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Industrial Technical Holdings Corp. – ‘20-F’ for 12/31/21

On:  Monday, 5/23/22, at 1:43pm ET   ·   For:  12/31/21   ·   Accession #:  1477932-22-3806   ·   File #:  333-233613

Previous ‘20-F’:  ‘20-F’ on 4/30/21 for 12/31/20   ·   Latest ‘20-F’:  This Filing   ·   1 Reference:  To:  Industrial Technical Holdings Corp. – ‘F-1’ on 9/4/19

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM  i 20-F

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

For the fiscal year ended  i December 31, 2021

Commission file number:  i 333-233613

  i Padělky 192

 i CZ- 763  i 17 Lukov

Czech Rep.

Telephone: + i 420- i 577-112-067

(Address of principal executive offices, including zip code, and telephone number, including area code)

 i Belmont Trust Limited  i P.O. Box 3443

 i Road Town Tortola,  i VG1110 British Virgin Islands

Telephone: ( i 284)  i 494-5800

(Name, address, including zip code, and telephone number, including area code, of agent of service)

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

NONE

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

 i COMMON STOCK

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

None

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.

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

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

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. ☒  i Yes ☐ No

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). ☒  i Yes ☐ No

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

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.  i ☒

† 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.  i ☒

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

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  i ☐     No ☒

INDUSTRIAL TECHNICAL HOLDINGS CORPORATION

FORM 20-F ANNUAL REPORT

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made in this annual report on Form 20-F constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “beliefs,” “estimates,” “predicts,” “potential,” “intends,” or “continue,” or the negative of these terms or other comparable terminology.

These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

Forward-looking statements are no guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

Important factors that could cause actual results, developments and business decision to differ materially from those anticipated in these forward-looking statements include, among other things:

These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors.” You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

INDUSTRY AND MARKET DATA

This Annual Report on Form 20-F includes industry data that we obtained from market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications, and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

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

A. Change of Auditors

Effective April 6, 2022, the Company changed auditors due solely to the United States Holding Foreign Companies Accountable Act of 2020 (“HFCAA”), which, among other things, imposed new restrictions on foreign companies listing securities on U.S. exchanges using mainland China-based and Hong Kong-based PCAOB auditors. The PCAOB has determined that these auditors may not be as capable of being audited by the PCAOB. Although the HFCAA PCAOB auditor restrictions apply only to foreign companies with securities listed on U.S. exchanges, the Company determined that it is in the best interest of the Company and its shareholders to voluntary comply, which caused us to change auditors. The Company’s previous auditor, Centurion ZD CPA & Co. is registered with the PCAOB as a Hong Kong-based auditor. The Company’s new PCAOB-registered auditor, Gries & Associates, LLC, is based in the United States. The HFCAA PCAOB auditor requirements became effective on January 1, 2021. Additional information about the HFCAA is available on the SEC’s website at www.sec.gov/HFCAA.

All financial information presented in this Annual Report on Form 20-F for the Fiscal Year ended December 31, 2021 has been audited or reviewed by Gries & Associates, LLC. Financial information for prior periods, including for the Fiscal Year ended December 31, 2020, was audited or reviewed by Centurion ZD CPA & Co. The financial information audited or reviewed by Centurion ZD CPA & Co. has not been audited by Gries & Associates, LLC.

B. Selected Financial Data

The following table presents the selected consolidated financial information of our company. The selected consolidated financial data present the results for the two fiscal years ended and as of December 31, 2020 and 2021. Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data below should be read in conjunction with our consolidated financial statements and notes thereto, “Item 5. Operating and Financial Review and Prospects” below, and the other information contained in this Form 20-F.

Selected Statements of Operations Information:

Selected Balance Sheet Information:

As of May 2, 2022, the Company had 3,378,760 Common shares outstanding, 3,031,260 of which are restricted and 347,500 of which are non-restricted.

C. Capitalization and Indebtedness

Not applicable.

D. Reasons for the Offer and Use of Proceeds

Not applicable.

E. Risk Factors

RISKS RELATING TO OUR BUSINESS

The novel coronavirus could have a material adverse impact on our business, results of operations, financial condition, cash flows or liquidity.

The outbreak of a novel coronavirus (which causes the disease now known as COVID-19), was first identified in December 2019 in Wuhan, China, and has since spread globally. Government efforts to contain the spread of the coronavirus through lockdowns of cities, business closures, restrictions on travel and emergency quarantines, among others, and responses by businesses and individuals to reduce the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at-home policies, among others, have caused significant disruptions to the global economy and normal business operations across a growing list of sectors and countries. The foregoing are likely to adversely affect business confidence and consumer sentiments, and have been, and may continue to be, accompanied by significant volatility in financial and commodity markets. The spread of the coronavirus also may have broader macro-economic implications, including reduced levels of economic growth and possibly a global recession, the effects of which could be felt well beyond the time the spread of infection is contained.

In terms of the impact on us and the agricultural machinery, parts and equipment industry in China, after the COVID-19 outbreak began in China in December 2019, many Chinese villages were locked down to control the spread of the disease. Our factories and facilities as well as our suppliers were closed down on January 25, 2020 and we reopened on February 20, 2020. While we currently have sufficient raw material stock for our ordinary operations, our suppliers are back to normal levels of activity, and we have the highest order income in the company’s history, the ongoing COVID-19 crisis may have significant and still not well-understood impacts on the agricultural sector, such as logistics and other disruptions, including shortages of raw materials and delivery problems.

Although our supply chains and our ability to produce agricultural parts and machinery are up and running, the foregoing developments, could adversely affect our ongoing operations; as farms struggle to recover from the effects of the COVID-19 pandemic, there may be less demand for our products, and we might see decreased and cancelled orders.

We currently are unable to predict the full effect of COVID-19 and responses thereto on our business and operations, and on our results of operations, financial condition, cash flow and liquidity, as these depend on rapidly evolving developments, which are highly uncertain and will be a function of factors beyond our control, such as damage to and recovery of the agricultural and other markets in China, the implementation of effective measures to prevent and contain further outbreaks, the development of effective medical solutions, the timing and scope of governmental restrictions on mobility and other activities, financial and other market reactions to the foregoing, and reactions and responses of the populace both in affected regions and regions yet to be affected. While we expect we will suffer adverse effects, the more severe the outbreak and the longer it lasts, the more likely it is that the effects on us and our business will be materially adverse.

We will need a significant amount of capital to carry out our proposed business plan, and a failure to raise sufficient funds will have a material adverse effect on our operations.

In order to carry out our proposed business plan, we will require $200,000. We initially estimated that we would need approximately $10 million to finance our planned operations for fiscal year 2021. Our proposed business plan was scaled back as a consequence of COVID restrictions and border closings that remained in place for extended periods of time. Despite these challenges, since the initial outbreak of COVID-19, the Company has only required a small and immaterial amount of external financing relative to the Company’s overall expenditures.

As of December 31, 2021, the Company plans to engage in additional projects, especially investments in enhancing our productivity. We estimate that we would require at least $3 million to carry out our current plans over the next 12 months. Should the Company not obtain such financing, we estimate that the Company would require a minimum of $1 million to maintain operations and comply with the regulatory requirements of being a public company.

We intend to raise our cash requirements for the next 12 months through the sale of our equity securities in private placements, through shareholder loans or possibly through a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such capital-raising efforts, we may review other financing possibilities such as bank loans. At this time, we do not commit any broker-dealer to provide us with financing. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable to us. We also may negotiate with our management and consultants to pay parts of their salaries and fees with stock and stock options instead of cash.

Our ability to obtain the necessary financing to carry out our business plan is subject to several factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay, or cancel our planned activities or substantially change our current corporate structure. There is no guarantee that we will be able to obtain any funding or that we will have sufficient resources to conduct our business as projected, any of which may have an adverse material effect on our operations.

Our revenue and net income may be materially and adversely affected by any economic slowdown in China. The PRC government has in recent years implemented several measures to control the rate of economic growth, including by raising interest rates and adjusting deposit reserve ratios for commercial banks as well as by implementing other measures designed to tighten credit and liquidity. These measures have contributed to a slowdown of the PRC economy. According to the National Bureau of Statistics of China, China’s GDP growth rate was 6.7% in 2016. Any continuing or worsening slowdown could significantly reduce domestic commerce in China, including through the Internet generally and within our ecosystem. An economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which we may operate could have a material adverse effect on our business, financial condition and results of operations.

Damage claims against our products could reduce our sales and revenues. If any of our products are found to cause injury or damage, the Company could suffer financial damages. We have not had significant claims for damages or losses from our products to date. The Company does not carry product liability insurance. Any claims for damages related to the products we sell could damage our reputation and reduce our revenues.

Disruption to our supply chain of parts needed for constructing our products could negatively affect our sales. The Company has not yet experienced significant problems in obtaining parts from suppliers required for constructing its products. However, there is no guarantee that some of the current suppliers may not be able to continue to provide parts needed for constructing our products from our current suppliers. We have no written agreements with any of our suppliers and order these parts from different manufacturers on a purchase order basis. If the manufactured parts do not meet the quality standard, the parts are not accepted by us. This could cause a shortage of those parts in inventory resulting in backorders and even cancellations of orders. Sales of existing products in inventory may not be sufficient to use all stock on hand before we can obtain replacement parts from other suppliers. This could reduce or eliminate our revenues.

Growth of our business will partially depend on the recognition of our FORTSCHRITT brand, and any failure to maintain, protect and enhance our brand would limit our ability to expand or retain our customer base, which would materially and adversely affect our business, financial condition and results of operations. We believe that the recognition of our brand among customers has helped us manage our customer acquisition costs and contributed to the growth and success of our business. Accordingly, maintaining, protecting and enhancing the recognition of our brand is critical to our business and market position. Many factors, some of which are beyond our control, are important to maintaining, protecting and enhancing our brand. These factors include but not limited to our ability to:

A public perception that we do not provide satisfactory products or services to customers, even if factually incorrect or based on isolated incidents, could damage our reputation, diminish the value of our brand, undermine the trust and credibility we have established and had a negative impact on our ability to attract and retain customers, and our business, financial condition and results of operations may be materially and adversely affected.

Our success is partly dependent on continuation of our Brand Licensing and Technology Transfer Agreement with MAFA. Our future success and revenue growth are in part dependent upon the continued use of, and production of equipment under the brand name “FORTSCHRITT.” However the Company has had sales in the CSSC subsidiary that are not connected to the brand, particularly the business related to building parts for other manufacturers in Germany and Europe. The Brand Licensing and Technology Transfer Agreement with MAFA (the “Licensing Agreement”) under which the Registrant acquired the rights to the FORTSCHRITT brand is cancellable until December 31, 2026, by either party without cause, provided such cancellation is announced by June 30, 2026. The Registrant’s continued use of the FORTSCHRITT brand name and production of FORTSCHRITT products is therefore outside the Registrant’s control. In the event the Licensing Agreement is cancelled, the Registrant will be entitled to sell any remaining inventory under the brand name FORTSCHRITT, and the Registrant would thereafter have no interest in the FORTSCHRITT brand including but not limited to its products and intellectual property. Furthermore, while the Licensing Agreement grants a 10% equity interest in the Registrant to MAFA, the agreement is silent as to the disposition of MAFA’s granted equity interest in the event the Licensing Agreement is cancelled. Cancellation of the Licensing Agreement would remove a major component of the Registrant’s business plan, which would negatively affect our business, results of operations and financial condition.

Overall tightening of the labor market, increases in labor costs or any possible labor unrest may adversely affect our business and results of operations. Our business requires a substantial number of workers, and any failure to retain stable and dedicated labor by us may lead to disruption to our business operations. Although we have not experienced any labor shortage to date, we have observed an overall tightening and increasingly competitive labor market. We have experienced, and expect to continue to experience, increases in labor costs due to increases in salary, social benefits, and employee headcount. We compete with other companies in our industry and other labor-intensive industries for labor, and we may not be able to offer competitive remuneration and benefits compared to them. If we are unable to manage and control our labor costs, our business, financial condition and results of operations may be materially and adversely affected.

If we fail to adopt new technologies to evolving customer needs or emerging industry standards, our business may be materially and adversely affected. To remain competitive, we must continue to stay abreast of the constantly evolving industry trends and to enhance and improve our technology accordingly. Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in our business. There can be no assurance that we will be able to use new technologies effectively or adapt to meet customer requirements. If we are unable to adapt in a cost-effective and timely manner in response to changing market conditions or customer preferences, whether for technical, legal, financial or other reasons, our business may be materially and adversely affected.

