WANG & LEE GROUP, Inc 20-F for FY2024
WANG & LEE GROUP, Inc. (WLGSF)
About this 20-F
WANG & LEE GROUP, Inc filed this 20-F on May 15, 2025, covering the fiscal year ended December 31, 2024 (FY2024).
Headline figures
Fiscal year ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.95M
- down 42.1% from $6.83M a year earlier
- Net loss
- $2.54M
- compared with a net loss of $648.85K a year earlier
- Diluted EPS
- -$0.17
- compared with -$0.04 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
OR
For
the fiscal year ended
OR
OR
Date of event requiring this shell company report
For the transition period from _____________ to ____________.
Commission
file number:
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
Kowloon,
(Address of principal executive offices)
Kowloon,
Tel:
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of Each Class | Trading Symbol | Name of Each Exchange On Which Registered | ||
| The
|
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
As of December 31, 2024, there were ordinary shares outstanding, with no par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
Yes ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐
Yes ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Emerging growth company |
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act.
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
TABLE OF CONTENTS
| i |
COMMONLY USED DEFINED TERMS
Unless otherwise indicated or the context requires otherwise, references in this report to:
| ● | “Amended Memorandum and Articles” are to our memorandum and articles of association to be in effect upon completion of our initial public offering in April 2023; | |
| ● | “BVI” refers to the British Virgin Islands; | |
| ● | “BVI Act” is to the BVI Business Companies Act (As Revised) as the same may be amended from time to time; | |
| ● | “China” or the “PRC” are to the People’s Republic of China, excluding Taiwan and includes the special administrative regions of Hong Kong and Macau for the purposes of this report only. The only instances that “PRC” or “China” does not include Hong Kong or Macau is when specific laws and regulations are adopted by the PRC; | |
| ● | “HK SAR” or “Hong Kong SAR” is to Hong Kong, Special Administrative Region, People’s Republic of China; | |
| ● | “SEC” means the U.S. Securities and Exchange Commission; | |
| ● | “shares”, “Shares” or “Ordinary Shares” are to the ordinary shares of WANG & LEE GROUP, Inc., with no par value; | |
| ● | “we”, “us”, “our company”, “our”, “the Company” and “W&L” are to WANG & LEE GROUP, Inc., a British Virgin Islands business company, and does not include its subsidiaries, WANG & LEE HOLDINGS, Inc. and WANG & LEE CONTRACTING LIMITED. Where appropriate, we shall refer to the subsidiaries by their legal names and collectively as “our subsidiaries” and clearly identify the entity (including the domicile) in which investors are purchasing an interest; | |
| ● | All references to “H.K. dollars” or “HK$” are to the legal currency of HK SAR; | |
| ● | All references to “Renminbi”, “RMB” or “yuan” are to the legal currency of the People’s Republic of China; | |
| ● | All references to “U.S. dollars”, “dollars”, “USD”, “US$” or “$” are to the legal currency of the United States. |
Our business is conducted by our indirect wholly-owned entity in HK SAR, using HK$, the currency of HK SAR. Our audited consolidated financial statements are presented in United States dollars. In this report, we refer to assets, obligations, commitments and liabilities in our audited consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of HK$ to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).
This report contains translations of certain HK$ amounts into U.S. dollar amounts at specified rates solely for the convenience of the reader. We make no representation that any currency could have been, or could be, converted into another currency, at any particular rate, or at all. The relevant exchange rates are listed below:
| For the years ended December 31, | Other Period | |||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||
| Period Ended HK$: US$ exchange rate | 7.7335 | 7.7785 | 7.7990 | 7.75 | ||||||||||||
| Period Average HK$: US$ exchange rate | 7.7715 | 7.7997 | 7.8298 | 7.75 | ||||||||||||
Numerical figures included in this report have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
For the sake of clarity, this report follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our Chairman will be presented as “Pui Lung Ho”, even though, in Chinese, Mr. Ho’s name is presented as “Ho Pui Lung”.
We have relied on statistics provided by a variety of publicly-available sources regarding China’s expectations of growth. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in this report other than to the extent specifically cited in this report. We have sought to provide current information in this report and believe that the statistics provided in this report remain up-to-date and reliable, and these materials are not incorporated in this report other than to the extent specifically cited in this report. Except where otherwise stated, all ordinary share accounts provided herein are on a pre-share-increase basis.
| 1 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements that involve risks and uncertainties, such as statements related to future events, business strategy, future performance, future operations, backlog, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described in “Risk Factors”. We believe the expectations reflected in the forward-looking statements contained in this report are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon.
Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to:
| ● | declines in public and private infrastructure construction, buildings and reductions in government funding or incentives; | |
| ● | risks related to our operating strategy; | |
| ● | competition for projects in our local markets; | |
| ● | risks associated with our capital-intensive business; | |
| ● | government requirements and initiatives, including those related to funding for public or infrastructure construction, land usage and environmental, health and safety matters; | |
| ● | unfavorable economic conditions and restrictive financing markets; | |
| ● | our ability to obtain sufficient bonding capacity to undertake certain projects; | |
| ● | our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us; | |
| ● | the cancellation of a significant number of contracts or our disqualification from bidding for new contracts; | |
| ● | risks related to adverse weather conditions; | |
| ● | our substantial indebtedness and the restrictions imposed on us by the terms thereof; | |
| ● | our ability to maintain favorable relationships with third parties that supply us with equipment and essential supplies; | |
| ● | our ability to retain key personnel and maintain satisfactory labor relations; | |
| ● | property damage, results of litigation and other claims and insurance coverage issues; and | |
| ● | risks related to our information technology systems and infrastructure. |
These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described in “Risk Factors”. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise.
| 2 |
PART I.
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| ITEM 3. | KEY INFORMATION |
WANG & LEE GROUP, Inc. is not a Chinese or Hong Kong SAR operating company but a British Virgin Islands holding company with operations conducted by its subsidiaries in Hong Kong. As a holding company with no material operations of our own, we conduct all of our operations through our subsidiary, WANG & LEE CONTRACTING LIMITED, in Hong Kong SAR. The Group did not operate in or derive revenue from mainland China in the last three fiscal years.
We currently operate in Hong Kong SAR and mainland China to a small extent. Since fiscal year 2020, all our revenue has been generated in Hong Kong SAR. Therefore, we believe that we and our subsidiaries are not required to obtain from Chinese authorities to operate our business in Hong Kong SAR and to offer securities to foreign investors. We and our subsidiaries are not covered by permissions requirements from the China Securities Regulatory Commission (“CSRC”), Cyberspace Administration of China (“CAC”) or any other mainland PRC governmental agency that is required to approve your operations.
While our revenue has been generated in Hong Kong SAR and our operations have been conducted in Hong Kong SAR, we may be subject to certain below risks related to doing business in Hong Kong SAR as further disclosed in “Item 3. Key Information – Risks Related to Doing Business in Hong Kong SAR”. Recently, the Chinese government announced that it would step up supervision of Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading. China will also check sources of funding for securities investment and control leverage ratios. The CAC has also opened a cybersecurity probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. If we are subject to such a probe or if we are required to comply with stepped-up supervisory requirements, valuable time from our management and money may be expended in complying and/or responding to the probe and requirements, thus diverting valuable resources and attention away from our operations. This may, in turn, negatively impact our operations. Further, given the Chinese government’s significant oversight and discretion over the conduct of our business operations in HK SAR and China, the Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations and consequently, the value of our Ordinary Shares. The Chinese government could also significantly limit or completely hinder our ability to offer future securities to investors and cause the value of such securities to significantly decline or be worthless.
Our Shares may be prohibited from being trading on a national securities exchange or in the over-the-counter market in the United States if the Public Company Accounting Oversight Board (“PCAOB”) is unable to inspect our auditors for two consecutive years. The Holding Foreign Companies Accountable Act (the “HFCA Act”) was enacted on December 18, 2020. Pursuant to the HFCA Act, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB, for three consecutive years beginning in 2021, the SEC may prohibit our shares from being traded on a national securities exchange or in the over-the-counter market in the United States. On December 23, 2022, the Accelerating Holding Foreign Companies Accountable Act (the “AHFCA Act”) was enacted, which amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on a national securities exchange or in the over-the-counter market in the United States if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. On December 29, 2022, a legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the AHFCA Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on a national securities exchange or in the over-the-counter market in the United States if its auditor is not subject to PCAOB inspections for two consecutive years instead of three years. On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made its determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfils its responsibilities under the HFCA. The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. Our current auditor, AOGB CPA Limited is headquartered at Suite 2501-3, Tesbury Centre, 28 Queen’s Road East, Admiralty, Hong Kong, Hong Kong and registered with the PCAOB. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. In addition, our auditor did not appear as part of the PCAOB’s report of determinations under the lists in Appendix A or Appendix B of the report issued by the PCAOB on December 16, 2021. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol, or the Protocol, governing inspections and investigations of audit firms based in China and Hong Kong and taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the Protocol, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022, and the PCAOB Board vacated its previous determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and has resumed regular inspections since March 2023. The PCAOB is continuing pursuing ongoing investigations and may initiate new investigations as needed. The PCAOB has indicated that it will act immediately to consider the need to issue new determinations with the HFCA Act if needed. As a result, the time period before the Company’s securities may be prohibited from trading or delisted has been decreased accordingly. Notwithstanding the foregoing, in the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such lack of inspection could cause our securities to be delisted from the stock exchange. The delisting of our Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment. See “D. Risk Factors — Our Ordinary Shares may be delisted under the HFCA Act if the PCAOB is unable to inspect our auditors for two consecutive years beginning in 2022. The delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
| 3 |
Moreover, as one of the conditions for the handover of the sovereignty of HK SAR to China, China had to accept some conditions such as HK SAR’s Basic Law before its return. The Basic Law ensured HK SAR will retain its own currency (the Hong Kong Dollar), legal system, parliamentary system and people’s rights and freedom for fifty years from 1997. This agreement had given HK SAR the freedom to function in a high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic affairs including, but not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the English common law system. Some international observers and human rights organizations have expressed doubts about the future of the relative political freedoms enjoyed in HK SAR and the PRC’s pledge to allow a high degree of autonomy in HK SAR. They considered, for example, that Article 23 of the Basic Law, which was effective March 23, 2024, may undermine the autonomy of HK SAR. If the PRC were to, in fact, renege on its agreement to allow HK SAR to function autonomously, this could potentially impact HK SAR’s common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and operation. Accordingly, we cannot predict the effect of future developments in the HK SAR legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. By contrast, China’s legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which prior court decisions have limited value as precedents. Since 1979, the PRC government has promulgated laws and regulations governing economic matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. As a result, recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new and the limited volume of published cases and their non-binding nature, interpretation and enforcement of these newer laws and regulations involve greater uncertainties than those in jurisdictions available to you. In addition, China’s legal system is based in part on government policies and administrative rules and many have retroactive effects. As a result, we cannot predict the effect of future developments in China’s legal system, including the promulgation of new laws, changes to existing laws, or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. See “D. Risk Factors - HK SAR and China’s legal systems are evolving and have inherent uncertainties that could limit the legal protection available to you.” for further information.
Furthermore, the PRC legal system is based partly on government policies and internal rules (some of which are not published in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. 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. See “D. Risk Factors - Uncertainties in the interpretation and enforcement of Chinese laws and regulations, which could change at any time with little advance notice, could limit the legal protections available to us.” for further information.
A. Select Financial Data
The following table presents the selected consolidated financial information for our Company. Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
The summary consolidated statements of operations and cash flow
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net cash (used in) provided by | ||||||||||||
| Operating activities | $ | (1,569,940 | ) | $ | (3,814,384 | ) | $ | (352,764 | ) | |||
| Financing activities | 634,683 | 8,413,951 | 422,531 | |||||||||
| Net (decrease) / increase in cash and cash equivalents | (935,257 | ) | 4,599,567 | 69,767 | ||||||||
| Effect of foreign currency translation | 29,578 | 1,010 | 2,111 | |||||||||
| Net (decrease) / increase in cash and cash equivalents | $ | (905,679 | ) | $ | 4,600,577 | $ | 71,878 | |||||
The summary consolidated balance sheet as at
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Total asset | $ | 8,721,050 | $ | 11,790,806 | ||||
| Total liabilities | 5,226,051 | 5,781,881 | ||||||
| Equity | $ | 3,494,999 | $ | 6,008,925 | ||||
| 4 |
Our management believes that the assumptions underlying our financial statements and the above allocations are reasonable. Our financial statements, however, may not necessarily reflect our results of operations, financial position and cash flows as if we had operated as a separate, stand-alone company during the periods presented. You should not view our historical results as an indicator of our future performance.
The following table presents our summary consolidated statements of operations and comprehensive income for the fiscal years ended December 31, 2024, 2023 and 2022:
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Contract revenue | $ | 3,951,649 | $ | 6,825,879 | $ | 4,169,931 | ||||||
| Contract costs | (3,539,478 | ) | (4,385,279 | ) | (3,384,227 | ) | ||||||
| GROSS PROFIT | 412,171 | 2,440,600 | 785,704 | |||||||||
| General and administrative expenses | (2,961,046 | ) | (3,211,690 | ) | (1,427,156 | ) | ||||||
| Other income, net | 4,916 | 122,236 | 44,571 | |||||||||
| Provision for income taxes | - | - | - | |||||||||
| Net Loss | (2,543,959 | ) | (648,854 | ) | (596,881 | ) | ||||||
| Foreign currency translation adjustment | 30,033 | 21,224 | (130 | ) | ||||||||
| Total comprehensive loss | $ | (2,513,926 | ) | $ | (627,630 | ) | $ | (597,011 | ) | |||
| B. | Capitalization and Indebtedness |
Not Applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not Applicable.
| D. | Risk Factors |
Significant Risk Factors
An investment in our Ordinary Shares involves a number of risks. You should carefully read and consider all of the information contained in this report (including in “Risk Factors”, “Operating and Financial Review and Prospects” and our consolidated financial statements and the notes thereto) before making an investment decision. These risks could adversely affect our business, financial condition and results of operations, and cause the trading price of our Ordinary Shares to decline. You could lose part or all of your investment. In reviewing this report, you should bear in mind that past results are no guarantee of future performance. See “Cautionary Statement Regarding Forward-Looking Information” for a discussion of forward-looking statements, and the significance of forward-looking statements in the context of this report.
| 5 |
Risks Related to Our Business and Industry
If we are unable to accurately estimate the overall risks, revenues or costs on our projects, we may incur contract losses or achieve lower than anticipated profits.
Pricing on a fixed unit price contract is based on approved quantities irrespective of our actual costs, and contracts with a fixed total price require that the work be performed for a single price. We only generate profits on fixed unit price and fixed total price contracts when our revenues exceed our actual costs, which requires us to accurately estimate our costs, control actual costs, and avoid cost overruns. If our cost estimates are too low or we do not perform the contract within our cost estimates, then cost overruns may cause us to incur a loss or cause the contract not to be as profitable as we expected. The costs incurred and profit realized, if any, on our contracts can vary, sometimes substantially, from our original projections due to a variety of factors, including, but not limited to:
| ● | the failure to include materials or work in a bid, or the failure to estimate the quantities or costs properly needed to complete a fixed total price contract; | |
| ● | delays caused by weather conditions or otherwise failing to meet scheduled acceptance dates; | |
| ● | contract or project modifications or conditions creating unanticipated costs that are not covered by change orders; | |
| ● | the availability and skill level of workers; | |
| ● | the failure by our suppliers, subcontractors, designers, engineers or customers to perform their obligations; | |
| ● | fraud, theft or other improper activities by our suppliers, subcontractors, designers, engineers, customers or our own personnel; | |
| ● | mechanical problems with our machinery or equipment; | |
| ● | difficulties in obtaining required government permits or approvals; | |
| ● | changes in applicable laws and regulations; | |
| ● | uninsured claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is part; and | |
| ● | public infrastructure customers seeking to impose contractual risk-shifting provisions that result in our facing increased risks. |
These factors and others may cause us to incur losses, which could have a material adverse effect on our financial condition, results of operations or liquidity.
| 6 |
The cancellation of a significant number of contracts, our disqualification from bidding for new contracts, and the unpredictable timing of new contracts could have a material adverse effect on our business.
We could be prohibited from bidding on certain contracts if we fail to maintain the qualifications required by those entities. In addition, government contracts can typically be canceled at any time with our receiving payment only for the work completed. The cancellation of an unfinished contract or our disqualification from the bidding process could result in lost revenues and cause our equipment to be idled for a significant period until other comparable work becomes available. Additionally, the timing of project awards is unpredictable and outside of our control. Project awards, including expansions of existing projects, often involve complex and lengthy negotiations and competitive bidding processes.
Our continued success requires us to hire, train and retain qualified personnel and subcontractors in a competitive industry.
The success of our business depends upon our ability to attract, train and retain qualified, reliable personnel, including, but not limited to, our executive officers and key management personnel. Additionally, the successful operation of our business depends upon engineers, project management personnel, other employees and qualified subcontractors who possess the necessary and required experience and expertise and who will perform their respective services at a reasonable and competitive rate. Competition for these and other experienced personnel is intense. As a result, it may be difficult to attract and retain qualified individuals with the requisite expertise and in the timeframe demanded by our clients. For example, in certain geographic areas, we may not be able to satisfy the demand for our services because of our inability to hire, train, and retain qualified personnel successfully. Also, it could be difficult to replace personnel who hold government granted eligibility that may be required to obtain certain government projects and/or who have significant government contract experience.
As some of our executives and other key personnel approach retirement age, we must provide for smooth transitions, which may require that we devote time and resources to identify and integrate new personnel into vacant leadership roles and other key positions. If we are unable to attract and retain a sufficient number of skilled personnel or effectively implement appropriate succession plans, our ability to pursue projects and our strategic plan may be adversely affected, the costs of executing both our existing and future projects may increase and our financial performance may decline.
In addition, the cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. For example, the uncertainty of contract award timing can present difficulties matching our workforce size with our contracts. If an expected contract award is delayed or not received, we could incur costs resulting from excess staff or redundancy of facilities that could have a material adverse impact on our business, financial conditions and results of operations.
Failure of our subcontractors to perform as expected could have a negative impact on our results.
On occasion, we rely on third-party subcontractors to perform some of the work on many of our contracts, but we are ultimately responsible for the successful completion of their work. Although we seek to require bonding or other forms of guarantees from all of our subcontractors, we are not always able to obtain such bonds or guarantees. In situations where we are unable to obtain a bond or guarantee, we may be responsible for the failures on the part of our subcontractors to perform as anticipated, resulting in a potentially adverse impact on our cash flows and liquidity. In addition, if the project’s total costs exceed our original estimates, we could experience reduced profits or a loss for that project, which could have an adverse impact on our financial position, results of operations, cash flows, and liquidity.
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The construction services industry is highly schedule driven, and our failure to meet the schedule requirements of our contracts could adversely affect our reputation and/or expose us to financial liability.
In some instances, including in the case of many of our fixed unit price contracts, we guarantee that we will complete a project by a certain date. Any failure to meet contractual schedule or completion requirements set forth in our contracts could subject us to responsibility for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated damages, liability for our customer’s actual costs arising out of our delay, reduced profits or a loss on that project, damage to our reputation and a material adverse impact to our financial position, results of operations, cash flows and liquidity.
Inability to obtain or maintain adequate insurance coverage could adversely affect our results of operations.
As part of our overall risk management strategy and pursuant to requirements to maintain specific coverage contained in our financing agreements and a majority of our contracts, we have obtained and maintain insurance coverage. Although we have been able to obtain reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do so in the future. For example, catastrophic events can result in decreased coverage limits, more limited coverage, and increased premium costs or deductibles. If we are unable to obtain adequate insurance coverage, we may not be able to procure certain contracts, which could materially adversely affect our financial position, results of operations, cash flows or liquidity.
We may need to raise additional capital in the future for working capital, capital expenditures and/or acquisitions, and we may not be able to do so on favorable terms or at all, which would impair our ability to operate our business or achieve our growth objectives.
Our ongoing ability to generate cash is important for funding our continuing operations, making acquisitions and servicing our indebtedness. To the extent that existing cash balances and cash flow from operations, together with borrowing capacity are insufficient to make investments or acquisitions or provide needed working capital, we may require additional financing from other sources. Our ability to obtain such additional financing in the future will depend in part upon prevailing capital market conditions and conditions in our business and our operating results. Those factors may affect our efforts to arrange additional financing on terms acceptable to us. Furthermore, if global economic, political or other market conditions adversely affect the financial institutions that provide credit to us, it is possible that our ability to draw upon credit facilities may be impacted. If adequate funds are not available, or are not available on acceptable terms, we may not be able to make future investments, take advantage of acquisitions or other opportunities, or respond to competitive challenges, resulting in loss of market share, each of which could have a material adverse impact on our financial position, results of operations, cash flows and liquidity.
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Our earnings are affected by the application of accounting standards and our critical accounting policies, which involve subjective judgments and estimates by our management. Our actual results could differ from the estimates and assumptions used to prepare our financial statements.
The accounting standards we use in preparing our financial statements are often complex and require that we make significant estimates and assumptions in interpreting and applying those standards. These estimates and assumptions affect the reported values of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. We make critical estimates and assumptions involving accounting matters, including our revenue recognition, accounts receivable including retainage, valuation of long-lived assets, and income taxes. These estimates and assumptions involve matters that are inherently uncertain and require our subjective and complex judgments. If we used different estimates and assumptions or used different ways to determine these estimates, our financial results could differ.
Our actual business and financial results could differ from our estimates of such results, which could have a material negative impact on our financial condition and reported results of operations.
The percentage-of-completion method of accounting for contract revenues involves significant estimates that may result in material adjustments, which could result in a charge against our earnings.
We recognize revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. The percentage-of-completion method (an input method) is the most representative depiction of our performance because it directly measures the value of the services or products transferred to the customer. Subcontractor materials, labor and equipment included in revenue and cost of revenue when management believes that we are acting as a principal rather than as an agent (e.g., we integrate the materials and labor into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials and labor). In the contracts, other than the Original Contract Sum, there is a Variation Order Sum (provisional amounts) included in the same contract in which we are allowed to perform extra work or billed extra materials to fulfill the contracts. We generally accounted for the performance obligation of this Variation Order together with the performance obligation of the original contract as a single deliverable (a single performance obligation). Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the customer.
Accounting for our contract-related revenues and costs and other expenses requires management to make a variety of significant estimates and assumptions. Although we believe we have the experience and processes to formulate appropriate assumptions and produce reasonably dependable estimates, these assumptions and estimates may change significantly in the future and could result in the reversal of previously recognized revenues and profit. Accordingly, such changes could have a material adverse effect on our financial position and results of operations.
We are a holding company whose principal source of operating cash is the income received from our subsidiaries.
We are dependent on the income generated by our subsidiaries in order to make distributions and dividends on the shares. The amount of distributions and dividends, if any, which may be paid to us from our operating subsidiaries will depend on many factors, including such subsidiaries’ results of operations and financial condition, limits on dividends under applicable law, its constitutional documents, documents governing any indebtedness, and other factors which may be outside our control. If our operating subsidiaries do not generate sufficient cash flow, we may be unable to make distributions and dividends on the shares.
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Our significant shareholders have considerable influence over our corporate matters.
Pui Lung Ho beneficially owns and controls 8,150,477 Ordinary Shares that correspond to 25.67% of our issued and outstanding Ordinary Shares. Mr. Ho holds a controlling interest in us and consequently, holds considerable influence over corporate matters requiring shareholder approval, including without limitation, electing directors and approving material mergers, acquisitions or other business combination transactions. This concentrated control will limit your ability to influence corporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of depriving the holders of our Ordinary Shares of the opportunity to sell their shares at a premium over the prevailing market price.
Our significant shareholders may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
Because our significant shareholders have, either collectively or individually, considerable influence over our corporate matters, their interests may differ from the interests of our company as a whole. These shareholders could, for example, appoint directors and management without the requisite experience, relations or knowledge to steer our Company properly because of their affiliations or loyalty, and such actions may materially and adversely affect our business and financial condition. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our Company. If we cannot resolve any conflict of interest or dispute between us and the shareholders, we would have to rely on legal proceedings, which could disrupt our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
The collaboration research and development of kinetic technology on footstep-energized panels might not generate the revenues and net incomes that we expect.
We have dedicated our efforts, time, and resources to the collaborative research and development of this kinetic technology on footstep-energized panels over the past two years. While we anticipate completing the design and installation of the energized panels for a main building in HK SAR central business district area by March 2025, challenges remain. Additionally, we will incur marketing costs to generate sufficient customer interest and sales volume to achieve profitability. If we fail to design and develop features that allow our energized panels to effectively convert footsteps into off-grid electricity tailored to individual customer needs, our production efforts may be hampered, negatively impacting our future financial condition and market share. Furthermore, if we fail to obtain and maintain patent, trade secret, and other intellectual property protection and regulatory exclusivity for our footstep-energized panels, or if we infringe upon, misappropriate, or otherwise violate the valid intellectual property rights of third parties related to energized panels on the market, our business, financial condition, and results of operations may be materially and adversely affected.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of the Ordinary Shares.
Our revenues and expenses will be denominated predominantly in Hong Kong dollars. The value of the Hong Kong dollars against the U.S. dollars may fluctuate and may be affected by, among other things, changes in political and economic conditions. Although the exchange rate between the Hong Kong dollars to the U.S. dollars has been pegged since 1983, we cannot assure you that the Hong Kong dollars will remain pegged to the U.S. dollars.
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Any significant fluctuations in the exchange rates between Hong Kong dollars to U.S. dollars may have a material adverse effect on our revenues and financial condition. For example, to the extent that we are required to convert U.S. dollars we receive from our initial public offering into Hong Kong dollars for our operations, fluctuations in the exchange rates between Hong Kong dollars against the U.S. dollars would have an adverse effect on the amounts we receive from the conversion. We have not used any forward contracts, futures, swaps or currency borrowings to hedge our exposure to foreign currency risk.
Increases in labor costs and an ageing labor force may adversely affect our business and results of operations.
The construction industry in HK SAR is grappling with escalating labor costs, driven primarily by a shortage of young people entering the field. This industry is often seen as demanding and hazardous, with limited career growth potential, deterring younger generations. Consequently, the workforce is aging with insufficient replacements, creating a labor supply shortage that fuels wage increases as companies compete for limited talent. This lack of young workers also contributes to a widening skills gap, further exacerbating the labor shortage and upward pressure on wages.
While importing foreign labor could potentially address the shortage, complex procedures in HK SAR hinder this solution. Stringent regulations, bureaucratic hurdles, and lengthy processing times make hiring foreign workers costly and difficult. Quota systems, local worker prioritization, and extensive paperwork add to the expense and delay projects. Even when successful, challenges remain regarding language barriers, cultural differences, and skill compatibility. Therefore, the complicated process of importing foreign labor limits its effectiveness in mitigating the labor shortage and controlling rising labor costs.
As a result, recruiting a pool of sufficient labor force while maintaining the business operations economically has become one of the market challenges for fitting-out works contractors. Unless we are able to hire able and skilled workers and control our labor costs or pass on these increasing labor costs, our financial condition, and results of operations may be adversely affected.
Our business is susceptible to government policies and macroeconomic conditions.
The market growth of construction industry in HK SAR highly correlates to government policies and macroeconomic environment. Particularly, during economic downturns, due to limited financial budgets, property developers and tenants are more conservative to invest capital resources to renovate their living spaces and select high-end products, such as furniture and marbles imported from overseas. On the other hand, government policies, such as urban renewal and development program and land sales, may affect the availability of land for property developers to construct and subsequently the demand for fitting-out works in HK SAR may deteriorate. In fact, according to Lands Department, in 2024, only 34 thousand square meters of land sold. As a result, the issue of overreliance on government policies and cyclical nature of construction works adversely impact the development of fitting-out works market in HK SAR.
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Risks Related to Doing Business in Hong Kong SAR
HK SAR and China’s legal systems are evolving and have inherent uncertainties that could limit the legal protection available to you.
We have virtually all of our operations in HK SAR, and generated all our revenue in HK SAR. The HK SAR legal system embodies uncertainties which could limit the legal protections available to you and us.
As one of the conditions for the handover of the sovereignty of HK SAR to China, China had to accept the HK SAR’s Basic Law. The Basic Law ensured HK SAR will retain its own currency (the Hong Kong Dollar), legal system, parliamentary system and people’s rights and freedom for fifty years from 1997. This agreement had given HK SAR the freedom to function in a high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic affairs including, but not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the English common law system.
Some international observers and human rights organizations have expressed doubts about the future of the relative political freedoms enjoyed in HK SAR and the PRC’s pledge to allow a high degree of autonomy in HK SAR. They considered, for example, that Article 23 of the Basic Law, which was effective March 23, 2024, may undermine the autonomy enjoyed by HK SAR. On June 10, 2014, Beijing released a new report asserting its authority over the territory. This ignited criticism from many people in HK SAR, who said that the Communist leadership was reneging on its pledges to abide by the “one country, two systems” policy that allows for a democratic, autonomous HK SAR under Beijing’s rule.
If the PRC were to, in fact, renege on its agreement to allow HK SAR to function autonomously, this could potentially impact HK SAR’s common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and operation. Additionally, intellectual property rights and confidentiality protections in HK SAR may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the HK SAR legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers.
By contrast, China’s legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which prior court decisions have limited value as precedents. Since 1979, the PRC government has promulgated laws and regulations governing economic matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, China has not developed a fully integrated legal system. As a result, recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new and the limited volume of published cases and their non-binding nature, interpretation and enforcement of these newer laws and regulations involve greater uncertainties than those in jurisdictions available to you. In addition, China’s legal system is based in part on government policies and administrative rules and many have retroactive effects. As a result, we cannot predict the effect of future developments in China’s legal system, including the promulgation of new laws, changes to existing laws, or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws.
Uncertainties in the interpretation and enforcement of Chinese laws and regulations, which could change at any time with little advance notice, could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules, which could change at any time with little advance notice, are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.
We may have to resort to administrative and court proceedings to enforce our legal rights from time to time. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based partly on government policies and internal rules (some of which are not published in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. 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.
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We may be subject to a variety of laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business, financial condition and results of operations.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
The PRC Criminal Law, as amended by Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.
Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.
The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the State Administration for Market Regulation (the “SAMR”), have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
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In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On November 14, 2021, the Cyberspace Administration of China (“CAC”) issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments”. The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which will take effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.
On January 4, 2022, thirteen PRC regulatory agencies, namely, the CAC, the National Development and Reform Commission (“NDRC”), the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of State Security, the Ministry of Finance, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”), SAMR, CSRC, the People’s Bank of China, the National Radio and Television Administration, National Administration of State Secrets Protection and the National Cryptography Administration, jointly adopted and published the Measures for Cybersecurity Review (2021), which became effective on February 15, 2022. The Measures for Cybersecurity Review (2021) required that, among others, in addition to “operator of critical information infrastructure” any “operator of network platform” holding personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review.
We do not expect to be subject to the cybersecurity review by the CAC, given that: (i) using our products and services do not require providing users’ personal information; (ii) we possess minimum amount, if not none of personal information in our business operations; (iii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities and (iv) our operations are in HK SAR, a Special Autonomous Region apart from mainland PRC. However, there remains uncertainty as to how the Draft Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Draft Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us.
We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.
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We believe that we have been in compliance with the data privacy and personal information requirements of the CAC. Neither the CAC nor any other PRC regulatory agency or administration has contacted the Company in connection with the Company’s or its subsidiaries’ operations. The Company is currently not required to obtain regulatory approval from the CAC nor any other PRC authorities for its and its subsidiaries’ operations in HK SAR. Further, the PRC laws or regulations related to data security are not enforceable in HK SAR.
We may be subject to a variety of laws and other obligations regarding data protection in HK SAR. The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (the “PDPO”) came into force on December 20, 1996. The PDPO states that any person who controls the collection, holding, processing or use of personal data (the “data user”) shall not do any act, or engage in a practice, that contravenes any of the data protection principles set out in Schedule 1 to the PDPO (the “Data Protection Principles”) unless the act or practice, as the case may be, is required or permitted under the PDPO. Personal data means any data (a) relating directly or indirectly to a living individual; (b) from which it is practicable for the identity of the individual to be directly or indirectly ascertained; and (c) in a form in which access to or processing of the data is practicable.
The Data Protection Principles set out that (1) personal data must be collected in a lawful and fair way, for a purpose directly related to a function or activity of the data user. Data subjects must be notified of the purpose for which the data is to be used and the classes of persons to whom the data may be transferred. Data collected should be adequate but not excessive; (2) personal data must be accurate and should not be kept for a period longer than necessary for the fulfillment of the purpose for which the data is or is to be used; (3) personal data must be used for the purpose for which the data is collected or for a directly related purpose unless voluntary and explicit consent with a new purpose is obtained from the data subject; (4) a data user shall take practicable steps to safeguard any personal data held against unauthorized or accidental access, processing, erasure, loss or use; (5) a data user shall take practicable steps to ensure that its policies and practices in relation to personal data, the kind of personal data it holds and the main purposes for which the personal data is or is to be used for are made known to the public; and (6) a data shall be entitled to request access to personal data and must be allowed to correct the personal data if it is inaccurate.
Moreover, the Personal Data (Privacy) (Amendment) Ordinance 2021 (the “PDPAO”) came into effect on October 8, 2021. It amends the PDPO, particularly to: (i) criminalize doxing, i.e. unconsented disclosure of personal information of targeted individuals and groups; (ii) introduce a cessation notice regime to tackle doxing with extra-territorial reach; and (iii) substantially expand the investigation and enforcement powers of the Privacy Commissioner for Personal Data, in contexts beyond doxing.
Our directors are of the view that we are not likely to be in breach of the PDPO and the PDPAO, for the following reasons: (i) using our products and services do not require providing users’ personal information and (ii) we possess minimum amount, if not none of the personal information in our business operations. Nonetheless, we are subject to laws and regulations relating to the collection, storage, use, processing, transmission, retention, security and transfer of personal information and other data. The interpretation and application of laws, regulations and standards on data protection and privacy are still uncertain and evolving. We cannot assure you that the governmental authorities will not interpret or implement the laws or regulations in ways that negatively affect us. We may be subject to investigations and inspections by government authorities regarding our compliance with laws and regulations on data privacy, and we cannot assure you that our practices will always fully comply with all applicable rules and regulatory requirements. In addition, laws, regulations and standards on data protection and privacy continue to develop and may vary from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause us to incur substantial costs or require us to change our business practices.
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The Opinions recently issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council and the New Overseas Listing Rules promulgated by the CSRC may subject us to additional compliance requirements in the future.
On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Measures and five supporting guidelines, which will come into effect on March 31, 2023. According to the Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedures and report relevant information to the CSRC; if a domestic company fails to complete the filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for an initial public offering in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that (1) on or prior to the effective date of the Trial Measures, domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and must complete the filing before the completion of their overseas offering and listing; (2) a six-month transition period will be granted to domestic companies which, prior to the effective date of the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges, but have not completed the indirect overseas listing; if domestic companies fail to complete the overseas listing within such six-month transition period, they shall file with the CSRC according to the requirements; and (3) the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing of companies with contractual arrangements which duly meet the compliance requirements, and support the development and growth of these companies.
On February 24, 2023, the CSRC revised the Archives Rules issued in 2009. The revised Archives Rules came into effect on March 31, 2023. In the overseas listing activities of domestic companies, domestic companies, as well as securities companies and securities service institutions providing relevant securities services thereof, should establish a sound system of confidentiality and archival work, shall not disclose state secrets, or harm the state and public interests. Where a domestic company provides or publicly discloses to the relevant securities companies, securities service institutions, overseas regulatory authorities and other entities and individuals, or provides or publicly discloses through its overseas listing entity, any document or material involving any state secret or any work secret of any governmental agency, it shall report to the competent authority for approval in accordance with the law, and submit to the secrecy administration department for filing. Securities companies and securities service organizations shall comply with the confidentiality and archive management requirements, and keep the documents and materials properly. Securities companies and securities service institutions that provide domestic enterprises with relevant securities services for overseas issuance and listing of securities shall keep the working papers they compile (such as the records of working plan and procedure, evidence and supporting materials related to the services which are obtained and prepared by the aforementioned service providers) within the territory of the PRC. If such working papers need to be taken abroad, approval shall be obtained in accordance with relevant provisions.
