities position for contracts in process is included within the contract asset and contract liability in the accompanying consolidated balance sheets as follows at December 31:

|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Unbilled revenue |  |  | 66 |  |  |  | 217 |
Deferred revenue |  |  | (650 | ) |  |  | (625 | )
|  |  | (584 | ) |  |  | (408 | )

Disaggregated revenue from contracts

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Revenue |  |  |  |  |  |  |  |  |
Trading and manufacturing (revenue recognized at point in time) |  |  | 12,143 |  |  |  | 9,332 |  |  |  | 9,619 |
Engineering (revenue recognized over time) |  |  | 5,797 |  |  |  | 5,617 |  |  |  | 11,769 |
|  |  | 17,940 |  |  |  | 14,949 |  |  |  | 21,388 |

Note 7: Inventories

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Raw materials |  |  | 222 |  |  |  | 285 |
Work in progress |  |  | - |  |  |  | 10 |
Finished goods |  |  | 501 |  |  |  | 308 |
|  |  | 723 |  |  |  | 603 |

Management continuously reviews obsolete and slow moving inventories and assesses the inventory valuation to determine if the write-down of inventories is deemed appropriate. For the years ended December 31, 2023, and 2022, write-down of inventories amounted to US$(1,000) and US$4,000, respectively, which were charged to cost of revenue in consolidated statements of operations and comprehensive income / (loss).

Note 8: Property, plant and equipment, net

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Office premises* |  |  | 673 |  |  |  | 673 |
Leasehold improvements |  |  | 67 |  |  |  | 67 |
Furniture, fixtures and office equipment |  |  | 313 |  |  |  | 311 |
Motor vehicles |  |  | 172 |  |  |  | 173 |
Testing equipment |  |  | 32 |  |  |  | 32 |
|  |  | 1,257 |  |  |  | 1,256 |
Less: Accumulated depreciation |  |  | (1,089 | ) |  |  | (1,077 | )
|  |  | 168 |  |  |  | 179 |

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Depreciation charge |  |  | 15 |  |  |  | 33 |  |  |  | 38 |

* Far East earns rental income from a property in Beijing, PRC for which it does not hold the title. Far East is investigating various ways in which to obtain the title but has not formulated a specific plan as of the date of issuance of these consolidated financial statements. The net book value of the property at December 31, 2023 is approximately US$80,000 (2022: US$84,000).

Note 9: Investments in affiliates

Investments in affiliates are accounted for using the equity method of accounting.

|  | December 31, |
|  | 2023 |  |  | 2022 |
Zhejiang Tianlan Environmental Protection Technology Co. Ltd. |  |  |  |  |  |
Interest held |  |  | 19.4 | % |  |  | 19.4 | %
|  | US$’000 |  |  | US$’000 |
Long-term investment, at cost, less impairment |  |  | 5,540 |  |  |  | 5,540 |
Share of undistributed profits |  |  | 4,316 |  |  |  | 2,711 |
|  |  | 9,856 |  |  |  | 8,251 |

Far East is holding 19.4% (2022: 19.4%) equity interests in Blue Sky, a company incorporated in the PRC, with total cost of investment of US$5,540,000. Blue Sky provides a comprehensive service for design, general contract, equipment manufacturing, installation, testing and operation management of the treatment of waste gases emitted from various boilers and industrial furnaces of power plants, steel works and chemical plants since 2000.

Blue Sky has listed its shares on the New Third Board in the PRC since November 17, 2015 and 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 Group’s interest in Blue Sky has been counted for as an affiliate using the equity method as the Group has representation on both the Board and Executive Committee of Blue Sky, and the ability to participate in the decision-making process and exercise significant influence.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

A summary of the financial information of the affiliate, Blue Sky, is set forth below:

|  | December 31, |
|  | 2023 |  |  | 2022 |
Balance Sheet: |  | US$’000 |  |  | US$’000 |
Current assets |  |  | 51,683 |  |  |  | 54,228 |
Non-current assets |  |  | 10,909 |  |  |  | 13,167 |
Total assets |  |  | 62,592 |  |  |  | 67,395 |
Total liabilities |  |  | (26,374 | ) |  |  | (38,582 | )
Total shareholders’ equity |  |  | 36,218 |  |  |  | 28,813 |

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |
Operating results: |  | US$’000 |  |  | US$’000 |
Net sales |  |  | 38,530 |  |  |  | 59,983 |
Operating income |  |  | 337 |  |  |  | 1,175 |
Net income |  |  | 9,978 |  |  |  | 2,346 |

Note 10 : Goodwill

Reporting units - The Group’s reporting units consist of its trading and manufacturing and engineering segments. Goodwill is not amortized, but instead is reviewed for impairment at least annually during the fourth quarter of each year at the reporting level, absent any interim indicators of impairment or other factors requiring an assessment.

Annual impairment assessment - For our 2023 and 2022 annual impairment test we performed a qualitative assessment, using information as of December 31, 2023 and 2022, respectively. 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.

In addition to our annual review, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant adverse changes in the business climate which may be indicated by a decline in our market capitalization or decline in operating results. No impairments were recorded to our goodwill during the years ended December 31, 2023, 2022 and 2021. No material events or changes occurred between the testing date and year end to trigger a subsequent impairment review.

At December 31, 2023 and 2022, we had goodwill for our engineering segment with a carrying amount of US$1,071,000 and US$1,071,000, respectively.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 11 : Other payables and accrued expenses

Other payables and accrued expenses mainly represent deposits received from customers and accruals for operating expenses.

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Dividend payables |  |  | 78 |  |  |  | 80 |
Deposits received from customers |  |  | 5 |  |  |  | 5 |
Rental deposit received |  |  | 3 |  |  |  | 3 |
Accruals for operating expenses |  |  | 834 |  |  |  | 951 |
Other tax payables |  |  | 204 |  |  |  | 192 |
|  |  | 1,124 |  |  |  | 1,231 |

Note 12: Lease obligations

The Group has operating leases primarily for office space. The Group’s leases have remaining lease terms of several months to two years.

The components of lease expense are as follows:

|  | Years ended December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Operating lease cost |  |  | 76 |  |  |  | 175 |
Short-term lease cost |  |  | 220 |  |  |  | 121 |
Total lease cost |  |  | 296 |  |  |  | 296 |

Supplemental consolidated cash flow information related to leases is as follows:

|  | Years ended December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
Operating cash flows from operating leases |  |  | 285 |  |  |  | 195 |
Right-of-use assets obtained in exchange for lease obligations (noncash): |  |  |  |  |  |  |  |
Operating leases |  |  | - |  |  |  | - |

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Supplemental consolidated balance sheet information related to leases is as follows:

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Operating leases |  |  |  |  |  |
Operating lease right-of-use assets |  |  | 233 |  |  |  | 219 |
Current portion of long-term operating lease obligations |  |  | 170 |  |  |  | 113 |
Long-term operating lease obligations, net of current maturities |  |  | 44 |  |  |  | 87 |
|  |  | 214 |  |  |  | 200 |
Weighted average remaining lease term |  |  |  |  |  |  |  |
Operating leases |  | 3 months |  |  | 20 months |
Weighted average discount rate |  |  |  |  |  |  |  |
Operating leases |  |  | 5.45 | % |  |  | 4.44 | %

Maturities of lease liabilities are as follows:

|  | Operating leases |
|  | US$’000 |
Year ending December 31, |  |  |
2024 |  |  | 174 |
2025 |  |  | 42 |
Total lease payments |  |  | 219 |
Less: imputed interest |  |  | (5 | )
Total |  |  | 214 |

Note 13 : Ordinary share

During the year ended December 31, 2020, there was no movement with the Company’s issued ordinary shares and outstanding shares.

On March 3, 2021, the Company had stock split in the form of bonus shares at the rate of two ordinary shares for every three ordinary shares held, creating 2,061,900 new shares of common stock.

On January 24, 2022, the Company had stock split in the form of bonus shares at the rate of one ordinary shares for every two ordinary shares held, creating 2,577,373 new shares of common stock, as described in Note 24 to the consolidated financial statements.

Number of outstanding shares at year end of:

|  | 2023 |  |  | 2022 |
Shares issued |  |  | 7,899,832 |  |  |  | 7,899,832 | *
Less: shares under treasury stock |  |  | (178,400 | ) |  |  | (167,700 | )
|  |  | 7,721,432 |  |  |  | 7,732,132 |

* Retroactively restated for effect of the stock splits effected in the form of bonus shares

Note 14 : Treasury stock

The Company approved a stock repurchase plan in April 2023 to repurchase up to 230,000 ordinary shares, for an aggregate purchase price of not more than US$300,000, of the Company’s ordinary share could be purchased in the open market from time to time as market and business conditions warrant. The Company repurchased a total of 10,700 shares of ordinary share during 2023 for considerations of approximately US$14,000.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 15 : PRC statutory reserves

Under the relevant PRC laws and regulations, the PRC subsidiaries are required to appropriate a certain percentage of their respective net income to two statutory funds i.e. the statutory reserve fund and the statutory staff welfare fund. The PRC subsidiaries can also appropriate certain amount of its net income to the enterprise expansion fund.

(i) | Statutory reserve fund

Pursuant to applicable PRC laws and regulations, the PRC subsidiaries are required to allocate at least 10% of its net income to the statutory reserve fund until such fund reaches 50% of its registered capital. The statutory reserve fund can be utilised upon the approval by the relevant authorities, to offset accumulated losses or to increase its registered capital, provided that such fund be maintained at a minimum of 25% of its registered capital.

