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Intelligent Living Application Group Inc.

Intelligent Living Application Group Inc.ILAG決算レポート

Nasdaq · Consumer Discretionary · Partitions, Shelvg, Lockers, & of fice & Store Fixtures

Intelligent Energy is a fuel cell engineering business focused on the development, manufacture and commercialisation of its proton-exchange membrane fuel cell technologies for a range of markets including automotive, stationary power, materials handling equipment and UAVs. Headquartered in the UK with representation in the US, Japan, South Korea, and China.

What changed in Intelligent Living Application Group Inc.'s 20-F — 2022 vs 2023

Top changes in Intelligent Living Application Group Inc.'s 2023 20-F

491 paragraphs added · 480 removed · 176 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

73 edited+272 added−16 removed336 unchanged
Further implementations and interpretations of or amendments to the HFCA Act or the related regulations, or a PCOAB’s determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. A potential consequence is that our ordinary shares may be delisted by the exchange.
Further implementations and interpretations of or amendments to the HFCA Act or the related regulations, or a PCOAB’s determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. A potential consequence is that our ordinary shares may be delisted by the exchange.
The delisting of our ordinary shares, or the threat of our ordinary shares being delisted, may materially and adversely affect the value of your investment.
The delisting of our ordinary shares, or the threat of our ordinary shares being delisted, may materially and adversely affect the value of your investment.
Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including: · difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; · inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; · difficulties in retaining, training, motivating and integrating key personnel; · diversion of management’s time and resources from our normal daily operations; 15 Table of Contents · difficulties in successfully incorporating licensed or acquired technology and rights into our product offerings; · difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; · difficulties in retaining relationships with customers, employees and suppliers of the acquired business; · risks of entering markets in which we have limited or no prior experience; · regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; · assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; · failure to successfully further develop the acquired technology; · liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; · potential disruptions to our ongoing businesses; and · unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including: ● difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; ● inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; ● difficulties in retaining, training, motivating and integrating key personnel; ● diversion of management’s time and resources from our normal daily operations; 15 ● difficulties in successfully incorporating licensed or acquired technology and rights into our product offerings; ● difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; ● difficulties in retaining relationships with customers, employees and suppliers of the acquired business; ● risks of entering markets in which we have limited or no prior experience; ● regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; ● assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; ● failure to successfully further develop the acquired technology; ● liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; ● potential disruptions to our ongoing businesses; and ● unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
Factors that may cause fluctuations in our financial results include: · our ability to attract new customers and retain existing customers; · changes in our mix of products and introduction of new products; · the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; · Increase the cost of raw materials and/or labor; · our decision to manage order volume growth during the period; · the impact of competitors or competitive products; · increases in our costs and expenses that we may incur to grow and expand our operations and to remain competitive; · changes in the legal or regulatory environment or proceedings, including enforcement by government regulators, fines, orders or consent decrees; · increase of tariffs, general economic, industry and market conditions, including changes in Chinese, U.S. or global business or macroeconomic conditions; · the timing of expenses related to the development or acquisition of technologies or businesses; and · the additional costs related to being a public company. 13 Table of Contents Despite our marketing efforts, we may not be able to promote and maintain our brand in an effective and cost-efficient way and our business and results of operations may be harmed accordingly.
Factors that may cause fluctuations in our financial results include: ● our ability to attract new customers and retain existing customers; ● changes in our mix of products and introduction of new products; ● the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; ● Increase the cost of raw materials and/or labor; ● our decision to manage order volume growth during the period; ● the impact of competitors or competitive products; ● increases in our costs and expenses that we may incur to grow and expand our operations and to remain competitive; ● changes in the legal or regulatory environment or proceedings, including enforcement by government regulators, fines, orders or consent decrees; ● increase of tariffs, general economic, industry and market conditions, including changes in Chinese, U.S. or global business or macroeconomic conditions; ● the timing of expenses related to the development or acquisition of technologies or businesses; and ● the additional costs related to being a public company. 13 Despite our marketing efforts, we may not be able to promote and maintain our brand in an effective and cost-efficient way and our business and results of operations may be harmed accordingly.
Although we are not an CIIO or a Online Platform Operator as defined in the Review Measures and do not process personal data for more than one million individuals under Cyber Data Security Measure (Draft), it is not certain whether any future regulations will impose restrictions on the business that we are currently engaging in China, which is manufacturing lockset.
Although we are not an CIIO or an Online Platform Operator as defined in the Review Measures and do not process personal data for more than one million individuals under Cyber Data Security Measure (Draft), it is not certain whether any future regulations will impose restrictions on the business that we are currently engaging in China, which is manufacturing lockset.
Risks Related to Doing Business in China · Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations. · Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact on our business operation, decrease the value of our ordinary shares and limit the legal protections available to us. · Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. 6 Table of Contents ● Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China. ● The Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly.
Risks Related to Doing Business in China ● Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations. ● Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact on our business operation, decrease the value of our ordinary shares and limit the legal protections available to us. ● Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. 6 ● Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China. ● The Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly.
The increase of tariffs for products made in China has triggered retaliatory actions from China, resulting in “trade wars” and increased costs for goods imported into the United States, which have and may reduce customer demand for our products if the importers who pay for those tariffs add such tariff amounts to their selling prices.
The increase of tariffs for products made in China has triggered retaliatory actions from China, resulting in “trade wars” and increased costs for goods imported into the United States, which have and may continue to reduce customer demand for our products if the importers who pay for those tariffs add such tariff amounts to their selling prices.
Inability to collect our accounts receivable in a timely and sufficient manner, or the inability to offset our expenses with adequate revenue, may adversely affect our liquidity, financial condition and results of operations. We have completed our public offering with net proceeds of approximately $16.86 million in July 2022.
Inability to collect our accounts receivable in a timely and sufficient manner, or the inability to offset our expenses with adequate revenue, may adversely affect our liquidity, financial condition and results of operations. We completed our public offering with net proceeds of approximately $16.86 million in July 2022.
In addition, because of the rapid pace of technological change, parts of our business rely on Internet of Things (IoT) technology, the network of physical objects that feature an IP address for internet connectivity, and the communication that occurs between these objects and other Internet-enabled devices and systems which will alert the users under pre-set conditions, developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all. 14 Table of Contents It is often difficult to register, maintain and enforce intellectual property rights in China.
In addition, because of the rapid pace of technological change, parts of our business rely on Internet of Things (IoT) technology, the network of physical objects that feature an IP address for internet connectivity, and the communication that occurs between these objects and other Internet-enabled devices and systems which will alert the users under pre-set conditions, developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all. 14 It is often difficult to register, maintain and enforce intellectual property rights in China.
Although the U.S. has started to review and remove the increased tariff previously imposed on certain items importing from China, it has not impacted our products sold to the U.S. and if we can’t establish new manufacturing facilities outside of China, continue to reduce our production costs and/or develop new products to attract customers who are willing to pay higher prices, our business and profits will be materially and adversely affected. 12 Table of Contents We have a substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues.
Although the U.S. has started to review and remove the increased tariff previously imposed on certain items importing from China, it has not impacted our products sold to the U.S. and if we can’t establish new manufacturing facilities outside of China, continue to reduce our production costs and/or develop new products to attract customers who are willing to pay higher prices, our business and profits will be materially and adversely affected. 12 We have a substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues.
The enactment of the HFCA Act and related regulations and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could cause investors uncertainty for affected issuers and the market price of our ordinary shares could be adversely affected, and we could be delisted if our auditor is unable to meet the PCAOB inspection requirement. 26 Table of Contents The lack of access to PCAOB inspections prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China and Hong Kong.
The enactment of the HFCA Act and related regulations and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could cause investors uncertainty for affected issuers and the market price of our ordinary shares could be adversely affected, and we could be delisted if our auditor is unable to meet the PCAOB inspection requirement. 26 The lack of access to PCAOB inspections prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China and Hong Kong.
Any additional restriction, scrutiny or negative publicity of the U.S.-listed Chinese companies could cause the U.S. investors less interested in our ordinary shares, or completely hinder our ability to offer our ordinary shares to investors and cause the value of such securities to significantly decline or be worthless. 29 Table of Contents Furthermore, the PRC government authorities may adopt new rules and regulations and impose additional limitations or restrictions on us based on the industry that we operate in, for example, the “dual control of energy consumption” policy to control the total power consumption and efficiency which has caused disruptions to Xingfa’s production schedule, or more stringent environmental protection requirements for air emissions, wastewater treatment and solid waste management and disposal which could restrict or limit our operations and expose us to liability and penalties for non-compliance.
Any additional restriction, scrutiny or negative publicity of the U.S.-listed Chinese companies could cause the U.S. investors less interested in our ordinary shares, or completely hinder our ability to offer our ordinary shares to investors and cause the value of such securities to significantly decline or be worthless. 29 Furthermore, the PRC government authorities may adopt new rules and regulations and impose additional limitations or restrictions on us based on the industry that we operate in, for example, the “dual control of energy consumption” policy to control the total power consumption and efficiency which has caused disruptions to Xingfa’s production schedule in 2021, or more stringent environmental protection requirements for air emissions, wastewater treatment and solid waste management and disposal which could restrict or limit our operations and expose us to liability and penalties for non-compliance.
As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. 27 Table of Contents We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our Company by investors that are non-PRC resident enterprises.
As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. 27 We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our Company by investors that are non-PRC resident enterprises.
For example: · we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; · for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; · we are not required to provide the same level of disclosure on certain issues, such as executive compensation; · we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; 33 Table of Contents · we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and · we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.
For example: ● we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; ● for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; ● we are not required to provide the same level of disclosure on certain issues, such as executive compensation; ● we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; ● we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and ● we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.
However, we may consider following home country practice in lieu of the requirements under the Nasdaq Listing Rules with respect to certain corporate governance standards in the future which may afford less protection to investors.
However, we may consider following home country practice in lieu of additional requirements under the Nasdaq Listing Rules with respect to certain corporate governance standards in the future which may afford less protection to investors.
Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distract our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial reports and have an adverse effect on our business and stock price. 16 Table of Contents We lease our facilities from third parties and there is no assurance that we will be able to renew our leased facilities on favorable terms, or at all.
Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distract our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial reports and have an adverse effect on our business and stock price. 16 We lease our facilities from third parties and there is no assurance that we will be able to renew our leased facilities on favorable terms, or at all.
Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. 19 Table of Contents We rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. 19 We rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
According to the Opinions, Measures, including promoting the construction of relevant regulatory systems, will be taken to control the risks and manage the incidents from overseas listed Chinese companies. 28 Table of Contents On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which took effect on March 31, 2023.
According to the Opinions, Measures, including promoting the construction of relevant regulatory systems, will be taken to control the risks and manage the incidents from overseas listed Chinese companies. 28 On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which took effect on March 31, 2023.
Damage to our reputation or our brands or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and increased costs and our business, financial condition and results of operations may be materially adversely affected. 10 Table of Contents To the extent our customers purchase products in excess of consumer demand in any period, our sales in a subsequent period may be adversely affected as our customers seek to reduce their inventory levels.
Damage to our reputation or our brands or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and increased costs and our business, financial condition and results of operations may be materially adversely affected. 10 To the extent our customers purchase products in excess of consumer demand in any period, our sales in a subsequent period may be adversely affected as our customers seek to reduce their inventory levels.
Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives. 17 Table of Contents Environmental regulations impose substantial costs and limitations on our operations and violation of environmental regulations might subject us to fines, penalties or suspension of production which could have material negative impact on our financial results.
Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives. 17 Environmental regulations impose substantial costs and limitations on our operations and violation of environmental regulations might subject us to fines, penalties or suspension of production which could have material negative impact on our financial results.
We also attempt to lower consumption of raw materials by lowing waste rate and recycled materials without compromising product quality. 11 Table of Contents Xingfa may experience material disruptions to its manufacturing operations in China that could result in material delays, quality control issues, increased costs and loss of business opportunities, which may negatively impact our sales and financial results.
We also attempt to lower consumption of raw materials by lowing waste rate and recycled materials without compromising product quality. 11 Xingfa may experience material disruptions to its manufacturing operations in China that could result in material delays, quality control issues, increased costs and loss of business opportunities, which may negatively impact our sales and financial results.
We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs. 35 Table of Contents Four members of our management team will have substantial influence over our Company and their interests may not be aligned with the interests of our other shareholders.
We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs. 35 Four members of our management team will have substantial influence over our Company and their interests may not be aligned with the interests of our other shareholders.
The lease terms on these premises expire on February 28, 2024. In October 2022, Xingfa acquired an electroplating production line which is on a 2,033 m 2 floor area premise in an environmental protection industrial park in Dongguan, which is specially approved for infrastructures such as electroplating and other high pollution productions.
The lease terms on these premises expire on February 28, 2026. In October 2022, Xingfa acquired an electroplating production line which is on a 2,033 m 2 floor area premise in an environmental protection industrial park in Dongguan, which is specially approved for infrastructures such as electroplating and other high pollution productions.
The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by China’s Ministry of Commerce (“MOFCOM”) or its local counterpart and the amount of registered capital of such foreign-invested company. 20 Table of Contents We may also decide to finance our PRC subsidiary by means of capital contributions.
The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by China’s Ministry of Commerce (“MOFCOM”) or its local counterpart and the amount of registered capital of such foreign-invested company. 20 We may also decide to finance our PRC subsidiary by means of capital contributions.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from any offering to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. 21 Table of Contents PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from any offering to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. 21 PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
We may not be able to successfully in introducing smart lock and security and internet of things (IoT) products that are current in research and development. We have invested our efforts, time and resources in the research and development of smart locks in the past couple years and the outcome is uncertain whether such development will be successful.
We may not be able to successfully introduce smart lock and security and internet of things (IoT) products that are current in research and development. We have invested our efforts, time and resources in the research and development of smart locks in the past couple years and the outcome is uncertain whether such development will be successful.
We incurred net losses for the year ended December 31, 2022 and the past two years and may not be able to generate sufficient operating cash flows and working capital from operation. Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations.
We incurred net losses for the year ended December 31, 2023 and the past two years and may not be able to generate sufficient operating cash flows and working capital from operation. Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations.
Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the market price of our ordinary shares. 22 Table of Contents Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations.
Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the market price of our ordinary shares. 22 Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations.
See “Regulations— Regulations of People’s Republic of China --Employee Stock Incentive Plan.” 24 Table of Contents If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
See “Regulations— Regulations of People’s Republic of China —Employee Stock Incentive Plan.” 24 If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
If Xingfa is subject to fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected. 23 Table of Contents Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.
If Xingfa is subject to fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected. 23 Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.
Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. 25 Table of Contents The Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly.
Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. 25 The Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly.
Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition. 18 Table of Contents Risks Related to Doing Business in China.
Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition. 18 Risks Related to Doing Business in China.
In 2022, there have been outbreaks of the Omicron variant of the COVID-19 in Hong Kong where our headquarters are located and other cities in China, including Shenzhen, Shanghai, Guangzhou, Taiyuan, Changchun as well as Dongguan city where Xingfa is located, and travel restrictions, mandatory COVID-19 tests, quarantine requirements and/or temporary closure of office buildings and facilities have been imposed by local governments.
In 2022, there were outbreaks of the Omicron variant of the COVID-19 in Hong Kong where our headquarters are located and other cities in China, including Shenzhen, Shanghai, Guangzhou, Taiyuan, Changchun as well as Dongguan city where Xingfa is located, and travel restrictions, mandatory COVID-19 tests, quarantine requirements and/or temporary closure of office buildings and facilities were imposed by local governments.