The Trial Measures, and the revised Archives Rules, do not presently subject us to additional compliance requirements as we are not a “domestic company” and they have no general application in HK SAR because of the Basic Law. However, we cannot assure you that they will not apply to us in the future. If they do eventually apply to us, we cannot assure you that we will be able to get the clearance of filing procedures under the Trial Measures on a timely basis, or at all. Any failure by us to fully comply with new regulatory requirements, including but limited to the failure to complete the filing procedures with the CSRC if required, may significantly limit or completely hinder our ability to offer or continue to offer our Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Ordinary Shares to significantly decline in value or become worthless.
We operate in a competitive industry and a highly competitive market. We may be subject to a variety of laws and other obligations regarding competition law in the HK SAR, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business, financial condition and results of operations.
We face significant competition in the E&M market due to a large amount of E&M service providers. We may be subject to the Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (“Competition Ordinance”), which came into force on December 14, 2015. It lays down three forms of behavior and imposes three rules which are intended to prevent and discourage anti-competitive conduct: (i) the first conduct rule prohibits agreements between undertakings that have the object or effect of preventing, restricting and distorting competition in HK SAR; (ii) the second conduct rule prohibits undertakings with a substantial degree of market power in a market from abusing that power by engaging in conduct that has the object or effect of preventing, restricting and distorting competition in HK SAR; and (iii) the merger rule prohibits mergers that have or are likely to have the effect of substantially lessening competition in HK SAR. Currently, the merger rule only applies to the telecommunications section and is not applicable to our business.
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Our directors confirm that we have not adopted any anti-competitive conduct described in the Competition Ordinance and will continue to act in compliance with the Competition Ordinance. However, there may be uncertainties on the full effect of the rules in respect of compliance, infringement, and its effect on our business, in particular when tendering is one of our major means of securing contracts. We may face difficulties and may need to incur legal costs in ensuring our compliance with the rules. We may also inadvertently infringe the Competition Ordinance and under such circumstances, we may be subject to fines and/or other penalties, incur substantial legal costs and may result in business disruption and/or negative media coverage, which could adversely affect our business, results of operations and reputation.
The recent spate of government interference by the PRC government into business activities of U.S. listed Chinese companies may negatively impact our operations, value of our securities and/or significantly limit or completely hinder our ability to offer future securities to investors and cause the value of such securities to significantly decline or be worthless.
Recently, the Chinese government announced that it would step up supervision of Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading. China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. If we are subject to such a probe or if we are required to comply with stepped-up supervisory requirements, valuable time from our management and money may be expended in complying and/or responding to the probe and requirements, thus diverting valuable resources and attention away from our operations. This may, in turn, negatively impact our operations.
Further, given the Chinese government’s significant oversight and discretion over the conduct of our business operations in HK SAR and China, the Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations and consequently, the value of our Ordinary Shares. The Chinese government could also significantly limit or completely hinder our ability to offer future securities to investors and cause the value of such securities to significantly decline or be worthless.
It may be difficult for overseas shareholders and/or regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation common in the United States are generally difficult to pursue as a matter of law or practicality in China. For example, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China in China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator, such as the Department of Justice, the SEC, the PCAOB and other authorities, to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
Our principal business operation is conducted in HK SAR. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation or collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence collection directly in the PRC under the PRC laws. However, U.S. regulators may consider cross-border cooperation with securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities regulatory authority of the PRC.
Our Ordinary Shares may be delisted under the HFCA Act if the PCAOB is unable to inspect our auditors for two consecutive years. The delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.
On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national securities exchange or in the over the counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December 18, 2020, the HFCA Act was signed into law.
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On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
On June 22, 2021, the U.S. Senate passed Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. The final amendments are effective on January 10, 2022. The SEC will begin to identify and list Commission-Identified Issuers on its website shortly after registrants begin filing their annual reports for 2021.
On December 16, 2021, PCAOB announced the PCAOB HFCA Act determinations (the “PCAOB determinations”) relating to the PCAOB’s inability to inspect or investigate completely registered public accounting firms headquartered in mainland China of the PRC or Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in the PRC or Hong Kong.
On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “SOP”) with the China Securities Regulatory Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations (together, the “SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. The SOP Agreement remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the SOP Agreement disclosed by the SEC, the PCAOB shall have sole discretion to select any audit firms for inspection or investigation and the PCAOB inspectors and investigators shall have a right to see all audit documentation without redaction.
On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination.
On December 23, 2022, the AHFCA Act was enacted, which amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on a national securities exchange or in the over-the-counter market in the United States if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. As a result, the time period before the Company’s securities may be prohibited from trading or delisted has been decreased accordingly.
On December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to the AHFCA Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on a national securities exchange or in the over-the-counter market in the United States if its auditor is not subject to PCAOB inspections for two consecutive years instead of three years.
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Our auditor, AOGB CPA, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our current auditor, AOGB CPA Limited is headquartered in Suite 2501-3, Tesbury Centre, 28 Queen’s Road East, Admiralty, Hong Kong, Hong Kong and registered with the PCAOB. AOGB CPA Limited is subject to inspection by the PCAOB on a regular basis. Therefore, we believe that, as of the date of this annual report, our current auditor is not subject to the PCAOB determinations.
However, the recent developments would add uncertainties and we cannot assure you whether the SEC, the PCAOB, Nasdaq, or other regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. It remains unclear what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). In addition, any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our ordinary shares could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new audit firm, which would require significant expense and management time.
Furthermore, according to Article 177 of the PRC Securities Law, the securities regulatory authority of the State Council may establish a regulatory cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage in activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese entities or individuals shall provide documents and information in connection with securities business activities to any organizations and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments of the State Council. As of the date hereof, we are not aware of any implementing rules or regulations which have been published regarding application of Article 177. Our Ordinary Shares could be delisted and prohibited from being traded on the Nasdaq Capital Market or any other U.S. stock market under the HFCA Act if it is determined in the future that our auditor is unable to be fully inspected or investigated by the PCAOB. Article 177 is a recently promulgated provision and, as the date hereof, there have not been implementing rules or regulations regarding the application of Article 177, it remains unclear as to how it will be interpreted, implemented or applied by the CSRC or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC.
If trading in our Ordinary Shares is prohibited under the HFCA ACT in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, Nasdaq may determine to delist our Ordinary Shares. If our Ordinary Shares are unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our Ordinary Shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our Ordinary Shares.
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Nasdaq may apply additional and more stringent criteria for our continued listing.
Nasdaq Listing Rule 5101 provides Nasdaq with broad discretionary authority over the initial and continued listing of securities in Nasdaq and Nasdaq may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq. In addition, Nasdaq has used its discretion to deny initial or continued listing or to apply additional and more stringent criteria in the instances, including but not limited to where the company engaged an auditor that has not been subject to an inspection by PCAOB, an auditor that PCAOB cannot inspect, or an auditor that has not demonstrated sufficient resources, geographic reach, or experience to adequately perform the company’s audit; (ii) where a company planned a small public offering, which would result in insiders holding a large portion of the company’s listed securities. Nasdaq was concerned that an offering size was insufficient to establish the company’s initial valuation, and there would not be sufficient liquidity to support a public market for the company; and (iii) where the company did not demonstrate sufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations, or members of the board of directors or management. For the any aforementioned concerns, we may be subject to the additional and more stringent criteria of Nasdaq for our continued listing. On October 24, 2023, the Company received a notice from Nasdaq indicating that it no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Capital Market pursuant to the Nasdaq Listing Rule 5550(a)(2). The closing bid price for the Company’s ordinary shares had fallen below $1.00 per share for 30 consecutive business days and accordingly, the Company no longer complied with the minimum bid price requirement for continued listing on the Nasdaq Capital Market pursuant to the Nasdaq Listing Rule 5550(a)(2). The Nasdaq Listing Rules also provide the Company a compliance period of 180 calendar days in which to regain compliance. If the Company chooses to implement a reverse stock split, it must complete the split no later than ten business days prior to the April 22, 2024. On April 23, 2024, Nasdaq granted an additional 180-day compliance period, or until October 21, 2024, for the Company to implement the reverse stock split. On September 25, 2024, the Company received a notice from Nasdaq indicating that it regained compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market pursuant to the Nasdaq Listing Rule 5550(a)(2).
Risks Related to Ownership of Our Ordinary Shares
We will incur additional costs as a result of becoming a public company, which could negatively impact our net income and liquidity.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, Sarbanes-Oxley and rules and regulations implemented by the SEC and the Nasdaq require significantly heightened corporate governance practices for public companies. As a result, we expect these rules and regulations to increase our legal, accounting and financial compliance costs and make many corporate activities more time-consuming and costly.
We do not expect to incur materially greater costs as a result of becoming a public company than those incurred by similarly sized U.S. public companies. If we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our Ordinary Shares could decline.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and the Nasdaq impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.235 billion in net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other generally applicable requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company”, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. We also expect that operating as a public company will make it more difficult and expensive for us to obtain director and officer liability insurance. We may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. 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.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
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The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
As a publicly listed company, we will be required to file periodic reports with the SEC upon the occurrence of matters that are material to our company and shareholders. In some cases, we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our company. Similarly, as a U.S.-listed public company, we will be governed by U.S. laws that our competitors, mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations.
We are a “foreign private issuer” and a British Virgin Islands company and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.
We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. In addition, we will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short swing profit disclosure and recovery regime.
As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.
The information we are required to file with or furnish to the SEC will be less extensive and less timely as compared to that required to be filed with the SEC by U.S. domestic issuers.
As a British Virgin Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq Capital Market corporate governance listing standards. However, Nasdaq Capital Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the British Virgin Islands, which is deemed our home country, may differ significantly from the Nasdaq Capital Market corporate governance listing standards. For example:
| ● | our independent directors do not need to hold regularly scheduled meetings in executive session (rather, all board members may attend all meetings of the board of directors); | |
| ● | the compensation of our executive officers is recommended but not determined by an independent committee of the board or by the independent members of the board of directors; and our Chief Executive Officer is not prevented from being present in the deliberations concerning his compensation; | |
| ● | related party transactions are not required to be reviewed and we are not required to solicit member approval of stock plans, including: those in which our officers or directors may participate; share issuances that will result in a change in control; the issuance of our shares in related party acquisitions or other acquisitions in which we may issue 20% or more of our outstanding shares; or, below market issuances of 20% or more of our outstanding shares to any person; and |
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| ● | we are not required to hold an in-person annual meeting to elect directors and transact other business customarily conducted at an annual meeting (rather, we complete these actions by written consent of holders of a majority of our voting securities). |
Although we do not currently plan to utilize the home country exemption for corporate governance matters, to the extent that we choose to do so in the future, our shareholders may be afforded less protection than they otherwise would under the Nasdaq Capital Market corporate governance listing standards applicable to U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.
We are an “emerging growth company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Ordinary Shares less attractive to investors.
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value of our shares held by non-affiliates exceeds $700 million as of any December 31 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our shares less attractive as a result, there may be a less active trading market for our shares and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards. Therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We are a “controlled company” defined under the Nasdaq Stock Market Rules. Although we do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future and you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Our Chairman and Chief Executive Officer, Mr. Pui Lung Ho owns a majority of our Ordinary Shares and we are a controlled company pursuant to “controlled company” defined under the Nasdaq Stock Market Rules. Accordingly, we will be a controlled company under the applicable Nasdaq listing standards. For so long as we are a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including:
| ● | an exemption from the rule that a majority of our board of directors must be independent directors; | |
| ● | an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and | |
| ● | an exemption from the rule that our director nominees must be selected or recommended solely by independent directors. |
As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Although we do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. If we elected to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors upon closing of our initial public offering. Our status as a controlled company could cause our Ordinary Shares to look less attractive to certain investors or otherwise harm our trading price. As a result, the investors will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements. Please see “Risk Factors – Our significant shareholders have considerable influence over our corporate matters.”
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The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company”. The Exchange Act requires, among other things, that we file annual, and current reports with respect to our business and operating results.
As a result of disclosure of information in this report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
The market price of our Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
The initial public offering price for our Ordinary Shares were determined through negotiations between the underwriter and us and may vary from the market price of our Ordinary Shares following our initial public offering. If you purchased our Ordinary Shares in our initial public offering, you may not be able to resell those Ordinary Shares at or above the initial public offering price. We cannot assure you that our Ordinary Shares’ initial public offering price, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our Ordinary Shares that have occurred from time to time prior to our initial public offering. The market price of our Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
| ● | actual or anticipated fluctuations in our revenue and other operating results; | |
| ● | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; | |
| ● | actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; | |
| ● | announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; | |
| ● | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; | |
| ● | lawsuits threatened or filed against us; and | |
| ● | other events or factors, including those resulting from war or incidents of terrorism, or responses to these events. |
In addition, the trading price of our Ordinary Shares is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, akin to the performance and fluctuation of the market prices of other companies with business operations located mainly in HK SAR or the People’s Republic of China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the perception and attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our shares, regardless of our actual operating performance.
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Future issuances or sales, or perceived issuances or sales, of substantial amounts of Ordinary Shares in the public market could materially and adversely affect the prevailing market price of the Ordinary Shares and our ability to raise capital in the future.
The market price of our Ordinary Shares could decline as a result of future sales of substantial amounts of shares or other securities relating to the shares in the public market, including by the Company’s substantial shareholders, or the issuance of new shares by the Company, or the perception that such sales or issuances may occur. Future sales, or perceived sales, of substantial amounts of the shares could also materially and adversely affect our ability to raise capital in the future at a time and at a price favorable to us, and our shareholders will experience dilution in their holdings upon our issuance or sale of additional securities in the future. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Ordinary Shares. A few shareholders hold a significant portion of our Ordinary Shares and these are “restricted securities” as defined in Rule 144. These Ordinary Shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.
To the extent we determine that the proposed uses of the net proceeds from our recent initial public offering are no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from our initial public offering. Our management will have broad discretion in the application of such net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value.
Future financing may cause a dilution in your shareholding or place restrictions on our operations.
We may need to raise additional funds in the future to finance further expansion of our capacity and business relating to our existing operations, acquisitions or strategic partnerships. If additional funds are raised through the issuance of new equity or equity-linked securities of the Company other than on a pro rata basis to existing shareholders, the percentage ownership of such shareholders in the Company may be reduced, and such new securities may confer rights and privileges that take priority over those conferred by the shares. Alternatively, if we meet such funding requirements by way of additional debt financing, we may have restrictions placed on us through such debt financing arrangements which may:
| ● | further limit our ability to pay dividends or require us to seek consents for the payment of dividends; | |
| ● | increase our vulnerability to general adverse economic and industry conditions; | |
| ● | require us to dedicate a substantial portion of our cash flows from operations to service our debt, thereby reducing the availability of our cash flow to fund capital expenditure, working capital requirements and other general corporate needs; and | |
| ● | limit our flexibility in planning for, or reacting to, changes in our business and our industry. |
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There may not be an active, liquid trading market for our Ordinary Shares.
Prior to our recently completed initial public offering, there was no active trading market for our Ordinary Shares.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in British Virgin Islands or HK SAR based on U.S. or other foreign laws against us, our management or the experts named in the annual report.
Although we are a BVI incorporated company, we conduct substantially all of our operations in HK SAR and substantially all of our assets are located in HK SAR. In addition, a majority of our directors and executive officers reside within HK SAR, and most of the assets of these persons are located within HK SAR. As a result, it may be difficult for you to effect service of process within the United States upon us or these individuals, or to bring an action against us or against these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the British Virgin Islands and of the HK SAR may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
HK SAR is a Special Administrative Region of the People’s Republic of China. A foreign judgment can be registered and enforced in HK SAR either under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) (the “Ordinance”) or at common law. Registration of a foreign judgment under the Ordinance can be made by an ex parte application with the local court but this avenue is limited to judgments entered in designated jurisdictions, which currently include: Australia, Austria, Belgium, Bermuda, Brunei, France, Germany, India, Israel, Italy, Malaysia, The Netherlands, New Zealand, Singapore and Sri Lanka. An action to enforce a foreign judgment at common law is a comparatively cumbersome process. It is, in essence, an independent suit in HK SAR and the judgment creditor must follow normally applicable service procedures. Judgments entered in the United States and the United Kingdom can be enforced in HK SAR only at common law. To be eligible for common-law recognition, the judgment must (1) be for a definite sum of money; (2) be final and conclusive; and (3) have been entered by a court with competent jurisdiction over the defendant. With respect to finality, a HK SAR court will generally refrain from enforcing a judgment during the pendency of an appeal. This raises the possibility of undue delay and asset dissipation. With respect to the requirement of competent jurisdiction of the foreign judgment seeking to be enforced in HK SAR, it is governed by private international law as interpreted in HK SAR, not the law of the foreign forum. Jurisdiction can generally be asserted on the basis of the defendant’s physical presence in the foreign forum, appearance in the underlying legal proceeding or prior contractual consent to jurisdiction. Under the common law and the Ordinance, only limited defenses on the grounds such as fraud, due process and HK SAR public policy can be raised against a duly registered foreign judgment. There is no mechanism for reconsideration of the merits of the underlying foreign litigation.
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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under British Virgin Islands law.
We are incorporated in the British Virgin Islands and conduct substantially all of our operations in HK SAR subsidiary. Most of our directors and substantially all of our executive officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult for our shareholders to effect service on these persons or bring an action against us or against these individuals in the British Virgin Islands or in HK SAR in the event that they believe that their rights have been infringed under the securities laws of the United States or otherwise. Even if shareholders are successful in bringing an action of this kind, the laws of the British Virgin Islands and HK SAR may render them unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States or HK SAR, although the courts of the British Virgin Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
Our corporate affairs will be governed by our Amended Memorandum and Articles, the BVI Act and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of the foregoing, holders of our Ordinary Shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company and whose management, directors and/or major shareholders were also incorporated, resident, or otherwise established in a United States jurisdiction.
A member of the Company is entitled, on giving written notice to the Company, to inspect (a) the memorandum and articles of association of the Company; (b) the register of members; (c) the register of directors; and (d) the minutes of meetings and resolutions of members and of those classes of members of which he is a member; and to make copies of or take extracts from the documents and records. Subject to the memorandum and articles of association, the directors may, if they are satisfied that it would be contrary to the Company’s interests to allow a member to inspect any document, or part of a document, specified in (b), (c) and (d) above, refuse to permit the member to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts from the records. Where a company fails or refuses to permit a member to inspect a document or permits a member to inspect a document subject to limitations, that member may apply to the BVI High Court for an order that he should be permitted to inspect the document or to inspect the document without limitation. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the British Virgin Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
As a result of the foregoing, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
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We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934 (the Exchange Act”), and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; | |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; | |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; | |
| ● | the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and | |
| ● | certain audit committee independence requirements in Rule 10A-3 of the Exchange Act. |
It may be difficult to enforce a judgment of U.S. courts for civil liabilities under U.S. federal securities laws against us, our directors or officers in the British Virgin Islands.
There is no statutory enforcement in the British Virgin Islands of judgments obtained in the U.S., however, the courts of the British Virgin Islands will in certain circumstances recognize such a foreign judgment and treat it as a cause of action in itself which may be sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that:
| ● | the U.S. court issuing the judgment had jurisdiction in the matter and the company either submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with process; | |
| ● | the judgment is final and for a liquidated sum; | |
| ● | the judgment given by the U.S. court was not in respect of penalties, taxes, fines or similar fiscal or revenue obligations of the company; | |
| ● | in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or on the part of the court; | |
| ● | recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public policy; and | |
| ● | the proceedings pursuant to which judgment was obtained were not contrary to natural justice. | |
| The British Virgin Islands courts are unlikely: | ||
| ● | to recognize or enforce against the Company, judgments of courts of the U.S. predicated upon the civil liability provisions of the securities laws of the U.S.; and | |
| ● | to impose liabilities against the Company, predicated upon the certain civil liability provisions of the securities laws of the U.S. so far as the liabilities imposed by those provisions are penal in nature. | |
We employ a mail forwarding service, which may delay or disrupt our ability to receive mail in a timely manner.
Mail addressed to the Company and received at its registered office will be forwarded unopened to the forwarding address supplied by Company to be dealt with. None of the Company, its directors, officers, advisors or service providers (including the organization which provides registered office services in the BVI) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
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We could become a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year, which could subject United States investors in our shares to significant adverse United States income tax consequences.
We will be a “passive foreign investment company” or “PFIC”, if, in any particular taxable year, either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the average quarterly value of our assets (as determined on the basis of fair market value) during such year produce or are held for the production of passive income (the “asset test”). In determining whether we are a PFIC, we are permitted to take into account the assets and income of WANG & LEE CONTRACTING LIMITED because we own 100% of its stock. However, even if we take into account the assets and income of WANG & LEE CONTRACTING LIMITED, we may still be considered a PFIC in 2023 and possibly later years, depending on a number of factors, including the composition of our income and assets, how quickly we use our liquid assets, including the cash raised pursuant to our initial public offering (if we determine not to, or are unable to, deploy significant amounts of cash for active purposes our risk of being a PFIC will substantially increase), the market price of our Ordinary Shares, and fluctuations in that price. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for 2023 or any future taxable year.
If we are a PFIC in any taxable year, a U.S. holder may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the Ordinary Shares and on the receipt of distributions on the Ordinary Shares to the extent such gain or distribution is treated as an “excess distribution” under the United States federal income tax rules. A U.S. holder may also be subject to burdensome reporting requirements. Further, if we are a PFIC for any year during which a U.S. holder holds our Ordinary Shares, we generally will continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which such U.S. holder holds our Ordinary Shares.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the Ordinary Shares for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the Ordinary Shares as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under British Virgin Islands law and provided that in no circumstances may a dividend be paid if this would result in our Company being unable to pay its debts as they fall due or having the value of the Company’s liabilities exceed the value of the Company’s assets. Even if we decide to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the Ordinary Shares will likely depend entirely upon any future price appreciation of the Ordinary Shares. There is no guarantee that the Ordinary Shares will appreciate in value or even maintain the price at which you purchased the Ordinary Shares. You may not realize a return on your investment in the Ordinary Shares and you may even lose your entire investment in the Ordinary Shares.
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law, including the laws of the British Virgin Islands. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
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Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
We may experience extreme stock price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.
In addition to the risks addressed above, our Ordinary Shares may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular, our Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices, given that we will have relatively small public floats after our initial public offering. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects.
Holders of our Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Ordinary Shares. Furthermore, the potential extreme volatility may confuse the public investors of the value of our shares, distort the market perception of our share price and our Company’s financial performance and public image, negatively affect the long-term liquidity of our Ordinary Shares, regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective investors to assess the rapidly changing value of our Ordinary Shares and understand the value thereof.
| ITEM 4. | INFORMATION ON THE COMPANY |
| A. | History and Development of the Company |
Our Corporate Structure
We are a British Virgin Islands company incorporated on May 20, 2021, as a holding company of our business, which is primarily operated through our indirectly wholly-owned HK SAR subsidiary, WANG & LEE CONTRACTING LIMITED. We do not use variable interest entities in our corporate structure.
Wang & Lee Engineering Limited was founded in 1981 and we mainly conducted electrical work until December 3, 1992. By 1990, we had provided services for many shops, factories and residential buildings and began providing other installation work. WANG & LEE CONTRACTING LIMITED, formerly known as WANG & LEE ENGINEERING (M/E) LIMITED was incorporated in HK SAR on December 3, 1992. It changed its name to WANG & LEE CONTRACTING LIMITED on May 2, 1995, to reflect the expanded scope of work it now provides. Wang & Lee Engineering Limited was wound up in 2003.
Prior to our initial public offering, WANG & LEE GROUP, Inc. is 100% owned by another British Virgin Islands company, WANG & LEE BROTHERS, Inc. which holds all 8,000,000 of its issued and outstanding Ordinary Shares. WANG & LEE BROTHERS, INC, is in turn 100% owned by Mr. Pui Lung Ho, our Chief Executive Officer and Chairman.
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On April 20, 2023, we announced the pricing of our initial public offering of 1,600,000 Ordinary Shares at $5.00 per share and commencement of trading of our Ordinary Shares on the Nasdaq Capital Market under the symbol, “WLGS”. On April 24, 2023, we announced the closing our initial public offering with gross proceeds of $8,000,000.
On Mach 12, 2025, the Company entered into a sale and purchase agreement with ALLIED WORLDWIDE INDUSTRIES LIMITED, for the purchase of the entire issued and outstanding share capital of Solar (HK) Limited (the “Acquisition”), a company incorporated under the laws of Hong Kong, for the consideration of HK$15,000,000 (equivalent to $1,935,484). The Acquisition closed on March 31, 2025.
| B. | Business Overview |
We are, WANG & LEE CONTRACTING LIMITED, a construction prime and subcontractor engaging in the installation of Electrical & Mechanical Systems (“E&M”), which include low voltage (220v/phase 1 or 380v/phase 3) electrical systems, mechanical ventilation and air-conditioning systems, fire service systems, water supply and sewage disposal system installation and fitting out for the public and private sectors. WANG & LEE CONTRACTING LIMITED has mainly undertaken projects that are related to the supply, installation and maintenance of the following systems:
| ● | Low voltage (220v/phase 1 or 380v/phase 3) electrical systems to power building equipment and services, such as lighting, air-conditioning and elevator etc.; | |
| ● | mechanical ventilation and air-conditioning systems (“MVAC”); and | |
| ● | fitting out for commercial buildings and offices; and | |
| ● | other E&M systems such as fire services, which includes fire prevention, detection, suppression and extinguishing systems and plumbing and drainage systems. |
WANG & LEE CONTRACTING LIMITED is also able to provide design and contracting services to all trades in the construction industry. Its clients range from small startups to large companies.
The increasing emphasis on green building certifications reflects a heightened awareness of the environmental and health impacts of building construction and operation. Industry organizations have developed voluntary rating systems to assess building performance, applicable to new constructions, existing structures, and interior spaces. Our firm is committed to environmentally conscious design, prioritizing energy and water efficiency, optimized indoor environmental quality, and responsible waste management. Furthermore, we are expanding our services to encompass renewable energy solutions, including solar panel installations and the development of cutting-edge kinetic energy harvesting technology, such as footstep-energized panels. This commitment to innovation allows us to offer clients the most advanced and sustainable building solutions available.
WANG & LEE CONTRACTING LIMITED has been providing construction contracting services in HK SAR for almost 45 years and have been awarded:
| ● | ISO9001:2015 Quality Management System Standard for Design, Supply and Installation of Low Voltage Electrical, Mechanical Ventilation and Air-conditioning Systems (as defined in Electricity Ordinance Chapter 406”; | |
| ● | ISO 14001:2015 Environmental Management System Standard for Design, Supply and Installation of Low Voltage Electrical, Mechanical Ventilation and Air-conditioning Systems (as defined in Electricity Ordinance Chapter 406”; | |
| ● | ISO 45001:2018 Occupational Health and Safety Management System Standard for Design, Supply and Installation of Low Voltage Electrical, Mechanical Ventilation and Air-conditioning Systems (as defined in Electricity Ordinance Chapter 406”; | |
| ● | H.K.E.M.S.D. Registered Electrical Contractor; | |
| ● | H.K.F.S.D. Registered Fire Service Installation Contractor; | |
| ● | H.K. Water Authority Grade 1 Plumber’s license. |
Additionally, WANG & LEE CONTRACTING LIMITED is a registered Class 1 and Class 2 Fire Service Installation Contractor with the Fire Services Department, and registered Electrical Contractor under the Electricity (Registration) Regulations (Cap 406 Sub Leg.).
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Our Services
As a construction contractor, WANG & LEE CONTRACTING LIMITED’s principal business has been in the provision of E&M engineering services. For each of the years ended December 31, 2024, 2023 and 2022, the total revenue derived from E&M engineering services was HK$30,710,244 (equivalent to $3,951,649), HK$53,239,808 (equivalent to $6,825,879) and HK$32,649,726 (equivalent to $4,169,931), respectively. Depending on our customers’ needs and requests, it may provide integrated E&M engineering services covering design, supply, installation and maintenance for MVAC system, low voltage electrical system, fire services system, and plumbing and drainage system on a project-to-project basis.
WANG & LEE CONTRACTING LIMITED mainly undertakes projects that are related to the supply, installation and maintenance of the following systems depending on our customers’ needs and engagement:
| (i) | Low voltage (220v phase 1 or 380v phase 3) electrical systems to power building equipment and services, such as lighting, air-conditioning and elevator etc.; | |
| (ii) | MVAC systems, which refer to mechanical ventilation and air-conditioning systems; | |
| (iii) | fitting out for commercial buildings and offices; and | |
| (iv) | other E&M systems such as: |
| ● | fire services, which includes fire prevention, detection, suppression, and extinguishing systems; and | |
| ● | plumbing and drainage systems. |
The low voltage (220v/phase 1 or 380v/phase 3) electrical system monitors and controls, power supply to buildings to ensure other systems can function properly (including but not limited to lighting, MVAC systems and other systems). It normally comprises the main power supply, submain distribution system and final circuit system, lighting system, earthing and bonding system, lightning protection system, emergency generator power supply system with system pipework, electrical cable, and wiring works.
A MVAC system mainly covers the following functions:
| ● | Mechanical ventilation: regulating the inflow and outflow of air within buildings/spaces by channeling treated air into the building while extracting exhaust air out; and | |
| ● | Air-conditioning: controlling and maintaining the temperature and humidity of air within buildings/spaces. |
It normally comprises mechanical ventilation fan and air-conditioning equipment including chiller, air handling unit, fan coil unit, water pumps, cooling tower, air-conditioner with system pipework, ductworks, electrical and control works.
Fitting out services for commercial buildings or offices, which are usually associated with E&M design, includes installing fixtures and furniture.
Apart from the low voltage electrical system, the MVAC system and fitting out services as mentioned above, we also engage in the provision of other E&M engineering services, including the supply, installation and maintenance of the following systems:
| ● | Fire services system, which refers to fire prevention, detection, suppression and extinguishing systems. Fire services system normally comprises a fire services control panel, fire detector and alarm system, sprinkler, fire hydrant and hose reel, smoke control, portable hand operated appliances and gas extinguishing systems, emergency lighting, audio and visual advisory system. | |
| ● | Plumbing and drainage system – the plumbing system of a building provides clean and stable water supply for occupants, including fresh water for drinking, cooking and washing purposes and seawater/fresh water for flushing system, and the functioning of the fire service system. The drainage system of the building provides the removal of waste water and rainwater through the drainage system into the city’s sewage system. A typical plumbing and drainage system of a building comprises pipework, valves, pumps and tanks. |
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Competitive Strengths
We believe that the following strengths have contributed to our success and are differentiating factors that set us apart from our peers.
| ● | Customer and Revenue Diversification. WANG & LEE CONTRACTING LIMITED performs new construction services over a wide geographic footprint for both public and private clients. Its private projects accounted for 100%, 100% and 97% of our fiscal year 2024, 2023 and 2022 revenues, respectively. While its undertakes large projects, it can perform many smaller to medium projects with varied complexity and there durations at the same time. In fiscal year 2024, 2023 and 2022, 15%, 10% and 11%, respectively, of its projects were small to medium projects under HK$1 million (equivalent to $129,308) with an average duration of approximately 3 months. At the close of the fiscal year 2024, we strategically transitioning our operational focus for the large projects from traditional supply, installation and maintenance services to specializing in site project management. We believe this strategy realignment will streamline our operations, optimize resource allocation, and enhance our financial performance by reducing construction costs and improving cash flow liquidity. | |
| ● | Consistent History of Managing Construction Projects and Contract Risk. WANG & LEE CONTRACTING LIMITED’s long and successful track record of over 40 years in each of the markets that it serves demonstrates an understanding of the various risks associated with construction contractor projects. On top of the years of experience, licenses and registrations are also a key factor of recognition in the market. WANG & LEE CONTRACTING LIMITED serves as the prime contractor on approximately 53%, 61% and 72% of its projects and as a subcontractor on the remaining 47%, 39% and 28% for the fiscal years 2024, 2023 and 2022, respectively. When serving as the prime contractor, it utilizes subcontractors to perform approximately 69% of the total project. The vast majority of its projects are fixed unit price contracts, pursuant to which a portion of its revenues is tied to the volume of various project components. It combines its experience, local market knowledge and fully integrated management information systems to effectively bid, execute and manage projects. It captures project costs such as labor and equipment expenses on a daily basis. its managers review daily project reports to determine whether actual project costs are tracking to budget. | |
| ● | Experienced Management Team. Our executive officers are seasoned leaders with complementary skill sets and a track record of financial success spanning over 40 years and multiple business cycles. | |
| ● | Commitment to deliver quality works and services with stringent quality, safety and environmental assurance. WANG & LEE CONTRACTING LIMITED is committed to provide high quality works and services. It has adopted stringent quality assurance measures that comprise monitoring, verifying, and validating the works and materials. Its quality management system has been accredited with ISO 9001 certificate by Accredited Certification International Limited (“ACI Limited”). Furthermore, it has also set up an environmental management system to promote awareness of environmental protection and prevent pollution of the environment resulting inform its works. Its environmental management system was accredited by ISO 14001 certification with ACI Limited. Furthermore, it has set up a comprehensive occupational health and safety management system to promote safe working practices among all employees and to prevent the occurrence of accidents through promoting safety awareness at the front line level. Its occupational health and safety management system has been certified to be in compliance with ISO 45001 by ACI Limited. | |
| ● | Long-term relationship with customers, suppliers and subcontractors. WANG & LEE CONTRACTING LIMITED has established long term relationships with its customers for a period up to 30 years, suppliers for a period up to 35 years and subcontractors for a period up to 40 years. Maintaining good customer relationships provides more opportunities to tender and also demonstrates its ability to provide high-quality work on time and budget. In addition, it has also maintained a good relationship with equipment and material suppliers as well as subcontractors. WANG & LEE CONTRACTING LIMITED is the authorized dealer of an American air-conditioning equipment manufacturer (the “air-conditioning equipment manufacturer”). Establishing a good relationship with suppliers enables it to have more flexibility in negotiating prices, resources allocation and project execution compared with competitors. Maintaining a good relationship with subcontractors will help reduce the risk of shortage or delay in the delivery of contract works, and ensure timely installation works. We consider partnering with these suppliers and subcontractors to be one of the key success factors for us to deliver high quality work to our customers. |
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Customers
We usually receive invitations from customers to submit tenders for potential projects. Our customers range from private individuals to office, factories, shopping mall and hotel owners, operators for hospitals, schools and educational institutes, theme parks, shopping malls and construction companies, property developers and even the HK SAR government.
For the years ended December 31, 2024, 2023 and 2022, we made 138, 151, and 145 submissions to our potential customers respectively, and our success rate was approximately 36%, 36%, and 40% in each of the respective years, respectively.
The revenue generated by our five largest customers in aggregate accounted for approximately 88%, 98%, and 89% of the total revenue for the years ended December 31, 2024, 2023 and 2022, respectively.
In fiscal year 2024, 4 customers accounted for more than 10% of our annual revenue, one for 24%, one for 24%, one for 20% and the last one for 17%. In fiscal year 2023, two customers accounted for more than 10% of our annual revenue – one for 58% and the other for 30%. In fiscal year 2022, three customers accounted for more than 10% of our annual revenue - one for 49%, one for 15% and the last one for 12%. Because we work on a project basis, we do not have any long-term contracts with any one client.
Suppliers
Depending on our customers’ needs and requests, we may provide integrated E&M engineering services covering sourcing for supplies. WANG & LEE CONTRACTING LIMITED is the authorized dealer of an American air-conditioning equipment manufacturer (the “air-conditioning equipment manufacturer”) and enjoy the most preferable pricings. Establishing a good relationship with suppliers enables us to have more flexibility in negotiating prices, resources allocation and project execution compared with competitors. We typically enter into one-year non-exclusive dealership agreements with our suppliers and may renew dealership agreements upon the expiration of these dealership agreements. We are only allowed to sell the products within the designated territories as specified in the dealership agreement.
We work with our suppliers and manufacturers to plan ahead for its purchase and delivery of products to enable that they have sufficient stock to fulfil the current orders. We have generally not encountered any substantial delay or shortage in the supply of products.
Our five largest suppliers accounted for approximately 54%, 51%, and 51% of the total actual costs for the years ended December 31, 2024, 2023 and 2022, respectively.
Seasonality
We do not experience any seasonality in our business.
Subcontractors
On occasion, WANG & LEE CONTRACTING LIMITED may engage subcontractors to carry out part of its work. WANG & LEE CONTRACTING LIMITED has not entered into any long-term agreement with its subcontractors and has historically not experienced any material difficulties or delays in completing its project due to failure to identify and engage suitable subcontractors.