We, our directors, management and employees may be subject to litigation and regulatory investigations and proceedings, such as claims relating to product safety, commercial, labor, employment, antitrust or securities matters, and may not always be successful in defending ourselves against such claims or proceedings. While we strive to maximize quality control, the selling of defective products may expose us to liabilities associated with customer protection laws. A manufacturer may be responsible for compensation on customer’s injury or loss even if such loss is not caused by the manufacturer. Thus, we may also be held liable if our suppliers, dealers or other business partners fail to comply with applicable rules and regulations. Though we can ask the responsible parties for indemnity, our reputation could still be adversely affected. In addition, our directors, management and employees may from time to time be subject to litigation and regulatory investigations and proceedings or otherwise face potential liability and expense in relation to commercial, labor, employment, antitrust, securities or other matters, which could adversely affect our reputation and results of operations.

After we become a publicly listed company, we may face additional exposure to claims and lawsuits. These claims could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merits of the claims. In some instances, we may elect or be forced to pay substantial damages if we are unsuccessful in our efforts to defend against these claims, which could harm our business, financial condition and results of operations.

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business. We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate intellectual property rights held by third parties. We have not, but may in the future become, subject to legal proceedings and claims relating to the intellectual property rights of others. There could also be existing intellectual property of which we are not aware that our products may inadvertently infringe. We cannot assure you that holders of intellectual property purportedly relating to some aspect of our technology, products or business, if any such holders exist, would not seek to enforce such intellectual property against us in China, Europe, the United States or any other jurisdictions. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against any such infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question, and our business, financial position and results of operations could be materially and adversely affected.

RISKS RELATING TO DOING BUSINESS IN CHINA

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations. 

Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. 

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our products and adversely affect our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. While some of these measures may benefit the overall Chinese economy, they may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.

Uncertainties with respect to the PRC legal system could adversely affect us. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation since then has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

You may experience difficulties in effecting service of the legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws. We are a company incorporated under the laws of the British Virgin Islands, we conduct substantially all of our operations in China, and substantially all of our assets are located in China. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside China. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the British Virgin Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

Our employment practices may be adversely impacted by the labor contract law of the PRC. The PRC National People’s Congress promulgated the Labor Contract Law which became effective on January 1, 2008, and was amended on December 28, 2012, and the State Council promulgated implementing rules for the labor contract law on September 18, 2008. The labor contract law and the implementing rules impose requirements concerning, among others, the execution of written contracts between employers and employees, the time limits for probationary periods, and the length of employment contracts. The interpretation and implementation of these regulations are still evolving, our employment practices may violate the labor contract law and related regulations and we could be subject to penalties, fines or legal fees as a result. If we are subject to severe penalties or incur significant legal fees in connection with labor law disputes or investigations, our business, financial condition and results of operations may be adversely affected.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how long such depreciation of RMB against the U.S. dollar may last and when and how the relationship between the RMB and the U.S. dollar may change again. Much of our revenues and costs are denominated in Renminbi. a significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars, and the value of and any dividends payable on our Shares in U.S. dollars. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars to make payments for dividends on our Shares or other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount.

Regulation and censorship of information disseminated over the internet in China may adversely affect our business and reputation and subject us to liability for information displayed on our website. The PRC government has adopted regulations governing internet access and the distribution of news and other information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet content and other licenses, and the closure of the concerned websites. The website operator may also be held liable for such censored information displayed on or linked to the websites. If our website is found to be in violation of any such requirements, we may be penalized by relevant authorities, and our operations or reputation could be adversely affected.

We may be classified as a “resident enterprise” for PRC enterprise income tax purposes, which could result in unfavorable tax consequences to us and our non-PRC shareholders. The EIT Law provides that enterprises established outside of the PRC whose “de facto management bodies” are located in the PRC are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate on their worldwide income. In addition, a circular issued by the State Administration of Taxation on April 22, 2009 regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese group enterprises and established outside of the PRC as “resident enterprises” clarified that dividends and other income paid by such “resident enterprises” will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC enterprise shareholders. This circular also subjects such “resident enterprises” to various reporting requirements with the PRC tax authorities. Under the implementation regulations to the enterprise income tax, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, the circular mentioned above sets out criteria for determining whether “de facto management bodies” are located in the PRC for overseas incorporated, domestically controlled enterprises. However, as this circular only applies to enterprises established outside of the PRC that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas incorporated enterprises that are controlled by individual PRC residents like us and some of our subsidiaries. Therefore, although substantially all of our management is currently located in the PRC, it remains unclear whether the PRC tax authorities would require or permit our overseas registered entities to be treated as PRC resident enterprises. We do not currently consider our company to be a PRC resident enterprise. However, if the PRC tax authorities disagree with our assessment and determine that we are a “resident enterprise” we may be subject to enterprise income tax at a rate of 25% on our worldwide income and dividends paid by us to our non-PRC shareholders as well as capital gains recognized by them with respect to the sale of the ADSs may be subject to a PRC withholding tax. 

This will have an impact on our effective tax rate, a material adverse effect on our net income and results of operations and may require us to withhold tax on our non-PRC shareholders.

We are subject to PRC laws governing the industry in which we operate. If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties, which would have a material adverse effect on our business and operations. Our operations are subject to PRC laws and regulations applicable to us. However, the scope of many PRC laws and regulations are uncertain, and their implementation could differ significantly in different localities. In certain instances, local rules and their implementation are not necessarily consistent with the regulations at the higher or national level. Although we strive to comply with all applicable PRC laws and regulations, the relevant PRC government authorities may decide that we have not been in compliance with certain laws or regulations.

If the Chinese government determines that the corporate structure through which we control our PRC subsidiaries does not comply with applicable regulations, our business would be adversely affected.

There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity of our corporate structure and control of our operating PRC subsidiaries.

There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of the contractual arrangements between the Registrant and its Chinese operating subsidiaries. We cannot assure you that the PRC regulatory authorities will not determine that our corporate structure or operations violate PRC laws, rules or regulations. The Chinese government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies.

In addition, new PRC laws, rules and regulations may be introduced from time to time to impose additional requirements that may be applicable to us, our business and operations.

We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future Chinese laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease certain of our operations. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

If we are determined to be in violation of any existing or future PRC laws, rules or regulations or fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:

The imposition of any of these penalties would have a material adverse effect on our financial condition, results of operations and prospects.

RISKS RELATING TO OUR ORDINARY SHARES OF STOCK

There is no public market for our ordinary shares and you may not be able to resell our ordinary shares at or above the price you paid, or at all. There is currently no public market for our ordinary shares. We submitted a listing application to list our ordinary shares on OTC Markets Group OTCQB on August 11, 2021, which application was denied on May 5, 2022. OTC Markets Group will not accept a new listing application without the Company first clearing an application to initiate quotation OTC with FINRA. The Company is currently working with a broker-dealer that to prepare an application with FINRA. However, due to the Company’s significant business presence in Europe, the Company intends to explore listing in the U.K and/or in the EU. We believe those markets may be superior to U.S. markets for issuers similar in size to us. The Company has voluntarily complied with its SEC reporting obligations for several years. During this time, our long-term shareholders that have stood by us as we have searched for attractive listing opportunities for our sharesholders. However, we cannot assure you that our ordinary shares will ever be qualified for public resale. Even if the ordinary shares are qualified for public resale, there is no assurance that an active public market for our ordinary shares will develop. If there is no public market for our ordinary shares, you may lose some or all of your investment, unless the Company achieves sufficient profitability to distribute dividends without impairing the Company’s business and the board of directors chooses to declare dividends.

The continued sale of our equity securities will dilute the ownership percentage of our existing stockholders. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price, if one exists at the time, of the outstanding ordinary shares. If we do issue any such additional ordinary shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. As a result of such dilution, if you acquire ordinary shares, your proportionate ownership interest and voting power could be decreased.

FINRA sales practice requirements may limit your ability to buy and sell our ordinary shares, which could depress the price of our shares. FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our ordinary shares, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares and, thereby, depress our share price.

We are a “foreign private issuer,” 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. 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 differs 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.

We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a newly public company, and our management will be required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business. If we become a public company as planned, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements and costs of recruiting and retaining non-executive directors. We also have incurred and will incur costs associated with rules implemented by the Securities and Exchange Commission, or the SEC, as well as any exchange or listing platform in which our securities may be quoted.

The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our ordinary shares, fines, sanctions, and other regulatory action and potentially civil litigation.

Indemnification of Directors and Executive Officers and Limitation of Liability. BVI law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the BVI High Court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime). An indemnity will be void and of no effect and will not apply to a person unless the person acted honestly and in good faith and in what he believed to be in the best interests of the company and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful. Our memorandum and articles of association provide indemnification for our officers and directors 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, provided such persons acted honestly and in good faith.

Our Articles of Association additionally provide that any Shareholder receiving a certificate shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. In the event a shareholder’s certificate is lost, stolen, or is the subject of a fraudulent use or representation or transaction, the shareholder may be required by the Company to provide an affidavit of the facts surrounding the loss, theft or fraudulent activity before the Company issues a replacement certificate or certificates. When authorizing such issuance of a replacement certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Company a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

The indemnification provided to the company, its officers and directors is not intended to, and shall not protect or indemnify for liabilities arising under the Security Act of 1933; and such provisions are not intended to, and shall not nullify any shareholder claims, and/or act as a waiver of the ability of shareholders to bring any claims against the Company and its directors and officers. In the event that a claim for indemnification is asserted by any director, officer or controlling person, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us, we have 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.

The market price of common shares may be volatile, which could cause the value of your investment to decline. Even if a trading market develops, the market price of our ordinary shares may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our ordinary shares in spite of our operating performance. In addition, our results of operations could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly results of operations, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about our industry in or individual scandals, and in response the market price of our ordinary shares could decrease significantly. You may be unable to resell your ordinary shares of at or above the initial public offering price. In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources, or at all.

RISKS RELATING TO TAXATION

There are significant uncertainties under the PRC Enterprise Income Tax Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualified to enjoy certain treaty benefits. Under the PRC Enterprise Income Tax Law and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to its immediate holding company outside China, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and China, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Our current PRC subsidiaries are wholly owned by our Hong Kong subsidiary. Accordingly, Industrial Technical Corporation Hong Kong Limited may qualify for a 5% tax rate in respect of distributions from our PRC subsidiaries. Under the Notice of the State Administration of Taxation (“SAT”) on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated in 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (i) the taxpayer must be the beneficial owner of the relevant dividends, and (ii) the corporate shareholder to receive dividends from the PRC subsidiaries must have met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the SAT promulgated the Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties in 2009, which limits the “beneficial owner” to individuals, enterprises or other organizations normally engaged in substantive operations, and sets forth certain detailed factors in determining “beneficial owner” status.

Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, which provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under treaties for dividends received from our PRC subsidiaries.

If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders. Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the SAT issued a circular, known as SAT Circular 82, partially abolished on December 29, 2017, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular applies only to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. 

We believe that, as a BVI company, our company is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that our company is a PRC resident enterprise for enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we would be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ordinary shares. In addition, non-resident enterprise shareholders may be subject to PRC tax on gains realized on the sale or other disposition of the ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders and any gain realized on the transfer of the ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our ordinary shares.

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

On February 3, 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets, as such persons need to determine whether their transactions are subject to these rules and whether any withholding obligation applies.

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.

Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who pays for the transfer is obligated to withhold the applicable taxes currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, or a sale of shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or may be taxed if our company is transferor in such transactions and may be subject to withholding obligations if our company is transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfers of shares of our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

INDUSTRIAL TECHNICAL HOLDINGS CORPORATION (“ITHC” also the “Registrant” the “Company” “us” “we” and “our”) was incorporated on February 22, 2018, under the laws of the British Virgin Islands. ITHC owns 100% of Industrial Technical Corporation Hong Kong Limited (“ITHC-HK”). ITHC-HK is a holding company based in Hong Kong which conducts operations through subsidiaries as follows:

(i) ITHC-HK owns 100% of Qingdao CSSC Technical Products Ltd. (“CSSC”); a manufacturer of machinery components based in mainland China. CSSC specializes in the design and engineering of the precision parts of agricultural equipment and machinery; and

(ii) ITHC-HK owns 100% of FORTSCHRITT China Agritech Limited (“FORTSCHRITT HK”); a holding company based in Hong Kong; and

(iii) FORTSCHRITT HK owns 100% of FORTSCHRITT Qingdao Agritech Ltd. (“FORTSCHRITT” also “FORTSCHRITT China”); a manufacturer of modern agricultural machinery. Forschritt currently produces two models of high-density baler machines, with approximately two hundred units in various stages of assembly, and 4 completed units having been sold by CSSC in January 2020. The company also has completed prototypes for several other agricultural machines; and

(iv) CSSC owns 50% of PlanET Biogas China Ltd. (“PlanET” also “PlanET China”); a joint venture with a leading German company in the area of engineering and building green energy biogas plants. PlanET has no sales to date.