Under the PRC laws and regulations, the PRC subsidiaries are restricted in their ability to transfer certain of its net assets in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital and statutory reserves, as determined pursuant to PRC generally accepted accounting principles, totaling US$2,500,000 as at December 31, 2023 (2022: US$2,531,000 and 2021: US$2,452,000).

(ii) | Statutory staff welfare fund

Pursuant to applicable PRC laws and regulations, the PRC subsidiaries are required to allocate a certain amount of its net income to the statutory staff welfare fund determined by it. The statutory staff welfare fund can only be used to provide staff welfare facilities and other collective benefits to its employees. This fund is non-distributable other than upon liquidation of the PRC subsidiaries. The balances as at December 31, 2023 and 2022 include in statutory reserves were US$12,000.

(iii) | Enterprise expansion fund

The enterprise expansion fund shall only be used to make up losses, expand the PRC subsidiaries’ production operations, or increase the capital of the subsidiaries. The enterprise expansion fund can be utilised upon approval by relevant authorities, to convert into registered capital and issue bonus capital to existing investors, provided that such fund be maintained at a minimum of 25% of its registered capital. The balances as at December 31, 2023 and 2022 include in statutory reserves were US$408,000.

Note 16 : Other income, net

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Exchange gain / (loss), net |  |  | (66 | ) |  |  | (93 | ) |  |  | 77 |
Rental income |  |  | 46 |  |  |  | 37 |  |  |  | 50 |
Government subsidies – Employment Support Scheme * |  |  | - |  |  |  | 69 |  |  |  | - |
|  |  | (20 | ) |  |  | 13 |  |  |  | 127 |

* The amount represents salaries and wage subsidies granted under Anti-Epidemic Fund by the Government of the Hong Kong Special Administrative Region for the use of paying wages of employees from May to June 2022.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 17 : Income taxes

No income tax arose in the United States of America by the Group for the years ended December 31, 2023, 2022 and 2021.

The Company and Pact Asia Pacific Limited are exempt from taxation in the British Virgin Islands (“BVI”).

Far East provided for Hong Kong profits tax at a rate of 8.25% on assessable profits up to US$256,000; and 16.5% on any part of assessable profits over US$256,000 in year 2023 and 2022 (2021: 16.5%) on the basis of their income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for profits tax purposes.

Euro Tech Trading (Shanghai) Limited (“ETTS”), a subsidiary of Far East, provides for PRC Enterprise Income Tax (“EIT”) at a rate of 25% (2022 and 2021: 25%), after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes. As of December 31, 2023, ETTS had an assessable loss carried forward of US$51,000 as agreed by the local tax authority to offset its profit for the forth coming years (2022: US$103,000 and 2021: US$18,000). Such loss will expire in 5 years.

Shanghai Euro Tech Limited (“SET”), a subsidiary of Far East, provides for PRC Enterprise Income Tax at a rate of 25% (2022 and 2021: 25%), after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes. As of December 31, 2023, SET had an assessable loss carried forward of US$907,000 as agreed by the local tax authority to offset its profit for the forth coming years (2022: US$982,000 and 2021: US$678,000). Such loss will expire in 5 years.

Yixing Pact Environmental Technology Co. Ltd. (“Yixing”), a subsidiary of Far East, provides for PRC Enterprise Income Tax at a rate of 25% (2022 and 2021: 25%), after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes. As of December 31, 2023, Yixing had an assessable loss carried forward of US$1,330,000 as agreed by the local tax authority to offset its profit for the forth coming years (2022: US$1,509,000 and 2021: US$1,759,000). Such loss will expire in 5 years.

Under the New Enterprise Income Tax Law and the implementation rules, profits of the PRC subsidiaries earned on or after January 1, 2008 and distributed by the PRC subsidiaries to foreign holding company are subject to a withholding tax at a rate of 10% unless reduced by tax treaty. Aggregate undistributed earnings of Far East’s subsidiaries located in the PRC that are available for distribution to Far East of approximately US$0.6 million at December 31, 2023 (2022: US$0.6 million and 2021: US$0.6 million) are intended to be reinvested, and accordingly, no deferred taxation has been made for the PRC dividend withholding taxes that would be payable upon the distribution of those amounts to Far East. Distributions made out of pre January 1, 2008 retained earnings will not be subject to the withholding tax.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

The Company and its subsidiaries are based in Hong Kong and PRC and file Hong Kong profits tax return and PRC EIT return, respectively. The components of the (provision) / credit for income taxes (expense) / credit were as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Current taxes (expense ) |  |  |  |  |  |  |  |  |
Hong Kong profits tax and the PRC EIT |  |  | (45 | ) |  |  | - |  |  |  | (57 | )
Income tax expense |  |  | (45 | ) |  |  | - |  |  |  | (57 | )
Deferred tax (expenses) / credit |  |  |  |  |  |  |  |  |  |  |  |
Hong Kong and the PRC |  |  | - |  |  |  | (24 | ) |  |  | 147 |
Total deferred tax (expenses) / credit |  |  | - |  |  |  | (24 | ) |  |  | 147 |
Total (expense) / credit |  |  | (45 | ) |  |  | (24 | ) |  |  | 90 |

The items comprising the difference between income taxes computed at the Hong Kong profits tax and PRC EIT statutory tax rates in effect for 2023, 2022 and 2021 and our effective tax rates were as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | US$’000 |  |  | US$’000 |  |  | US$’000 |
Income before income taxes |  |  | 1,695 |  |  |  | 563 |  |  |  | 1,276 |
Computed tax using respective companies’ statutory tax rates |  |  | 78 |  |  |  | 131 |  |  |  | 158 |
Change in valuation allowances |  |  | (79 | ) |  |  | 58 |  |  |  | 349 |
Under-provision for income taxes in prior years |  |  | - |  |  |  | - |  |  |  | (12 | )
Non-deductible expenses |  |  | (44 | ) |  |  | (213 | ) |  |  | (405 | )
Income tax (expense) / credit at effective tax rate |  |  | (45 | ) |  |  | (24 | ) |  |  | 90 |

The components of deferred tax assets / (liabilities) are as follows:

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | US$’000 |  |  | US$’000 |
Tax losses |  |  | 572 |  |  |  | 649 |
Temporary differences |  |  | - |  |  |  | - |
Less: Valuation allowances |  |  | (469 | ) |  |  | (541 | )
Net deferred tax assets |  |  | 103 |  |  |  | 108 |

Uncertain tax positions

As a result of the Group’s analysis, management has determined that the Group does not have any material uncertain tax positions.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 18 : Net income per ordinary share

The calculation of the basic and diluted net income per ordinary share is based on the following data:

|  | December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | Number of shares |
Weighted average number of ordinary shares for the purposes of basic and diluted net income per share |  |  | 7,726,118 |  |  |  | 7,732,132 |  |  |  | 7,732,132 |

Note 19 : Stock options

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.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

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:

| · | the spouse or lineal descendant of a plan participant;
| · | the trustee of a trust for the primary benefit of a plan participant’s spouse or lineal descendant;
| · | a partnership of which a plan participant and lineal descendants are the only partners; or
| · | a tax exempt organization.

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, 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 are 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 that became non-exercisable when those related employees left from the Company.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

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

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | Number of options |  |  | Weighted average exercise price |  |  | Number of options |  |  | Weighted average exercise price |  |  | Number of options |  |  | Weighted average exercise price |
|  |  |  |  | US$ |  |  |  |  |  | US$ |  |  |  |  |  | US$ |
Outstanding, beginning of year |  |  | 206,250 |  |  |  | 1.52 |  |  |  | 85,000 |  |  |  | 1.56 |  |  |  | 51,000 |  |  |  | 2.60 |
Granted |  |  | - |  |  |  | - |  |  |  | 80,000 |  |  |  | 2.80 |  |  |  | - |  |  |  | - |
Cancelled |  |  | - |  |  |  | - |  |  |  | (41,250 | ) |  |  | (1.04 | ) |  |  | - |  |  |  | - |
Bonus shares adjustment |  |  | - |  |  |  | - |  |  |  | 82,500 |  |  |  | (0.72 | ) |  |  | 34,000 |  |  |  | (1.04 | )
Outstanding, end of year |  |  | 206,250 |  |  |  | 1.52 |  |  |  | 206,250 |  |  |  | 1.52 |  |  |  | 85,000 |  |  |  | 1.56 |
Exercisable, end of year |  |  | 86,250 |  |  |  | 1.04 |  |  |  | 86,250 |  |  |  | 1.04 |  |  |  | - |  |  |  | - |

As of December 31, 2023 and 2022, there was no unrecognized stock-based compensation expense related to unvested stock options. The compensation expense for the year is approximately US$47,000 (2022: US$45,000 and 2021: US$55,000).

The Group applies the provisions of ASC 718-10, which requires to recognise expense related to the fair value of stock-based compensation awards, including employee stock options.

The Binomial option-pricing model is used to estimate the fair value of the options granted. This requires the input of subjective assumptions, including the expected volatility of stock price, expected option term, expected risk-free rate over the expected option term and expected dividend yield rate over the expected option term. Because changes in subjective input assumptions can materially affect the fair value estimate, in directors’ opinion, the existing model may not necessarily provide a realisable measure of the fair value of the stock options. Expected volatility is based on historical volatility in the 180 days prior to the issue of the options. Expected option term and dividend yield rate are based on historical trends. Expected risk-free rate is based on US Treasury securities with similar maturities as the expected terms of the options at the date of grant.

Note 20 : 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.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

During the years ended December 31, 2023, 2022 and 2021, the aggregate contributions of the Group to the aforementioned pension plans and retirement benefit schemes were approximately US$310,000, US$302,000 and US$225,000, respectively.

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.

Note 21 : Risk factors

Financial risk factors

The Group’s activities expose it to a variety of financial risks: credit risk and foreign exchange rate risk.