If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition. 32 Table of Contents We are not likely to pay cash dividends in the foreseeable future.
If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition. We are not likely to pay cash dividends in the foreseeable future.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting and, after we cease to be an “emerging growth company,” a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.
This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting and, after we cease to be an “emerging growth company,” a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the year ending December 31, 2023, the first fiscal year beginning after our initial public offering.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the year ending December 31, 2023, the first fiscal year beginning after our initial public offering.
Risks Related to Our Ordinary Shares Our ordinary shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Our ordinary shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Our auditor has been inspected by the PCAOB on a regular basis with the last inspection in 2020 and it is not included in the PCAOB Determinations.
Our auditor has been inspected by the PCAOB on a regular basis with the last inspection in 2022 and it is not included in the PCAOB Determinations.
We rely primarily upon our manufacturing facilities of Xingfa, which is located in Dongguan City, Guangdong Province, China, to produce our products.
We rely primarily upon our manufacturing facilities of Xingfa, which is located in Shatian Town, Dongguan City, Guangdong Province, China, to produce our products.
As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all. We also incurred net losses of $1,655,903 and $1,386,515 for the years ended December 31, 2022 and 2021, respectively.
As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all. We incurred net losses of $3,501,518, $1,655,903 and $1,386,515 for the years ended December 31, 2023, 2022 and 2021, respectively.
Currently, all our shareholders are not PRC citizens or residents, however, we cannot assure you whether our shareholders or beneficial owners will include the PRC residents or entities in the future and whether they will comply with, and make or obtain any applicable registrations or approvals required by, SAFE regulations.
Currently, to our knowledge, all our 5% or more shareholders are not PRC citizens or residents, however, we cannot assure you whether our other shareholders or beneficial owners will include the PRC residents or entities in the future and whether they will comply with, and make or obtain any applicable registrations or approvals required by, SAFE regulations.
These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers. 30 Table of Contents Recent unrest in Hong Kong may affect our business and financial results. Hong Kong is a special administrative region of the PRC with its own government.
These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers. 30 Any social unrest in Hong Kong may affect our business and financial results. Hong Kong is a special administrative region of the PRC with its own government.
For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements.
For example, as a public company, we have increased the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures to become a public company. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements.
The market price for our ordinary shares may be volatile and subject to wide fluctuations due to factors such as: · the perception of U.S. investors and regulators of U.S. listed Chinese companies; · actual or anticipated fluctuations in our operating results; · changes in financial estimates by securities research analysts; · negative publicity, studies or reports; · conditions in the international lockset, hardware and real estate markets; · our capability to catch up with the technology innovations in the industry; · changes in the economic performance or market valuations of other lockset and hardware companies; · announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments; · addition or departure of key personnel; · fluctuations of exchange rates among RMB, HK dollar and the U.S. dollar; and · general economic, health or political conditions in Hong Kong, China and worldwide.
The market price for our ordinary shares may be volatile and subject to wide fluctuations due to factors such as: ● the perception of U.S. investors and regulators of U.S. listed Chinese companies; ● actual or anticipated fluctuations in our operating results; ● changes in financial estimates by securities research analysts; ● negative publicity, studies or reports; ● conditions in the international lockset, hardware and real estate markets; ● our capability to catch up with the technology innovations in the industry; ● changes in the economic performance or market valuations of other lockset and hardware companies; ● announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments; ● addition or departure of key personnel; ● fluctuations of exchange rates among RMB, HK dollar and the U.S. dollar; and ● general economic, health or political conditions in Hong Kong, China and worldwide. 32 In addition, the securities market has from time-to-time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.
Our ability to implement this growth strategy depends, among other things, on our ability to: · enter into distribution and other strategic arrangements with current and new retailers and other potential distributors of our products; · continue to effectively compete in our distribution channels; · increase our brand recognition by effectively implementing our marketing strategy and advertising initiatives; · create and maintain brand loyalty; · develop new products and product line extensions that appeal to consumers; · maintain and, to the extent necessary, improve our high standards for product quality, safety and integrity; · maintain sources for the required supply of quality raw materials and ingredients to meet our growing demand; and 9 Table of Contents · identify and successfully enter and market our products in new geographic areas and market segments.
Our ability to implement this growth strategy depends, among other things, on our ability to: ● enter into distribution and other strategic arrangements with current and new retailers and other potential distributors of our products; ● continue to effectively compete in our distribution channels; ● increase our brand recognition by effectively implementing our marketing strategy and advertising initiatives; ● create and maintain brand loyalty; ● develop new products and product line extensions that appeal to consumers; ● maintain and, to the extent necessary, improve our high standards for product quality, safety and integrity; ● maintain sources for the required supply of quality raw materials and ingredients to meet our growing demand; and ● identify and successfully enter and market our products in new geographic areas and market segments. 9 We may not be able to successfully implement our growth strategy and may need to change our strategy from time to time.
In particular, in recent months there has been a series of large demonstrations in Hong Kong that has adversely affected the business volume and operations of local businesses, airports and public transportation systems.
In particular, in 2019 and 2020, there has been a series of large demonstrations in Hong Kong that has adversely affected the business volume and operations of local businesses, airports and public transportation systems.
As a result, we have generated negative cash flows from operating activities of approximately $4.1million and approximately $1.0 million for the year ended December 31, 2022 and 2021.
As a result, we have generated negative cash flows from operating activities of approximately $3.2 million, $4.1million and approximately $1.0 million for the years ended December 31, 2023, 2022 and 2021.
However, there can be no assurance that we will not be subject to more requirements under the ES Law. Uncertainties over the interpretation and implementation of the ES Act may have an adverse impact on our business and operations. 36 Table of Contents
However, there can be no assurance that we will not be subject to more requirements under the ES Law. Uncertainties over the interpretation and implementation of the ES Act may have an adverse impact on our business and operations. 36 ITEM 4. INFORMATION ON THE COMPANY A.
As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all. · Fluctuations in the price, availability or quality of raw materials used in our products could cause manufacturing delays, adversely affecting our ability to provide goods to our customers or increase costs, any of which could decrease our sales or earnings. · Xingfa may experience material disruptions to its manufacturing operations in China that could result in material delays, quality control issues, increased costs and loss of business opportunities, which may negatively impact our sales and financial results. · Changes in U.S. trade policies could significantly reduce the volume of export goods into the United States, which may materially reduce our profit margin and our sales in the United States. · Environmental regulations impose substantial costs and limitations on our operations and violation of environmental regulations might subject us to fines, penalties or suspension of production which could have material negative impact on our financial results. · If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting obligations or prevent fraud. · We do not have any business insurance coverage.
As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all. ● Fluctuations in the price, availability or quality of raw materials used in our products could cause manufacturing delays, adversely affecting our ability to provide goods to our customers or increase costs, any of which could decrease our sales or earnings. ● Xingfa may experience material disruptions to its manufacturing operations in China that could result in material delays, quality control issues, increased costs and loss of business opportunities, which may negatively impact our sales and financial results. ● Changes in U.S. trade policies could significantly reduce the volume of export goods into the United States, which may materially reduce our profit margin and our sales in the United States. ● Environmental regulations impose substantial costs and limitations on our operations and violation of environmental regulations might subject us to fines, penalties or suspension of production which could have material negative impact on our financial results. ● We are obligated to develop and maintain proper and effective internal control over financial reporting.
A broad or active public trading market for our ordinary shares may not develop or be sustained. 31 Table of Contents The market price for our ordinary shares may be volatile.
A broad or active public trading market for our ordinary shares may not develop or be sustained. The market price for our ordinary shares may be volatile.
We may not be able to successfully implement our growth strategy and may need to change our strategy from time to time. If we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful, our business, financial condition and results of operations may be materially adversely affected.
If we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful, our business, financial condition and results of operations may be materially adversely affected.
We derive a significant portion of our revenues from a few major customers. For the years ended December 31, 2022 and 2021, three and four customers accounted for 85.7% and 77.7% of our revenues, respectively. In addition, our five largest customers in aggregate accounted for approximately 91% of our revenues for both the years ended December 31, 2022 and 2021.
We derive a significant portion of our revenues from a few major customers. For the years ended December 31, 2023 and 2022, four customers accounted for 88.2% and 85.7% of our revenues, respectively. In addition, our five largest customers in aggregate accounted for approximately 92% and 91% of our revenues for the years ended December 31, 2023 and 2022, respectively.
Since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and materially and adversely affect our business and results of operations.
Since the outbreak of COVID-19, China’s economic growth has slowed down significantly, and the recovery has been slow. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and materially and adversely affect our business and results of operations.
If the pegging system collapses and Hong Kong dollars suffer devaluation, the Hong Kong dollar cost of our expenditures denominated in foreign currency may increase. This would in turn adversely affect the operations and profitability of our business.
We cannot assure you that this policy will not be changed in the future. If the pegging system collapses and Hong Kong dollars suffer devaluation, the Hong Kong dollar cost of our expenditures denominated in foreign currency may increase. This would in turn adversely affect the operations and profitability of our business.
Our efforts to promote our sales and to build our brand have caused us to incur selling and marketing expenses in the amount of approximately $105,000 and approximately $150,000 for the years ended December 31, 2022 and 2021, respectively. Despite our marketing efforts, it is likely that our future marketing efforts will require us to incur significant additional expenses.
Our efforts to promote our sales and to build our brand have caused us to incur selling and marketing expenses in the amount of approximately $60,000, $105,000 and approximately $150,000 for the years ended December 31, 2023, 2022 and 2021, respectively.
This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. 34 As an “emerging growth company” under applicable law, we will be subject to reduced disclosure requirements.
Risks Related to Doing Business in Hong Kong · It will be difficult to acquire jurisdiction and enforce liabilities against us, our officers, directors and assets based in Hong Kong and China. · The Hong Kong legal system embodies uncertainties which could negatively affect our listing on Nasdaq and limit the legal protections available to you and us.
Risks Related to Doing Business in Hong Kong ● It will be difficult to acquire jurisdiction and enforce liabilities against us, our officers, directors and assets based in Hong Kong and China. ● The Hong Kong legal system embodies uncertainties which could negatively affect our listing on Nasdaq and limit the legal protections available to you and us. ● We cannot foresee the recently passed legislation of Basis Law Article 23 (Safeguarding National Security Ordinance) will create any legal impact on us, our business, our officers, our directors and assets based in Hong Kong and China.
If Xingfa fails to comply with the environmental regulations, it could face fines, penalties and our production facility(ies) operations might be suspended until we comply, which could have material negative impact on our operation and financial results. We are obligated to develop and maintain proper and effective internal control over financial reporting.
If Xingfa fails to comply with the environmental regulations, it could face fines, penalties and our production facility-y(-ies) operations might be suspended until we comply, which could have material negative impact on our operation and financial results. In addition to our core production facility, we acquire an electroplating production line.
As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. 33 As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
We may be affected by the currency peg system in Hong Kong. Since 1983, Hong Kong dollars have been pegged to the US dollars at the rate of approximately HK$7.80 to US$1.00. We cannot assure you that this policy will not be changed in the future.
However, we cannot assure our customers in US may have different point of view and this would in turn adversely affect the sales orders from our US customers. We may be affected by the currency peg system in Hong Kong. Since 1983, Hong Kong dollars have been pegged to the US dollars at the rate of approximately HK$7.80 to US$1.00.
In addition, the securities market has 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 our ordinary shares. Volatility in our ordinary shares price may subject us to securities litigation.
These market fluctuations may also materially and adversely affect the market price of our ordinary shares. Volatility in our ordinary shares price may subject us to securities litigation.
In addition, please see “Risk Factors” below, and other information included in this report, for a discussion of these and other risks and uncertainties that we face. 7 Table of Contents Risks Related to Our Business The recent global coronavirus COVID-19 outbreak has caused significant disruptions to our business, which we expect will continue to materially and adversely affect our results of operations and financial condition The recent outbreak of COVID-19 has spread throughout the world, especially in China, the United States and Europe.
In addition, please see “Risk Factors” below, and other information included in this report, for a discussion of these and other risks and uncertainties that we face. 7 Risks Related to Our Business We face risks related to health epidemics and other outbreaks, including the coronavirus (COVID-19), which has caused and may continue to cause business disruptions, resulting in a material, adverse impact to our financial condition and results of operations.
The Nasdaq Listing Rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to follow home country practice in lieu of the above requirements.
As a foreign private issuer, however, we are permitted to follow home country practice in lieu of the above requirements.
Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies.
Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
As an “emerging growth company” under applicable law, we will be subject to reduced disclosure requirements. Such reduced disclosure may make our ordinary shares less attractive to investors.
Such reduced disclosure may make our ordinary shares less attractive to investors.
If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile. 34 Table of Contents Because we are a foreign private issuer and are exempt from certain NASDAQ corporate governance standards applicable to U.S. issuers, you may have less protection than you would have if we were a domestic issuer.
Because we are a foreign private issuer and are exempt from certain NASDAQ corporate governance standards applicable to U.S. issuers, you may have less protection than you would have if we were a domestic issuer. The Nasdaq Listing Rules require listed companies to have, among other things, a majority of its board members be independent.
Although the Chinese government has lifted travel and transportation restrictions for Hong Kong citizens into mainland China in early 2023, we cautiously prepare for the government authorities may issue new orders of office closure, travel and transportation restrictions in China due to the resurgence of the COVID-19 and outbreak of new variants, which will have material negative impact to our business and financial conditions. 8 Table of Contents The growth of our business depends on our ability to accurately predict consumer trends and demand and successfully introduce new products and product line extensions and improve existing products.
Although our operations have resumed to normal, we cautiously prepare for the government authorities may issue new orders of office closure, travel and transportation restrictions in China if there is any new variants or resurgence of the COVID-19, which will have material negative impact to our business and financial conditions.
The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors.
The corporate governance practice in our home country, the Cayman Islands, does not require the Company to follow or comply with the requirements of Rule 5620(a), Rule 5635(a), Rule 5635(c) and Rule 5635(d). We will comply with other corporate governance requirements of the Nasdaq Listing Rules.
The enforcement was lifted by central government in 2022 with occasional enforcement by local government when power consumption has reached peak capacity of local power plants. · We may not be successfully introducing smart lock products that are currently under research and development. · We incurred net losses for the year ended December 31, 2022 and the past two years and may not be able to generate sufficient operating cash flows and working capital.
Risks Related to Our Business ● We face risks related to health epidemics and other outbreaks, including the coronavirus (COVID-19), which has caused and may continue to cause business disruptions, resulting in a material adverse impact to our financial condition and results of operations. ● We may not be able to successfully introduce smart lock and security and internet of things (IoT) products that are in research and development. ● We incurred net losses for the year ended December 31, 2023 and the past two years and may not be able to generate sufficient operating cash flows and working capital from operation.
China has recently started easing the strict lockdown procedures in early December 2022, which has led to surge in COVID infections in December 2022 and January 2023 and caused certain disruption our business operations. Although our operations have not been materially and negatively impacted by such outbreaks in Hong Kong and China in 2022.
China eased the strict lockdown procedures in early December 2022, which led to surge in COVID infections in December 2022 and January 2023 and caused disruption our business operations as our migrant workers from other provinces in the manufacturing factory had to leave and go home early for the new year holidays and did not come back until March 2023.