The Company’s corporate structure is shown in the below diagram:

Our operations began in 2004 with the founding of CSSC. CSSC produces agricultural machinery parts for the German market as well as for FORTSCHRITT and PlanET. To date, we have not sold any products through our FORTSCHRITT or PlanET subsidiaries.

Due to China’s largely unmechanized agricultural industry, agricultural waste products (primarily straw) have typically been burned rather than baled for other uses. In 2015, as pollution levels from burning post-agricultural straw peaked in China, CSSC developed a potential solution to significantly reduce burning straw and instead convert the straw into green energy.

CSSC’s proposed solution to the pollution problem resulted in the Company’s expansion into the FORTSCHRITT brand, to produce highly efficient state-of-the-art machinery for the mechanization of Chinese agriculture, and PlanET to process agricultural waste products into usable energy products.

Our principal executive offices are located at Huanxiu Street Office, Shuanglong Industrial Park, 266201 Jimo, Qingdao, China. Our telephone number is +86(0)532-89657397. Our website address is http://www.ithc.online Information on our subsidiaries you can find here:

In October 2020, the Company announced it entered into an agreement for a joint venture in Eastern Europe (specifically, the Czech Republic) with an affiliate of METAKO CZ s.r.o., a Czech Republic company (“METAKO” and the “METAKO JV”). The purpose of the METAKO JV is to establish a factory and facilities in the Czech Republic for the production, assembly, sale and distribution of machine parts and equipment into the German and Eastern European markets. The METAKO JV has not yet been funded as of the date hereof. A summary of the structure and expected advantages of the METAKO JV follows:

Although we voluntarily file SEC reports in the U.S., we are not a reporting issuer under any securities legislation and our securities are not listed or posted for trading on any securities exchange or stock quotation system.

The SEC maintains an internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.

We are subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements are filing reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial information.

We maintain a corporate website at http://www.ithc.online. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference. We will post on our website any materials required to be so posted on such website under applicable corporate or securities laws and regulations, including, posting any XBRL interactive financial data required to be filed with the SEC and any notices of general meetings of our shareholders.

B. Business Overview

The Company comprises FORTSCHRITT, CSSC, and PlanET, all three of which are operated through the Company’s Chinese subsidiaries.

In 2004, CSSC was found in Qingdao. The aim was to create a low-cost production platform supplier for the German industry and to produce finished products for the Chinese market. Since its inception, CSSC’s Chinese workers have been trained to produce components acceptable to its primarily German clientele (over 90% of CSSC’s production is exported to Germany). The company’s workers receive intensive in-house training and instruction and receive international licensing as needed through the German technical association (TÜV).

In 2015, pollution levels peaked in China. A major cause was attributed to the burning of straw after harvesting directly on the fields as agriculture was largely unmechanized at this time. In discussions with local government representatives, potential solutions were discussed to significantly reduce emissions.

The degree of pollution caused by the burning of the straw, which was carried out on a large scale in China, “was visible in the atmosphere”:

At that time, CSSC suggested a potential solution to the local government to significantly reduce or eliminate the burning of straw and begin collecting it by hay pressing (baler) machines and then ferment it in biogas plants to extract green energy.

For this reason, we funded two additional companies:

As a Chinese producer of high-quality precision machine parts and technical components, CSSC currently produces parts and components for FORTSCHRITT and plans to produce parts and components for PlanET when such parts and components are required.

In 2016, prior to manufacturing parts for FORTSCHRITT, CSSC imported 6 K868 machines from Maschinenfabrik Stolpen Gmbh (“MAFA”) and subsequently sold the 6 machines to a wholesaler domiciled in the inner Mongolia region of China in order to test the market.

On May 9, 2016, ITHC-HK entered into a Brand Licensing and Technology Transfer Agreement (the “Licensing Agreement”) with MAFA for the exclusive use, manufacturing, and sales and marketing rights of German-designed agricultural machines in China and other Greater Asian markets under the FORTSCHRITT brand name. The Licensing Agreement may be canceled until December 31, 2021, provided such cancellation is announced by June 30, 2021.

CSSC currently manufactures parts for FORTSCHRITT branded machines assembled and sold by third parties, and CSSC also currently manufactures parts for FORTSCHRITT branded machines assembled by FORTSCHRITT China for sale into the Chinese market. During 2017 – 2018 CSSC manufactured and sold the parts for 30 FORTSCHRITT K838 machines to MAFA, and MAFA subsequently assembled the parts and sold the 30 machines into the German market.

While FORTSCHRITT China has not commenced full production of K838 and K868 machines at their facilities, the company has assembled two K838 machines and two K868 machines using parts produced by CSSC, and in January 2020 the two K838 machines and two K868 machines were sold. A total of approximately 100 K838 and 100 K868 machines using CSSC sourced parts are currently in various stages of assembly by FORTSCHRITT China.

The Company plans to use the synergies between its three brands to become a leader in green agriculture, both within China and worldwide, by providing machinery through FORTSCHRITT and CSSC (i) for the mechanization of Chinese agriculture, (ii) for agricultural operations worldwide, and (iii) as part of a green agricultural system whereby organic agricultural waste products are converted into usable energy.

In order to carry out this plan, we estimate that we will need approximately $10 million for the next 12 months, as follows: approximately $4 million for purchasing raw material, employee wages, and operating expenses until the company has sufficient income from sales to fund its operations; approximately $3.5 million for equipment, coating line and machinery; and approximately $2.5 million for research and development, including re-engineering of older model FORTSCHRITT machines and development of new machines.

FORTSCHRITT COMPANY PROFILE

FORTSCHRITT was incorporated in December 2016 in Hong Kong and China to manufacture FORTSCHRITT branded agricultural machinery in China from parts sourced from CSSC.

BRAND HISTORY

MILESTONES FROM 1854 TILL NOW:

KOMBINAT FORTSCHRITT PRODUCTS 1990

(year of German Reunification, privatization and break-up of “Kombinat FORTSCHRITT” begins)

EXAMPLES OF THE RANGE OF KOMBINAT FORTSCHRITT’S AGRICULTURAL MACHINERY:

RAKE, BALER, AND FORAGE HARVESTER

TRACTOR AND HARVESTER

SPECIAL MACHINE SPRAYER, APPLE HARVESTER

POTATO HARVESTER, FULLY AUTOMATIC

All machines are state-of-the-art and demonstrably superior to existing Chinese equipment and harvesting techniques due to manufacturing efficiency, overall quality, and long useful life requiring minimal maintenance.

Since the 1970s almost all agricultural machines have seen only minor alterations of engineering and design features; this continues to be true for virtually all machinery manufactured and distributed today.

Kombinat FORTSCHRITT, unlike most of its western counterparts, was organized as a fully integrated business. All engineering developments were completed by own internal design teams and all parts, to the last screw were manufactured in-house. This resulted in “FORTSCHRITT” designs and engineering know-how being documented in detailed production drawings to the smallest part of a complex machine.

The Kombinat’s engineers had to fulfill the requirements of the socialist countries’ markets, demanding easy-to-maintain, durable machinery.

From the 1970s the Kombinat’s machines were also required to be suitable for export to western customers, in order to serve as hard currency spinner for the East Germany state.

At its height Kombinat FORTSCHRITT employed more than 60,000 people in multiple locations throughout East Germany, being one of the nation’s biggest and internationally most successful enterprises.

With the end of East Germany and the break-up of the Kombinat, the history of “FORTSCHRITT” seemed to have come to an end, as western competitors picked up production sites and individual part producing outfits. Western competitors used their own designs and brands, and the knowledge and engineering designs of FORTSCHRITT were ignored as they were deemed eastern, and thus unfashionable. Nevertheless, the brand continued to live on in many socialist countries, among them China, conserved through some of the original East German machines that can still be found operating in these countries.

MAFA, has since updated some of the designs acquired from Kombinat FORTSCHRITT and used them for OEM products for companies such as Case, Fendt, Kvernerland, and Kuhn.

BRAND STRENGTH AND PUBLIC AUDIENCE RECEPTION

Despite the fact that Kombinat FORTSCHRITT was broken up more than 25 years ago, the brand is still well-known in many parts of the world and its products are widely featured and discussed on the internet, by historians, former users, agro-machine fans, and collectors. On Youtube, more than 252,000 videos feature FORTSCHRITT machines. Google search FORTSCHRITT + Landmaschinen counts 231,000 hits.

Other models by FORTSCHRITT on the official stamps of the former GDR (East Germany): Tractor ZT 303, Beets-Toboggan-Core KS-6, Precision-Forage-Harvester E 280,

Chopper-Harvester E 065

BANKNOTE: In the 70s and 80s, several “combine-harvesters” such as the FORTSCHRITT E512

were shown on the reverse side of GDR (East Germany) banknote

WORLDWIDE HARVESTER AND TRACTOR (ONE TYPE) EXPORT FIGURES: 

EXPORT FIGURES FOR THE K434 BALER MACHINES TO UKRAINE, RUSSIA, CUBA AND CHINA: 

The Company builds on strong FORTSCHRITT brand recognition in China stemming from the brand’s export history of over one hundred years. The Company designs and produces reliable, durable, and high-performing agricultural equipment and machinery. FORTSCHRITT has 12 employees, including research & development and technology design teams based in China and overseen by leading experts from Germany. The Company operates a state-of-the-art 2,500 square meter assembly line, as well as offices and warehouses in its leased premises located in Qingdao, China.

Pictures of the modern production line equivalent to European standards:

Modern research & development department and ready-made products:

Semi-finished parts in the warehouse:

FORTSCHRITT CHINA AGRITECH LIMITED commenced with production of the following machines:

Status of the production of the above machines:

A total of approximately 100 K868 machines are in various stages of assembly.

K838 has begun production in 2019 and two prototypes were sent to business partner for on-field testing in May 2019. Sales of K838 have begun in January 2020 with the sale of two K838 machines.

A total of approximately 100 K838 machines are in various stages of assembly.

E 36 Prototype has been completed;

E 251 Prototype has been completed;

ME01 Prototype has been completed.

Serial production of a high-density baler machine (K888) and a potato harvester is planned for 2021. In addition, a multi-function small tractor and crasher are slated for 2022. Plans to initiate a research & development team for these products and a specialized robotics team with a focus on the agricultural sector have also been developed.

HIGH-DENSITY BALER MACHINE K838 AND K868

The Company currently markets two high-density baler machines, the K838, and the K868. The smaller model, the FORTSCHRITT K838, is a robust, maneuverable, and powerful baler that has been on the market since 2016. The K838 is optimized for use on smaller and angled surfaces and is compatible with various bale-collecting machines.

FORTSCHRITT K838: SMALL HIGH-DENSITY BALER IN USE

The FORTSCHRITT K868 high-density baler machine can be used with tractors equipped with 70-110 horsepower engines. The baler can pick up straw, herbs, and green grass for husbandry feedstock. Field testing showed that the K868 is also able to process rice straw. With its unique automatic loading system, A K868 can clean 1 hectare (10,000 sqm) in approximately 30 minutes.

The advantage of both machines is FORTSCHRITT’s automatic-loading system, which is the subject of Chinese patent No. ZL 2016 2 1144174.6, which is valid through 21 October 2026.