(i) | Credit risk

The Group has no significant concentration of credit risk, cash in banks in Hong Kong and PRC is insured with limit of approximately US$64,000 and US$72,000, respectively per bank per each depositor. Uninsured cash in banks and restricted cash balances in Hong Kong and PRC are of approximately US$6,039,000 (2022: US$6,047,000). Cash transactions are limited to high credit quality banks.

(ii) | Foreign exchange rate risk

The Group operates in Hong Kong, the PRC and trades with both local and overseas customers and suppliers, and is exposed to foreign exchange rate risk arising from various currency exposures, primarily with respect to purchases in Hong Kong dollars, Renminbi and Euros. 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.

Note 22 : Risk and uncertainty

(i) Property title in the PRC

The Group, through its subsidiary, Far East has been earning annual rental income on a property in Beijing, China, which was expected to amount to US$38,000 annually as per the latest agreement The Group 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, 2023 was approximately US$80,000. 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 Group 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 Group’s financial position, results of operations, and cash flow.

(ii) Non-controlling interest Put Option

The Group granted the non-controlling interest of Yixing Pact Environmental Technology Co., Ltd. and Pact Asia Pacific Limited a put option, which is effective from 2009, requiring the Group to acquire part or all remaining shares of these two companies at a purchase price per share calculated by 5.2 times of their average net income for the three prior fiscal years divided by total number of shares outstanding at the time of exercise of such option. Such put option did not have an expiry date. The management of the Group has engaged a third-party expert to assess the fair value of the put option and determined it to be nil. While the fair value assessment of the put option involves significant judgment and estimation, management's reliance on external third party expertise for the fair value assessment may mitigate certain levels of inherent uncertainties and potential for subjectivity.

Note 23 : Related party transactions

Other than compensation to directors and stock options available to the directors, there were no transactions with other related parties in the years 2023, 2022 and 2021.

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EURO TECH HOLDINGS COMPANY LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Note 24 : Commitments and contingencies

(i) Banking facilities

As at December 31, 2023 and 2022, the Group had various banking facilities available for overdraft and import and export credits from which the Group can draw up to approximately US$897,000 and US$897,000 respectively, of which approximately US$355,000 and US$432,000 were utilised for issuance of bank guarantees as security for the performance of various contracts with customers and import loans. The various banking facilities are secured by a bank deposit of approximately US$897,000 and various blanket counter indemnities and counter indemnities. The Group undertakes to maintain its tangible net worth not at any time less than approximately US$3,846,000 and was in compliance with the covenant. The weighted average interest rate for import loans as at December 31, 2023 was 7.02% per annum (2022: 6.7% per annum). For the years ended December 31, 2023 and 2022, the average dollar amount of the bank borrowings was approximately US$293,000 and US$415,000, respectively and average interest rates were approximately 7.02% and 6.7% per annum respectively for the years ended December 31, 2023 and 2022.

(ii) Non-controlling interest put option

The Group granted the non-controlling interest of Yixing Pact Environmental Technology Co., Ltd. and Pact Asia Pacific Limited a put option, which is effective from 2009, requiring the Group to acquire part or all remaining shares of these two companies at a purchase price per share calculated by 5.2 times of their average net income for the three prior fiscal years divided by total number of shares outstanding at the time of exercise of such option. Such put option did not have an expiry date. Based on the analysis under ASC 820 “Fair Value Measurement”, Level 3 inputs are unobservable inputs for the asset of liability. Unobservable inputs shall be used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs shall reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.

The fair value assessment of the put option involves significant judgment and estimation, the management's reliance on internal expertise for the fair value assessment may mitigate certain levels of inherent uncertainties and potential for subjectivity.

The valuation technique used to determine the fair value of the put option was the Options Pricing Model (Black-Scholes-Merton (BSM) and the Binomial Option Pricing.

The following inputs and assumptions were used in determining the fair value of the put options:

- Median price to earnings ratio of similar companies of 23,965 (range: 4,7288 to 36,7237);

- Median discount for lack of marketability 15.7% (range: 8.4% to 28.7%);

- Mean Annualized volatility of return of the underlying share for similar companies of 102.39% (range: 36.025 to 349.944);

- The average life of a company is around 21 years according to research (www.statista.com/statistics/1259275/average-company-lifespan), thus an assumption on the life of the options was set as 20 years;

- A dividend yield rate of 0% was used;

- For Yixing Pact Environmental Technology Co. Ltd, the China risk-free rate of 2.698% (source: Bloomberg) was used based on a tenor of 20 years; and

- For Pact Asia Pacific Limited, the USD risk-free rate of 3.954% (source: Bloomberg) was used based on a tenor of 20 years.

The resultant strike price of the options was valued at $0 per share and the fair value of the options was valued at $0 as at December 31, 2023.

The following is a roll-forward of fair value of the put options:

|  | Fair value of put options |
|  | US$ |
Balance, December 31, 2022 |  |  | 0 |
Net income (loss) |  |  | 0 |
Balance, December 31, 2023 |  |  | 0 |

(iii) Insurance

The Group carries insurance policies to cover various risks, primarily general liability, automobile liability, workers’ compensation and employee medical expenses under which we are liable to reimburse the insurance company for a portion of each claim paid.

(iv) Purchase commitments

To manage the risk of changes in material prices and subcontracting costs used in tendering bids for engineering contracts, most of the time, the Group obtains firm quotations from suppliers and subcontractors before submitting a bid. These quotations do not include any quantity guarantees. As soon as the Group is advised that its bid is successful, the Group enters into firm contracts with most of its materials suppliers and sub-contractors, thereby mitigating the risk of future price variations affecting the contract costs.

(v) Litigations

The Group is now and may in the future be involved as a party to various legal proceedings that are incidental to the ordinary course of business. Management, after consultation with legal counsel, does not believe that the outcome of these actions will have a material impact on the consolidated financial statements of the Group. There are no significant unresolved legal issues as of December 31, 2023 and 2022.

(vi) Contingencies

The Group accounts for loss contingencies in accordance with ASC 450 and other related guidelines. As of December 31, 2023 and 2022, the Group’s management is of the opinion that there are no commitments and contingencies to account for.

Note 25: Subsequent event

In accordance with ASC 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before consolidated financial statements are issued, the Company evaluated all events and transactions that occurred after December 31, 2022, up through the date the Company issued the audited consolidated financial statements. Other than the event disclosed above, there was no other subsequent events occurred that would require recognition or disclosure in the Company’s audited consolidated financial statements.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION

TECHNOLOGY COMPANY LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

| Page
Report of Independent Registered Public Accounting Firm – J&S Associate PLT (PCAOB ID: 6743) | F-39
Report of Independent Registered Public Accounting Firm – Union Power HK CPA Limited (PCAOB ID: 3004) | F-41
Consolidated Balance Sheets | F-43
Consolidated Statements of Operations | F-44
Consolidated Statements of Cash Flows | F-45
Consolidated Statements of Shareholders’ Equity | F-46
Notes to the Consolidated Financial Statements | F-47 to F-69

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Table of Contents

| J&S ASSOCIATE PLT 202206000037 (LLP0033395-LCA) & AF002380 (Registered with PCAOB and MIA) B-11-14, Megan Avenue II 12, Jalan Yap Kwan Seng, 50450, Kuala Lumpur, Malaysia | Tel: +603-4813 9469 Email : info@jns-associate.com Website : jns-associate.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Director and Shareholders of

Zhejiang Tianlan Environmental Protection Technology Company Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ZheJiang Tianlan Environmental Protection Technology Company Limited (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, consolidated statement of shareholders’ equity, and consolidated statement of cash flows for the year ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current year audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgements.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Note 2 to the consolidated financial statements, the Group adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). We assessed the revenue recognition as a critical audit matter in relation to the complexity and judgment involved in applying ASC 606 to the Group’s revenue streams from different type of contracts. Specifically, there are two distinct performance obligation models being used: performance obligations satisfied overtime for long-term contracts (design, installation, and operation management services) and performance obligations satisfied at a point-in-time for short-term contracts (sales of equipment).

For long-term contracts involving design, installation and operation management services, revenue is recognized over time based on the ratio of project costs incurred to estimated total cost. This determination requires significant management judgement and assumptions. For short-term contracts, involving sales of equipment, revenue is recognized at a point in time upon delivery of the products to the customers. In addition, contract modifications, such as change orders, claims and incentives, are routine in the performance of contracts.

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Our key consideration in our evaluation of revenue recognition involves assessing the appropriateness of the Group’s application of ASC 606, the identification and measurement of performance obligations, the determination of the stage of completion, the estimation of variable consideration, and the classification of contract assets and liabilities. Misapplication of ASC 606 or errors in estimating variable consideration could result in material misstatements in the financial statements.

Our audit procedures to assess the above include:

| 1. | Understand and evaluate the Group’s revenue recognition procedures, including the adoption and application of ASC 606;
| 2. | Evaluate the identification and measurement of performance obligations, including the Group’s determination of whether they are distinct or combined;
| 3. | Assess the methodology used to measure progress towards complete satisfaction of performance obligations over time;
| 4. | Evaluate the estimation methods for variable consideration, and assess the reasonableness of the estimates;
| 5. | Verify and review the classification and control of contract assets and liabilities;
| 6. | Test samples of contracts and evidences to ensure reasonable accuracy and completeness of revenue recognition;,
| 7. | Validate costs incurred for projects not yet completed at year end and revenue earned not yet billed to the customer (contract assets) and validate amounts received in advance from customers for work not yet completed (contract liabilities);
| 8. | Validate invoices billed to customers subsequent to financial year end for revenue earned as at financial year end and validate receipt of payments for these invoices;
| 9. | Consider consistency of evidence and obtained in other areas of the audit;
| 10. | Assess the adequacy of the Group’s disclosures related to revenue recognition under ASC 606.