The Company currently follows the requirements of the Nasdaq Listing Rules without relying on the exemption provided for foreign private issuers under Marketplace Rule 5615(a)(3). However, we may choose to rely on such exemption to follow certain corporate governance practices of our home country practice in the future.
On June 23, 2023, the Company has notified Nasdaq that it will follow its home country practice in lieu of the provisions under Rule 5620(a), Rule 5635(a), Rule 5635(c) and Rule 5635(d) of the NASDAQ Stock Market Marketplace Rules (the “Rules”) by relying on the exemption provided for foreign private issuers under Marketplace Rule 5615(a)(3).
On March 11, 2020, the World Health Organization declared the outbreak a global pandemic. Many businesses and social activities in China, Hong Kong, the U.S. and other countries and regions have been severely disrupted, including those of our suppliers, customers and distributors.
In recent years, there have been outbreaks of epidemics in various countries. The recent outbreak of COVID-19 has spread throughout the world, especially in China, the United States and Europe. On March 11, 2020, the World Health Organization declared the outbreak a global pandemic.
As we completed our public offering with net proceeds approximately $16.86 million in July 2022, we believe we have sufficient working capital to continue as a going concern over the next 12 months. However, failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations.
Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations.
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Risks Related to Our Business · The recent global coronavirus COVID-19 outbreak has caused significant disruptions to our business, which we expect will continue to have material negative impact on our business, results of operations and financial condition. · The Chinese government’s recent enforcement of “dual control of energy consumption” policy has caused disruptions to Xingfa manufacturing and our business and might continue to have negative impact on our business, results of operations and financial condition.
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We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Ordinary Shares. ● We do not have any business insurance coverage.
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Such disruption and the potential slowdown of the world’s economy could have a material adverse effect on our results of operations and financial condition.
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However, we cannot predict if our customers in the US may have special prospectus in doing business with us.
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Our suppliers and our customers have experienced significant business disruptions and suspension of operations due to quarantine measures to contain the spread of the pandemic, which have caused and may continue to have a negative impact on our business and operations, such as shortage in the supply of raw materials, suspend or reduce our production capacity, shortage of transportation or logistic services, delay of our products delivery, delay or cancellation of orders from our customers, and delay or default in payments from our customers.
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The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China and in the U.S. Our results of operations were materially adversely affected by the outbreak of COVID-19.
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Our customers or end-users of our products that are negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products, which may materially adversely impact our revenue and results of operations.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company For 40 years, we have manufactured and sold high quality mechanical locksets to customers mainly in the United States and Canada, and we continue to diversify and refine our product offerings to meet our customers’ needs.
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Item 4.B. Business Overview—Regulations —Regulations on Dividend Distribution. ” Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws.
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The predecessor of Hing Fat commenced our business of selling door locksets in 1981. In 1983, we started a small manufacturing workshop in China to produce door locksets with imported materials to fulfill for our customer orders, which becomes our current manufacturing subsidiary, Xingfa.
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Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
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Our mission was “dedicated to manufacture high quality lockset products at affordable prices.” Since 2000, we have offered our products with the American National Standards Institute (ANSI) Grade 2 and Grade 3 standards, which are developed by Builders Hardware Manufacturing Association (BHMA) for ANSI.
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No Significant Changes Except as disclosed elsewhere in this annual report, no other significant changes to our financial condition have occurred since the date of the annual financial statements contained herein.
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Our focus is producing mechanical locksets, including locksets for outdoor uses, such as main entrances and gates, and indoor uses, to promote sustainable growth in our business and competitiveness in the market.
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To continue driving growth, we have designed our products to go beyond a basic lockset for security purposes; we offer a wide range of ODM door locksets to various customer segments from “Premium Series” to “Economy-oriented Series” with classic to contemporary looks, functions and colors.
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Currently, our products are sold mainly in the USA, and some in Canada, Macau and China. We sell our products mainly to the US and Canada (“North America”) through one of our Hong Kong registered subsidiaries Kambo Locksets.
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Another Hong Kong registered subsidiary, Kambo Hardware, targets and distributes locksets and related hardware to countries other than the North America market; and serves our customers in the Asian countries including Thailand and Australia.
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In 1993, as the laws and regulations for processing with imported materials entity had changed in China, we established our wholly foreign owned entity (WFOE) subsidiary, Dongguan Xingfa Hardware Products Limited (“Xingfa”) located in Shatian County, Dongguan City, Guangdong Province of PRC.
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Xingfa is equipped with various types of machines such as die casting machines, furnace, polishing machines and other machines for metal processing in a 17,560 m 2 manufacturing facility.
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In light of excess production capacity due to current economic conditions, Xingfa has subleased one plant building of approximately 4,300 m 2 to reduce our operating costs. · We restructured our corporate organization in 2009 because of changes in local laws in China as mentioned above.
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On March 23, 2009, we incorporated Hing Fat Industrial Limited under Hong Kong law (“Hing Fat”), as the holding company of Xingfa to manage the door lockset manufacturing activities of Xingfa and to conduct research and development. · On March 26, 2014, Kambo Locksets Limited (“Kambo Locksets”) was incorporated under Hong Kong law.
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Kambo Locksets is a trading company focusing on marketing and sales of our products in North America market and became our subsidiary as a result of reorganization. · On February 25, 2015, Kambo Hardware Limited (“Kambo Hardware”) was incorporated under Hong Kong law.
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Its primary business is to sell our products to markets outside of the North America. · Bamberg (HK) Limited (“Bamberg”) was incorporated on June 24, 2016 under Hong Kong law.
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Through Bamberg, we started marketing our products under our own brand “Bamberg” to establish and focus on internet sales channels, such as Amazon.com. · On July 17, 2019, the Company issued 500,000,000 ordinary shares to its shareholders. On August 14, 2019, these shareholders surrendered an aggregate of 499,990,000 ordinary shares to the Company at no consideration.
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The transaction is considered as a recapitalization prior to the Company’s initial public offering. · A reorganization of the Company’s legal entity structure was completed in April 2020.
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The reorganization involved the incorporation of ILAG in July 2019 and execution of the Share Exchange Agreement between ILAG and ILA BVI in April 2020 (the “Share Exchange Agreement”) whereby ILAG took control of ILA BVI and its wholly owned subsidiaries by acquiring all the outstanding shares of ILA BVI with ordinary shares of ILAG.
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Pursuant to the Share Exchange Agreement, ILAG and ILA BVI exchanged 2,550,000 shares of ILA BVI for 12,990,000 ordinary shares of ILAG.
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This transaction was treated as a recapitalization of the Company and the financial statements give retroactive effect to this transaction. 37 Table of Contents · On July 16, 2021, the Board of Directors and Shareholders of the Company approved the Amended and Restated Memorandum and Articles of Association of the Company and our authorized share capital currently is $50,000 divided into 500,000,000 shares, comprising of (i) 450,000,000 ordinary shares, par value of $0.0001 each; and (ii) 50,000,000 preferred shares, par value of $0.0001 each. · On July 17, 2019, Intelligent Living Application Group Inc. was established as a holding company and it is a Cayman Islands exempted company limited by shares and were incorporated as an offshore holding company for listing purposes and for further expansion flexibility.
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Intelligent Living Application Group Inc. owns 100% of the equity interest in Intelligent Living Application Group Limited, which was incorporated on March 19, 2014 under the laws of British Virgin Islands. · Through Intelligent Living Application Group Limited in BVI, we own 100% of the equity interest in Hing Fat, Kambo Locksets, Kambo Hardware and Bamberg, and through Hing Fat, we own 100% of the equity interest in Xingfa.
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The Company has subsidiaries in countries and jurisdictions including PRC and Hong Kong.
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Details of the subsidiaries and VIE of the Company are set out below: Name of Entity Date of Incorporation Place of Incorporation % of Ownership Principal Activities Intelligent Living Application Group Inc. ​ July 2019 ​ Cayman Islands ​ 100 ​ Holding company ​ Intelligent Living Application Group Limited ​ March 2014 ​ BVI ​ 100 ​ Holding Company ​ Kambo Locksets Limited ​ March 2014 ​ Hong Kong ​ 100 ​ Trading company ​ Kambo Hardware Limited ​ February 2015 ​ Hong Kong ​ 100 ​ Trading company ​ Bamberg (HK) Limited ​ June 2016 ​ Hong Kong ​ 100 ​ Internet sales ​ Hing Fat Industrial Limited ​ March 2009 ​ Hong Kong ​ 100 ​ Holding Company ​ Dongguan Xingfa Hardware Products Co.
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Ltd. ​ August 1993 ​ PRC ​ 100 ​ Manufacturing ​ ​ On July 15, 2022, the Company closed its initial public offering (“IPO”) of 5,060,000 ordinary shares, par value $0.0001 per share, priced at $4.00 per share. The aggregate gross proceeds from the IPO were $20.24 million, before deducting underwriting discounts and other related expenses.
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The ordinary shares of the Company began trading on The Nasdaq Capital Market on July 13, 2022 under the ticker symbol “ILAG.” On October 12, 2022 (the “Effective Date”), Hing Fat Industrial Limited and Dongguan Xingfa Hardware Products Co., Ltd.
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(“Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) with Hu Xiongjie, a citizen of Singapore (the “Seller”), pursuant to which the Seller agreed to sell to the Buyer an electroplating production line, including but not limited to equipment, machinery, tanks, fixtures, flowlines, improvements and mixed property located in Dongguan City, Guangdong, China (the “Asset”) for an aggregate purchase price (the “Purchase Price”) of $4,500,000 in cash.
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The Seller’s clientele details, books, accounting records and liabilities are excluded from this transaction.
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Pursuant to the Agreement, Buyer shall pay a refundable deposit of $2,000,000 on Effective Date and Buyer shall check operational conditions and access the value of the Asset at current market rate within ten (10) days of the Effective Date, and if Buyer accepts the Purchase Price, an intermediate payment of $1,000,000 shall be then paid.
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Upon closing, Buyer shall pay Seller an additional amount of $1,000,000. A residual of $500,000 shall be held by the Buyer for one (1) year from closing date as quality guarantee for possible tax liabilities, defects or required repair(s) of the Asset.
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The balance of Purchase Price shall be paid after deduction of costs of repairment related to unidentified defects or problems with the Asset at transfer date. As of the date of this report, the Buyer has paid $4,000,000 to the Seller.
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Our principal executive offices are located at Unit 2, 5/F, Block A, Profit Industrial Building, 1-15 Kwai Fung Crescent, Kwai Chung, New Territories, Hong Kong. Our telephone number at this address is +852 2481 7938. Our registered office in the Cayman Islands is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111.
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Our agent for service of process in the United States is Cogency, located at 122 East 42 nd Street, 18 th Floor, New York, NY 10168, United States. Investors should contact us for any inquiries through the address and telephone number (852) 2481-7938 of our principal executive offices.
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The SEC maintains a web site at www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC using its EDGAR system. 38 Table of Contents See “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures” for a discussion of our capital expenditures. B.
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Business Overview Our mission is to make life safer and smarter by designing and producing affordable, high-quality locksets and smart security systems.
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Headquartered in Hong Kong, we manufacture and sell high quality mechanical locksets to customers mainly in the United States (US) and Canada and have continued to diversify and refine our product offerings in the past 40 years to meet our customers’ needs. We believe Xingfa is one of the pioneers of mechanical lockset manufacturing in China.
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Since inception, to cope with our development and increase customer satisfaction in quality, we keep investing in self-designed automated product lines, new craftsmanship and developing new products including smart locks. In order to obtain the confidence of our customers, Xingfa has obtained the ISO9001quality assurance certificate.
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Starting in 2000, we offer products that comply with the American National Standards Institute (ANSI) Grade 2 and Grade 3 standards that are developed by the Builders Hardware Manufacturing Association (BHMA) for ANSI.
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Our focus in producing mechanical locksets - including locksets for outdoors (such as main entrances and gates) and indoors - has resulted in sustainable growth in our business and raised our competitiveness.
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To maintain our growth, our products are beyond a simple lockset for security purposes, we offer a wide range of Original Design Manufacturer (“ODM”) door locksets to various customer segments from “Premium Series” to “Economy-oriented Series” with classic to contemporary looks, functions and colors.
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To meet increasing consumer needs for smart locks and smart home products, Hing Fat been researching and developing smart locks in the past couple years.
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Hing Fat has been working on smart locks functions, communication protocols, available designs and have internally worked out a general solution plan including mechanical and electronic parts but still need to further develop the software related parts for such locks which we need external help.
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Most of our research and development on smart locks have been done internally by our technician and engineers, except that Hing Fat hired outside services for approximately $25,000 in 2017. Because of tariff war and outbreak of COVID-19, we did not further progress on the software for our smart locks until early 2023.
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Since then, we have initiated the process to develop devices and software applications for our smart locks. Currently, approximately 96% of our revenues are from products sold to the US market, and the remaining products are sold to Canadian market.
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We build our distribution network by working together with our large and small business partners in different geographic areas to sell our products.
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More information about geographical penetration of our revenues can be found in “Segment reporting in Note 3 of Notes to the Consolidated Financial Statements”. 39 Table of Contents Our Products We produce various ODM indoor and outdoor locksets mainly for importers, builders and the construction market in the USA. Since 2016, we market our self-branded products, Bamberg, in South-east Asia.
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In addition, we are selling our self-branded products through reputable online shops. · Locksets functions Mechanical locksets are mechanical devices which secure an opening by keeping a door closed until a release mechanism is activated. It can be a lever, knob, key, thumb-turn or button. Mechanical locksets are very common on exterior/interior doors in residential and multi-family applications.
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There are several types of mechanical locksets, and the most common functions for mechanical locksets are as follows: · Deadbolts – are used for front doors and doors which may require an additional security from a deadbolt, combined in a lockset with one of the functions above.
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It can be locked by a thumb-turn from the inside or by a key from the outside. ​ · Entry locksets – are used for bedrooms, front doors, and back doors.
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It can be locked by a thumb-turn from the inside or by a key from the outside. ​ ​ · Privacy locksets – are used for restrooms or dressing rooms.
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It can be locked from the inside with a thumb turn for privacy, and it can be unlocked from the outside using a tool, a screwdriver for example, rather than a key. ​ ​ 40 Table of Contents · Passage locksets – are used where doors do not need to lock.
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There is no key and no lock function. ​ ​ · Storeroom locks – are used for storerooms. It should always be locked from the outside and a key is used to open the door. When the key is removed, the door is locked from the outside again.
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There is no lock/unlock the door from the inside. ​ ​ Our Customized Keying Options One of our value propositions is the ability to customize the keys for our door locksets based on specific customer requests.
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Below is a summary of our various professional custom-made keying options applicable to our products: · Types of Keying Options The term “keying” refers to the way keys will be used to operate the cylinders that are installed in the door locksets. Keys can be assigned to different groups that will and will not open the cylinders.
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Keying determines which keys work at each opening. A cylinder will contain a certain number of pins generally ranging from 5 pins or more. The pins vary in height. This variation in height and the cuts on the key can generate different keying combinations.
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It can provide access to the cylinder to lock or unlock the locksets. · Keyed Different (KD) Each cylinder is keyed different. It means that each lock is operated by a unique key. A key used at one door cannot be used to open other doors. · Keyed Alike (KA) Each cylinder is keyed alike.
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It means that every lock can be opened by the same key.
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This is useful in an area where a limited number of keys is required, such as a residential unit area with storage closets or common rooms that only need one key combination. · Master Keyed (MK) Each cylinder has its own individual key which cannot open other locksets in the system and all locksets in the system can be opened by one master key.
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A master keyed system is useful where someone requires a higher level of access authority, such as the building owner. 41 Table of Contents · Construction Keyed (CK) A construction key is needed when contractors need entry to a building during construction.
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When new homes are under construction, a contractor will provide a general key to carpenters, painters, and other contractors. This allows easy access to several homes without requiring different keys, and prevents duplication and later entry into the homes once a homeowner moves in. Once construction is complete, the owner’s keys will block further access by the contractors.
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The following diagram shows how it works. ​ Our Suppliers Our primary raw materials are brass, iron and zinc alloy. We started to use stainless steel to partially substitute brass from second half of 2021.
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Raw materials by weight of our locksets basing on bill of materials and actual weighting, approximately 49% are iron, approximately 40% are zinc alloy, approximately 6% are brass and 5% are stainless steel for the year ended December 31, 2022, while approximately 50% are iron, approximately 38% are zinc alloy, approximately 10% are brass, and 2% are stainless steel for the same period of 2021.
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We don’t have long term purchase contracts with our suppliers but only purchase via orders. For procurement purpose, management will get master quote from at least two suppliers for every three (3) months. Management will bargain purchase price by taking into account price trends of brass, iron and zinc alloy commodity and quantity volume discount.
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Xingfa has purchased approximately 88 tonnes brass, 697 tonnes iron, 569 tonnes zinc alloy and 63 tonnes stainless steel for the year ended December 31,2022, while 185 tonnes brass, 914 tonnes iron, 716 tonnes zinc alloy, and 45 tonnes stainless steel for the year ended December 31, 2021.
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Xingfa purchased iron from two Chinese suppliers in Guangdong province in year 2022 and 2021. Xingfa purchased zinc alloy from two suppliers. One supplier ships zinc alloy from Shanghai and Dongguan while one Hong Kong supplier ships from Shenzhen. Xingfa purchased brass from various subsidiaries of two suppliers in Dongguan and Shanghai.
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Xingfa started to purchase small quantity of stainless steel from a supplier in Guangdong from second half of 2021 as a new material partially substituting for brass. 42 Table of Contents We have business relationships with our iron, zinc alloy and brass suppliers for over 5 years.
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Some of them are public companies or subsidiaries of public companies listed on Shanghai, Shenzhen or Hong Kong Stock Exchanges and the supplies and availabilities of our raw materials have never been an issued in the past. Also, all of our primary raw materials are general commercial commodities.
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For 2022, total global production of: (i) brass is approximately 22 million tonnes; (ii) iron is approximately 2.6 billion tonnes and (iii) zinc alloy is approximately 12.8 million tonnes. ( source:ResearchAndMarkets.com ) There are numbers of suppliers in China of our raw materials.
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Therefore, even our existing suppliers may be temporarily short in inventory, we can place purchase order to other suppliers without difficulty and price premium.
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Intellectual Property We regard our trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on trademark and trade secret law and confidentiality and invention assignment with our employees and others to protect our proprietary rights. We mostly rely on our know-how for production processes and our patents have expired.
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Currently, Bamberg (HK) Limited has one registered trademark for Bamberg in the U.S. and one registered trademark for Bamberg in Hong Kong, which are utilized for our self-branded products, and the Company has one trademark of ILAG in Hong Kong as our group holding company logo for our general company image and marketing purpose.
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In addition, we and our subsidiaries have three registered domain names in Hong Kong, namely i-l-a-g.com, kambo.com.hk and bamberggroup.com . Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual properties.
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Monitoring unauthorized use of our intellectual properties is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual properties. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
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In addition, third parties may initiate litigation against us alleging infringement of their proprietary rights or declaring their non-infringement of our intellectual property rights. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business could be harmed.
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Moreover, even if we are able to license the infringed or similar technology, license fees could be substantial and may adversely affect our results of operations.
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See “Risk Factors—Risks Related to Our Business—We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.” and “—We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.” Competition We are facing competition from worldwide brands such as Kwiksets, Schlage, and other domestic manufacturers in Hong Kong and China.
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The Company positions its products as affordable high-quality mechanical Grade 2 and Grade 3 locksets. In Asia, there are only a few manufacturers in China and South-east Asia that are capable of competing with us on such products. Mechanical lockset companies have been consolidating in the last decade (see table: Competitive Landscaping, below).
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Sizable multinational companies keep expanding by acquiring or merging with other lockset companies. Currently, the major player in the world is ASSA Abloy AB (ASSA B: STO), a Swedish conglomerate that sells cover products and services ranging from locks, doors, gates and entrance automation, which owns brands such as Abloy, Yale Mul-T-Lock and Medeco.
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Other well-known brands including Kwikset by Spectrum Brands (NYSE: SPB), Schlage by Allegion PLC (NYSE: ALLE), Defiant by Home Depot (NYSE: HD), and Delaney Hardware in Cumming, USA. The PRC market is fragmented because various international lockset standards are all applicable in China. Thus, various brands of locksets all compete in PRC which makes the Chinese lockset market highly competitive.
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We mostly compete with manufacturing subsidiaries and factories of those worldwide brands on product quality as well as the manufacturers in China on price. The key for our sustainability is to maintain high quality, fine craftsmanship and procurement at affordable prices.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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As a socially responsible organization, we did not lay off employees before the expiration of their employment contacts, but we reduced recruiting of unskilled labor since the beginning of 2019. Also, we reviewed the production processes of Xingfa and were able to decrease our raw material waste to the extent that product quality could be maintained.
As a socially responsible organization, we did not lay off employees before the expiration of their employment contacts, but we reduced recruiting of unskilled labor since the beginning of 2019. Also, we reviewed the production processes of Xingfa and were able to decrease our raw material costs and waste to the extent that product quality could be maintained.
During the years ended December 31, 2022 and 2021, interest expense related to bank borrowings was $26,836 and $48,910, respectively. Loss before Provision for Income Taxes and Loss per Share Loss before provision for income taxes increased $269,388 to $1,655,903 for the year ended December 31, 2022 from $1,386,515 for the years ended December 31, 2021.
During the years ended December 31, 2022 and 2021, interest expense related to bank borrowings was $26,836 and $48,910, respectively. Loss before Provision for Income Taxes and Loss per Share Loss before provision for income taxes increased $269,388 to $1,655,903 for the year ended December 31, 2022 from $1,386,515 for the years ended December 31, 2021. 5B.
To support our working capital needs, we maintain a credit facility with the Bank of China (Hong Kong) Limited for approximately $897,000 in 2021 compared to approximately $769,000 in 2020, which is guaranteed by our directors and their personal properties.
To support our working capital needs, we maintain a credit facility with the Bank of China (Hong Kong) Limited for approximately $897,000 since 2021 compared to approximately $769,000 in 2020, which is guaranteed by our directors and their personal properties.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2022 to December 31, 2022 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2023 to December 31, 2023 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
Our sales orders from our customers in the US have stabilized and recovered since the middle of 2019 as the market digested information about the tariff war. However, our factory was temporarily closed in early 2020 and the supply chain and logistic for raw materials and delivery of finished products have been disrupted because of COVID-19.
Our sales orders from our customers in the US have stabilized and recovered since the middle of 2019 as the market digested information about the tariff war. However, our factory was temporarily closed in early 2020 and the supply chain and logistic for raw materials and delivery of finished products were disrupted because of COVID-19.
On August 14, 2019, these shareholders surrendered an aggregate of 499,990,000 ordinary shares to the Company at no consideration. The transaction is considered as a recapitalization prior to the Company’s initial public offering. 60 Table of Contents · A reorganization of the Company’s legal entity structure was completed in April 2020.
On August 14, 2019, these shareholders surrendered an aggregate of 499,990,000 ordinary shares to the Company at no consideration. The transaction is considered as a recapitalization prior to the Company’s initial public offering. 60 ● A reorganization of the Company’s legal entity structure was completed in April 2020.
We build our distribution network by working together with our large and small business partners in different geographic areas to sell our products. More information about geographical penetration of our revenues can be found in “Segment reporting in Note 3 of Notes to the Consolidated Financial Statements”.
We build our distribution network by working together with our large and small business partners in different geographic areas to sell our products. More information about geographical penetration of our revenues can be found in “Segment reporting in Note 2 of Notes to the Consolidated Financial Statements”.
Then, we will estimate the expected gross profit based on our in-house standard material and cost table in order to determine what our gross profit percentage should be. If there will be a downtrend trend of revenue, we will try to lower our costs such as direct labor.
Then, we will estimate the expected gross profit based on our in-house standard material and cost table in order to determine what our gross profit percentage should be. If there will be a downtrend trend of revenue, we will try to lower our costs such as raw materials and direct labor.
Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates Revenue recognition 70 Table of Contents The Company follows FASB ASC 606, Revenue from Contracts with Customers in accounting for its revenues.
Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. 70 Revenue recognition The Company follows FASB ASC 606, Revenue from Contracts with Customers in accounting for its revenues.
Taking into account production time, inventory turnover and accounts receivable turnover and our cash position, we then project our working capital needs and also identify potential sales sources. 63 Table of Contents When we see declining trends from purchase orders received, we will start reviewing our material costs and expenses in order to mitigate the impact to our gross margin.
Taking into account production time, inventory turnover and accounts receivable turnover and our cash position, we then project our working capital needs and also identify potential sales sources. 63 When we see declining trends from purchase orders received, we will start reviewing our material costs and expenses in order to mitigate the impact to our gross margin.
We have not experienced significant shortages of raw materials in the past, and we will continue to monitor the fluctuation of our costs and our relationship with our suppliers. 62 Table of Contents · More Stringent Environmental and OSH Protection Requirements in the PRC .
We have not experienced significant shortages of raw materials in the past, and we will continue to monitor the fluctuation of our costs and our relationship with our suppliers. 62 ● More Stringent Environmental and OSH Protection Requirements in the PRC .
To maintain our growth, our products are beyond a simple lockset for security purposes, we offer a wide range of Original Design Manufacturer (“ODM”) door locksets to various customer segments from “Premium Series” to “Economy-oriented Series” with classic to contemporary looks, functions and colors. 59 Table of Contents Currently, approximately 91% of our revenues are from products sold to the US market, and the remaining products are sold to Canadian market.
To maintain our growth, our products are beyond a simple lockset for security purposes, we offer a wide range of Original Design Manufacturer (“ODM”) door locksets to various customer segments from “Premium Series” to “Economy-oriented Series” with classic to contemporary looks, functions and colors. 59 Currently, approximately 99% of our revenues are from products sold to the US market, and the remaining products are sold to Canadian market.
In addition, our five largest customers in aggregate accounted for approximately 91% in both of the years ended December 31, 2022 and 2021, respectively. Our strategy is to attempt to strengthen our direct relationships with these customers to secure and expand the sales orders from these customers in the future. · Cost of Goods Sold.
In addition, our five largest customers in aggregate accounted for approximately 92% and 91% for the years ended December 31, 2023 and 2022, respectively. Our strategy is to attempt to strengthen our direct relationships with these customers to secure and expand the sales orders from these customers in the future. ● Cost of Goods Sold.
The decrease was due mainly to reduction in business travelling and sales commissions. 65 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of personnel costs for our accounting and administrative support personnel and executives as well as legal and professional fees, depreciation and amortization of non-production property and equipment.
The decrease was due mainly to reduction in business travelling and sales commissions. 67 General and Administrative Expenses General and administrative expenses consist primarily of personnel costs for our accounting and administrative support personnel and executives as well as legal and professional fees, depreciation and amortization of non-production property and equipment.
While our business has been negatively impacted by the tariffs and COVID-19 pandemic in all 2022, 2021 and 2020, we believe we are able to obtain sufficient operating funds from our existing shareholders, potential investors or extend Hong Kong government guaranteed low interest bank borrowing to operate our business.
While our business has been negatively impacted by the tariffs, COVID-19 and high interest rate in all 2023, 2022 and 2021, we believe we are able to obtain sufficient operating funds from our existing shareholders, potential investors or extend Hong Kong government guaranteed low interest bank borrowing to operate our business.
We believe Xingfa has established sufficient measures and systems to implement and comply with the requirements of such laws and regulations. We and Xingfa may incur additional costs to ensure compliance with environmental and worker safety and health protection requirements in the PRC. · Relations Between the US and China .
We believe Xingfa has established sufficient measures and systems to implement and comply with the requirements of such laws and regulations. We and Xingfa may incur additional costs to ensure compliance with environmental and worker safety and health protection requirements in the PRC.
To mitigate the impact of tariff war, we have launched a series of procurement actions to reduce the costs, and we managed to gradually improve our gross margins, which was 18.1% for 2022 and 10.5% for 2021 and 14.1% of 2020.
To mitigate the impact of tariff war, we have launched a series of procurement actions to reduce the costs, and we managed to gradually improve our gross margins, which was 9.8% for 2023, 18.1% for 2022 and 10.5% for 2021.
Key Factors Affecting Our Results We believe the key factors affecting our financial condition and results of operations include the followings: · Our Relationship with Customers. We rely heavily on customers’ demand to sell our products. Our four and three largest customers accounted for 85.7% and 77.7% for the years ended December 31, 2022 and 2021, respectively.
Key Factors Affecting Our Results We believe the key factors affecting our financial condition and results of operations include the followings: ● Our Relationship with Customers. We rely heavily on customers’ demand to sell our products. Our four largest customers accounted for 88.2% and 85.7% for the years ended December 31, 2023 and 2022, respectively.
Normally, when there is no impact on logistics by COVID-19. raw materials and packaging consumables will be kept at a safe level that may sustain potential production needs for about two months. Potential production needs include quantities from purchase orders received and projected sales.
Normally, when there is no disruption on logistics such as the ones caused by COVID-19. Raw materials and packaging consumables will be kept at a safe level that may sustain potential production needs for about two months. Potential production needs include quantities from purchase orders received and projected sales.
Capital Expenditures We had capital expenditures of $4,181,724 and $9,758 for the years ended December 31, 2022 and 2021, respectively. Our capital expenditures were mainly used for purchases of production equipment and office equipment. We intend to fund our future capital expenditures with lease financing, if available, proceeds from our offering and other financing alternatives.
Capital Expenditures We had capital expenditures of $1,360,274 and $4,181,724 for the years ended December 31, 2023 and 2022, respectively. Our capital expenditures were mainly used for purchases of production equipment and office equipment. We intend to fund our future capital expenditures with lease financing, if available, proceeds from our offering and other financing alternatives.
The operating results in any period are not necessarily of the results that may be expected for any future period. 64 Table of Contents For the years ended December 31, 2022 and 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ Change ​ ​ 2022 ​ 2021 ​ Change ​ % ​ USD USD USD ​ Selected Consolidated Statements of Operations and Comprehensive Loss Data: ​ ​ ​ ​ Revenues ​ $ 12,158,102 ​ $ 12,543,556 ​ $ (385,454) (3.1) % Cost of goods sold ​ (9,961,988) ​ (11,231,253) ​ 1,269,265 (11.3) % Gross profit ​ 2,196,114 ​ 1,312,303 ​ 883,811 67.3 % Selling and marketing expenses ​ (105,473) ​ (150,152) ​ 44,679 (29.8) % General and administrative expenses ​ (4,208,197) ​ (2,902,040) ​ (1,306,157) 45.0 % Finance costs ​ (147,588) ​ (57,774) ​ (89,814) 155.5 % Loss from operations ​ (2,265,144) ​ (1,797,663) ​ (467,481) 26.0 % Total other income, net ​ 609,241 ​ 411,148 ​ 198,093 48.2 % Loss before provision for income taxes ​ (1,655,903) ​ (1,386,515) ​ (269,388) 19.4 % Provision for income taxes ​ — ​ — ​ — — % Net loss ​ $ (1,655,903) ​ $ (1,386,515) ​ $ (269,388) 19.4 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss per share - basic and diluted ​ $ (0.11) ​ $ (0.11) ​ $ — — % ​ Revenues Our revenues from sales of door locksets slightly decreased by $385,454, or 3.1% for the year ended December 31, 2022 to $12,158,102 from $12,543,556 for the year ended December 31, 2021.
Net loss and Loss per Share Net loss increased $1,845,615 to $3,501,518 for the year ended December 31, 2023 from $1,655,903 for the year ended December 31, 2022. 66 For the years ended December 31, 2022 and 2021 For the years ended December 31, Change 2022 2021 Change % USD USD USD Selected Consolidated Statements of Operations and Comprehensive Loss Data: Revenues $ 12,158,102 $ 12,543,556 $ (385,454 ) (3.1 )% Cost of goods sold (9,961,988 ) (11,231,253 ) 1,269,265 (11.3 )% Gross profit 2,196,114 1,312,303 883,811 67.3 % Selling and marketing expenses (105,473 ) (150,152 ) 44,679 (29.8 )% General and administrative expenses (4,208,197 ) (2,902,040 ) (1,306,157 ) 45.0 % Finance costs (147,588 ) (57,774 ) (89,814 ) 155.5 % Loss from operations (2,265,144 ) (1,797,663 ) (467,481 ) 26.0 % Total other income, net 609,241 411,148 198,093 48.2 % Loss before provision for income taxes (1,655,903 ) (1,386,515 ) (269,388 ) 19.4 % Provision for income taxes — — — — % Net loss $ (1,655,903 ) $ (1,386,515 ) $ (269,388 ) 19.4 % Loss per share - basic and diluted $ (0.11 ) $ (0.11 ) $ — — % Revenues Our revenues from sales of door locksets slightly decreased by $385,454, or 3.1% for the year ended December 31, 2022 to $12,158,102 from $12,543,556 for the year ended December 31, 2021.
Tax returns filed for the years ended December 31, 2019 to 2022 in the PRC and Hong Kong are subject to examination by the applicable tax authorities. ​
Tax returns filed for the years ended December 31, 2020 to 2023 in the PRC and Hong Kong are subject to examination by the applicable tax authorities.
Starting in January 2021, we stopped absorbing tariffs cost for our U.S. customers. · Competition: In order to continue to compete effectively, we must maintain our reputation for innovation and high quality products and be flexible and innovative in responding to rapidly changing market demands.
Starting in January 2021, we stopped absorbing tariffs cost for our U.S. customers and U.S. might further increase the tariffs that will affecting our products. ● Competition: In order to continue to compete effectively, we must maintain our reputation for innovation and high-quality products and be flexible and innovative in responding to rapidly changing market demands.
Starting in 2020, we are studying and hope to improve our sales mix, namely more ODM and more self-branded products, geographic market mix, namely the US, South-east Asia and China, cost structure and procurement options in order to further optimize our profit performance. We continue to promote higher value products to our customers in 2021 and 2022.
Starting in 2020, we are studying and hope to improve our sales mix, namely more ODM and more self-branded products, geographic market mix, namely the US, South-east Asia and China, cost structure and procurement options in order to further optimize our profit performance.
We will further illustrate our development and group structure in the following paragraphs. In 1993, as the laws and regulations for processing with imported materials entity had changed in China, we established our wholly foreign owned entity (WFOE) subsidiary, Dongguan Xingfa Hardware Products Limited (“Xingfa”) located in Shatian County, Dongguan City, Guangdong Province of PRC.
In 1993, as the laws and regulations for processing with imported materials entity had changed in China, we established our wholly foreign owned entity (WFOE) subsidiary, Dongguan Xingfa Hardware Products Limited (“Xingfa”) located in Shatian County, Dongguan City, Guangdong Province of PRC.
To better manage our gross margin in light of rising cost of raw materials, we leverage extensive product quality testing to identify alternative raw materials mix that is designed to lower our production costs. During the second half of 2021, we started to use stainless steel to partially substitute brass.
To better manage our gross margin in light of rising cost of raw materials, we leverage extensive product quality testing to identify alternative raw materials mix that is designed to lower our production costs. Since the second half of 2021, we have been using stainless steel to substitute brass.
We believe that we can further reduce our cost of raw materials as we negotiate for volume rebates and enhance our gross margin as we optimize our product-mix to focus our marketing efforts on higher margin products.
We believe that we can further reduce our cost of raw materials with new processing techniques, to maintain volume rebates of raw materials and enhance our gross margin as we optimize our product-mix to focus our marketing efforts on higher margin products and new products.
Investing Activities Net cash used in investing activities was $4,181,724 for the year ended December 31, 2022 was primarily attributable to purchase of property and equipment for electroplating production. Net cash used in investing activities was $9,758 for the year ended December 31, 2021 was primarily attributable to purchase of property and equipment.
Net cash used in investing activities was $9,758 for the year ended December 31, 2021 was primarily attributable to purchase of property and equipment.
In 2021, a shareholder and director forgave an advance of $717,948 ($153,846 in 2020) to the Company and treated as a shareholder contribution. Our working capital was $14,201,841, $2,213,523 and $2,580,247 as of December 31, 2022, 2021 and 2020. Our cash and cash equivalents were $9,165,651, $131,129 and $302,440 as on December 31, 2022, 2021 and 2020, respectively.
In 2021, a shareholder and director forgave an advance of $717,948 ($153,846 in 2020) to the Company and treated as a shareholder contribution. Our working capital was $10,711,197, $14,201,841 and $2,213,523 as of December 31, 2023, 2022 and 2021. Our cash and cash equivalents were $4,483,730, $9,165,651 and $131,129 as of December 31, 2023, 2022 and 2021, respectively.
Units of product shipped during 2022 were approximately 2.4 million units (including approximately 0.2 million units of spare parts) comparing to approximately 2.8 million units (including approximately 0.2 million units of spare parts) in 2021 and approximately 2.5 million units (including approximately 0.1million units of spare parts) in 2020.
Units of product shipped during 2023 were approximately 1.3 million units (including approximately 0.1 million units of spare parts) comparing to approximately 2.4 million units (including approximately 0.2 million units of spare parts) in 2022 and approximately 2.8 million units (including approximately 0.2 million units of spare parts) in 2021.
The charge for taxation is based on actual results for the year as adjusted for items that are non-assessable or disallowed; and it is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The Company is not currently subject to tax in the Cayman Islands or the British Virgin Islands.
The charge for taxation is based on actual results for the year as adjusted for items that are non-assessable or disallowed; and it is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Our focus in producing mechanical locksets - including locksets for outdoors (such as main entrances and gates) and indoors - has resulted in sustainable growth in our business and raised our competitiveness.
Our focus in producing mechanical locksets - including locksets for outdoors (such as main entrances and gates) and indoors which raised our competitiveness.
In addition, Xingfa is permitted to pay dividends in accordance with PRC accounting standards and regulations. Under PRC law, Xingfa is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.
Under PRC law, Xingfa is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.
Financing Activities Net cash provided by financing activities was $17,397,802 for the year ended December 31, 2022 and was primarily attributable to proceeds from public offering of $18,048,369; offset by (i) payments of finance lease liability of $8,391, and (ii) repayment of bank borrowings of $642,176. 69 Table of Contents Net cash provided by financing activities was $876,334 for the year ended December 31, 2021 and was primarily attributable to (i) payments of finance lease liability of $32,954, offset by an increase of bank borrowings of $191,339 and (ii) cash proceeds from shareholder capital contribution of $717,949.
Net cash provided by financing activities was $876,334 for the year ended December 31, 2021 and was primarily attributable to (i) payments of finance lease liability of $32,954, offset by an increase of bank borrowings of $191,339 and (ii) cash proceeds from shareholder capital contribution of $717,949.
The following table shows revenues from customers that accounted for more than 10% of our total operating revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ ​ 2022 2021 2020 Customer A ​ $ 5,654,248 46.5 % $ 6,833,866 54.5 % $ 6,008,167 53.6 % Customer B ​ 1,871,116 15.4 % 1,588,156 12.7 % 3,055,958 27.2 % Customer C ​ 1,586,681 13.1 % 1,310,376 10.5 % ​ Customer D ​ 1,306,755 10.7 % — — ​ — — ​ ​ ​ $ 10,418,800 85.7 % $ 9,732,398 77.7 % $ 9,064,125 80.8 % ​ The following table sets forth the Company’s revenues from customers by geographical areas based on the location of the customers: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 US ​ $ 11,717,347 ​ $ 12,233,382 ​ $ 10,957,047 Canada ​ 440,755 ​ 310,174 ​ 225,857 Others ​ — ​ — ​ 36,655 Total ​ 12,158,102 ​ $ 12,543,556 ​ $ 11,219,559 ​ Our gross margin was approximately 6.8% due to the tariff war between US and China in 2018.
The following table shows revenues from customers that accounted for more than 10% of our total operating revenues: For the years ended December 31, 2023 2022 2021 Customer A $ 1,786,656 27.5 % $ 5,654,248 46.5 % $ 6,833,866 54.5 % Customer B 888,595 13.7 % 1,871,116 15.4 % 1,588,156 12.7 % Customer C 1,723,506 26.5 % 1,586,681 13.1 % 1,310,376 10.5 % Customer D 1,332,746 20.5 % 1,306,755 10.7 % — — % $ 5,731,503 88.2 % $ 10,418,800 85.7 % $ 9,732,398 77.7 % The following table sets forth the Company’s revenues from customers by geographical areas based on the location of the customers: For the years ended December 31, 2023 2022 2021 US $ 6,364,773 $ 11,717,347 $ 12,233,382 Canada 78,584 440,755 310,174 Total $ 6,443,357 $ 12,158,102 $ 12,543,556 Our gross margin was approximately 6.8% due to the tariff war between US and China started in 2018.
The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. Our obligation to bear credit risk for certain financing transactions we facilitate may also strain our operating cash flow. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. Our obligation to bear credit risk for certain financing transactions we facilitate may also strain our operating cash flow.
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the Company’s consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit of loss. In principle, deferred tax liabilities are recognized for all taxable temporary differences.
The Company is not currently subject to tax in the Cayman Islands or the British Virgin Islands. 71 Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the Company’s consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit of loss.
We sell our products mainly to the US and Canada (“North America”) through one of our Hong Kong registered subsidiaries, Kambo Locksets. Another Hong Kong registered subsidiary, Kambo Hardware, targets and distributes locksets and related hardware to countries other than the US and Canada. And it mainly serves our customers in Asian countries.
Since then, our mission is to “produce high quality lockset products at affordable prices.” We sell our products mainly to the US and Canada (“North America”) through one of our Hong Kong registered subsidiaries, Kambo Locksets. Another Hong Kong registered subsidiary, Kambo Hardware, targets and distributes locksets and related hardware to countries other than the US and Canada.
Our general and administrative expenses increased to approximately $4.2 million for the year ended December 31, 2022 from approximately $2.9 million for the same period of 2021 because of increase in compensation to directors and executive officers and payments for public offering costs.
Selling and marketing expenses decreased to $59,841 in 2023 from $105,473 for the same period in 2022, Our general and administrative expenses increased to approximately $4.4 million for the year ended December 31, 2023 from approximately $4.2 million for the same period of 2022 because of increase in compensation to directors and executive officers and professional fees as a public company.
In 2021, outbreaks of various variants of COVID-19 further created negative impacts on global logistics. The number of purchase orders from our customers for 2022, 2021 and 2020 were basically similar.
In 2021, outbreaks of various variants of COVID-19 further created negative impacts on global logistics. The number of purchase orders from our customers for 2023 were lower than those in fiscal year 2022 because of interest rate increase in the US.
The main metrics we consider are the results for the years ended December 31, 2022, 2021 and 2020, as set forth in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 Revenues ​ $ 12,158,102 ​ $ 12,543,556 ​ $ 11,219,559 ​ Gross margin ​ 18.1 % 10.5 % 14.1 % Net loss ​ $ (1,655,903) ​ $ (1,386,515) ​ $ (1,015,348) ​ Inventory turnover (in days) ​ 174 ​ 153 ​ 148 ​ Accounts receivable turnover (in days) ​ 41 ​ 27 ​ 22 ​ ​ We project our revenue based on purchase orders from our customers, the current principal driver of our business.
For the years ended December 31, 2023 2022 2021 Revenues $ 6,443,357 $ 12,158,102 $ 12,543,556 Gross margin 9.8 % 18.1 % 10.5 % Net loss $ (3,501,518 ) $ (1,655,903 ) $ (1,386,515 ) Inventory turnover (in days) 294 174 153 Accounts receivable turnover (in days) 58 41 27 We project our revenue based on purchase orders from our customers, the current principal driver of our business.
Income taxes The Company accounts for income taxes in accordance with FASB ASC Section 740. The Company is subject to the tax laws of the PRC and Hong Kong (a special administrative region of PRC).
During the years ended December 31, 2023 and 2022, the Company recognized lease expense for such leases on a straight-line basis over the lease term. Income taxes The Company accounts for income taxes in accordance with FASB ASC Section 740. The Company is subject to the tax laws of the PRC and Hong Kong (a special administrative region of PRC).
For leases with a term of 12 months or less, the Company is permitted to and did make an accounting policy election by class of underlying assets not to recognize lease assets and lease liabilities. During the years ended December 31, 2022 and 2021, the Company recognized lease expense for such leases on a straight-line basis over the lease term.
Otherwise, the lease will be treated as an operating lease. For leases with a term of 12 months or less, the Company is permitted to and did make an accounting policy election by class of underlying assets not to recognize lease assets and lease liabilities.
Net cash used in investing activities was $221,760 for the year ended December 31, 2020 was primarily attributable to purchase of property and equipment.
Investing Activities Net cash used in investing activities was $1,360,274 for the year ended December 31, 2023 was primarily attributable to leasehold improvement and purchase of property and equipment for electroplating production. Net cash used in investing activities was $4,181,724 for the year ended December 31, 2022 was primarily attributable to purchase of property and equipment for electroplating production.
Deferred tax assets are recognized to the extent that it is probable that future taxable income can be utilized with deferred tax liabilities and/or net operating loss carry forwards. Deferred tax is calculated using tax rates that are expected to 71 Table of Contents apply to the period when the asset is realized, or the liability is settled.
In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that future taxable income can be utilized with deferred tax liabilities and/or net operating loss carry forwards.
Key Operating Metrics Our management regularly reviews a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.
Key Operating Metrics Our management regularly reviews a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions. The main metrics we consider are the results for the years ended December 31, 2023, 2022 and 2021, as set forth in the table below.
On March 23, 2009, we incorporated Hing Fat Industrial Limited under Hong Kong law (“Hing Fat”), as the holding company of Xingfa to manage the door lockset manufacturing activities of Xingfa and to conduct research and development. · On March 26, 2014, Kambo Locksets Limited (formerly known as Nice Gateway Limited) was incorporated under Hong Kong law.
In light of excess production capacity due to current economic conditions, Xingfa has subleased one plant building of approximately 4,300 m 2 to reduce our operating costs. ● We restructured our corporate organization in 2009 and incorporated Hing Fat Industrial Limited under Hong Kong law (“Hing Fat”), as the holding company of Xingfa to manage the door lockset manufacturing activities of Xingfa and to conduct research and development. ● On March 26, 2014, Kambo Locksets Limited was incorporated under Hong Kong law.
We conduct our operations primarily through our subsidiaries in Hong Kong and China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries incur debt on their behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
Liquidity and Capital Resources Liquidity and Capital Resources We are a holding company incorporated in the Cayman Islands. We conduct our operations primarily through our subsidiaries in Hong Kong and China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries.
At various times during recent years, the US and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries. These controversies also could make it more difficult for us to provide our products to our customers in the US.
To cope with the green requirements as well as our mission of ESQ achievement, we decided to enhance our production line. ● Relations Between the US and China . At various times during recent years, the US and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries.
During 2021, three major shareholders and executive directors of the Company forgave and waived their receivable owed by the subsidiaries of the Company for $717,949 ($153,846 in 2020) which have been recognized as shareholders contribution. We renegotiated bank borrowings with lower interest rate to sustain our operation cash needs.
The decrease in margin during 2023 was mainly due to the increase of labor cost s and raw materials such as zinc alloy and iron. During 2021, three major shareholders and executive directors of the Company forgave and waived their receivable owed by the subsidiaries of the Company for $717,949 ($153,846 in 2020) which have been recognized as shareholders contribution.
The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. ​ 68 Table of Contents Cash Flows A summary of the sources and uses of cash and cash equivalents is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years end December 31, ​ ​ 2022 ​ 2021 ​ 2020 ​ USD USD USD Selected Consolidated Statements of Cash Flows Data: ​ ​ ​ Net cash (used in) operating activities ​ $ (4,170,876) ​ $ (1,038,967) ​ $ (1,598,979) Net cash (used in) investing activities ​ (4,181,724) ​ (9,758) ​ (221,760) Net cash provided by financing activities ​ 17,397,802 ​ 876,334 ​ 1,049,390 Effect of exchange rate on cash ​ (10,680) ​ 1,080 ​ 3,910 Net decrease in cash ​ 9,034,522 ​ (171,311) ​ (767,439) Cash and cash equivalents at beginning of year ​ 131,129 ​ 302,440 ​ 1,069,879 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents at end of year ​ $ 9,165,651 ​ $ 131,129 ​ $ 302,440 ​ Operating Activities Net cash used in operating activities was $4,170,876 for the year ended December 31, 2022 and was primarily attributable to (i) the net loss of $1,655,903; (ii) a decrease in accounts payable of $1,631,595; (iii) an increase in accounts receivable of $697,873; (iv) a decrease of the advance from customers of $216,269; (v) an increase in prepayment of $180,974; (vi) a decrease in other payables and accruals of $960,292; (vii) a decrease in cash flow by other elements of $42,771; and being offset by (i) a decrease in other receivables of $268,621; (ii) non-cash item of $408,473 including $303,269 of depreciation and amortization, $105,204 of bad-debt being offset; (iii) decrease in inventory of $535,182; (iv) an increase in cash flow by other elements of $2,525.
Net cash used in operating activities was $4,170,876 for the year ended December 31, 2022 and was primarily attributable to (i) the net loss of $1,655,903; (ii) a decrease in accounts payable of $1,631,595; (iii) an increase in accounts receivable of $697,873; (iv) a decrease of the advance from customers of $216,269; (v) an increase in prepayment of $180,974; (vi) a decrease in other payables and accruals of $960,292; (vii) a decrease in cash flow by other elements of $42,771; and being offset by (i) a decrease in other receivables of $268,621; (ii) non-cash item of $408,473 including $303,269 of depreciation and amortization, $105,204 of bad-debt being offset; (iii) decrease in inventory of $535,182; (iv) an increase in cash flow by other elements of $2,525.
With impact of rapid interest rate acceleration in the US, our revenues decreased by approximately $0.4 million or 3.1% for the year ended December 31, 2022 comparing to the same period of 2021. However, our gross margin increase to 18.1% for the year ended December 31, 2022 from 10.5% of the same period in 2021.
Due to the price increase, slow recovery from COVID-19 and the high interest rate in the US, our revenues decreased by approximately $5.7 million or 47% for the year ended December 31, 2023 comparing to the same period of 2022.
As a small business with limited resources, we currently don’t have the ability to hedge our raw materials position, and we must monitor raw material price trends closely to manage our production needs. Cost of goods sold was 89.5% and 85.9% of revenues for the years ended December 31, 2021 and 2020 respectively.
As a small business with limited resources, we currently lack the ability to hedge our raw materials position and we monitor raw material price trends closely to manage our production needs. Cost of goods sold – idle capacity Idle capacity consists of direct production costs in excess of charges allocated to the Company’s finished goods in production.
In addition, we would not absorb certain increased tariff cost for our customers starting in January 2022. Our inventory turnover days increased to approximately 174 days for year ended December 31, 2022 from 153 days and 148 days for the year ended December 31, 2021 and 2020.
In order to enhance gross margin, the management raised product unit sales price and replace brass with stainless steel. In addition, we have not absorbed certain increased tariff cost for our customers since January 2022. Our inventory turnover days increased to approximately 294 days for year ended December 31, 2023, from 174 days for the year ended December 31, 2022.
Because of product mix shifted and change of combination of metal raw materials, our gross margin was up to 18.1% in 2022 from 10.5% in 2021 and 14.1% in 2020. In order to enhance gross margin, the management raised product unit sales price since the second half of 2021.
Because of product mix shifted and change of combination of metal raw materials, our gross margin was down to 9.8% (if the idle capacity impact was removed, our profit margin decreased to 15.2%) in 2023 from 18.1% in 2022 (10.5% in 2021).
The combination of all above factors have resulted in an increase of our net loss of $269,388 to $1,655,903 for the year ended December 31, 2022 from $1,386,515 for the same period in 2021.
The combination of all above factors, along with decrease in other income and increase of provision for income tax, have resulted in an increase of our net loss of $1,845,615 to $3,501,518 for the year ended December 31, 2023 from $1,655,903 for the year ended December 31, 2022. 61 Currently, our customer and geographical market concentration are high.
Net cash provided by financing activities was $1,049,390 for the year ended December 31, 2020 and was primarily attributable to (i) payments of finance lease liability of $31,976, offset by an increase of bank borrowings of $927,520 and cash proceeds from shareholder capital contribution of $153,846.
Financing Activities Net cash used in financing activities was $154,976 for the year ended December 31, 2023 and was primarily attributable to repayments of bank borrowings. 69 Net cash provided by financing activities was $17,397,802 for the year ended December 31, 2022 and was primarily attributable to proceeds from public offering of $18,048,369; offset by (i) payments of finance lease liability of $8,391, and (ii) repayment of bank borrowings of $642,176.
Our total number of products sold was approximately 2.8 million units (including approximately 0.2 million units of spare parts) for the year ended December 31, 2021 comparing to approximately 2.5 million units (including approximately 0.1million units of spare parts) for the year ended December 31, 2020. 66 Table of Contents Cost of Goods Sold and Gross Profit Our cost of goods sold include cost of raw materials (such as copper, iron and zinc alloy), direct labor (including wages and social security contributions), manufacturing overhead (such as packing materials, direct rental expense and utilities) and other taxes.
Cost of goods sold includes the cost of raw materials (mainly copper, stainless steel, iron and zinc alloy), direct labor (including wages and social security contributions), manufacturing overhead (such as packing materials, direct rental expense and utilities) and taxes.
To continually mitigate the related financial impact, we deployed alternative pricing strategies to alleviate the overall negative impact of higher tariffs and raised our unit product selling price from July 2021. As China government suddenly order all non-domestic labors should return their home towns earlier, our factory stopped production before Christmas time.
We deployed alternative pricing strategies to alleviate the negative impact from COVID-19 and higher tariffs as we raised our unit product selling price in July 2021.
Our bank borrowing outstanding as of December 31, 2022 was approximately $0.6 million as compared to approximately $1.3 million as of December 31, 2021. Finance costs were increased to $147,588 for the year ended December 31, 2022 from $57,774 for the same period in 2021.
Finance costs were decreased to $26,935 for the year ended December 31, 2023 from $147,588 for the same period in 2022.
Selling and marketing expenses decreased by $18,959, or 11.2% to $150,152 for the year ended December 31, 2021 as compared to $169,111 for the year ended December 31, 2020. The decrease was due mainly to reduction in sale commissions.
Selling and marketing expenses Major components of selling and marketing expenses are transportation, custom declarations, sales commissions. Selling and marketing expenses decreased by $45,632, or 43.3% to $59,841 for the year ended December 31, 2023 from $105,473 for the year ended December 31, 2022. The decrease was due mainly to reduction in freight and transportation fees.
During the years ended December 31, 2021 and 2020, interest expense related to bank borrowings was $48,910 and $19,632, respectively.
During the years ended December 31, 2023 and 2022, interest expense related to bank borrowings was $18,859 and $26,836, respectively. Provision for Income Taxes Provision for income tax was $56,237 in the fiscal year of 2023, an increase of $56,237 from $nil for fiscal year of 2022.
Removed
Since then, our mission is to “produce high quality lockset products at affordable prices.” Our products comply with American National Standards Institute (ANSI) Grade 2 and Grade 3 standards, which were developed by the Builders Hardware Manufacturing Association (BHMA) for ANSI.
Added
And it mainly serves our customers in Asian countries. We will further illustrate our development and group structure in the following paragraphs.
Removed
Our focus is to offer a variety of mechanical locksets for outdoor (such as main entrances, gates) and indoor that we believe promotes sustainable growth and our competitiveness.
Added
In 2022, there were outbreaks of the Omicron variant of the COVID-19 in Hong Kong and many other cities in China, including Shenzhen, Shanghai, Guangzhou, Taiyuan, Changchun as well as Dongguan city where Xingfa is located, and travel restrictions, mandatory COVID-19 tests, quarantine requirements and/or temporary closure of office buildings and facilities were imposed by local governments.
Removed
To maintain our growth driver, our products are beyond a simple lockset for security purposes, as we offer a wide range of ODM (original design manufacturer) door locksets to various customer segments from “Premium Series” to “Economy-oriented Series” with classic to contemporary looks, functions and colors.
Added
China eased the strict lockdown procedures in early December 2022, which led to surge in COVID infections in December 2022 and January 2023 and caused disruption our business operations as our migrant workers from other provinces in the manufacturing factory had to leave and go home early for the new year holidays and did not come back until March 2023.
Removed
In light of excess production capacity due to current economic conditions, Xingfa has subleased one plant building of approximately 4,300 m 2 to reduce our operating costs. · We restructured our corporate organization in 2009 because of changes in local laws in China as mentioned above.
Added
Our recovery from COVID-19 pandemic was negatively impacted high interest rate which has caused a slowdown in real estate market in US, from which we generate most of our revenues. Our revenues were approximately $6.4 million and $12.2 million for the years ended December 31, 2023 and 2022, respectively.
Removed
China government has lifted all domestic travel restriction in mainland China in December 2022, but such restriction has caused negative impact to our business in 2022 and 2021. As a result, sales were slowed down in 2021 and 2022. Our revenues were approximately $12.5 million and $12.1 million for the years ended December 31, 2021 and 2022, respectively.
Added
Our gross margin decreased to 9.8% for the year ended December 31, 2023 from 18.1% of the same period in 2022. If the idle capacity impact was removed, our profit margin decreased to 15.2% in 2023.
Removed
The increase in margin during 2022 was mainly due to the end of “dual control of energy consumption” policy to control the total power consumption and that resumed efficiency in utilization of labor and lower cost for wastage of metal raw materials. In additional, the Company keeps optimizing combination of metal raw materials to lower metal raw materials cost.
Added
We renegotiated bank borrowings with lower interest rate to sustain our operation cash needs. Our bank borrowing outstanding as of December 31, 2023 was approximately $0.1 million as compared to approximately $0.6 million as of December 31, 2022.
Removed
In early 2020, the COVID-19 pandemic caused a sudden halt in economic activities and our Company had to close our office in Hong Kong and manufacturing facility in China since January 2020. Our office in Hong Kong and our manufacturing in China have resumed since the mid-March 2020.
Added
As the permit for electro-plating production is more stringently regulated in China, in 2022, we acquired an electro-plating production line in an industrial park near our Xingfa factory to reduce outsourced electro-plating costs. However, the interest increment cycle and delayed economic recovery have made our customers more cautious in placing more orders.
Removed
In early December 2022, Chinese government eased the strict control measure for COVID-19, which has led to surge in increased infections and disruption in our business operations in Xingfa between December 2022 and January 2023. Although there still could be outbreaks in China and Hong Kong, we believe that our operations and business activities are normalized.
Added
As a result, our gross margin was negatively affected by amortization of idle capacity.
Removed
After the market has fully digested the tariff war, interest rate increase and economic activity resumes after the COVID-19 pandemic in the U.S. which is our largest market, demand of mechanical locksets should return to normal and our customers in the U.S. will refill their inventory to meet the demands. 61 Table of Contents Currently, our customer and geographical market concentration are high.
Added
To increase the utilization rate, the management is developing electro-plating business to provide services to third parties with our newly acquired plant and also continued the development of new smart lock products for mainland China, Cambodia and Hong Kong markets which expect to launch by the end of 2024.

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Wong received a Bachelor of Business Administration from the Chinese University of Hong Kong in 1989, a Bachelor or Business from the University of Southern Queensland, Australia, in 1992 and studied EMBA courses offered by the Troy University (formerly known as Troy State University), Alabama, U.S. from 1999 to 2000. Bun Lau, Chief Operating Officer Mr.
Wong received a Bachelor of Business Administration from the Chinese University of Hong Kong in 1989, a Bachelor or Business from the University of Southern Queensland, Australia, in 1992 and studied EMBA courses offered by the Troy University (formerly known as Troy State University), Alabama, U.S. from 1999 to 2000. Bun Lau, Chief Operating Officer and Director Mr.
In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including: · evaluate the independence and performance of, and assess the qualifications of, our independent auditor, and engage such independent auditor; · approve the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approve in advance any non-audit service to be provided by the independent auditor; · monitor the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; · review the financial statements to be included in our Annual Report on Form 20-F and Current Reports on Form 6-K and review with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements; · oversee all aspects our systems of internal accounting control and corporate governance functions on behalf of the board; 78 Table of Contents · review and approve in advance any proposed related-party transactions and report to the full Board on any approved transactions; and · provide oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the Board, including Sarbanes-Oxley Act implementation, and make recommendations to the Board regarding corporate governance issues and policy decisions.
In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including: ● evaluate the independence and performance of, and assess the qualifications of, our independent auditor, and engage such independent auditor; ● approve the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approve in advance any non-audit service to be provided by the independent auditor; ● monitor the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; ● review the financial statements to be included in our Annual Report on Form 20-F and Current Reports on Form 6-K and review with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements; ● oversee all aspects our systems of internal accounting control and corporate governance functions on behalf of the board; 77 ● review and approve in advance any proposed related-party transactions and report to the full Board on any approved transactions; and ● provide oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the Board, including Sarbanes-Oxley Act implementation, and make recommendations to the Board regarding corporate governance issues and policy decisions.
He is primarily responsible for the overall sales strategy, distribution management and corporate strategies of the Company. In 1996, Mr. Lau studied in Civil Engineering at the University of Alberta for 2 years. 72 Table of Contents Frederick Wong, Chief Financial Officer Mr. Wong was appointed as our Chief Financial Officer on June 1, 2020.
He is primarily responsible for the overall sales strategy, distribution management and corporate strategies of the Company. In 1996, Mr. Lau studied in Civil Engineering at the University of Alberta for 2 years. 72 Frederick Wong, Chief Financial Officer Mr. Wong was appointed as our Chief Financial Officer on June 1, 2020.
The Nominating and Corporate Governance Committee is responsible for, among other things: ● Identify and screen individuals qualified to become Board members consistent with the criteria approved by the board of directors, and recommend to the board of directors director nominees for election at the next annual or special meeting of shareholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between such meetings; 79 Table of Contents ● Recommend directors for appointment to Board committees; ● Make recommendations to the board of directors as to determinations of director independence; ● Oversee the evaluation of the board of directors; ● Make recommendations to the board of directors as to compensation for the Company’s directors; and ● Review and recommend to the board of directors the Corporate Governance Guidelines and Code of Business Conduct and Ethics for the Company.
The Nominating and Corporate Governance Committee is responsible for, among other things: ● Identify and screen individuals qualified to become Board members consistent with the criteria approved by the board of directors, and recommend to the board of directors nominees for election at the next annual or special meeting of shareholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between such meetings; ● Recommend directors for appointment to Board committees; 78 ● Make recommendations to the board of directors as to determinations of director independence; ● Oversee the evaluation of the board of directors; ● Make recommendations to the board of directors as to compensation for the Company’s directors; and ● Review and recommend to the board of directors the Corporate Governance Guidelines and Code of Business Conduct and Ethics for the Company.
A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors generally or is found to be or becomes of unsound mind. Our board of directors currently consists of 5 directors.
A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors generally or is found to be or becomes of unsound mind. Our board of directors currently consists of 7 directors.
As of December 31, 2022, 17 employees are based in Hong Kong, where our principal executive offices are located, one vice president of finance was based in Beijing, and the remaining employees were located in Dongguan, China.
As of December 31, 2023, 17 employees are based in Hong Kong, where our principal executive offices are located, one vice president of finance was based in Beijing, and the remaining employees were located in Dongguan, China.
(7) including 50,000 stock options exercisable since February 22, 2023. * less than 1%
(7) including 50,000 stock options exercisable since February 22, 2023. * less than 1% 80
The Committee must equitably adjust awards and the number of shares available under the Equity Plan in the event of a recapitalization, stock split, stock dividend, extraordinary cash dividend, split-up, spin-off, reclassification, combination or other exchange of shares. 76 Table of Contents Types of Awards and Eligibility .
The Committee must equitably adjust awards and the number of shares available under the Equity Plan in the event of a recapitalization, stock split, stock dividend, extraordinary cash dividend, split-up, spin-off, reclassification, combination or other exchange of shares. Types of Awards and Eligibility .
We have established an audit committee, a compensation committee and a corporate governance and nominating committee. Each of the committees of the board of directors has the composition and responsibilities described below. Board Diversity Matrix The following table sets forth Board level diversity statistics based on self-identification of members of our Board as of April 28, 2023.
We have established an audit committee, a compensation committee and a corporate governance and nominating committee. Each of the committees of the board of directors has the composition and responsibilities described below. Board Diversity Matrix The following table sets forth Board level diversity statistics based on self-identification of members of our Board as of April 29, 2024.
We have determined that Ms. Carina Chui possesses accounting or related financial management experience that qualifies her as an “audit committee financial expert” as defined by the rules and regulations of the SEC. Compensation Committee Ms. Monique Ho, Mr. Jochem Koehler and Ms. Carina Chui are members of our Compensation Committee and Ms. Monique Ho is the chairlady.
We have determined that Ms. Carina Chui possesses accounting or related financial management experience that qualifies her as an “audit committee financial expert” as defined by the rules and regulations of the SEC. Compensation Committee Ms. Monique Ho, Ms. Carina Chui and Mr. Kenneth Liu are members of our Compensation Committee and Ms. Monique Ho is the chairlady.
Carina Chui, Mr. Jochem Koehler and Ms. Monique Ho are members of our Nominating and Corporate Governance Committee and Mr. Jochem Koehler is the chairman. All members of our Nominating and Corporate Governance Committee are qualified as “independent” under the current definition promulgated by Nasdaq. We have adopted a charter for the Nominating and Corporate Governance Committee.
Carina Chui, Ms. Monique Ho and Mr. Kenneth Liu are members of our Nominating and Corporate Governance Committee and Mr. Kenneth Liu is the chairman. All members of our Nominating and Corporate Governance Committee are qualified as “independent” under the current definition promulgated by Nasdaq. We have adopted a charter for the Nominating and Corporate Governance Committee.
Share Ownership The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of April 28, 2023 for: ● each beneficial owner of 5% or more of our issued and outstanding ordinary shares; ● each of our directors and executive officers; and ● all of our directors and executive officers as a group.
Share Ownership The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of April 29, 2024 for: ● each beneficial owner of 5% or more of our issued and outstanding ordinary shares; ● each of our directors and executive officers; and ● all of our directors and executive officers as a group.
Carina Chui, Mr. Jochem Koehler and Ms. Monique Ho are members of our Audit Committee, where Ms. Carina Chui serves as the chairlady. All members of our Audit Committee satisfy the independence standards promulgated by the SEC and by Nasdaq as such standards apply specifically to members of audit committees.
Carina Chui, Ms. Monique Ho and Mr. Kenneth Liu are members of our Audit Committee, where Ms. Carina Chui serves as the chairlady. All members of our Audit Committee satisfy the independence standards promulgated by the SEC and by Nasdaq as such standards apply specifically to members of audit committees.
Board Diversity Matrix (As of April 28, 2023) Country of Principal Executive Offices: Hong Kong, China Foreign Private Issuer: Yes Disclosure Prohibited Under Home Country Law: No Total Number of Directors 5 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 2 3 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction 1 LGBTQ+ 0 Did Not Disclose Demographic Background 0 ​ Audit Committee Ms.
Board Diversity Matrix (As of April 29, 2024) Country of Principal Executive Offices: Hong Kong, China Foreign Private Issuer: Yes Disclosure Prohibited Under Home Country Law: No Total Number of Directors 7 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 2 5 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction 0 LGBTQ+ 0 Did Not Disclose Demographic Background 0 Audit Committee Ms.
We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes. 80 Table of Contents We understand that our success depends on our ability to attract, train and retain our employees.
We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes. We understand that our success depends on our ability to attract, train and retain our employees.
In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and have followed local government orders to prevent the spread of COVID-19. 6.E.
During the outbreak of COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and have followed local government orders to prevent the spread of COVID-19. 79 6.E.
The calculations in the table below are based on 18,060,000 ordinary shares issued and outstanding as of the date of April 28, 2023.
The calculations in the table below are based on 18,060,000 ordinary shares issued and outstanding as of the date of April 29, 2024.
The following table sets forth the breakdown of our employees as of December 31, 2022 by function: ​ ​ ​ ​ ​ ​ ​ ​ ​ Hong Kong ​ Department ​ Headcount ​ Headquarter ​ PRC Production Management 11 7 4 Finance and accounting 7 4 3 Sales and Marketing 3 3 — Purchasing 2 — 2 Warehouse 15 — 15 Production 315 — 315 Quality Control 2 — 2 Administration 15 4 11 Technical 4 — 4 Total 374 18* 356 *one vice president of finance based in Beijing.
The following table sets forth the breakdown of our employees as of December 31, 2023 by function: Hong Kong Department Headcount Headquarter PRC Production Management 10 7 3 Finance and accounting 7 4 3 Sales and Marketing 3 3 — Purchasing 2 — 2 Warehouse 11 — 11 Production 199 — 199 Quality Control 3 — 3 Administration 15 4 11 Technical 5 — 5 Total 255 18* 237 *One vice president of finance based in Beijing.
(2) including 140,000 stock options exercisable since February 22, 2023. (3) including 200,000 stock options exercisable since February 22, 2023. 81 Table of Contents (4) including 60,000 stock options exercisable since February 22, 2023. (5) including 140,000 stock options exercisable since February 22, 2023. (6) including 40,000 stock options exercisable since February 22, 2023.
(2) including 140,000 stock options exercisable since February 22, 2023. (3) including 200,000 stock options exercisable since February 22, 2023. (4) including 60,000 stock options exercisable since February 22, 2023. (5) including 140,000 stock options exercisable since February 22, 2023. (6) including 40,000 stock options exercisable since February 22, 2023.
The options will expire five (5) years from the Grant Date and may be exercised by cashless exercise pursuant to the terms and conditions of the Stock Option Agreement. As of April 28, 2023, none has been exercised. 77 Table of Contents 6.C.
The options will expire five (5) years from the Grant Date and may be exercised by cashless exercise pursuant to the terms and conditions of the Stock Option Agreement. As of April 29, 2024, none has been exercised. 76 6.C.
(2) Member of compensation committee. (3) Member of nominating and corporate governance committee. ​ Bong Lau, Chief Executive Office and Chairman of the Board of the Directors of the Company (the “Board”) Mr. Bong Lau was appointed as a director of the Board on July 17, 2019 and Chairman of the Board on June 1, 2020. Mr.
Bong Lau, Chief Executive Office and Chairman of the Board of the Directors of the Company (the “Board”) Mr. Bong Lau was appointed as a director of the Board on July 17, 2019 and Chairman of the Board on June 1, 2020. Mr.
Employment Agreements, Director Agreements and Indemnification Agreements We have entered into employment agreements with each of our executive officers. Pursuant to these agreements, each of our executive officers is employed for an initial term of one year, renewable upon mutual agreement of the Company and the executive officer.
Pursuant to these agreements, each of our executive officers is employed for an initial term of one year, renewable upon mutual agreement of the Company and the executive officer.
Director Independence Our Board reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly, and the Company has determined that Ms. Monique Ho, Mr. Jochem Koehler, and Ms. Carina Chui are “independent directors” as defined by NASDAQ. 6.D. Employees As of December 31, 2022, we had a total of 374 employees.
Director Independence Our Board reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly, and the Company has determined that Ms. Monique Ho, Ms. Carina Chui, Mr. Kenneth Liu and Mr. Henry Yeung are “independent directors” as defined by NASDAQ. 6.D.
The Compensation Committee is responsible for, among other things: ● To approve compensation principles that apply generally to Company employees; ● To make recommendations to the board of directors with respect to incentive compensation plans and equity based plans taking into account the results of the most recent rules to provide the shareholders with an advisory vote on executive compensation, generally known as “Say on Pay Votes” (Section 951 in The Dodd-Frank Wall Street Reform and Consumer Protection Act), if any; ● To administer and otherwise exercise the various authorities prescribed for the Compensation Committee by the Company’s incentive compensation plans and equity-based plans; ● To select a peer group of companies against which to benchmark/compare the Company’s compensation systems for principal officers elected by the board of directors; ● To annually review the Company’s compensation policies and practices and assess whether such policies and practices are reasonably likely to have a material adverse effect on the Company; ● To determine and oversee stock ownership guidelines and stock option holding requirements, including periodic review of compliance by principal officers and members of the board of directors; Nominating and Corporate Governance Committee Ms.
The Compensation Committee is responsible for, among other things: ● To approve compensation principles that apply generally to Company employees; ● To make recommendations to the board of directors with respect to incentive compensation plans and equity-based plans and to oversee the application of the Company’s compensation recoupment/clawback policy; ● To administer and otherwise exercise the various authorities prescribed for the Compensation Committee by the Company’s incentive compensation plans and equity-based plans; ● To select a peer group of companies against which to benchmark/compare the Company’s compensation systems for principal officers elected by the board of directors; ● To annually review the Company’s compensation policies and practices and assess whether such policies and practices are reasonably likely to have a material adverse effect on the Company; ● To determine and oversee stock ownership guidelines and stock option holding requirements, including periodic review of compliance by principal officers and members of the board of directors; Nominating and Corporate Governance Committee Ms.
Ho is also the co-founder of an online fashion media ztylez.com, established in 2017. In her early years after graduating with a Bachelor of Science Degree from California State University, Los Angeles in 1997, Ms. Ho was a junior Marketing Officer at Cable News Network (CNN) in CNN Asia Pacific Headquarter in Hong Kong from 1999 to 2000.
In her early years after graduating with a Bachelor of Science Degree from California State University, Los Angeles in 1997, Ms. Ho was a junior Marketing Officer at Cable News Network (CNN) in CNN Asia Pacific Headquarter in Hong Kong from 1999 to 2000. Carina Chui, Independent Director Ms.
Bun Lau was appointed as the Chief Operating Officer of the Company on June 1, 2020 and he was a director of the Board from July 17, 2019 to May 24, 2022. Mr. Lau joined the Company in 2005 and has over 15 years of working experience in the door security hardware industry. Mr.
Bun Lau was appointed as the Chief Operating Officer of the Company on June 1, 2020. Mr. Bun Lau was a director of the Board from July 17, 2019 to May 24, 2022, and he was appointed as a director of the Board on January 15, 2024. Mr.
Bun Lau is the brother of Mr. Bong Lau. Mr. Lau is primarily responsible for the business development and product sales strategy. He is also responsible for the corporate strategies of the Company and the overall administrative management process.
Lau joined the Company in 2005 and has over 15 years of working experience in the door security hardware industry. Mr. Bun Lau is the brother of Mr. Bong Lau. Mr. Lau is primarily responsible for the business development and product sales strategy. He is also responsible for the corporate strategies of the Company and the overall administrative management process.
The executive officers are entitled to a fixed salary and to participate in our equity incentive plans, if any and other company benefits, each as determined by the Board or a committee designated by the Board from time to time. 75 Table of Contents We may terminate the executive officer’s employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or material breach of any term of any employment or other services, confidentiality, intellectual property or non-competition agreements with the Company.
We may terminate the executive officer’s employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or material breach of any term of any employment or other services, confidentiality, intellectual property or non-competition agreements with the Company.
Zhong was also admitted as a Fellow of the institute Public Accountant (Australia) and a Fellow of the Institute of Financial Accountants (UK) on October 22, 2020. 73 Table of Contents Monique Ho, Independent Director Ms. Ho was appointed as a director of the Company on June 1, 2020. Ms.
Zhong is a Chartered Global Management Accountant, and was also admitted as a Fellow of the chartered institute of Management Accountants on December 21, 2018. Mr. Zhong was also admitted as a Fellow of the institute Public Accountant (Australia) and a Fellow of the Institute of Financial Accountants (UK) on October 22, 2020. 73 Monique Ho, Independent Director Ms.
Ho is a marketing savvy director who has over 20 years of experience in media. She is the founder and Chief Executive Officer of Toppa Media Savvy Limited (TMS) that is listed on the Stock Exchange of Hong Kong under OOH Holdings Limited (Stock Code: 8091.HK) since 2018. Ms.
She is the founder and Chief Executive Officer of Toppa Media Savvy Limited (TMS) that is listed on the Stock Exchange of Hong Kong under OOH Holdings Limited (Stock Code: 8091.HK) since 2018. Ms. Ho is also the co-founder of an online fashion media ztylez.com, established in 2017.
The total aggregate ordinary shares of the Company authorized for issuance during the term of the Equity Plan is limited to 2,500,000 shares. No shares were issued as of December 31, 2022. ​ As of April 28, 2023, stock options to purchase 820,000 ordinary shares were granted and outstanding under the Equity Plan.
The total aggregate ordinary shares of the Company authorized for issuance during the term of the Equity Plan is limited to 2,500,000 shares. As of April 29, 2024, stock options to purchase 820,000 ordinary shares have been granted and outstanding under the Equity Plan. The following paragraphs summarize the terms of the Equity Plan: Administration .
Directors and Executive Officers The following table sets forth information regarding our executive officers and directors as of the date of this report. ​ ​ ​ ​ ​ ​ Directors and Executive Officers Age Position/Title Bong Lau (Yu Bong Lau) 45 Chief Executive Officer, Chairman of the Board and Director Frederick Wong (Ching Wan Wong) 56 Chief Financial Officer Bun Lau (Yu Bun Lau) 43 Chief Operations Officer Wynn Hui (Po Wang Hui) 72 Chief Technical Officer and Director Errol Hui (Shun Hong Hui) 34 Vice President of Engineering Tony Zhong (Wei Zhong) 40 Vice President of Finance Monique Ho(1)(2)(3) (Ting Mei Ho) 48 Independent Director Jochem Koehler(1)(2)(3) 58 Independent Director Carina Chui(1)(2)(3) (Wan Yee Carina Chui) 44 Independent Director (1) Member of audit committee.
Directors and Executive Officers Age Position/Title Bong Lau (Yu Bong Lau) 46 Chief Executive Officer, Chairman of the Board and Director Frederick Wong (Ching Wan Wong) 56 Chief Financial Officer Bun Lau (Yu Bun Lau) 44 Chief Operations Officer and Director Wynn Hui (Po Wang Hui) 73 Chief Technical Officer and Director Errol Hui (Shun Hong Hui) 35 Vice President of Engineering Tony Zhong (Wei Zhong) 41 Vice President of Finance Monique Ho(1)(2)(3) (Ting Mei Ho) 49 Independent Director Chun Fai (Kenneth) Liu (1)(2)(3)(4) 35 Independent Director Carina Chui(1)(2)(3) (Wan Yee Carina Chui) 45 Independent Director Henry Yeung (Wing Hang Yeung)(5) 40 Independent Director (1) Member of audit committee.
Among other powers and duties, the Committee determines the employees who will be eligible to receive awards and establishes the terms and conditions of all awards. Unless prohibited by applicable law or the applicable rules of a stock exchange, the Committee may delegate its authority and administrative duties under the Equity Plan. Shares Subject to the Equity Plan .
Unless prohibited by applicable law or the applicable rules of a stock exchange, the Committee may delegate its authority and administrative duties under the Equity Plan. 75 Shares Subject to the Equity Plan .
We had a total of 375 employees as of December 31, 2021.
Employees As of December 31, 2023, we had a total of 255 employees. We had a total of 374 employees as of December 31, 2022.
Except as otherwise indicated in the table below, addresses of our directors, executive officers and named beneficial owners are in care of Intelligent Living Application Group Inc., Unit 2, 5/F, Block A, Profit Industrial Building, 1-15 Kwai Fung Crescent, Kwai Chung, New Territories, Hong Kong, Tel: + (852) 2481 7938. ​ ​ ​ ​ ​ ​ ​ ​ Ordinary Shares Beneficially Owned ​ ​ Number of Shares ​ Percentage of ​ ​ (including Share Options) ​ Shares Directors and Executive Officers: ​ ​ ​ ​ ​ Bong Lau 2,540,000(1) 13.9 % Bun Lau 2,480,000(2) 13.6 % Wynn Hui 2,540,000(3) 13.9 % Frederick Wong 60,000(4) * ​ Errol Hui 2,480,000(5) 13.6 % Tony Zhong 40,000(6) * ​ Monique Ho 5,000(7) * ​ Jochem Koehler 5,000(7) * ​ Carina Chui 5,000(7) * ​ 5% or Greater Shareholders: ​ ​ ​ ​ ​ Bong Lau 2,340,000(1) 13.9 % Bun Lau 2,340,000(2) 13.6 % Wynn Hui 2,340,000(3) 13.9 % Errol Hui 2,340,000(5) 13.6 % All directors and executive officers as a group (9 individuals) 10,155,000 53.9 % (1) including 200,000 stock options exercisable since February 22, 2023.
Ordinary Shares Beneficially Owned Number of Shares Percentage of (including Share Options) Shares Directors and Executive Officers: Bong Lau 2,540,000 (1) 13.9 % Bun Lau 2,480,000 (2) 13.6 % Wynn Hui 2,540,000 (3) 13.9 % Frederick Wong 60,000 (4) * Errol Hui 2,480,000 (5) 13.6 % Tony Zhong 40,000 (6) * Monique Ho 5,000 (7) * Kenneth Liu - - Carina Chui 5,000 (7) * Henry Yeung - - 5% or Greater Shareholders: Bong Lau 2,340,000 (1) 13.9 % Bun Lau 2,340,000 (2) 13.6 % Wynn Hui 2,340,000 (3) 13.9 % Errol Hui 2,340,000 (5) 13.6 % All directors and executive officers as a group (10 individuals) 10,150,000 56.2 % (1) including 200,000 stock options exercisable since February 22, 2023.
The following paragraphs summarize the terms of the Equity Plan: Administration . The Equity Plan requires that a committee of non-employee directors to administer the Equity Plan. Currently, our Compensation Committee, which we refer here as the Committee, administers the Equity Plan.
The Equity Plan requires that a committee of non-employee directors to administer the Equity Plan. Currently, our Compensation Committee, which we refer here as the Committee, administers the Equity Plan. Among other powers and duties, the Committee determines the employees who will be eligible to receive awards and establishes the terms and conditions of all awards.
He studied Law & Economics at University of Frankfurt & Bayreuth and received the Bachelor of Arts degree in 1988. Carina Chui, Independent Director Ms. Chui was appointed as a director of the Company on June 1, 2020. Ms. Chui has over 16 years of finance and accounting experience from accounting, auditing and corporate financial management.
Chui was appointed as a director of the Company on June 1, 2020. Ms. Chui has over 16 years of finance and accounting experience from accounting, auditing and corporate financial management. She has served as the chief financial officer of Numiracle Group Limited since January 1, 2014.
She received a Bachelor degree in Economics from University of California, Los Angeles in 2001 and an MBA from Hong Kong University of Science and Technology in 2014. 74 Table of Contents 6.B. Compensation For the fiscal year ended December 31, 2022, we paid an aggregate of approximately $972,000 in cash to our directors and executive officers.
Compensation For the fiscal years ended December 31, 2023 and 2022, we paid an aggregate of approximately $950,000 and $972,000 in cash to our directors and executive officers, respectively.
She has served as the chief financial officer of Numiracle Group Limited since January 1, 2014. She is a fellow member of the Hong Kong Institute of Certified Public Accountants (HKICPA) since 2013 and The American Institute of Certified Public Accountants (AICPA) since 2011.
She is a fellow member of the Hong Kong Institute of Certified Public Accountants (HKICPA) since 2013 and The American Institute of Certified Public Accountants (AICPA) since 2011. She received a Bachelor degree in Economics from University of California, Los Angeles in 2001 and an MBA from Hong Kong University of Science and Technology in 2014.
Removed
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 6.A.
Added
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 6.A. Directors and Executive Officers The following table sets forth information regarding our executive officers and directors as of the date of this report.
Removed
Zhong is a Chartered Global Management Accountant, and was also admitted as a Fellow of the chartered institute of Management Accountants on December 21, 2018. Mr.
Added
(2) Member of compensation committee. (3) Member of nominating and corporate governance committee. (4) Mr. Kenneth Liu was appointed as a director on July 4 , 2023 to fill the vacancy created by the resignation of Mr. Jochen Koehler. (5). Mr. Yeung was appointed on January 15, 2024.
Removed
Jochem Koehler, Independent Director Mr. Koehler was appointed as a director of the Company on June 1, 2020. Mr. Koehler has over 30 years of experience in global sourcing and supply chain operations with specific expertise in developing product commercialization, cost and margin optimization programs, efficient supply chains and sustainable global sourcing platforms and strategies.
Added
Ho was appointed as a director of the Company on June 1, 2020. Ms. Ho is a marketing savvy director who has over 20 years of experience in media.
Removed
He worked as a senior director of global sourcing for MNS & Fortune 500 companies (UTC / PUMA / Dollar General) from 2000 to 2017. Since 2017, he is a director and partner of Tak Sang (Sze’s) Co Ltd and is a managing Partner of Oculas Virtual Manufacturing Limited sourcing for Fashion Brands.
Added
Kenneth Liu, Independent Director Mr. Liu Chun Fai (“Mr. Liu”), was appointed as a director of the Company on June 30, 2023. Mr. Liu has served as Chairman and Executive Director of China Eco-Farming Limited (HK Stock Exchange Code: 8166) since February 2022. Mr.
Removed
For share incentive grants to our officers and directors, see “—Share Incentive Plans.” We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity ​ All Other ​ ​ ​ Name/principal position ​ Year Salary Compensation Compensation Total Paid Bong Lau/ CEO 2022 ​ $ 204,526 ​ $ — ​ $ — ​ $ 204,526 ​ 2021 ​ $ 204,526 ​ $ — ​ $ — ​ $ 204,526 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Frederick Wong / CFO 2022 ​ $ 120,619 ​ $ — ​ $ — ​ $ 120,619 ​ 2021 ​ $ 120,619 ​ $ — ​ $ — ​ $ 120,619 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bun Lau / Chief Operating Officer 2022 ​ $ 192,495 ​ $ — ​ $ — ​ $ 192,495 ​ 2021 ​ $ 192,495 ​ $ — ​ $ — ​ $ 192,495 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Wynn Hui / Chief Technology Officer 2022 ​ $ 192,495 ​ $ — ​ $ — ​ $ 192,495 ​ 2021 ​ $ 192,495 ​ $ — ​ $ — ​ $ 192,495 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Errol Hui / Vice President of Engineering 2022 ​ $ 90,232 ​ $ — ​ $ — ​ $ 90,232 ​ 2021 ​ $ 90,232 ​ $ — ​ $ — ​ $ 90,232 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tony Zhong / Vice President of Finance 2022 ​ $ 78,402 ​ $ — ​ $ — ​ $ 78,402 ​ 2021 ​ $ 78,402 ​ $ — ​ $ — ​ $ 78,402 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Monique Ho / independent director 2022 ​ $ 24,000 ​ $ — ​ $ — ​ $ 24,000 ​ 2021 ​ $ 24,000 ​ $ — ​ $ — ​ $ 24,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Jochem Koehler / independent director 2022 ​ $ 24,000 ​ $ — ​ $ — ​ $ 24,000 ​ 2021 ​ $ 24,000 ​ $ — ​ $ — ​ $ 24,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Kevin Wai / independent director* 2022 ​ $ 9,548 ​ $ — ​ $ — ​ $ 9,548 ​ 2021 ​ $ 24,000 ​ $ — ​ $ — ​ $ 24,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carina Chui / independent director 2022 ​ $ 36,000 ​ $ — ​ $ — ​ $ 36,000 ​ 2021 ​ $ 36,000 ​ $ — ​ $ — ​ $ 36,000 ​ * Appointed independent director of the Company effective as of June 1, 2020 and resigned on May 24, 2022. ​ Our PRC subsidiary is required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Added
Liu was the Executive Director of Inves Tech Holdings Limited (HK Stock Exchange Code: 1087) from August 2020 to April 2022 and a director of Blue Sky Solar Energy Management Limited from November 2018 to April 2022. Mr.
Added
Liu was the Executive Director of CEFC Hong Kong Financial Investment Company Limited (HK Stock Exchange Code:1520, formally known as Runway Global Holdings Company Limited) from November 2016 to June 2019 and the Manager of FT Corporate Strategy Limited from October 2013 to June 2016. Mr.
Added
Liu studied Administrative Studies at York University, Toronto, Ontario from 2007 to 2011 and he is a member of Chaozhou Chamber of Commerce. Henry Yeung, Independent Director Mr. Yeung was appointed as a director of the Company on January 15, 2024. Mr. Yeung has more than 19 years of management experience. Mr.
Added
Yeung has served as vice chairman and general manager of Jewellery City Group, a retail company of luxury jewelleries and watches, since 2004. Mr. Yeung has also served as the director of Green World Technology Ltd., a company developing environmental protection technologies, since 2017. 6.B.
Added
For share incentive grants to our officers and directors, see “—Share Incentive Plans.” We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors.
Added
Our PRC subsidiary is required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. 74 Employment Agreements, Director Agreements and Indemnification Agreements We have entered into employment agreements with each of our executive officers.
Added
The executive officers are entitled to a fixed salary and to participate in our equity incentive plans, if any and other company benefits, each as determined by the Board or a committee designated by the Board from time to time.
Added
Except as otherwise indicated in the table below, addresses of our directors, executive officers and named beneficial owners are in care of Intelligent Living Application Group Inc., Unit 2, 5/F, Block A, Profit Industrial Building, 1-15 Kwai Fung Crescent, Kwai Chung, New Territories, Hong Kong, Tel: + (852) 2481 7938.

Item 7. Management's Discussion & Analysis

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

2 edited+0 added−2 removed1 unchanged
Wynn Hui, and Mr. Bun Lau, major shareholders of ILA. Rent expense for the years ended December 31, 2022 and 2021 was approximately $54,100 and $54,100, respectively. 7.C. Interests of Experts and Counsel Not applicable. 82 Table of Contents
Kambo Security Products Limited is owned by Mr. Bong Lau, Mr. Wynn Hui, and Mr. Bun Lau, major shareholders and directors of the Company. Rent expense for the years ended December 31, 2023, 2022 and 2021 was approximately $74,000, $54,100 and $54,100, respectively. 7.C. Interests of Experts and Counsel Not applicable.
Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers —Share Incentive Plans.” Other Transactions with Related Parties The relationship and the nature of related party transactions are summarized as follow: In December 2020, Mr. Hui agreed to forgive the net advance of $153,846 to the Company. Shareholders and directors have approved the advances forgiven by Mr.
Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers —Share Incentive Plans.” Other Transactions with Related Parties The relationship and the nature of related party transactions are summarized as follow: In 2018, the Company entered into a rental agreement with Kambo Security Products Limited for office space in Hong Kong. The rental agreement has been renewed annually.
Removed
Hui, which amounts have been recognized as a shareholder contribution. On June 30, 2021, Mr. Wynn Hui, Mr. Bong Lau and Mr. Bun Lau, three major shareholders, executive directors and officers of the Company forgave and waived their receivable owed by the subsidiaries of the Company for $461,538, which have been recognized as shareholders contribution. On December 31, 2021, Mr.
Removed
Bun Lau, forgave and waived his receivable owed by the subsidiaries of the Company for $256,411, which have been recognized as shareholders contribution. In 2018, the Company entered into a rental agreement with Kambo Security Products Limited for office space in Hong Kong. The rental agreement is renewed annually. Kambo Security Products Limited is owned by Mr. Bong Lau, Mr.

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