Scope of the Chinese Patent. The utility model name is: An automatic loading device with a rotating parallel guide for picking up and binding square balers. The utility model relates to a rotary parallel rail type automatic loading device for picking up and tying machine, that is a special matching device which is installed behind the picking and tying machine and is convenient for automatic loading of the compressed side bundle along the rotating guide rail. The utility model comprises a rotary conveying end assembly, a near-horizontal conveying end assembly, a folding automatic tripping mechanism, an automatic return spring, a tripping pull wire, and a tilting pull rod. The device is matched with the picking and tying machine, and has a simple structure, a clever design, and a quick design. Efficient, the square baler of the front baler can be directly transported to the synchronous transporter, which effectively solves the problem that the knotted bundle is scattered to the ground, and the difficulty of picking up later and a large amount of labor is used, which greatly saves labor and compresses. The square bale combined with the harvesting process saves time and effort and fills the gap in China’s picking up and baling joint harvesting equipment.

While the Company does not currently receive any subsidies, and there is no guaranty that the Company will receive any future subsidies, the “Agricultural Audit Master Station” (part of the “Ministry of Agricultural & Rural Affairs”) officially certified our FORTSCHRITT baler machines. This is a state registration, which makes future state subsidies possible.

FORTSCHRITT passed the required tests to obtain state subsidies and market agricultural machines in China.

Going forward, automatization in the agricultural sector is key for China given the steady decrease in the percentage of the population working in agriculture (83% in 1969 versus 18% today) while salaries have increased (yearly ca. 10%).

See below:

(Labor market and salary report 2015/2016 German chamber of commerce)

Today, only 50% is mechanized and workers primarily use small hand-held operated machines:

LOADING WAGON E36

FORTSCHRITT machines require no manual handling. The FORTSCHRITT E36 loading wagon fulfills the purpose of loading, pick-up, and reloading greens and droughts. A powerful PICK-UP with five rows of prongs, a working width of 1.85m, hydraulic lifting, air-dyed feeler wheels, adjustable bearing pressure, and further adjustment possibilities ensures the best calculation quality and high-recording performance. The PICK-UP swITHChes off automatically during lifting. The universal dowel allows an optional lower or upper attachment.

FORTSCHRITT E36 LOADING-WAGON

This wagon is a market innovation with its automatic loading system and capability to cut straw and grass while transporting it in a pick-up.

The 4-raking unit is the heart of the trailer. The steering lever control has a much better wear behavior compared to curve tracks, so there is no interruption of the work, no knife breakage, and an independent knife restoration. The bottom can be hydraulically lowered by the tractor. Depending on the crop, the installation of knives can be optionally made, from “without a knife” to “33 knives”. All knives can be swiveled in and out.

We will also produce a trailer for tractors for transport purposes. This is an emerging field in China as historically, China did not produce enough tractors to meet demand, and transport is typically handled with heavy trucks. We believe this adoption of tractor-trailers will meaningfully reduce harvesting costs as agricultural workers will use their own tractors for transport versus hiring a truck operator.

The Single Rotor Rakes operates in tandem with the baler machine. It is used to turn the hay and straw to enhance the drying process from sunlight. We plan to introduce this model to the Chinese market.

E251 SINGLE ROTOR RAKES

ME 01 MULTITICAR / MULTITRUCK ELECTROMOBILE

This small truck is a multi-function electro mobile with hybrid drive. It can be used for agricultural and communal purposes.

The front and back can be assembled with a variety of attachment tools.

We developed a working protype to conduct a range of battery system tests to fine-tune performance and evaluate various component pieces and attachments.

There is no multi-function electro mobile with hybrid drive vehicle in China according to our research. The truck can be produced for the Chinese market and for export. 

MILESTONES

LOCATION OF ITHC IN CHINA

Qingdao - Population and Infrastructure

Qingdao has an international airport, highways to Shanghai (600km) and Beijing (550 km), an international deep seaport, which is the third biggest in China and the eighth biggest in the world. With the international port, Qingdao supplies more than 450 ports around the globe with 97 shipping routes. In 2018, the high-speed train connection to Beijing and Shanghai was completed.

In 2007, Qingdao was named as one of China’s top ten cities by the Chinese Cities Brand Value Report, which was released at the 2007 Beijing Summit of China Cities Forum (“The Global Financial Centre Index 24, Sept. 2018”. In 2009, Qingdao was named China’s most livable city by the Chinese Institute of City Competitiveness (“China’s Top 10 livable cities in China” Issued, 0. July 2009”).

As of 2014, Qingdao has a population of nine million people, with six universities, among them the Qingdao Technical College and the Qingdao Agriculture University with 1,500 academic staff.

This provides a fertile environment to attract junior-level engineers.

Qingdao. Located in the Shandong province is one of the major areas for wheat production (wheat is the main ingredient for all products):

MARKET - COUNTRYSIDE

China’s agricultural sector is the biggest in the world. The country is the number one producer in terms of output for many crops and fruits. Compared to other industrialized countries, China still employs a comparatively high percentage of its total labor force in the agricultural sector.

Major changes in wheat production 2017/18 was (in Mio t)

 Source: USDA, Foreign Agricultural Service, Production, Supply, and Distribution database.

Major projected wheat output changes for 2017/18 (in Mio t) 

Source: USDA, Foreign Agricultural Service, Production, Supply, and Distribution database.

CHINA WORLD MARKET SHARE AGRICULTURAL (PRODUCTION)

This high ratio of labor force allocated to agriculture is not reflected in the overall contribution of the sector to the total GDP of the country. This fact indicates that the mechanization and industrialization of China’s farm sector are comparatively low. The National Bureau of Statistics displays a 55% mechanization rate for the agricultural sector, but within reason, it can be assumed that this figure includes outdated and inefficient machines and equipment, that may not even be in use any longer.

China is in the midst of a historic shift from traditional, labor-intensive agricultural practices to mechanized, high-tech agriculture. The agricultural sector is owned by the Chinese government, which has made the mechanization of agriculture and the shifting of the rural population to urban areas a top political goal. Changing population structure, limited agricultural land, and water resources, the increasingly different eating habits of the Chinese population make this issue the highest priority of the government. Food security is central to China’s strategic alignment and to all countries of the world.

Although China’s agricultural machinery industry is facing many challenges, the industry is still promising in the long run. The state has introduced the Thirteenth Five-Year Plan for National Agricultural Mechanization Development, an Action Program for Agricultural Machinery and Equipment Development (2016-2025), and other policies to promote full agricultural mechanization. Data shows that China’s comprehensive agricultural mechanization level hits more than 65% in 2016, away from the goal of 70% in 2020.

On February 4, 2018, the Central Committee of the Communist Party of China (CCCPC) and the State Council unveiled its first policy document for 2018. This document referred to as the No. 1 Document, traditionally focuses on agricultural and rural issues and is considered-to-be “a significant policy document that outlines goals for the upcoming year”. The overall message of 2018 No. 1 Document is focused on developing intensive, domestic agriculture to further China’s strategic interests under the theme of Rural Revitalization.

China aims to complete agricultural and rural modernization by 2035 and develop a strong agricultural sector while raising farm incomes to “moderately prosperous levels” by 2050. (See GAIN report CH18007)

Despite this huge amount of people still living on and engaged in farming, China is facing the challenge to modernize and industrialize the countryside further.

This issue is driven by three key factors:

DEMOGRAPHICS

The trend for moving from the countryside to the cities is worldwide and has many reasons. One reason is, that the living conditions in cities are mostly better than the countryside, the education of the younger generation is better also.

In 1991 almost 44% of the world population was working as a farmer, till 2019 this number is reducing to 28%.

Employment in agriculture (% of total employment) (modeled ILO estimate)

Source: International Labor Organization, ILOSTAT database (April 2019)

Since 2006 China’s rural areas have lost more than 115 million inhabitants (averagely 15 million p.a.), predominantly younger people in search of a better life moving to the cities with its factories and offices. Left behind is a rural society, feeling the impact of China’s rapidly shifting demographics towards an aging population even more than the cities. By 2020, nearly 20% of China’s total population will be 60 years and older (Source: United Nations/ National Bureau of Statistics).

Source: World Bank Source: U.S. Census Bureau, International Data Base

With less labor available, farmers face increased pressure from wage inflation and labor shortages, while at the same time opportunities for farmers to plant bigger fields develop. The ones who left the countryside or have become too old to work the fields themselves, lease their plots to an emerging class of agro-industrialists and agro-entrepreneurs.

FOOD INFLATION

China’s population spends over 1/3 (CPI basket contribution ratio 31.8% in 2016; Source: National Bureau of Statistics) of their disposable income on foodstuff, resulting in the stability of food prices being a pivotal issue for social stability. This could be observed during the years 2008-2011, when food prices spurred by multiple factors, were key drivers of inflation in China. Only a modernized, efficient producing agricultural sector will be able to fulfill the central government’s ambitious target of supplying 99% of the countries food consumption domestically at stable prices. In parallel, the growing demand for meat from China’s urbanized consumer class, leads to further increases in grain prices. The food price hikes recently experienced in China can only be countered sustainably, by increasing efficiency and output, while at the same time reducing the exposure to labor shortages and wage inflation risks.

ENVIRONMENTAL ISSUES

The farming sector is a major contributor to air and water pollution in China. Especially in the northern provinces of Henan, Hebei, and Shandong, the burning of straw on the fields had a major negative impact on air quality, especially during the period from August to late November. Beijing Meteorological Observatory believes, getting straw burning in the provinces surrounding the capital under control will significantly reduce air pollution in the capital. Furthermore, the overuse of fertilizer and inadequate application of pesticides are causing problems for water and soil. According to China’s Ministry of Environmental Protection, nearly 20% of the nation’s arable land is seriously polluted. With agriculture also being a major contributor to water pollution, the Chinese Ministry of Agriculture indicated, that millions of hectares of farmland near rivers may have to be taken out of production to ensure drinking water supply safety. Such a step certainly would jeopardize the government’s aims concerning food supply safety and price stability, thus making further steps towards the efficiency improvement of the agricultural sector inevitable.

ARABLE LAND PER PERSON (HECTARES)

(Source: Food and Agriculture Organization of the United Nations (FAO), 2015)

COMPARED TO OTHER COUNTRIES, CHINA STILL HAS A HUGE POTENTIAL FOR GROWING, WHILE THE MECHANIZATION IS LOW.

Agricultural land area (sq. km)

NUMBER OF AGRICULTURAL TRACTORS PER 100 SQ. KM OF ARABLE LAND

(UNITS PER 100 SQ. KM)

84 China (units per 100 sq. km) in 2000

China's number of tractors was at level 84 units per 100 sq. km in 2000, up from 67 units per 100 sq. km the previous year. This is a change of 25.06 %.

Agricultural machinery refers to the number of wheel and crawler tractors (excluding garden tractors) in use in agriculture at the end of the calendar year specified or during the first quarter of the following year. Arable land includes land defined by the FAO as land under temporary crops (double-cropped areas are counted once), temporary meadows for mowing or for pasture, land under market or kITHChen gardens, and land temporarily fallow. Land abandoned as a result of shifting cultivation is excluded.

Compared to other Asian countries, China has an enormous potential for growth:

Source: Biennial Conference of the Australian Society for Engineering in Agriculture (SEAg), published by SEAg, Editors: T.M. Banhazi and C. Saunders - 13-16 of September 2009, Brisbane, QLD

Compared to the United States, China’s agriculture market has a significant growth potential:

Source: Biennial Conference of the Australian Society for Engineering in Agriculture (SEAg), published by SEAg, Editors: T.M. Banhazi and C. Saunders - 13-16 of September 2009, Brisbane, QLD

Source: ERS compilation of data from China National Development and Reform Commission and USDA National Agricultural Statistics Service.

China’s agriculture equipment market is valued at around US$28 Billion in 2018 and is expected to reach nearly US$50 Billion by 2025. China has always attached great importance to agriculture, rural areas, and farmers, as agriculture is the primary industry of the national economy.

In 2004, China entered a new era in its approach to agricultural policy, as it began to subsidize rather than tax agriculture. As a result, since 2004, China’s agricultural market has maintained its growth momentum both for production and sale volume. The government has reiterated its commitment to support agriculture and increase the allocation of funds for the development of the rural economy. This has led to a continuous rise in the income level of farmers, increasing their ability to buy agriculture equipment.

China’s agricultural equipment industry is characterized by a large number of mostly unspecialized manufacturers producing low-technology machinery. The country has over 2,500 agricultural equipment manufacturers, mainly concentrated in Shandong, Henan, Jiangsu, Liaoning, and Zhejiang provinces, but due to the lack of resources like human capital, funding, and the infrastructure necessary to develop sophisticated farming machines, China still relies heavily on imports of foreign countries for high-tech farming machinery. According to the China Agricultural Machinery Distribution Association (CAMDA), the top five domestic manufacturers accounted for less than 25 percent of the market.