/s/ J&S Associate PLT

Certified Public Accountants

PCAOB Number: 6743

We have served as the Company’s auditor since 2023.

Kuala Lumpur, Malaysia

April 30, 2024

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Zhejiang Tianlan Environmental Protection Technology Company Limited

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of operations, shareholders’ equity and cash flows of Zhejiang Tianlan Environmental Protection Technology Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its consolidated operations and its consolidated cash flows of the Group for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the management and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Report of Independent Registered Public Accounting Firm (Cont’d)

To the Board of Directors and Shareholders of

Zhejiang Tianlan Environmental Protection Technology Company Limited

Critical Audit Matter (Cont’d)

Revenue Recognition

As described further in Note 2 to the consolidated financial statements, revenues derived from long-term contracts are recognized as the performance obligations are satisfied over time. The Group uses a ratio of project costs incurred to estimated total costs for each contract to recognize revenue. Under the cost-to-cost approach, the determination of the progress towards completion requires management to prepare estimates of the costs to complete. In addition, the Group’s contracts may include variable consideration related to contract modifications through change orders or claims, and management must also estimate the variable consideration the Group expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time to be a critical audit matter.

The principal considerations for our determination that revenue recognized over time is a critical audit matter is that auditing management’s estimate of the progress toward completion of its projects was complex and subjective. This is due to the considerable judgment required to evaluate management’s determination of the forecasted costs to complete its long-term contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, auditing the Group’s measurement of variable consideration is also complex and highly judgmental and can have a material effect on the amount of revenue recognized.

Our audit procedures related to revenue recognized over time included the following, among others.

· | We obtained an understanding, evaluated the design of the operating effectiveness of the Group’s processes and controls related to contract revenue recognition;
· | We tested the Group’s cost-to-cost estimates by evaluating the appropriate application of the cost-to-cost method, testing the significant assumptions used to develop the estimated cost to complete and testing the completeness and accuracy of the underlying data;
· | We tested the estimated variable consideration by evaluating the appropriate application of the most likely amount method, and tracing amounts to supporting documentation;
· | We evaluating management’s ability to reasonably estimate costs by performing a comparison of the actual costs to prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the estimated costs;
· | We evaluate management’s methodologies and the consistency of management’s methodologies over the life of the contracts;
· | We tested the original estimated costs and profit margins on projects that were commenced and completed during the year ended December 31, 2021, by obtaining the original estimates, compare to the actual costs and profit margin for the completed contracts and investigate significant changes; and
· | We tested the estimated costs to complete projects that were not completed during the year ended December 31, 2021 by comparing the estimated cost to complete at December 31, 2021 to actual cost incurred subsequent to December 31, 2021

s/ Union Power HK CPA Limited

We have served as the Company’s auditor since 2018.

Hong Kong, the People’s Republic of China

May 13, 2022

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Assets |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash |  |  | 135,988 |  |  |  | 121,382 |
Accounts receivable, net |  |  | 128,235 |  |  |  | 135,773 |
Prepayments and other current assets |  |  | 23,741 |  |  |  | 21,151 |
Contract assets, net |  |  | 72,880 |  |  |  | 76,992 |
Inventories |  |  | 4,469 |  |  |  | 4,399 |
Short-term investments |  |  | - |  |  |  | 14,805 |
Total current assets |  |  | 365,313 |  |  |  | 374,502 |
Property, plant and equipment, net |  |  | 63,505 |  |  |  | 68,405 |
Intangible assets, net |  |  | 1,763 |  |  |  | 1,808 |
Land use right, net |  |  | 4,699 |  |  |  | 4,850 |
Deferred tax assets |  |  | 5,939 |  |  |  | 14,666 |
Long-term investments |  |  | 1,200 |  |  |  | 1,200 |
Total non-current assets |  |  | 77,106 |  |  |  | 90,929 |
Total assets |  |  | 442,419 |  |  |  | 465,431 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Bank borrowings |  |  | 6,509 |  |  |  | 5,508 |
Accounts payable |  |  | 107,211 |  |  |  | 128,713 |
Other payables and accrued expenses |  |  | 23,720 |  |  |  | 88,501 |
Contract liabilities |  |  | 43,452 |  |  |  | 34,503 |
Other taxes payable |  |  | 4,119 |  |  |  | 8,193 |
Total current liabilities |  |  | 185,011 |  |  |  | 265,418 |
Deferred government grant |  |  | 1,413 |  |  |  | 1,027 |
Total non-current liabilities |  |  | 1,413 |  |  |  | 1,027 |
Total liabilities |  |  | 186,424 |  |  |  | 266,445 |
Commitments and contingencies (Note 21) |  |  |  |  |  |  |  |
Shareholders’ equity: |  |  |  |  |  |  |  |
Share capital 82,572,000 no par value shares authorized, issued and outstanding, as of December 31, 2023 and 2022, respectively |  |  | 82,572 |  |  |  | 82,572 |
Capital reserve |  |  | 35,761 |  |  |  | 35,761 |
PRC statutory reserve |  |  | 25,411 |  |  |  | 18,024 |
Retained earnings |  |  | 105,766 |  |  |  | 56,193 |
Total shareholders’ equity attributable to Zhejiang Tianlan Environmental Protection Technology Company Limited |  |  | 249,510 |  |  |  | 192,550 |
Non-controlling interests |  |  | 6,485 |  |  |  | 6,436 |
Total shareholders’ equity |  |  | 255,995 |  |  |  | 198,986 |
Total liabilities and shareholders’ equity |  |  | 442,419 |  |  |  | 465,431 |

The accompanying notes form an integral part of these consolidated financial statements.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

|  | Year ended December 31, |
|  | 202 3 |  |  | 202 2 |  |  | 202 1 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Revenues |  |  | 325,176 |  |  |  | 403,118 |  |  |  | 330,841 |
Cost of revenues |  |  | (215,400 | ) |  |  | (335,978 | ) |  |  | (275,455 | )
Gross profit |  |  | 109,766 |  |  |  | 67,140 |  |  |  | 55,386 |
Selling and administrative expenses |  |  | (56,880 | ) |  |  | (59,247 | ) |  |  | (52,161 | )
Operating income |  |  | 52,896 |  |  |  | 7,893 |  |  |  | 3,225 |
Interest income |  |  | 1,217 |  |  |  | 105 |  |  |  | 46 |
Interest expense |  |  | (253 | ) |  |  | (634 | ) |  |  | (747 | )
Other income |  |  | 32,746 |  |  |  | 11,789 |  |  |  | 11,594 |
Other losses |  |  | - |  |  |  | (3,755 | ) |  |  | (1,238 | )
Net income before income tax |  |  | 86,606 |  |  |  | 15,398 |  |  |  | 12,880 |
Income tax (expense) / credit |  |  | (16,069 | ) |  |  | 368 |  |  |  | 698 |
Net income |  |  | 70,537 |  |  |  | 15,766 |  |  |  | 13,578 |
Net loss attributable to non-controlling interests |  |  | (366 | ) |  |  | (1,458 | ) |  |  | (2,293 | )
Net income attributable to Zhejiang Tianlan Environmental Protection Technology Company Limited’s shareholders |  |  | 70,171 |  |  |  | 14,308 |  |  |  | 11,285 |
Net income per ordinary share attributable to Zhejiang Tianlan Environmental Protection Technology Company Limited’s shareholders |  | RMB 0.85 |  |  | RMB 0.17 |  |  | RMB 0.19 |
Weighted average ordinary shares outstanding |  |  | 82,572,000 |  |  |  | 82,572,000 |  |  |  | 82,572,000 |

