Climate Change Data

Environmental Metrics

ESG Focus Areas

• Not disclosed

Environmental Achievements

• Reduced raw material waste by employing fewer unskilled workers and improving production procedures.

Social Achievements

• Not disclosed

Governance Achievements

• Established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.

Climate Goals & Targets

Environmental Challenges

• US-China trade tariff war resulting in decreased orders.
• COVID-19 pandemic causing temporary closure of office and factory.
• Difficulty obtaining financing from commercial banks.
• High customer and geographical market concentration.

Mitigation Strategies

• Deployed alternative pricing strategies to alleviate the impact of tariffs.
• Resumed operations after the COVID-19 pandemic.
• Seeking additional capital through this public offering.
• Contacting property developers and hotel developers in China and Southeast Asia to diversify customer base.

Supply Chain Management

Supplier Audits: Not disclosed

Responsible Procurement

• Negotiating volume rebates with suppliers and recycling raw materials.

Climate-Related Risks & Opportunities

Physical Risks

• Not disclosed

Transition Risks

• Not disclosed

Opportunities

• Not disclosed

Reporting Standards

Frameworks Used: Null

Certifications: ISO9001

Third-party Assurance: Not disclosed

UN Sustainable Development Goals

• Not disclosed

Not disclosed

Sustainable Products & Innovation

• Not disclosed

Awards & Recognition

• Not disclosed

Environmental Metrics

ESG Focus Areas

• Not disclosed

Environmental Achievements

• Not disclosed

Social Achievements

• Not disclosed

Governance Achievements

• Not disclosed

Climate Goals & Targets

Environmental Challenges

• COVID-19 pandemic causing disruptions to business, supply chain, and logistics.
• Chinese government's "dual control of energy consumption" policy disrupting production.
• US-China trade tariff war impacting sales and profit margins.
• Difficulty obtaining financing from commercial banks in China and Hong Kong.
• Customer and geographical market concentration.

Mitigation Strategies

• Alternative pricing strategies to offset higher tariffs.
• Renegotiated bank borrowings with lower interest rates.
• Seeking to expand production facilities outside China.
• Exploring new markets in Southeast Asia and China.
• Strengthening direct relationships with major customers.

Supply Chain Management

Supplier Audits: Not disclosed

Responsible Procurement

• Not disclosed

Climate-Related Risks & Opportunities

Physical Risks

• Not disclosed

Transition Risks

• Not disclosed

Opportunities

• Not disclosed

Reporting Standards

Frameworks Used: Null

Certifications: ISO9001

Third-party Assurance: Not disclosed

UN Sustainable Development Goals

• Not disclosed

Not disclosed

Sustainable Products & Innovation

• Not disclosed

Awards & Recognition

• Not disclosed

Environmental Metrics

Climate Goals & Targets

Environmental Challenges

• The recent global coronavirus COVID-19 outbreak has caused significant disruptions to our business.
• The Chinese government's recent enforcement of “dual control of energy consumption” policy has caused disruptions to Xingfa manufacturing and our business.
• We may not be successfully introducing smart lock products that are currently under research and development.
• We incurred net losses for the year ended December 31, 2021 and the past two years and may not be able to generate sufficient operating cash flows and working capital to continue as a going concern over the next 12 months.
• Fluctuations in the price, availability or quality of raw materials used in our products could cause manufacturing delays.
• Xingfa may experience material disruptions to its manufacturing operations in China.
• Changes in U.S. trade policies could significantly reduce the volume of export goods into the United States.
• Environmental regulations impose substantial costs and limitations on our operations and violation of environmental regulations might subject us to fines, penalties or suspension of production.
• If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting obligations or prevent fraud.
• We do not have any business insurance coverage.
• Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
• Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact our business operation, decrease the value of our ordinary shares and limit the legal protections available to us.
• Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
• If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
• Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.
• The Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly.
• Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business operations and financial results.
• Any change of regulations and rules by Chinese government, including the limitations on usage of power, additional environmental protection requirements, moving technology in and out of the PRC or restriction on cash transfer out of PRC, may intervene or influence our operations in China at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with Chinese operations could result in a material change in our business operations and/or the value of our ordinary shares and could significantly limit or completely hinder our ability to offer our ordinary shares to investors or cause the value of our ordinary shares to significantly decline or be worthless.
• It will be difficult to acquire jurisdiction and enforce liabilities against us, our officers, directors and assets based in Hong Kong and China.
• The Hong Kong legal system embodies uncertainties which could negatively affect our listing on Nasdaq and limit the legal protections available to you and us.

Mitigation Strategies

• We constantly adjust our procurements based upon our updated production requirements and protocols that are designed to reduce our manufacturing costs and overhead, and to improve our profit margin.
• We plan to implement an enterprise resources planning system (“ERP”) to further improve our manufacturing controls and enhance the efficiency of our production processes.
• We will seek to further develop the markets in south east Asia as well as to increase sales to Chinese mass consumers such as builders and developers of office buildings, residential housing, apartments and hotels.
• We will also seek to mitigate the potential risks of production delays by establishing more efficient production procedures, such as increasing the level of automation, using new production methods and expanding production facilities outside China.
• We seek to maintain high quality, fine craftsmanship and efficient procurement.
• We will seek to strengthen cooperation plans with our strategic partners and e-commerce channels for further growth.
• We will expand our resources to focus on new product launches with changes in lock designs and materials.
• We will leverage our four decades of experience, customer relationship and reputation in the mechanical lockset industry, launch smart locks and smart security as upcoming product diversification.
• We renegotiated bank borrowings with lower interest rate to sustain our operation cash needs.

Supply Chain Management

Climate-Related Risks & Opportunities

Environmental Metrics

Climate Goals & Targets

Environmental Challenges

• Recent PRC government regulatory actions and statements regulating business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
• The Holding Foreign Companies Accountable Act (HFCA Act) and related regulations, which may prohibit trading in securities or lead to delisting if the PCAOB cannot inspect the registrant's auditor for two consecutive years.

Mitigation Strategies

• The company is headquartered in Hong Kong, its major operational activities are carried out in Hong Kong, its main places of business are located in Hong Kong, and none of the senior managers in charge of operation and management of the Company is a Chinese citizen or domiciled in China. The company believes the New Overseas Listing Rules by CSRC do not apply to the Company. The Company owns 100% equity interest of all its subsidiaries including the manufacturing subsidiary in China and does not have a VIE structure.
• The Company’s auditor, Wei, Wei & Co., LLP is headquartered in the U.S. and the Public Company Accounting Oversight Board (United States) (the “PCAOB”) currently has access to inspect the working papers of our auditor and our auditor is not subject to the determinations announced by the PCAOB on December 16, 2021, which determinations were vacated on December 15, 2022.

Supply Chain Management

Climate-Related Risks & Opportunities

Environmental Metrics

Climate Goals & Targets

Environmental Challenges

• Health epidemics and outbreaks (COVID-19) causing business disruptions.
• Potential unsuccessful introduction of smart lock and IoT products.
• Net losses and insufficient operating cash flows.
• Fluctuations in raw material prices and availability.
• Manufacturing disruptions in China.
• Changes in U.S. trade policies.
• Environmental regulations and compliance costs.
• Customer concentration (four customers accounting for 88.2% of revenue in 2023).
• Intense competition in the industry.
• Lack of business insurance coverage.
• Changes in China's economic, political, or social conditions.
• Uncertainties in interpretation and enforcement of Chinese laws and regulations.
• Potential delisting due to the Holding Foreign Companies Accountable Act (HFCA Act).
• Uncertainties regarding the PRC Foreign Investment Law.
• Restrictions on cash transfers to and from subsidiaries in China.
• PRC regulations on offshore investment activities.
• Fluctuations in exchange rates.
• Limited hedging options in China.
• Governmental control of currency conversion.
• Penalties for non-compliance with employee benefit plans.
• Non-compliance with PRC labor laws and regulations.
• Penalties for non-compliance with employee stock incentive plan registration requirements.
• Unfavorable tax consequences if classified as a PRC resident enterprise.
• Limited ability of U.S. regulatory bodies to inspect operations in China.
• Enhanced scrutiny over acquisition transactions by PRC tax authorities.
• Uncertainties regarding enforcement of laws and regulations in China.
• Social unrest in Hong Kong.
• Impact of Basic Law Article 23: Safeguarding National Security Ordinance.
• Currency peg system in Hong Kong.
• Difficulties in acquiring jurisdiction and enforcing liabilities in Hong Kong and China.
• Thinly traded ordinary shares.
• Less shareholder protection under Cayman Islands law.
• Exemptions from certain disclosures as a foreign private issuer.
• Reduced disclosure requirements as an emerging growth company.
• Less protection than U.S. issuers due to foreign private issuer status.
• Increased costs as a public company.
• Substantial influence of four management team members.
• Potential classification as a controlled company under NASDAQ rules.
• Cayman Islands economic substance requirements.

Mitigation Strategies

• Alternative pricing strategies to alleviate negative impact from COVID-19 and higher tariffs.
• Renegotiated bank borrowings with lower interest rates.
• Contacting property developers in China and Southeast Asia to diversify customer base.
• Raising product unit sales price and replacing brass with stainless steel to enhance gross margin.
• Stopped absorbing certain increased tariff costs for customers since January 2022.
• Developing electroplating business to third parties and developing new smart lock products.
• Strengthening relationships with major customers.
• Monitoring raw material price trends and managing production needs.
• Engaging an independent laboratory to review environmental compliance.
• Implementing measures to comply with environmental and worker safety requirements.
• Reducing recruiting of unskilled labor.
• Reviewing production processes to decrease raw material costs and waste.
• Improving sales mix, geographic market mix, cost structure, and procurement options.
• Leveraging extensive product quality testing to identify alternative raw materials mix.

Supply Chain Management

Climate-Related Risks & Opportunities