GOVERNMENT POLICIES

In the last decade, the Chinese government has raised awareness of the challenges the countryside is facing. This awareness is reflected by numerous supporting policies such as land reforms, increased credit availability in rural areas, the abolishing of VAT for farmers and agricultural goods, and last-but-not-least, a heavy increase of direct government subsidies for the agricultural sector. The government policies aim at several key points to spur the development & modernization of the countryside:

(See: The Law of Agricultural Mechanization Promotion of the PRC)

SEASONALITY

CSSC’s slowest months are February through May. CSSC will use its slow months for the main production of parts for the Company’s FORTSCHRITT brand machines. Because the Chinese agricultural industry spans multiple climatic zones, and the Company plans to market products to other countries in varying climatic zones, we do not anticipate seasonality to have an impact on our business.

We do not anticipate seasonality to have an impact on our business at FORTSCHRITT. We will begin production of our E-Mobile at FORTSCHRITT for the Chinese market. This is a multifunctional machine, usable for summer (cutting grass, transport, cleaning) as well as for winter (snow slide, transport, cleaning, winter grit).

AGRICULTURAL SUBSIDIES DEVELOPMENT 2005-2014

(Source: Ministry of Agriculture/ National Bureau of Statistics)

MARKET - CHINA AGRICULTURAL MACHINERY

MARKET OVERVIEW

Until recently, the Chinese market for agricultural machinery was dominated by two types of enterprise:

Traditionally, China’s farming sector consisted of small farms relying almost exclusively on manual labor. Since about 2004 China’s rapid change of its economic model from stone-age communism towards a market-driven economy, has started to take effect on rural live and work. Although still at a low level, mechanization has started and the availability and use of fertilizers as well as pesticides saw production levels soaring.

Nowadays the mechanization ratio has reached 55%, a still a very low level compared to western industrialized societies, and there is the reason to believe that this figure still includes a good number of very old, low-performance equipment.

The demographic developments, and the drag of the cities have left a countryside behind that is suffering from labor shortages and excessive aging. This demographic situation alone, favors the agricultural machinery sectors for many reasons:

LAND LEASE- people who started working in the factories are nowadays renting out there fields to other farmers, thus the average plot size is getting bigger. While bigger plots can be farmed more economically, the shrinking labor pool and aging rural society forces the farmers to increase the mechanization. This trend is supported by the government, first of all making it possible to lease farmland from third parties, secondly by putting in place special lending- and agriculture-related subsidy programs, encouraging bigger farm sizes.

MECHANIZED SERVICE COOPERATIVES- bigger fields and shrinking labor pool have seen the rise of a new class of agro-entrepreneurship in China, the so-called Mechanized Service Cooperatives (‘MSC’). These cooperatives often consist of groups of farmers pooling their resources to purchase high-performance equipment. After working their own fields, they rent out the machinery to other small farmers who cannot afford advanced equipment by themselves. These MSC’s have become so successful, that China Mobile, the leading countryside cellular network operator, even launched a platform for the MSC’s to manage their business more efficiently.

SURGING FARMERS INCOME- during the last decade, spurred by rising food prices, increased farm sizes and government supportive actions, rural incomes have improved significantly. Although the picture is incomplete due to a lack of data, increased production output, food prices and mechanization levels, imply that farming in China is moving towards becoming a real industry, that will ultimately create its very own industrialists.

GOVERNMENT POLICIES AND AIMS

An important indicator for the development of the countryside is the target set by the government to produce 85% of the agricultural output with only 7% of the labor force by 2030, bringing China in line with the modern industrial nations (Source: Ministry of Agriculture). This target corresponds to urbanization and demographic trends.

This aim seems more realistic than the goal laid down in a previous five-year plan, to source 99% of China’s food consumption domestically.

These developments have not gone unnoticed outside China and western companies began to widen their presence and activities in China in the last 4 years, either by developing sales & distribution networks for import machinery or setting up production bases in China.

Several market reports and industry experts estimate that the market for agricultural machinery is growing by over 10% p.a. This estimation is confirmed by figures published by western companies supplying and/ or producing agricultural equipment in China (Source: John Deere/ Claas/ Agco).

In 2015 more than 50% of the German agricultural machinery companies active in China, judged the business climate for agricultural machinery in the PRC as very good or good, with more than 80% judging the business climate in this sector as at least satisfactory (Source: Agrievolution/ VDMA). This makes China the market with the strongest outlook in this survey by far.

Nowadays 15% of the global output of agricultural machinery is manufactured in China already.

(Source: VDMA)

COMPETITION ANALYSIS & PEER ACTIVITY

MAIN COMPETITORS

The following key international and Chinese players have developed manufacturing bases for agricultural machinery in China.

JOHN DEERE, USA

The biggest agricultural machinery producer in the world has currently set up four plants in China in Ningbo, Harbin, Tianjin, and Jiamusi. John Deere also established a joint venture with Tianjin Tractor Manufacturing Co. Limited.

CNH (CASE NEW HOLLAND), ITALY

CNH operates four manufacturing sites in Harbin, Shanghai, Foshan, and Urumqi. The company´s largest manufacturing base In Harbin was commissioned in July 2014. New Holland produces a wide range of agricultural machinery ranging from tractors to add-on applications.

CLAAS, GERMANY

German-based company has grown through acquisitions aggressively in the past decade and propelled itself into the top tier of agricultural machinery manufacturers. The company reports an 11.3% growth in Asian sales in 2015. CLAAS raised 300 million USD in the US in 2012 issuing debt certificates to finance its further growth. In 2013 the company acquired an 85% stake in Shandong based Jinyee Machinery Manufacturing Co. Ltd, a state-owned enterprise.

AGCO, USA

The US Group has commissioned a major manufacturing facility in Changzhou in 2014, focusing on Tractors.

YTO GROUP, CHINA

The company´s tractor business is mainly conducted through its publicly listed subsidiary First Tractor Company Limited. The company´s business had been heavily affected by foreign competition, with its tractor sales declining by 22% in 2014 and its agricultural machinery sales dropping 18% in the same year.

FOTON LOVOL, CHINA

Since 2015 the company aggressively develops its agricultural machinery segment. In January of the same year, the company acquired Mater Macc, an Italian agricultural machinery enterprise. In March 2015 Phase I of its CNY 2 billion investment, a high-end agricultural machinery production base was commissioned focusing on balers and grain dryers.

ZOOMLION HEAVY MACHINERY, CHINA

Formerly known as Chery Heavy Industry Limited, spun off the mother company in 2014. Zoomlion Group is still the biggest shareholder, holding over 60% of the stock. In December 2014 the company commissioned a new production base with a planned capacity of 18,000 units of large-scale equipment, predominantly harvesters.

Besides these key players, a large number of small domestic enterprises are active in the market, which is still highly fragmented. These companies often produce very-cheap, very low-quality products and suffer from a lack of engineering capabilities and technological know-how.

Apart from the equipment as mentioned before providers and other Chinese enterprises have started to discover the countryside. Shandong-based white good giant Haier entered the arena, through its subsidiary Haier Finance, providing lease financing for agricultural machinery with two offices located in Beijing and Shanghai.

Haier Finance Advertisement for Agricultural Machinery Leasing, 2016

Suning, the Chinese electronics and home appliances retailing giant will invest CNY 5 billion in the Chinese rural market in 2016 to open 1,500 additional self-owned stores and develop 10,000 agent points and authorized service sites. The company’s chairman Zhang Jindong announced that by building channels like self-owned stores and Chinese local-featured halls, Suning aims to promote the industrialization of agriculture in China.

(Source: Chinatechnewswire)

STRATEGIC APPROACH AND KEY MARKETS (PROVINCES)

The company will initially launch the K868 baler machine in China’s ten biggest agricultural provinces. These 10 selected Provinces account for significant amounts of agricultural products.

Table: Agricultural output FCA’s target Provinces compared with total US production

The company will develop its own sales, distribution, and service network in the 5 northeastern provinces surrounding its production base in Shandong. These five provinces include some of the most productive in agriculture. The company will appoint provincial representatives and agents and work with local banks and nationwide operating providers of leasing finance. The company received an inquiry from a leading Shandong paper producer for 300 baler machines in July 2016.

Table: Provinces selected for FCA’s own distribution & service network

In six more Provinces, the company has already identified suitable distribution partners for its products and signed LOIs with several local distribution companies. These provinces are also among China’s most productive farming areas.

Table: Provinces with Distribution Partners

SALES & DISTRIBUTION

The existing dealerships and dealer networks in China for agricultural machinery is highly fragmented. The company seeks to develop relationships with leading sales organizations in key regions as well as develop its own sales network in the strongest farming areas, co-operating with bigger local farms and MSC’s.

The company is in active talks with First Mongolian Machinery Co. Limited in Baotou, a subsidiary of Norinco (www.norincogroup.com.cn), concerning access to their nationwide sales network.

The company will also approach leading machinery leasing and financing institutions such as Haier Finance and Agricultural Bank of China.

The company will attend important trade fairs throughout China such as the CIAME (China International Agricultural Machinery Fair) regularly.

SERVICE NETWORK

The company will train service technicians. They will independently operate in their provinces and order spare parts from the company or the local distributor. Our clear, structured design with no electronics involved in key operating parts, allow any car mechanic or locksmith to be trained to maintain and repair the machines.

The company will set up a service network of 3-5 mobile mechanics per province. These mechanics will rotate inside the provinces and return every four weeks to the Qingdao headquarter for further training. The service mechanics will be Qingdao-based employees, this way it can be prevented that they leave the company or start developing their local operations after obtaining the necessary know-how.

The company will establish a WeChat-based repair request platform and is considering further methods such as GPS trackers on the machines to obtain data concerning machinery use as well as market information.

The Directors that the additional turnover generated from spare part sales and servicing will amount to 4%-8% of the machinery sales volume per annum. Currently, it is considered to install GPS trackers on every machine sold, in order to establish a database that will enable the company to identify machinery use times and locations, in order to increase maintenance efficiency. The company is exploring opportunities for spare part shipping also through China Post’s agricultural product service and online order platforms.

CSSC is the production base for FORTSCHRITT and PlanET. The main object of the enterprise is the production of agricultural machinery parts for the German market FORTSCHRITT and PlanET.

CSSC was established in Qingdao, China in 2004. QCSSC provides CAD design, prototype development, production, and assembly of metal products to such customers as HYDAC, HAKO, KÄRCHER, KRONE, and MINUTEMAN. The Company is staffed by 120 professionals including German management and a skilled team of European and Chinese specialists and 40 Trainees. The location is approximately 400m from the company “FORTSCHRITT China”. The whole area is about 10,000 sqm, 6,000 sqm production facility, storage, and office building.

CSSC's metal-processing-spectrum includes full-automated laser-cutting, the use of combine-technology to stamping, folding, welding, finishing and assembly. In addition, we provide all the finishes including powder coating. CSSC's machine-park with a modern and innovative production is absolute high-quality, and ensures our customers at all times to provide consistent and high-grade-products. The high-tech manufacturing equipment, ERP-process-control and the expertise of our highly-qualified-staff build a more solid foundation for quality, reliability of delivery times and competitive prices. CSSC manufacture all common materials such as normal and stainless steels, aluminum, and other nonferrous metals.

Typical Industrial work with Robotics nowadays, and part of CSSC beside its machine-park:

FACE RECOGNITION, LASER EQUIPMENT, ROBOT-WELDING

CSSC works with its customers to provide fully comprehensive product design, development, prototyping, manufacture, and assembly of final products. Customers entrust the Company with development tasks in such fields as vehicle technology (agricultural machinery, trailers, spare parts, etc.), traffic engineering (railway transport, spatial planning, alignment, planning, etc.), engineering (process engineering, power engineering, supply engineering, production engineering), material handling (platform trucks, cranes, etc.) and furniture design (product design, materials science, lighting design) as well as transport logistics.

// SERVICE MANAGEMENT. The Company creates long-term sustainable and fruitful business relationships by creating trust through transparency. The Company strives to keep its customers fully informed throughout the project lifecycle. From the idea and sketch to the complex system-solution, creation and design-development is part of this concept. They assist and advise on cost-optimization through intelligent planning and functional analysis.

For example, the selection of a suitable material plays just as an important role as the forming-process, the design, or the laser-compatible design-optimization. Their seamless combination of design and manufacture is effective and practicable. The implementation of customer ideas is made by the most modern design and construction software.