The accompanying notes form an integral part of these consolidated financial statements.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |
Net income |  |  | 70,537 |  |  |  | 15,766 |  |  |  | 13,578 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Amortization of intangible assets |  |  | 246 |  |  |  | 257 |  |  |  | 255 |
Amortization of land use right |  |  | 180 |  |  |  | 150 |  |  |  | 150 |
Depreciation |  |  | 5,964 |  |  |  | 6,580 |  |  |  | 6,466 |
Gain on disposal of property, plant and equipment |  |  | - |  |  |  | - |  |  |  | (39 | )
Impairment loss on contract assets |  |  | (2,158 | ) |  |  | 3,560 |  |  |  | 1,238 |
Impairment loss on short-term investments |  |  | - |  |  |  | 195 |  |  |  | - |
Impairment loss on property, plant and equipment |  |  |  |  |  |  | - |  |  |  | - |
Proceeds from deferred government grant |  |  | - |  |  |  | 700 |  |  |  | - |
Property, plant and equipment written off |  |  | (36,241 | ) |  |  | 218 |  |  |  | - |
Reversal of allowance for doubtful accounts |  |  | (677 | ) |  |  | (983 | ) |  |  | (183 | )
Change in non-current assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Deferred government grant |  |  | 386 |  |  |  | (3,562 | ) |  |  | (1,005 | )
Deferred tax assets |  |  | 8,727 |  |  |  | (361 | ) |  |  | (666 | )
(Increase)/decrease in current assets: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable, net |  |  | 7,538 |  |  |  | (28,768 | ) |  |  | 12,782 |
Prepayments and other current assets |  |  | (2,590 | ) |  |  | 12,347 |  |  |  | (5,111 | )
Contract assets, net |  |  | 4,112 |  |  |  | (8,241 | ) |  |  | 20,946 |
Inventories |  |  | (70 | ) |  |  | (1,014 | ) |  |  | (997 | )
Short-term investments |  |  | 14,805 |  |  |  | - |  |  |  | - |
Increase/(decrease) in current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  |  | (21,502 | ) |  |  | 34,751 |  |  |  | (3,833 | )
Other payables and accrued expenses |  |  | (64,781 | ) |  |  | 70,063 |  |  |  | 681 |
Contract liabilities |  |  | 8,949 |  |  |  | (2,978 | ) |  |  | (9,654 | )
Other taxes payable |  |  | (4,074 | ) |  |  | 1,469 |  |  |  | (8,596 | )
Current portion of long-term finance lease obligations |  |  |  |  |  |  | - |  |  |  | - |
Tax paid |  |  |  |  |  |  | - |  |  |  | 151 |
Net cash (used in) /provided by operating activities |  |  | (10,649 | ) |  |  | 100,149 |  |  |  | 26,163 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Proceeds from investment |  |  | - |  |  |  | - |  |  |  | - |
Proceeds from sale of partial shareholding in a subsidiary |  |  | - |  |  |  | - |  |  |  | - |
Proceeds from sale of property, plant and equipment |  |  | 39,374 |  |  |  | - |  |  |  | 148 |
Purchase of intangible assets |  |  | (200 | ) |  |  | (200 | ) |  |  | - |
Purchase of long-term investments |  |  | - |  |  |  | - |  |  |  | (1,200 | )
Purchase of property, plant and equipment |  |  | (1,708 | ) |  |  | (1,143 | ) |  |  | (1,381 | )
Purchase of short-term investments |  |  | - |  |  |  | (15,000 | ) |  |  | - |
Net cash provided by/(used in) investing activities |  |  | 37,466 |  |  |  | (16,343 | ) |  |  | (2,433 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Repayments of bank borrowings |  |  | (5,500 | ) |  |  | (14,000 | ) |  |  | (20,000 | )
Proceeds from bank borrowings |  |  | 6,500 |  |  |  | 6,000 |  |  |  | 13,500 |
Dividend paid to shareholders and interest paid |  |  | (13,211 | ) |  |  | (9,400 | ) |  |  | (13,223 | )
Net cash used in financing activities |  |  | (12,211 | ) |  |  | (17,400 | ) |  |  | (19,723 | )
Net increase in cash and cash equivalents |  |  | 14,606 |  |  |  | 66,406 |  |  |  | 4,007 |
Cash and cash equivalents at beginning of year |  |  | 121,382 |  |  |  | 54,976 |  |  |  | 50,969 |
Cash and cash equivalents at end of year |  |  | 135,988 |  |  |  | 121,382 |  |  |  | 54,976 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Supplemental disclosure of consolidated cash flow information: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for income tax |  |  | - |  |  |  | - |  |  |  | - |
Cash paid during the year for interest |  |  | 253 |  |  |  | 626 |  |  |  | 680 |
Finance leases (disclosed in accompanying Note 3) |  |  | - |  |  |  | - |  |  |  | - |

The accompanying notes form an integral part of these consolidated financial statements.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

|  | ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED’S SHAREHOLDERS |  |  |  |  |  |  |
|  | Share capital |  |  | Capital reserve |  |  | PRC statutory reserve |  |  | Retained earnings |  |  | Non-controlling interests |  |  | Total |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Balance at December 31, 2020 |  |  | 82,572 |  |  |  | 35,761 |  |  |  | 15,670 |  |  |  | 55,248 |  |  |  | 3,003 |  |  |  | 192,254 |
Net income / (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,285 |  |  |  | 2,293 |  |  |  | 13,578 |
Dividend paid |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13,212 | ) |  |  | - |  |  |  | (13,212 | )
Appropriation of reserves |  |  | - |  |  |  | - |  |  |  | 912 |  |  |  | (912 | ) |  |  | - |  |  |  | - |
Balance at December 31, 2021 |  |  | 82,572 |  |  |  | 35,761 |  |  |  | 16,582 |  |  |  | 52,409 |  |  |  | 5,296 |  |  |  | 192,620 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14,308 |  |  |  | 1,458 |  |  |  | 15,766 |
Dividend paid |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (9,082 | ) |  |  | (318 | ) |  |  | (9,400 | )
Appropriation of reserves |  |  | - |  |  |  | - |  |  |  | 1,442 |  |  |  | (1,442 | ) |  |  | - |  |  |  | - |
Balance at December 31, 2022 |  |  | 82,572 |  |  |  | 35,761 |  |  |  | 18,024 |  |  |  | 56,193 |  |  |  | 6,436 |  |  |  | 198,986 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 70,171 |  |  |  | 366 |  |  |  | 70,537 |
Dividend paid |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13,211 | ) |  |  | (618 | ) |  |  | (13,829 | )
Appropriation of reserves |  |  | - |  |  |  | - |  |  |  | 7,387 |  |  |  | (7,387 | ) |  |  | 301 |  |  |  | 301 |
Balance at December 31, 2023 |  |  | 82,572 |  |  |  | 35,761 |  |  |  | 25,411 |  |  |  | 105,766 |  |  |  | 6,485 |  |  |  | 255,995 |

The accompanying notes form an integral part of these consolidated financial statements.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. | Organization and business

Zhejiang Tianlan Environmental Protection Technology Company Limited (the “Company”) was incorporated in Hangzhou City, Zhejiang Province, the People's Republic of China (“PRC”) on May 18, 2000. The Company is a limited liability company limited by shares with an operating period up to long term.

The Company provides a comprehensive service for design, general contract, equipment manufacturing, installation, testing and operation management of the treatment of waste gases emitted from various boilers and industrial furnaces of power plants, steel works and chemical plants since 2000.

The Company has listed its shares on the New Third Board in the PRC since November 17, 2015 and 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 Group’s principal subsidiaries at December 31, 2023 and 2022 are set out below.

Name of entity |  | Ownership interest held by the Group |  |  | Place of incorporation and principal place of operation |  | Principal activities |
|  | 202 3 |  |  | 202 2 |  |  |  |  |  |
Zhejiang Tianlan Environmental Protection Engineering Company Limited |  |  | 100 | %* |  |  | 100 | %* |  | PRC |  | Design, general contract, installation and operating management of environmental protection projects |
Hangzhou Tianlan Environmental Protection Equipment Company Limited |  |  | 51 | % |  |  | 51 | % |  | PRC |  | Manufacturing and installation services of environmental protection equipment |
Hangzhou Tianlan Pure Environmental Protection Technology Company Limited |  |  | 38.25 | % |  |  | 38.25 | % |  | PRC |  | Manufacturing of environmental protection equipment |
Hangzhou Tiancan Environmental Technology Company Limited |  |  | 80 | % |  |  | 80 | % |  | PRC |  | Manufacturing of environmental protection equipment |
Hangzhou Zhongyi Ecological and Environmental Consulting Company Limited |  |  | 40.1 | %** |  |  | - |  |  | PRC |  | Consultation services of environmental protection projects |

* This company was acquired in August 2020.

** This company was acquired in April 2022.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies
(a) | Basis of presentation

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

(b) | Basis of consolidation

The accompanying consolidated financial statements include the results of operations of the Company and its subsidiaries. Significant intercompany transactions and balances have been eliminated.

(c) | Subsidiaries

Subsidiaries are all entities over which the Group has control; has the power to appoint or remove the majority of the members of the board of directors; has the right to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

(d) | Revenue recognition

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)
(d) | Revenue recognition (Cont’d)

Performance obligations satisfied over time (Design, installation and operation management 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 projects typically span between 12 to 36 months. 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, not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (design, installation and operation management services).

Revenues are recognized as our obligations are satisfied over time, using the ratio of project costs incurred to estimated total costs for each contract because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being installed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Group for costs incurred plus a reasonable profit and take control of any work in process. This cost-to-cost measure is used because management considers it to be the best available measure of progress on these contracts. Contract costs include all direct material, labor, subcontract and other costs.

Items excluded from cost-to-cost

Pre-contract costs are generally not material and are charged to expense as incurred, but in certain cases pre-contract recognition may be deferred if specific probability criteria are met.

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 of services 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.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)
(d) | Revenue recognition (Cont’d)

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 incur 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 (Sales of equipment)

Revenue for our sales 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.

(e) | Research and development costs

Research and development costs (“R&D” costs) are expensed as incurred. The R&D costs amounted to approximately RMB20,452,000, RMB29,115,000 and RMB23,419,000 for the years ended December 31, 2023, 2022 and 2021 respectively and were included in “Selling and administrative expenses” in the Group’s consolidated statements of operations.

(f) | Income tax

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.

The accounting guidance on accounting for uncertainty in income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods. The Group does not believe it has any uncertain tax positions through the periods ended December 31, 2023, 2022 and 2021 respectively which would have a material impact on the Group’s consolidated financial statements.

The Group files tax returns in the PRC. The tax returns for 2023, 2022 and 2021 are subject to examination by the PRC taxing authorities, commencing with the first year filed.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)

(g) | Cash and cash equivalents

Cash and cash equivalents consist of bank deposits with original maturities of three months or less, all of which are unrestricted as to withdrawal and uninsured. There were no cash equivalents as of December 31, 2023 and 2022.

(h) | Accounts receivable and allowance for doubtful accounts

The Group does not charge interest to its customers and carries its customer receivables at their face amounts, less an allowance for doubtful accounts. As is common practice in the industry, the Group classifies all accounts receivable as current assets.

The Group grants trade credit, on a non-collateralized basis, to its customers and is subject to potential credit risk related to changes in business and overall economic activity. The Group analyzes specific accounts receivable balances, historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the event that a customer balance is deemed to be uncollectible, the account balance is written-off against the allowance for doubtful accounts.