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WANG & LEE CONTRACTING LIMITED has a stringent process in selecting its subcontractors for its work. It has an internal approved list of subcontractors for quotation for each type of work. It takes into account of factors including, among others, assessment of their abilities and its previous work experience with them. For each project, it invites several subcontractors in this list for quotation. Its project team is responsible for selecting the most suitable candidate(s).
Market and Competition
Hong Kong’s waste management sector, as outlined in The Waste Blueprint for Hong Kong 2035, presents a compelling market opportunity given the substantial volume of municipal solid waste generated daily, including recyclable materials valued at HK$2.8 billion (equivalent to $0.36 billion). (Source: https://www.eeb.gov.hk/sites/default/files/pdf/waste_blueprint_2035_chi.pdf) While this waste stream necessitates innovative solutions, the competitive landscape remains undefined, requiring further investigation to identify key players and assess potential competitive pressures. The Green Tech Fund (“GTF”), established in 2020 with HK$400 million (equivalent to $52 million), further supports the development and adoption of sustainable waste management technologies, creating a potentially favorable environment for market entry. (Source: https://www.gtf.gov.hk/en/about_the_fund/about_the_fund.html#objectives)
The cryptocurrency market, valued at US$68.8 million in 2025 and hosting Asia’s largest Exchange Traded Funds (“ETF”) market, represents another potential market, albeit with significant competitive challenges. Specifically, limited land and high electricity costs (HK$1.2-1.5/kWh, equivalent to $0.15-$0.19/kWh) in Hong Kong create a difficult competitive landscape against low-cost regions like Texas (US$0.03/kWh) in the global crypto mining market. (Source: https://gia.info.gov.hk/general/202210/31/P2022103000454_404805_1_1667173469522.pdf) This cost disparity poses a significant barrier to entry and necessitates innovative approaches to energy efficiency for successful market penetration.
Despite the competitive hurdles in the cryptocurrency sector, Hong Kong’s burgeoning renewable energy market offers promising opportunities. The government’s commitment to sustainable solutions, coupled with initiatives like the GTF, fosters a supportive environment for innovative technologies like kinetic energy harvesting and eco-friendly battery systems. This focus on sustainability, combined with the potential for integration with waste management solutions, positions companies like ours for potential growth and market leadership within this evolving landscape.
Key Drivers and Opportunities
Feed-in Tariff from CLP Power HK Limited (“CLP”)
CLP’s Feed-in Tariff (“FiT”) program is a key driver of Hong Kong’s renewable energy market, creating significant opportunities for our company. By offering attractive rates (HK$2.5–4/kWh, equivalent to $0.32-$0.52/kWh) for renewable energy fed into the grid, the FiT incentivizes private investment and promotes distributed energy generation. (Source: https://re.emsd.gov.hk/english/fit/int/fit_int.html) This program’s success is evident in the dramatic increase in renewable energy installations, supporting Hong Kong’s ambitious renewable energy targets. This favorable policy environment, coupled with our focus on kinetic energy harvesting and advanced battery technologies, positions us to capitalize on this growing market.
Unexplored market of cryptocurrencies mining industry
The convergence of energy-intensive cryptocurrency mining and the potential for cost reduction through solar integration presents a compelling opportunity. While high electricity costs have historically hindered crypto mining in Hong Kong, the abundance of sunlight and the lucrative FiT program create a unique opportunity for sustainable and competitive mining operations. (Source: https://re.emsd.gov.hk/english/fit/int/fit_int.html) By integrating our kinetic energy harvesting technology with solar installations, we can further optimize energy efficiency and contribute to a more sustainable and economically viable crypto mining ecosystem.
We believe our strategic initiatives further strengthen our position within this evolving landscape. The acquisition of Solar (HK) Limited, a Hong Kong-based company specializing in pioneering solar energy solutions, combined with our ESG partnership with Jinshan Hi-Tech Group for innovative waste treatment, expands our market reach and capabilities. Furthermore, our collaborative development of advanced eco-friendly lithium-ion battery technology for diverse applications, including electric bicycles, automotive, and robotics, and our ongoing research and development of kinetic technology for energized panels, solidify our commitment to innovation and position us for long-term growth within the dynamic renewable energy and sustainable technology sectors.
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Intellectual Property
Trademarks
| Country | Trademark | Application Number | Application Date | Registration Number | Classes | Status | ||||||
| HK SAR |  |
TM205125_LY S01016220 |
May 31, 2021 | 305642578 | 37 | Registered on November 3, 2021 |
The Trademark is the intangible asset of a recognizable sign, symbol, and design under the name which is established by use of representing the Company. The trademark was registered in Hong Kong on November 3, 2021, with the trademark number of 305624578.
Recent Material Development
On Mach 13, 2025, the Company entered into a sale and purchase agreement with ALLIED WORLDWIDE INDUSTRIES LIMITED, for the purchase of the entire issued and outstanding share capital of Solar (HK) Limited (the “Acquisition”), a company incorporated under the laws of Hong Kong, for the consideration of HK$15,000,000 (equivalent to $1,935,484). The Acquisition closed on March 31, 2025. Solar HK provides comprehensive services, including solar photovoltaic (“PV”) system design and installation, green energy project approvals, and emission reduction management. Solar HK, with its all-rounded services and strong client base, is expected to bring extensive synergy to the existing businesses of the Company.
C. Regulations
This section sets forth a summary of the material laws and regulations applicable to our business operations in HK SAR.
CONTRACTORS REGISTRATION REGIMES
Contractors Registration System for Building Works
Under section 2 of the Buildings Ordinance (Chapter 123 of the Laws of Hong Kong) (the “Buildings Ordinance”), building works include any kind of building construction, site formation works, ground investigation in scheduled areas, foundation works, repairs, demolition, alteration, addition and every kind of building operation, as well as drainage works. A person is required to appoint:
| (i) | a registered general building contractor for carrying out building works or street works (other than specialized works and minor works); | |
| (ii) | a registered specialist contractor for carrying out specialized works (other than specialized works designated as minor works) of the category for which the contractor is registered; and | |
| (iii) | a registered minor works contractor for carrying out minor works of the type or item for which the contractor is registered. |
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Regulatory actions
Under section 13 of the Buildings Ordinance, a registered contractor (including a registered general building contractor, a registered specialist contractor or a registered minor works contractor), or the director, officer or person appointed by the registered contractor to act on its behalf for the purposes of the Buildings Ordinance (collectively, the “persons subject to inquiry”) may be subject to inquiry by the disciplinary board appointed by the Building Authority under section 6 of the Buildings Ordinance where appropriate. The disciplinary board may, among others, order that: (i) the name of the person subject to inquiry be removed from the relevant register, either permanently or for such period as the disciplinary board thinks fit; (ii) the person subject to inquiry be fined, in the case of building works (other than minor works), a sum not exceeding HK$250,000 (equivalent to $32,258) or in the case of a prescribed inspection in respect of a window in a building or minor works, a sum not exceeding HK$150,000 (equivalent to $19,355); (iii) the person subject to inquiry be reprimanded; and (iv) the person subject to inquiry be prohibited from certifying or carrying out certain works, either permanently or for such period as the disciplinary board thinks fit.
LICENCES AND REGISTRATIONS REQUIRED FOR OUR GROUP’S E&M ENGINEERING BUSINESSES
Electrical Works
Registration under the Electricity Ordinance
Under section 2 of the Electricity Ordinance (Chapter 406 of the Laws of Hong Kong), “electrical work” means work in relation to the installation, commissioning, inspection, testing, maintenance, modification or repair of a low voltage or high voltage fixed electrical installation and includes the supervision and certification of that work and the certification of design of that installation. Examples of fixed electrical installations are distribution boards, wiring installations and lighting fittings that are fixed in premises. However, persons who are engaged in work on electrical installations other than fixed electrical installations need not be registered. Examples of electrical installations other than fixed electrical installations are portable electrical home appliances such as table lamps, television sets, refrigerators, etc.
Electrical works are further classified into five grades based on the voltage and capacity of electricity involved in an electrical installation and industry specialization.
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Registered electrical workers
Only a registered electrical worker (“REW”) registered with the Electrical and Mechanical Services Department of the HK SAR government (“EMSD”) under the Electricity Ordinance shall do the electrical works specified in his certificate of registration. However, where a non-REW works under the oral or written instruction of a REW who is aware of and responsible for that non-REW’s work, the non-REW may do electrical works of the kind specified in the supervising REW’s certificate of registration, except the following:
| ● | certifying that a fixed electrical installation complies with the Electricity Ordinance; or | |
| ● | works on energized parts of a fixed electrical installation when the non-REW is not immediately adjacent to the supervising REW. |
To register as a REW to do electrical works in at least one grade, an individual shall satisfy the Director of the EMSD that he has the qualification to do electrical work in the relevant grades as set out in Part III of the Electricity (Registration) Regulations (Chapter 406D of the Laws of Hong Kong), such as completion of the prescribed apprenticeship or training, possessing craftsmanship, academic qualification or practical experience in electrical engineering and electrical works, or passing the prescribed examination or trade test.
Registered electrical contractors
To qualify as a Registered Electrical Contractor registered with the EMSD under the Electricity Ordinance, a corporate applicant must employ at least one REW. No contractor shall do business as an electrical contractor or carry out electrical works unless it is a REC.
Validity period and renewal of registration
A registration for REW or REC is valid for the 3 years period shown on the certificate of registration. Under Regulation 13 of the Electricity (Registration) Regulations, a REW or REC shall apply to the Director of the EMSD for renewal of its/his registration within one to four months prior to the date of expiry of the registration.
Regulatory actions
Where the Director of the EMSD considers that there is evidence that a REW or a REC has failed to comply with the Electricity Ordinance, he may: (i) reprimand the worker or contractor, and/or fine a worker up to HK$1,000 (equivalent to $129) and a contractor up to HK$10,000 (equivalent to $1,290); or (ii) refer the matter to the Secretary for Environment for hearing by a disciplinary tribunal, who may do one or more of the following:
(a) reprimand the registrant;
(b) fine a worker up to HK$10,000 (equivalent to $1,290) and a contractor up to HK$100,000 (equivalent to $12,903);
(c) suspend or cancel the registration of the registrant; or
(d) suspend the registrant’s right to apply for registration or renewal of registration for a prescribed period.
The Director of the EMSD may cancel a registration if he considers that: (i) the registrant obtained registration by fraud or on the basis of misleading or inaccurate information; (ii) the registration was made in error; or (iii) the registrant is no longer qualified under the Electricity Ordinance to be registered.
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WANG & LEE CONTRACTING LIMITED is a registered electrical contractor registered with the EMSD. Electrical installations engineering works are monitored by the EMSD, guided by the Code of Practice for the Electricity (Wiring) Regulations (“CoP”). The CoP applies to all low or high voltage (“HV”) electrical installations in buildings and premises including those of domestic and commercial buildings, factories and industrial undertakings. We are required to follow the mentioned CoP in all electrical installation works. We are also required to apply for renewal for REW every three years from the last approval date. Our directors confirm that we have complied with the registration and renewal requirements.
Additionally, we also have to follow the Code of Practice for Energy Efficiency of Building Services Installation (“BEC)” and the Code of Practice for Building Energy Audit (“EAC”), pursuant to section 40 of the Buildings Energy Efficiency Ordinance (Cap. 610 of the Laws of Hong Kong) (“BEEO”), and the to enhance the energy efficiency of buildings services installations and promote decarbonization of buildings.
LICENSES AND REGISTRATIONS FOR FIRE SERVICE AND PLUMBING INSTALLATION
Fire Service
Fire Service Installation Contractors (“RFC”)
To undertake works in respect of the installation, maintenance, repairs or inspection of any fire service installation or equipment in HK SAR, a contractor shall be a registered fire service installation contractor with the Fire Services Department in at least one of the three classes under the Fire Service (Installation Contractors) Regulations (Chapter 95A of the Laws of Hong Kong) (“FSICR”):
| Class 1: | Registered contractors who are fit to install, maintain, repair and inspect any fire service installation or equipment (other than portable equipment) which contains an electrical circuit or other apparatus for the detection and warning, by alarm or otherwise, of smoke or fire. |
| Class 2: | Registered contractors who are fit to install, maintain, repair and inspect any fire service installation or equipment (other than portable equipment) which contains- |
| (a) | pipes and fittings designed or adapted to carry water or some other fire extinguishing medium; or | |
| (b) | any type of electrical apparatus other than those specified in class 1. |
| Class 3: | Registered contractors who are fit to maintain, repair and inspect portable equipment. |
The major minimum qualifications for registration are set out below:
| Class I | At least one director or employee of a corporate applicant shall: |
| ● | hold a degree in electrical engineering satisfying the prescribed examination requirements for corporate membership of the Institution of Electrical Engineers; and | |
| ● | be the manufacturer (or its authorized agent) or designer of an electrical circuit or other apparatus, recognized by the Director of Fire Services, for the detection by alarm or otherwise of smoke or fire. |
| Class II | At least one director or employee of a corporate applicant shall: |
| ● | hold a Grade I plumber’s license issued under the Waterworks Ordinance (Chapter 102 of the Laws of Hong Kong); and | |
| ● | hold a diploma from an approved institution in electrical engineering or a qualification recognized as equivalent to such a diploma by the Director of Fire Services. |
| Class III | Individual applicant shall be a Hong Kong resident of 21 years of age or more and demonstrate adequate knowledge of: |
| ● | the function and maintenance of portable equipment; and | |
| ● | the related regulations made under the Fire Services Ordinance (Chapter 95 of the Laws of Hong Kong). |
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WANG & LEE CONTRACTING LIMITED is a registered Classes 1 & 2 fire service installation contractor. Fire service installation engineering works are monitored by the Fire Services Department, guided by the Code of Practice for Minimum Fire Service Installations and Equipment and Inspection, Testing and Maintenance of Installations and Equipment (“FSI Code”) and the Code of Practice for Fire Safety in Buildings, which we have to comply. Registration renewal as a fire service installation contractor is not required under the FSICR.
Prior approval must be obtained from the Fire Services Department by filing the application form FSI/314 or FSD/314A (depending on the type of work), prior to commencement of building works. WANG & LEE CONTRACTING LIMITED is required to obtain an approval certificate (Certificate of Fire Service Installations and Equipment (FS251)) from the Director of Fire Services before commencement of fire service installation works, certifying that either (i) that, having regard to the purpose to which the building is intended to be put (which purpose shall be stated in the certificate), no fire service installation or equipment is necessary in connection with the building that will result from the carrying out of the building works shown on the plans; or (ii) that the plans have been examined and are approved by the Director of Fire Services as showing all such fire service installations and equipment as in his opinion, having regard to the purpose to which the building is intended to be put (which purpose shall be stated in the certificate), comprise the minimum fire service installations and equipment necessary for the building in accordance with the FSI Code published from time to time by the Director of Fire Services. When the fire service installation works have been completed, WANG & LEE CONTRACTING LIMITED shall report to the Fire Services Department as soon as possible.
Additionally, we are required to follow the BEC, pursuant to section 40 of the BEEO, and the to enhance the energy efficiency of buildings services installations and promote decarbonization of buildings.
Plumbing
Plumbing installation engineering works are monitored by the Water Supply Department and guided under the Waterworks Ordinance. Pursuant to Section 14 of Waterworks Ordinance (Cap. 102 of the Laws of Hong Kong) (“WWO”), a person must not construct, install, alter, or remove a fire service or inside service unless the Water Authority has granted a written permission for it. The Water Authority may grant the written permission on its own initiative or on application of a licensed plumber. Besides, Section 15 of the WWO also stipulates that, a person who is not a designated person must not carry out the construction, installation, maintenance, alteration, repair or removal of a fire service or inside service (i.e. specified plumbing works). A plumber’s licence shall be valid up till and including 31 December in the year in which it is issued and may be renewed annually upon payment of a prescribed fee for a further period of 12 months from the date of expiry.
WANG & LEE CONTRACTING LIMITED is a licensed plumber authorized by the Water Authority to carry out plumbing works. We are required to apply for licence renewal pursuant to the WWO every year. Our directors confirm that we have complied with the registration and renewal requirements.
WANG & LEE CONTRACTING LIMITED is required to submit the plumbing proposals together with completed application for water supply to the Water Authority. No work can commence before plumbing proposals have been approved by the Water Supply Department in writing. Before proceeding with the works under the approved plumbing proposal, WANG & LEE CONTRACTING LIMITED is required to apply for constructing, installing, altering, or removing an inside service to apply for the permission of the Water Authority. When the plumbing work has been completed, WANG & LEE CONTRACTING LIMITED shall inform the Water Authority as soon as possible. The mains supply will be connected when the plumbing work has been inspected and found satisfactory.
Additionally, we are required to follow the BEC, pursuant to section 40 of the BEEO, and to enhance the energy efficiency of buildings services installations and promote decarbonization of buildings.
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LABOUR, HEALTH AND SAFETY LAWS AND REGULATIONS
As a construction contractor operating in industrial undertakings and construction sites, we are required to observe the relevant regulations in relation to our labor, occupational safety and health including the Factories and Industrial Undertakings Ordinance, Occupational Safety and Health Ordinance, Occupiers Liability Ordinance, Employees’ Compensation Ordinance, Employment Ordinance, Immigration Ordinance, Minimum Wage Ordinance and Construction Workers Registration Ordinance.
Factories and Industrial Undertakings Ordinance
The Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) (“Factories and Industrial Undertakings Ordinance”) provides for the safety and health protection to workers in an industrial undertaking. Under section 6A of the Factories and Industrial Undertakings Ordinance, every proprietor shall take care of the safety and health at work of all persons employed by it at an industrial undertaking by, so far is reasonably practicable:
| ● | providing and maintaining plant and work systems that are safe and without risks to health; | |
| ● | making arrangement for ensuring safety and absence of risks to health in connection with the use, handling, storage and transport of articles and substances; | |
| ● | providing all necessary information, instruction, training, and supervision as is necessary for ensuring the health and safety at work; | |
| ● | as regards any workplace under the employer’s control, (1) maintaining the workplace in a condition that is safe and without risks to health; and (2) providing and maintaining means of access to and egress from the workplaces that are safe and without any such risks; and | |
| ● | providing and maintaining working environment that is safe and without risks to health. |
A proprietor of an industrial undertaking who contravenes these duties commits an offence and is liable on summary conviction to a fine of HK$3,000,000 (equivalent to $387,097), or on conviction on indictment to a fine of HK$10,000,000 (equivalent to $1,290,323). A proprietor of an industrial undertaking who contravenes these duties willfully and without reasonable excuse commits an offence and is liable on summary conviction to a fine of HK$3,000,000 (equivalent to $387,097) and to imprisonment for six months, or on conviction on indictment to a fine of HK$10,000,000 (equivalent to $1,290,323) and to imprisonment for two years. Matters regulated under the subsidiary regulations of the Factories and Industrial Undertakings Ordinance, including the Construction Sites (Safety) Regulations (Chapter 59I of the Laws of Hong Kong), include (i) the prohibition of employment of persons under 18 years of age (save for certain exceptions); (ii) the maintenance and operation of hoists; (iii) the duty to ensure safety of places of work; (iv) prevention of falls; (v) the duty to comply with miscellaneous safety requirements; and (vi) provision of first aid facilities, etc. Contravening any of these rules shall be an offence and a contractor committing the relevant offence without reasonable excuse could be liable to a fine up to HK$400,000 (equivalent to $51,613) and imprisonment up to 12 months.
Occupational Safety and Health Ordinance
The Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong) (“Occupational Safety and Health Ordinance”) provides for the safety and health protection to employees in workplaces, both industrial and non-industrial.
Employers must as far as reasonably practicable ensure the safety and health in their workplaces by:
| ● | providing and maintaining plant and work systems that are safe and without risks to health; | |
| ● | making arrangement for ensuring safety and absence of risks to health in connection with the use, handling, storage or transport of plant or substances; | |
| ● | providing all necessary information, instruction, training, and supervision as may be necessary for ensuring safety and health at work; | |
| ● | maintaining the workplace in a condition that is safe and without risks to health; or providing and maintaining safe access to and egress from the workplaces; and | |
| ● | providing and maintaining a working environment that is safe and without risks to health. |
Failure to comply with the above provisions constitutes an offence and the employer is liable on summary conviction to a fine of HK$3,000,000 (equivalent to $387,097), or on conviction on indictment to a fine of HK$10,000,000 (equivalent to $1,290,323). An employer who fails to do so intentionally, knowingly or recklessly commits an offence and is liable on summary conviction to a fine of HK$3,000,000 (equivalent to $387,097) and to imprisonment for six months, or on conviction on indictment to a fine of HK$10,000,000 (equivalent to $1,290,323) and to imprisonment for two years.
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The Commissioner for Labour may also issue (i) improvement notice against contravention of this Ordinance or the Factories and Industrial Undertakings Ordinance requiring employer to remedy the contravention within specific period/refrain from continuing or repeating the contravention or (ii) suspension notice directing specific activity not to be undertaken, or the premises, plant or substance not to be used, while the notice remains in force. Failure to comply with such improvement notice without reasonable cause constitutes an offence and the employer or occupier is liable on conviction to a fine of HK$400,000 (equivalent to $51,613) and to imprisonment for 12 months. An employer or occupier who, without reasonable excuse, contravenes a suspension notice commits an offence and is also liable on conviction to a fine of HK$1,000,000 (equivalent to $129,032) and to imprisonment for 12 months (plus a further fine of HK$100,000 (equivalent to $12,903) for each day if contravention is knowingly and intentionally continued).
Occupiers Liability Ordinance
The Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong) (“Occupiers Liability Ordinance”) regulates the obligations of a person occupying or having control of premises on injury resulting to persons or damage caused to goods or other property lawfully on the land.
The Occupiers Liability Ordinance imposes a common duty of care on an occupier of premises to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there.
WANG & LEE CONTRACTING LIMITED has put in place the following measures to ensure compliance with (i) the Factories and Industrial Undertakings Ordinance; (ii) the Occupational Safety and Health Ordinance; and (iii) the Occupiers Liability Ordinance:
| ● | providing safe and healthy work environment for workers including but not limited to adequate lighting level; | |
| ● | providing barrier to prevent workers from falling; | |
| ● | providing necessary and appropriate personal protective equipment for workers; | |
| ● | providing safety instructions and training to workers; | |
| ● | employing safety officers or safety supervisors on site to safeguard and monitor the safety and health regulations; and | |
| ● | adhering to the ISO standards and establishing internal safety and health policies and procedures. |
Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) (“CWRO”)
The CWRO was enacted on July 2, 2004 to provide, among others, for registration and regulation of construction workers. The principal objective of the CWRO is to establish a system for registration of construction workers and to regulate construction workers who personally carry out construction work on construction sites.
Employment of registered construction workers
Under sections 3(1) and 5 of the CWRO, the principal contractors/subcontractors/employers/controllers of construction sites are required to employ only registered construction workers to personally carry out construction work on construction sites.
Keeping and submission of site daily attendance report
Under section 58 of the CWRO, a principal contractor/controller of a construction site is required to:
| 1. | establish and maintain a daily record in the specified form that contains information on registered construction workers employed by him and, in the case of a controller being the principal contractor, by a subcontractor of the controller (section 58(7)(a) of the CWRO); and | |
| 2. | furnish the Registrar of Construction Workers in such manner as directed by the Registrar of Construction Workers with a copy of the record: |
| i. | for the period of 7 days after any construction work begins on the site; and | |
| ii. | for each successive period of 7 days, |
within 2 business days following the last day of the period concerned (section 58(7)(b) of the CWRO).
In compliance with the CWRO, we would check whether the worker is registered under the CWRO prior to employment with the worker.
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ENVIRONMENTAL PROTECTION
Environmental protection laws in HK SAR are also applicable to us as our construction works may emit various types of pollution including air pollution, noise, waste water and chemical waste.
Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong) (“APCO”)
The APCO is the principal legislation in Hong Kong for controlling emission of air pollutants and noxious odors from construction, industrial and commercial activities and other polluting sources. Subsidiary regulations of the APCO impose control on air pollutant emissions from certain operations through the issue of licenses and permits.
A contractor shall observe and comply with the APCO and its subsidiary regulations, including without limitation to the Air Pollution Control (Open Burning) Regulations (Chapter 311O of the Laws of Hong Kong), the Air Pollution Control (Construction Dust) Regulation (Chapter 311R of the Laws of Hong Kong) and the Air Pollution Control (Smoke) Regulations (Chapter 311C of the Laws of Hong Kong). The contractor responsible for a construction site shall devise, arrange methods of working and carrying out the works in such a manner so as to minimize dust impacts on the surrounding environment, and shall provide experienced personnel with suitable training to ensure that these methods are implemented. Asbestos control provisions in the APCO require that building works involving asbestos must be conducted only by registered qualified personnel and under the supervision of a registered consultant.
Under the APCO, we are required to obtain approval from the Environmental Protection Department prior to the commencement of building works. When the building works have been completed, WANG & LEE CONTRACTING LIMITED shall inform the Environmental Protection Department as soon as possible.
Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong) (“NCO”)
The NCO controls, among others, the noise from construction, industrial and commercial activities. A contractor shall comply with the NCO and its subsidiary regulations in carrying out general construction works. For construction activities that are to be carried out during the restricted hours and for percussive piling between 7 a.m. and 7 p.m. on any day, not being a general holiday, construction noise permits are required from the Noise Control Authority in advance.
Under the NCO, noisy construction work and the use of powered mechanical equipment in any place are not allowed between 7 p.m. and 7 a.m. or at any time on general holidays, unless prior approval has been granted by the Noise Control Authority through the construction noise permit system. Certain equipment is also subject to restrictions when its use is allowed. Hand-held percussive breakers and air compressors must comply with noise emissions standards and be issued with a noise emission label from the Noise Control Authority. Percussive pile-driving is allowed on weekdays only with prior approval, in the form of a construction noise permit from the Noise Control Authority. Any person who is in contravention of the aforesaid provisions, according to the NCO, shall be liable (a) on first conviction to a fine of HK$100,000 (equivalent to $12,903); (b) on second or subsequent conviction, to a fine of HK$200,000 (equivalent to $25,806), and in any case to a fine of HK$20,000 (equivalent to $2,581) for each day during which the offence continues.
Under the NCO, we are required to obtain approval from the Environmental Protection Department prior to the commencement of noise construction work. In compliance with the NCO, we would obtain all necessary approvals and install construction noise barrier at construction sites before commencement of work. Further, we will not carry out building works between 7 p.m. and 7 a.m. or at any time on general holidays, unless prior approval has been obtained from the Noise Control Authority.
Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) (“WDO”)
The WDO controls the production, storage, collection, treatment, reprocessing, recycling and disposal of wastes. At present, livestock waste and chemical waste are subject to specific controls whilst unlawful deposition of waste is prohibited. Import and export of waste is generally controlled through a permit system.
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A contractor shall observe and comply with the WDO and its subsidiary regulations, particularly the Waste Disposal (Charges for Disposal of Construction Waste) Regulations (Chapter 354N of the Laws of Hong Kong) and the Waste Disposal (Chemical Waste) (General) Regulations (Chapter 354C of the Laws of Hong Kong).
Under the Waste Disposal (Charges for Disposal of Construction Waste) Regulation, construction waste can only be disposed at prescribed facilities. A main contractor who undertakes construction work with a value of HK$1 million (equivalent to $129,032) or above will be required to, within 21 days after being awarded the contract, make an application to the Director of Environmental Protection to establish a billing account to pay any disposal charges payable in respect of the construction waste generated from construction work undertaken under that contract.
Under the WDO, a person shall not use, or permit to be used, any land or premises for the disposal of waste unless he has a license from the Director of Environmental Protection Department. A person who except under and in accordance with a permit or authorization, does, causes or allows another person to do anything for which such a permit or authorization is required commits an offence and is liable to a fine of HK$200,000 (equivalent to $25,806) and to imprisonment for six months for the first offence, HK$500,000 (equivalent to $64,516) and to imprisonment for six months for a second or subsequent offence; and HK$10,000 (equivalent to $1,290) for each day during which the offence continues.
To ensure compliance with the WDO, we would engage qualified waste recyclers to undertake disposal of construction waste.
LAWS AND REGULATIONS IN RELATION TO LEVY
As a construction contractor, we may be subject to various levies under the HK SAR laws.
Construction Industry Council Ordinance (Chapter 587 of the Laws of Hong Kong) (“CICO”)
According to sections 32 and 33 of the CICO, construction industry levy (“CIL”) is payable by registered contractors appointed under section 9 of the Buildings Ordinance (Chapter 123 of the Laws of Hong Kong) or any persons who carry out construction operations in Hong Kong to the CIC. “Construction operation” is exhaustively defined under Schedule 1 of the CICO, which includes building works and street works as defined in section 2(1) of the Buildings Ordinance, construction, alteration, repair, maintenance, extension, demolition or dismantling, external or internal cleaning and painting or decorating any external or internal surfaces or parts of any buildings, or other temporary or permanent structures forming part of land.
On and after August 20, 2012, the CIL chargeable is 0.5% of the total value of the construction operations (as defined under section 53 of the CICO) concerned (0.4% before August 20, 2012). Pursuant to section 32 and Schedule 5 of the CICO, no CIL is chargeable for any construction operations not exceeding HK$3,000,000 (equivalent to $387,097).
According to section 34 of the CICO, the contractor and authorized person each are required to inform the CIC in a specified form (Form 1) in respect of the construction operations within 14 days after its commencement. It is an offence if a person without reasonable excuse failed to give such notice and liable to a fine at level 1, which is fixed at HK$2,000 (equivalent to $258). Notice is only required for term contract or if the reasonable estimation of the total value of construction operations exceeds HK$3,000,000 (equivalent to $387,097).
Pursuant to section 35 of the CICO, a contractor is required to give a Notice of Payment (“NOP”) in a specified form (Form 2) to the CIC within 14 days after the contractor receives a payment in respect of the construction operation. It is an offence if a person without reasonable excuse fails to give the NOP and liable to a fine at level 3, which is fixed at HK$10,000 (equivalent to $1,290).
Pursuant to section 36 of the CICO, a contractor is required to give a Notice of Completion (“NOC”) in a specified form (Form 3) to the CIC within 14 days after the completion of the construction operation. It is an offence if a person without reasonable excuse fails to give the NOC and liable to a fine at level 3, which is fixed at HK$10,000 (equivalent to $1,290).
The CIC shall assess the CIL payable upon receiving the NOP or NOC and give a Notice of Assessment (“NOA”) in writing specifying the amount of CIL. The CIC can also make the assessment notwithstanding no NOP or NOC has been given. According to section 41 of the CICO, if a contractor fails to give the NOP or NOC, a surcharge not exceeding twice the amount of the CIL payable may be imposed and a Notice of Surcharge (“NOS”) in writing shall be given by the CIC.
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According to section 46 of the CICO, if the contractor fails to pay in full the amount of levy or surcharge within 28 days after the NOA or NOS is given, a 5% penalty of the unpaid amount shall be imposed. If the contractor still fails the pay the unpaid amount within 3 months after the expiry of 28 days, a further 5% penalty of the unpaid amount shall be imposed.
According to section 47 of the CICO, CIL, surcharge, penalty or further penalty is recoverable by the CIC as civil debt under the jurisdiction of the District Court. The time limits for the CIC to make the assessment or imposing the surcharge under sections 42 to 45 of the CICO are, whichever is the last of the following periods: (a) two years after the completion of all construction operations under the contract, or without term contract two years after the completion of the construction operations; (b) two years after the expiry of the period within which the contract stipulates that all such construction operations have to be completed; and (c) one year after evidence, sufficient in the opinion of the CIC to justify the making of the assessment, comes to its knowledge.
Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Chapter 360 of the Laws of Hong Kong) and Pneumoconiosis and Mesothelioma (Compensation) (Assessment of Levy) Regulations (“PMCALR”) (Chapter 360A of the Laws of Hong Kong)
According to section 35(1) of the PMCO, pneumoconiosis compensation fund levy (“PCFL”) is imposed in respect of construction operations carried out in Hong Kong. PCFL is rated at 0.15% of the value of the construction operations (0.25% before August 20, 2012) and not chargeable if the total value (as defined under section 39D of PMCO) do not exceed HK$3,000,000 (equivalent to $387,097) (HK$1,000,000 (equivalent to $129,032) before July 30, 2018). Pursuant to section 39A of the PMCO, PMCO does not apply to construction operations for domestic unit, or for the sole and principal purpose of renovation.
Pursuant to section 35(5) of the PMCO, the contractor is liable to make a payment of PCFL only if the Pneumoconiosis Compensation Fund Board (“PCFB”) serves a NOA. According to section 38 of the PMCO, PCFL, surcharge, penalty or further penalty is recoverable by the PCFB as debt under the jurisdiction of the District Court. According to section 39 of the PMCO, fraudulent evasion of the payment of PCFL is liable for a fine of HK$10,000 (equivalent to $1,290) or 20 times the amount of PCFL, whichever is greater.
Contractors are required to:
| (a) | inform the PCFB the commencement of construction operations within 14 days thereafter by a notice of commencement (Form 1). Failure to comply without reasonable excuse is liable for a fine at Level 2, which is fixed at HK$5,000 (equivalent to $645); | |
| (b) | inform the PCFB within 14 days after the contractor receives a payment in respect of the construction operation by a NOP (Form 2). Failure to comply without reasonable excuse is liable for a fine at Level 2, which is fixed at HK$5,000 (equivalent to $645); and | |
| (c) | inform the PCFB the completion of the construction operations within 14 days by a NOC (Form 3). Failure to comply without reasonable excuse is liable for a fine at Level 2, which is fixed at HK$5,000 (equivalent to $645). |
Our directors confirm that we have paid all necessary levies under the CICO, the PMCO and the PMCALR. We have also given all necessary notices required under the CICO, the PMCO and the PMCALR, including (i) the specified form under section 53 of the CICO; (ii) the notice of commencement under section 35 of the PMCO; (iii) the NOP; (iii) the NOC; (iv) the NOA; and (v) the NOS.
According to regulation 6 of the PMCALR, the PCFB shall assess the PCFL payable upon receiving the NOP or NOC and give a NOA in writing specifying the amount of PCFL. The PCFB can make the assessment notwithstanding no NOP or NOC has been given. If a contractor fails to give the NOP or NOC, a surcharge not exceeding twice the amount of the PCFL payable may be imposed and a NOS in writing shall be given by the PCFB.
According to section 37 of the PMCO, if the contractor fails to pay in full the amount of levy or surcharge within 28 days after the NOA or NOS is given, a 5% penalty of the unpaid amount shall be imposed. If the contractor still fails the pay the unpaid amount within 3 months after the expiry of 28 days, a further 5% penalty of the unpaid amount or HK$1,000 (equivalent to $129) whichever is greater shall be imposed.
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The time limits for the PCFB to make the assessment or imposing the surcharge under regulations 6E to 6H of the PMCALR are, whichever is the last of the following periods:
| (a) | two years after the completion of all construction operations under the contract, or without term contract two years after the completion of the construction operations; | |
| (b) | two years after the expiry of the period within which the contract stipulates that all such construction operations have to be completed; and | |
| (c) | one year after evidence, sufficient in the opinion of the PCFB to justify the making of the assessment, comes to its knowledge. |
D. Organizational structure
The following diagram sets forth our corporate structure as of the date of this annual report:
E. Property, Plant and Equipment
We lease the following property and use it as our office:
Leases
| Facility | Address | Space (m2) | ||
| Office | 5-6/F., Wing Tai Factory Building, 3 Tai Yip Street, Kwun Tong, Kowloon, Hong Kong | 600 |
We moved to our current address on September 16, 2019, expanded from 5/F to 5-6/F in 2022, with fully executed a renewed tenancy agreement for both floors on October 15, 2023. We paid a total of HK$948,000 (equivalent to $121,984) and HK$640,072 (equivalent to $82,064) in rent for the years ended December 31, 2024 and 2023, respectively.
| ITEM 4.A. | UNRESOLVED STAFF COMMENTS |
Not Applicable.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This report contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report. See “Cautionary Statement Regarding Forward-Looking Information”.
| A. | Operating Results |
Overview
We are a British Virgin Islands company incorporated on May 20, 2021, as a holding company of our business, which is primarily operated through our indirectly wholly-owned HK SAR subsidiary, WANG & LEE CONTRACTING LIMITED.