// SERVICE. The CSSC metal-processing-spectrum includes fully automated laser-cutting, the use of combine- technology to stamping, folding, welding, finishing, and assembly. In addition, CSSC provides all the finishes including powder coating. The machine-park with the highest quality, modern and innovative production provides their customers with consistent and high-grade-products. The high-tech manufacturing equipment, ERP-process-control and the expertise of highly-qualified-staff provide a solid foundation for manufacturing quality, reliability of delivery times and competitive prices. CSSC manufactures all common materials such as normal and stainless steels, aluminum and other nonferrous metals.

// COMPETITORS. What distinguishes CSSC and makes it special compared to its competitors is its versatility. While other companies specialize in a particular activity, CSSC is broadly diversified and offers a variety of uses. CSSC offers e.g. not just welding in their portfolio. You have to distinguish between the manual welding MAG and TIG, and then there is still the welding by robots. Not only in China but also technology leading countries such as Germany, companies specialize in an activity to have a competitive advantage.

However, this advantage consists only in the subjective perception of each customer, because specialization suggests especially much experience and quality. CSSC has a unique selling proposition as a German-led company in China, which has been successful over 15 years as a supplier worldwide without ever having money borrowed.

// COMPETITIVE SITUATION. Customers include market leaders such as KÄRCHER, KRONE, AEROSPACE, or HAKO. And these customers not only order individual single parts but entire assemblies. This implies a wide range of finishing possibilities, from CNC laser cutting to wire erosion to sandblast. The CSSC produces everything in its own enterprise. And for sure the CSSC is also training. Constantly grow the own claim to quality, whether process assurance like automation (Industry 4.0), leadership and training of employees, or in the development of certifications.

Certifications for an industrial manufacturing company require high investment costs.

For every license of the assembly or welding of products for HIGH-SPEED TRAINS, FILTER-PLANTS, or WIND-GENERATORS, a company needs special certificates.

CSSC has more than 50 welders with international high-level welding certificates for railway or pressure vessels, supplied over 800 clients worldwide & produced over 30,000 assembly units (each unit consists of 2-150 single parts).

CSSC started supplying global players like KRONE, which focus on Agriculture Machinery. The subsidiary of ITHC collected experiences over one and half decade and is ready to supply the ITHC-owned-brand-FORTSCHRITT to produce own machines of the Agriculture Machinery. That's what makes the competitive position of this subsidiary more than strong and defines specialization in a new way. CSSC builds the basic; Starting with the acquisition, to accounting and customer care up, to the packing and the dispatch of the parts on container ships or in airplanes.

PlanET China; supplier for GREEN ENERGY

PlanET stands for “Planning and Application of Energy Technology”. PlanET China specializes in the design, construction, and service of advanced biogas plants. PlanET China is an affiliate of PlanET Biogas Group GmbH (“PlanET Germany”) which is based in Vreden, Germany. The PlanET Biogas Group is one of the leading providers for the planning, construction, service, and repowering of AD plants. We offer technical solutions for the use of 100 percent manure or slurry and challenging substrates such as grass or straw.

Mr. Andreas Spiegler is CEO of PlanET China, and as of June 2019 PlanET China had no employees. PlanET China plans to acquire prefabricated biogas equipment sourced from PlanET Germany, and use local Chinese workers to install and service the biogas equipment in China. Plan ET Germany will be responsible for design and engineering of the Biogas plants.

PlanET Biogas China ltd. is an affiliate of PlanET Biogas Group GmbH, which is based in Vreden, Germany. PlanET Biogas Group GmbH ranks among the leading biogas plant builders in Germany and Europe and has designed, constructed and services over 400 anaerobic digestion systems worldwide. PlanET China is located inside of the office building of CSSC.

The name PlanET stands for “Planning and Application of Energy Technology”. PlanET specializes in the design, construction, and service of advanced biogas plants. PlanET Germany started in 1998, and now has over 250 employees, and 400 operating biogas plants. The expected turnover of PlanET group will reach 160 Mio Euro in 2019.

BIOGAS

Biogas is a mixture of gases, predominantly carbon dioxide (CO2) and methane. Methane is the enriching component, which is used for energetic benefits. Sludge, bio-waste and leftovers, farm residues such as dung and slurry and selective energy crops like corn are ideally suited as input. Biogas develops through microbial degradation of organic substances without oxygen. The biogas can be transferred to a Combined Heat and Power Unit (CHP). The electricity and heat produced in this way can be used off-site or fed into the public grid.

BENEFITS OF BIOGAS

Biogas can be converted into electricity and heat or it can be used as fuel. It may be used as an equivalent to natural gas.

In addition to the economy of turning bio-waste streams into usable energy, biogas has enormous ecological advantages: Substituting fossil fuels with biogas reduces carbon dioxide (CO2) emissions, a recognized contributor to global warming. Digestion products can furthermore replace industrial mineral fertilizer because the mineral nutrients are not degraded and can be returned on the fields as a valuable fertilizer.

While countries like Germany reduced its emission of CO₂ to -24,1%, Chinas emission grew up to +306,6% in 2017. (Source: Statista) The biggest emission of CO₂ in the world gets out from China.

WHY IS BIOGAS NEUTRAL TO THE CLIMATE BALANCE?

Because of the biogas only CO₂ which was created by the organic plants is used. But the fossil fuels come additional to our atmosphere and change the balance. For this reason, we have the climate change, one of the most dangerous processes in the human future.

On-Farm Solution. Recycling slurry and manure through an AD plant provides a sustainable system for adding value to farm waste and boosting farm income. The PlanET on-farm solutions are tailor-made and meet the needs of agricultural farms in order to successfully integrate a plant in an already existing business. It is possible to simply utilize the existing farm waste stream to generate power and provide fertilizer. Most project calculations show customer return on investment capital (ROIC) of more than 10% once investment, fixed and variable costs and electricity generation revenues have been considered. Furthermore, on-farm AD plants generally benefit from high levels of public acceptance and do not normally require additional space.

Heat Use. Biogas offers a number of outstanding interactions especially with regard to the methods of livestock farming. Pig and poultry farmers, in particular, need considerable amounts of heat. Most of the CHP’s thermal energy can be used for local heat concepts to replace costly fossil fuels or granting the operator additional income by selling it to e.g. public buildings like hospitals, swimming pools or retirement houses. Another way is the addition of a dryer to the biogas plant set up. There are several containerized PlanET plug-and-play solutions for easy integration into existing or newly designed concepts.

Operating a biogas plant is a chance to reduce energy costs with the production of electricity and heat. When heat is needed for the production process, the integration of an AD plant into existing production structures could realize enormous benefits. You could achieve perfect synergies by feeding the biogas plant with left-overs from the production process and simultaneously using the biogas heat from the CHP unit.

Circular Waste Management. The digestion of waste could complete a cycle of raw materials based on food production or food waste management. Waste disposals are used for the production of biogas and the biogas can substitute fossil fuels for the generation of electricity and heat - such a biogas concept provides a double benefit for its plant owner! The PlanET portfolio also covers the construction and the service of waste to energy plants. Our biogas plants can process almost all organic waste materials from the food industry as well as agricultural residues or fats and oils. Especially in the food industry business sector, anaerobic digestion offers significant cost advantages over traditional disposal methods - both to waste management companies and producers alike.

// COMPETITIVE SITUATION

In China are only two competitors who are able to produce plants which are working:

- A German - Chinese JV between Krieger & Fischer and Hangzhou Energy

- EnviTec Germany

MARKET CHANCES IN CHINA

The Chinese government aims to cover 15 percent of its primary energy demand by renewable energy sources by 2020. Here, bioenergy can contribute to the diversification of the renewable energy mix and support a stable baseload power. It not only contributes to rural development and decreases local environmental pollution as well as the greenhouse gas emissions but also supports overall development towards a sustainable low-carbon circular economy.

The government states that by the end of 2010, about 45,259 small-scale and 27,436 middle and large-scale biogas plants (digester >50 m3) existed with a digester capacity of 8.57 million m3 and an annual biogas output of 1.05 billion nm3 throughout the Chinese biogas sector. This includes 4,641 biogas plants with digesters of more than 300 m3. However, middle and large-scale biogas plants, which are explicitly developed for energy use, and not solely for anaerobic treatment of wastewater, have only emerged in recent years. To utilize the various positives effects and application potentials of bioenergy, the Chinese government has set ambitious goals for its biogas sector. As part of its medium and long-term development plan for renewable energy from 2006 to 2020, the National Development and Reform Commission (NDRC) aims to create 10,000 middle and large-scale biogas plants in the livestock industry and 6,000 industrial wastewater treatment plants with an overall biogas yield of 14 billion nm3 biogas, realize an installed electric capacity of three gigawatts.

During the last ten years, climate change mitigation emerged as an additional development driver of China’s biogas sector. As part of its greenhouse gas emission reduction policies, China signed the Kyoto Protocol in 2002. During the 11th Five-Year Plan, the Chinese government achieved a 20 percent reduction of CO2 emission per unit of Gross Domestic Product (GDP). A total of about two trillion Chinese Yuan (CNY) - 240 billion euros - was invested to achieve this goal. In the course of the Copenhagen UN Climate Change Conference 2009, China then announced its 2020 voluntary targets of reducing the intensity of CO2 emissions per GDP by 40 to 45 percent compared to 2005 and increasing the share of non-fossil fuels in primary energy consumption to around 15 percent by 2020.

MAKING USE OF A HUGE POTENTIAL

Current estimates indicate that use biomass resources in China alone have the energetic potential to cover about five percent of China’s primary energy. The combined energetic potential of crop residues, energy crops, animal manure, urban household waste, and wastewater sludge will lead to a future biogas potential of about 440 billion nm3 in 2030 or installed capacity of about 71 GW. According to current estimates of the total yearly biomass energy potential in 2030, crop residues, including by-products, will represent the largest share at 50 percent of the total biogas potential. Cultivated energy crops on marginal land are estimated to reach 40 percent of the total biomass energy potential by 2030. Animal manure could contribute 9 percent of the future biogas energy, while simultaneously reducing environmental pollution in rural areas. Biodegradable and municipal sewage waste could add another seven and 3 percent respectively.

Regarding the Chinese greenhouse gas (GHG) emission reduction goals, the utilization of the described biomass resources as a substitute for fossil fuels as well as through replacing chemical fertilizer through biogas plant effluent as organic fertilizer is estimated to lead to a yearly emission reduction potential of CO2 equivalents of 4.75 billion tons by 2020 and seven billion tons by 2030.

C.      Organizational Structure

Please see above “History and Development of the Company.”

D.      Property, Plants and Equipment

As at date of this Report, the Company has executed several leases in respect of premises occupied by the Company.

Qingdao, China

CSSC, our subsidiary, rents offices, laboratory and manufacturing facilities consisting of approximately 59,200 square feet, located at Shuanglong Industrial Park, Huanxiu Subdistrict Office, Jimo District, Qingdao from Jiang Jun. The facilities are configured to produce specialized machine parts including parts for third parties and machine parts for Fortschritt China. CSSC’s facilities currently operate at approximately 85% capacity. At full capacity, the facilities are capable of manufacturing parts necessary to build approximately 100 K868 units per month and 100 K838 units per month.

Qingdao, China

Forschritt China, our subsidiary, rents office and manufacturing facilities, consisting of approximately 45,600 square feet, and including 2 assembly lines, located at Shuanglong Industrial Park, Huanxiu Subdistrict Office, Jimo District, Qingdao from Jiang Yanan, Liu Jishan and Wang Fangjian. The facilities are currently configured to assemble Fortschritt K838 and K868 machines from parts sourced from CSSC. At full capacity, the facilities are capable of building approximately 100 K868 units per month and 100 K838 units per month.

ITEM 4A. UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments as of the date of this annual report.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion in conjunction with our audited financial statements and the accompanying notes included elsewhere in this report. Our audited consolidated financial statements have been prepared in accordance with U.S. GAAP.

The following discussion contains forward-looking statements that involve risks and uncertainties, in particular with respect to the COVID-19 pandemic and related effects on our historical and future results of operations and financial condition. See “Cautionary Statement Regarding Forward-Looking Statements” and “Item 3. Key Information – Risk Factors.”

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.” All amounts included herein with respect to the fiscal years ended December 31, 2021 and 2020 are derived from our audited consolidated financial statements included elsewhere in this prospectus.