(i) | Classification of contract assets, net 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 costs incurred or any payment received for a long-term contract, for which revenue has not been recognized due to impracticability or inability to measure the performance obligation, is recorded as a contract asset and contract liability, respectively, on the Group’s consolidated balance sheets. Revenue will be recognized when the performance obligation can be measured reliably and the criteria as stipulated under ACS 606 are met.

The Group’s consolidated balance sheets present contract cost assets that represent our rights to receive payment for completed but not yet billed work and include costs incurred for contracts with customers as at financial year end less amounts received in advance from those customers at financial year end.

The Group’s consolidated balance sheets present contract liabilities that contain deferred revenue that represent amounts received in advance from customers at financial year end in excess of any costs incurred on those contracts, which are in progress at year end, for which revenue has not yet been recognized.

Contract assets and contract liabilities arising from the same individual contract are presented net as either a single net contract asset or single net contract liability for presentation purposes.

(j) | Inventories

Inventories are measured using the weighted average method and are stated at the lower of cost or net realizable value. Cost of finished goods comprise direct material, direct production costs and an allocated portion of production overhead costs based on normal operating capacity. Allowance is made for obsolete, slow moving or defective items, where appropriate.

(k) | Property, plant and equipment and land use right, net

Property, plant and equipment is carried at cost. Major modifications or refurbishments which extend the useful life of the assets are capitalized and depreciated over the adjusted remaining useful life of the assets. Upon retirement or disposition of property, plant and equipment, the cost and related accumulated depreciation are removed and any resulting gain or loss is recognized in consolidated income from operations. The cost of maintenance and repairs is charged to expense as incurred. Property, plant and equipment is reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value of property, plant and equipment exceeds its fair value, an impairment charge would be recorded in the consolidated statement of operations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)

(k) | Property, plant and equipment and land use right, net (Cont’d)

Land in the PRC is owned by the PRC government. The government in the PRC, according to PRC Law, may sell the right to use the land for a specific period of time. Thus, all of the Group’s land purchases in the PRC are considered to be leasehold land and are classified as land use right.

Depreciation of property, plant and equipment and amortization of land use right are computed using the straight-line method over the assets’ estimated useful lives as follows:

| Land use right | Over terms of the leases
| Buildings and leasehold improvements | 11 to 50 years, with 5% residual value
| Furniture, fixtures and office equipment | 5 years, with 5% residual value
| Motor vehicles | 5 years, with 5% residual value
| Plant and machineries | 5 to 10 years, with 5% residual value

(l) | Intangible assets, net
| The Group is currently amortizing its acquired intangible assets, consisted of patents and others, with finite-lived over periods generally ranging between three to twenty years.

(m) | Impairment of long lived assets

Long-lived assets such as property, plant and equipment and intangible assets with finite lives are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. The impairment of long-lived assets amounted to approximately RMB Nil, RMB Nil and RMB Nil for the years ended December 31, 2023, 2022 and 2021 respectively and were included in “Selling and administrative expenses” in the Group’s consolidated statements of operations.

(n) | Government grant income

Government grant income consists of receipt of funds to subsidize the investment cost of technical development in China. No present or future obligation arises from the receipt of such amount.

Government grants are recognized in the consolidated balance sheet initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognized as income in the consolidated statement of operations on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognized in the consolidated statements of operations over the useful life of the asset by way of reduced depreciation expenses.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)

(o) | Leases arrangements

The Group adopted ASU No. 2016-02, Leases (Topic 842). The Group leases certain equipment under finance leases. The economic substance of the leases is a financing transaction for acquisition of the equipment. Accordingly, the right-of-use assets for these leases are included on the Group’s consolidated balance sheets in property, plant and equipment, net of accumulated depreciation, amortization and impairment losses, with a corresponding amount recorded in current portion of long-term finance lease obligations. The finance lease assets are amortized over the life of the lease or, if shorter, the life of the leased asset, on a straight-line basis and included in depreciation expense. The financing component associated with finance lease obligations is included in interest expense. Generally, for the Group’s finance leases an implicit rate to calculate present value is provided in the lease agreement, however if a rate in not provided the Group determines this rate by estimating the Group’s incremental borrowing rate, utilizing the borrowing rates associated with the Group’s various debt instruments.

The Group determines if an arrangement is a lease at inception. Lease liabilities are the Group’s obligation to make lease payments arising from a lease and are measured on a discounted basis.

(p) | Share capital

Paid in capital refers to the registered capital paid up by the shareholders of the Company.

At December 31, 2023, there were 82,572,000 shares (2022: 82,572,000 shares) issued.

(q) | Use of 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 contracts over time, contract assets and contract liabilities, allowance for doubtful debtors, provision for obsolete inventory and income taxes. Management continually evaluates all of its estimates and judgments based on available information and experience; however, actual results could differ from these estimates.

(r) | Related parties

Entities are considered to be related to the Group if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Group. Related parties also include principal owners of the Group, its management, members of the immediate families of principal owners of the Group and its management and other parties with which the Group may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

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ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION TECHNOLOGY COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)

(s) | Net income per ordinary share

The Group computes net income per ordinary share using the treasury stock method. Under the treasury stock method, basic earnings per share attributable to Zhejiang Tianlan Environmental Protection Technology Company Limited are computed by dividing net income attributable to Zhejiang Tianlan Environmental Protection Technology Company Limited by the weighted average number of ordinary shares outstanding during the period.

(t) | Warranties

The suppliers of the Group offer a standard one-year warranty to end customer of the Group. The Group only provides labour service to repair or replace parts. The Group does not maintain a general warranty reserve because historically labour costs for such repair or replacement have been de minimis.

(u) | Shipping and handling costs

Amounts billed to customers related to shipping and handling are classified as revenues, and the Group’s shipping and handling costs are included in cost of revenues.

(v) | Finance costs

Interest relating to loans repaid is expensed in the period the repayment occurs.

(w) | Concentrations

Financial instruments that potentially subject the Group to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable, net. The Group maintains substantially all of its cash and cash equivalent balances with large financial institutions which are believed to be high quality institutions.

The Group is subject to a concentration of risk because it derives a significant portion of its revenues from a few customers. The Group’s top five customers accounted for approximately 38%, 35%, and 35% of consolidated revenues for the years ended December 31, 2023, 2022 and 2021, respectively. For the years ended December 31, 2023, 2022 and 2021, one customer accounted for 22%, 14% and 16% of annual revenues, respectively.

The Group grants trade credit under contractual payment terms, generally without collateral, to its customers, which include high credit quality electric utilities, general contractors, owners and managers of industrial properties.

Consequently, the Group is subject to potential credit risk related to changes in business and economic factors. At December 31, 2023 and 2022, none of the Group’s customers individually exceeded 10.0% of accounts receivable. The Group believes the terms and conditions in its contracts, billing and collection policies are adequate to minimize the potential credit risk.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)

(x) | Statutory reserve

The Group is required to make appropriation to reserve, comprising the PRC statutory reserve, based on after-tax net income determined with generally accepted accounting principles of the PRC (“PRC GAAP”).

Appropriations to the PRC statutory reserve are required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital.

(y) | Fair value measurements

ASC 820 provides guidance on how to measure fair value for financial reporting purpose. The Group uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs used in measuring fair value based upon their degree of availability in external active markets. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 31, 2023 and 2022, the Group determined that the carrying values of cash, and cash equivalents, accounts receivable, net, prepayments and other current assets, contract assets, bank borrowings, accounts payable, other payables and accrued expenses and contract liabilities approximate their fair values because of the short-term nature of these instruments.

(z) | Short-term and long-term investments

The Group has elected to apply the measurement alternative to equity securities without readily determinable fair values. As such, the Group’s non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the investee.

(aa) | Recent accounting pronouncements

Changes to GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s ASC. The Group considers the applicability and impact of all ASUs. The Group, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Group or may have minimal impact on its consolidated financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)
(aa) | Recent accounting pronouncements (Cont’d)

Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments". The new standard requires the measurement and recognition of expected credit losses using the current expected credit loss model for financial assets held at amortized cost, which includes the Group’s accounts receivable, contract assets and non-current assets. It replaces the existing incurred loss impairment model with an expected loss methodology. The recorded credit losses are adjusted each period for changes in expected lifetime credit losses. The standard requires a cumulative effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective. ASC 326, Financial Instruments — Credit Losses is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2019. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard is effective for the Group from January 1, 2023. The Group is in the process determining the impact of the adoption of this standard on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which simplifies the accounting for income taxes. This guidance became effective for the first quarter of 2021 on a prospective basis. The implementation of ASU 2019-12 in the year ended December 31, 2021, did not have a material impact on the Group’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805)". ASU 2021-08 creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. Under this exception, an acquirer applies ASC 606 to recognize and measure contract assets and contract liabilities on the acquisition date. ASC 805 generally requires the acquirer in a business combination to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The ASU 2021-08 will become effective for fiscal years beginning after December 15, 2022. The adoption of this ASU is not expected to have a material impact on the Group’s consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". This ASU defers the sunset date of Topic 848, which provides relief to entities affected by reference rate reform. The ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2025. The standard is effective immediately and the Group adopted the standard in December 2022 with no financial impact. The Group is currently assessing the impact ASU 2020-04, for which this ASU 2022-06 relates, will have on its consolidated financial statements.

The Group has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

2. | Summary of significant accounting policies (Cont’d)

(ab) | Non-controlling interests

For entities that are consolidated, but not 100% owned, a portion of the income or loss and equity is allocated to owners other than the Group. The aggregate of the income or loss and corresponding equity that is not owned by the Group is included within non-controlling interests in the consolidated financial statements.

Non-controlling interests is presented as a separate component of equity in the consolidated balance sheets. Net income includes the net income attributable to the holders of non-controlling interests in the consolidated statements of operations and comprehensive income / (loss). Profits and losses are allocated to non-controlling interests in proportion to their relative ownership interests regardless of their basis.

3. | Lease obligations

The Group has finance leases primarily for equipment.

The components of lease expense are as follows:

|  | Years ended December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Finance lease cost: |  |  |  |  |  |
Amortization of right-of-use assets |  |  | - |  |  |  | - |
Interest on lease liabilities included under cost of revenue and selling and administrative expenses |  |  | - |  |  |  | - |
Total finance lease cost |  |  | - |  |  |  | - |

Supplemental consolidated cash flow information related to leases is as follows:

|  | Years ended December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
Finance cash flows from finance leases |  |  | - |  |  |  | - |
Right-of-use assets obtained in exchange for lease obligations (noncash): |  |  |  |  |  |  |  |
Finance leases |  |  | - |  |  |  | - |

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

3. | Lease obligations (Cont’d)

Supplemental consolidated balance sheet information related to leases is as follows:

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Finance leases |  |  |  |  |  |
Property, plant and equipment, at cost |  |  | - |  |  |  | - |
Accumulated depreciation and impairment losses |  |  | - |  |  |  | - |
Property, plant and equipment, net |  |  | - |  |  |  | - |
Current maturities of long-term debt |  |  | - |  |  |  | - |
Total finance lease liabilities |  |  | - |  |  |  | - |
Weighted average remaining lease term |  |  |  |  |  |  |  |
Finance leases |  |  | - |  |  |  | - |
Weighted average discount rate |  |  |  |  |  |  |  |
Finance leases |  |  | - |  |  |  | - |

4. | Accounts receivable, net

Accounts receivable, net consisted of the following at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Contract receivables |  |  | 157,879 |  |  |  | 175,792 |
Less: allowance for doubtful accounts |  |  | (29,644 | ) |  |  | (40,019 | )
|  |  | 128,235 |  |  |  | 135,773 |

The roll-forward of activity in the allowance for doubtful accounts was as follows for the years ended December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Balance at beginning of year |  |  | 40,019 |  |  |  | 42,867 |
Add: provision for allowances |  |  | 10,376 |  |  |  | 822 |
Less: reversal of provision for doubtful accounts |  |  | (677 | ) |  |  | (983 | )
Less: write-off of doubtful accounts |  |  | (20,074 | ) |  |  | (2,687 | )
Balance at end of year |  |  | 29,644 |  |  |  | 40,019 |

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4. | Accounts receivable, net (Cont’d)

The following is an aging analysis of accounts receivable, net at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Within 1 year |  |  | 92,014 |  |  |  | 111,436 |
1 year - 2 years |  |  | 31,499 |  |  |  | 12,236 |
2 years - 3 years |  |  | 3,140 |  |  |  | 1,437 |
3 years - 4 years |  |  | 699 |  |  |  | 6,132 |
4 years - 5 years |  |  | 883 |  |  |  | 4,532 |
|  |  | 128,235 |  |  |  | 135,773 |

At December 31, 2023, the accounts receivable, net pledged as security for the Company’s bank loans and third party loans amounted to RMB Nil (2022: RMB Nil).

5. | Prepayments and other current assets

Prepayments and other current assets mainly represent deposits paid for bidding projects, purchases, services and finance leases and prepaid expenses.

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Prepayments |  |  | 16,622 |  |  |  | 12,547 |
Deposits paid for bidding projects and temporary payments |  |  | 6,257 |  |  |  | 6,004 |
Other current assets |  |  | 862 |  |  |  | 2,600 |
|  |  | 23,741 |  |  |  | 21,151 |

6. | Contract assets, net and liabilities

Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms.

The Group’s consolidated balance sheets present contract assets, net which contains earned unbilled revenue associated with contract work that has been completed but not paid by customers, that are generally due once the job is completed and approved.

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6. | Contract assets, net and liabilities (Cont’d)

Contract assets, net consisted of the following at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Unbilled revenue |  |  | 72,880 |  |  |  | 76,992 |

The Group’s consolidated balance sheets present contract liabilities which contain deferred revenue (previously identified as billings in excess of costs and estimated earnings on uncompleted contracts).

Contract liabilities consisted of the following at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Deferred revenue |  |  | 43,452 |  |  |  | 34,503 |

The following table provides information about contract assets, net and contract liabilities from contracts with customers at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Contract assets |  |  | 72,880 |  |  |  | 76,992 |
Contract liabilities |  |  | (43,452 | ) |  |  | (34,503 | )
Net contract assets |  |  | 29,428 |  |  |  | 42,489 |

The difference between the opening and closing balances of the Group’s contract assets, net and contract liabilities primarily results from the timing of the Group’s billings in relation to its performance of work.

The net asset position for contracts in process consisted of the following at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Costs and estimated earnings on uncompleted contracts |  |  | 239,648 |  |  |  | 688,184 |
Less: billings to date |  |  | (210,220 | ) |  |  | (645,695 | )
|  |  | 29,428 |  |  |  | 42,489 |

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6. | Contract assets, net and liabilities (Cont’d)

Contract assets, net consisted of the following at December 31:

|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Gross contract assets |  |  | 83,170 |  |  |  | 89,440 |
Less: allowance for doubtful accounts |  |  | (10,290 | ) |  |  | (12,448 | )
|  |  | 72,880 |  |  |  | 76,992 |

7. | Inventories

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Raw materials |  |  | 54 |  |  |  | 1,961 |
Finished goods |  |  | 4,415 |  |  |  | 2,438 |
|  |  | 4,469 |  |  |  | 4,399 |

8. | Short-term and long-term investments

The Group's short-term investments consist of wealth management products and long-term investments consist of minority ownership interests in Nil (2022: Nil) limited liability company, generally from private equity arrangements. These investments are carried under the equity method of accounting, with changes in the carrying value reported as realized gains or losses in the consolidated financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

9. | Property, plant and equipment

|  |  |  |  | December 31, |
|  |  |  |  | 202 3 |  |  | 202 2 |
|  |  |  |  | RMB’000 |  |  | RMB’000 |
Building and leasehold improvements |  |  |  |  |  | 112,792 |  |  |  | 167,874 |
Furniture, fixtures and office equipment |  |  |  |  |  | 4,122 |  |  |  | 3,795 |
Motor vehicles |  |  |  |  |  | 4,478 |  |  |  | 4,610 |
Plant and machineries |  |  |  |  |  | 10,619 |  |  |  | 10,619 |
Total |  |  |  |  |  | 132,011 |  |  |  | 186,898 |
Less: Accumulated depreciation and amortization |  |  |  |  |  | (68,506 | ) |  |  | (82,252 | )
Accumulated impairment losses |  |  |  |  |  | - |  |  |  | (36,241 | )
Total |  |  |  |  |  | (68,506 | ) |  |  | (118,493 | )
Net |  |  |  |  |  | 63,505 |  |  |  | 68,405 |
|  | Year ended December 31, |
|  | 202 3 |  |  | 202 2 |  |  | 202 1 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Depreciation charge |  |  | 5,964 |  |  |  | 6,580 |  |  |  | 6,466 |

At December 31, 2023, the net book value of property, plant and equipment pledged as security for the Company’s bank loans and third party loans amounted to approximately RMB1,026,000 (2022: RMB1,275,000).

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10. | Intangible assets, net

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Amortizable intangible assets |  |  |  |  |  |
Gross carrying amount |  |  |  |  |  |
Patents |  |  | 4,150 |  |  |  | 3,950 |
Others |  |  | 165 |  |  |  | 165 |
|  |  | 4,315 |  |  |  | 4,115 |
Less: Accumulated amortization |  |  | (2,552 | ) |  |  | (2,307 | )
Net carrying amount |  |  | 1,763 |  |  |  | 1,808 |

|  | Year ended December 31, |
|  | 202 3 |  |  | 202 2 |  |  | 202 1 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Amortization expense |  |  | 246 |  |  |  | 257 |  |  |  | 255 |

At December 31, 2023, estimated future intangible assets amortization expense for each of the next five years and thereafter was as follows:

|  | Future amortization expense |
|  | RMB’000 |
2024 |  |  | 246 |
2025 |  |  | 246 |
2026 |  |  | 246 |
2027 |  |  | 246 |
2028 |  |  | 246 |
Thereafter |  |  | 533 |
Total |  |  | 1,763 |

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11. | Land use right, net

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Gross carrying amount |  |  |  |  |  |
Land use right |  |  | 7,361 |  |  |  | 7,361 |
Less: Accumulated amortization |  |  | (2,662 | ) |  |  | (2,511 | )
Net carrying amount |  |  | 4,699 |  |  |  | 4,850 |

|  | Year ended December 31, |
|  | 202 3 |  |  | 202 2 |  |  | 202 1 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Amortization expense |  |  | 180 |  |  |  | 150 |  |  |  | 150 |

At December 31, 2023, the land use right pledged as security for the Company’s bank loans and third party’s loans amounted to approximately RMB1,371,000 (2022: RMB1,417,000).

As December 31, 2023, estimated future land use right amortization expense for each of the next five years and thereafter was as follows:

|  | Future amortization expense |
|  | RMB’000 |
2024 |  |  | 180 |
2025 |  |  | 180 |
2026 |  |  | 180 |
2027 |  |  | 180 |
2028 |  |  | 180 |
Thereafter |  |  | 3,799 |
Total |  |  | 4,699 |

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12. | Bank borrowings

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | RMB’000 |  |  | RMB’000 |
Bank loans borrowed by the Company (note i) |  |  | 1,502 |  |  |  | 501 |
Bank loans borrowed by subsidiaries of the Company (note ii) |  |  | 5,007 |  |  |  | 5,007 |
|  |  | 6,509 |  |  |  | 5,508 |

| (i) | The bank loans are denominated in Renminbi and are repayable within 1 year. The bank loans borrowed by the Company as of December 31, 2023 bears interest at fixed rates of 4.05% (2022: 3.85%) per annum. Interest paid during the year ended December 31, 2023 was approximately RMB32,000 (2022: RMB408,000 and 2021: RMB253,000).
| (ii) | The bank loans are denominated in Renminbi and are repayable within 1 year. The bank loans borrowed by subsidiaries of the Company as of December 31, 2023, bears interest at a fixed rate of 5.3 % (2022: a fixed rate of 4.85 %) per annum and are secured by the subsidiary’s office premises and leasehold improvements and land use right. Interest paid during the year ended December 31, 2023 was approximately RMB221,000 (2022: RMB218,000 and 2021: RMB427,000).

13. | Other payables and accrued expenses

|  | December 31, |
|  | 2023 |  |  | 2022 |
|  | RMB’000 |  |  | RMB’000 |
Accrued expenses |  |  | 11,274 |  |  |  | 8,731 |
Output VAT |  |  | 6,348 |  |  |  | 5,967 |
Deposits received and temporary receipts |  |  | 6,098 |  |  |  | 73,803 |
|  |  | 23,720 |  |  |  | 88,501 |

14. | Other taxes payable

Other taxes payable mainly comprise Valued-Added Tax (“VAT”). The Group is subject to output VAT levied at the rate of 3% to 13 % (2022: 3% to 13%) of the revenue from sales of equipment. The input VAT paid on purchases of materials and other direct inputs can be used to offset the output VAT levied on operating revenue to determine the net VAT payable or recoverable.

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15. | Capital reserve

Capital reserve represents capital contributions from shareholders in excess of the paid-in capital amount and capitalization of gain on disposal of subsidiaries to the shareholders in previous years.

16. | Other income and other losses

Other income

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Impairment gain on contract assets |  |  | 2,158 |  |  |  | - |  |  |  | - |
Gain on disposal of property, plant and equipment |  |  | - |  |  |  | - |  |  |  | 39 |
Investment income |  |  | 2,863 |  |  |  | 824 |  |  |  | 531 |
Compensation income |  |  | 7,796 |  |  |  | - |  |  |  |  |
Amounts waived by payees |  |  | - |  |  |  | 980 |  |  |  | 3,061 |
Reversal of allowance for doubtful accounts |  |  | 10,841 |  |  |  | 983 |  |  |  | 183 |
Subsidy income from PRC government |  |  | 9,088 |  |  |  | 9,002 |  |  |  | 7,780 |
|  |  | 32,746 |  |  |  | 11,789 |  |  |  | 11,594 |

Other losses

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Impairment loss on short term investments |  |  | - |  |  |  | 195 |  |  |  | - |
Impairment loss on contract assets |  |  | - |  |  |  | 3,560 |  |  |  | 1,238 |
|  |  | - |  |  |  | 3,755 |  |  |  | 1,238 |

17. | Income tax (credit) / expense

According to relevant PRC tax laws and regulations, entities incorporated in the PRC are subject to Enterprise Income Tax (“EIT”) at a statutory rate of 25% or reduced national EIT rates of 15% for certain High and New Technology Enterprises (“HNTE”) on PRC taxable income. Zhejiang Tianlan Environmental Protection Technology Company Limited and Hangzhou Tianlan Environmental Protection Equipment Company Limited are classified as HNTE which enjoy a preferential tax rate of 15%.

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17. | Income tax (credit) / expense (Cont’d)

During the years ended December 31, 2023 and 2022, the PRC tax laws and regulations have launched a tax reduction scheme for small enterprises, Hangzhou Tianlan Pure Environmental Protection Technology Company Limited, Hangzhou Tiancan Environmental Technology Company Limited, Zhejiang Tianlan Environmental Engineering and Design Company Limited and Zhejiang Tianlan Environmental Protection Engineering Company Limited are entitled to enjoy this tax benefit. As such, they are subjects to Enterprise Income Tax rate of 20% only.

The Company and its subsidiaries are based in the PRC and file an EIT return. The components of the provision for income tax expense/(credit) were as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Current tax expense / (credit) |  |  |  |  |  |  |  |  |
PRC EIT |  |  | 7,340 |  |  |  | (7 | ) |  |  | (32 | )
Income tax expense / (credit) |  |  | 7,340 |  |  |  | (7 | ) |  |  | (32 | )
Deferred tax expense / (credit) |  |  | 8,729 |  |  |  | (361 | ) |  |  | (666 | )
Total deferred tax expense / (credit) |  |  | 8,729 |  |  |  | (361 | ) |  |  | (666 | )
Total expense / (credit) |  |  | 16,069 |  |  |  | (368 | ) |  |  | (698 | )

The items comprising the difference between income tax computed at the EIT statutory rates in effect for 2023, 2022 and 2021 and our effective tax rates were as follows:

|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | RMB’000 |  |  | RMB’000 |  |  | RMB’000 |
Income before income tax |  |  | 86,606 |  |  |  | 15,398 |  |  |  | 12,880 |
Computed tax using respective companies’ statutory tax rates |  |  | 12,991 |  |  |  | 2,309 |  |  |  | 1,932 |
(Over)-provision for income tax in prior years |  |  | (591 | ) |  |  | (69 | ) |  |  | (39 | )
Temporary differences |  |  | 2,931 |  |  |  | 2,089 |  |  |  | 401 |
Tax effect of revenue not subject to tax |  |  |  |  |  |  | 3 |  |  |  | - |
Tax effect of expenses not deductible for tax purposes |  |  | 4,472 |  |  |  | 500 |  |  |  | 286 |
Tax effect of special deduction for research and development costs |  |  | (3,734 | ) |  |  | (5,257 | ) |  |  | (3,263 | )
Others |  |  |  |  |  |  | 57 |  |  |  | 15 |
Income taxes expense /(credit) at effective tax rate |  |  | 16,069 |  |  |  | (368 | ) |  |  | (698 | )

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17. | Income tax (credit) / expense (Cont’d)

The components of deferred tax assets are as follows:

|  | December 31, |
|  | 202 3 |  |  | 202 2 |
|  | RMB’000 |  |  | RMB’000 |
Allowance for doubtful accounts |  |  | 4,218 |  |  |  | 5,680 |
Deferred government grant |  |  | 213 |  |  |  | 154 |
Impairment losses on assets |  |  | 1,508 |  |  |  | 5,978 |
Tax losses |  |  | - |  |  |  | 2,854 |
Total deferred tax assets |  |  | 5,939 |  |  |  | 14,666 |

Uncertain tax positions

As a result of the Group’s analysis, management has determined that the Group does not have any material uncertain tax positions.

18. | Pension plan

As stipulated by the rules and regulations in the PRC, the Group contributes to state-sponsored retirement plans for its employees in Mainland China. The Group contributes approximately 12% to 14% of the basic salaries of its employees, and has 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 years ended December 31, 2023, 2022 and 2021, the aggregate contributions of the Group to the aforementioned pension plans and retirement benefit schemes were approximately RMB2,766,000, RMB2,691,000 and RMB6,003,000 respectively.

19. | Risk factors

Financial risk factors

The Group’s activities expose it mainly to credit risk.

Credit risk

The Group has no significant concentration of credit risk, cash in banks in PRC is insured with limit of approximately RMB500,000, per bank per each depositor. Uninsured cash in banks and restricted cash balances in PRC are of approximately RMB128,000,000 (2022: RMB115,282,000). Cash transactions are limited to high credit quality banks.

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20. | Related party transaction

There was no engineering service income from an investment in 2023 (2022: Nil) and there was remuneration to key management personnel of approximately RMB1,878,000 (2022: RMB 1,083,000).

21 | Commitments and contingencies

| (i) | Insurance

The Group carries insurance policies to cover various risks, primarily general liability, automobile liability, workers’ compensation and employee medical expenses under which we are liable to reimburse the insurance company for a portion of each claim paid.

| (ii) | Purchase commitments

To manage the risk of changes in material prices and subcontracting costs used in tendering bids for contracts, most of the time, the Group obtains firm quotations from suppliers and subcontractors before submitting a bid. These quotations do not include any quantity guarantees. As soon as the Group is advised that its bid is successful, the Group enters into firm contracts with most of its materials suppliers and sub-contractors, thereby mitigating the risk of future price variations affecting the contract costs.

| (iii) | Litigation

The Group is now and may in the future be involved as a party to various legal proceedings that are incidental to the ordinary course of business. Management, after consultation with legal counsel, does not believe that the outcome of these actions will have a material impact on the consolidated financial statements of the Group. There are no significant unresolved legal issues as of December 31, 2023 and 2022.

| (v) | Contingencies

The Group accounts for loss contingencies in accordance with ASC 450 and other related guidelines. As of December 31, 2023 and 2022, the Group’s management is of the opinion that there are no commitments and contingencies to account for.

| (vi) | Operating leases

The Group has no operating leases expense during the year ended December 31, 2023 (2022 and 2021: RMB Nil). At December 31, 2023, the Group has no future minimum lease payments under non-cancellable operating leases.

22 | Subsequent event

The Company evaluated all events and transactions that occurred after December 31, 2023, up through the date the Company issued the audited consolidated financial statements. Other than the event disclosed above, there was no other subsequent events occurred that would require recognition or disclosure in the Company’s audited consolidated financial statements.

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