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We are, through our indirectly wholly-owned HK SAR subsidiary, WANG & LEE CONTRACTING LIMITED, a construction contractor engaging in Electrical & Mechanical System (“E&M”), includes low voltage (220v/phase 1 or 380v/phase 3) electrical system, mechanical ventilation and air-conditioning system, fire service system, water supply and sewage disposal system installation and fitting out for the public and private sectors. WANG & LEE CONTRACTING LIMITED has mainly undertaken projects that are related to the supply, installation and maintenance of the following systems:
| ● | Low voltage (220v/phase 1 or 380v/phase 3) electrical systems, which refer to the power supply to all building equipment and services, such as lighting, air-conditioning and elevator etc.; | |
| ● | mechanical ventilation and air-conditioning systems (“MVAC”); | |
| ● | fitting out for commercial buildings and offices; and | |
| ● | other E&M systems such as fire services, which includes fire prevention, detection, suppression and extinguishing systems and plumbing and drainage systems. |
WANG & LEE CONTRACTING LIMITED is also able to provide design and contracting services to all trades in the construction industry. Our clients range from small startups to large companies.
100%, 100% and 97% of WANG & LEE CONTRACTING LIMITED’s projects for fiscal years 2024, 2023 and 2022 were predominantly in the private sector. WANG & LEE CONTRACTING LIMITED provides a wide range of large site construction services to private construction customers, including commercial and residential developers and local businesses. WANG & LEE CONTRACTING LIMITED competes for private construction projects primarily on the basis of the breadth of our service capabilities and our reputation for quality. We believe WANG & LEE CONTRACTING LIMITED is well-positioned to capitalize on the strong momentum in commercial and residential private construction sectors driven by population and economic expansion in HK SAR.
WANG & LEE CONTRACTING LIMITED’s primary market is in the E&M market in HK SAR (“market” or “local market”) which, in turn is broken down into low voltage electrical system, MVAC, fire services, plumbing and fitting out works. Supported by its local market presence and knowledge, as well as scale advantages attributable to its vertical integration, geographic reach and strong financial profile, we believe we are a significant player in each of E&M markets in HK SAR that we serve to broaden the application of our expertise in E&M engineering, we are strategically expanding our service offerings to encompass renewable energy solutions. This includes the development and design of innovative kinetic energy harvesting technologies, such as footstep-energized panels, and comprehensive solar panel systems. This expansion allows us to provide clients with integrated and sustainable solutions that address the growing demand for clean energy.
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How We Assess Performance of Our Business
Revenues
We derive our revenues predominantly by providing construction and contracting services for both public and private projects, with an emphasis on electrical, air-conditioning installation and ventilation, plumbing, fire service, fitting out projects, and site project management. Our projects represent a mix of government and private customers. Revenues derived from construction service projects are recognized on the percentage-of-completion basis, measured by the relationship of total cost incurred to total estimated contract costs. And for the revenue from site project management are recognized when the service provided.
Gross Profit
Gross profit represents revenues less contracts costs. Contract costs consist of all direct and indirect costs on construction contracts, including materials, labor, equipment costs, subcontract costs and other expenses. Our contract costs are directly affected by fluctuations in prices of materials especially if we were to undertake procurement responsibilities as well. We have sought to limit our exposure to fluctuations in material prices by entering into preferred pricing contracts with some of our suppliers.
Depreciation and Amortization
We carry plant and equipment on our balance sheet at cost, net of accumulated depreciation and amortization. Depreciation on plant and equipment are computed on a straight-line basis over the estimated useful life of the asset. Amortization expense is the periodic expense related to leasehold improvements. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel costs for our administration, accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, office space rental costs and other corporate and overhead expenses.
Interest Expense, net
Interest expense, net primarily represents interest incurred on the bank loans, line of credit, obligation on finance lease and leases liabilities.
Critical Accounting Policies and Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the audited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available when the calculations are made; however, actual results could differ materially from those estimates.
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The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Estimated outcome E&M services engineering contracts and contract assets
We recognize revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. The percentage-of-completion method (an input method) is the most representative depiction of our performance because it directly measures the value of the services or products transferred to the customer. Subcontractor, materials, labor and equipment included in revenue, and other cost of revenue when management believes that we are acting as a principal rather than as an agent (e.g., we integrate the materials and labor into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials and labor). In the contracts, other than the Original Contract Sum, there is a Variation Order Sum (provisional amounts) included in the same contract in which we are allowed to performance extra work or billed extra materials in order to fulfil the contracts. We generally accounted for the performance obligation of this Variation Order together with the performance obligation of the original contract as a single deliverable (a single performance obligation). Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the customer.
The management’s estimate of revenue and the completion status of contract works requires significant judgment and has a significant impact on the amount and timing of revenue recognized. The E&M services engineering works performed by us would also be certified by the customers or external surveyors periodically according to the construction contracts. We regularly review and revise the estimation of contract revenue prepared for each contract as the contract progresses based on the internal contract progress reports.
Impairment assessment of trade receivables and contract assets
The management estimates the amount of lifetime ECL of trade receivables and contract assets based on provision matrix through grouping of various debtors that have similar credit risk characteristics based on nature and industry of debtors. Internal credit rating has been given to each category of debtors after considering aging, historical observed default rates, repayment history and past due status of respective trade receivables. Estimated loss rates are based on probability of default and loss given default with reference to an external credit report and are adjusted for forward-looking information that is reasonable and supportable available without undue cost or effort. In addition, trade receivables and contract assets that are credit-impaired and assessed for ECL individually. The credit loss allowance amount of the credit-impaired trade receivables and contract assets is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows with the consideration of expected future credit losses. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.
Exchange rates
This report contains translations of certain HK$ amounts into U.S. dollar amounts at specified rates solely for the convenience of the reader. The relevant exchange rates are listed below:
| For the years ended December 31, | Other Period | |||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||
| Period Ended HK$: US$ exchange rate | 7.7335 | 7.7785 | 7.7990 | 7.75 | ||||||||||||
| Period Average HK$: US$ exchange rate | 7.7715 | 7.7997 | 7.8298 | 7.75 | ||||||||||||
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Results of Operations
Other Key Performance Indicators
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents net income before interest expense, net, provision (benefit) for income taxes, and depreciation and amortization. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP. These measures should not be considered as an alternative to net income, or any other performance measure derived in accordance with GAAP as an indicator of our operating performance. We present Adjusted EBITDA and Adjusted EBITDA Margin as management uses these measures as key performance indicators, and we believe they are measures frequently used by securities analysts, investors and other parties to evaluate companies in our industry. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP.
Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies. Potential differences between our measure of Adjusted EBITDA compared to other similar companies’ measures of Adjusted EBITDA may include differences in capital structures, tax positions and the age and book depreciation of tangible assets.
The following table presents a reconciliation of net income, the most directly comparable measure calculated in accordance with GAAP, to Adjusted EBITDA, and the calculation of Adjusted EBITDA Margin for each of the periods presented.
Reconciliation To GAAP Information
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Consolidated Net Loss (GAAP) | US$ | (2,543,959 | ) | US$ | (648,854 | ) | US$ | (596,881 | ) | |||
| Interest expenses | 129,803 | 61,564 | 35,377 | |||||||||
| Income taxes | - | - | - | |||||||||
| Depreciation and amortization | 15,037 | 32,413 | 2,603 | |||||||||
| Adjusted EBIDA (Non-GAAP) | US$ | (2,399,119 | ) | US$ | (554,877 | ) | US$ | (558,901 | ) | |||
| Adjusted EBITDA Margin | (60.71 | )% | (8.13 | )% | (13.40 | )% | ||||||
Results of Operations
For the years ended December 31, 2024 and 2023
The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2024, and 2023. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| For the years ended December 31, | |||||||||
| 2024 | 2023 | ||||||||
| Contract revenue | US$ | 3,951,649 | US$ | 6,825,879 | |||||
| Contract costs | (3,539,478 | ) | (4,385,279 | ) | |||||
| GROSS PROFIT | 412,171 | 2,440,600 | |||||||
| Less: General and administrative expenses | (2,961,046 | ) | (3,211,690 | ) | |||||
| OPERATING LOSS | US$ | (2,548,875 | ) | US$ | (771,090 | ) | |||
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Contract Revenue
The following table lists the calculation methods of gross profit and gross profit margin of each type of revenue:
| For the years ended December 31, | Changes | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Low Voltage Electrical System | ||||||||||||||||
| Contract revenue | US$ | 2,459,282 | US$ | 3,832,334 | US$ | (1,373,052 | ) | (36 | ) | |||||||
| Contract costs | (2,951,728 | ) | (3,309,315 | ) | 357,587 | (11 | ) | |||||||||
| Gross profit | (492,446 | ) | 523,019 | (1,015,465 | ) | (194 | ) | |||||||||
| Gross profit margin | (20 | )% | 14 | % | 74 | % | 429 | |||||||||
| MVAC System | ||||||||||||||||
| Contract revenue | US$ | 14,192 | US$ | 328,373 | US$ | (314,181 | ) | (96 | ) | |||||||
| Contract costs | (9,717 | ) | (240,158 | ) | 230,441 | (96 | ) | |||||||||
| Gross profit | 4,475 | 88,215 | (83,740 | ) | (95 | ) | ||||||||||
| Gross profit margin | 32 | % | 27 | % | 27 | % | (0 | ) | ||||||||
| Fitting Out | ||||||||||||||||
| Contract revenue | US$ | 1,120,029 | US$ | 2,594,828 | US$ | (1,474,799 | ) | (57 | ) | |||||||
| Contract costs | (531,069 | ) | (794,573 | ) | 263,504 | (33 | ) | |||||||||
| Gross profit | 588,960 | 1,800,255 | (1,211,295 | ) | (67 | ) | ||||||||||
| Gross profit margin | 53 | % | 69 | % | 82 | % | 19 | |||||||||
| Other | ||||||||||||||||
| Contract revenue | US$ | 358,146 | US$ | 70,344 | US$ | 287,802 | 409 | |||||||||
| Contract costs | (46,964 | ) | (41,233 | ) | (5,731 | ) | 14 | |||||||||
| Gross profit | 311,182 | 29,111 | 282,071 | 969 | ||||||||||||
| Gross profit margin | 87 | % | 41 | % | 98 | % | 139 | |||||||||
| Total | ||||||||||||||||
| Contract revenue | US$ | 3,951,649 | US$ | 6,825,879 | US$ | (2,874,230 | ) | (42 | ) | |||||||
| Contract costs | (3,539,478 | ) | (4,385,279 | ) | 845,801 | (19 | ) | |||||||||
| Gross profit | 412,171 | 2,440,600 | (2,028,429 | ) | (83 | ) | ||||||||||
| Gross profit margin | 10 | % | 36 | % | 71 | % | 97 | |||||||||
Our contract revenues were US$3,951,649 for the year ended December 31, 2024, as compared to US$6,825,879 for the year ended December 31, 2023, a decrease of US$2,874,230, or 42%. The negative gross profit reported for Low Voltage Electrical System projects was primarily attributed to a single major project in the fiscal year 2024. This project’s complex structure necessitated additional labor, resulting in cost overruns. Management has since reassessed the project’s cost structure and fully recognized all according expenses.
The construction industry experienced a downturn during the fiscal year 2024 due to a broader economic slowdown, impacting key areas such as residential and commercial construction, and building renovations. This resulted in decreased demand and fewer available bids in the market, and significant decrease in the profit of Company’s E&M service for the year. However, this challenging environment also presented a strategic opportunity to diversify and reposition the business.
Recognizing the declining demand in traditional construction, the Company proactively diversified into the sustainable energy market, commencing the design and installation of its first energized panel project by the end of fiscal year 2024. Given the project’s first-stage commencement in December 2024, its revenue contribution was less than 1% for the year ended December 31, 2024. The full financial impact of this project is expected to be realized in the coming fiscal year.
Furthermore, the Company adopted a new operational strategy for new construction projects, transitioning from direct service provision to specialized site project management for large-scale, long-term projects. This strategic shift has resulted in a gross profit margin averaging 56% higher than the traditional direct service model.
While these strategic initiatives – energized panel projects and specialized site project management – have demonstrated improved profitability, their combined contribution represented only 3% of total revenue for the fiscal year ended December 31, 2024. Therefore, these activities were not disclosed as a separate segment. However, given their anticipated growth, full segment disclosure is expected in future reporting periods. This positive trajectory, coupled with increasing demand for sustainable energy solutions, positions the Company for enhanced financial performance and sustained growth in the coming years.
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From the analyzation findings from the segment, the fitting out segment remain highest contribution to the gross profit. The fitting out segment for the years ended 2024 and 2023 are 143% and 74% of the total gross profit respectively.
Contract Costs
Contract costs, primarily consists of subcontract costs, materials costs, labor, equipment costs, and other direct costs incurred to perform customer contracts. We incurred contract costs of US$3,539,478 for the year ended December 31, 2024, as compared to US$4,385,279 for the year ended December 31, 2023, a decrease of US$845,801, or 19%. The decrease in costs correlated with a decrease in revenue. Specifically, costs associated with traditional direct construction activities decreased by 21%, in line with the decline in revenue from this segment. Costs related to the new site project management strategy represented only 1% of total costs for the year, demonstrating the effectiveness of this approach in controlling expenditures.
Gross Profit
Gross profit was US$412,171 for the year ended December 31, 2024, as compared to US$2,440,600 for the year ended December 31, 2023, a decrease of US$2,028,429, or 83%. The overall decrease in gross margin from 36% for the year ended December 31, 2023 to 10% for the year ended December 31, 2024 projects was primarily attributed to a single major project that required unexpected additional labour cost due to the complexity construction structure.
General and Administrative Expenses
We incurred general and administrative expenses of US$2,961,046 for the year ended December 31, 2024, as compared to US$3,211,690 for the year ended December 31, 2023, a decrease of US$250,644, or 8%. The decrease was mainly a result of costs from our listing activities including professional fees and staff costs.
Operating Income (Loss)
We incurred an operating loss of US$2,548,875 for the year ended December 31, 2024, as compared to an operating loss of US$771,090 for the year ended December 31, 2023, an increase of US$1,777,785 or 231%. The increase in operating loss was mainly caused by the decrease of the revenues.
Interest Expenses
Interest expenses amounted to $129,803 for the year ended December 31, 2024, which increased by $68,239, or 111% from $61,564 for the year ended December 31, 2023. During the year ended 2024, we engaged into an additional bank facility to allow the group to increase the utilization of debt equity ratio, while also allowed us to offset the interest rate risk by in-house interest rate hedged.
Allowance for expected credit loss
Provision for estimated loss rates are based on probability of default and loss given default with reference to an external credit report and are adjusted for reasonable and supportable forward-looking information that is available without undue costs or effort while credit-impaired trade balances were assessed individually. The provision for expected credit loss was US$636,182 and US$220,935 for the years ended December 31, 2024 and 2023, respectively. We made a significant provision for expected credit losses for the year ended 2024 due to the economic slowdown. This risk is driven by the increasing trend in interest rates and the longer receivables turnover period in the whole construction industry.
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For the years ended December 31, 2023, and 2022
The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2023, and 2022. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Contract revenue | US$ | 6,825,879 | US$ | 4,169,931 | ||||
| Contract costs | (4,385,279 | ) | (3,384,227 | ) | ||||
| GROSS PROFIT | 2,440,600 | 785,704 | ||||||
| Less: General and administrative expenses | (3,211,690 | ) | (1,427,156 | ) | ||||
| OPERATING LOSS | US$ | (771,090 | ) | US$ | (641,452 | ) | ||
The following table lists the calculation methods of gross profit and gross profit margin of each type of revenue:
| For the years ended December 31, | Changes | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| Low Voltage Electrical System | ||||||||||||||||
| Contract revenue | US$ | 3,832,334 | US$ | 1,028,162 | US$ | 2,804,172 | 273 | |||||||||
| Contract costs | (3,309,315 | ) | (898,100 | ) | (2,411,215 | ) | 268 | |||||||||
| Gross profit | 523,019 | 130,062 | 392,957 | 302 | ||||||||||||
| Gross profit margin | 14 | % | 13 | % | 14 | % | 8 | |||||||||
| MVAC System | ||||||||||||||||
| Contract revenue | US$ | 328,373 | US$ | 502,556 | US$ | (174,183 | ) | (35 | ) | |||||||
| Contract costs | (240,158 | ) | (462,400 | ) | 222,242 | (48 | ) | |||||||||
| Gross profit | 88,215 | 40,156 | 48,059 | 120 | ||||||||||||
| Gross profit margin | 27 | % | 8 | % | (28 | )% | (450 | ) | ||||||||
| Fitting Out | ||||||||||||||||
| Contract revenue | US$ | 2,594,828 | US$ | 1,998,726 | US$ | 596,102 | 30 | |||||||||
| Contract costs | (794,573 | ) | (1,562,551 | ) | 767,978 | (49 | ) | |||||||||
| Gross profit | 1,800,255 | 436,175 | 1,364,080 | 313 | ||||||||||||
| Gross profit margin | 69 | % | 22 | % | 229 | % | 941 | |||||||||
| Other E&M system | ||||||||||||||||
| Contract revenue | US$ | 70,344 | US$ | 640,487 | US$ | (570,143 | ) | (89 | ) | |||||||
| Contract costs | (41,233 | ) | (461,176 | ) | 419,943 | (91 | ) | |||||||||
| Gross profit | 29,111 | 179,311 | (150,200 | ) | (84 | ) | ||||||||||
| Gross profit margin | 41 | % | 28 | % | 26 | % | (7 | ) | ||||||||
| Total | ||||||||||||||||
| Contract revenue | US$ | 6,825,879 | US$ | 4,169,931 | US$ | 2,655,948 | 64 | |||||||||
| Contract costs | (4,385,279 | ) | (3,384,227 | ) | (1,001,052 | ) | 30 | |||||||||
| Gross profit | 2,440,600 | 785,704 | (1,654,896 | ) | 211 | |||||||||||
| Gross profit margin | 36 | % | 19 | % | 62 | % | 226 | |||||||||
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Our contract revenues were US$6,825,879 for the year ended December 31, 2023, as compared to US$4,169,931 for the year ended December 31, 2022, an increase of US$2,655,948, or 64%. We have increased our focus on smaller scale engineering projects, thus the total number of small projects that are under HK$1 million (equivalent to $128,559) in 2023 was increased by US$196,391, or 42%, from 49 small projects amounting to US$464,514 to 44 small projects amounting to US$660,905. This continues prove our small scale projects strategy help the Company maintain health steadily increase in revenue.
During the year ended 2023, one of our largest construction projects was suspended from the first quarter of 2023 until July 2023 due to work delays caused by a third party to our client. Since the revenue is recognized based on the stages of site work, we posted a relatively low revenue in the first half year of the fiscal year 2023 comparing to the second half year of the fiscal year 2023. We successfully charged the client approximately US$1,252,246 for the loss and damage caused by the suspension while resume the site work. The revenue earned from the large projects in the year ended 2023 was US$6,164,974 compared to the year ended 2022 amounted to US$3,705,423, an increase of $2,459,551 or 66%.
On 2023, one of the major construction projects that only engaged into construction works on low voltage electrical system (“ELV”) was in the high productive progress status since the second half year of 2023, the completion status of construction work was estimate 86%, increased by 78% when compared to 2022, 8%. Since the contract sum is significant and also one of our largest construction projects, the increase of profit from ELV segment increased by 273% from the fiscal year 2022.
From the analyzation findings from the segment, the fitting out segment remain highest contribution to the gross profit. The fitting out segment for the years ended 2023 and 2022 are 74% and 56% of the total gross profit respectively.
Contract Costs
Contract costs, primarily consists of subcontract costs, materials costs, labor, equipment costs, and other direct costs incurred to perform customer contracts. We incurred contract costs of US$4,385,279 for the year ended December 31, 2023, as compared to US$3,384,227 for the year ended December 31, 2022, an increase of US$1,001,052, or 30%. The increase of the cost of revenues is due to the growth of revenues in the second half year of the fiscal year 2023 and a termination of a sub-contractor due to delayed progress which created higher cost of new engagements for the replacement and caught up the delays in the first half year of the fiscal year 2023.
Gross Profit
Gross profit was US$2,440,600 for the year ended December 31, 2023, as compared to US$785,704 for the year ended December 31, 2022, an increase of US$1,654,896, or 211%. The overall increase in gross margin from 19% for the year ended December 31, 2022 to 36% for the year ended December 31, 2023 was due to the additional delay charge. The total contract revenue without the additional delay charge was US$5,573,633, and the gross profit after adjusted was US$1,188,354 with adjusted gross profit margin 21%, which slightly higher than the year ended 2022, 19%.
General and Administrative Expenses
We incurred general and administrative expenses of US$3,211,690 for the year ended December 31, 2023, as compared to US$1,427,156 for the year ended December 31, 2022, an increase of US$1,784,534, or 125%. The increase was mainly a result of costs from our listing activities including professional fees and staff overtime costs.
Operating Income (Loss)
We incurred an operating loss of US$771,090 for the year ended December 31, 2023, as compared to an operating loss of US$641,452 for the year ended December 31, 2022, an increase of US$129,638 or 20%. The increase in operating loss was mainly caused by the increase in listing costs and staff costs.
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Interest Expenses
Interest expenses amounted to $61,564 for the year ended December 31, 2023, which increased by $26,187, or 74.0% from $35,377 for the year ended December 31, 2022. During the year ended 2023, we engaged into an additional bank facility to allow the group to increase the utilization of debt equity ratio, while also allowed us to offset the interest rate risk by in-house interest rate hedged.
Allowance for expected credit loss
Provision for estimated loss rates are based on probability of default and loss given default with reference to an external credit report and are adjusted for reasonable and supportable forward-looking information that is available without undue costs or effort while credit-impaired trade balances were assessed individually. The provision for expected credit loss was US$220,935 and US$46,034 for the year ended December 31, 2023 and 2022, respectively. We made a significant provision for expected credit losses for the year ended 2023 due to the foreseeable risk of slower turnover of contract assets compared to the year ended 2022. This risk is driven by the increasing trend in interest rates.
For the years ended December 31, 2024 and 2023
As of December 31, 2024, we had US$4,304,514 in cash. Our working capital and other capital needs mainly come from bank borrowings and operating cash flow. Cash is needed to pay for construction costs, wages, rent and other operating expenses.
Management’s belief in the sufficiency of cash generated from operations to meet our regular working capital requirements is subject to the conditions of new contracts engagement and effective contract revenue turnover rate over the next 12 months. These projections are based on comprehensive analysis of historical experience and financial data as of December 31, 2023. However, it is important to consider various factors that could pose challenges to our plans, including the demand for E&M engineering services, prevailing economic conditions, competition within the industry, and the ongoing support from financial institutions and suppliers.
To further strengthen our position, management plans to enhance the diversity of our service line by introducing new products and services, expanding into target markets, and focusing resources on smaller-scale engineering projects that generate sustainable positive profit margins. Additionally, in the event of insufficient liquidity to meet our current obligations, the Company intends to raise capital through an additional public offering. This strategic measure will provide the necessary financial means to support our operations and maintain our growth trajectory.
The following table summarizes our cash flow data as of:
| For the years ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in) | ||||||||
| Operating activities | US$ | (1,569,940 | ) | US$ | (3,814,384 | ) | ||
| Financing activities | 634,683 | 8,413,951 | ||||||
| Net (decrease) / increase in cash and cash equivalents | (935,257 |
) | 4,599,567 | |||||
| Effect of foreign currency translation | 29,578 |
1,010 | ||||||
| Net (decrease) / increase in cash and cash equivalents | US$ | (905,679 | ) | US$ | 4,600,577 | |||
Operating Activities
Net cash provided by operating activities consists primarily of net loss adjusted for non-cash items, including depreciation, expected credit loss allowance and bad debt written-off of accounts receivable, contract assets and liabilities, and is adjusted for the impact of changes in working capital. Net cash used in operations as of December 31, 2024 was US$1,569,940, representing a decrease of US$2,244,444, compared to net cash used in operating activities of US$3,814,384 for the year ended December 31, 2023.
Investing Activities
There were no investing activities during the years ended 2024 and 2023.
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Financing Activities
Net cash provided by financing activities was approximately US$634,683 for the year ended December 31, 2024, a decrease of US$7,779,268, or 92%, as compared to US$8,413,951 net cash provided by financing activities for the year ended December 31, 2023. The decrease in cash provided was mainly due to capital injection after listing.
Our shareholders’ equity decreased by 42% to $3.5 million for the fiscal year 2024 ended December 31, 2024, $6.0 million for the fiscal year 2023 ended December 31, 2023 respectively.
For the years ended December 31, 2023 and 2022
As of December 31, 2023, we had US$5,210,193 in cash. Our working capital and other capital needs mainly come from bank borrowings and operating cash flow. Cash is needed to pay for construction costs, wages, rent and other operating expenses.
Although the management believes that cash generated by operations will be sufficient to meet our normal working capital requirements, its ability to service its current debt will depend on its entering into new contracts and collection of contract revenue for at least the next 12 months. Management took into account of historical experience, the economy, trends in the construction industry, and the collectability of account receivable as of December 31, 2022. Based on these considerations, the management believes that we have sufficient funds to meet its working capital requirements and debt obligations, as they fall due at least 12 months from the date of financial reporting. However, there is no guarantee that management’s plan will succeed. There are number of factors that can arise and cause our plans to fall short, such as demand for E&M engineering services, economic conditions, competitive pricing in the industry, and the continued support of banks and suppliers. If future cash flow from operations and other capital resources are insufficient to meet its liquidity needs, we may be forced to reduce or delay its anticipated expansion plans, acquisition of additional debt or equity capital, or refinance all or part of its debt.
The following table summarizes our cash flow data as of:
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash provided by (used in) | ||||||||
| Operating activities | US$ | (3,814,384 | ) | US$ | (352,764 | ) | ||
| Investing activities | - | - | ||||||
| Financing activities | 8,413,951 | 422,531 | ||||||
| Net increase in cash and cash equivalents | 4,599,567 | 69,767 | ||||||
| Effect of foreign currency translation | 1,010 | 2,111 | ||||||
| Net increase in cash and cash equivalents | US$ | 4,600,577 | US$ | 71,878 | ||||
Operating Activities
Net cash provided by operating activities consists primarily of net income (loss) adjusted for non-cash items, including depreciation, deferred tax expenses, accounts receivable, contractual assets and liabilities, and is adjusted for the impact of changes in working capital. Net cash used in operations as of December 31, 2023 was US$3,814,384, representing an increase of US$3,461,620, compared to net cash used in operating activities of US$352,764 for the year ended December 31, 2022. The decrease of cash used was mainly impacted by the increase of accounts & other receivable.
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Investing Activities
There were no investing activities during the years ended 2023 and 2022.
Financing Activities
Net cash provided by financing activities was approximately US$8,413,951 for the year ended December 31, 2023, an increase of US$7,991,420, or 189%, as compared to US$422,531 net cash provided by financing activities for the year ended December 31, 2022. The increase in cash provided was due to the decrease of new bank borrowings.
Recent Development
After the year ended December 31, 2024, on March 21, 2025, we sold to a certain institutional investor an aggregate of 3,529,400 ordinary shares, Class A ordinary share purchase warrants to purchase up to 1,764,700 Ordinary Shares (the “Class A Warrants”), and Class B ordinary share purchase warrants to purchase up to 9,102,135 Ordinary Shares (the “Class B Warrants”), in a registered direct offering. Each Ordinary Share is being sold together with an associated Class A Warrant to purchase one Ordinary Share and an associated Class B Warrant at a combined offering price of $3.40 per Ordinary Share and associated Class A Warrants and Class B Warrants (collectively, the “Warrants”). The Class A Warrants have an exercise price of $3.40 per Ordinary Share, which will be immediately exercisable upon issuance, and will expire five years from the date of issuance. The Class A Warrants may be exercised on an alternative basis pursuant to which the holder may pay $0.0001 per warrant in exchange for 0.5 times the number of Ordinary Shares they would receive upon a standard exercise. The Class B Warrants have an exercise price of $0.001 per Ordinary Share, which will be exercisable on the third day following the issuance date and will remain exercisable until exercised in full. The Ordinary Shares issuable upon exercise of the Class B Warrants will be zero (0) initially and will be reset on the thirteen trading days or April 9, 2025 (the “Reset Date”) immediately following the issuance date of the Class B Warrants. On the Reset Date, the Ordinary Shares issuable upon exercise of the Class B Warrants will be increased to number of Ordinary Shares equal to the number (if positive) obtained by multiplying the number obtained by subtracting (I) the number of Ordinary Shares purchased by each Investor in the Offering (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events occurring after the Issue Date) from (II) the quotient determined by dividing (x) the sum of the aggregate subscription amount paid by each Investor in the Offering by (y) the applicable Reset Price (defined below) determined as of the Reset Date. The Reset Share Amount shall be reduced by the actual number of any Ordinary Shares (if any) issued pursuant to any exercise of Class B Warrants during the Reset Period. The Reset Price will be the greater of (i) 70% of the VWAP during the Reset Period and (ii) $0.95. The Reset Period refers to the period beginning at 12:01 a.m. Eastern Time on March 21, 2025 and ending at 11:59 p.m. Eastern Time on April 9, 2025. We received a gross proceeds in respect of the offering (assuming no exercise of the Class A Warrants and Class B Warrants) of approximately $12 million, before deducting fees payable to the placement agent and other offering expenses payable by the Company. We paid an aggregate of $839,997 in placement agent fees and reimbursed the placement agent’s actual out-of-pocket expenses up to $50,000. The offering closed on March 24, 2025.
C. Research and development, patents and licenses, etc
WANG & LEE CONTRACTING LIMITED has been providing construction contracting services in HK SAR for almost 45 years and have been awarded:
| ● | ISO9001:2015 Quality Management System Standard for Design, Supply and Installation of Low Voltage Electrical, Mechanical Ventilation and Air-conditioning Systems (as defined in Electricity Ordinance Chapter 406”; | |
| ● | ISO 14001:2015 Environmental Management System Standard for Design, Supply and Installation of Low Voltage Electrical, Mechanical Ventilation and Air-conditioning Systems (as defined in Electricity Ordinance Chapter 406”; | |
| ● | ISO 45001:2018 Occupational Health and Safety Management System Standard for Design, Supply and Installation of Low Voltage Electrical, Mechanical Ventilation and Air-conditioning Systems (as defined in Electricity Ordinance Chapter 406”; | |
| ● | H.K.E.M.S.D. Registered Electrical Contractor; | |
| ● | H.K.F.S.D. Registered Fire Service Installation Contractor; | |
| ● | H.K. Water Authority Grade 1 Plumber’s license. |
Additionally, WANG & LEE CONTRACTING LIMITED is a registered Class 1 Fire Service Installation Contractor with the Fire Services Department, and registered Electrical Contractor under the Electricity (Registration) Regulations (Cap 406 Sub Leg.).
D. Trend Information
Other than as disclosed elsewhere in this document, we are not aware of any trends, uncertainties, demands, commitments or events since December 31, 2024 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
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E. Off balance sheet arrangements
We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements for other contractually narrow or limited purposes.
F. Tabular disclosure of contractual obligations
Our contractual obligations primarily consist of operating and finance lease obligations. The following table sets forth a breakdown of our contractual obligations as of December 31, 2024, and their maturity profile :
| Payment Due by Period | ||||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
| Lease Liabilities | $ | 125,384 | $ | 100,895 | $ | 24,489 | - | - | ||||||||||||
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | Directors and Executive Officers |
Set forth below is information concerning our directors and executive officers as of the date of this report:
| Name | Age | Position(s) | ||
| Pui Lung HO | 48 | Chief Executive Officer, Executive Director and Chairman | ||
| Yuk Ming, Gary MA | 49 | Chief Finance Officer | ||
| Olivia Sarah Annabel Marion SERRE | 39 | Independent Director | ||
| Juan RUIZ-COELLO | 42 | Independent Director | ||
| Chun Yip, Edmund CHAN | 36 | Independent Director, Audit Committee Chairman | ||
| Wood Shing Kei SZE | 45 | Independent Director |
The business address of each of the officers and directors 5-6/F Wing Tai Factory Building, 3 Tai Yip Street, Kwun Tong, Kowloon, Hong Kong.
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The following is a brief biography of each of our executive officers and directors:
Executive Officers:
Chief Executive Officer
Pui Lung HO, graduated in New Zealand and Hong Kong with a Bachelor Degree of Science, a Bachelor Degree of Engineering in Building Engineering and a Master Degree of Science in Engineering Management. He has over 20 years of experience in the building industry. He joined WANG & LEE CONTRACTING LIMITED in 2000. He is now our Chief Executive Officer and Chairman. He specializes in building services installation, energy management and energy-saving planning design.
His profession qualifications are below:
| Professional Regulations | Qualification | Since | ||
| The Hong Kong Institution of Engineers | Certified Member | March 1, 2016 | ||
| HK Institution of Facilities Engineers | Certified Facilities Engineer | March 31, 2017 | ||
| Engineers Registration Board | Registered Professional Engineer | July 1, 2017 | ||
| The Chartered Institution of Building Services Engineers | Certified Member | December 21, 2017 | ||
| The Chartered Institution of Building Services Engineers | Chartered Engineer | March 5, 2018 | ||
| The Chartered Institution of Plumbing and Heating Engineering | Certified Member | January 14, 2019 |
Through his two decades of work experience with WANG & LEE CONTRACTING LIMITED, Mr. HO has participated and led the organization through various cycles of growth to the where it stands today. Shored by his education and professional qualifications, Mr. HO has honed his executive leadership and management skills over the years and has surrounded himself with a team of like-minded, competent professionals. His decades long involvement in our industry coupled with his familiarity with the Company and its employees is a unique combination that sets the leadership within this organization apart from its competition.
Chief Financial Officer
Yuk Ming, Gary MA, is a qualified CPA of CPA Australia and graduated in New Zealand with Bachelor of Commerce major in Accountancy, Diploma for Post-Graduates and Master of Corporate Finance. He joined and appointed as Chief Financial Officer for the Company in December 2021. He has over 18 years of experience in financial industry. He previously worked as Finance Manager for Chu Kong High-Speed Ferry Co. Ltd., a public company for over 4 years, then as Financial Planning and Analysis Manager for Zuellig Pharma Limited, one of the largest pharmaceutical groups in China for more than 3 years.
WANG & LEE CONTRACTING LIMITED, is a construction contracting company which adopts many complex accounting policies. As we are involved in capital-intensive projects, Mr. MA’s extensive experience and knowledge in financials and management in listed companies, and familiarity with accounting standards contribute to our effective control over risks and cost management and ultimately, the Company’s profitability.
Independent Directors
Olivia Sarah Annabel Marion SERRE, graduated in France with a Bachelor of Architecture and Interior Design in 2010. She has extensive experience collaborating with reputable architecture firms (Tarlet Architects & Gerzina Architecture, MAKE Creative & Innova Design etc.) involved in commercial, residential, retail and medical projects. Since September 2012, she founded Oli & J, a creative jewelry brand that specialized in the beauty of Australian Gemstones and timeless pieces which has launched into the European market by showcasing at the BIJORHCA International Jewelry Show (Paris, France) and display currently at the iconic Victoria & Albert Museum since 2016 (London, UK). Ms. SERRE currently resides in France.
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Juan RUIZ-COELLO, is the director of OJ Studio Pty Ltd with extensive experience in design and build projects, electrical network and fiber optic cable services, solar energy installations, energy efficiency and cryptocurrency infrastructure and systems. Mr. RUIZ-COELLO has been an accredited electrician since 2008 and undertook major design and build projects as a selected contractor for major commercial landmarks including the Queen Victoria Building and Sydney Westfields as well as for jewelry exhibitions and art galleries in Hong Kong, Paris, London and Sydney. He was responsible for domestic and commercial solar installations in Australia and Spain as a contractor and accredited installer for Ecopense Pty Ltd, an international leading expert in the solar and electrical industry. He has designed and developed crypto proof-of-state mining computers to support the Ethereum Cryptocurrency Network to compute the block chain transactions using high powered modified graphics cards and has developed and managed a solar and crypto currency mining rig to work effectively with energy efficient solar array system to make the mining system powered by green energy. He currently resides in Australia.
Chun Yip, Edmund CHAN, is a Qualified Public Accountant and graduated in Hong Kong with Bachelor of Business Administration (Honors) – Accounting. He worked as a Senior Auditor at RSM Nelson Wheeler, one of the largest CPA firms over 3 years and then as Senior Accountant at Time Watch Investments Limited, a public company for over 7 years. He has over 10 years’ experience in financial and management in listed companies and is appointed as Chairman of our Audit Committee.
Wood Shing Kei SZE, has been an independent Director of Troops, Inc., (Nasdaq: TROO), a NASDAQ listed company, since June 26, 2018. From April 2004 to April 2007, Mr. SZE served as an audit senior in Moore Stephens CPA Limited. From November 2007 to February 2008, Mr. SZE served as a senior accountant at Grant Thornton Hong Kong Limited. Subsequently, Mr. SZE served as financial manager of Global Beverages Asia Limited, Skyworth Digital Holdings Limited, and TAL Apparel Limited since 2008, 2009, and 2013 respectively. From September 2013 to April 2018, Mr. SZE served as the financial controller of the property & facility management services at Synergis Management Services Limited, a subsidiary of Synergis Holdings Limited (02340.HK) which is a Hong Kong listed company engaging in the provision of property and facility management services. Mr. SZE obtained a Bachelor of Arts degree in Accountancy from the Hong Kong Polytechnic University in 2002. Mr. SZE has been a chartered accountant at the Association of Chartered Certified Accountants since 2008.
Election of Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Family Relationships
None of the directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K Our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Employment Agreements with Named Executive Officers and Directors
We have entered into employment agreements with each of the named executive officers. Under these agreements, each of the named executive officers is employed for a specified time period and is entitled to receive annual salary plus other remuneration, pension insurance, medical insurance, maternity insurance, unemployment insurance, work-related injury insurance, housing provident funds and other benefits pursuant to PRC law. We and the named executive officers may terminate the employment upon mutual agreement. The named executive officers may terminate the employment by giving thirty days advance written notice. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as serious violation of the Company’s rules and regulations, gross neglect of duty and misconduct resulting in large economic losses to the Company, damaging the Company’s image through defamation or disseminating rumors about the Company or its employees outside the Company. We may also terminate the employment for cause, with thirty days advance written notice and one month’s salary, for certain acts of the executive officer, such as illness, non-work related injury resulting in inability to work in the previous position or a newly assigned position after recovery, and inability to perform the assigned work and failure to perform the assigned tasks even after training or adjustment of position. The employment agreements will be terminated upon (1) expiry of the employment, (2) the entitlement of the named executive officers to the pension insurance, (3) the death of the named executive officers, (4) the bankruptcy of the Company pursuant to law, and (5) revocation of the Company’s business license, shutdown of the business pursuant to the order issued by the relevant authority, or earlier dissolution of the Company.
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Each named executive officer has agreed not to be involved in a second occupation during the period of employment. Without our prior written consent or related mutual agreement, he shall not, directly or indirectly, hold any position in any other enterprises providing same or similar products or services.
Each named executive officer has agreed to be bound by non-competition restrictions during the term of his employment and for two years following termination of the employment. The executive officers are not allowed to contact our customers for business after termination of the employment and we have the right to bring legal action against them in the event of any losses so caused by their breach of said restrictions.
In addition, each named executive officer has agreed that the title to the intellectual property, including but not limited to patents and copyrights, created by him during the course of his employment, is vested in the Company. In exchange, the Company will compensate him based on the economic returns so derived.
We have entered into confidentiality agreements with each of the named executive officers. Each named executive officer has agreed (1) not to inquire about the trade secrets which are unrelated to the performance of his work; (2) not to disclose the trade secrets of the Company to any third party; (3) not to allow any third party to use or acquire the trade secrets of the Company, except as required in the performance of his or her duties in connection with the employment or pursuant to the instruction of the Company; (4) not to use the trade secrets of the Company for its own benefits; (5) to hold the trade secrets in strict confidence and report to the Company if the trade secrets are disclosed; and (6) to keep other confidential obligations. As a compensation, each named executive officer is entitled to receive a monthly confidentiality fee of $70.
Each executive officer has agreed to hold, both during and after the termination or expiry of his employment agreement, in strict confidence, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law or the Company’s instruction, any of our trade secrets, the trade secrets of our business partners and customers received by us and for which we have confidential obligations.
We are effective on the date of close of our initial public offering and the listing of our Ordinary Shares on the Nasdaq Capital Market. These agreements set forth the services to be provided and compensation to be received by our independent directors, as well as the independent directors’ obligations in terms of confidentiality, non-competition and non-solicitation. Pursuant to these agreements, the directorship of our independent director appointees will last until the earlier of (i) the date on which the director ceases to be a member of our board of directors for any reason or (ii) the next annual meeting of shareholders if the director is not re-elected.
| B. | Compensation of Directors and Executive Officers |
Our compensation committee approves our salaries and benefit policies. They determine the compensation to be paid to our executive officers based on our financial and operating performance and prospects, and contributions made by the officers to our success. Each of the named officers will be measured by a series of performance criteria by the board of directors, or the compensation committee on a yearly basis. Such criteria will be set forth based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance.
Our board of directors has not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executive officers. The board of directors will make an independent evaluation of appropriate compensation to key employees, with input from management. The board of directors has oversight of executive compensation plans, policies and programs.
Summary Compensation Table
The following table sets forth certain information with respect to compensation for the years ended December 31, 2024, 2023 and 2022 earned by or paid to our chief executive officer (the “named executive officers”).
|
Name and Principal Position |
Year |
Fee earned or paid in Cash ($) |
Base Compensation and bonus ($) |
Share Awards ($) |
Option Awards ($) |
Non-equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||||||||||||||||
| Mr. Pui Lung, HO | 2022 | 51,342 | - | - | - | - | - | - | 51,342 | ||||||||||||||||||||||||||
| Chief Executive Officer | 2023 | 51,541 | 8,590 | - | - | - | - | - | 60,131 | ||||||||||||||||||||||||||
| 2024 | 51,727 | 4,311 | - |
- | - | - | - | 56,038 |
|||||||||||||||||||||||||||
| Mr. Yuk Ming, Gary MA * | 2022 | 45,978 | - | - | - | - | - | - | 45,978 | ||||||||||||||||||||||||||
| Chief Financial Officer | 2023 | 46,156 | - | - | - | - | - | - | 46,156 | ||||||||||||||||||||||||||
| 2024 | 46,323 | - | - | - | - | - | - | 46,323 | |||||||||||||||||||||||||||
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Compensation of Directors
For the fiscal years ended December 31, 2024, 2023 and 2022, no members of our board of directors received compensation in their capacity as directors.
Director Compensation — Non-Employee Directors
Historically, we have not paid our non-employee directors. We have agreed to pay our independent directors an annual cash retainer of $4,645, subject to terms of the definitive agreements. We will also reimbursed all directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. In addition, we may provide incentive grants of stock, options or other securities convertible into or exchangeable for, our securities. For the years ended December 31, 2024, 2023 and 2022, we did not pay any non-employee directors because we did not have any non-employee directors. Messrs Ruiz-Coello, Chan and Serre joined us as independent directors on February 1, 2022 and Sze lately join on April 1, 2023 respectively.
Equity Incentive Plan
2024 Equity Incentive Plan
On December 02, 2024, the Board unanimously adopted the 2024 Equity Incentive Plan (the “2024 Plan”) which provides up to 2,264,077 ordinary shares that may be issued pursuant to awards granted under the 2024 Plan. On October 29, 2024, the 2024 Plan was approved by the shareholders of the Company at the annual shareholders meeting of the Company. 2,264,077 ordinary shares were awarded in December 2024 to one of our executive director and employees.
Purpose: The purpose of the 2024 Plan is to promote our success and to increase shareholder value by providing an additional means through the grant of equity compensation awards to attract, motivate, retain and reward selected employees and other eligible persons of WLGS.
Administration: The 2024 Plan is administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the 2024 Plan as the “Committee”).
Eligibility: All employees, directors, and consultants of the Company are eligible to receive awards under the 2024 Plan
Type and Form of Awards: The Committee shall determine the type or types of equity compensation award(s) to be made to each selected Eligible Person. Under the 2024 Plan, the Committee may grant options to purchase ordinary shares, share appreciation rights, restricted shares, and restricted share units. Such awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of WLGS.
Transfer Restrictions. Except as specifically provided in the 2024 Plan:
| 1. | all equity compensation awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; | |
| 2. | equity compensation awards shall be exercised only by the relevant participant; and | |
| 3. | amounts payable or shares issuable pursuant to any equity compensation award shall be delivered only to (or for the account of) the relevant participant. |
The 2024 Plan provides that incentive share options may not be transferred except by will or the laws of descent and distribution. The Committee has discretion to permit transfers of other awards where it concludes such transferability is appropriate and desirable.
Amendment, Termination and Term of the 2024 Plan: The Committee shall have the authority to amend any award agreement at any time; provided however, that no such amendment shall adversely affect the right of any participant under any outstanding award agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. The Board may terminate, suspend, or amend the 2024 Plan, in whole or in part, from time to time, without the approval of the shareholders of the Company, unless such approval is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. No amendment or termination of the 2024 Plan shall adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment or termination is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. Subject to the foregoing, the Committee may correct any defect or supply an omission or reconcile any inconsistency in the 2024 Plan or in any award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the 2024 Plan. The Board shall have the authority to amend the 2024 Plan to the extent necessary or appropriate to comply with applicable law, regulation or accounting rules in order to permit participants who are located outside of the United States to participate in the 2024 Plan. Notwithstanding anything to the contrary contained herein, no awards shall be granted on or after the tenth anniversary of the adoption of this Plan.
| C. | Board Practices |
Board of Directors
Our board of directors consists of five (5) directors.
A director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice, it shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion.
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Board Committees
We established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Copy of our committee charters are to be posted on our corporate investor relations website at http://www.wangnlee.com.hk prior to our listing on the Nasdaq.
Each committee’s members will be appointed when the close of our initial public offering and listing on the Nasdaq and their functions are described below.
Audit Committee. Our audit committee comprises Messrs Ruiz-Coello, Chan and Serre with Mr. Chun Yip, Edmund CHAN serving as chair. Our board of directors has determined that Mr. Chan qualifies as an audit committee financial expert and has the accounting or financial management expertise as defined under Item 407(d)(5) of Regulation S-K and required under NASDAQ Rule 5605(c)(2) We have also determined that Messrs Ruiz-Coello, Chan and Serre satisfy the “independence” requirements for purposes of serving on an audit committee under Rule 10A-3 of the Exchange Act and of NASDAQ Rule 5605(c)(2).
Our board of directors has also adopted a written charter for the audit committee which the audit committee reviews and reassesses for adequacy on an annual basis. A copy of the audit committee’s current charter is available at our corporate website.
Compensation Committee. Our Compensation Committee comprises Messrs Ruiz-Coello, Chan and Serre, with Mr. Juan RUIZ-COELLO serving as chair. We have also determined that Messrs Ruiz-Coello, Chan and Serre satisfy the “independence” requirements of NASDAQ Rule 5605(d)(2). The compensation committee oversees the compensation of our chief executive officer and our other executive officers and reviews our overall compensation policies for employees generally. If so authorized by the board of directors, the committee may also serve as the granting and administrative committee under any option or other equity-based compensation plans which we may adopt. The compensation committee does not delegate its authority to fix compensation; however, as to officers who report to the chief executive officer, the compensation committee consults with the chief executive officer, who may make recommendations to the compensation committee. Any recommendations by the chief executive officer are accompanied by an analysis of the basis for the recommendations. The committee will also discuss compensation policies for employees who are not officers with the chief executive officer and other responsible officers. A copy of the compensation committee’s current charter is available at our corporate website.
Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee comprises Messrs Ruiz-Coello, Chan and Serre, with Ms. Olivia Sarah Annabel Marion SERRE serving as chair. We have also determined that Messrs Ruiz-Coello, Chan and Serre, satisfy the “independence” requirements of NASDAQ Rule 5605(e). The governance and nominating committee is involved in evaluating the desirability of and recommending to the board of directors any changes in the size and composition of the board of directors, evaluation of and successor planning for the chief executive officer and other executive officers. The qualifications of any candidate for director will be subject to the same extensive general and specific criteria applicable to director candidates generally. A copy of the nominating committee’s current charter is available at our corporate website.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. The Code of Business Conduct and Ethics is currently available at our corporate website at http://www.wangnlee.com.hk/.
Duties of Directors
Under British Virgin Islands law, the directors owe fiduciary duties at both common law and under statute, including a statutory duty to act honestly, in good faith and with a view to our best interests. When exercising powers or performing duties as a director, the director is required to exercise the care, diligence and skill that a reasonable director would exercise in the circumstances taking into account, without limitation, the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken by him. In exercising the powers of a director, the directors must exercise their powers for a proper purpose and shall not act or agree to the company acting in a manner that contravenes our Amended Memorandum and Articles or the BVI Act.
In addition to the above, directors also owe a duty of care which is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and the general knowledge skill and experience which that director has.
As set out above, directors have a duty not to put themselves in a position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position.
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Qualification
There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.
Terms of Directors and Officers
Our directors may be elected by a resolution of our board of directors, or by a resolution of our shareholders. Each of our directors will hold office until the expiration of his or her term fixed by the resolution of shareholders or the resolution of directors appointing him or her, if any, or until his or her successor has been elected or appointed. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be or becomes of unsound mind, (iii) resigns his office by notice in writing to the company, or (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his office be vacated. Our officers are elected by and serve at the discretion of the board of directors.
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director shall forthwith disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to all other directors that a director is a member, director, or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure, be entered into with that entity or individual, is a sufficient disclosure in relation to that transaction.
Remuneration and Borrowing
The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the Company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.
| D. | Employees |
As of the date of this report, WANG & LEE CONTRACTING LIMITED employed a total of 10 employees , located in HK SAR. The following table sets forth breakdown of our employees by function:
| Functional Area | Number of Employees | % of Total | ||||||
| Management | 2 | 20 | % | |||||
| Project and Safety: | ||||||||
| - Engineers | 2 | 20 | % | |||||
| - Site Supervisors | 2 | 20 | % | |||||
| Administration | 2 | 20 | % | |||||
| Finance | 2 | 20 | % | |||||
| Total | 10 | 100 | % | |||||
We maintain a small, highly effective team and have fostered strong employee relationships. We have not experienced any significant labor disputes or operational disruptions related to employee relations. We provide various types of trainings to our employees including by means of various external training courses.
Our remuneration package includes salary and discretionary bonuses. In general, we determine employee salaries based on each employee’s qualifications, position and seniority. We will review our remuneration package annually. We provide a defined contribution to the Mandatory Provident Fund as required under the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) for our eligible employees in HK SAR.
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| E. | Share Ownership |
The following table sets forth information with respect to beneficial ownership of our Ordinary Shares as of the date of this annual report by:
| ● | Each person who is known by us to beneficially own more than 5% of our outstanding Ordinary Shares; | |
| ● | Each of our director, director nominees and named executive officers; and | |
| ● | All directors and named executive officers as a group. |
Our Company is authorized to issue an unlimited number of Ordinary Shares with no par value. The number and percentage of Ordinary Shares beneficially owned post-initial public offering. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our Ordinary Shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this report are deemed outstanding but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all Ordinary Shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of our Company at 5-6/F Wing Tai Factory Building, 3 Tai Yip Street, Kwun Tong, Kowloon, Hong Kong.
| Ordinary Shares Beneficially Owned | ||||||||
| Number | Percent | |||||||
| Directors and Executive Officers: | ||||||||
Pui Lung, Ho(1) Chief Executive Officer | 8,150,477 | 25.67 | % | |||||
| Yuk Ming, Gary Ma Chief Financial Officer | - | - | ||||||
| Olivia Sarah Annabel Marion Serre Director | - | - | ||||||
| Julio Ruiz-Coello Director | - | - | ||||||
| Chun Yip, Edmund Chan Director | - | - | ||||||
| Wood Shing Kei Sze Director | - | - | ||||||
| 5% Beneficial Owners | ||||||||
| WANG & LEE BROTHERS, Inc. | 8,000,000 | 25.19 | % | |||||
| (1) | WANG & LEE BROTHERS, Inc., a British Virgin Islands corporations, holds all 8,000,000 of the 13,400,000 WANG & LEE GROUP, Inc.’s issued and outstanding Ordinary Shares pre-initial public offering. WANG & LEE BROTHERS, INC, is in turn 100% owned by Mr. Pui Lung Ho, our Chief Executive Officer and Chairman. Accordingly, Mr. Ho has the sole voting and dispositive power over these shares. |
| As at December 18, 2024 the Company issued 150,477 Ordinary Shares to Mr. Pui Lung Ho with no par value under Equity Incentive Plan. |
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As of the date of this report, we are authorized to issue an unlimited number of shares of no par value in a single class. Holders of Ordinary Shares are entitled to one vote per share.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.
| F. | Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
Not applicable.
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. | Major Shareholders |
See “Item 6. Directors, Senior Management and Employees — E. Share Ownership”.
| B. | Related Party Transactions |
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees — B. Compensation of Directors and Executive Officers”.
Other Related Party Transactions
In addition to the executive officer and director compensation arrangements discussed in “Executive Compensation”, below we describe transactions since incorporation, to which we have been a participant, in which the amount involved in the transaction is material to our company and in which any of the following is a party: (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our Company that gives them significant influence over our Company, and close members of any such individual’s family; (d) key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of our Company, including directors and senior management of companies and close members of such individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.
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| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Amount due from (to) | ||||||||||||
| Pui Lung Ho | (1,366,738 | ) | (1,347,019 | ) | (1,853,263 | ) | ||||||
| WANG & LEE BROTHERS., Inc | 1,293 | 1,286 | 1,282 | |||||||||
For the years ended December 31, 2024, 2023, and 2022 the amounts due to the director, Pui Lung Ho, were $1,366,738, $1,347,019, and $1,853,263, respectively, and are unsecured, interest-free and repayable on demand.
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
| A. | Consolidated Statements and Other Financial Information |
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business. As of the date hereof, neither we nor any of our subsidiaries is a party to any pending legal proceedings, nor are we aware of any such proceedings threatened against us or our subsidiaries.
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Dividend Policy
We currently intend to retain most, if not all, of our available funds and any future earnings after our initial public offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future.
The holders of our Ordinary Shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our Ordinary Shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.
Subject to the BVI Act and our Amended Memorandum and Articles, our directors may, by resolution, declare dividends at a time and amount as they think fit if they are satisfied, based on reasonable grounds, that, immediately after distribution of the dividend, the value of our assets will exceed our liabilities and we will be able to pay our debts as they fall due. There is no further BVI law restriction on the amount of funds which may be distributed by us by dividend, including all amounts paid by way of the subscription price for Ordinary Shares regardless of whether such amounts may be wholly or partially treated as share capital or share premium under certain accounting principles. Shareholder approval is not (except as otherwise provided in our Amended Memorandum and Articles) required to pay dividends under BVI law. In accordance with, and subject to, our Amended Memorandum and Articles, no dividend shall bear interest as against the Company (except as otherwise provided in our Amended Memorandum and Articles).
If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our BVI subsidiary, WANG & LEE HOLDINGS, Inc. and our Hong Kong subsidiary, WANG & LEE CONTRACTING LIMITED. There are no taxes on dividend income in HK SAR and the British Virgin Islands.
| B. | Significant Changes |
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
| ITEM 9. | THE OFFER AND LISTING |
| A. | Offering and Listing Details. |
See “C. Markets”.
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
Our Ordinary Shares have been listed on the Nasdaq Capital Market under the symbol “WLGS” since April 20, 2023.
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
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| ITEM 10. | ADDITIONAL INFORMATION |
| A. | Share Capital |
Not applicable.
| B. | Memorandum and Articles of Association |
WANG & LEE GROUP, Inc. is a holding company incorporated under the laws of the British Virgin Islands on May 20, 2021. Our affairs are governed by the provisions of our Amended Memorandum and Articles, as amended and/or restated from time to time and the BVI Act, and the applicable laws of the BVI (including applicable common law).
Our Amended Memorandum and Articles authorizes us to issue an unlimited number of shares at no par value of a single class. All of our issued Ordinary Shares are fully paid and non-assessable. We may, but is not required to if the rules of the senior national exchange allow, issue share certificates specifying the number of Ordinary Shares held by each holder of Ordinary Shares in the Company. Our shareholders may freely hold and vote their Ordinary Shares.
Our Amended Memorandum and Articles permit the directors, by way of resolution of directors, to fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. All decisions about the compensation of directors will be recommended by the compensation committee and approved by way of resolution of directors of the Company.
The following description of our authorized shares and our constitutional rules under our Amended Memorandum and Articles is qualified in its entirety by reference to our Amended Memorandum and Articles, which have been filed as an exhibit to the registration statement of which this report is a part.
Memorandum and Articles of Association
The following discussion describes our Amended Memorandum and Articles that (subject to any limitations, restrictions or modifications in our Amended Memorandum and Articles; and subject to any rights or restrictions attaching to any shares) is currently in effect:
Objects and Purposes, Register, and Shareholders. Subject to the BVI Act and BVI law, our objects and purposes are unlimited. Our register of members will be maintained by our transfer agent, Transhare Securities Transfer and Registrar. Under the BVI Act, a BVI company may treat the registered holder of a share as the only person entitled to (a) exercise any voting rights attaching to the share, (b) receive notices, (c) receive a distribution in respect of the share and (d) exercise other rights and powers attaching to the share. Consequently, as a matter of BVI Law, where a shareholder’s shares are registered in the name of a nominee such as Cede & Co, the nominee is entitled to receive notices, receive distributions and exercise rights in respect of any such shares registered in its name. The beneficial owners of the shares registered in a nominee’s name will therefore be reliant on their contractual arrangements with the nominee in order to receive notices and dividends and ensure the nominee exercises voting and other rights in respect of the shares in accordance with their directions.
Directors’ Powers. Under the BVI Act, subject to any modifications or limitations in a company’s Amended Memorandum and Articles, a company’s business and affairs are managed by, or under the direction or supervision of, its directors; and directors generally have all powers necessary to manage a company. A director must disclose any interest he has on any proposal, arrangement or contract not entered into in the ordinary course of business and on usual terms and conditions. An interested director may (subject to the Amended Memorandum and Articles) vote on a transaction in which he has an interest. In accordance with, and subject to, our Amended Memorandum and Articles, the directors may by resolution of directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party.
Rights, Preferences and Restrictions of Ordinary Shares. Our directors may (subject to our Amended Memorandum and Articles and BVI law) authorize dividends at such time and in such amount as they determine. Each Ordinary Share is entitled to one vote on any resolution of shareholders. In the event of a liquidation or dissolution of the Company, each Ordinary Share (subject to our Amended Memorandum and Articles) is entitled to an equal share in all surplus assets remaining available for distribution to them after payment and discharge of all claims, debts, liabilities and obligations of the Company and after provision is made for each class of shares (if any) having preference over the Ordinary Shares. Holders of our Ordinary Shares have no pre-emptive rights. Subject to the provisions of the BVI Act, we may, (subject to our Amended Memorandum and Articles) with the consent of the shareholder whose shares are to be purchased, repurchase our Ordinary Shares in certain circumstances provided that the Company will, immediately after the repurchase, satisfy the solvency test. The Company will satisfy the solvency test, if (i) the value of the Company’s assets exceeds its liabilities; and (ii) the Company is able to pay its debts as they fall due.
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In accordance with the BVI Act:
| (i) | the Company may purchase, redeem or otherwise acquire its own shares in accordance with either (a) Sections 60, 61 and 62 of the BVI Act (save to the extent that those Sections are negated, modified or inconsistent with provisions for the purchase, redemption or acquisition of its own shares specified in the Company’s Amended Memorandum and Articles); or (b) such other provisions for the purchase, redemption or acquisition of its own shares as may be specified in the Company’s Amended Memorandum and Articles. The Company’s Amended Memorandum and Articles provide that such Sections 60, 61 and 62 do not apply to the Company; and | |
| (ii) | where a company may purchase, redeem or otherwise acquire its own shares otherwise than in accordance with Sections 60, 61 and 62 of the BVI Act, it may not purchase, redeem or otherwise acquire the shares without the consent of the member whose shares are to be purchased, redeemed or otherwise acquired, unless the Company is permitted by the Amended Memorandum and Articles to purchase, redeem or otherwise acquire the shares without that consent; and | |
| (iii) | unless the shares are held as treasury shares in accordance with Section 64 of the BVI Act, any shares acquired by the Company are deemed to be cancelled immediately on purchase, redemption or other acquisition. |
Variation of the Rights of Shareholders. Pursuant to our Amended Memorandum and Articles, the rights conferred upon the holders of the shares of any class of the Company may (subject to our Amended Memorandum and Articles) only be varied, whether or not the Company being wound up, with the consent in writing of or by resolution passed at a meeting by the holders of more than 50 percent of the issued shares of that class.
Shareholder Meetings. In accordance with, and subject to, our Amended Memorandum and Articles, (a) any director of the Company may convene meetings of the shareholders at such times as the director considers necessary or desirable (and the director convening a meeting of shareholders may fix as the record date for determining those shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice); and (b) upon the written request of shareholders entitled to exercise 30% or more of the voting rights in respect of the matter for which the meeting is requested, the directors shall convene a meeting of shareholders. Under BVI Law, the memorandum and articles of association may be amended to decrease but not increase the required percentage to call a meeting above 30%. In accordance with, and subject to, our Amended Memorandum and Articles, (a) the director convening a meeting shall give not less than 7 days’ notice of a meeting of shareholders to those shareholders whose names on the date the notice is given appear as shareholders in the register of members of the Company and are entitled to vote at the meeting; and the other directors; (b) a meeting of shareholders held in contravention of the requirement to give notice is valid if shareholders holding at least 90% of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a shareholder at the meeting shall constitute waiver in relation to all of the shares that that shareholder holds; (c) a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50% of the votes of the shares or, where there exists more than one class of shares, not less than 50 percent of each class or series of shares entitled to vote on resolutions of shareholders to be considered at the meeting; and (d) if within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the request of the shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.
Dividends. Subject to the BVI Act and our Amended Memorandum and Articles, the directors of the Company may, by resolution of the directors, authorize a distribution by way of dividend at a time and amount as they think fit if they are satisfied, based on reasonable grounds, that, immediately after distribution of the dividend, the Company will meet the statutory solvency test. In accordance with, and subject to, our Amended Memorandum and Articles, no dividend shall bear interest as against the Company (except as otherwise provided in our Amended Memorandum and Articles).
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Liquidation. On a liquidation or winding up of the Company assets available for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis.
Appointment and Removal of Directors. In accordance with, and subject to, our Amended Memorandum and Articles (including, for the avoidance of any doubt, any rights or restrictions attaching to any Ordinary Shares), (a) the first directors of the Company shall be appointed by the first registered agent within 6 months of the date of the incorporation of the Company; and thereafter, the directors shall be elected by resolution of shareholders or by resolution of directors for such term as the shareholders or directors determine; (b) each director holds office for the term, if any, fixed by the resolution of shareholders or resolution of directors appointing him, or until his disqualification, earlier death, resignation or removal; (c) a director may be removed from office: (i) with or without cause, by a resolution of shareholders passed at a meeting of shareholders called for the purposes of removing the director or for purposes including the removal of the director or by a written resolution passed by a least seventy five percent of the Shareholders of the Company entitled to vote; or (ii) with cause, by a resolution of directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director resolution of directors or resolution of shareholders; (d) a director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company at the office of its registered agent or from such later date as may be specified in the notice and a director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the BVI Act; (e) the directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors and where the directors appoint a person as director to fill a vacancy, the term shall not exceed the term that remained when the person who has ceased to be a director ceased to hold office; (f) a vacancy in relation to directors occurs if a director dies or otherwise ceases to hold office prior to the expiration of his term of office; and (g) a director is not required to hold shares in the Company as a qualification to office.
Meetings of Directors. In accordance with, and subject to, our Amended Memorandum and Articles, (a) any one director of the Company may call a meeting of the directors by sending a written notice to each other director; (b) the directors of the Company or any committee thereof may meet at such times and in such manner as the directors may determine to be necessary or desirable; (c) a director shall be given not less than 3 days’ notice of meetings of directors, but a meeting of directors held without 3 days’ notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend waive notice of the meeting, and for this purpose the presence of a director at a meeting shall constitute waiver by that director and the inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting; (d) a meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of directors, unless there are only 2 directors in which case the quorum is two; (e) a director may by a written instrument appoint an alternate who need not be a director and the alternate shall be entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director until the appointment lapses or is terminated; (f) a resolution of directors is passed if either (i) the resolution is approved at a duly convened and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or (ii) the resolution is consented to in writing by all directors or by all members of a committee of directors of the Company, as the case may be, unless (in either case) the BVI Act or our Amended Memorandum and Articles require a different majority.
Indemnification of Directors. In accordance with, and subject to, our Amended Memorandum and Articles (including the limitations detailed therein), the Company shall indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who (a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director of the Company; or (b) is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise.
In accordance with, and subject to, our Amended Memorandum and Articles (including the limitations detailed therein), (a) the indemnity referred to above only applies if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful; (b) the decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of the articles of association, unless a question of law is involved; and (c) the termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful.
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In accordance with, and subject to, our Amended Memorandum and Articles, the Company may purchase and maintain insurance in relation to any person who is or was a director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in the articles of association.
Directors and Conflicts of Interest. As noted above, pursuant to the BVI Act and the Company’s Amended Memorandum and Articles, a director of a company who has an interest in a transaction entered into or to be entered into by the Company and who has declared such interest to the other directors, may:
| (a) | vote on a matter relating to the transaction; | |
| (b) | attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and | |
| (c) | sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction, and, subject to compliance with the BVI Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit. |
In accordance with, and subject to, our Amended Memorandum and Articles, (a) a director of the Company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other directors of the Company; and (b) for the purposes noted foregoing, a disclosure to all other directors to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction.
Issuance of Additional Shares. Our Amended Memorandum and Articles authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine.
However, under British Virgin Islands law, our directors may only exercise the rights and powers granted to them under our Amended Memorandum and Articles for a proper purpose and for what they believe in good faith to be in the best interests of our Company.
Transfer of Shares. Under the BVI Act and our Amended Memorandum and Articles, shares that are listed on a recognized exchange may be transferred without the need for a written instrument of transfer if the transfer is carried out in accordance with the laws, rules, procedures and other requirements applicable to shares listed on the recognized exchange.
Disclosure of the SEC’s Position on Indemnification for Securities Act Liabilities. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Summary of Certain Significant Provisions of BVI Law
The BVI Act differs from laws applicable to US corporations and their shareholders. Set forth below is a summary of certain significant provisions of the BVI Act applicable to us (save to the extent that such provisions have been, to the extent permitted under the BVI Act, negated or modified in our Amended Memorandum and Articles in accordance with the BVI Act).
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Mergers and Similar Arrangements. Under the BVI Act two or more BVI companies or a BVI company and non-BVI company, each a “constituent company”, may merge or consolidate. The BVI Act provides for slightly different procedures depending on the nature of the parties to the merger.
A merger involves the merging of two or more companies into one of the constituent companies (to the merger) with one constituent company continuing in existence to become the surviving company post-merger. A consolidation involves two or more companies consolidating into a new company.
A merger is effective on the date that the articles of merger (as described below) are registered by the Registrar of Corporate Affairs in the BVI, or on such later date, not exceeding 30 days from the date of registration as is stated in the articles of merger.
As soon as a merger becomes effective:
| a. | the surviving company (so far as is consistent with its memorandum and articles, as amended by the articles of merger) has all rights, privileges, immunities, powers, objects and purposes of each of the constituent companies; | |
| b. | the memorandum and articles of the surviving company are automatically amended to the extent, if any, that changes to its memorandum and articles are contained in the articles of merger; | |
| c. | assets of every description, including choses in action and the business of each of the constituent companies, immediately vest in the surviving company; | |
| d. | the surviving company is liable for all claims, debts, liabilities and obligations of each of the constituent companies; | |
| e. | no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against a constituent company or against any member, director, officer or agent thereof, is released or impaired by the merger; and | |
| f. | no proceedings, whether civil or criminal, pending at the time of a merger by or against a constituent company, or against any member, director or officer, or agent thereof, are abated or discontinued by the merger; but |
| (i) | the proceedings may be enforced, prosecuted, settled or compromised by or against the surviving company or against the member, director, officer or agent thereof, as the case may be; or | |
| (ii) | the surviving company may be substituted in the proceedings for a constituent company. |
The registrar shall strike off the Register of Companies a constituent company that is not the surviving company in the merger.
The BVI Act provides that any member of the Company is entitled to payment of the fair value of his shares upon dissenting from a merger, unless the Company is the surviving company of the merger and the member continues to hold the same or similar shares. The following is a summary of the position in respect of dissenters rights in the event of a merger under the BVI Act.
A dissenter is in most circumstances required to give to the Company written objection to the merger, which must include a statement that the dissenter proposes to demand payment for his shares if the merger takes place. This written objection must be given before the meeting of members at which the merger is submitted to a vote, or at the meeting but before the vote. However, no objection is required from a member to whom the Company did not give notice of the meeting of members or where the proposed merger is authorized by written consent of the members without a meeting.
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Within 20 days immediately following the written consent, or the meeting at which the merger was approved, the Company shall give written notice of the consent or resolution to each member who gave written objection or from whom written objection was not required, except those members who voted for, or consented in writing to, the proposed merger.
A member to whom the Company was required to give notice who elects to dissent shall, within 20 days immediately following the date on which the copy of the plan of merger or an outline of the merger is given to him, give to the Company a written notice of his decision to elect to dissent, stating:
| (a) | his name and address; | |
| (b) | the number and classes of shares in respect of which he dissents (which must be all shares that he holds in the Company); and | |
| (c) | a demand for payment of the fair value of his shares. |
Upon the giving of a notice of election to dissent, the dissenter ceases to have any of the rights of a member except the right to be paid the fair value of his shares, and the right to institute proceedings to obtain relief on the ground that the action is illegal.
The Company shall make a written offer to each dissenter to purchase his shares at a specified price that the Company determines to be their fair value. Such offer must be given within 7 days immediately following the date of the expiration of the period within which members may give their notices of election to dissent, or within 7 days immediately following the date on which the merger is put into effect, whichever is later.
If the Company and the dissenter fail, within 30 days immediately following the date on which the offer is made, to agree on the price to be paid for the shares owned by the dissenter, then within 20 days:
| (a) | the Company and the dissenter shall each designate an appraiser; | |
| (b) | the two designated appraisers together shall designate an appraiser; | |
| (c) | the three appraisers shall fix the fair value of the shares owned by the dissenter as of the close of business on the day prior to the date of the meeting or the date on which the resolution was passed, excluding any appreciation or depreciation directly or indirectly induced by the action or its proposal, and that value is binding on the Company and the dissenter for all purposes; and | |
| (d) | the Company shall pay to the dissenter the amount in money upon the surrender by him of the certificates representing his shares, and such shares shall be cancelled. |
Continuation into a Jurisdiction Outside the BVI. In accordance with, and subject to, our Amended Memorandum and Articles, the Company may by resolution of shareholders or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the BVI in the manner provided under those laws. The Company does not cease to be a BVI company unless the foreign law permits continuation and the BVI company has complied with the requirements of that foreign law. Where a company that wishes to continue as a company incorporated under the laws of a jurisdiction outside the BVI has a charge registered in respect of the property of the company undersection 163 of the BVI Act which has not been released or satisfied, it shall, before continuing and provided that the charge does not contain a covenant prohibiting continuation of the company outside the BVI, provide a written declaration addressed to the Registrar specifying that: (a) a notice of satisfaction or release in respect of the charge has been filed and registered under section 165 of the BVI Act; (b) where paragraph (a) has not been complied with, the chargee to whom the registered charge relates has been notified in writing of the intention to continue the company as a company incorporated under the laws of a jurisdiction outside the BVI and the chargee has given his or her consent or has not objected to the continuation; or (c) where paragraph (a) has not been satisfied and the chargee, after notification under paragraph (b), has not given his or her consent or objected to the continuation, the chargee’s interest secured by the registered charge shall not be diminished or in any way compromised by the continuation and the charge shall operate as a liability of the continued company incorporated under the laws of a jurisdiction outside of the BVI. Where a company is continued under the laws of a jurisdiction outside the BVI, (a) the company continues to be liable for all of its claims, debts, liabilities and obligations that existed prior to its continuation, (b) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against the company or against any shareholder, director, officer or agent thereof, is released or impaired by its continuation as a company under the laws of the jurisdiction outside the BVI, (c) no proceedings, whether civil or criminal, pending by or against the company, or against any shareholder, director, officer or agent thereof, are abated or discontinued by its continuation as a company under the laws of the jurisdiction outside the BVI, but the proceedings may be enforced, prosecuted, settled or compromised by or against the Company or against the shareholder, director, officer or agent thereof, as the case may be; and (d) service of process may continue to be effected on the registered agent of the company in the BVI in respect of any claim, debt, liability or obligation of the Company during its existence as a company under the BVI Act.
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Members’ Suits. Under the provisions of the BVI Act, the memorandum and articles of association of a company are binding as between the company and its members and between the members.
If the majority members have infringed a minority member’s rights, the minority may seek to enforce its rights either by derivative action or by personal action. A derivative action concerns the infringement of the company’s rights where the wrongdoers are in control of the company and are preventing it from taking action, whereas a personal action concerns the infringement of a right that is personal to the particular member concerned.
The BVI Act provides for a series of remedies available to members. Where a company incorporated under the BVI Act conducts some activity which breaches the BVI Act or the company’s memorandum and articles of association, the BVI High Court can issue a restraining or compliance order. Members can now also bring derivative, personal and Representative Actions under certain circumstances.
Generally, any other claims against a company by its members must be based on the general laws of contract or tort applicable in the BVI or their individual rights as members as established by the company’s memorandum and articles of association.
In certain circumstances, a member has the right to seek various remedies against the company in the event the directors are in breach of their duties under the BVI Act. Pursuant to Section 184B of the BVI Act, if a company or director of a company engages in, proposes to engage in or has engaged in, conduct that contravenes the provisions of the BVI Act or the memorandum or articles of association of the company, the courts of the British Virgin Islands may, on application of a member or director of the company, make an order directing the company or director to comply with, or restraining the company or director from engaging in conduct that contravenes the BVI Act or the memorandum or articles. Furthermore, pursuant to Section 184I(1) of the BVI Act, a member of a company who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any acts of the company have been, or are likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the courts of the British Virgin Islands for an order which, inter alia, can require the company or any other person to pay compensation to the members.
Inspection of Books and Records. A member of the Company is entitled, on giving written notice to the Company, to inspect (a) the memorandum and articles of association of the Company; (b) the register of members; (c) the register of directors; and (d) the minutes of meetings and resolutions of members and of those classes of members of which he is a member; and to make copies of or take extracts from the documents and records. Subject to the memorandum and articles of association, the directors may, if they are satisfied that it would be contrary to the Company’s interests to allow a member to inspect any document, or part of a document, specified in (b), (c) and (d) above, refuse to permit the member to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts from the records. Where a company fails or refuses to permit a member to inspect a document or permits a member to inspect a document subject to limitations, that member may apply to the BVI High Court for an order that he should be permitted to inspect the document or to inspect the document without limitation.
A company is required to keep at the office of its registered agent: its memorandum and articles of association of the company; the register of members or a copy of the register of members; the register of directors or a copy of the register of directors; and copies of all notices and other documents filed by the company in the previous ten years.
Squeeze-out Provisions. Members of a company holding 90% of the votes of the outstanding shares entitled to vote and members of a company holding 90% of the votes of the outstanding shares of each class of shares entitled to vote as a class, may give a written instruction to the company directing it to redeem the shares held by the remaining members.
Dissolution; Winding up. Under BVI law, the liquidation of a company may be a voluntary solvent liquidation or an insolvent liquidation under the Insolvency Act. Where a company has been struck off the Register of Companies under the BVI Act continuously for a period of 7 years it is dissolved with effect from the last day of that period.
Voluntary Liquidation If the liquidation is a solvent liquidation, the provisions of the BVI Act governs the liquidation. A company may only be liquidated under the BVI Act as a solvent liquidation if it has no liabilities or it is able to pay its debts as they fall due and the value of its assets exceeds its liabilities. Subject to the memorandum and articles of association of a company, a liquidator may be appointed by a resolution of directors or resolution of members but if the directors have commenced liquidation by a resolution of directors the members must approve the liquidation plan by a resolution of members save in limited circumstances.
A liquidator is appointed for the purpose of collecting in and realizing the assets of a company and distributing proceeds to creditors.
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Rights of Non-resident or Foreign Members. There are no limitations imposed by memorandum and articles of association on the rights of non-resident or foreign members to hold or exercise voting rights on our shares. In addition, there are no provisions in our Amended Memorandum and Articles governing the ownership threshold above which member ownership must be disclosed.
Anti-money laundering. In order comply with legislation or regulations aimed at the prevention of money laundering the Company is required to adopt and maintain anti-money laundering procedures, and may require members to provide evidence to verify their identity. Where permitted, and subject to certain conditions, the Company also may delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person.
If any person resident in the British Virgin Islands knows or suspects that another person is engaged in money laundering or terrorist financing and the information for that knowledge or suspicion came to their attention in the course of their business the person will be required to report his belief or suspicion to the Financial Investigation of the British Virgin Islands, pursuant to the Proceeds of Criminal Conduct Act 1997 (as amended). Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
Material Differences in BVI Law and our Amended Memorandum and Articles and Delaware Law
Our corporate affairs are governed by our Amended Memorandum and Articles and the provisions of applicable BVI law, including the BVI Act and BVI common law. The BVI Act differs from laws applicable to US corporations and their shareholders. The following table provides a comparison between certain statutory provisions of the BVI Act (together with the provisions of our Amended Memorandum and Articles) and the Delaware General Corporation Law relating to shareholders’ rights.
Shareholder Meetings
| BVI | Delaware | |||||
| ● | In accordance with, and subject to, our Amended Memorandum and Articles (a) any director of the company may convene meetings of the shareholders at such times and in such manner as the director considers necessary or desirable; and (b) upon the written request of shareholders entitled to exercise thirty percent (30%) or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting of shareholders. | ● | May be held at such time or place as designated in the charter or the by-laws, or if not so designated, as determined by the board of directors. | |||
| ● | May be held inside or outside the BVI. | ● | May be held inside or outside Delaware. | |||
| ● | In accordance with, and subject to, our Amended Memorandum and Articles, (a) the director convening a meeting shall give not less than 7 days’ notice of a meeting of shareholders to those shareholders whose names on the date the notice is given appear as shareholders in the register of members of the company and are entitled to vote at the meeting; and the other directors; and (b) the director convening a meeting of shareholders may fix as the record date for determining those shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice. | ● | Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any. | |||
Shareholder’s Voting Rights
| BVI | Delaware | |||||
| ● | In accordance with, and subject to, our Amended Memorandum and Articles (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) a shareholder may be represented at a meeting of shareholders by a proxy who may speak and vote on behalf of the shareholder; and (b) the instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice of the meeting may specify an alternative or additional place or time at which the proxy shall be presented. | ● | Any person authorized to vote may authorize another person or persons to act for him by proxy. | |||
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| ● | In accordance with, and subject to, our Amended Memorandum and Articles (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than fifty percent (50%) of the votes of the shares or class or series of shares entitled to vote on resolutions of shareholders to be considered at the meeting; and (b) if within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. | ● |
The charter or bylaws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares shall constitute a quorum.
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| ● | In accordance with, and subject to, our Amended Memorandum and Articles (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) at any meeting of the shareholders, the chairman is responsible for deciding in such manner as he considers appropriate whether any resolution proposed has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll then any shareholder present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall cause a poll to be taken forthwith. If a poll is taken at any meeting, the result shall be announced to the meeting and recorded in the minutes of the meeting. In accordance with the BVI Act, a shareholder resolution is passed if approved by a majority of in excess of 50% or, if a higher majority is required by the memorandum and articles, that higher majority, of the votes of those shareholders entitled to vote and voting on the resolution; unless (in either case) the BVI Act or our Amended Memorandum and Articles require a different majority. | ● |
Except as provided in the charter documents, changes in the rights of shareholders as set forth in the charter documents require approval of a majority of its shareholders.
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| ● | In accordance with, and subject to, our Amended Memorandum and Articles, (a) the rights attached to shares as specified in the memorandum may only, whether or not the Company is in liquidation, be varied with the consent in writing of or by a resolution passed at a meeting by the holders of more than 50 percent of the issued shares of that class, except where some other majority is required under our Amended Memorandum and Articles or the BVI Act. | ● | The certificate of incorporation or bylaws may provide for cumulative voting. | |||
| ● | In accordance with, and subject to, our Amended Memorandum and Articles (including, for the avoidance of any doubt, Clause 8 of the memorandum and any rights or restrictions attaching to any shares), the company may amend its memorandum or articles by a resolution of shareholders or by a resolution of directors, save that no amendment may be made by a Resolution of directors: (i) to restrict the rights or powers of the shareholders to amend the memorandum or articles; (ii) to change the percentage of shareholders required to pass a Resolution of Shareholders to amend the memorandum or articles; (iii) in circumstances where the memorandum or articles cannot be amended by the shareholders or (iv) to Clauses 7, 8, 9 or 12 of the memorandum. |
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| Directors | ||||||
| BVI | Delaware | |||||
| ● | In accordance with, and subject to, our Amended Memorandum and Articles, the minimum number of directors shall be one. | ● | Board must consist of at least one member. | |||
| ● | In accordance with, and subject to, our Amended Memorandum and Articles (including, for the avoidance of any doubt, any rights or restrictions attaching to any Ordinary Shares), (a) the first directors of the Company shall be appointed by the first registered agent within 6 months of the date of the incorporation of the Company; and thereafter, the directors shall be elected by resolution of shareholders or by resolution of directors for such term as the shareholders or directors determine; (b) each director holds office for the term, if any, fixed by the resolution of shareholders or resolution of directors appointing him, or until his earlier death, resignation or removal; (c) a director may be removed from office: (i) with or without cause, by a resolution of shareholders passed at a meeting of shareholders called for the purposes of removing the director or for purposes including the removal of the director or by a written resolution passed by a least seventy five percent of the Shareholders of the Company entitled to vote; or (ii) with cause, by a resolution of directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director; (d) a director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company at the office of its registered agent or from such later date as may be specified in the notice and a director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the BVI Act; and (e) a director is not required to hold Ordinary Shares as a qualification to office. | ● | Number of board members shall be fixed by the by laws, unless the charter fixes the number of directors, in which case a change in the number shall be made only by amendment of the charter. | |||
| ● | Directors do not have to be independent. | ● | Directors do not have to be independent. | |||
| Shareholder’s Derivative Actions | ||||||
| BVI | Delaware | |||||
| ● | Under the provisions of the Act, the memorandum and articles of association of a company are binding as between the company and its members and between the members. In general, members are bound by the decision of the majority or special majorities as set out in the articles of association or in the Act. As for voting, the usual rule is that with respect to normal commercial matters members may act from self-interest when exercising the right to vote attached to their shares. | ● | In any derivative suit instituted by a shareholder of a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the corporation at the time of the transaction of which he complains or that such shareholder’s stock thereafter devolved upon such shareholder by operation of law. | |||
| ● | If the majority members have infringed a minority member’s rights, the minority may seek to enforce its rights either by derivative action or by personal action. A derivative action concerns the infringement of the company’s rights where the wrongdoers are in control of the company and are preventing it from taking action, whereas a personal action concerns the infringement of a right that is personal to the particular member concerned. | ● | Complaint shall set forth with particularity the efforts of the plaintiff to obtain the action by the board of directors or the reasons for not making such effort. | |||
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| ● | The Act provides for a series of remedies available to members. Where a company incorporated under the Act conducts some activity which breaches the Act or the company’s memorandum and articles of association, the BVI High Court can issue a restraining or compliance order. Members can now also bring derivative, personal and Representative Actions under certain circumstances. | ● | Such action shall not be dismissed or compromised without the approval of the Delaware Court of Chancery. | |||
| ● | The traditional English basis for members’ remedies have also been incorporated into the Act: where a member of a company considers that the affairs of the company have been, are being or are likely to be conducted in a manner likely to be oppressive, unfairly discriminating or unfairly prejudicial to him, he may apply to the BVI High Court for an order on such conduct. | |||||
| ● | Any member of a company may apply to the BVI High Court for the appointment of a liquidator for the company and the Court may appoint a liquidator for the company if it is of the opinion that it is just and equitable to do so. | |||||
| ● | The Act provides that any member of a company is entitled to payment of the fair value of his shares upon dissenting from any of the following: |
| (a) | a merger; | |
| (b) | a consolidation; | |
| (c) | any sale, transfer, lease, exchange or other disposition of more than 50 percent in value of the assets or business of the company if not made in the usual or regular course of the business carried on by the company but not including (i) a disposition pursuant to an order of the court having jurisdiction in the matter; (ii) a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the members in accordance with their respective interest within one year after the date of disposition; or (iii) a transfer pursuant to the power of the directors to transfer assets for the protection thereof; | |
| (d) | a redemption of 10 percent, or fewer, of the issued shares of the company required by the holders of 90 percent, or more, of the shares of the company pursuant to the terms of the Act; and | |
| (e) | an arrangement, if permitted by the BVI High Court. |
| ● | Generally, any other claims against a company by its members must be based on the general laws of contract or tort applicable in the BVI or their individual rights as members as established by the company’s memorandum and articles of association. | |
| ● | The Act provides that if a company or a director of a company engages in, proposes to engage in or has engaged in, conduct that contravenes the Act or the memorandum or articles of association of the company, the BVI High Court may, on the application of a member or a director of the company, make an order directing the company or director to comply with, or restraining the company or director from engaging in conduct that contravenes the Act or the memorandum or articles of association. |
| C. | Material Contracts |
We have not entered into any material contracts other than in the ordinary course of business and other than those described under “Item 4. Information on the Company”, “Item 7. Major Shareholders and Related Party Transactions” or elsewhere in this annual report.
| D. | Exchange Controls |
There are currently no exchange control regulations in the British Virgin Islands applicable to us or our shareholders.
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| E. | Taxation |
Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our Ordinary Shares by a U.S. Holder (as defined below) that acquires our Ordinary Shares in our offering and holds our Ordinary Shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position.
This discussion, moreover, does not address the U.S. federal estate, gift, Medicare, and alternative minimum tax considerations, any withholding or information reporting requirements, or any state, local and non-U.S. tax considerations relating to the ownership or disposition of our Ordinary Shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:
| ● | banks and other financial institutions; | |
| ● | underwriters; | |
| ● | insurance companies; | |
| ● | pension plans; | |
| ● | cooperatives; | |
| ● | regulated investment companies; | |
| ● | real estate investment trusts; | |
| ● | broker-dealers; | |
| ● | traders that elect to use a market-to-market method of accounting; | |
| ● | certain former U.S. citizens or long-term residents; | |
| ● | governments or agencies or instrumentalities thereof; | |
| ● | tax-exempt entities (including private foundations); | |
| ● | holders who acquired our Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation; | |
| ● | investors that will hold our Ordinary Shares as part of a straddle, hedging, conversion or other integrated transaction for U.S. federal income tax purposes; | |
| ● | persons holding their Ordinary Shares in connection with a trade or business outside the United States; | |
| ● | persons that actually or constructively own 5% or more of our voting power or value (including by reason of owning our Ordinary Shares); | |
| ● | investors required to accelerate the recognition of any item of gross income with respect to their Ordinary Shares as a result of such income being recognized on an applicable financial statement; | |
| ● | investors that have a functional currency other than the U.S. dollar; | |
| ● | partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding Ordinary Shares through such entities, all of whom may be subject to tax rules that differ significantly from those discussed below. |
The discussion set forth below is addressed only to U.S. Holders that purchase Ordinary Shares in our offering. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our Ordinary Shares that is, for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; | |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; | |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or | |
| ● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our Ordinary Shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our Ordinary Shares and their partners are urged to consult their tax advisors regarding an investment in our Ordinary Shares.
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Persons considering an investment in our Ordinary Shares should consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of our Ordinary Shares including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the PFIC rules discussed below, a U.S. Holder generally will be required to include in gross income, in accordance with such U.S. Holder’s method of accounting for United States federal income tax purposes, as dividends the amount of any distribution paid on the Ordinary Shares to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under United States federal income tax principles). Such dividends paid by us will be taxable to a corporate U.S. Holder as dividend income and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. Dividends received by certain non-corporate U.S. Holders (including individuals) may be “qualified dividend income”, which is taxed at the lower capital gains rate, provided that our Ordinary Shares are readily tradable on an established securities market in the United States and the U.S. Holder satisfies certain holding periods and other requirements. In this regard, shares generally are considered to be readily tradable on an established securities market in the United States if they are listed on Nasdaq, as our Ordinary Shares are expected to be.
Distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its Ordinary Shares (but not below zero) and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such Ordinary Shares. In the event that we do not maintain calculations of our earnings and profits under United States federal income tax principles, a U.S. Holder should expect that all cash distributions will be reported as dividends for United States federal income tax purposes. U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for any cash dividends paid with respect to our Ordinary Shares.
Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposes and will generally constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit not in excess of any applicable treaty rate in respect of any foreign withholding taxes imposed on dividends received on our Ordinary Shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Taxation of Dispositions of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company (“PFIC”) Rules”, a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of Ordinary Shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such Ordinary Shares. Any capital gain or loss will be long term if the Ordinary Shares have been held for more than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currently eligible for reduced rates of taxation. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our Ordinary Shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company (“PFIC”) Rules
A non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and cash equivalents are categorized as passive assets and the company’s goodwill and other unbooked intangibles are taken into account as non-passive assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
No assurance can be given as to whether we may be or may become a PFIC, as this is a factual determination made annually that will depend, in part, upon the composition of our income and assets. Furthermore, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in any offering. Under circumstances where our revenue from activities that produce passive income significantly increase relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase. In addition, because there are uncertainties in the application of the relevant rules, it is possible that the Internal Revenue Service may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent taxable years. If we were classified as a PFIC for any year during which a U.S. Holder held our Ordinary Shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder held our Ordinary Shares even if we cease to be a PFIC in subsequent years, unless certain elections are made. Our U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year.
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If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our Ordinary Shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the Ordinary Shares), and (ii) any gain realized on the sale or other disposition of Ordinary Shares. Under these rules,
| ● | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares; | |
| ● | the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; | |
| ● | the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year; and | |
| ● | an additional tax equal to the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each prior taxable year, other than a pre-PFIC year, of the U.S. Holder. |
If we are treated as a PFIC for any taxable year during which a U.S. Holder holds our Ordinary Shares, or if any of our subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of any lower-tier PFICs for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock, provided that such stock is “regularly traded” within the meaning of applicable U.S. Treasury regulations. If our Ordinary Shares qualify as being regularly traded, and an election is made, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of Ordinary Shares held at the end of the taxable year over the adjusted tax basis of such Ordinary Shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the Ordinary Shares over the fair market value of such Ordinary Shares held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the Ordinary Shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our Ordinary Shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
Furthermore, as an alternative to the foregoing rules, a U.S. Holder that owns stock of a PFIC generally may make a “qualified electing fund” election regarding such corporation to elect out of the PFIC rules described above regarding excess distributions and recognized gains. However, we do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.
If a U.S. Holder owns our Ordinary Shares during any taxable year that we are a PFIC, the U.S. Holder must generally file an annual Internal Revenue Service Form 8621 and provide such other information as may be required by the U.S. Treasury Department, whether or not a mark-to-market election is or has been made. If we are or become a PFIC, you should consult your tax advisor regarding any reporting requirements that may apply to you.
You should consult your tax advisors regarding how the PFIC rules apply to your investment in our Ordinary Shares.
Information Reporting and Backup Withholding
Certain U.S. Holders are required to report information to the Internal Revenue Service relating to an interest in “specified foreign financial assets”, including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds $50,000 (or a higher dollar amount prescribed by the Internal Revenue Service), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a U.S. financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the Internal Revenue Service and fails to do so.
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In addition, dividend payments with respect to our Ordinary Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subject to additional information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on IRS Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. Transactions effected through certain brokers or other intermediaries, however, may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
HK SAR Taxation
The following brief description of HK SAR laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders. See “Dividend Policy”.
Profits tax
No tax is imposed in HK SAR in respect of capital gains from the sale of property, such as our Ordinary Shares. Generally, gains arising from disposal of the Ordinary Shares which are held more than two years are considered capital in nature. However, trading gains from the sale of property by persons carrying on a trade, profession or business in HK SAR where such gains are derived from or arise in HK SAR from such trade, profession or business will be chargeable to HK SAR profits tax. Liability for HK SAR profits tax would therefore arise in respect of trading gains from the sale of Ordinary Shares realized by persons in the course of carrying on a business of trading or dealing in securities in HK SAR where the purchase or sale contracts are effected (being negotiated, concluded and/or executed) in HK SAR. Effective from April 1, 2018, profits tax is levied on a two-tiered profits tax rate basis, with the first HK$2 million (equivalent to $258,065) of profits being taxed at 8.25% for corporations and 7.5% for unincorporated businesses, and profits exceeding the first HK$2 million (equivalent to $258,065) being taxed at 16.5% for corporations and 15% for unincorporated businesses.
In addition, HK SAR does not impose withholding tax on gains derived from the sale of stock in HK SAR companies and does not impose withholding tax on dividends paid outside of HK SAR by HK SAR companies. Accordingly, investors will not be subject to HK SAR withholding tax with respect to a disposition of their Ordinary Shares or with respect to the receipt of dividends on their Ordinary Shares, if any. No income tax treaty relevant to the acquiring, withholding or dealing in the Ordinary Shares exists between HK SAR and the United States.
Stamp duty
HK SAR stamp duty is generally payable on the transfer of “Hong Kong stocks”. The term “stocks” refers to shares in companies incorporated in HK SAR, as widely defined under the Stamp Duty Ordinance (Cap. 117 of the laws of Hong Kong), or SDO, and includes shares. However, our Ordinary Shares are not considered “Hong Kong stocks” under the SDO since the transfer of the Ordinary Shares are not required to be registered in HK SAR given that the books for the transfer of Ordinary Shares are located in the United States. The transfer of Ordinary Shares is therefore not subject to stamp duty in HK SAR. If HK SAR stamp duty applies, both the purchaser and the seller are liable for the stamp duty charged on each of the sold note and bought note at the ad valorem rate of 0.13% on the higher of the consideration stated on the contract notes or the fair market value of the shares transferred. In addition, a fixed duty, currently of HK$5.00 (equivalent to $0.65), is payable on an instrument of transfer.
British Virgin Islands Taxation
The following summary contains a description of certain British Virgin Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of ordinary shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase ordinary shares. The summary is based upon the tax laws of British Virgin Islands and regulations thereunder and on the tax laws of the U.S. and regulations thereunder as of the date hereof, which are subject to change.
British Virgin Islands Tax Considerations
Prospective investors should consult their professional advisers on the possible tax consequences of buying, holding or selling any Shares under the laws of their country of citizenship, residence or domicile.
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Under Existing British Virgin Islands Laws.
The Company and all dividends, interest, rents, royalties, compensation and other amounts paid by the Company to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of the Company by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI.
No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the BVI with respect to any shares, debt obligation or other securities of the Company.
All instruments relating to transfers of property to or by the Company and all instruments relating to transactions in respect of the shares, debt obligations or other securities of the Company and all instruments relating to other transactions relating to the business of the Company are exempt from payment of stamp duty in the BVI. This assumes that the Company does not hold an interest in real estate in the BVI.
There are currently no withholding taxes or exchange control regulations in the BVI applicable to the Company or its members.
| F. | Dividends and Paying Agents |
Not Applicable.
| G. | Statement by Experts |
Not Applicable.
| H. | Documents on Display |
We previously filed a registration statement on Form F-1 with the SEC to register the sale of our Ordinary Shares in our initial public offering.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers and are required to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months after the end of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
Our annual reports will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and we will make available all notices of shareholders’ meetings and other reports and communications to our shareholders in accordance with all applicable legislation and regulation. In accordance with the requirements of Nasdaq, we will post this annual report on Form 20-F on our website at http://www.wangnlee.com.hk.
| I. | Subsidiary Information |
Not applicable.
| J. | Annual Report to Security Holders |
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Credit risk - Account receivables and contract assets arising from contracts with customers
In order to minimize the credit risk, the management of the Company has delegated a team responsible for determination of credit limits and credit approvals. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. Internal credit rating has been given to each category of debtors after considering aging, historical observed default rates, repayment history and past due status of respective account receivables. Estimated loss rates are based on probability of default and loss given default with reference to an external credit report and are adjusted for reasonable and supportable forward-looking information that is available without undue costs or effort while credit-impaired trade balances were assessed individually. In this regard, the directors consider that the Company’s credit risk is significantly reduced. The maximum potential loss of account receivables and contract assets for the year ended December 31, 2024 is $3,365,746 and $109,255, respectively.
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Interest risk - Cash flow interest rate risk
The Company is exposed to cash flow interest rate risk through the changes in interest rates related mainly to the Company’s variable-rates line of credit, short-term bank loans and bank balances.
The Company currently does not have any interest rate hedging policy in relation to fair value interest rate risk and cash flow interest rate risk. The directors monitor the Company’s exposures on an ongoing basis and will consider hedging the interest rate should the need arises.
Foreign currency risk
Foreign currency risk is the risk that the holding of foreign currency assets will affect the Company’s financial position as a result of a change in foreign currency exchange rates.
The Company’s monetary assets and liabilities are mainly denominated in HK$, the Company did not have foreign currency denominated monetary liabilities at the end of reporting period. The Company currently does not have a foreign currency hedging policy to eliminate the currency exposures. However, the directors monitor the related foreign currency exposure closely and will consider hedging significant foreign currency exposures should the need arise. The Company, the currency risk of $ is considered insignificant as HK$ is pegged to $ and therefore no sensitivity analysis is presented.
Economic and political risks
The Company’s operations are mainly conducted in HK SAR. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in HK SAR.
The Company’s operations in HK SAR are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in HK SAR, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
Environmental risks
The Company has procured environmental licenses required by the HK SAR government. Historically there was no penalties charged over the environmental issue during any engagement of construction works. In addition, the Company also obtained a certification of complies with the requirements of ISO 14001: 2015 Environmental Management System Standard to maintain and proved the quality service with less environmental risk.
Inflation Risk
Management monitors changes in price levels. Historically inflation has not materially impacted the Company’s audited consolidated financial statements; however, significant increases in the price of raw materials and labor that cannot be passed to the Company’s customers could adversely impact WANG & LEE CONTRACTING LIMITED’s results of operations.
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
| A. | Debt Securities |
Not applicable.
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| B. | Warrants and Rights |
Not applicable.
| C. | Other Securities |
Not applicable.
| D. | American Depositary Shares |
Not applicable.
PART II.
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Material Modifications to the Rights of Security Holders
None.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1 in relation to our initial public offering of 1,600,000 Ordinary Shares, at a purchase price of US$5.00. Our initial public offering was completed on April 24, 2023. The total expenses incurred for our Company’s account in connection with our initial public offering includes US$0.56 million in underwriting discounts and commissions and approximately US$1.2 million in other costs and expenses. We raised approximately US$6.0 million in net proceeds from the issuance of new shares from the initial public offering. As of the date of this report, we intend to use the proceeds from our initial public offering as disclosed in our prospectus dated April 20, 2023.
| ITEM 15. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report by our independent registered public accounting firm due to a transition period established by rules of the SEC for newly listed public companies.
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Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting.
| ITEM 16. | [Reserved] |
| ITEM 16.A. | AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors has determined that Mr. Edmund CHAN qualifies as an audit committee financial expert and has the accounting or financial management expertise as defined under Item 407(d)(5) of Regulation S-K and required under NASDAQ Rule 5605(c)(2).
| ITEM 16.B. | CODE OF ETHICS |
Our board of directors has adopted a code of ethics that applies to all of the directors, officers and employees. We have posted a copy of our code of business conduct and ethics on our website at http://www.wangnlee.com.hk.
| ITEM 16.C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth the aggregate fees by the categories specified below in connection with certain professional services rendered by WWC P.C., our former independent registered public accounting firm, and AOGB CPA Limited, our independent registered public accounting firm, for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below.
| 2024 | 2023 | 2022 | ||||||||||
| USD | USD | USD | ||||||||||
| Audit fees(1) | ||||||||||||
| WWC P.C . | - | - | 170,000 | |||||||||
| AOGB CPA Limited | 85,000 | 170,000 | - | |||||||||
| Audit related fees(2) | ||||||||||||
| WWC P.C. | - | - | - | |||||||||
| AOGB CPA Limited | 8,000 | - | - | |||||||||
| Tax fees(3) | ||||||||||||
| WWC P.C. | - | - | - | |||||||||
| AOGB CPA Limited | - | - | - | |||||||||
Notes:
| (1) | Audit Fees. Audit fees mean the aggregate fees for each of the fiscal periods listed for professional services rendered by our principal auditors for the audit of our annual consolidated financial statements and assistance with and review of documents filed with the SEC. |
| (2) | Audit-related Fees. Audit-related fees mean the aggregate fees billed for professional services rendered by our principal auditors for the assurance and related services, which were not included under Audit Fees above. |
| (3) | Tax Fees. Tax fees mean fees incurred from professional services related to tax compliance. |
The policy of our audit committee is to pre-approve all audit and non-audit services provided by WWC P.C. or AOGB CPA Limited, including audit services and audit-related services as described above.
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| ITEM 16.D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
| ITEM 16.E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Not applicable.
| ITEM 16.F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
On December 15, 2023, the audit committee (the “Audit Committee”) of the board of directors of the Company resolved to dismiss WWC, P.C. as the Company’s independent registered public accounting firm, effective December 15, 2023.
During the two most recent fiscal years and through the subsequent interim period preceding the release, WWC, P.C. has neither provided any adverse opinion or qualifications on the Company’s financial statements nor had a disagreement with the Company since their engagement on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements that, if not resolved to WWC, P.C.’s satisfaction, would have caused WWC, P.C. to make reference to the subject matter thereof in its reports for such fiscal years and interim period.
During the two most recent fiscal years and through the subsequent interim period preceding the release, there was no “reportable event” within the meaning of Item 16F(a)(1)(v) of Form 20-F, except that there were material weaknesses identified related to a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements.
The Company has provided WWC with a copy of this report prior to its filing with the Securities and Exchange Commission (the “SEC”). WWC has provided a letter to us, dated December 21, 2023 and addressed to the SEC, which is attached hereto as Exhibit 16.1 and is hereby incorporated herein by reference.
On December 15, 2023, the Audit Committee approved the engagement of AOGB CPA Limited as its independent registered public accounting firm to audit the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2023. The decision to engage AOGB CPA Limited as the Company’s independent registered public accounting firm was approved by the Audit Committee.
During the two most recent fiscal years and through the date of this report, the Company has not consulted with AOGB CPA Limited regarding any of the following:
| 1. | the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; | |
| 2. | the type of audit opinion that might be rendered on the Company’s financial statements by AOGB, in either case where written or oral advice provided by AOGB would be an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issues; or | |
| 3. | any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K). |
| ITEM 16.G. | CORPORATE GOVERNANCE |
As a BVI company listed on the Nasdaq Capital Market, we are subject to the Nasdaq Stock Market Rules. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the BVI, which is our home country, may differ significantly from the Nasdaq listing standards. We may choose to follow additional home country practices in the future. As a result, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq Stock Market’s corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information — D. Risk Factors — Risks Related to Ownership of Our Ordinary Shares — You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under British Virgin Islands law.”
| ITEM 16.H. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 16.I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
| ITEM 16.J. | INSIDER TRADING POLICIES |
The Company
has
| ITEM 16.K. | CYBERSECURITY |
We adhere to the definitions provided in Item 16K, recognizing the critical significance of implementing strong cybersecurity measures to safeguard our information systems and the sensitive data they hold. Our priority is to protect our information and systems from unauthorized access, use, disclosure, disruption, modification, or destruction. Through our program for safeguarding information assets and managing associated risks, we ensure the confidentiality, integrity, and availability of the information crucial to our long-term business success.
Cybersecurity risk assessment and management processes
The process of assessing and managing risks in the realm of cybersecurity involves systematically identifying potential security threats to the Company’s information systems and data. It encompasses activities such as identifying vulnerabilities, evaluating the likelihood and impact of potential risks, and implementing measures to minimize those risks. The objective is to enhance the security posture of information systems and protect valuable data by effectively understanding and addressing potential risks.
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Integration with Overall Risk Management:
When conducting regular risk assessments within the corporate risk management framework, cybersecurity risks are explicitly considered alongside other types of risks. The assessment process involves evaluating potential threats and vulnerabilities to the Company’s information systems, networks, and data assets. This may include analyzing the adequacy of security controls, reviewing incident response plans, and assessing the Company’s compliance with relevant cybersecurity standards and regulations. By integrating cybersecurity risk management into the broader risk management framework, the Company ensures that cybersecurity risks are not overlooked or treated as an isolated concern, but rather receive the same level of attention and priority as other risks impacting the Company’s overall objectives and operations.
Use of Third Parties
To continuously improve our cybersecurity measures,
we actively collaborate with
Third-Party Service Providers
We have implemented rigorous processes to effectively manage and oversee the risks associated with our third-party service providers. These processes include regular security assessments and audits to evaluate the security posture of the cybersecurity system. We also require our third-party service providers to adhere to our established security standards and protocols. By enforcing these measures, we ensure that our cybersecurity system maintains a high level of security and align with our risk management objectives. This approach helps mitigate potential vulnerabilities and safeguards the Company’s sensitive information and assets.
Impact of Cybersecurity Threats
Cybersecurity threats can have significant impacts on the Company as a whole.
Potential financial loss caused may by cybersecurity vulnerabilities.
Cybersecurity incidents can result in substantial financial losses for the Company. This includes direct costs such as incident response, investigation, and recovery expenses, as well as indirect costs like reputational damage, loss of customer trust, and potential legal liabilities. Financially motivated cyber threats such as ransomware attacks can also lead to extortion demands and financial disruption.
To prevent the potential financial loss caused by cybersecurity vulnerabilities, we establish robust security controls across the Company’s network, systems and applications. This includes using firewalls, intrusion detection and prevention systems, antivirus software and multifactor authentication.
Threats on data breaches and information loss
Cybersecurity threats can lead to unauthorized access, theft, or exposure of sensitive data. This can include personally identifiable information, financial records, intellectual property, trade secrets, and confidential business data. Data breaches can result in reputational damage, regulatory penalties, lawsuits, and loss of competitive advantage.
To reduce the risk of data breaches and information loss, we implement strong access controls. We ensure that access to sensitive data is granted only to authorized individuals and employee. We have implemented strong authentication mechanisms, such as multifactor authentication, and have enforced the principle of least privilege, providing users with access only to the data they need to perform their job responsibilities.
Threats on cyberattacks on operational disruption
Cyberattacks can disrupt the Company’s operations, leading to downtime, service disruptions, or system failures. This can impact productivity, customer service, and overall business continuity. Critical infrastructure sectors, such as energy, healthcare, and transportation, are particularly vulnerable to cyber threats, and attacks targeting them can have severe societal consequences.
We conduct employee training and awareness programs which can educate employees about cybersecurity best practices, including recognizing and reporting suspicious activities, social engineering, and phishing attempts. Regular training programs and awareness campaigns help foster a security-conscious culture within the Company.
We maintain constant vigilance in monitoring our vulnerability to cybersecurity threats and evaluating their potential consequences on our operations. Thus far, our proactive measures and preparedness to address potential risks have successfully prevented any significant disruptions caused by cybersecurity incidents.
Throughout 2023, the Audit Committee received comprehensive briefings on information security matters during all of its scheduled meetings with our information technology team, third-party assessors and consultants. This session provided an overview of the information security landscape.
Apart from the information shared in these meetings, our Board members have access to internal and external educational resources pertaining to cybersecurity risks. Additionally, we benefit from the expertise of a Board member who possesses significant experience in managing cybersecurity companies.
| 88 |
PART III.
| ITEM 17. | FINANCIAL STATEMENTS |
We have elected to provide financial statements pursuant to Item 18.
| ITEM 18. | FINANCIAL STATEMENTS |
The consolidated financial statements of our Group are included at the end of this annual report.
| ITEM 19. | EXHIBITS |
EXHIBIT INDEX
* Filed with this Annual Report on Form 20-F.
| 89 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| WANG & LEE GROUP, Inc. | ||
| By: | /s/ Pui Lung, Ho | |
| Pui Lung, Ho | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| /s/ Yuk Ming, Gary Ma | ||
| Yuk Ming, Gary Ma | ||
| Chief Financial Officer | ||
| Principal Accounting and Financial Officer | ||
Date: May 15, 2025
| 90 |
WANG & LEE GROUP, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
| F-1 |
| To: | The Board of Directors and Shareholders of WANG & LEE GROUP, Inc. |
Report of Independent Registered Public Accounting Firm
Opinion on the Consolidated Financial Statements
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-2 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition for Engineering and Construction Contracts
As described in Note 2 to the consolidated financial statements, the Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied. The Company uses an input method based on contract costs incurred to date compared to total estimated contract costs to measure its progress toward complete satisfaction of the performance obligation. Management’s estimate of contract revenue, total estimated contract costs, the progress of related contracts requires significant judgment which affects the measurement of revenue recognized by the Company.
Auditing the Company’s estimates of total contract revenue and costs used to recognize revenue on engineering and construction contracts involved significant auditor judgment, as it required the evaluation of subjective factors, such as assumptions related to estimated material, labor and subcontractor costs.
We identified revenue recognition as a critical audit matter because of the judgments made by management in estimating total estimated contract costs of the contracts.
The followings are the primary procedures we performed to address this critical audit matter:
| - | Obtained an understanding of the Company’s process and control over revenue recognition and total contract costs estimation; | |
| - | Discussed with management and respective project teams about the progress of major projects and assumptions adopted in the contract costs estimation; and obtained explanations for fluctuations in margins; | |
| - | Inspected the signed contracts and correspondence with the customers, on a sample basis, to obtain audit evidence on total contract revenue; | |
| - | Tested, on a sample basis, the actual costs incurred on construction works during the year; | |
| - | Tested, on a sample basis, the supporting documents of the budgets, which include sub-contracting contracts, and price quotations, etc.; | |
| - | Comparing last year’s budget against the current year’s budget or actual costs incurred for major contracts on a sampling basis. |
/s/
May 15, 2025
We have served as the Company’s auditor since 2024.
AOGB CPA Limited, Suite 2501-03, Tesbury Centre, 28 Queen’s Road East, Admiralty, Hong Kong
Tel: 2152-2238, Website: www.aogb.com
| F-3 |
WANG & LEE GROUP, INC.
AUDITED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2024 AND 2023
(Stated in US Dollars, except number of shares)
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivables – current, net | ||||||||
| Contract assets, net | ||||||||
| Retention receivables – current, net | ||||||||
| Other receivables | ||||||||
| Other receivables – related parties | ||||||||
| Other receivables | ||||||||
| Advance and prepayments | ||||||||
| Total current assets | ||||||||
| Accounts receivables – non-current, net | ||||||||
| Retention receivables – non-current, net | ||||||||
| Right-of-use assets, operating lease, net | ||||||||
| Plant and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Short-term bank loans - current | $ | $ | ||||||
| Operating lease liability - current | ||||||||
| Finance lease liability - current | ||||||||
| Accounts payables | ||||||||
| Other payables | ||||||||
| Contract liabilities | ||||||||
| Other payables – related parties | ||||||||
| Other payables | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability – non-current | ||||||||
| Finance lease liability – non-current | ||||||||
| Long-term bank loans – non-current | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ Equity | ||||||||
| Ordinary shares, | $ | $ | ||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’S EQUITY | ||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-4 |
WANG & LEE GROUP, INC.
AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
(Stated in US Dollars, except number of shares)
| 2024 | 2023 | 2022 | ||||||||||
| Contract revenues | $ | $ | $ | |||||||||
| Contract costs | ||||||||||||
| Gross profit | ||||||||||||
| Selling expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Total operating expenses | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses) | ||||||||||||
| Other income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Total other income, net | ||||||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss) | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Loss per share – Basic and diluted | $ | ) | $ | ) | $ | ) | ||||||
| Basic and diluted weighted average shares outstanding | ||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-5 |
WANG & LEE GROUP, INC.
AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT) / EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
(Stated in US Dollars, except number of shares)
| Shares | Shares | Capital | Deficit | Income | Total | |||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Number | Additional | Other | ||||||||||||||||||||||
| of | Ordinary | Paid-in | Accumulated | Comprehensive | ||||||||||||||||||||
| Shares | Shares | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Number | Additional | Other | ||||||||||||||||||||||
| of | Ordinary | Paid-in | Accumulated | Comprehensive | ||||||||||||||||||||
| Shares | Shares | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Ordinary share issued | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Number | Additional | Other | ||||||||||||||||||||||
| of | Ordinary | Paid-in | Accumulated | Comprehensive | ||||||||||||||||||||
| Shares | Shares | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Issued ordinary shares under Equity Incentive Plan | ( |
) | ||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-6 |
WANG & LEE GROUP, INC.
AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
(Stated in US Dollars)
| 2024 | 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Depreciation | ||||||||||||
| Amortization of the right-of-use asset, finance lease | ||||||||||||
| Expected credit loss allowance and bad debt written-off | ||||||||||||
| Contract assets | ( | ) | ( | ) | ||||||||
| Accounts receivables | ( | ) | ( | ) | ||||||||
| Other receivables | ( | ) | ( | ) | ||||||||
| Retention receivables | ( | ) | ( | ) | ( | ) | ||||||
| Advance and prepayments | ( | ) | ( | ) | ||||||||
| Accounts payables | ( | ) | ||||||||||
| Other payables | ( | ) | ( | ) | ||||||||
| Contract liabilities | ( | ) | ||||||||||
| Leases interest expenses | ||||||||||||
| Provision for long service payments | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Operating lease payments | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Repayments of bank loans | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from new bank loans | ||||||||||||
| Advance from / (Repayment to) a director | ( | ) | ||||||||||
| Proceeds from private placement and initial public offer | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Net (decrease) / increase of cash and cash equivalents | ( | ) | ||||||||||
| Effect of foreign currency translation on cash and cash equivalents | ||||||||||||
| Cash and cash equivalents, beginning of year | ||||||||||||
| Cash and cash equivalents, end of year | $ | $ | $ | |||||||||
| Supplementary cash flow information: | ||||||||||||
| Taxes paid | $ | $ | $ | |||||||||
| Interest paid | $ | $ | $ | |||||||||
| Listing fee | $ | $ | $ | |||||||||
Certain prior year amounts have been reclassified to conform with the current year presentation. These changes had no effect on the previously reported net cash flows.
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-7 |
WANG & LEE GROUP, INC.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
(Stated in US Dollars)
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
WANG & LEE GROUP, Inc. (the “Company”) was incorporated in the British Virgin Islands (“BVI”) on May 20, 2021 as an investment holding company. The Company conducts its primary operations through its indirectly wholly owned subsidiary WANG & LEE CONTRACTING LIMITED (“WLHK”) which is incorporated and domiciled in Hong Kong SAR; WLHK provides contract engineering, installation and out-fitting of the following products and services: low voltage (220v/phase 1 or 380v/phase 3) electrical systems, MVAC, fire safety systems, and water supply and sewage disposal systems, and site project management.
The Company owns WANG & LEE HOLDINGS, Inc. (“WL Holdings”) an investment holding company that was incorporated in the BVI on May 27, 2021. The primary purpose of WL Holdings is to hold WLHK. WLHK was incorporated on December 3, 1992, in Hong Kong SAR and provides the services above to large corporate customers that are primary located in Hong Kong SAR.
The following is an organization chart of the Company and its subsidiaries:
GOING CONCERN
As of December 31, 2024, the Company incurred a
net loss of $
| F-8 |
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
The accompanying audited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These audited consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Methods of accounting
The accompanying audited consolidated financial statements include the accounts of the Company and its subsidiaries (collectively the “Company”). The Company eliminates all significant intercompany balances and transactions in its audited consolidated financial statements.
Management has prepared the accompanying audited consolidated financial statements and these notes in accordance to generally accepted accounting principles in the United States (“US GAAP”). The Company maintains its general ledger and journals with the accrual method accounting.
Principles of consolidation
The accompanying audited consolidated financial statements reflect the activities of the Company, and each of the following entities:
SCHEDULE OF COMPANY ENTITIES EQUITY METHOD INVESTMENTS
| Place of | Registered | |||||||||
| Name of Company | incorporation | Ownership percentage | capital | |||||||
| WANG & LEE GROUP, Inc. | BVI | $ | ||||||||
| WANG & LEE HOLDINGS, Inc. | BVI | % | ||||||||
| WANG & LEE CONTRACTING LIMITED | Hong Kong SAR (“HK SAR”) | % | ||||||||
Management has eliminated all significant inter-company balances and transactions in preparing the accompanying audited consolidated financial statements.
On May 20, 2021, the Company incorporated in the BVI. On May 27, 2021, the Company incorporated WL Holdings, a limited company incorporated in the BVI.
| F-9 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of consolidation (Continued)
On July 2, 2021, the Company acquired
WLHK. WLHK was owned
Use of estimates
The preparation of the audited consolidated financial statements in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the audited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available when the calculations are made; however, actual results could differ materially from those estimates.
Cash and cash equivalents
The Company considers cash, bank deposit and all highly liquid investments with original maturities of three months or less when purchased to be cash and cash equivalents. Cash consists primarily of cash in accounts held at a financial institution.
| F-10 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advance and prepayments
The Company makes a deposit payment to suppliers and vendors for the procurement of materials. Upon physical receipt and inspection of the materials from suppliers, the applicable amount is reclassified from advance and prepayments to contract costs when the materials are consumed by specific projects.
Plant and equipment, net
Plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. The Company typically applies
a salvage value of
SCHEDULE OF ESTIMATED USEFUL LIVES OF THE PLAN AND EQUIPMENT
| Furniture & fixtures | ||||
| Equipment | ||||
| Motor vehicles |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts, and any gain or loss are included in the Company’s results of operations. The costs of maintenance and repairs are recognized as incurred; significant renewals and betterments are capitalized.
Accounting for the impairment of long-lived assets
The Company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may become obsolete from a difference in the industry, introduction of new technologies, or if the Company has inadequate working capital to utilize the long-lived assets to generate adequate profits. Impairment is present if the carrying amount of an asset is less than its expected future undiscounted net cash flows.
If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported lower the carrying amount or fair value less costs to sell.
Lease
In accordance with ASU 2016-02, “Leases” (Topic 842), the Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. The Company elected the practical expedients that do not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component.
Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease right of use (“ROU”) assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Lease expense is recognized on a straight-line basis over the lease term. Operating leases are included in right-of-use assets, operating lease, operating lease liability - current, and operating lease liability - non-current, and finance leases are included in plant and equipment, finance lease liability - current, and finance lease liability - non-current in the consolidated balance sheets.
The Company’s management believes the Hong Kong
dollar Best Lending Rate (“BLR”) from Hong Kong Monetary Authority was the most indicative rate of the Company’s borrowing
cost for the calculation of the present value of the lease payments; the rate used by the Company was
| F-11 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation
The accompanying audited consolidated financial statements are presented in United States dollars (“$”). The functional currency of the Company is the Hong Kong Dollars (“HK$”). WLHK’s assets and liabilities are translated into $ from HK$ at year-end exchange rates. Its revenues and expenses are translated at the average exchange rate during the year. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
SCHEDULE OF HISTORICAL FOREIGN CURRENCY EXCHANGE RATES
| 2024 | 2023 | 2022 | ||||||||||
| For the year ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Period Ended HK$: USD exchange rate | ||||||||||||
| Period Average HK$: USD exchange rate | ||||||||||||
| Foreign currency exchange rate | ||||||||||||
Revenue recognition
As discussed in Note 1, the Company provides a variety of engineering and related professional services to customers located throughout the HK SAR. The Company enters into agreements with clients that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled as services transfer to the customer. It is customary practice for the Company to have written agreements with its customers and revenue on oral or implied arrangements is generally not recognized. The Company recognizes revenue based on the consideration specified in the applicable agreement.
Revenue from contracts with customers is recognized using the following five steps:
| 1. | Identify the contract(s) with a customer; |
| 2. | Identify the performance obligations in the contract; |
| 3. | Determine the transaction price; |
| 4. | Allocate the transaction price to the performance obligations in the contract; and |
| 5. | Recognize revenue when (or as) the entity satisfies a performance obligation. |
Generally, revenues are recognized when the Company has negotiated the terms of the transaction, which includes determining either the overall price, or price for each performance obligation in the form of a service or a product, the service or product has been delivered to the customer, no obligation is outstanding regarding that service or product, and the Company is reasonably assured that funds have been or will be collected from the customer.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. A performance obligation is satisfied over time, revenue is recognized by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the product or service.
The Company uses an input method based on contract costs incurred to date compared to total estimated contract costs to measure its progress toward complete satisfaction of the performance obligation. The input method is the most representative depiction of the Company’s performance because it directly measures the value of the services or products transferred to the customer. Subcontractor materials, labor and equipment are included in revenue and contract costs when management believes that the Company is acting as a principal rather than as an agent (e.g., the Company integrates the materials and labor into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials and labor). In the contracts with customer, there are terms that allow for the Company to implement variation order without seeking additional approval from their customers within a pre-approved range set forth in the contract; these variations may be for additional labor or materials necessary to fulfill the contract. The Company typically integrates the deliverables as part of the general performance obligation of the contract as a whole. Historically, any contract acquisition costs have been immaterial; in the event that such costs arose, the Company expenses such costs incurred as periodic cost. Any project mobilization costs such as obtaining government zoning, approvals and permits are included in project costs, and constitute a part of the overall performance obligation.
| F-12 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (Continued)
The Company set forth payment terms on contracts that require its customer to make payment within 30 days of billing which is triggered by the Company reaching the milestone to bill the customer after the Company has received certification that it has discharged its responsibilities under the terms of the contract.
The Company does not believe that its contracts include a significant financing component because the period between delivery or the contracting services to the customer and the time of payment do not typically exceed one year.
For service contracts, such as fire safety systems inspection services, the Company recognizes revenue at a point in time when the service has been rendered to the customer which is evidenced by the Company submitting the annual inspection certificate to the Director of the Fire Services Department of the Government of the HK SAR.
The Company generally provides limited warranties
for work that it has performed under its engineering and construction contracts; these warranty periods are known as the defect liabilities
period (“DLP”). The DLP typically extends for a duration of one year from the substantial completion of the project for the
customer. Historically, warranty claims have not resulted in significant costs. Contracts will include a provision whereby the customer
will withhold
The details of revenue and cost of revenue of the Company are as follows:
SCHEDULE OF OF REVENUE AND COST OF REVENUE
| 2024 | 2023 | 2022 | ||||||||||
| December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Contract Revenue | $ | $ | $ | |||||||||
| Contract Costs | ||||||||||||
| Gross Profit | $ | $ | $ | |||||||||
| Gross Profit Margin | % | % | % | |||||||||
Contract related assets and liabilities are classified as current assets and current liabilities. Significant balance sheet accounts related to the revenue cycle are as follows:
| F-13 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (Continued)
Accounts receivables, net
Accounts receivables, net (contract receivables) include amounts billed under the contract terms. The amounts are stated at their net realizable value. The Company maintains an allowance for expected credit loss to provide for the estimated number of receivables that will not be collected. The Company considers several factors in its estimate of the allowance, including knowledge of a customer’s financial condition, its historical collection experience, and other factors relevant to assessing the collectability of such receivables. Bad debts are written off against allowances.
Contract assets
Contract assets are recorded when progress to completion revenue earned on contracts exceeds amounts actually billed under the contract.
Contract liabilities
Contract liabilities are recorded when amounts actually billed under a contract exceeds the progress to completion revenue earned under the contract.
Deferred income
In the contracts,
Expected credit loss
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. The expected credit loss methodology applies to account receivables, contract assets, retention receivables and other financial instruments.
| F-14 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Retirement benefits
Retirement benefits in the form of mandatory defined contribution plans are charged to either expense as incurred or allocated to wages as part of cost of services.
Income taxes
The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events recognized in the audited consolidated financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the audited consolidated financial statement and income tax bases of assets and liabilities using enacted tax rates expected to apply when the differences settle or become realized. Valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable or recoverable in the future.
The Company determines that the tax position is more likely than not to be sustained and records the largest amount of benefit that is more likely than not to be realized when the tax position is settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.
Share-based payment
The Company accounts for share-based payment in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Share awards issued to employees and directors, including employee stock option plans (“ESOPs”) and restricted share units (“RSUs”) are measured at fair value at the grant date. The Company uses the closing stock price at the grant date to measure the fair value of RSUs. The Company recognizes compensation expenses, net of forfeitures, using the accelerated method over the requisite service periods.
Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting ESOPs and RSUs’ forfeitures and records share-based compensation expense only for those awards that are expected to vest.
A change in the terms or conditions of share-based payment awards is accounted for as a modification of awards. The Company measures the incremental compensation cost of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified, based on the share price and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the modification occurred. For unvested awards, the Company recognizes, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.
A cancellation of an award that is not accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, the Company recognized previously unrecognized compensation cost at the cancellation date and reversed previously recognized share capital to additional paid-in capital.
Financial instruments
The Company’s financial instruments, including cash and cash equivalents, accounts and other receivables, accounts and other payables, accrued liabilities, and short-term and long-term bank loans, have carrying amounts that approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures” requires disclosing the fair value of financial instruments held by WLHK. ASC Topic 825, “Financial Instruments” defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the audited consolidated balance sheets for cash and cash equivalents, accounts receivables, other receivables, accounts payables, other payables, short-term and long-term bank loans each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 – inputs to the valuation methodology used quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and information that are observable for the asset or liability, either directly or indirectly, for substantially the financial instrument’s full term. | |
| ● | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging”.
| F-15 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Adoption of new accounting standard
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. We adopted ASU 2020-06 on January 1, 2024. The adoption of ASU 2020-06 did not have a material impact on our consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, require disclosure of other segment items by reportable segment and a description of the composition of other segment items, require annual disclosures under ASC 280 to be provided in interim periods, clarify use of more than one measure of segment profit or loss by the CODM, require that the title of the CODM be disclosed with an explanation of how the CODM uses the reported measures of segment profit or loss to make decisions, and require that entities with a single reportable segment provide all disclosures required by this update and required under ASC 280. The Company adopted ASU 2023-07 for the annual period ended December 31, 2024, retrospectively to all periods presented in the consolidated financial statement. The adoption of this standard did not have a material impact to our results of operations, cash flows or financial condition.
Recent accounting pronouncements
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This pronouncement introduces new disclosure requirements aimed at enhancing transparency in financial reporting by requiring disaggregation of specific income statement expense captions. Under the new guidance, entities are required to disclose a breakdown of certain expense categories, such as: employee compensation; depreciation; amortization, and other material components. The disaggregated information can be presented either on the face of the income statement or in the notes to the financial statements, often using a tabular format. The ASU is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concept Statements” (“ASU 2024-02”). ASU 2024-02 contains amendments to the FASB Accounting Standards Codification that remove references to various FASB Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. ASU 2024-02 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on financial statements requirements and does not expect the adoption to have a material impact.
In December 2023, the FASB issued ASU 2023-09, which is an update to Topic 740, Income Taxes. The amendments in this update related to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer are considered cost beneficial or relevant. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is permitted.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements — codification amendments in response to SEC’s disclosure Update and Simplification initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows—Overall, 250-10 Accounting Changes and Error Corrections— Overall, 260-10 Earnings Per Share— Overall, 270-10 Interim Reporting— Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10 Derivatives and Hedging—Overall, 860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities— Oil and Gas—Notes to Financial Statements, 946-20 Financial Services— Investment Companies— Investment Company Activities, and 974-10 Real Estate—Real Estate Investment Trusts—Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations. For entities subject to existing SEC disclosure requirements or those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other entities, the amendments will be effective two years later from the date of the SEC’s removal.
| F-16 |
NOTE 3 – ACCOUNTS RECEIVABLES, NET
Accounts receivables, net consist of the following:
SCHEDULE OF ACCOUNTS RECEIVABLE
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Accounts receivables – current | $ | $ | ||||||
| Less: allowance for expected credit loss | ( | ) | ( | ) | ||||
| Accounts receivables – current, net | $ | $ | ||||||
| Accounts receivables – non-current | $ | $ | ||||||
| Less: allowance for expected credit loss | ( | ) | ||||||
| Accounts receivables – non-current, net | $ | $ | ||||||
The movement of allowances for expected credit loss is as follows:
SCHEDULE OF ALLOWANCES FOR EXPECTED CREDIT LOSS
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of the year | $ | ( | ) | $ | ( | ) | ||
| Provision for the year | ( | ) | ( | ) | ||||
| Exchange adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
NOTE 4 – CONTRACT ASSETS, NET
Contract assets, net consist of the following:
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Contract assets | ||||||||
| Balance at the beginning of the year | $ | $ | ||||||
| Additions | ||||||||
| Changes due to billings | ( | ) | ( | ) | ||||
| Less: contra-allowance / (allowance) for expected credit loss | ( | ) | ||||||
| Exchange adjustment | ||||||||
| Balance at the end of the year | $ | $ | ||||||
The movement of allowances for expected credit loss is as follows:
SCHEDULE OF CONTRACT ASSETS ALLOWANCES FOR EXPECTED CREDIT LOSS
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance at the beginning of the year | $ | ( | ) | $ | ( | ) | ||
| Reversal / (provision) for the year | ( | ) | ||||||
| Exchange adjustment | ( | ) | ( | ) | ||||
| Balance at the end of the year | $ | ( | ) | $ | ( | ) | ||
| F-17 |
NOTE 5 – RETENTION RECEIVABLES, NET
Retention receivables, net consist of the following:
SCHEDULE OF RETENTION RECEIVABLES
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Retention receivables – current | $ | $ | ||||||
| Less: allowance for expected credit loss | ( | ) | ( | ) | ||||
| Retention receivables current net | $ | $ | ||||||
| Retention receivables – non-current | $ | $ | ||||||
| Less: allowance for expected credit loss | ( | ) | ( | ) | ||||
| Retention receivables non-current net | $ | $ | ||||||
The movement of allowances for expected credit loss is as follows:
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance at the beginning of the year | $ | ( | ) | $ | ( | ) | ||
| Exchange adjustment | ( | ) | ( | ) | ||||
| Balance at the end of the year | $ | ( | ) | $ | ( | ) | ||
NOTE 6 – OTHER RECEIVABLES
Other receivables, net consist of the following:
SCHEDULE OF OTHER RECEIVABLES, NET
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Other receivables | $ | $ | ||||||
| Less: allowance for expected credit loss | ( | ) | ( | ) | ||||
| Other receivables | $ | $ | ||||||
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Other receivables – related parties | $ | $ | ||||||
| Less: allowance for expected credit loss | ||||||||
| Other receivables – related parties | $ | $ | ||||||
The movement of allowances for expected credit loss is as follows:
SCHEDULE OF ALLOWANCE FOR EXPECTED CREDIT LOSS
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of the year | $ | ( | ) | $ | ||||
| Provision for the year | ( | ) | ( | ) | ||||
| Exchange adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
NOTE 7 – PLANT AND EQUIPMENT, NET
Plant and equipment, net consist of the following:
SCHEDULE OF PLANT AND EQUIPMENT, NET
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| At cost: | ||||||||
| Furniture and fixtures | $ | $ | ||||||
| Equipment | ||||||||
| Motor vehicles | ||||||||
| Property, plant and equipment, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation expense under finance lease for the years
ended December 31, 2024, 2023 and 2022 was $
| F-18 |
As at December 31, 2024 and 2023, there was carrying
amount of $
NOTE 8 – LEASES
Operating lease
The Company has various operating leases for office
space. During the year ended December 31, 2023, the Company has entered into lease contracts and as a result recognized a right-of-use
asset of $
As of December 31, 2024 and 2023, the right-of-use
assets totaled $
As of December 31, 2024 and 2023, the operating lease liability consist of the following:
SCHEDULE OF LEASE LIABILITIES
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease liability – current portion | $ | $ | ||||||
| Operating lease liability – non-current portion | ||||||||
| Total | $ | $ | ||||||
During the years ended December 31, 2024, 2023 and 2022,
the Company incurred total operating lease expenses of $
Other lease information is as follows:
SCHEDULE OF OTHER LEASE INFORMATION
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Weighted-average remaining lease term – operating leases | ||||||||
| Weighted-average discount rate – operating leases | % | % | ||||||
The following is a schedule of future minimum payments under operating leases as of December 31:
SCHEDULE OF FUTURE MINIMUM PAYMENTS UNDER OPERATING LEASES
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Less than 1 year | $ | $ | ||||||
| More than 1 year | ||||||||
| Total undiscounted lease payments | $ | $ | ||||||
| Less: discount | $ | ( | ) | $ | ( | ) | ||
| Present value of finance lease liabilities | $ | $ | ||||||
Finance lease
As of December 31, 2024 and 2023, the maturities of finance lease liabilities were as follows:
SCHEDULE OF MATURITIES OF FINANCE LEASE LIABILITIES
| Representing: | 2024 | 2023 | ||||||
| December 31, | ||||||||
| Representing: | 2024 | 2023 | ||||||
| Less than 1 year | $ | $ | ||||||
| More than 1 year | ||||||||
| Total undiscounted lease payments | $ | $ | ||||||
| Less: discount | $ | ( | ) | $ | ( | ) | ||
| Present value of finance lease liabilities | $ | $ | ||||||
| Representing: | 2024 | 2023 | ||||||
| December 31, | ||||||||
| Representing: | 2024 | 2023 | ||||||
| Current liability | $ | $ | ||||||
| Non-current liability | ||||||||
| Total | $ | $ | ||||||
| F-19 |
NOTE 9 – CONTRACT LIABILITIES
Contract liabilities consist of the following:
SCHEDULE OF CONTRACT LIABILITIES
| 2024 | 2023 | |||||||
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of year | $ | $ | ||||||
| Additions | ||||||||
| Recognized to revenue during the year | ( | ) | ( | ) | ||||
| Exchange adjustment | ||||||||
| Balance at end of year | $ | $ | ||||||
NOTE 10 – SHORT-TERM AND LONG-TERM BANK LOANS
Short-term and long-term bank loans consist of the following:
SCHEDULE OF SHORT TERM DEBT
| Credit agreement entered date | Provider | Facilities | Interest rate | Limits | Utilized as of December 31, |
||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||
| September 27, 2021 | The Bank of East Asia, Limited (“BEA”) | Non-revolving term loan under SME Financing Guarantee Scheme (“SME Scheme”) | $ | ||||||||||||||||||
| - Short-term loan portion | $ | $ | $ | ||||||||||||||||||
| - Long-term loan portion | |||||||||||||||||||||
| August 1, 2022 | BEA | General banking facilities | |||||||||||||||||||
| (i) Invoice financing loan | - | - | |||||||||||||||||||
| (ii) Revolving loan | - | - | |||||||||||||||||||
| (iii) Bank overdraft | - | - | - | ||||||||||||||||||
| July 4, 2023 | BEA | General banking facilities | |||||||||||||||||||
| (i) Invoice financing loan | - | - | |||||||||||||||||||
| (ii) Revolving loan | - | - | |||||||||||||||||||
| (iii) Bank overdraft | - | - | |||||||||||||||||||
| July 8, 2024 | BEA | General banking facilities | |||||||||||||||||||
| (i) Invoice financing loan | - | - | |||||||||||||||||||
| (ii) Revolving loan | - | - | |||||||||||||||||||
| (iii) Bank overdraft | - | - | |||||||||||||||||||
| July 10, 2023 | Shanghai Commercial Bank (“SHCB”) | Revolving Loan | - | - | |||||||||||||||||
| September 4, 2024 | SHCB | Revolving Loan | - | - | |||||||||||||||||
| June 2, 2023 | Mercedes-Benz Financial Services Hong Kong Ltd. | Obligation from finance lease for motor vehicle | |||||||||||||||||||
| - Short-term loan portion | - | ||||||||||||||||||||
| - Long-term loan portion | - | ||||||||||||||||||||
On July 8, 2024, the new credit agreement offers from BEA replaced the credit agreement offers from BEA entered on July 4, 2023.
On September 4, 2024, the new credit agreement offers from SHCB replaced the credit agreements offers from SHCB entered on July 10, 2023, January 24, 2024, and March 5, 2024.
| F-20 |
NOTE 10 – SHORT-TERM AND LONG-TERM BANK LOANS (CONTINUED)
As of December 31, 2024 and 2023,
invoice financing and certain revolving loans were secured by the personal deposit from a director of the Company and a related
party, and limited personal guarantee provided by a director and a related party. The amounts due are based on scheduled repayment
dates set out in the banking facilities letters or loan agreements. All the Company’s invoice financing and certain revolving
loans carried variable interest at the higher of 1-month Hong Kong Interbank Offered Rate (the “HIBOR”) plus
During the year ended December 31, 2024, new revolving
loans were granted and were secured by cash deposit from WLHK and continuing guarantee provided by a director. The amounts due are based
on scheduled repayment dates set out in the banking facilities letters or loan agreements. The revolving loans carried interest at
As of December
31, 2024 and 2023, the non-revolving term loan under SME Scheme was issued by the HKMC Insurance Limited under the SME Scheme
and secured by personal guarantee provided by a director and a related party for HK$
The effective
interest rate of the years 2024 and 2023 for the Company’s short-term and long-term bank loans ranged from
Interest expense on the short-term and
long-term bank loans totaled $
As of December 31, 2024 and 2023 the Company was granted the general banking facilities stated above with the following pledges:
| - | Personal guarantee limited to HK$ |
| - | Pledged deposit amounted
approximately to HK$ |
| - | An additional pledged deposit amounted to HK$1 |
| F-21 |
NOTE 11 – EQUITY
The equity of the Company as of December 31, 2024
and 2023 represents ordinary shares and ordinary shares amounting to $
On March 20, 2023, the Company completed a private
placement of an aggregate ordinary shares at $ per share to the selling shareholders for aggregate gross proceeds of $
On April 20, 2023, the Company announced the pricing
of our initial public offering of Ordinary Shares at $ per share and commencement of trading of its Ordinary Shares on the
Nasdaq Capital Market under the symbol, “WLGS”. On April 24, 2023, the Company announced the closing initial public offering
with gross proceeds of $
On October 29, 2024, the shareholders of the Company at the annual shareholders meeting of the Company approved the 2024 Equity Incentive Plan (the “2024 Plan”). On December 18, 2024, the Company issued ordinary shares under the 2024 Plan and awarded to the Company’s director and employees. The stock contain service conditions and valid for a different time period per each individual from the grant date and vest in equal annual installments at the end of each anniversary over the period. There is no vesting on the year ended December 31, 2024.
NOTE 12 – EMPLOYEE BENEFIT PLANS
The Company has a defined contribution pension scheme
for its qualifying employees. The scheme assets are held under a provident fund managed by an independent fund manager. The Company and
its employees are each required to make contributions to the scheme calculated at
NOTE 13 – PROVISION FOR INCOME TAXES
British Virgin Islands
WANG & LEE GROUP, Inc. and WL Holdings are incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.
HK SAR
On March 21, 2018, the HK SAR
Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered
profits tax rates regime. The Bill was signed into law on March 28, 2018 and was gazetted on the following day. Under the two-tiered
profits tax rates regime, the first HK$
Accordingly, the HK SAR profits tax
is calculated at
The following tables provide the reconciliation of the differences between the statutory and effective tax expenses following as of December 31, 2024, 2023 and 2022.
SCHEDULE OF STATUTORY AND EFFECTIVE TAX EXPENSES
| 2024 | 2023 | 2022 | ||||||||||
| December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Income before tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| HK SAR Profits Tax at | ( | ) | ( | ) | ( | ) | ||||||
| Tax effect on non-deductible expenses | ||||||||||||
| Tax effect on non-deductible income | ( | ) | ||||||||||
| Tax effect on deductible temporary differences | ( | ) | ( | ) | ( | ) | ||||||
| Tax effect on tax loss not recognized | ||||||||||||
| Tax effect on utilization of tax losses | ( | ) | ||||||||||
| Income tax | $ | $ | $ | |||||||||
| F-22 |
NOTE 13 – PROVISION FOR INCOME TAXES (CONTINUED)
The Company’s effective tax rate as of December 31, 2024, 2023 and 2022 was as follows:
SCHEDULE OF STATUTORY AND EFFECTIVE TAX RATE
| 2024 | 2023 | 2022 | ||||||||||
| December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| HK SAR Profits Tax at | % | % | % | |||||||||
| Tax effect of income not taxable | ( | )% | ( | )% | ( | )% | ||||||
| The Company’s effective tax rate | % | % | % | |||||||||
NOTE 14 – CONCENTRATIONS OF RISK
Contract assets concentrations
The following table sets forth information as to each customer that accounted for top 5 of the Company’s contract assets gross carrying amount as of December 31, 2024 and 2023.
SCHEDULE OF CONCENTRATIONS RISK
| December 31, | ||||||||||||||||
| Customers | 2024 | 2023 | ||||||||||||||
| Amount $ | % | Amount $ | % | |||||||||||||
| A | ||||||||||||||||
| B | ||||||||||||||||
| C | ||||||||||||||||
| D | ||||||||||||||||
| E | ||||||||||||||||
| F | ||||||||||||||||
| F-23 |
NOTE 14 – CONCENTRATIONS OF RISK (CONTINUED)
Retention receivables concentrations
The following table sets forth information as to each customer that accounted for top 5 of the Company’s retention receivables gross carrying amount as of December 31, 2024 and 2023.
SCHEDULE OF CONCENTRATIONS RISK
| December 31, | ||||||||||||||||
| Customers | 2024 | 2023 | ||||||||||||||
| Amount $ | % | Amount $ | % | |||||||||||||
| A | ||||||||||||||||
| B | ||||||||||||||||
| C | ||||||||||||||||
| D | ||||||||||||||||
| E | ||||||||||||||||
| F | ||||||||||||||||
Customers concentrations
The following table sets forth information as to each customer that accounted for top 5 of the Company’s revenues for the years ended December 31, 2024, 2023 and 2022.
SCHEDULE OF CONCENTRATIONS RISK
| For the years ended December 31, | ||||||||||||||||||||||||
| Customers | 2024 | 2023 | 2022 | |||||||||||||||||||||
| Amount $ | % | Amount $ | % | Amount $ | % | |||||||||||||||||||
| A | ||||||||||||||||||||||||
| B | ||||||||||||||||||||||||
| C | ||||||||||||||||||||||||
| D | ||||||||||||||||||||||||
| E | ||||||||||||||||||||||||
| F | ||||||||||||||||||||||||
| G | ||||||||||||||||||||||||
| H | ||||||||||||||||||||||||
| I | ||||||||||||||||||||||||
The following table sets forth information as to each customer that accounted for top 5 of the Company’s accounts receivables gross carrying amounts as of December 31, 2024 and 2023.
| December 31, | ||||||||||||||||
| Customers | 2024 | 2023 | ||||||||||||||
| Amount $ | % | Amount $ | % | |||||||||||||
| A | ||||||||||||||||
| B | ||||||||||||||||
| C | ||||||||||||||||
| D | ||||||||||||||||
| E | ||||||||||||||||
| F | ||||||||||||||||
| G | ||||||||||||||||
| F-24 |
NOTE 14 – CONCENTRATIONS OF RISK (CONTINUED)
Suppliers concentrations
The following table sets forth information as to each supplier that accounted for top 5 of the Company’s purchase for the years ended December 31, 2024, 2023 and 2022.
SCHEDULE OF CONCENTRATIONS RISK
| For the years ended December 31, | ||||||||||||||||||||||||
| Suppliers | 2024 | 2023 | 2022 | |||||||||||||||||||||
| Amount $ | % | Amount $ | % | Amount $ | % | |||||||||||||||||||
| A | ||||||||||||||||||||||||
| B | ||||||||||||||||||||||||
| C | ||||||||||||||||||||||||
| D | ||||||||||||||||||||||||
| E | ||||||||||||||||||||||||
| F | ||||||||||||||||||||||||
| G | ||||||||||||||||||||||||
| H | ||||||||||||||||||||||||
| I | ||||||||||||||||||||||||
| J | ||||||||||||||||||||||||
| K | ||||||||||||||||||||||||
| L | ||||||||||||||||||||||||
| M | ||||||||||||||||||||||||
NOTE 15 – CONTRACT REVENUES AND CONTRACT COSTS
The Company’s main business operations are: (i) low voltage (220v/phase 1 or 380v/phase 3) electrical systems; (ii) mechanical ventilation and air-conditioning systems (“MVAC”); (iii) out-fitting; (iv) others: water supply and sewage disposal systems installation; and fire safety systems.
SCHEDULE OF CONTRACT REVENUES AND CONTRACT COSTS
| Total contract revenues as of | 2024 | 2023 | 2022 | |||||||||
| For the years ended December 31, | ||||||||||||
| Total contract revenues | 2024 | 2023 | 2022 | |||||||||
| Low voltage electrical system | $ | $ | $ | |||||||||
| MVAC systems | ||||||||||||
| Out-fitting | ||||||||||||
| Others | 358,146 | 70,344 | 640,487 | |||||||||
| Total Contract Revenues | $ | $ | $ | |||||||||
| Total contract costs as of | 2024 | 2023 | 2022 | |||||||||
| For the years ended December 31, | ||||||||||||
| Total contract costs | 2024 | 2023 | 2022 | |||||||||
| Low voltage electrical system | $ | $ | $ | |||||||||
| MVAC systems | ||||||||||||
| Out-fitting | ||||||||||||
| Others | 46,964 | 41,233 | 461,176 | |||||||||
| Total Contract Costs | $ | $ | $ | |||||||||
| F-25 |
NOTE 16 – RISKS
| A. | Credit risk |
| Account receivables, contract assets and retention receivables arising from contracts with customers | |
| In order to minimize the credit risk, the management of the Company has delegated a team responsible for determination of credit limits and credit approvals. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. Internal credit rating has been given to each category of debtors after considering aging, historical observed default rates, repayment history and past due status of respective account receivables. Estimated loss rates are based on probability of default and loss given default with reference to an external credit report and are adjusted for reasonable and supportable forward-looking information that is available without undue costs or effort while credit-impaired trade balances were assessed individually. In this regard, the directors consider that the Company’s credit risk is significantly reduced. The maximum potential loss of account receivables, contract assets and retention receivables for the year ended December 31, 2024 and 2023 are $ | |
| Bank balances | |
| The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The Company is exposed to concentration of credit risk on liquid funds which are deposited with several banks with high credit ratings. | |
| Deposit and other receivables | |
| In response to the economic slowdown and to mitigate potential increases in credit risk, the Company has implemented a policy of establishing a loss allowance for other receivables. This allowance is determined based on scenario analysis and specific indicators assessed as of December 31, 2024. No allowance for credit losses was recognized as of December 31, 2023. |
| F-26 |
NOTE 16 – RISKS (CONTINUED)
| B. | Interest risk |
| Cash flow interest rate risk | |
| The Company is exposed to cash flow interest rate risk through the changes in interest rates related mainly to the Company’s variable-rates short-term and long-term bank loans and bank balances. | |
| During the year ended December 31, 2024, the Company implemented an in-house interest rate hedging policy to mitigate fair value interest risk and cash flow interest rate risk. As a result of this policy, the effective interest rate decreased by | |
| Sensitivity analysis | |
| The sensitivity analysis below has been determined assuming that a change in interest rates had occurred at the end of the reporting period and had been applied to the exposure to interest rates for financial instruments in existence at that date. | |
| If interest rates had been
| |
| Foreign currency risk | |
| Foreign currency risk is the risk that the holding of foreign currency assets will affect the Company’s financial position as a result of a change in foreign currency exchange rates. | |
|
The Company’s monetary assets and liabilities are mainly denominated in HK$, the Company did not have foreign currency denominated monetary liabilities at the end of reporting period. The Company currently does not have a foreign currency hedging policy to eliminate the currency exposures. However, the directors monitor the related foreign currency exposure closely and will consider hedging significant foreign currency exposures should the need arise.
In the opinion of the Company, the currency risk of $ is considered insignificant as HK$ is pegged to $ and therefore no sensitivity analysis is presented. |
| C. | Economic and political risks |
| The Company’s operations are mainly conducted in HK SAR. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in HK SAR. | |
| The Company’s operations in HK SAR are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in HK SAR, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. | |
| D. | Environmental risks |
|
The Company has procured environmental licenses required by the HK SAR government. Historically there was no penalties charged over the environmental issue during any engagement of construction works. In addition, the Company also obtained a certification of complies with the requirements of ISO 14001: 2015 Environmental Management System Standard to maintain and proved the quality service with less environmental risk.
In the opinion of the management of the Company, there is no environmental risk for the Company. | |
| E. | Inflation risk |
| The Company monitors changes in price levels. Historically inflation has not materially impacted the Company’s audited consolidated financial statements; however, significant increases in the price of raw materials and labor that cannot be passed to the Company’s customers could adversely impact WLHK’s results of operations. | |
| F. | Concentration risk |
|
The Company heavily depends on large-scale projects
from a select group of customers to generate a substantial portion of its revenue. In the years ended December 2024 and 2023, the top
5 contract assets and retention receivables accounted for
The Company notes that this concentration
of business with a few customers carries inherent risks. Any disruptions or changes in these projects or with the customers involved
could significantly impact the Company’s financial performance. To mitigate this risk, the Company enhances diversification by
performing many smaller to medium-scale projects with varied complexities and durations simultaneously. As of the years ended December
2024 and 2023,
The Company believes that the loss of any one customer would not materially affect the Company’s financial position or results of operations, as there are numerous potential customers. Additionally, the Company continues to enhance the diversity of its service line by introducing new products and services. |
| F-27 |
NOTE 17 – RELATED PARTY TRANSACTIONS
The summary of amount due from and due to related parties as the following:
SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES
| 2024 | 2023 | 2022 | |||||||||||||
| December 31, | |||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||
| Due from related parties consist of the following: | |||||||||||||||
| WANG & LEE BROTHERS., Inc. | Due from ultimate holding company | ||||||||||||||
| Due from related parties, Total | $ | $ | $ | ||||||||||||
| Due to related parties consist of the following: | |||||||||||||||
| Pui Lung Ho | Due to director | ||||||||||||||
| Due to related parties, Total | $ | $ | $ | ||||||||||||
For the years ended December 31, 2024, 2023 and 2022,
the amounts due to the director, Pui Lung Ho, is $
NOTE 18 – SUBSEQUENT EVENT
On March 13, the Company entered
into a sale and purchase agreement with Allied Worldwide Industries Limited (the “Vendor”) for the purchase of the
entire issued and outstanding share capital of Solar (HK) Limited, a company incorporated under the laws of Hong Kong, for the consideration
of HK$
The Company evaluates subsequent events that have occurred after the balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the dates of the balance sheets, including the estimates inherent in the process of preparing consolidated financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. The Company has analyzed its operations subsequent to December 31, 2024 to the date of May [ ], 2025, these audited consolidated financial statements were issued, unless as disclosed below, there are not any material subsequent events that require disclosure in these audited consolidated financial statements.
| F-28 |
Exhibit 4.2
Exhibit 8.1
List of Principal Subsidiaries of WANG & LEE GROUP, Inc.
| Subsidiaries | Place of Incorporation | |
| WANG & LEE HOLDINGS, Inc. | British Virgin Islands | |
| WANG & LEE CONTRACTING LIMITED | Hong Kong | |
| Solar (HK) Limited | Hong Kong |
Exhibit 11.2
WANG & LEE GROUP, Inc.
Statement of Policy Concerning Trading in Company Securities
Adopted April 19, 2023
TABLE OF CONTENTS
| Page No. | |||
| I. | Summary of Policy Concerning Trading in Company Securities | 1 | |
| II. | The Use of Inside Information in Connection with Trading in Securities | 1 | |
| A. | General Rule. | 1 | |
| B. | Who Does the Policy Apply To? | 2 | |
| C. | Other Companies’ Stock. | 3 | |
| D. | Hedging and Derivatives. | 3 | |
| E. | Pledging of Securities, Margin Accounts. | 3 | |
| F. | General Guidelines. | 4 | |
| G. | Applicability of U.S. Securities Laws to International Transactions. | 5 | |
| III. | Other Limitations on Securities Transactions | 6 | |
| A. | Public Resales – Rule 144. | 6 | |
| B. | Private Resales. | 7 | |
| C. | Restrictions on Purchases of Company Securities. | 7 | |
| D. | Filing Requirements. | 7 | |
| i |
I. SUMMARY OF POLICY CONCERNING TRADING IN COMPANY SECURITIES
It is the policy of WANG & LEE GROUP, Inc. and its subsidiaries and consolidated affiliated entities (collectively, the “Company”) that it will, without exception, comply with all applicable laws and regulations in conducting its business. Each employee, each executive officer and each director is expected to abide by this policy. When carrying out Company business, employees, executive officers and directors must avoid any activity that violates applicable laws or regulations. In order to avoid even an appearance of impropriety, the Company’s directors, officers and certain other employees are subject to pre-approval requirements and other limitations on their ability to enter into transactions involving the Company’s securities. Although these limitations do not apply to transactions pursuant to written plans for trading securities that comply with Rule 10b5-1 under the Securities Exchange Act of 1934 (the “Exchange Act”), the entry into, amendment or termination of any such written trading plan is subject to pre-approval requirements and other limitations.
II. THE USE OF INSIDE INFORMATION IN CONNECTION WITH TRADING IN SECURITIES
A. General Rule.
The U.S. securities laws regulate the sale and purchase of securities in the interest of protecting the investing public. U.S. securities laws give the Company, its officers and directors, and other employees the responsibility to ensure that information about the Company is not used unlawfully in the purchase and sale of securities.
All employees, executive officers and directors should pay particularly close attention to the laws against trading on “inside” information. These laws are based upon the belief that all persons trading in a company’s securities should have equal access to all “material” information about that company. Information is considered to be “material” if its disclosure would be reasonably likely to affect (1) an investor’s decision to buy or sell the securities of the company to which the information relates, or (2) the market price of that company’s securities. While it is not possible to identify in advance all information that will be deemed to be material, some examples of such information would include the following: earnings; financial results or projections; dividend actions; mergers and acquisitions; capital raising and borrowing activities; major dispositions; major new customers, projects or products; significant advances in product development; new technologies; major personnel changes in management or change in control; expansion into new markets; unusual gains or losses in major operations; major litigation or legal proceedings; granting of stock options; and major sales and marketing changes. When doubt exists, the information should be presumed to be material. If you are unsure whether information of which you are aware is inside information, you should consult with the Company’s Chief Financial Officer. No individuals other than specifically authorized personnel may release material information to the public or respond to inquiries from the media, analysts or others. If you are contacted by the media or by a research analyst seeking information about the Company and if you have not been expressly authorized by the Company’s Chief Financial Officer to provide information to the media or to analysts, you should refer the call to the Chief Financial Officer. On occasion, it may be necessary for legitimate business reasons to disclose inside information to outside persons. Such persons might include investment bankers, lawyers, auditors or other companies seeking to engage in a potential transaction with the Company. In such circumstances, the information should not be conveyed until an express understanding has been reached that such information is not to be used for trading purposes and may not be further disclosed other than for legitimate business reasons. For example, if an employee, an executive officer or a director of a company knows material non-public financial information, that employee, executive officer or director is prohibited from buying or selling shares in the company until the information has been disclosed to the public. This is because the employee, executive officer or director knows information that will probably cause the share price to change, and it would be unfair for the employee or director to have an advantage (knowledge that the share price will change) that the rest of the investing public does not have. In fact, it is more than unfair; it is considered to be fraudulent and illegal. Civil and criminal penalties for this kind of activity are severe.
| 1 |
The general rule can be stated as follows: It is a violation of federal securities laws for any person to buy or sell securities if he or she is in possession of material inside information. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. It is inside information if it has not been publicly disclosed in a manner making it available to investors generally on a broad-based non-exclusionary basis. Furthermore, it is illegal for any person in possession of material inside information to provide other people with such information or to recommend that they buy or sell the securities. (This is called “tipping”). In that case, they may both be held liable.
The Securities and Exchange Commission (the “SEC”), the stock exchanges and plaintiffs’ lawyers focus on uncovering insider trading. A breach of the insider trading laws could expose the insider to criminal fines up to three times the profits earned and imprisonment up to ten years, in addition to civil penalties (up to three times of the profits earned), and injunctive actions. In addition, punitive damages may be imposed under applicable state laws. Securities laws also subject controlling persons to civil penalties for illegal insider trading by employees, including employees located outside the United States. Controlling persons include directors, officers, and supervisors. These persons may be subject to fines up to the greater of $1,000,000 or three times profit (or loss avoided) by the insider trader.
Inside information does not belong to the individual directors, officers or other employees who may handle it or otherwise become knowledgeable about it. It is an asset of the Company. For any person to use such information for personal benefit or to disclose it to others outside the Company violates the Company’s interests. More particularly, in connection with trading in the Company’s securities, it is a fraud against members of the investing public and against the Company.
All directors, executive officers and employees of the Company must observe these policies at all times. Your failure to do so will be grounds for internal disciplinary action, up to and including termination of your employment or directorship.
B. Who Does the Policy Apply To?
The prohibition against trading on inside information applies to directors, officers and all other employees, and to other people who gain access to that information. The prohibition applies to both domestic and international employees of the Company and its subsidiaries. Because of their access to confidential information on a regular basis, Company policy subjects its directors and certain employees (the “Window Group”) to additional restrictions on trading in Company securities. The restrictions for the Window Group are discussed in Section F below. In addition, directors and certain employees with inside knowledge of material information may be subject to ad hoc restrictions on trading from time to time.
| 2 |
C. Other Companies’ Stock.
Employees, executive officers and directors who learn material information about suppliers, customers, or competitors through their work at the Company, should keep it confidential and not buy or sell stock in such companies until the information becomes public. Employees, executive officers and directors should not give tips about such stock.
D. Hedging and Derivatives.
Employees, executive officers and directors are prohibited from engaging in any hedging transactions (including transactions involving options, puts, calls, prepaid variable forward contracts, equity swaps, collars and exchange funds or other derivatives) that are designed to hedge or speculate on any change in the market value of the Company’s equity securities.
Trading in options or other derivatives is generally highly speculative and very risky. People who buy options are betting that the stock price will move rapidly. For that reason, when a person trades in options in his or her employer’s stock, it will arouse suspicion in the eyes of the SEC that the person was trading on the basis of inside information, particularly where the trading occurs before a company announcement or major event. It is difficult for an employee, executive officer or director to prove that he or she did not know about the announcement or event.
If the SEC or the NYSE were to notice active options trading by one or more employees, executive officers or directors of the Company prior to an announcement, they would investigate. Such an investigation could be embarrassing to the Company (as well as expensive), and could result in severe penalties and expense for the persons involved. For all of these reasons, the Company prohibits its employees, executive officers and directors from trading in options or other derivatives involving the Company’s stock. This policy does not pertain to employee stock options granted by the Company. Employee stock options cannot be traded.
E. Pledging of Securities, Margin Accounts.
Pledged securities may be sold by the pledgee without the pledgor’s consent under certain conditions. For example, securities held in a margin account may be sold by a broker without the customer’s consent if the customer fails to meet a margin call. Because such a sale may occur at a time when an employee, executive officer or a director has material inside information or is otherwise not permitted to trade in Company securities, the Company prohibits employees, executive officers and directors from pledging Company securities in any circumstance, including by purchasing Company securities on margin or holding Company securities in a margin account.
| 3 |
F. General Guidelines.
The following guidelines should be followed in order to ensure compliance with applicable antifraud laws and with the Company’s policies:
1. Nondisclosure. Material inside information must not be disclosed to anyone, except to persons within the Company whose positions require them to know it. Tipping refers to the transmission of inside information from an insider to another person. Sometimes this involves a deliberate conspiracy in which the tipper passes on information in exchange for a portion of the “tippee’s” illegal trading profits. Even if there is no expectation of profit, however, a tipper can have liability if he or she has reason to know that the information may be misused. Tipping inside information to another person is like putting your life in that person’s hands. So the safest choice is: Don’t tip.
2. Trading in Company Securities. No employee, executive officer or director should place a purchase or sale order, or recommend that another person place a purchase or sale order in the Company’s securities when he or she has knowledge of material information concerning the Company that has not been disclosed to the public. This includes orders for purchases and sales of stock and convertible securities, including engaging in any “short sales” of the Company’s securities. The exercise of employee stock options is not subject to this policy. However, stock that was acquired upon exercise of a stock option will be treated like any other stock, and may not be sold by an employee who is in possession of material inside information. Any employee, executive officer or director who possesses material inside information should wait until the start of the third business day after the information has been publicly released before trading.
3. Avoid Speculation. Investing in the Company’s common stock provides an opportunity to share in the future growth of the Company. But investment in the Company and sharing in the growth of the Company does not mean short range speculation based on fluctuations in the market. Such activities put the personal gain of the employee, executive officer or director in conflict with the best interests of the Company and its stockholders. Although this policy does not mean that employees, executive officers or directors may never sell shares, the Company encourages employees, executive officers and directors to avoid frequent trading in Company stock. Speculating in Company stock is not part of the Company culture.
4. Trading in Other Securities. No employee, executive officer or director should place a purchase or sale order, or recommend that another person place a purchase or sale order, in the securities of another corporation (such as a supplier, an acquisition target or a competitor), if the employee, executive officer or director learns in the course of his or her employment confidential information about the other corporation that is likely to affect the value of those securities. For example, it would be a violation of the securities laws if an employee, executive officer or director learned through Company sources that the Company intended to purchase assets from a company, and then placed an order to buy or sell stock in that other company because of the likely increase or decrease in the value of its securities.
| 4 |
5. Restrictions on the Window Group. The Window Group consists of (i) directors, executive officers and vice presidents of the Company and their assistants and household members, (ii) subset of employees in the financial reporting, business development or legal groups and (iii) such other persons as may be designated from time to time and informed of such status by the Company’s Chief Financial Officer and general counsel or an officer with similar duties and responsibilities of the Company (the “General Counsel”). The Window Group is subject to the following restrictions on trading in Company securities:
| ● | trading is permitted from the start of the third business day following the release of the Company’s interim and annual earnings until the 16th calendar day of the last month of the then current fiscal period (the “Window”), subject to the restrictions below; | |
| ● | all trades are subject to prior review; | |
| ● | The Window Group must submit a request for approval in a form set forth in Annex B hereto from the Company’s Chief Financial Officer and General Counsel before making any trade in Company Securities; requests for approval of trades by the Chief Financial Officer and General Counsel should be submitted to the Chief Executive Officer; | |
| ● | no trading is permitted outside the Window except for reasons of exceptional personal hardship and subject to prior review by the Chief Financial Officer and General Counsel; provided that, if one of these individuals wishes to trade outside the Window, it shall be subject to prior review by the other; and | |
| ● | individuals in the Window Group are also subject to the general restrictions on all employees. |
Note that at times Chief Financial Officer and the General Counsel may determine that no trades may occur even during the Window when clearance is requested. No reasons may be provided and the closing of the Window itself may constitute material inside information that should not be communicated.
The foregoing Window Group restrictions do not apply to transactions pursuant to written plans for trading securities that comply with Rule 10b5-1 under the Exchange Act (“10b5-1 Plans”) described in Annex A hereto. However, Window Group members may not enter into, amend or terminate a 10b5-1 Plan relating to Company securities without the prior approval of Chief Financial Officer and the General Counsel, which will only be given during a Window period.
The Company from time to time may also impose an ad hoc trading freeze on all officers, directors, and other members of the Window Group due to significant unannounced corporate developments. These trading freezes may vary in length.
Executive officers, directors or any other member of the Window Group must promptly report to the Chief Financial Officer and General Counsel any transaction in any of the Company’s securities by his or her or any of their respective assistants or family members other than transactions made pursuant to an approved 10b5-1 Plan (as defined below).
In summary, every employee of the Company is subject to trading restrictions when in possession of inside information regarding the Company. In addition, officers, directors, and other members of the Window Group are subject to paragraph 5 above restricting their trading to window periods and requiring pre-clearance.
You must promptly report to the chief financial officer and the general counsel any trading in the company’s securities by anyone or disclosure of inside information by COMPANY personnel that you have reason to believe may violate this Policy or the securities laws of the United States.
G. Applicability of U.S. Securities Laws to International Transactions.
All employees of the Company’ and its subsidiaries are subject to the restrictions on trading in Company securities and the securities of other companies. The U.S. securities laws may be applicable to the securities of the Company’s subsidiaries or affiliates, even if they are located outside the United States. Transactions involving securities of PRC subsidiaries or affiliates should be carefully reviewed by counsel for compliance not only with applicable PRC law but also for possible application of U.S. securities laws.
| 5 |
III. OTHER LIMITATIONS ON SECURITIES TRANSACTIONS
A. Public Resales – Rule 144.
The U.S. Securities Act (the “Securities Act”) requires every person who offers or sells a security to register such transaction with the SEC unless an exemption from registration is available. Rule 144 under the Securities Act is the exemption typically relied upon for (i) public resales by any person of “restricted securities” (i.e., unregistered securities acquired in a private offering or sale) and (ii) public resales by directors, officers and other control persons of a company (known as “affiliates”) of any of the Company’s securities, whether restricted or unrestricted.
The exemption in Rule 144 may only be relied upon if certain conditions are met. These conditions vary based upon whether the Company has been subject to the SEC’s reporting requirements for 90 days (and is therefore a “reporting company” for purposes of the rule) and whether the person seeking to sell the securities is an affiliate or not.
1. Holding Period. Restricted securities issued by a reporting company (i.e., a company that has been subject to the SEC’s reporting requirements for at least 90 days) must be held and fully paid for a period of six months prior to their sale. Restricted securities issued by a non-reporting company are subject to a one-year holding period. The holding period requirement does not apply to securities held by affiliates that were acquired either in the open market or in a public offering of securities registered under the Securities Act. Generally, if the seller acquired the securities from someone other than the Company or an affiliate of the Company, the holding period of the person from whom the seller acquired such securities can be “tacked” to the seller’s holding period in determining if the holding period has been satisfied.
2. Current Public Information. Current information about the Company must be publicly available before the sale can be made. The Company’s periodic reports filed with the SEC ordinarily satisfy this requirement. If the seller is not an affiliate of the Company issuing the securities (and has not been an affiliate for at least three months) and one year has passed since the securities were acquired from the issuer or an affiliate of the issuer (whichever is later), the seller can sell the securities without regard to the current public information requirement.
Rule 144 also imposes the following additional conditions on sales by persons who are “affiliates.” A person or entity is considered an “affiliate,” and therefore subject to these additional conditions, if it is currently an affiliate or has been an affiliate within the previous three months:
3. Volume Limitations. The amount of debt securities which can be sold by an affiliate during any three-month period cannot exceed 10% of a tranche (or class when the securities are non-participatory preferred stock), together with all sales of securities of the same tranche sold for the account of the affiliate. The amount of equity securities that can be sold by an affiliate during any three-month period cannot exceed the greater of (i) one percent of the outstanding shares of the class or (ii) the average weekly reported trading volume for shares of the class during the four calendar weeks preceding the time the order to sell is received by the broker or executed directly with a market maker.
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4. Manner of Sale. Equity securities held by affiliates must be sold in unsolicited brokers’ transactions, directly to a market-maker or in riskless principal transactions.
5. Notice of Sale. An affiliate seller must file a notice of the proposed sale with the SEC at the time the order to sell is placed with the broker, unless the amount to be sold neither exceeds 5,000 shares nor involves sale proceeds greater than $50,000. See “Filing Requirements”.
Bona fide gifts are not deemed to involve sales of shares for purposes of Rule 144, so they can be made at any time without limitation on the amount of the gift. Donees who receive restricted securities from an affiliate generally will be subject to the same restrictions under Rule 144 that would have applied to the donor, depending on the circumstances.
B. Private Resales.
Directors and officers also may sell securities in a private transaction without registration. Although there is no statutory provision or SEC rule expressly dealing with private sales, the general view is that such sales can safely be made by affiliates if the party acquiring the securities understands he is acquiring restricted securities that must be held for at least six months (if issued by a reporting company that meets the current public information requirements) or one-year (if issued by a non-reporting company) before the securities will be eligible for resale to the public under Rule 144. Private resales raise certain documentation and other issues and must be reviewed in advance by the Company’s General Counsel.
C. Restrictions on Purchases of Company Securities.
In order to prevent market manipulation, the SEC adopted Regulation M under the U.S. Exchange Act. Regulation M generally restricts the Company or any of its affiliates from buying Company stock, including as part of a share buyback program, in the open market during certain periods while a distribution, such as a public offering, is taking place. You should consult with the Company’s General Counsel, if you desire to make purchases of Company stock during any period that the Company is making conducting an offering or buying shares from the public.
D. Filing Requirements.
1. Schedule 13D and 13G. Section 13(d) of the Exchange Act requires the filing of a statement on Schedule 13D (or on Schedule 13G, in certain limited circumstances) by any person or group which acquires beneficial ownership of more than five percent of a class of equity securities registered under the Exchange Act. The threshold for reporting is met if the stock owned, when coupled with the amount of stock subject to options exercisable within 60 days, exceeds the five percent limit.
A report on Schedule 13D is required to be filed with the SEC and submitted to the Company within ten days after the reporting threshold is reached. If a material change occurs in the facts set forth in the Schedule 13D, such as an increase or decrease of one percent or more in the percentage of stock beneficially owned, an amendment disclosing the change must be filed promptly. A decrease in beneficial ownership to less than five percent is per se material and must be reported.
A limited category of persons (such as banks, broker-dealers and insurance companies) may file on Schedule 13G, which is a much abbreviated version of Schedule 13D, as long as the securities were acquired in the ordinary course of business and not with the purpose or effect of changing or influencing the control of the issuer. A report on Schedule 13G is required to be filed with the SEC and submitted to the Company within 45 days after the end of the calendar year in which the reporting threshold is reached.
A person is deemed the beneficial owner of securities for purposes of Section 13(d) if such person has or shares voting power (i.e., the power to vote or direct the voting of the securities) or dispositive power (i.e., the power to sell or direct the sale of the securities). A person filing a Schedule 13D or 13G may disclaim beneficial ownership of any securities attributed to him or her if he or she believes there is a reasonable basis for doing so.
2. Form 144. As described above under the discussion of Rule 144, an affiliate seller relying on Rule 144 must file a notice of proposed sale with the SEC at the time the order to sell is placed with the broker unless the amount to be sold during any three-month period neither exceeds 5,000 shares nor involves sale proceeds greater than $50,000.
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Annex A
Overview of 10b5-1 Plans
Under Rule 10b5-1, large stockholders, directors, officers and other insiders who regularly possess material nonpublic information (MNPI) but who nonetheless wish to buy or sell stock may establish an affirmative defense to an illegal insider trading charge by adopting a written plan to buy or sell at a time when they are not in possession of MNPI. A 10b5-1 plan typically takes the form of a contract between the insider and his or her broker.
The plan must be entered into at a time when the insider has no MNPI about the company or its securities (even if no trades will occur until after the release of the MNPI). The plan must:
1. specify the amount, price (which may include a limit price) and specific dates of purchases or sales; or
2. include a formula or similar method for determining amount, price and date; or
3. give the broker the exclusive right to determine whether, how and when to make purchases and sales, as long as the broker does so without being aware of MNPI at the time the trades are made.
Under the first two alternatives, the 10b5-1 plan cannot give the broker any discretion as to trade dates. As a result, a plan that requests the broker to sell 1,000 shares per week would have to meet the requirements under the third alternative. On the other hand, under the second alternative, the date may be specified by indicating that trades should be made on any date on which the limit price is hit. The affirmative defense is only available if the trade is in fact made pursuant to the preset terms of the10b5-1 plan (unless the terms are revised at a time when the insider is not aware of any MNPI and could therefore enter into a new plan). Trades are deemed not to have been made pursuant to the plan if the insider later enters into or alters a corresponding or hedging transaction or position with respect to the securities covered by the plan (although hedging transactions could be part of the plan itself).
Guidelines for 10b5-1 Plans
When can a plan be adopted or amended? Because Rule 10b5-1 prohibits an insider from adopting or amending a plan while in possession of MNPI, allegations of insider trading despite the existence of a 10b5-1 plan are likely to focus on what was known at the time of plan adoption or amendment. It is recommended that companies permit an executive to adopt or amend a 10b5-1 plan only when the executive can otherwise buy or sell securities under the company’s insider trading policy, such as during an open window immediately after the announcement of quarterly earnings.
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Should a plan impose a waiting period before trading can begin? Because an insider cannot have MNPI when a plan is adopted or amended, Rule 10b5-1 does not require the plan to include a waiting period before trading can begin. And importantly, including a waiting period (even a lengthy delay) will not correct the fatal flaw of adopting or amending a plan while in possession of MNPI. Many companies, however, require 10b5-1 plans to include a waiting period as a matter of risk management, in order to decrease the likelihood of the scrutiny that can occur when an executive’s trading activity suddenly commences before material news is announced. Practice varies as to length (anywhere from 10 days to the next open window), although the rationale for including a waiting period is usually stronger when the period is long enough to be able to say that any information currently in the insider’s possession should either be stale or public by the time trading commences. This has no bearing on the effectiveness of a 10b5-1 plan, but a longer delay can, as a matter of optics, help an insider demonstrate that he or she was not motivated to make trades by nonpublic information available at the time of plan adoption or amendment.
Should adoption of a plan be announced publicly? Generally speaking, there is no requirement to publicly disclose the adoption, amendment or termination of a 10b5-1 plan, although in some cases public announcement may be advisable due to the identity of the insider, the magnitude of the plan, or other special factors. That said, announcing the adoption of a 10b5-1 plan may be a useful way to head off future public relations issues, since announcing a plan’s adoption prepares the market and should help investors understand the reasons for insider sales when trades are later reported. If a company decides to announce the adoption of a 10b5-1 plan, we do not generally recommend disclosing plan details, other than, perhaps, the aggregate number of shares involved; this is to diminish the ability of market professionals to front-run the insider’s transactions. It is unusual to announce the suspension or termination of a plan.
What else should we consider when amending or modifying a plan? As noted above, an insider may only modify or amend a 10b5-1 plan when he or she is not in possession of MNPI. Even if an insider is not in possession of MNPI at the time of amendment, a pattern of amending or modifying one’s plan raises the question of whether the insider is using the plan as a legitimate tool to diversify his or her risk exposure and monetize assets, or as a way to opportunistically step in and out of the market. Because Rule 10b5-1 provides an affirmative defense but not a safe harbor, insiders and their companies should be aware that the effectiveness of the affirmative defense could be diminished by a pattern of plan amendments and modifications.
Can a plan be terminated or suspended? Unlike amending a plan, a 10b5-1 plan may legally be terminated before its predetermined end date even though the insider is in possession of MNPI (although some brokers’ forms prohibit this as a contractual matter). Because plan sales shortly before the announcement of bad news can generate unwanted attention, an insider may decide to terminate a plan in the face of an impending negative announcement, even though as a technical matter the affirmative defense would be expected to cover the sales. On the other hand, terminating a selling plan before an impending positive announcement may raise the suspicion that the insider is using Rule 10b5-1 as a way to opportunistically time the market, thereby risking the likelihood that his or her future use of the affirmative defense will be successful.
It is generally suggested that plan terminations initiated by an insider take place during an open window, absent special circumstances and approval by the general counsel. It may also make sense for the general counsel to have the ability, but not the responsibility, to terminate the plan. Plans should also allow for mandatory suspension if legally required, for example due to Regulation M or tax reasons.
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How long should a plan last? In order to minimize the need for early termination, the term of the plan should be carefully weighed at the outset. An optimal plan term will be long enough to distance the insider, and any current knowledge that he or she may have, from a particular trade but short enough that it will not require termination should the insider’s financial planning strategies change. A short “one-off” 10b5-1 plan can appear to be timed to take advantage of MNPI. On the other hand, the longer the plan term, the greater the likelihood that it will need to be modified or terminated. Most plans tend to have a term of six months to two years.
Should the company pre-clear or review an executive’s plan? It is generally recommended that the company pre-clear or review a proposed 10b5-1 plan, which may provide assurance that the plan complies with best practices. Certain companies disallow the third type of plan (one that gives the broker the right to determine whether, how and when to make purchases) in order to avoid the evidentiary difficulty associated with proving that the executive did not communicate with the broker with respect to trades under the plan. While this is not required, this is a prudent option to consider.
In addition to requiring a 10b-5 plan to be pre-approved by the Company, other limits that are sometimes considered are whether to set a maximum percentage of holdings that can be subject to a 10b5-1 plan, and rules for setting price floors.
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Annex B
Request for Approval to Trade in the Securities of WANG & LEE GROUP, Inc.
To: Chief Financial Officer / General Counsel
| From: | _________________________________ |
Print Name
I hereby request approval for myself (or a member of my immediate family or household or a family member whose transactions regarding securities of WANG & LEE GROUP, Inc. are directed by me or are subject to my influence or control) to execute the following transaction relating to the securities of WANG & LEE GROUP, Inc..
Type of transaction (check one):
| ☐ | PURCHASE | |
| ☐ | SALE | |
| ☐ | EXERCISE OPTION (AND SELL SHARES) | |
| ☐ | OTHER |
Securities involved in transaction:______________________________________
Number of securities:________________________________________________
Other (please explain):________________________________________________
Name of beneficial owner if other than yourself:_____________________________
Relationship of beneficial owner to yourself:_______________________________
| Signature:_______________________________ | Date: ______________________ |
This Authorization is valid until the earlier of thirty (30) calendar days after the date of this Approval or until the commencement of a “blackout” period.
Approved by:________________________
Name:______________________________
| Date:__________________________________ | Time:_______________________ |
| 11 |
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Pui Lung HO, certify that:
| 1. | I have reviewed this annual report on Form 20-F of WANG & LEE GROUP, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: May [ ], 2025
| By: | /s/ Pui Lung HO | |
| Name: | Pui Lung HO | |
| Title: | Chief Executive Officer |
Exhibit 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Yuk Ming, Gary MA, certify that:
| 1. | I have reviewed this annual report on Form 20-F of WANG & LEE GROUP, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: May [ ], 2025
| By: | /s/ Yuk Ming, Gary MA | |
| Name: | Yuk Ming, Gary MA | |
| Title: | Chief Financial Officer |
Exhibit 13.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of WANG & LEE GROUP, Inc. (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Pui Lung HO, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May [ ], 2025
| By: | /s/ Pui Lung HO | |
| Name: | Pui Lung HO | |
| Title: | Chief Executive Officer |
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of WANG & LEE GROUP, Inc. (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yuk Ming, Gary MA, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May [ ], 2025
| By: | /s/ Yuk Ming, Gary MA | |
| Name: | Yuk Ming, Gary MA | |
| Title: | Chief Financial Officer |
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statement on Form F-3 (No. 333-281859) of WANG & LEE GROUP, Inc. and Form S-8 (No.333-283545) of WANG & LEE GROUP, Inc., of our report dated May 15, 2025, with respect to the consolidated financial statements of WANG & LEE GROUP, Inc. as of December 31, 2023 and 2024, and for each of the years in the three-year period ended December 31, 2024, appearing in this Annual Report on Form 20-F for the year ended December 31, 2024.
/s/ AOGB CPA Limited
AOGB CPA Limited
Hong Kong, Hong Kong
May 15, 2025
Exhibit 97.1
WANG & LEE GROUP, Inc. (the “Company”)
CLAWBACK POLICY
Introduction
The Board of Directors of the Company (the “Board”) believes that it is in the best interests of the Company and its shareholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. The Board has therefore adopted this policy which provides for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”).
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected individuals.
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with Section 10D of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed, and such other senior executives/employees who may from time to time be deemed subject to the Policy by the Board (“Covered Executives”).
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, the Board will require reimbursement or forfeiture of any excess Incentive Compensation received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement.
Incentive Compensation
For purposes of this Policy, Incentive Compensation means any of the following; provided that such compensation is granted, earned, or vested based wholly or in part on the attainment of a financial reporting measure:
| ● | Annual cash bonuses and other short- and long-term cash incentives. | |
| ● | Stock options. | |
| ● | Stock appreciation rights. | |
| ● | Restricted stock. | |
| ● | Restricted stock units. | |
| ● | Performance shares. | |
| ● | Performance units. |
Financial reporting measures are measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures, including:
| ● | Company stock price. |
| ● | Total shareholder return. | |
| ● | Revenues. | |
| ● | Net income. | |
| ● | Earnings before interest, taxes, depreciation, and amortization (EBITDA). | |
| ● | Earnings per share. | |
| ● | “Non-GAAP financial measures” for purposes of Exchange Act Regulation G and 17CFR 229.10. |
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board.
If the Board cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include, without limitation:
| ● | requiring reimbursement of cash Incentive Compensation previously paid; | |
| ● | seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; | |
| ● | offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive; | |
| ● | cancelling outstanding vested or unvested equity awards; and | |
| ● | taking any other remedial and recovery action permitted by law, as determined by the Board. |
No Indemnification
The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation.
Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company’s securities are listed.
Effective Date
This Policy shall be effective as of the date it is adopted by the Board (the “Effective Date”) and shall apply to Incentive Compensation that is approved, awarded or granted to Covered Executives on or after that date. This Policy shall apply to any excess Incentive Compensation received by Covered Executives during the three immediately completed fiscal years preceding the date on which a company is required to prepare an accounting restatement.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with any rules or standards adopted by a national securities exchange on which the Company’s securities are listed. The Board may terminate this Policy at any time.
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
Impracticability
The Board shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Board in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.