                Effective April 6, 2022, the Company changed auditors due solely to the United States Holding Foreign Companies Accountable Act of 2020 (“HFCAA”), which, among other things, imposed new restrictions on foreign companies listing securities on U.S. exchanges using mainland China-based and Hong Kong-based PCAOB auditors. The PCAOB has determined that these auditors may not be as capable of being audited by the PCAOB. Although the HFCAA PCAOB auditor restrictions apply only to foreign companies with securities listed on U.S. exchanges, the Company determined that it is in the best interest of the Company and its shareholders to voluntary comply, which caused us to change auditors. The Company’s previous auditor, Centurion ZD CPA & Co. is registered with the PCAOB as a Hong Kong-based auditor. The Company’s new PCAOB-registered auditor, Gries & Associates, LLC, is based in the United States. The HFCAA PCAOB auditor requirements became effective on January 1, 2021. Additional information about the HFCAA is available on the SEC’s website at www.sec.gov/HFCAA.

                The audited consolidated financial statements for the fiscal year ended December 31, 2021 have been audited in accordance with U.S. Generally Accepted Accounting Principles, or US GAAP by Gries & Associates, LLC. The audited consolidated financial statements for the fiscal year ended December 31, 2020 have been audited in accordance with US GAAP by Centurion ZD CPA & Co., and such information has not been audited by Gries & Associates, LLC.

                Financial data presenting the results for the fiscal year ended December 31, 2020 is not included in this Annual Report on Form 20-F. It has been previously filed in the Company’s Annual Report on Form 20-F filed with the SEC on April 30, 2021 and available on the SEC’s EDGAR website.

Overview

The Registrant was formed under the laws of the British Virgin Islands on the 22nd day of February 2018 to act as a holding company for Industrial Technical Corporation Hong Kong Limited (“ITC-HK”) a company formed under the laws of Hong Kong. ITC-HK is a holding company which conducts operations through subsidiaries as follows:

(i) ITC-HK owns 100% of Qingdao CSSC Technical Products Ltd. (“CSSC”); a manufacturer of machinery components based in mainland China. CSSC specializes in the design and engineering of the precision parts of agricultural equipment and machinery; and

(ii) ITC-HK owns 100% of Fortschritt China Agritech Limited (“Fortschritt HK”); a holding company based in Hong Kong; and

(iii) Fortschritt HK owns 100% of Fortschritt Qingdao Agritech Ltd. (“Fortschritt” also “Fortschritt China”); a manufacturer of modern agricultural machinery; and

(iv) CSSC owns 50% of PlanET Biogas China Ltd. (“PlanET”); a joint venture with a leading German company (PlanET Biogas Global GmbH) in the area of engineering and building green energy biogas plants. PlanET has no sales to date.

In accordance with Accounting Standards Codification (“ASC”) 805-50-25, this Reorganization has been accounted for as a recapitalization among entities under common control. The “combination” of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the Reorganization, those results will be on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings (accumulated deficit) at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45 5 indicates that the consolidated financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

Unless otherwise indicated, references to the “Company”, “us”, “we” or “ITHC” refer to Industrial Technical Holdings Corporation and its consolidated subsidiaries.

The Company’s aim is to create an integrated industrial complex, serving global markets with German precision-engineered parts, products, and services made in China. The principal production base is located in Qingdao, Shandong Province, PR China.

ITHC holds interests in machining parts manufacturing, special machinery assembly as well as agricultural and environmental technologies, and have three operating subsidiaries.

The following tables set forth a summary of ITHC’s consolidated results of operations for the periods presented. This information should be read together with ITHC’s consolidated and combined financial statements and related notes included elsewhere in this proxy statement. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

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

Revenues:

Net revenues increased from $4,991,624 during the year ended December 31, 2020 to $6,631,309 during the year ended December 31, 2021 due to partial recovery from Covid-19 and production efficiency improvement.

Cost of Sales:

Cost of sales increased from $3,223,035 during the year ended December 31, 2020 to $4,898,148 during the year ended December 31, 2021, which was slightly higher than our sales due to increases in material cost.

Gross Profit:

Gross profit decreased from $1,768,589 during the year ended December 31, 2020 to $1,733,161 during the year ended December 31, 2021 due to material cost increase.

Selling, General and Administrative Expenses:

Total selling, general and administrative expenses increased from $1,867,647 during the year ended December 31, 2020 to $2,427,889 during the year ended December 31, 2021 due to shipping cost’s significant increase.

Selling and marketing expense. Selling and marketing expense increased from $224,677 during the year ended December 31, 2020 to $653,061 during the year ended December 31, 2021, primarily due to increasing in transportation cost caused by the impact of Covid-19.

General and administrative expenses. General and administrative expenses increased from $1,617,970 during the year ended December 31, 2020 to $1,774,828 during the year ended December 31, 2021, primarily due to consultancy service fees related to preparation for listing in 2020.

Other Income/(expenses):

Total other income/(expenses) decreased from $(55,581) during the year ended December 31, 2020 to $(40,100) during the year ended December 31, 2021.

Other Income. Other income decreased from $240,602 during the years ended December 31, 2020 to $137,849 during the year ended December 31, 2021.

Other Expense. Other expense decreased from $274,585 expenses during the years ended December 31, 2020 to $177,774 expenses during the year ended December 31, 2021. This primarily due to the write-off of uncollectable receivables in 2020.

Income Tax Expense:

Provision for income tax were $3,637 and $18,669 during the year ended December 31, 2021 and 2020.

Net Loss:

As a result of the foregoing, net loss was $738,465 and $173,308 during the years ended December 31, 2021 and 2020.

Liquidity and Capital Resources

Going Concern Consideration

The accompanying combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the combined financial statements. The Group’s ability to continue as a going concern depends on the liquidation of its current assets and business developments. As of December 31, 2020, the Company incurred positive working capital, $537,911, an accumulated comprehensive loss of $1,796,133 and incurred a negative operating cash flow of $427,442. As of December 31, 2021, the Company also incurred negative working capital, $319,286, an accumulated comprehensive loss of $2,291,840 and a negative cash flow from its operating activities, $394,867. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included borrowings from our stockholders and related parties. While we believe that our existing shareholders and related parties will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms.

We anticipated our cash flows from operating activities and/or financial support from issuance of common shares will be sufficient to meet its anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. The Company may, however, need additional cash resources in the future if it experiences changes in business conditions or other developments, or if it finds and wishes to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If the Company determines that its cash requirements exceed the amount of cash and cash equivalents it has on hand at the time, it may seek to obtain commercial bank loans. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict the Company’s operations. There can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all. The Company may need additional capital to pursue its business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to ITHC, or at all.

Cash Flows and Working Capital

ITHC’s primary sources of liquidity have been funding from issuance of common shares for cash, which have historically been sufficient to meet ITHC’s working capital and substantially all of its capital expenditure requirements.

ITHC believes that its anticipated cash flows from operating activities and/or financial support from issuance of common shares will be sufficient to meet its anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. ITHC may, however, need additional cash resources in the future if it experiences changes in business conditions or other developments, or if it finds and wishes to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If ITHC determines that its cash requirements exceed the amount of cash and cash equivalents it has on hand at the time, it may seek to commercial bank loans. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict ITHC’s operations. There can be no assurance that financing will be available in amounts or on terms acceptable to ITHC, if at all. ITHC may need additional capital to pursue its business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to ITHC, or at all.

Net cash used in operating activities of $427,442 in 2020, compared to net cash used in operating activities of $394,867 in 2021.

As of December 31, 2021, ITHC had cash and cash equivalents of approximately $39,343, compared to cash and cash equivalents of approximately $55,950 as of December 31, 2020.

The following table sets forth a summary of ITHC’s cash flows for the periods presented:

Commitments and Contingencies

Lease commitments

We have several operating leases, primarily for offices and factories rent. Our principal executive offices are located in Qingdao, China. The aggregate future minimum payment under these non-cancelable operating leases are summarizes in the table below.

For the year ended December 31, 2020 and 2021, the Company has rent expense for the amount of $17,059 and $235,294 respectively.

As of December 31, 2020 and 2021, Company has no material purchase commitments, significant leases, unused letters of credit or pending legal proceedings.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

Capital Expenditures

ITHC made capital expenditures of $51,131 and $28,289 during the year ended December 31, 2021 and 2020, respectively. In these periods, ITHC’s capital expenditures were mainly used to purchase property, plant, and equipment for its business. ITHC will continue to make capital expenditures to meet the expected growth of its business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company’s consolidated financial statements are expressed in U.S. dollars.

The Outbreak of Coronavirus Disease 2019 (“COVID-19”)

In December 2019, a novel strain of coronavirus was reported in Wuhan, China. On March 11, 2020, the World Health Organization categorized it as a pandemic. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses and schools worldwide. The potential impact which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on our financial position, operations and cash flows.

The Company’s operating results in 2021 have been significantly affected by the outbreak of COVID-19. Total revenue is lower than previously expected. We temporarily closed our offices and manufacturing facility and implemented a work from-home policy beginning on January 25, 2020, as required by relevant PRC regulatory authorities. Our manufacturing facility in Qingdao was allowed to reopen on February 20, 2020 by the local government. Although our PRC office and factory have since become fully operational, our customers were negatively impacted by the outbreak, which reduced their orders in 2020. Our customers may reduce their future purchases from us if they are not able to complete manufacturing of their products due to the shortage of components from other suppliers. The extent of the impact of COVID-19 on our operational results and financial condition will depend on certain developments, including the duration and spread of the outbreak and impact on our customers, all of which are uncertain.

Principle of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances are eliminated upon consolidation.

Use of estimates and assumptions

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates and differences could be material. Changes in estimates are recorded in the period they are identified.

Significant accounting estimates reflected in the Company’s consolidated financial statements include valuation allowances for deferred tax assets, allowance for doubtful accounts, the useful lives of fixed assets, valuation of share-based awards, accruals and other liabilities.

Going Concern Consideration

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the consolidated financial statements. The Company’s ability to continue as a going concern depends on the liquidation of its current assets and business developments. As of December 31, 2020, the Company incurred positive working capital, $537,911, an accumulated comprehensive loss of $1,796,133 and incurred a negative operating cash flow of $427,442. As of December 31, 2021, the Company incurred positive working capital, $319,286, an accumulated comprehensive loss of $2,291,840 and incurred a negative operating cash flow of $394,867. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included borrowings from our stockholders and related parties. While we believe that our existing shareholders and related parties will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms.

Foreign currency translation

The functional currency of the Company’s operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The consolidated financial statements are translated to U.S. dollars using the period-end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income / loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

All of the Company’s revenue transactions are transacted in its functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at December 31, 2020 and 2021 were translated at  i 6.5249 RMB to $ i 1.00 and 6.3693 RMB to $ i 1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied to the statements of operations for the years ended December 31, 2020 and 2021 were  i 6.8976 RMB and  i 6.4515 RMB to $ i 1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

Fair value measurement

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.

The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.

Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company consolidated financial instruments include cash and cash equivalents, accounts receivables, other receivables, and various accrued liabilities. Account receivables and various accrued liabilities were not recorded at fair value. Their carrying values approximate their fair values due to the short-term nature of these instruments.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains most of the bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.

Accounts receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for non-collectible accounts as needed. The Company establishes a provision for doubtful accounts when there is objective evidence that the Company may not be able to collect amounts due. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and individual account analysis. The allowance is based on management’s best estimates of specific losses on individual customer exposures, as well as the historical trends of collections. Account balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection is not probable. As of December 31, 2020, and 2021, the allowance for doubtful accounts were amounted to $ i 43,068 and $0, respectively.

Prepayments 

Prepayments represented advance payments made to its vendors for certain prepaid services such as marketing and promotions services, advisory serves, and rentals of Company’s office and technical services.

Other receivables 

Other receivables represented employee advances to pay certain of its expenses in the normal course of business and security deposits.

The Company periodically adjusts its allowance for other receivables when it believes that the future collection of receivables is unlikely. Each party is obligated to refund the Company the amount it has paid. The Company recognizes any increase in allowance for other receivables upon significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments (more than 365 days overdue upon demand) and any other economic factors which are considered indicators that the receivable may be impaired.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost of inventories is calculated using the weighted-average method. In addition to the cost of raw materials, work in progress and finished goods include direct labor costs and overhead. The Company periodically assesses the recoverability of all inventories to determine whether adjustments are required to record inventories at the lower of cost or market value. Inventories that the Company determines to be obsolete or in excess of forecasted usage are reduced to its estimated realizable value based on assumptions about future demand and market conditions. If actual demand is lower than the forecasted demand, additional inventory write-downs may be required.

Operating leases

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842), which is effective for annual reporting periods (including interim periods) beginning after December 15, 2018, and early adoption is permitted. The Company early adopted the Topic 842 on January 1, 2020 using a modified retrospective and has elected not to recast comparative period in the consolidated financial statements. The Company leases its offices and facility, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. There was no impairment for right-of-use lease assets as of December 31, 2021.

Investments in joint ventures- Equity method

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Company’s investments in its joint venture are accounted for using the equity method.

Under the equity method, the investment in a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Company share of net assets of the joint venture since the investment date. The consolidated statements of profit or loss reflect the Company’s share of the results of operations of the joint venture.

After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Company determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, and then recognizes the pro-rata loss in the consolidated statements of profit or loss.

Upon loss of significant influence over the joint venture, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in consolidated statements of profit or loss.

Property and equipment

Property and equipment are stated at cost. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets with a 5% estimated residual values, as follows:

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterment which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.

Impairment for long-lived assets

Long-lived assets, including property and equipment with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the non-discounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company will reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2021 and 2020, no impairment of long-lived assets was recognized. 

Revenue recognition

At the beginning of fiscal 2019, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), under the modified retrospective transition approach.

Revenue from contracts with customers is recognized using the following five steps:

Under ASC 606, a performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when obligations under the terms of a contract with the customer are satisfied. For the product sales, revenue is recognized at a point-in-time when control of the product is transferred to the customer, which generally occurs when the product is shipped from manufacturing facility to the customer. When contracts include multiple products to be delivered to the customer, generally each product is separately priced and is determined to be distinct within the context of the contract. From the past experience, the Company has not experienced any material warranty costs and, therefore, the Company does not believe an accrual for warranty cost is necessary for the year ended December 31, 2021 and 2020.

Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company have elected to recognize the cost for freight and shipping when control of products has transferred to the customer as a component of cost of sales in the consolidated statements of operations. The Company classify shipping and handling fees billed to our customers as net sales and the corresponding costs are classified as cost of sales in the consolidated statements of operations.

During years prior to fiscal 2019, the Company recognized revenue in accordance with ASC 605, Revenue Recognition (“ASC 605”). The adoption of ASC 606 did not materially change the timing or methods in which the Company have historically recognized revenue.

Cost of revenue

Cost of revenue consists of direct materials and freight-in charges relating to products sold, salary and related benefits for direct labors, depreciation and other overhead costs.

Selling and marketing expenses

Selling expenses consist of primarily shipping and handling costs for products sold and advertisement and marketing expenses for promotion of the Company’s products.

General and administrative expenses

General and administrative expenses consist primarily of costs in salary and welfare expenses for the general administrative and management staff, facilities costs, depreciation expenses, professional advisor fees, accounting fees, meals and entertainment, utilities, and other miscellaneous expenses incurred in connection with general operations.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718-10 “Compensation-Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and stock appreciation rights are based on estimated fair values. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.

The Company accounts for non-employee stock-based awards at fair value in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.

Segment Reporting 

The Company follows the provisions of ASC Topic 280, “Segment Reporting”, which establishes standards for reporting information about operating segments of public entity by the method of “management approach” for determining reporting segments such as products and services, geographic areas, or major customers. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments.

The Company’s management reporting structure provided for only one operating segment during the period presented because other operating segments did not pass quantitative threshold according to ASC 280-10-50-10(b). Moreover, the Company operates in one single geographic area. In short, the Company is not required to present separate segment information in this financial statement.

Income taxes

The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.

The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. Deferred tax liabilities are recognized for all future taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable income will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled.

Deferred tax is charged or credited in the consolidated statement of operations, except when it is related to items credited or charged directly to equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. As of December 31, 2021 and December 31, 2020, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Value Added Tax (“VAT”)

Value-added taxes (“VAT”) collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis. The VAT collected from customers is excluded from revenue. The Company’ revenue is subject to a VAT rate of 17% before April 30, 2018, and a VAT rate of 16% from May 1, 2018 to March 31, 2019 and a VAT rate of 13% from April 1, 2019 onwards.

Loss per share

The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share,” ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as Net profit divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Commitments and Contingencies

In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relates to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred, and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.

Related Party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, shareholder, or a related corporation.

Risks and Uncertainties

The concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. As of December 31, 2021 and 2020, $39,343 and $55,950 were deposited with banks located in the PRC, Hong Kong and the U.S., respectively. U.S. bank account of ITHC is an escrow account managed by attorney. Bank balance of HK ITC is covered by the Hong Kong Government Deposit Protection Scheme while those in PRC is not covered by insurance. While management believes that these financial institutions and third-party fund holder are of high credit quality, they will monitor their creditworthiness continuously.

Political and economic risk

The Company’s major operations are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC 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, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Foreign currency exchange risk

The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. We are a holding company and we rely on dividends paid by the Company’s operating subsidiaries in China for its cash needs. Any significant revaluation of the RMB may materially and adversely affect our liquidity and cash flows. To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive. Conversely, if the Company decide to convert RMB into U.S. dollars for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount the Company would receive.

Recently issued accounting pronouncements

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this ASU are to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are effective for entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2017-1 as of January 1, 2018 and believe the adoption of this ASU does not have a material effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. This ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. The Company adopted ASU 2017-09 as of January 1, 2018 and adoption of this ASU does not have a material effect on the Company’s consolidated financial statements.

In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-lined financial instruments (or embedded features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.

As an “emerging growth company,” or EGC, the Company has elected to take advantage of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. This ASU are effective for annual reporting periods beginning after December 15, 2021, including interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on its consolidated financial statements and related disclosures.

A. Research and Development, Patents and Licenses, etc.

Research costs are expensed when incurred and are net of government grants. Development costs including direct material, direct labor and contract service costs are capitalized as intangible assets when the Company can demonstrate that the technical feasibility of the project has been established; the Company intends to complete the asset for use or sale and has the ability to do so; the asset can generate probable future economic benefits; the technical and financial resources are available to complete the development; and the Company can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. To date, the Company has not met the criteria to capitalize development costs.

B. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2021 that are reasonably likely to have a material and adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition.

C. Off-Balance Sheet Arrangements

We did not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

D. Tabular Disclosure of Contractual Obligations

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2021:

E. Safe Harbor

See “Cautionary Statement Regarding Forward-Looking Statements.”

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information about our directors, executive officers and key employees:

BUSINESS EXPERIENCE 

ANDREAS SPIEGLER

Chairman & CEO

Mr. Spiegler has a track record of more than 30 years in engineering and technical design. He started his career at the water company of the City of Erfurt in East Germany in 1984. He remained with the company as a Department Director until 1992, when he started his first own venture, the WATAG Gmbh, a company designing and building pumping stations, drink water plants and adjacent water piping systems.

As an entrepreneur, he was involved in several municipal water projects in Germany. In 1997, he travelled the first time to China starting to work as a consultant for NBCC in Beijing, a German - Chinese JV, specialized on water projects in Mongolia. In the wake of his activities in China he started to audit suppliers and potential JV partners of technical products for German companies.

In 2002 he relocated to Qingdao and built up a JV together with German based EPT GmbH, a company specialized on environmental technology. After leaving the JV, he started operating independently as a sourcing specialist for metal parts predominantly for German companies.

In 2004, he founded ITHC Limited and it's operating subsidiary CSSC Co. Limited, raising the amount of US$ 500,000 from German special vehicle manufacturer Hako for 45% of ITHC’s equity.

In 2011 ITHC’s shareholders re-purchased the equity held by Hako. Nowadays CSSC supplies parts to major players in the European agricultural and special machinery arena, such as KRONE Agriculture Machinery, KÄRCHER, HAKO and many other well renowned European companies. Andreas is fluent in English, Russian, and his native German.

DR. HEIKO SCHOLZ

Director

Dr. Heiko Scholz started his professional career in 1982 as a research engineer with VEB Kombinat FORTSCHRITT. In 1984 he graduated from Technical University Dresden with a PhD in mechanical engineering and subsequently became Technical Director of VEB Kombinat FORTSCHRITT. After the collapse of East Germany, Dr. Scholz took over DSD GmbH. DSD spun off from VEB Kombinat FORTSCHRITT in the wake of the German reunification and the following privatization and break-up of the state-owned enterprise sector. At its height DSD had more than 200 employees and subsidiaries in Mexico, Spain as well as Hungary. DSD’s core business was the manufacturing and design of special purpose machines and vehicles. Since 2002 he is active as a freelance project engineer. In this time, Dr. Scholz has taken on several high-profile assignments:

Dr. Scholz spent 10 years of his professional life in China and is fluent in English, Spanish and his native German. He will relocate to China upon the completion of the financing for FCA.

JACQUES BENOLIEL

Director

Jacques Benoliel is an experienced international Director with more than 30 years’ experience in IT and innovation. He is a civil engineer from the Ecole des Ponts & Chaussées de Paris and a PDG from the IESE university of Navarra. He has developed his professional career in Spain, France and the US. He is an external-advisor of several technology-based companies. From July 2015 - present, Mr. Benoliel has been Buying Director of Eurofinsa. From October 2015 - January 2016, Mr. Benoliel served as jury member of final project for the International MBA with the EAE Business School, mentoring different teams for final project preparation. From June 2013 - July 2014, he was a board member of Tomsaver: Strategy & Technology, an e-commerce startup dedicated to optimizing buying of consumer goods.

JOEL GALLO

Director

Joel Gallo has been working in global finance and technology for over 25 years. Many of those years were as a management consultant at Deloitte, Ernst & Young, Dell EMC and PwC. During those years, Mr. Gallo provided consulting services to more than 75 global investment banks, asset/wealth managers, hedge funds, private equity firms (e.g. Bank of America, Barclays, BlackRock, BNP Paribas, Carlyle Group, Cerberus, Deutsche Bank, IMF, JP Morgan, Morgan Stanley, Royal Bank of Canada, Royal Bank of Scotland, Taconic, UBS).He has advised clients on: Blockchain and RPA (Robotic Process Automation); ALMT (Asset Liability Management Treasury); Intraday Liquidity; Stress Testing; Risk Management, Audit and Controls; Operational / Technology Models; Operational Re-engineering; Data Management and Governance; System Development and Implementation; Financial Reporting / Analysis; Cost Restructuring; M&A due diligence; Regulatory Compliance (e.g. Dodd Frank, FATCA, Sarbanes Oxley, BCBS 239 and 248, AML); Outsourcing; and numerous other areas.

In 2013, Mr. Gallo founded and is currently principal of GLS Group, LLC, a financial services consulting firm. From 2011 to 2013, Mr. Gallo was a Director at PwC. From 2008 to 2011, Mr. Gallo was Senior Manager and Ernst & Young. From 2005 to 2008, he was Senior Project Manager at EMC Corporation. From 2004 to 2005, Mr. Gallo was Senior Manager at Deloitte and from 2002 to 2003 he was Manager at Deloitte.

ARNE KRÜGER

Director and COO

Arne Krüger grew up in Rostock, Germany. After successful apprenticeship as industrial mechanic for plants and machines in the company “Groth & Co Rostock” 1994 he started as an entrepreneur with his own business till 2001 for new construction and renovation of buildings.

From 2001 - 2005 he got experience as construction management and implementation for exhibitions worldwide, for big companies like SIEMENS, BMW, AQUA, SAP, BOSCH and others.

From 2005 to 2008 he worked in the team for the SIEMENS AG, EXIDERDOM, and join the tour as a technical expert in countries like China, USA, Canada, Korea, Mexico, Thailand and Russia.

From 2008 to 2010 he led a construction team for green energy, solar fields installation in Germany, Spain and Italy.

Since 2011 he works as a Production Manager in CSSC Qingdao and has been a Director and the COO of the Company since May 2019.

TERM OF OFFICE

Each director of our Company is to serve for a term of one year ending on the date of the subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our board of directors is to elect our officers and each officer is to serve until his successor is elected and qualified or until his or her death, resignation or removal.

B. Compensation

The following table sets forth all annual and long-term compensation for services in all capacities to the Company for the year ended December 31, 2021, in respect of the Named Executive Officers: