{"url_path":"/sec/lud/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 **","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1984124/0001213900-26-057512-index.html","accession_number":"0001213900-26-057512","cik":"0001984124","ticker":"LUD","issuer_name":"Luda Technology Group Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1984124/0001213900-26-057512-index.html","primary_entity_key":"0001984124","primary_entity_name":"Luda Technology Group Ltd"},"word_count":25804,"has_tables":true,"body_markdown":"**ITEM 3.**\n**KEY INFORMATION**\n\n \n\n**Our Holding Company Structure and Operations in China and Hong Kong**\n\n \n\nWe are a Cayman Islands holding company without\nany operation and our operations are conducted by our wholly owned subsidiaries in China and Hong Kong and this structure involves unique\nrisks to investors.\n\n \n\n**Cautionary Statement Regarding Doing Business\nin the PRC**\n\n \n\nThere are legal and operational risks associated\nwith being based in and having all our operations in China and Hong Kong.\n\n \n\nThe PRC government initiated a series of regulatory\nactions and made a number of public statements on the regulation of business operations in certain areas in China, including cracking\ndown on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using VIE structure,\nadopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. We do not\nbelieve that we are directly subject to these regulatory actions or statements, as we do not have a VIE structure and our business does\nnot involve the collection of user data, implicate cybersecurity, or involve any other type of restricted industry. Since these statements\nand regulatory actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will respond\nand what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any,\nor the potential impact such modified or new laws and regulations will have on our daily business operations or our ability to accept\nforeign investments and list on a U.S. exchange. Any change in foreign investment regulations, and other policies in China or related\nenforcement actions by China government could result in a material change in our operations and/or the value of the securities we are\nregistering for sale and could significantly limit or completely hinder our ability to offer or continue to offer our Ordinary Shares to investors\nor cause the value of our Shares to significantly decline or be worthless.\n\n \n\nThe Chinese government recently took regulatory\nactions on certain U.S. listed Chinese companies and made statement that it will exert more oversight and control over offerings and listings\nby Chinese companies that are conducted overseas, such as those related to the use of variable interest entities and data security or\nanti-monopoly concerns. On July 10, 2021, the CAC issued a revised draft of the Cybersecurity Review Measures (“Revised Draft”),\nwhich required that, among others, in addition to an “operator of critical information infrastructure,” any “data processor”\ncontrolling personal information of no less than one million users that seeks to list in a foreign stock exchange should also be subject\nto cybersecurity review.\n\n \n\nOn December 28, 2021, the CAC, the National Development\nand Reform Commission (“NDRC”), and several other administrations jointly adopted and published the Measures for Cybersecurity\nReview (the “Measures”), which came into effect on February 15, 2022. The Measures reiterate that, if an “operator of\ncritical information infrastructure” or “network platform operator” that is in possession of personal data of more than\none million users intends to list in a foreign country, it must apply for a cybersecurity review. The Measures further elaborates the\nfactors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk\nof core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the\ncountry; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information\nbeing affected, controlled, or maliciously used by foreign governments after listing abroad.\n\n \n\nWe do not currently expect the Measures to have an impact on our business\nor operations as we do not believe that Luda PRC is deemed to be an “operator of critical information infrastructure,” “data\nprocessor,” or “network platform operator” controlling personal information of no less than one million users, that\nare required to file for cybersecurity review before listing in the U.S., because (i) as of the date of this annual report, Luda PRC is\nrequired to collect and retain some basic information furnished by our customers Luda PRC has collected and stored personal information\nfar less than one million users, suppliers and employees in accordance with prevailing business practices; (ii) we do not place any reliance\non collection and processing of any personal information to maintain our business operation; and (iii) data processed in our business\nshould not have a bearing on national security nor affect or may affect national security; as of the date of this annual report, Luda\nPRC has not been involved in any investigations on cybersecurity or data security initiated by related governmental regulatory authorities,\nand we have not received any inquiry, notice, warning, or sanction in such respect. Therefore, we are not covered by the permission and\nrequirements from the CSRC nor CAC, and except for the permissions with minimal impact on the operations of Luda PRC, we have received\nall necessary permissions to operate our business in China and no permission has been denied. Luda PRC has received all necessary permissions\nrequired to obtain from PRC authorities to operate its current business in China or issue shares to foreign investors, including Business\nLicense, Customs Registration Certificate, Bank Account Open Permit and Approval regarding Environmental Protection.\n\n \n\n1\n\n \n\nOn July 7, 2022, the CAC issued the Security Assessment\nMeasures, which came into effect on September 1, 2022. The Security Assessment Measures provide that certain types of data processors\ntransferring important data or personal information collected and generated during operations within the territory of the PRC to an overseas\nrecipient must apply for security assessment of cross-border data transfer. In addition, on September 28, 2023, CAC published the Provisions\non Regulating and Promoting Cross -border Data Transfer (Draft for Comments), or the Cross -border Data Transfer Provisions. The Cross-border\nData Transfer Provisions provide certain exemptions from obligations under the circumstances of cross-border data transfer, including,\namong others, the obligations for data security assessment, concluding a standard contract for provision of personal information abroad\nor passing the certification for personal information protection. However, the Cross-border Data Transfer Provisions were released for\npublic comment only and their provisions and anticipated adoption date are subject to changes with substantial uncertainty, and their\ninterpretation and implementation remain uncertain.\n\n \n\nOn February 17, 2023, the CSRC issued the Trial\nAdministrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises, or the Trial Measures, which became effective\non March 31, 2023. On the same date of the issuance of the Trial Measures, the CSRC circulated No.1 to No.5 Supporting Guidance Rules,\nthe Notes on the Trial Measures, the Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises\nand the relevant CSRC Answers to Reporter Questions on the official website of the CSRC, or collectively, the Guidance Rules and Notice.\nThe Trial Measures, together with the Guidance Rules and Notice, reiterate the basic supervision principles as reflected in the Draft\nOverseas Listing Regulations by providing substantially the same requirements for filings of overseas offering and listing by domestic\ncompanies, yet made the following updates compared to the and Draft Overseas Listing Regulations: (a) further clarification of the circumstances\nprohibiting overseas issuance and listing; (b) further clarification of the standard of indirect overseas listing under the principle\nof substance over form, and (c) adding more details of filing procedures and requirements by setting different filing requirements for\ndifferent types of overseas offering and listing. Under the Trial Measures and the Guidance Rules and Notice, domestic companies conducting\noverseas securities offering and listing activities, either in direct or indirect form, shall complete filing procedures with the CSRC\npursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing\napplication. The companies that have already been listed on overseas stock exchanges or have obtained the approval from overseas supervision\nadministrations or stock exchanges for its offering and listing and will complete their overseas offering and listing prior to September\n30, 2023 are not required to make immediate filings for its listing yet need to make filings for subsequent offerings in accordance with\nthe Trial Measures. The companies that have already submitted an application for an initial public offering to overseas supervision administrations\nprior to the effective date of the Trial Measures but have not yet obtained the approval from overseas supervision administrations or\nstock exchanges for the offering and listing may arrange for the filing within a reasonable time period and should complete the filing\nprocedure before such companies’ overseas issuance and listing.\n\n \n\nOn February 24, 2023, the CSRC, the Ministry of\nFinance, the National Administration of State Secrets Protection and National Archives Administration of China promulgated the Provisions\non Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the\nArchives Rules, which will come into force on March 31, 2023. According to the Archives Rules, domestic companies seeking for overseas\noffering and listing shall strictly comply with relevant laws and regulations of the PRC and the Archives Rules, enhance legal awareness\nof keeping state secrets and strengthening archives administration, establish a sound administration system of confidentiality and archives,\nand take necessary means to fulfill confidentiality and archives administration obligations. Such domestic companies shall not leak any\nstate secret and working secret of government agencies, and shall not harm national security and public interest. In addition, a domestic\ncompany that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or\nentities including securities companies, securities service providers and overseas regulators, any document and materials that contain\nstate secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and\nfile with the secrecy administrative department at the same level. Moreover, a domestic company that plans to, either directly or through\nits overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities\nservice providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security\nor public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also\nspecify that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities\ncompanies, securities service providers and overseas regulators and individuals shall fulfill due procedures in accordance with applicable\nnational regulations.\n\n \n\nOur operations are located in Hong Kong and the\nPRC. As such we are subject to Hong Kong laws and PRC laws relating to the collection, use, sharing, retention, security, and transfer\nof confidential and private information, such as personal information and other data. These laws apply not only to third-party transactions,\nbut also other parties with which we have commercial relations. These laws continue to develop, and the PRC government may adopt other\nrules and restrictions in the future. Non-compliance with these laws could result in penalties or other significant legal liabilities.\n\n \n\n2\n\n \n\nWe believe, that as of the date of this annual\nreport, we have obtained\nall necessary permissions for a domestic company in China to engage in similar businesses, and are not required to obtain other permissions\nby including the CSRC, CAC or any other PRC authorities for its operations or issue our Shares including the Shares being registered for\nsale to foreign investors under existing PRC laws and regulations, and have not received any requirement or were denied such permissions\nor approvals by any PRC authorities. According to the Measures, if an “operator of critical information infrastructure” or\n“network platform operator” that is in possession of personal data of more than one million users intends to list in a foreign\ncountry, it must apply for a cybersecurity review. The Measures further elaborates the factors to be considered when assessing the national\nsecurity risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal\ninformation being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure,\ncore data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments\nafter listing abroad. As of the date of this annual report, neither the Company nor its PRC Subsidiary possesses a large amount of personal\ninformation in their business operations or is recognized as an “operator of critical information infrastructure” by any authentic\nauthority. Therefore, we do not believe that Luda PRC is deemed to be an “operator of critical information infrastructure,”\nor “network platform operator” controlling personal information of no less than one million users. We are required to collect\nand retain some basic information furnished by our customers, suppliers and employees in accordance with prevailing business practices,\nbut we do not handle personal and confidential data of more than 1,000 individuals in the ordinary course of business. As of the date\nof this annual report, we have not been involved in any investigations on cybersecurity or data security initiated by related governmental\nregulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect. Our PRC subsidiary, Luda PRC,\nhas received all necessary permissions required to obtain from PRC authorities to operate its current business in China or issue shares\nto foreign investors, including Business License, Customs Registration Certificate, Bank Account Open Permit and Approval regarding Environmental\nProtection.\n\n** **\n\n**Cautionary Statement Regarding Holding Foreign\nCompanies Accountable Act**\n\n \n\nOur Ordinary Shares may be prohibited from\nbeing traded on a national exchange under the Holding Foreign Companies Accountable Act (the “HFCA Act”) if the Public\nCompany Accounting Oversight Board (“PCAOB”) is unable to inspect our auditors for two consecutive years. On December\n23, 2022, the Accelerating Holding Foreign Companies Accountable Act (the “AHFCA Act”) was enacted, which amended the\nHFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is\nnot subject to PCAOB inspections for two consecutive years instead of three. On December 29, 2022, a legislation entitled\n“Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by\nPresident Biden, which contained, among other things, an identical provision to AHFCA Act and amended the HFCA Act by requiring the\nSEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB\ninspections for two consecutive years instead of three years. On December 16, 2021, the PCAOB issued a report on its determinations\nthat it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and\nin Hong Kong, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made its determinations pursuant to\nPCAOB Rule 6100, which provides a framework for how the PCAOB fulfils its responsibilities under the HFCA. The report further listed\nin its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered\nPublic Accounting Firms Subject to the Hong Kong Determination, respectively. Our current and predecessor auditors, AOGB CPA Limited and\nZH CPA, LLC, respectively, are headquartered in Hong Kong, China and Colorado respectively. They are both registered with the\nPCAOB and are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess\nour auditor’s compliance with the applicable professional standards. In\naddition, they did not appear as part of the PCAOB’s report of determinations under the lists in Appendix A or\nAppendix B of the report issued by the PCAOB on December 16, 2021. On August 26, 2022, the China Securities Regulatory Commission,\nor CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol, or the Protocol, governing inspections\nand investigations of audit firms based in mainland China and Hong Kong and taking the first step toward opening access for the\nPCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the\nProtocol, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the\nunfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and\ninvestigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022, and the PCAOB Board\nvacated its previous determinations that the PCAOB was unable to inspect or investigate completely registered public accounting\nfirms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct\ninspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and\ndepends on a number of factors out of our, and our auditor’s, control. The PCAOB is continuing to demand complete access in\nmainland China and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as\nwell as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has indicated that it will\nact immediately to consider the need to issue new determinations with the HFCA Act if needed. As a result, the time period before\nthe Company’s securities may be prohibited from trading or delisted has been decreased accordingly. Notwithstanding the\nforegoing, in the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such\nlack of inspection could cause our Ordinary Shares to be delisted from the stock exchange. The delisting of our Ordinary Shares, or the\nthreat of their being delisted, may materially and adversely affect the value of your investment. See Item 3.D. “Risk Factors\n— Our Ordinary Shares may be delisted from a U.S. exchange and prohibited from being traded over-the-counter in\nthe United States under the HFCA Act if the PCAOB determines in the future that it is unable to fully inspect or investigate our auditors.\nThe delisting and cease of trading of our Ordinary Shares, or the threat of their being delisted or prohibited from being traded, may\nmaterially and adversely affect the value of your investment.”\n\n** **\n\n3\n\n \n\n**Permission Required from Hong Kong Authorities**\n\n** **\n\nHong Kong is a Special Administrative Region of the PRC, having its\nown governmental and legal system that is separate from mainland China, and as a result, has its own distinct rules and regulations. Luda\nHK is the holding company of Luda PRC and is an operating subsidiary acting as a trading company. Based on our understanding of the current\nHong Kong laws, as of the date of this annual report, we, including Luda HK, have received and obtained all requisite licenses, certificates,\nauthorizations, permissions or approvals from the Hong Kong authorities to operate our business in Hong Kong, including but not limited\nto obtaining a relevant certificate of incorporation and business license, and that we, including Luda HK are not required to obtain any\npermission or approval from Hong Kong authorities to offer the shares of Luda Cayman to foreign investors. However, uncertainties still\nexist due to the possibility that laws, regulations, or policies in Hong Kong could change rapidly in the future. Should there be any\nchange in applicable laws, regulations, or interpretations that we or any of our subsidiaries are required to obtain such permissions\nor approvals in the future, we will strive to comply with the then applicable laws, regulations, or interpretations. In the event that\nwe, including Luda HK, (i) do not receive or fail to maintain such permissions or approvals in the future, (ii) inadvertently conclude\nthat relevant licenses, certificates, authorizations, permissions or approvals were not required, or (iii) are required to obtain such\nlicenses, certificates, authorizations, permissions or approvals in the future following applicable laws, regulations, or interpretation\nchanges, any action taken by the Hong Kong government could significantly limit or completely hinder our operations and our ability to\noffer or continue to offer securities to investors and could cause the value of our securities to significantly decline or be worthless.\n\n \n\n**Permission Required from PRC Authorities**\n\n \n\nThe PRC government has recently initiated a series\nof regulatory actions and made a number of public statements on the regulation over offerings of securities conducted overseas. On December\n28, 2021, the Cyberspace Administration of China, National Development and Reform Commission, Ministry of Industry and Information Technology,\nThe Ministry of Public Security, the Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China,\nState Administration for Market Regulation, State Administration of Radio and Television, China Securities Regulatory Commission, State\nSecrecy Administration and State Cryptography Administration jointly promulgated the Measures for Cybersecurity Review (2021 Version,\nthe “Measures”), which became effective on February 15, 2022. The Measures require that among other things, and in addition\nto any “operator of critical information infrastructure”, any “data processor” controlling personal information\nof no less than one million users (which to be further specified) which seeks to list in a foreign stock exchange should also be subject\nto cybersecurity review, and which the Measures further elaborate on the factors to be considered when assessing the national security\nrisks of the relevant activities. As of the date of this annual report, we are not subject to cybersecurity review with the CAC to conduct\nbusiness operations in China, given that: (i) we do not operate any network platform or provide any network service for individual users,\n(ii) all the customers and suppliers of Luda PRC are enterprises, (iii) we are required to collect and retain some basic information furnished\nby our customers, suppliers and employees in accordance with prevailing business practices, but we do not possess a large amount of personal\ninformation in our business operations, (iv) we are not recognized as “operators of critical information infrastructure” by\nany authentic authority, (v) we have not been involved in any investigations on cybersecurity or data security initiated by related governmental\nregulatory authorities, nor have we received any inquiry, notice, warning, or sanction in such respect. Nevertheless, the Measures was\nrecently adopted and the CAC Notice for Soliciting Public Comments on the Regulations for the Administration of Network Data Security\n(Exposure Draft) is in the process of being formulated and the interpretation and application of these regulations are evolving. We have\nbeen closely monitoring regulatory developments in mainland China regarding any necessary approvals from the CSRC, the CAC, or other PRC\ngovernmental authorities required for the conduct of our business operations and overseas listings.\n\n \n\nIf we or our PRC subsidiary (i) do not receive or maintain such permissions\nor approvals, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations,\nor interpretations change and require us to obtain such permissions or approvals in the future, we may face sanctions by the CSRC, the\nCAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability\nto pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from overseas offering\ninto China or take other actions that could have a material adverse effect on our business as well as the trading price of our Shares.\nWe could be required to restructure our operations to comply with such regulations or potentially cease operations in the PRC entirely.\nThe CSRC, the CAC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt overseas\noffering before settlement and delivery of our Shares. In addition, if the CSRC, the CAC or other regulatory PRC agencies later promulgate\nnew rules requiring that we obtain their approvals for overseas offering, we may be unable to obtain a waiver of such approval requirements,\nif and when procedures are established to obtain such a waiver. Any action taken by the PRC government could significantly limit or completely\nhinder our operations in the PRC and our ability to offer or continue to offer securities to investors and could cause the value of such\nsecurities to significantly decline or be worthless.\n\n \n\n**Transfer of Cash To and From Our Subsidiaries**\n\n** **\n\nOn January 8, 2024, May 6, 2024 and August 26,\n2024, Luda Cayman paid dividend of RMB9,250,000, RMB5,700,000 and RMB9,000,000, respectively, to Diamond Horses Group Limited. We may\ndeclare or pay dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion\nof our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements,\nbusiness prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing\ninstruments.\n\n \n\nWe are permitted under the laws of the Cayman\nIslands to provide funding to our Operating Subsidiaries through loans and/or capital contributions without restriction on the amount\nof the funds loaned or contributed.\n\n \n\n4\n\n \n\nSubject to Cayman Islands law, the Companies Act\nand our amended and restated memorandum and articles of association, our board of directors may declare dividends in any currency. Under\nthe laws of the Cayman Islands, an exempted company incorporated in the Cayman Islands may pay a dividend out of profit and/or share premium\naccount, provided that in no circumstances may a dividend be paid out of the share premium if this would result in the company being unable\nto pay its debts as they fall due in the ordinary course of business.\n\n \n\nUnder Hong Kong law, a Hong Kong company may only\nmake a distribution out of profits available for distribution. There are no restrictions or limitations under the laws of Hong Kong imposed\non the conversion of HK dollars into foreign currencies and the remittance of currencies out of Hong Kong, nor is there any restriction\non foreign exchange to transfer cash between the Company and its subsidiaries, across borders and to U.S. investors, nor are there any\nrestrictions or limitations on distributing earnings from our business and subsidiaries to the Company and U.S. investors.\n\n \n\nSubject to PRC laws, payments of current account\nitems, such as trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from\nState Administration of Foreign Exchange or SAFE by complying with certain procedural requirements. By contrast, approval from or registration\nwith appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of China to\npay capital expenses such as profit distributions and the repayment of foreign currency-denominated loans. \n\n \n\n**Selected Financial Data**\n\n \n\nIn the table below, we provide you with historical\nselected financial data for our company. The selected consolidated statements of operations data for the fiscal years ended December 31,\n2025, 2024 and 2023 and the selected consolidated balance sheets data as of December 31, 2025 and 2024 have been derived from our audited\nconsolidated financial statements, which are included in this annual report beginning on page F-1. The selected consolidated balance sheet\ndata for the year ended December 31, 2023 have been derived from our audited consolidated balance sheet as of December 31, 2023, which\nis not included in this annual report. Our historical results do not necessarily indicate results expected for any future periods. The\nselected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited\nconsolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our\naudited consolidated financial statements are prepared and presented in accordance with U.S. GAAP.\n\n \n\nThe summary consolidated balance sheet as of: \n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024  \n2023 \n\n  \nUS$  \nUS$  \nUS$ \n\nTotal assets \n 49,125,097  \n 39,305,825  \n 46,697,118 \n\nTotal liabilities \n 26,917,376  \n 26,642,285  \n 29,950,119 \n\nTotal equity \n 22,207,721  \n 12,663,540  \n 16,746,999 \n\n \n\nThe following table presents our summary consolidated\nstatements of operations and comprehensive income:\n\n \n\n  \nFor the years ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \nUS$  \nUS$  \nUS$ \n\nRevenues \n 33,535,351  \n 44,863,430  \n 51,428,054 \n\nCost of sales \n (27,615,538) \n (33,458,207) \n (40,533,077)\n\nGross profit \n 5,919,813  \n 11,405,223  \n 10,894,977 \n\nTotal operating expenses \n (6,978,890) \n (10,949,315) \n (7,024,037)\n\nOther income (expense), net \n 2,050,301  \n (552,703) \n (391,464)\n\nIncome taxes \n (434,395) \n (264,221) \n (446,899)\n\nNet income (loss) \n 556,829  \n (361,016) \n 3,032,577 \n\n \n\nThe summary consolidated statements of operations\nand cash flow:\n\n \n\n  \nFor the years ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \nUS$  \nUS$  \nUS$ \n\nNet cash (used in) provided by operating activities \n (1,708,680) \n 5,457,591  \n 3,332,852 \n\nNet cash used in investing activities \n (11,033,445) \n (2,821,353) \n (1,759,266)\n\nNet cash provided by (used in) financing activities \n 8,821,775  \n (2,585,153) \n 2,707,362 \n\nEffect of exchange rate changes on cash, cash equivalents and restricted cash \n 359,102  \n (113,839) \n (165,164)\n\nNet (decrease) increase in cash and cash equivalents \n (3,561,248) \n (62,754) \n 4,115,784 \n\n  \n\n5\n\n \n\n**3.A. [Reserved]**\n\n \n\n**3.B. Capitalization and Indebtedness**\n\n \n\nNot Applicable.\n\n \n\n**3.C. Reasons for the offer and use of proceeds**\n\n \n\nNot Applicable.\n\n* *\n\n**3.D. Risk Factors**\n\n** **\n\n**Risks Related to Our Business**\n\n** **\n\n**Our financial performance is dependent on\nour ability to continually secure new orders.**\n\n \n\nWe do not sign long-term agreement with any of\nour customers and our customers are engaged in a wide spectrum of industries such as the chemical, petrochemical, maritime and manufacturing\nindustries and operate in various countries. We also sell to customers who are manufacturers, stockists and traders of steel products.\nThere is no guarantee that our customers will continue to have demand for our products or place orders with us or that the volume of our\norders will be maintained. As we do not enter into long-term contracts with our customers, the selling prices for some of our existing\nproducts may be subject to downward price revisions due to, inter alia, price competition from other approved suppliers, rapid technological\nchanges and short product life cycles. Rapid technological changes leading to new products being introduced into the market at a faster\npace may also cause selling prices of existing products to drop. In the event we are not able to maintain or increase the volume of our\norders, or should the selling prices of our existing products decrease, our business, results of operations, financial position and cash\nflow may be materially and adversely affected.\n\n** **\n\n**We are affected by the macroeconomic, political,\nregulatory, social and other factors beyond our control mainly in the PRC and Hong Kong.**\n\n \n\nCurrently, we have operations in Hong Kong and\nthe PRC. Our sales to customers in Hong Kong and the PRC comprise more than 50% of our total sales.\n\n \n\nWe are affected by macroeconomic factors, such\nas general economic conditions, population growth, infrastructure development, and market sentiment which are in part, influenced by government\nspending, infrastructure spending, development of industries (such as chemical, petrochemical, marine and manufacturing), tariffs policies,\nunemployment rates, real disposable income, inflation, recession, stock market performance, interest rate environment, regulatory policies,\nforeign investment, gross domestic product growth, business sentiment and economic outlook, all of which are beyond our control. Moreover,\npolitical and social stability, taxation, price and exchange control regulations, industry laws and regulations in the PRC and Hong Kong\nand tariffs or non-tariff barriers imposed on imported steel products may also affect our business. There is no assurance that such conditions\nwill not develop in a manner that will have an adverse effect for our operations and financial performance.\n\n \n\n**We are subject to changes in the VAT refund\nfor our export sales and any adverse change in our tax treatment could have a material and adverse impact on our business and results\nof operations.**\n\n \n\nOn April 26, 2021, it was announced by the PRC\nMinistry of Finance and State Administration of Taxation that with effect from May 1, 2021, certain steel products would no longer be\nentitled to VAT refund for export sales with immediate effect. The products of our Company are in the list of products that are affected\nby the change of the VAT refund policy. The original VAT refund was 13%, but with effect from May 1, 2021, there is no refund. There is\nno assurance that our tax position will not be adversely affected by any future change in VAT refund policy in the PRC. If such adverse\nchange in our tax treatment on VAT refund for our export sales arises, our business and results of operation may be materially and adversely\naffected.\n\n \n\n**We are subject to the project execution\nrisks.**\n\n \n\nWe have sales which fall under project contracts,\nwhere we supply our end-user customer specifically for their stated projects. For some of such projects, retention monies may be kept\nby the customers during the contract period which are to be released to us after the customers’ acknowledgement that our products\nare satisfactory. Depending on the terms of the respective contracts, the release of the retention monies could take up to five (5) years\nfollowing delivery and acceptance.\n\n \n\nThere is no assurance that the projects will be\nexecuted in accordance with its schedule. There can be no assurance that our customers will release the retention monies in full or on\na timely basis. A delay in the execution of the project will result in delays in recognition of revenue, higher inventory holding costs\nand affect our liquidity position.\n\n \n\n6\n\n \n\n**We are subject to claims against us in relation\nto our sales contracts or operations.**\n\n \n\nOur sales contracts with our customers include\nterms that provide for breach of contracts, liquidated damages and penalties triggered by certain events such as inability to fulfill\nthe delivery obligations. As such, we may be involved in disputes with our customers, or subject to any material claims, damages, losses\nor product returns. These disputes may lead to legal or other proceedings and may damage our reputation and divert our resources and management’s\nattention. Significant costs may have to be incurred in settling such disputes or defending ourselves in such proceedings. If we are not\nsuccessful in defending ourselves in such proceedings, we may be liable for damages, the amount of which may be significant. In addition,\nwe may have disagreements with regulatory bodies in the course of our operations, which may subject us to administrative proceedings or\nunfavorable decrees that may result in liabilities and cause other material and adverse effects on our business, results of operations\nand financial positions.\n\n \n\n**We are affected by fluctuations in steel\nprices and supply of our raw materials.**\n\n \n\nOur operations in the PRC include the manufacture\nof stainless steel and carbon steel flanges and fittings, and our main purchases are for stainless steel and carbon steel. Our head office\nin Hong Kong, Luda HK, sells our in-house products manufactured in the PRC, as well as steel pipes and valves manufactured by external\nparties. Should the orders that we receive exceed our production capacity or depending on the urgency of the said orders, we will also\nsource for steel flanges and fittings from external suppliers. Additionally, some of our customers make blanket orders where order quantities\nare unfixed at the time of entering the contracts (which are contracts in relation to the supply of a stipulated list of products with\nspecified quality, size and other dimensions, delivery lead-time and product prices for an agreed contract period) for which we are obliged\nto fulfil. Any increases in global prices of steel and other metals will result in increases in our costs of sales and our financial performance\nmay be adversely affected.\n\n \n\nSteel prices are determined based on demand and\nsupply, which are in turn affected by economic conditions, import and export tariffs and policies, and prices of iron ore, manganese and\nother alloys. We source our raw materials mainly from the PRC. The price of steel billets and carbon steel is in turn determined by its\ndemand and supply, including production capacity of steel billet and carbon steel manufacturers in the PRC and the demand for their products.\nWhile our pricing strategy is on cost plus basis where our sales managers and purchasing department typically work together on a targeted\nprofit margin before tendering/making quotation for a project contract/sales order, we also take on blanket orders which require us to\nsupply products during the contract period without fixing the order quantities. As these blanket orders with our customers typically only\nallow for price adjustments if the prices of steel exceed the pre-agreed fluctuation bands, we are exposed to the risk of increasing steel\nprice within the fluctuation band which will affect the cost of sales as well as our margins related to blanket orders from customers\nwhere such cost increase within the fluctuation band is not passed on to customers by way of price adjustments during the contract period.\nAs such, the volatility of steel prices will affect our ability to plan our working capital as well as maintain our financial performance.\n\n \n\nShould there be a shortage of raw materials, our\nsuppliers may not be able to meet our demand for stainless steel and carbon steel and we may not be able to source for alternative suppliers\nat comparable price and terms, to meet the supply shortage. This may affect our obligations to our customers, which will in turn adversely\naffect our reputation or increase our costs should we be liable to our customers for delayed delivery. Our working capital and financial\nperformance will therefore be adversely affected.\n\n \n\n**We are exposed to concentration risk, due\nto the geographical concentration of our suppliers in the PRC. If there is any disruption to our supply chain, our financial performance,\nresults of operation and ongoing growth could be adversely affected.**\n\n \n\nWe rely on a limited number of suppliers and customers\nfor our products, which exposes to supply chain and other risks. We have previously experienced, and may experience in the future, logistical\nconstraints that cause delays. Although we believe we have redundancy and alternatives for the suppliers for the key components of our\nproducts, our reliance on a limited number of suppliers for the components and parts for our products and the geographic concentration\namong our suppliers increase our supply chain risk. Suppliers may also experience disruptions in their operations, including due to equipment\nbreakdowns, labor strikes or shortages, shipping container shortages, financial difficulties, natural disasters, component or material\nshortages, cost increases, acquisitions, changes in legal or regulatory requirements, or other similar problems. The unavailability of\nany component or supplier could result in production delays and idle manufacturing facilities. In addition, we do not have long-term binding\ncommitments with any of our suppliers and instead operate on a purchase order basis. Therefore, we have no guarantee that they will continue\nto supply products or components for us on an ongoing basis. In the event of interruption from any of our suppliers, we may not be able\nto replace or increase capacity from other sources or develop alternate or secondary sources without incurring material additional costs\nand substantial delays. \n\n \n\n7\n\n \n\nOur suppliers and partners have no obligation\nto continue to accept purchase orders from us, and we may be unable to get them to accept additional orders or engage an alternate supplier\non terms that are acceptable to us, which may undermine our ability to deliver our products to customers in a timely manner. Identifying\nsuitable suppliers and logistics partners is an extensive process that requires us to become satisfied with their quality control, technical\ncapabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly,\na loss of any of our significant suppliers or logistics partners could have an adverse effect on our business, financial condition, and\nresults of operations.\n\n \n\n**We are dependent on our suppliers.**\n\n \n\nWe are dependent on our suppliers to provide competitive,\ntimely and reliable supply to us. The consistency of the level of support provided by our suppliers is crucial to maintaining our business\noperations and competitiveness in the industry. Our suppliers are generally not legally bound or committed to supply products to us under\ndistributorship or agreements or arrangements for an agreed tenure or period, whether on an exclusive or non-exclusive basis. Accordingly,\nwe obtain our products from our suppliers as and when required, subject to prevailing prices and availability.\n\n \n\nAlthough we evaluate our suppliers on criteria\nincluding (a) scale of operations and production capacity; reputation; (c) product quality; and (d) relevant licenses and certifications\nobtained, we cannot guarantee that our suppliers will continue to meet our quality requirements, or be willing to continue supplying to\nus. We have diversified our purchases to different suppliers; however, in the event that our suppliers are unable to meet our sales orders\nrequirements, and we are unable to obtain alternative supplies to meet our customers’ needs, our competitiveness may be adversely\naffected. In addition, we will suffer from reduced margins if the cost of our supplies were to increase and we are unable to adjust our\nselling prices to take into account such increased costs. As such, our financial performance may be adversely affected.\n\n \n\n**We may face product liability claims if\nthe products we distribute are found to contain defects or are unfit for their intended purposes or uses.**\n\n \n\nThe products sold to our customers must comply\nwith their stipulated specifications and quality standards. In the event that there are quality defects in our products, we may face claims\nfrom our customers or our customers may withhold their payment to us. If we are unable to obtain recourse from our suppliers or manufacturers\nof such products, our financial performance will be adversely affected.\n\n \n\nMost of our customers inspect the products that\nwe distribute upon or after accepting delivery. However, we cannot assure you that our customers will not demand compensation from us\nfor the distribution of defective products or non-compliance with the contract specifications after acceptance of delivery. In the event\nthe products that we distribute are found to be unfit for their intended purposes or uses or contain defects and our customers and/or\nusers suffer personal injury, death or any other losses from the use of our products, we may be required to compensate our customers and/or\nusers for the said losses. Currently, we do not maintain insurance for product liability. Although we have not experienced any product\nliability claims to date, any successful product liability claims against us in the future may have an adverse effect on our operations,\nprospects, and financial performance.\n\n \n\nFurther, even if we successfully defend ourselves\nagainst any such claims, we may have to incur substantial expense and resources in the process. In addition, we may not be able to seek\nfrom our suppliers or manufacturers, full or any indemnification or compensation as a result of personal injury, death or any other loss\ncaused by their products for which we are liable for compensation.\n\n \n\n8\n\n \n\n**We are dependent on our skilled workers\nin the PRC and subject to increasing labor costs.**\n\n \n\nOur business is highly dependent on skilled workers,\nwho perform processing such as cutting, heat/surface treatment, lathe machining, inspection and marking. While our production lines are\nsemi-automated, workers are still required in production and some of these processes require experience and skill to deliver quality-finish\nproducts. With increasing labor costs, urban migration, competition for labor and the general preference of younger workers to work\nin a light industry (as opposed to our industry which involves noise, heat and environmental hazards), we are exposed to the risks of\nshortage of skilled workers and increasing labor costs. Moreover, labor cost in the PRC has been on an increasing trend and is further\nsubject to government regulations on minimum wage and statutory social welfare benefits payments. Should we face a shortage of skilled\nworkers and unable to find suitable and timely replacements, our operations and financial performance will be adversely affected. In addition,\nincreasing labor costs will adversely affect our working capital and financial performance.\n\n** **\n\n**We are subject to operational risks including\nequipment failure, workplace accidents and force majeure events.**\n\n** **\n\nThe nature of our industry necessitates working\nwith heavy equipment, and processes that involve heat, noise, pollution and hazards. Equipment failure and workplace accidents could have\nsevere consequences, such as loss of life, serious injury, disruption in our operations, litigation and damage to our reputation. Some\nof our customer contracts provide for force majeure events, which would therefore allow our customers to terminate their contracts with\nus without penalty. On the other hand, should there be equipment failure or disruption in our operations, we may be subject to penalty\nand liquidated damages from our customers. Should there be operational risks that lead to prolonged disruption in our operations, penalties\nor litigation, our operations and financial performance will be adversely affected.\n\n \n\nDuring the three years ended December 31,\n2025, 2024, and 2023, none of the workplace accidents had resulted in labor disputes, litigation or penalties imposed by the\nrelevant authorities. We had also not encountered significant operational risk that has materially and adversely affected our\nfinancial performance.\n\n** **\n\n**We may not have sufficient insurance coverage.**\n\n \n\nWe maintain insurance policies for our business,\nincluding for our building, motor vehicles and machinery. However, our insurance coverage may not be adequate, for instance, we do not\npurchase product warranty liability insurance and our Directors believe it is not common in our industry to procure such insurance. Although\nour Directors believe that we have sufficient insurance coverage in accordance with industry practices, and we will increase our insurance\ncoverage when necessary, there is no guarantee that our existing insurance coverage is sufficient to indemnify us from possible losses\nor that we can be insured on terms which are acceptable to us.\n\n \n\n**We are reliant on the renewal of our existing\nlicenses and certifications.**\n\n \n\nWe have obtained licenses which allow us to\nmanufacture steel flanges and pipe fittings. Steel flanges and fittings also have to adhere to various standards, and we have\nobtained various certifications for our products and management systems. Our range of certifications enable us to sell our in-house\nproducts to different geographic regions and industries. We strive to maintain the quality of our products and the production\nprocesses adhere to the standards of the licenses and certifications. However, should our licenses or certifications be revoked or\nnot be renewed, financial performance will be adversely affected. During the three years ended December 31, 2025, 2024, and 2023,\nthere was no incidence where our licenses and certifications were revoked or were not renewed.\n\n \n\n9\n\n \n\n**We are dependent on our management team.**\n\n \n\nOur success is, to a large extent, attributable\nto our Executive Directors’ strategies and visions as well as their involvement in key aspects of our business, including but not\nlimited to the acquisition and maintenance of new and existing customer relationships, pricing of our products and purchases, and overall\nmanagement of our operations. The business of our Company was founded by Mr. Ma Biu, our Controlling Shareholder, Chairman of the Board\nof Directors and Chief Executive Officer. Ms. Liu Liangping, our Director and Chief Operating Officer joined our Company since April 2007.\nBoth of them are core management members. Further, majority of our team of executive officers have worked for more than 10 years in our\nCompany. They possess extensive industry contacts and knowledge, and are familiar with our business operations and have established good\nrelationships with our customers, suppliers and subcontractors.\n\n \n\nOur Company’s success and growth therefore\ndepends on our ability to identify, hire, train and retain suitable, skilled and qualified key personnel. The loss of service of our Directors,\nexecutive officers or other key personnel without suitable and timely replacements or the inability to attract and retain qualified management\npersonnel, will materially and adversely affect our operations and financial performance.\n\n** **\n\n**We face competition from existing and new\nindustry players.**\n\n \n\nThe steel forging industry is highly competitive\nand fragmented, and some of our competitors may have more sophisticated equipment, manpower, wider access to the PRC and overseas markets.\nMoreover, as the steel flanges and fittings products are mostly standardized items, our customers can easily procure such items from alternative\nsuppliers. While we believe that we have a competitive edge with our access to a wide network of suppliers and higher production capacity\nwhich in turn shortens our delivery lead time and quality of the finished products, there is no guarantee that we can continue to maintain\nour competitive advantages or that other steel manufacturers will not encroach on our market share. If we fail to compete effectively,\nour financial performance will be materially and adversely affected.\n\n \n\n**We may be subject to litigation, claims\nor other disputes.**\n\n \n\nWe may from time to time be involved in disputes\narising from contracts with customers, suppliers, subcontractors or other third parties. Claims brought by customers against us may involve\ndefective products or damages caused by the use of our steel flanges and fittings products. Claims may also arise from disputes with suppliers\nand subcontractors on matters relating to payment and/or contractual performance. Claims involving us could result in time-consuming and\ncostly litigations, arbitration, administrative proceedings or other legal procedures. Expenses we incur in legal proceedings or arising\nfrom claims brought by or against us may materially and adversely affect our financial performance.\n\n \n\nMoreover, liquidated damages, legal proceedings\nresulting in unfavorable judgment may harm our reputation, cause financial losses and damage our prospects of being awarded future contracts,\nthereby materially and adversely affecting our operations, financial performance and prospects.\n\n \n\n**We are dependent on external financing to\nsupport our business growth.**\n\n \n\nWe rely on bank borrowings to finance our operations. Our total borrowings\namounted to approximately US$12.7 million and US$12.3 million, which corresponded to a debt-to-equity ratio of 0.57 times and 0.97 times,\nas at December 31, 2025 and 2024, respectively.\n\n \n\nOur ability to obtain adequate financing on terms\nwhich are acceptable to us depends on a number of factors such as our financial strength, our creditworthiness and our prospects, and\nother factors that are beyond our control, including general economic, industry, liquidity and political conditions, the terms on which\nfinancial institutions are willing to extend credit to us, the PRC’s central bank’s policy rates and cash reserve requirements\nfor banks, and the availability of other sources of debt financing or equity financing. There may also be covenants that restrict our\nability to pay dividends and/or restrict our flexibility in utilizing working capital to react to changes in the business environment.\nAdditionally, our business requires significant investment in plant and machinery, and inability to finance the purchase of machinery\ncan curtail our business growth. If all or a substantial portion of our bank facilities are withdrawn, or we cannot access additional\nbanking facilities, our operations and financial performance will be adversely and materially affected.\n\n \n\nIn addition, our finance costs amounted to US$0.5 million, US$0.6 million,\nand US$0.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. These represented 11.7% of our profit before income\ntax for the year ended December 31, 2023. The percentage for year ended December 31, 2024 is not applicable as we recorded a loss before\nincome tax during the year. These represented 52.6% of our profit before income tax for the year ended December 31, 2025. Given our reliance\non these financing facilities to support our operations, any increase in interest rates may have a material and adverse effect on our\nfinancial performance.\n\n \n\n10\n\n \n\n**We are susceptible to fluctuations in foreign\nexchange rates that could result in us incurring foreign exchange losses.**\n\n \n\nOur sales are made in RMB, US$, HK$ and Euro,\nwhile our purchases are made in RMB and US$. To the extent that our sales and purchases are not matched in the same currency, we may be\nexposed to significant fluctuations in exchange rates. Given that our revenue from customers outside of the PRC and Hong Kong amounted\nto US$11.1 million and US$8.0 million, representing 33.2% and 17.8% of our revenue for the years ended December 31, 2025 and 2024, respectively,\nwe will face foreign translation risk as our international sales are denominated in currencies other than RMB and HK$. Our foreign translation\nincome amounted to US$0.6 million and the foreign translation loss amounted to US$0.3 million for the years ended December 31, 2025 and\n2024, respectively.\n\n \n\nWe have not entered into any hedging transactions\nor have any formal hedging policy to reduce our exposure to foreign currency exchange risks. In the future, we may hedge our material\nforeign currency translations after taking into consideration the quantum and impact of our foreign exchange risk exposure as well as\nthe transaction costs of any hedging policy, and the prevailing economic and operating conditions. In any event, the availability and\neffectiveness of these hedges may be limited and we may not be able to hedge our exposure successfully, or at all.\n\n \n\n**We are exposed to risks of infringement\nof our intellectual property rights and the unauthorized use of our trademarks by third parties.**\n\n \n\nWe have registered our trademarks and patents\nto protect our intellectual property rights in the PRC and Hong Kong. Should our trademarks be violated or infringed, there may be confusion\nby potential customers who have not previously worked with us.\n\n \n\nGiven our limited resources, we may not be able\nto effectively prevent third parties from violating our Company’s intellectual property rights. There is also no assurance that\nwe will be able to obtain adequate remedies in the event of a violation of our intellectual property rights by our competitors or other\nthird parties. If we fail to protect our intellectual property rights adequately, there may be an adverse impact on our Company’s\nreputation, goodwill and financial performance.\n\n \n\nAs of the date of this annual report, whilst\nwe have not experienced any claims for intellectual property rights infringement, there is no assurance that the products, services, technologies\nand advertising we use in our business do not or will not infringe valid intellectual property rights held by third parties in the future.\nAdditionally, for generic products that we purchased, we do not disclose to our customers the source of our supplies and such products\nare marketed under our brand name. In the event of any claims or litigation by third parties involving infringement of their intellectual\nproperty rights, whether with or without merit, our operations and financial performance may be adversely affected.\n\n \n\n**We are exposed to risks in respect of outbreaks\nof communicable diseases.**\n\n \n\nAn outbreak of various communicable diseases such\nas COVID-19, severe acute respiratory syndrome, influenza A, the Middle East respiratory syndrome, avian influenza, hand, foot and mouth\ndisease and/or other communicable diseases in the region or around the world could materially and adversely affect our business.\n\n \n\nIn particular, for COVID-19, our production operations\nin the Shandong Province of the PRC was once required to cease for approximately two (2) months during lockdown, which was considered\na short period of cessation compared to other regions in the PRC which experienced more severe outbreaks. COVID-19 affected and continues\nto affect global demand in various industries, and projects requiring steel products had and continue to be put on hold or terminated.\nFor overseas deliveries that require sea shipment, the timeliness of delivery is also affected as shipping containers would typically\nrequire a certain load before sailing and therefore a longer time was required to load the containers due to decreased shipment, or shipments\nmay face congestion at the port, or docking may not be permitted at certain ports due to COVID-19. We also face shortages of containers\nand rising freight charges.\n\n \n\nIn the event that any of our employees are infected\nwith a communicable disease, we may be required to temporarily suspend operations or shut down our production operations, or quarantine\nthe relevant workers to prevent the spread of the disease. This may also result in delays in the fulfilment of our customers’ orders.\nTherefore, depending on how a communicable disease outbreak affects demand, production, logistics, it could have a material and adverse\nimpact on our operations and financial performance.\n\n \n\n11\n\n \n\n**The war in Ukraine could materially and\nadversely affect our business and results of operations.**\n\n \n\nThe recent outbreak of war in Ukraine has already\naffected global economic markets, including a dramatic increase in the price of oil and gas, and the uncertain resolution of this conflict\ncould result in protracted and/or severe damage to the global economy. Russia’s recent military interventions in Ukraine have led\nto, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Sanctions\nagainst Russia could adversely affect global energy and financial markets and thus could affect the global economy, our customers’\nbusinesses and potentially our business. As of the date of this annual report, to the best knowledge of the Company, we and our Hong Kong\nand PRC subsidiaries (i) do not have any direct business or contracts with any Russian or Ukraine entity as a supplier or customer, (ii)\ndo not have any knowledge whether any our customers or suppliers have any direct business or contracts with any Russian entity, (iii)\nour business segments, products, lines of service, projects, or operations are not materially impacted by supply chain disruptions by\nthe war in Ukraine, and (iv) have not been financially affected by the war in Ukraine. The extent and duration of the military action,\nsanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by the war\nmay magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine,\nas the conflict and governmental reactions are rapidly developing. Prolonged unrest, intensified military activities or more extensive\nsanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material\nadverse effect on our business, financial condition, results of operations, and prospects.\n\n \n\nOur board of directors will continue to monitor\nany potential risks that might arise due to the war in Ukraine which are specific to the Company, including but not limited to risks related\nto cybersecurity, sanctions, and supply chain, suppliers, or service providers in affected regions as well as risks connected with ongoing\nor halted operations or investments in affected regions.\n\n \n\n**Our lack of effective internal controls\nover financial reporting may affect our ability to accurately report our financial results or prevent fraud.**\n\n \n\nPrior to listing, we were a private company\nwith limited accounting personnel and resources to address our internal control over financial reporting. Our auditors and\nmanagement has identified a material weakness in our internal control over\nfinancial reporting. The material weakness that has been identified relates to our lack of sufficient accounting and financial reporting\npersonnel with requisite knowledge and comprehensive accounting and reporting policies and procedures relating to the application and\ncompliance with SEC rules and regulations. We and our independent\nregistered public accounting firm were not required to perform an evaluation of our internal control over financial reporting as of December 31,\n2025 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all, or that\nwe will not in the future have additional material weaknesses.\n\n \n\nWe are in the process of implementing measures\ndesigned to improve our internal control over financial reporting to address the underlying causes of these material weaknesses, including\n(i) hiring additional accounting and financial reporting personnel with SEC reporting experience, (ii) expanding the capabilities\nof existing accounting and financial reporting personnel through continuous training and education in the accounting and reporting requirements\nunder SEC rules and regulations and (iii) establishing effective monitoring and oversight controls for non-recurring and complex\ntransactions to ensure the accuracy and completeness of our company’s consolidated financial statements and relate disclosures.\n\n \n\nEffective internal control over financial reporting\nis important to prevent fraud. The market for and trading price of our Shares may be materially and adversely affected if we do not have\neffective internal controls. We may not be able to discover problems in a timely manner and our current and potential shareholders may\nlose confidence in our financial reporting, which may harm our business and the trading price of our Shares. The absence of internal controls\nover financial reporting may inhibit investors from purchasing our Shares and may make it more difficult for us to raise funds in debt\nor equity financing. Additional material weaknesses or significant deficiencies may be identified in the future. If we identify such issues\nor if we are unable to produce accurate and timely financial statements, our stock price may decline and we may be unable to maintain\ncompliance with the NYSE American Company Guide.\n\n \n\n**Risks Related to Doing Business in China**\n\n \n\n**PRC laws and regulations governing our current\nbusiness operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably.\nRules and regulations in China may change quickly with little advance notice. Uncertainties in the interpretation and enforcement of Chinese\nlaws and regulations could limit the legal protections available to us.**\n\n \n\nThere are substantial uncertainties the interpretation\nand application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement\nand performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject\nto future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness and interpretation\nof newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected\nif we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these\nlaws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.\nWe cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.\n\n \n\n12\n\n \n\nThe PRC legal system is based on written statutes,\nand prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system\ncontinues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these\nlaws, regulations and rules involves uncertainty.\n\n \n\nIn 1979, the PRC government began to promulgate\na comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past\nthree decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, PRC’s\nlegal system is still in the process of improvement, and recently enacted laws and regulations may not sufficiently cover all aspects\nof economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties.\nSince PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual\nterms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy.\nThese uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or\ntort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts\nto extract payments or benefits from us.\n\n \n\nFurthermore, the PRC legal system is based in\npart on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect.\nAs a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition,\nany administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management\nattention.\n\n \n\nTherefore, these risks may result in a material\nchange in business operations, significant depreciation of the value of our ordinary shares, or a complete hinderance of our ability to\noffer or continue to offer our securities to investors. Recently, the Chinese government initiated a series of regulatory actions and\nstatements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities\nmarket, enhancing supervision over China-based companies listed overseas using a VIE structure, adopting new measures to extend the scope\nof cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new,\nit is currently impossible to predict how soon legislative or administrative regulation making bodies will respond and what existing or\nnew laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact\nsuch modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list\non an U.S. or other foreign exchange.\n\n \n\nFrom time to time, we may have to resort to administrative\nand court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion\nin interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and\ncourt proceedings and the level of legal protection we enjoy, than in more developed legal systems. Furthermore, the PRC legal system\nis based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have\na retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation.\nSuch uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and\nprocedural rights, could materially and adversely affect our business and impede our ability to continue our operations.\n\n \n\n13\n\n \n\n**The Chinese government exerts substantial\ninfluence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese\nauthorities to list on U.S exchanges, however, if we were required to obtain approval in the future and were denied permission from Chinese\nauthorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest\nof the investors.**\n\n \n\nThe Chinese government has exercised and continues\nto exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Under the current\ngovernment leadership, the government of the PRC has been pursuing reform policies which may have adversely affected China-based operating\ncompanies whose securities are listed in the United States, with significant policies changes being made from time to time without notice.\nUnder the current government leadership, the government of the PRC has been pursuing reform policies which have adversely affected China-based\noperating companies whose securities are listed in the United States, with significant policies changes being made from time to time without\nnotice. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental\nregulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter\nregulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our\ncompliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue\nto support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation\nof economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require\nus to divest ourselves of any interest we then hold in Chinese properties.\n\n \n\nGiven recent statements by the Chinese government\nindicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based\nissuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors\nand cause the value of such securities to significantly decline or become worthless.\n\n \n\n**Changes in the economic policies of the\nPRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability\nto sustain our growth and expansion strategies.**\n\n \n\nOur manufacturing base operates in the PRC and\na significant portion of our revenues are derived from customers where the contracting entity is located in China. Accordingly, our business,\nfinancial condition, results of operations, prospects and certain transactions we may undertake may be subject, to a significant extent,\nto economic, political and legal developments in China.\n\n \n\nChina’s economy has experienced significant\ngrowth in the past four decades, growth has been uneven, both geographically and among various sectors of the economy. Demand for our\nproducts in the PRC depends, in large part, on economic conditions in China. Any slowdown in China’s economic growth may cause the\npotential customers of the PRC operating entities to delay or cancel their plans to purchase our products, which in turn could reduce\nour revenues.\n\n \n\nAlthough the PRC government has implemented measures\nemphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment\nof improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government.\nIn addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies.\nThe PRC government also exercises regulation in accordance with PRC laws and regulations over China’s economic growth through allocating\nresources, controlling the incurrence and payment of foreign currency-denominated obligations, setting monetary policy and providing preferential\ntreatment to particular industries or companies. Changes in any of these policies, laws and regulations may materially affect the economy\nin China and could have a material adverse effect on our business, results of operations and may result in our inability to sustain our\ngrowth and expansion strategies and the value of our Ordinary Shares.\n\n \n\n14\n\n \n\nThe PRC government has implemented various measures\nto encourage foreign investment and sustainable economic growth and to guide the allocation of financial and other resources. However,\nwe cannot assure you that the PRC government will not repeal or alter these measures or introduce new measures that will have a negative\neffect on us, or more specifically, we cannot assure you that the PRC government will not initiate possible governmental actions or scrutiny\nto us, which could substantially affect our operation and the value of our Ordinary Shares may depreciate quickly.\n\n \n\n**Uncertainties regarding the interpretation\nand application of PRC laws could adversely affect our operations and/or the value of the securities we are registering for sale.**\n\n \n\nThere are uncertainties regarding the interpretation\nand application of PRC laws and regulations. The PRC legal system is based on written statutes and their legal interpretations by the\nStanding Committee of the National People’s Congress, or NPCSC. Previous court decisions may be cited for reference only. Since\n1979, the PRC government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing\nlaws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation\nand trade. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various\nforms of foreign investment in the PRC. Our PRC subsidiary is subject to laws and regulations applicable to foreign investment in the\nPRC in general and laws and regulations applicable to foreign-invested enterprises in particular. However, as these laws and regulations\nare relatively new, and due to the limited volume of published cases and their non-binding nature, interpretation and enforcement of these\nlaws and regulations involve uncertainties. We cannot predict the effect of future developments in the PRC legal system, including the\npromulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations\nby national laws. These uncertainties could limit the legal protections available to us and our foreign investors.\n\n \n\nFurthermore, the PRC legal system is based in\npart on government policies and internal rules, some of which may have a retroactive effect. As a result, we may not be aware of our violation\nof any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China\nmay result in substantial costs and diversion of resources and management attention.\n\n \n\n**The approval or record filing of the CSRC,\nor other PRC government authorities may be required in connection with our future capital raising activities under the PRC laws. Failure\nto comply with such approval or record filing requirement could affect our operations, our ability to offer or continue to offer our\nsecurities and/or the value of the securities we are registering for sale.**\n\n \n\nThe Regulations on Mergers and Acquisitions of\nDomestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, require\nCSRC approval for a listing involving offshore special purchase vehicles holding Chinese assets. We may be required to obtain approval\nfrom PRC authorities in order to continue our listing in NYSE American or add new listings on other overseas stock exchanges in the future\nbut cannot provide assurance that we will be able to obtain such approval.\n\n \n\nBased on its understanding of the current PRC\nlaws and regulations, we believe that we will not be required to submit an application to the CSRC for the approval of the offering and\ntrading of our Shares under the M&A Rules because (i) Luda PRC was not established through a merger or requisition of the equity or\nassets of a “PRC domestic company” as such term is defined under the M&A Rules, (ii) although Luda PRC is a PRC entity,\nit has been controlled by a non-PRC persons since its incorporation, and (iii) the CSRC currently has not issued any definitive rule or\ninterpretation concerning whether an offering like ours under this document is subject to this regulation. However, the interpretation\nor implementation of the M&A Rules are subject to any new laws, rules, and regulations or detailed implementations and interpretations\nin any form relating to the M&A Rules. If CSRC approval is required, it is uncertain whether we can or how long it will take us to\nobtain the approval and, even if we obtain such CSRC approval, such CSRC approval could be rescinded. We cannot assure you that relevant\nPRC government authorities, including the CSRC, would reach the same conclusion as us.\n\n \n\n15\n\n \n\nOn July 6, 2021, the relevant PRC government authorities\nissued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. The Opinion emphasized the need to\nstrengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and\nproposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents\nfaced by China-based overseas-listed companies. As a follow-up, on December 24, 2021, the State Council issued a draft of the Provisions\nof the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies, and the CSRC issued a draft\nof Administration Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies for public comments, collectively\nwith the above draft of the Provisions, the Draft Overseas Listing Regulations. These Draft Overseas Listing Regulations propose to establish\na new filing-based regime to regulate overseas offerings and listings by domestic companies. Specifically, an overseas offering and listing\nby a PRC company, whether directly or indirectly, an initial or follow-on offering, must be filed with the CSRC. The examination and determination\nof an indirect offering and listing will be conducted on a substance-over -form basis, and an offering and listing shall be deemed as\na PRC company’s indirect overseas offering and listing if the issuer meets the following conditions: (i) any of the operating income,\ngross profit, total assets, or net assets of the PRC enterprise in the most recent fiscal year was more than 50% of the relevant line\nitem in the issuer’s audited consolidated financial statement for that year; and (ii) senior management personnel responsible for\nbusiness operations and management are mostly PRC citizens or are ordinarily resident in the PRC, and the principal place of business\nis in the PRC or carried out in the PRC. The issuer or its affiliated PRC entity, as the case may be, shall file with the CSRC for its\ninitial public offering, follow-on offering and other equivalent offering activities. Particularly, the issuer shall submit the filing\nwith respect to its initial public offering and listing within three business days after its initial filing of the listing application,\nand submit the filing with respect to its follow -on offering within three business days after the completion of the follow -on offering.\nFailure to comply with the filing requirements may result in fines to the relevant PRC companies, suspension of their businesses, revocation\nof their business licenses and operation permits and fines on the controlling shareholder and other responsible persons. These Draft Overseas\nListing Regulations also set forth certain regulatory red lines for overseas offerings and listings by PRC enterprises.\n\n \n\nOn February 17, 2023, the CSRC issued the Trial\nAdministrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises, or the Trial Measures, which became effective\non March 31, 2023. On the same date of the issuance of the Trial Measures, the CSRC circulated No.1 to No.5 Supporting Guidance Rules,\nthe Notes on the Trial Measures, the Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises\nand the relevant CSRC Answers to Reporter Questions on the official website of the CSRC, or collectively, the Guidance Rules and Notice.\nThe Trial Measures, together with the Guidance Rules and Notice, reiterate the basic supervision principles as reflected in the Draft\nOverseas Listing Regulations by providing substantially the same requirements for filings of overseas offering and listing by domestic\ncompanies, yet made the following updates compared to the Draft Overseas Listing Regulations: (a) further clarification of the circumstances\nprohibiting overseas issuance and listing; (b) further clarification of the standard of indirect overseas listing under the principle\nof substance over form, and (c) adding more details of filing procedures and requirements by setting different filing requirements for\ndifferent types of overseas offering and listing. Under the Trial Measures and the Guidance Rules and Notice, domestic companies conducting\noverseas securities offering and listing activities, either in direct or indirect form, shall complete filing procedures with the CSRC\npursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing\napplication. The companies that have already been listed on overseas stock exchanges or have obtained the approval from overseas supervision\nadministrations or stock exchanges for its offering and listing and will complete their overseas offering and listing prior to September\n30, 2023 are not required to make immediate filings for its listing yet need to make filings for subsequent offerings in accordance with\nthe Trial Measures. The companies that have already submitted an application for an initial public offering to overseas supervision administrations\nprior to the effective date of the Trial Measures but have not yet obtained the approval from overseas supervision administrations or\nstock exchanges for the offering and listing may arrange for the filing within a reasonable time period and should complete the filing\nprocedure before such companies’ overseas issuance and listing.\n\n \n\nOn February 24, 2023, the CSRC, Ministry of Finance\nof the PRC, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions\non Strengthening Confidentiality and Archives Administration in Respect of Overseas Issuance and Listing of Securities by Domestic Enterprises\nor the Confidentiality Provisions, which came into effect on March 31, 2023. The Confidentiality Provisions require that, among other\nthings, (1) a domestic company that conducts overseas offering and listing both directly and indirectly should institute a sound confidentiality\nand archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations; (2)\na domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals\nor entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain\nstate secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and\nfile with the secrecy administrative department at the same level; (3) a domestic company that plans to, either directly or through its\noverseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service\nproviders and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public\ninterest, shall strictly fulfil relevant procedures stipulated by applicable national regulations; (4) where a domestic company, after\nfulfilling relevant procedures, provides to securities companies, securities service providers and other entities with any documents and\nmaterials that contain state secrets or working secrets of government agencies, or any other documents and materials that will be detrimental\nto national security or public interest if leaked, a non-disclosure agreement shall be signed between the provider and receiver of such\ninformation; and (5) domestic companies, securities companies or securities service providers that discover any leakage or possible leakage\nof state secrets, working secrets of government agencies or any other documents and materials that, if leaked, will be detrimental to\nnational security or public interest, shall immediately take remedies and report to relevant state organs and units.\n\n \n\n16\n\n \n\nThe PRC regulatory requirements regarding cybersecurity\nare evolving. For instance, various regulatory bodies in the PRC, including the CAC, the Ministry of Public Security, and the SAMR, have\nenforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. The Cybersecurity Law,\nwhich was adopted by the National People’s Congress on November 7, 2016, and the Cybersecurity Review Measures, which were promulgated\non April 13, 2020, provide that personal information and important data collected and generated by a critical information infrastructure\noperator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases\ninternet products and services that affect or may affect national security, it will be subject to cybersecurity review by the CAC. On\nJanuary 4, 2022, the CAC, the NDRC, and several other administrations jointly adopted and published the New Measures for Cybersecurity\nReview (“Measures”), which came into effect on February 15, 2022 and amended the Revised Draft released on July 10, 2021.\nAccording to the Measures, if an “operator of critical information infrastructure” or “network platform operator”\nthat is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity\nreview. Our business belongs to the steel flanges and fittings products manufacturing industry, which does not involve the collection\nof user data, implicate cybersecurity, or involve any other type of restricted industry. As a result, the likelihood of us being subject\nto the review of the CAC is remote.\n\n \n\nOn June 10, 2021, the Standing Committee of the\nNational People’s Congress promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law requires\nthat data shall not be collected by theft or other illegal means, and also provides for a data classification and hierarchical protection\nsystem. The data classification and hierarchical protection system puts data into different groups according to its importance in economic\nand social development, and the damages it may cause to national security, public interests, or the legitimate rights and interests of\nindividuals and organizations in case the data is falsified, damaged, disclosed, illegally obtained or illegally used. If any of our data\nprocessing activities conducted after the Data Security Law became effective were found to be not in compliance with this law, we could\nbe ordered to make corrections, and under certain serious circumstances, such as severe data divulgence, we could be subject to penalties,\nincluding the revocation of our business licenses or other permits. Furthermore, the recently issued Opinions on Strictly Cracking Down\nIllegal Securities Activities in Accordance with the Law require (i) speeding up the revision of the provisions on strengthening the confidentiality\nand archives management relating to overseas issuance and listing of securities and (ii) improving the laws and regulations relating to\ndata security, cross -border data flow, and management of confidential information. As there remain uncertainties regarding the further\ninterpretation and implementation of those laws and regulations, we cannot assure you that we will be compliant such new regulations in\nall respects, and we may be ordered to rectify and terminate any actions that are deemed illegal by the regulatory authorities and become\nsubject to fines and other sanctions.\n\n \n\nOur operations are located in Hong Kong and the\nPRC. As such we are subject to Hong Kong laws and PRC laws relating to the collection, use, sharing, retention, security, and transfer\nof confidential and private information, such as personal information and other data. These laws apply not only to third-party transactions,\nbut also other parties with which we have commercial relations. These laws continue to develop, and the PRC government may adopt other\nrules and restrictions in the future. Non-compliance with these laws could result in penalties or other significant legal liabilities.\n\n \n\nWe believe, that as of the date of this annual\nreport, we have obtained all necessary permissions for a domestic company in China to engage in similar businesses, and are not required\nto obtain other permissions by including the CSRC, CAC or any other PRC authorities for its operations or issue our Shares including the\nShares being registered for sale to foreign investors under existing PRC laws and regulations, and have not received any requirement or\nwere denied such permissions or approvals by any PRC authorities. According to the Measures, if an “operator of critical information\ninfrastructure” or “network platform operator” that is in possession of personal data of more than one million users\nintends to list in a foreign country, it must apply for a cybersecurity review. The Measures further elaborates the factors to be considered\nwhen assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data\nor a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk\nof critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled,\nor maliciously used by foreign governments after listing abroad. As of the date of this annua report, neither the Company nor its PRC\nSubsidiary possesses a large amount of personal information in their business operations or is recognized as an “operator of critical\ninformation infrastructure” by any authentic authority. Therefore, we do not believe that Luda PRC is deemed to be an “operator\nof critical information infrastructure,” or “network platform operator” controlling personal information of no less\nthan one million users. We are required to collect and retain some basic information furnished by our customers, suppliers and employees\nin accordance with prevailing business practices, but we do not handle personal and confidential data of more than 1,000 individuals in\nthe ordinary course of business. As of the date of this annual report, we have not been involved in any investigations on cybersecurity\nor data security initiated by related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction\nin such respect. Our PRC subsidiary, Luda PRC, has received all necessary permissions required to obtain from PRC authorities to operate\nits current business in China or issue shares to foreign investors, including Business License, Customs Registration Certificate, Bank\nAccount Open Permit and Approval regarding Environmental Protection.\n\n \n\n17\n\n \n\nHowever, given the recent events indicating greater oversight by the\nCAC over data security, particularly for companies seeking to list on a foreign exchange, the interpretation or implementation of the\nMeasures is subject to change, and we cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we\ndo. The enactment, interpretation and implementation of regulatory requirements related to current and future PRC laws, overseas securities\nofferings and other capital markets activities continue to evolve. PRC regulatory agencies, including the CAC, may adopt new laws, regulations,\nrules, or detailed implementation and interpretation related to the Measures. They may also take actions requiring us, or making it advisable\nfor us, to halt our future capital raising activities before the settlement and delivery of the Shares that we are offering. If any such\nnew laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all reasonable measures and actions\nto comply therewith. In the event of a failure to comply, we may be required to suspend our relevant businesses and become subject to\nfines and other penalties. If the CAC or other PRC regulatory agencies later promulgate new rules or explanations requiring that we obtain\ntheir approvals for any follow-on offering, we may be unable to obtain such approvals, which could significantly limit or completely hinder\nour ability to offer or continue to offer securities to our investors.\n\n \n\n**Our Ordinary Shares may be delisted from a U.S. exchange and prohibited\nfrom being traded over-the-counter in the United States under the HFCA Act if the PCAOB determines in the future that it is unable to\nfully inspect or investigate our auditors. The delisting and cease of trading of our Ordinary Shares, or the threat of their being delisted\nor prohibited from being traded, may materially and adversely affect the value of your investment. **\n\n \n\nThe HFCA Act was enacted in December 2020 and\nwas subsequently amended in December 2022. The HFCA Act states if the SEC determines that we have filed audit reports issued by a registered\npublic accounting firm that has not been subject to inspection by the PCAOB for two consecutive years beginning in 2021, the SEC shall\nprohibit our Ordinary Shares from being traded on a national securities exchange or in the over-the-counter trading market in the United\nStates. On June 22, 2021, the U.S. Senate passed the AHFCA Act, and on December 29, 2022, the Consolidated Appropriations Act was signed\ninto law, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and\namended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor\nis not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the delisting\nof our Company and the prohibition of trading in our Ordinary Shares if the PCAOB is unable to inspect our accounting firm at such future\ntime.\n\n \n\nAccording to Article 177 of the PRC Securities\nLaw (last amended in March 2020), no overseas securities regulator is allowed to directly conduct investigation or evidence collection\nactivities in China. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization\nor individual may provide the documents and materials relating to securities business activities to overseas parties. Therefore, the audit\nworking papers of our financial statements may not be fully inspected by the PCAOB without the approval of the PRC authorities. Our Ordinary\nShares could be delisted and prohibited from being traded over-the-counter under the HFCA Act if the PCAOB determines in the future that\nit is unable to fully inspect or investigate our auditor which has a presence in China.\n\n \n\nOn March 24, 2021, the SEC adopted interim final\nrules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. On September 22, 2021, the\nPCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to determine, as contemplated under the\nHFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction\nbecause of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC adopted amendments to finalize\nthe implementation of disclosure and documentation measures, which require us to identify, in our annual report on Form 20-F, (1) the\nauditors that provided opinions to the financial statements presented in the annual report, (2) the location where the auditors’\nreport was issued, and (3) the PCAOB ID number of the audit firm or branch that performed the audit work.\n\n \n\n18\n\n \n\nOn August 26, 2022, the CSRC, the Ministry of\nFinance of China, and the PCAOB signed the Protocol, which established a specific and accountable framework for the PCAOB to conduct inspections\nand investigations of PCAOB-governed accounting firms in mainland China and Hong Kong. Pursuant to the Protocol, the PCAOB has the sole\ndiscretion in selecting the subject of its inspections and investigations without input from the Chinese authorities, and procedures are\nin place to allow PCAOB inspectors and investigators to review complete audit working papers of accounting firms located in mainland China\nand Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered\npublic accounting firms headquartered in mainland China and Hong Kong in 2022, and the PCAOB Board vacated its previous determinations\nthat the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and\nHong Kong. We were not identified as a “Commission-identified issuer” under the HFCA Act since we filed our annual report\non Form 20-F for the fiscal year ended December 31, 2024. However, it remains unclear whether the PCAOB will continue to be able to satisfactorily\nconduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong, which depends on a number\nof factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving\nforward and will continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has indicated that it will\nact immediately to consider the need to issue new determinations with the HFCA Act if needed.\n\n \n\nWe dismissed ZH CPA, LLC and appointed AOGB CPA Limited as our independent\nregistered public accounting firm, effective from November 24, 2025. Our current and predecessor auditors, AOGB CPA Limited and ZH CPA,\nLLC, respectively, as auditors of companies that are traded publicly in the United States and firms registered with the PCAOB, are\nsubject to PCAOB regular inspections to assess its compliance with the applicable professional standards. AOGB CPA Limited and ZH CPA,\nLLC are headquartered in Hong Kong, China and Colorado, respectively, and, as of the date of this annual report, have not been determined\nby the PCAOB as being unable to be inspected or investigated completely.\n\n \n\nNotwithstanding the foregoing, our ability to\nretain an auditor subject to PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related\nto us, may depend on the relevant positions of U.S. and Chinese regulators. If, in the future, we have been identified by the SEC for\ntwo consecutive years as a “Commission-identified issuer” whose registered public accounting firm is determined by the PCAOB\nthat it is unable to inspect or investigate completely because of a position taken by one or more authorities in China, the SEC may prohibit\nour Ordinary Shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States.\nIn addition, it remains unclear what the SEC’s implementation process related to the above rules will entail or what further actions\nthe SEC, the PCAOB or NYSE American will take to address these issues and what impact those actions will have on companies that have significant\noperations in China and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter\nstock market). We cannot assure you whether regulatory authorities would apply additional and more stringent criteria to us after considering\nthe effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency\nof resources, geographic reach or experience as it relates to the audit of our financial statements. If we fail to meet the new listing\nstandards specified in the HFCA Act, we could face possible delisting from the NYSE American, cessation of trading in over-the-counter\nmarket, deregistration from the SEC and/or other risks, which may materially and adversely affect the trading price of our Ordinary Shares\nor terminate the trading of our Ordinary Shares in the United States.\n\n \n\nFurthermore, the PCAOB’s inability to conduct\ninspections in China in the past prevented it from fully evaluating the audits and quality control procedures of our prior independent\nregistered public accounting firm. As a result, we and our investors were deprived of the benefits of such PCAOB inspections. The inability\nof the PCAOB to conduct inspections of auditors with presence in China in the past made it more difficult to evaluate the effectiveness\nof our prior independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors\noutside of China that were subject to the PCAOB inspections, which could cause investors and potential investors in our Ordinary Shares\nto lose confidence in our audit procedures and reported financial information and the quality of our financial statements.\n\n \n\n**You may experience difficulties in effecting\nservice of legal process, enforcing foreign judgments or bringing original actions in China, based on United States or other foreign\nlaws, against us, our directors, executive officers or the expert named in this annual report. Therefore, you may not be able to enjoy\nthe protection of such laws in an effective manner.**\n\n \n\nLuda Cayman was incorporated under the laws of\nthe Cayman Islands, but all of our operations and assets are held by our operating subsidiaries, Luda PRC and Luda HK, in the PRC and\nHong Kong respectively. In addition, substantial amount of our assets is located in the PRC and most of our senior executive officers\nand directors reside within the PRC or Hong Kong for a significant portion of the time. The recognition and enforcement of foreign judgments\nare provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements\nof the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between\njurisdictions. There are no treaties or other forms of reciprocity between China and the United States for the mutual recognition and\nenforcement of court judgments. China Commercial Law Firm has further advised us that under PRC law, PRC courts will not enforce a foreign\njudgment against us or our officers and directors if the court decides that such judgment violates the basic principles of PRC law or\nnational sovereignty, security or public interest, thus making the recognition and enforcement of a U.S. court judgment in China difficult.\n\n \n\n19\n\n \n\nThe recognition and enforcement of foreign judgments\nare provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements\nof the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of\nreciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that\nprovide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the\nPRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the\nbasic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis\na PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. In addition, it will be difficult\nfor U.S. shareholders to originate actions against us in China in accordance with PRC laws because we were incorporated under the laws\nof the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding our Shares, to establish a connection\nto the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.\n\n \n\n**Our management team lacks experience in\nmanaging a U.S. public company and complying with laws applicable to such company, the failure of which may adversely affect our business,\nfinancial condition and results of operations.**\n\n \n\nOur current management team lacks experience in managing a U.S. publicly\ntraded company, interacting with public company investors and complying with the increasingly complex laws pertaining to U.S. public companies.\nPrior to our listing in February 2025, we were a private company mainly operating our businesses in Hong Kong and mainland China. Our\nCompany is now subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny\nof securities analysts and investors, and our management currently has no experience in complying with such laws, regulations and obligations.\nOur management team may not successfully or efficiently manage our transition to becoming a U.S. public company. These new obligations\nand constituents will require significant attention from our senior management and could divert their attention away from the day-to-day\nmanagement of our business, which could adversely affect our business, financial condition and results of operations.\n\n \n\n**We are a holding company and our ability\nto pay dividends is primarily dependent upon the earnings of, and distributions by, our PRC and Hong Kong subsidiaries.**\n\n \n\nLuda Cayman is a holding company incorporated\nunder the laws of the Cayman Islands with limited liability. The majority of our business operations are conducted through our subsidiaries,\nLuda PRC and Luda HK, and hence, our revenue and profit are substantially contributed by our PRC and Hong Kong subsidiaries. On January\n8, 2024, May 6, 2024 and August 26, 2024, Luda Cayman paid dividend of RMB9,250,000, RMB5,700,000 and RMB9,000,000, respectively, to Diamond\nHorses Group Limited. We may consider paying further dividends in the near future. See “Dividend Policy”.\n\n \n\nOur ability to pay dividends to our shareholders\nis primarily dependent upon the earnings of our PRC and Hong Kong subsidiaries and its distribution of funds to us, primarily in the form\nof dividends. The ability of our PRC and Hong Kong subsidiaries to make distributions to us depends upon, among others, their distributable\nearnings. Under the PRC laws, payment of dividends is only permitted out of accumulated profits according to PRC accounting standards\nand regulations, and our PRC subsidiary is also required to set aside part of its after-tax profits to fund certain reserve funds that\nare not distributable as cash dividends. Other factors such as cash flow conditions, restrictions on distributions contained in our PRC\nsubsidiary’s articles of associations, restrictions contained in any debt instruments, withholding tax and other arrangements will\nalso affect the ability of our PRC subsidiary to make distributions to us. These restrictions could reduce the amount of distributions\nthat we receive from our PRC subsidiary, which in turn would restrict our ability to pay dividends on the Shares. The amounts of distributions\nthat any of Luda Cayman’s subsidiaries declared and made in the past are not indicative of the dividends that we may pay in the\nfuture. There is no assurance that we will be able to declare or distribute any dividend in the future.\n\n \n\nFurthermore, there can be no assurance that the\nPRC government will not impose restrictions, regulation and limitation on the conversion of the RMB into foreign currencies and the remittance\nof currencies out of the mainland PRC. In response to the persistent capital outflow and the RMB’s depreciation against the USD\nin the fourth quarter of 2016, the People’s Bank of China and SAFE, have implemented a series of capital regulation measures, including\nstricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments, and shareholder\nloan repayments. The PRC government may continue to strengthen its capital regulation, and our PRC subsidiary’s dividends and other\ndistributions may be subjected to tighter scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into\nforeign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative\nprocedures necessary to obtain and remit foreign currency for the payment of dividends from its profits of our PRC subsidiary, if any.\nAny limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could have a material adverse\neffect on our ability to conduct our business.\n\n \n\n20\n\n \n\n**Our results of operation may be materially\nand adversely affected by a downturn in the global economy.**\n\n \n\nAll of our operations are currently located in\nthe PRC and Hong Kong. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant\ndegree by the political, economic and social conditions in China and Hong Kong generally and by the continued economic growth in China\nand Hong Kong as a whole. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven,\nboth geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic\ngrowth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative\neffect on us.\n\n \n\nThere exists uncertainty over the long-term effects\nof the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading\neconomies, including the United States and the PRC. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere\nmay increase market volatility across the globe. Any prolonged slowdown in the global or the Chinese economy may affect potential customers’\nconfidence in the financial market as a whole and have a negative impact on our financial condition. Further, recent global economic conditions\nincluding inflationary pressures, have not materially affected our operations in the PRC. However, continued pressure from global economic\nconditions may affect the PRC markets in the future and in turn, may affect our operations.\n\n \n\nThe continued turbulence in the international\nmarkets may adversely affect our ability to access the capital markets to meet liquidity needs. We cannot assure that there will not be\nany unfavorable changes in the PRC economy that could impact the industries in which we operate, which could in turn diminish the demand\nfor our services.\n\n \n\n**It may be difficult for overseas shareholders\nand/or regulators to conduct investigation in China.**\n\n \n\nAccording to Article 177 of the PRC Securities\nLaw which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection\nactivities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities,\nno organization or individual may provide the documents and materials relating to securities business activities to overseas parties.\nWhile detailed interpretation of or implementation rules under Article 177 of the PRC Securities Law is not yet available, the inability\nfor an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase\ndifficulties faced by investors in protecting your interests. Therefore, you may not be able to effectively enjoy the protection offered\nby the U.S. laws and regulations that are intended to protect public investors.\n\n \n\n**Changes in international trade policies,\ntrade disputes, barriers to trade, or the emergence of a trade war may dampen growth in China.**\n\n \n\nPolitical events, international trade disputes,\nand other business interruptions could harm or disrupt international commerce and the global economy, and could have a material adverse\neffect on us and our customers, contract manufacturers, raw material vendors, and other partners. International trade disputes could result\nin tariffs and other protectionist measures which may materially and adversely affect our business.\n\n \n\nThere have also been concerns about the relationship\nbetween the PRC and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular,\nthere is significant uncertainty about the future relationship between the United States and the PRC with respect to trade policies, treaties,\ngovernment regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic\neconomic and political policies and the expected or perceived overall economic growth rate in China.\n\n \n\nPolitical uncertainty surrounding international\ntrade disputes and the potential of the escalation to trade war and global recession could have a negative effect on customer confidence.\nWe may have also access to fewer business opportunities, and our operations may be negatively impacted as a result.\n\n \n\n21\n\n \n\n**Fluctuations in currency exchange rates\ncould have a material and adverse effect on the value of your investment.**\n\n \n\nOur revenue and expenses have been and are expected to continue to\nbe primarily denominated in RMB and HKD, and we are exposed to the risks associated with the fluctuation in the currency exchange rate\nof RMB and HKD. Should our functional currencies appreciate against other currencies, the value of any future financings, which are to\nbe converted from US dollar or other currencies into RMB and/or HKD, would be reduced and might accordingly hinder our business development\ndue to the lessened amount of funds raised. On the other hand, in the event of the devaluation of our functional currencies, the dividend\npayments of our Company, which are to be paid in US dollars after the conversion of the distributable profit denominated in RMB and/or\nHKD, would be reduced. Hence, substantial fluctuation in the currency exchange rate of our functional currencies may have a material adverse\neffect on our business, operations and financial position and the value of your investment in the Shares.\n\n \n\n**We may be subject to civil complaints and\nregulatory actions under certain laws and regulations relating to labor, social insurance and housing provident fund.**\n\n \n\nPursuant to the PRC Labor Contract Law (the “Labor\nContract Law”), which became effective in January 2008, and its implementing rules, which became effective in September 2008, was\namended in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration,\ndetermining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate\nsome of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit\nour ability to effect those changes in a desirable or cost-effective manner. We believe our current practice complies with the Labor Contract\nLaw and its amendments. As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure\nyou that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor\ndisputes or government investigations. We could be required to provide additional compensation to our employees and our financial condition\ncould be materially and adversely affected.\n\n \n\nIn accordance with the PRC Social Insurance Law\nand the Regulations on the Administration of Housing Fund and other relevant laws and regulations, the PRC has established a social insurance\nsystem and other employee benefits, including basic pension insurance, basic medical insurance, work-related injury insurance, unemployment\ninsurance, maternity insurance, housing fund, and a handicapped employment security fund, or collectively the “Employee Benefits”.\nAn employer is required to pay the Employee Benefits for its employees in accordance with the rates provided under relevant regulations\nand to withhold the social insurance and other Employee Benefits that should be assumed by the employees. An employer that has not made\nsocial insurance contributions at a rate and based on an amount prescribed by the law, or at all, may be ordered to rectify the non-compliance\nand pay the required contributions within a stipulated deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the case\nmay be. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may\nbe subject to a fine ranging from 1 to 3 times of the amount overdue.\n\n \n\nAlthough we have not received any order or notice\nfrom the local authorities nor any claims or complaints from our current and former employees regarding our non -compliance in this regard,\nwe cannot assure you that we will not be subject to any order to rectify non-compliance in the future, nor can we assure you that there\nare no, or will not be any, employee complaints regarding social insurance payment or housing provident fund contributions against us,\nor that we will not receive any claims in respect of social insurance payment or housing provident fund contributions under the PRC laws\nand regulation.\n\n** **\n\n**There are significant uncertainties under\nthe PRC Enterprise Income Tax Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC\nsubsidiary to our offshore subsidiaries may not enjoy certain treaty benefits.**\n\n \n\nOur PRC subsidiary Luda PRC is the manufacturing\nbase of our Company and generates a material part of our profits through its business operations. Under the PRC Enterprise Income Tax\nLaw and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to\nits immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between\nHong Kong and the PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in\nChina company. Our current PRC subsidiary is wholly-owned by our Hong Kong subsidiary, Luda HK. Accordingly, Luda HK may qualify for a\n5% tax rate in respect of distributions from its PRC subsidiary. Under the Notice of the State Administration of Taxation on Issues regarding\nthe Administration of the Dividend Provision in Tax Treaties promulgated in 2009, the tax payer needs to satisfy certain conditions to\nenjoy the benefits under a tax treaty. These conditions include: (i) the tax payer must be the beneficial owner of the relevant dividends,\nand (ii) the corporate shareholder to receive dividends from the PRC subsidiary must have met the direct ownership thresholds during the\n12 consecutive months preceding the receipt of the dividends. Further, the State Administration of Taxation (“SAT”) promulgated\nthe Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties in 2009, which limits the “beneficial\nowner” to individuals, enterprises or other organizations normally engaged in substantive operations, and sets forth certain detailed\nfactors in determining “beneficial owner” status.\n\n \n\n22\n\n \n\nEntitlement to a lower tax rate on dividends according\nto tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to the Administrative\nMeasures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, which provides that non-resident enterprises are not required\nto obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises\nand their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits\nare met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings,\nwhich will be subject to post-tax filing examinations by the relevant tax authorities. As a result, we cannot assure you that we will\nbe entitled to any preferential withholding tax rate under treaties for dividends received from our PRC subsidiary.\n\n \n\n**PRC regulation of loans to and direct investment\nin PRC entities by offshore holding companies and governmental regulation of currency conversion may delay or prevent us from remitting\nthe proceeds of any future offerings into China through loans or additional capital contributions to our PRC subsidiary, thereby diminishing\nour ability to fund and expand our business.**\n\n \n\nAny funds we transfer to our PRC subsidiary Luda PRC, either as a shareholder\nloan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China\nregardless of the amount of the transfer. According to the relevant PRC regulations on foreign investment entities (“FIEs”)\nin China, capital contributions to our PRC subsidiary are subject to the filing with the Ministry of Commerce of the People’s Republic\nof China (“MOFCOM”) or their respective local branches and registration with a local bank authorized by SAFE. In addition,\n(i) any foreign loan procured by our PRC subsidiary is required to be registered with SAFE or their respective local branches and (ii)\nour PRC subsidiary may not procure loans which exceed the difference between their respective total project investment amount and registered\ncapital or twice of their net worth. We may not be able to complete such registrations or obtain necessary approvals on a timely basis\nwith respect to future capital contributions or foreign loans by us to our PRC subsidiary. If we fail to complete such registrations,\nour ability to use the proceeds of any future offerings, and to capitalize our PRC operations may be negatively affected, which could\nadversely affect our liquidity and our ability to fund and expand our business.\n\n \n\nOn March 30, 2015, the SAFE promulgated the Circular on Reforming the\nManagement Approach Regarding the Foreign Exchange Capital Settlement of Foreign -Invested Enterprises, (“SAFE Circular 19”),\nwhich took effect as of June 1, 2015. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign\nexchange capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs\nfrom using the RMB fund converted from their foreign exchange capital for expenditure beyond their business scopes, providing entrusted\nloans or repaying loans between nonfinancial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the Control\nover Foreign Exchange Settlement of Capital Accounts, (“SAFE Circular 16”), effective in June 2016. Pursuant to SAFE Circular\n16, enterprises registered in China may also convert their foreign debts from foreign currency to RMB on a self-discretionary basis. SAFE\nCircular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited\nto foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered in China. SAFE\nCircular 16 reiterates the principle that RMB converted from foreign currency-denominated capital of a company may not be directly or\nindirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while such converted RMB will not be\nprovided as loans to its non-affiliated entities. As Circular 16 is relatively new, the interpretation and application and any other future\nforeign exchange related rules are subject to rules and regulations or detailed implementations and interpretations in any form in the\nfuture. Violations of these circulars could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may significantly\nlimit our ability to use Renminbi converted from the net proceeds of any future offerings and our concurrent private placement, to invest\nin or acquire any other PRC companies through our PRC subsidiary.\n\n \n\n23\n\n \n\n**If we are classified as a PRC resident enterprise\nfor PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.**\n\n \n\nUnder the PRC Enterprise Income Tax Law and its\nimplementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered\na “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation\nrules define the term “de facto management body” as the body that exercises full and substantial control and overall management\nover the business, productions, personnel, accounts and properties of an enterprise. In 2009, the SAT issued a circular, known as SAT\nCircular 82, partially abolished on December 29, 2017, which provides certain specific criteria for determining whether the “de\nfacto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular\napplies only to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or\nforeigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management\nbody” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an\noffshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue\nof having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only\nif all of the following conditions are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions\nrelating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel\nin China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions\nare located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually reside in China.\n\n \n\nWe believe that, as a Cayman Islands exempted\ncompany, Luda Cayman is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject\nto determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management\nbody.” If the PRC tax authorities determine that our company is a PRC resident enterprise for enterprise income tax purposes, we\nwould be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we would be required to withhold a\n10% tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our Shares. In addition,\nnon-resident enterprise shareholders may be subject to PRC tax on gains realized on the sale or other disposition of the Shares, if such\nincome is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC\nindividual shareholders and any gain realized on the transfer of the Shares by such shareholders may be subject to PRC tax at a rate of\n20% (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\nis unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of\ntax 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\nin our Shares.\n\n \n\n**We face uncertainty with respect to indirect\ntransfers of equity interests in PRC resident enterprises by their non-PRC holding companies.**\n\n \n\nOn February 3, 2015, the SAT issued the Public\nNotice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin\n7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a\nforeign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the\npurchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee\n(or other person who is obligated to pay for the transfer) of taxable assets, as such persons need to determine whether their transactions\nare subject to these rules and whether any withholding obligation applies.\n\n \n\nOn October 17, 2017, the SAT issued the Announcement\nof the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin\n37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of\nnon-resident enterprise income tax.\n\n \n\nWhere a non-resident enterprise transfers\ntaxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an indirect transfer, the\nnon-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report\nsuch indirect transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may\ndisregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the\npurpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC\nenterprise income tax, and the transferee or other person who pays for the transfer is obligated to withhold the applicable taxes\ncurrently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee\nmay be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the\ntaxes.\n\n \n\nWe face uncertainties as to the reporting and\nother implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale\nof the Shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or may be taxed if our company\nis a transferor in such transactions, and may be subject to withholding obligations if our company is a transferee in such transactions,\nunder SAT Bulletin 7 and/or SAT Bulletin 37. For transfers of Shares of our company by investors who are non-PRC resident enterprises,\nour PRC subsidiary may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required\nto expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we\npurchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which\nmay have a material adverse effect on our financial condition and results of operations.\n\n \n\n24\n\n \n\n**Risk Related\nto Our Corporate Structure**\n\n \n\n**We are incorporated under the law of the\nCayman Islands and conduct substantially all of our operations, and all of our directors and executive officers reside, outside of the\nUnited States. You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may\nbe limited.**\n\n \n\nWe are incorporated under the laws of the Cayman\nIslands. We conduct our operations outside the United States and substantially all of our assets are located outside the United States.\nIn addition, substantially all of our directors and executive officers named in this annual report reside outside the United States, and\nmost of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process\nwithin the United States upon our directors or officers or to enforce judgments obtained in the United States courts against our directors\nand officers.\n\n \n\nOur corporate affairs are governed by our amended\nand restated memorandum and articles of association, the Companies Act and the common law of the Cayman Islands. The rights of shareholders\nto take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under the Cayman\nIslands laws are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in\npart from comparatively limited judicial precedent in the Cayman Islands as well as from the English common law, which has persuasive,\nbut not binding authority, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors\nunder the Cayman Islands laws may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions\nin the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition,\nCayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.\n\n \n\nThere is uncertainty as to whether the courts\nof the Cayman Islands would (i) recognize or enforce judgments of courts of the United States obtained against us or our directors of\nofficers predicated upon the civil liability provisions of U.S. securities laws; and (ii) entertain original actions brought in the Cayman\nIslands against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.\n\n \n\n25\n\n \n\n**Risks Related to Our Shares**\n\n** **\n\n**Our Share price may be volatile, and you\nmay lose all or part of your investment. Such rapid and substantial price volatility, including any stock run-up, may be unrelated to\nour actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess\nthe rapidly changing value of our ordinary shares.**\n\n \n\nThe price for our Shares may be volatile and subject\nto wide fluctuations in response to factors including the following:\n\n \n\n●actual or anticipated fluctuations in results of operations;\n\n \n\n●actual or anticipated changes in our growth rate relative to our competitors, as well as announcements\nby us or our competitors of significant business developments, changes in relationships with our target customers, manufacturers or suppliers,\nacquisitions or expansion plans;\n\n \n\n●failure to meet or exceed financial estimates and projections of the investment community or that we provide\nto the public, as well as variance in our financial performance from the expectations of market analysts;\n\n \n\n●issuance of new or updated research or reports by securities analysts;\n\n \n\n●Share price and volume fluctuations attributable to inconsistent trading volume levels of our Shares;\n\n \n\n●additions or departures of key management or other personnel;\n\n \n\n●our involvement in litigation;\n\n \n\n●disputes or other developments related to proprietary rights, including patents, litigation matters, and\nour ability to obtain patent protection for our technology;\n\n \n\n●announcement or expectation of additional debt or equity financing efforts;\n\n \n\n●sales of our Shares or other securities by us, our insiders or our other shareholders, or the perception\nthat these sales may occur in the future;\n\n \n\n●the trading volume of our Shares;\n\n \n\n●market conditions in our industry;\n\n \n\n●changes in the estimation of the future size and growth rate of our markets;\n\n \n\n●market conditions in our industry;\n\n \n\n●changes in the estimation of the future size and growth rate of our markets; and\n\n \n\n●general economic, market or political conditions in the United States or elsewhere.\n\n \n\nThese and other market and industry factors may\ncause the market price and demand for our Shares to fluctuate substantially, regardless of our actual operating performance, which may\nlimit or prevent investors from readily selling their Shares and may otherwise negatively affect the liquidity of our Shares. In addition,\nthe stock market in general, and NYSE American and emerging growth companies in particular, have experienced extreme price and volume\nfluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Such rapid and substantial\nprice volatility, including any stock run-up, may be unrelated to our actual or expected operating performance and financial condition\nor prospects, making it difficult for prospective investors to assess the rapidly changing value of our ordinary shares. Such broad market\nfluctuations, and other factors (such as variations in operating results, and changes in regulations affecting us and our industry) may\nadversely affect the market price of our Shares, if a market for them develops.\n\n \n\n**Volatility in our Share price may subject\nus to securities litigation.**\n\n \n\nThe market for our Shares may have, when compared\nto seasoned issuers, significant price volatility and we expect that our Share price may continue to be more volatile than that of a seasoned\nissuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following\nperiods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation, which could result\nin substantial costs and liabilities and could divert management’s attention and resources.\n\n \n\n26\n\n \n\n**Our Shares are expected to initially trade\nunder $5.00 per Share and thus would be known as a penny stock. Trading in penny stocks has certain restrictions and these restrictions\ncould negatively affect the price and liquidity of our Shares.**\n\n \n\nOur Shares are expected to initially trade below\n$5.00 per Share. As a result, our Shares would be known as a “penny stock”, which is subject to various regulations involving\ndisclosures to be given to you prior to the purchase of any penny stock. The SEC has adopted regulations which generally define a “penny\nstock” to be any equity security that has a market price of less than $ 5.00 per Share, subject to certain exceptions. Depending\non market fluctuations, our Shares could be considered as a “penny stock”. A penny stock is subject to rules that impose additional\nsales practice requirements on brokers/dealers who sell these securities to persons other than established Members and accredited investors.\nFor transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities.\nIn addition, a broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase and must also\nprovide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers\nto sell our Shares, and may negatively affect the ability of holders of our Shares to resell them. These disclosures require you to acknowledge\nthat you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks\ngenerally do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy\nor sell the stock when you want to.\n\n \n\n**If we fail to meet applicable listing requirements,\nNYSE American may delist our Shares from trading, in which case the liquidity and market price of our Shares could decline.**\n\n** **\n\nAssuming our Shares are listed on NYSE American,\nwe cannot assure you that we will be able to meet the continued listing standards of NYSE American in the future. If we fail to comply\nwith the applicable listing standards and NYSE American delists our Shares, we and our shareholders could face significant material adverse\nconsequences, including:\n\n \n\n●a limited availability of market quotations for our Shares;\n\n \n\n●reduced liquidity for our Shares;\n\n \n\n●a determination that our Shares are “penny stock”, which would require brokers trading in\nour Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market\nfor our Shares;\n\n \n\n●a limited amount of news about us and analyst coverage of us; and\n\n \n\n●a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing\nin the future.\n\n \n\nThe National Securities Markets Improvement Act\nof 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred\nto as “covered securities.” Because we expect that our Shares will be listed on NYSE American, such securities will be covered\nsecurities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to\ninvestigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate\nor bar the sale of covered securities in a particular case. Further, if we were no longer listed on NYSE American, our securities would\nnot be covered securities and we would be subject to regulations in each state in which we offer our securities.\n\n \n\n**Certain recent initial public offerings\nof companies with public floats comparable to our anticipated public float have experienced extreme volatility that was seemingly unrelated\nto the underlying performance of the respective company. We may experience similar volatility, which may make it difficult for prospective\ninvestors to assess the value of our Ordinary Shares.**\n\n \n\nIn addition to the risks addressed above in “— Our Share\nprice may be volatile, and you may lose all or part of your investment. Such rapid and substantial price volatility, including any stock\nrun-up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for\nprospective investors to assess the rapidly changing value of our ordinary shares,” our Ordinary Shares may be subject to extreme\nvolatility that is seemingly unrelated to the underlying performance of our business. Recently, companies with comparable public floats\nand initial public offering sizes have experienced instances of extreme stock price run-ups followed by rapid price declines, and such\nstock price volatility was seemingly unrelated to the respective company’s underlying performance. Although the specific cause of\nsuch volatility is unclear, our anticipated public float may amplify the impact the actions taken by a few shareholders have on the price\nof our Ordinary Shares, which may cause our share price to deviate, potentially significantly, from a price that better reflects the underlying\nperformance of our business. Should our Ordinary Shares experience run-ups and declines that are seemingly unrelated to our actual or\nexpected operating performance and financial condition or prospects, prospective investors may have difficulty assessing the rapidly changing\nvalue of our Ordinary Shares. In addition, investors of our Ordinary Shares may experience losses, which may be material, if the price\nof our Ordinary Shares declines or if such investors purchase shares of our Ordinary Shares prior to any price decline.\n\n \n\n27\n\n \n\nHolders of our Ordinary Shares may also not be\nable to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations\nand general economic and political conditions may also adversely affect the market price of our Ordinary Shares. As a result of this volatility,\ninvestors may experience losses on their investment in our Ordinary Shares. Furthermore, the potential extreme volatility may confuse\nthe public investors of the value of our stock, distort the market perception of our stock price and our Company’s financial performance\nand public image and negatively affect the long-term liquidity of our Ordinary Shares, regardless of our actual or expected operating\nperformance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to our actual\nor expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective\ninvestors to assess the rapidly changing value of our Ordinary Shares and understand the value thereof.\n\n \n\n**Our Controlling Shareholders have significant\nvoting power and may take actions that may not be in the best interests of our other shareholders.**\n\n \n\nAs of the date of this annual report, Mr. Ma Biu, our Controlling Shareholders\nhold approximately 88.14% of our Shares. As a result, these shareholders will be able to control the management and affairs of our Company\nand most matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions.\nThe interests of these shareholders may not be the same as or may even conflict with your interests. For example, these shareholders could\nattempt to delay or prevent a change in control of us, even if such change in control would benefit our other shareholders, which could\ndeprive our shareholders of an opportunity to receive a premium for their Shares as part of a sale of us or our assets, and might affect\nthe prevailing market price of our Shares due to investors’ perceptions that conflicts of interest may exist or arise. As a result,\nthis concentration of ownership may not be in the best interests of our other shareholders.\n\n \n\n**NYSE American may apply additional and more\nstringent criteria for our continued listing because we had a small public offering and our insiders hold a large portion of our listed\nsecurities.**\n\n \n\nUnder Section 101 of the NYSE American Company\nGuide, NYSE American has discretionary authority to deny initial listing, apply additional or more stringent criteria for the initial\nor continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance\nthat exists or occurs that makes initial or continued listing of the securities on NYSE American inadvisable or unwarranted in the opinion\nof NYSE American, even though the securities meet all enumerated criteria for initial or continued listing on NYSE American.\n\n \n\nAdditionally, NYSE American has used its discretion\nto deny initial or continued listing or to apply additional and more stringent criteria in the instances, including but not limited to:\n(i) where the company engaged an auditor that has not been subject to an inspection by PCAOB, an auditor that PCAOB cannot inspect, or\nan auditor that has not demonstrated sufficient resources, geographic reach, or experience to adequately perform the company’s audit;\n(ii) where the company planned a small public offering, which would result in insiders holding a large portion of the company’s\nlisted securities. NYSE American was concerned that the offering size was insufficient to establish the company’s initial valuation,\nand there would not be sufficient liquidity to support a public market for the company; and (iii) where the company did not demonstrate\nsufficient nexus to the U.S. capital market, including having no U.S. shareholders, operations, or members of the board of directors or\nmanagement. Our initial public offering was relatively small and the insiders of our company hold a large portion of the company’s\nlisted securities following the offering. Therefore, we may be subject to the additional and more stringent criteria of NYSE American\nfor our continued listing.\n\n \n\n28\n\n \n\n**Securities analysts may not publish favorable\nresearch or reports about our business or may publish no information at all, which could cause our Share price or trading volume to decline.**\n\n \n\nIf a trading market for our Shares develops, the\ntrading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and\nour business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts\nwho publish information about our Shares will have had relatively little experience with us or our industry, which could affect their\nability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain\nsecurities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse\nopinion regarding our Share price, our Share price could decline. If one or more of these analysts cease coverage of us or fail to publish\nreports covering us regularly, we could lose visibility in the market, which in turn could cause our Share price or trading volume to\ndecline and result in the loss of all or a part of your investment in us.\n\n \n\n**Investors may have difficulty enforcing\njudgments against us, our directors and management.**\n\n \n\nLuda Cayman was incorporated under the laws of\nthe Cayman Islands and a majority of our directors and officers reside outside the United States. Moreover, many of these persons do not\nhave significant assets in the United States. As a result, it may be difficult or impossible to effect service of process within the United\nStates upon these persons, or to recover against us or them on judgments of U.S. courts, including judgments predicated upon the civil\nliability provisions of the U.S. federal securities laws.\n\n \n\nThere is uncertainty as to whether the courts\nof the Cayman Islands would recognize or enforce judgments of U.S. courts obtained in actions against us or our directors and officers\npredicated upon the civil liability provisions of the U.S. federal securities laws, or entertain original actions brought in the Cayman\nIslands against us or our directors and officers predicated solely upon U.S. federal securities laws. Further, there is no treaty in effect\nbetween the United States and the Cayman Islands providing for the enforcement of judgments of U.S. courts in civil and commercial matters,\nand there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States. Some remedies available under\nthe laws of U.S. jurisdictions, including remedies available under the U.S. federal securities laws, may not be allowed in the Cayman\nIslands courts if contrary to public policy in the Cayman Islands. As a result of all of the above, it may be difficult for you to recover\nagainst us or our directors and officers based upon such judgments.\n\n \n\n**The laws of the Cayman Islands relating\nto the protection of the interest of minority shareholders are different from those in the United States.**\n\n \n\nOur corporate affairs are governed by the memorandum\nof association and articles of association, and by the Companies Act and common law of Cayman Islands. The rights of shareholders to take\naction against our directors, action by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands\nlaw are to a large extent governed by the common law of the Cayman Islands and the articles of association. The common law of the Cayman\nIslands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the\ndecisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands.\n\n \n\nThe laws of the Cayman Islands relating to the\nprotection of the interests of minority shareholders differ in certain respects from those established under statutes or judicial precedent\nin existence in the United States and other jurisdictions. Such differences may mean that the remedies available to our minority shareholders\nmay be different from those they would have under the laws of other jurisdictions, including the United States. Potential investors should\nbe aware that there is a risk that provisions of the Companies Act may not offer the same protection as the relevant laws and regulations\nin the United States may offer, and should consider obtaining independent legal advice on the implications of investing in foreign-incorporated\ncompanies.\n\n \n\n29\n\n \n\n**Our status as a “foreign private issuer”\nunder the SEC rules will exempt us from the U.S. proxy rules and the more detailed and frequent Exchange Act, reporting obligations applicable\nto a U.S. domestic public company.**\n\n \n\nWe report under the Exchange Act as a non-U.S. company with foreign\nprivate issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of\nthe Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the\nsolicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the\nExchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who\nprofit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly\nreports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence\nof specified significant events. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing”\nprofit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely\nbasis when our officers, directors and principal shareholders purchase or sell our Shares. In addition, foreign private issuers are not\nrequired to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are\naccelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private\nissuers also are exempt from\n\n \n\nRegulation Fair Disclosure, aimed at preventing\nissuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded\nto shareholders of companies that are not foreign private issuers.\n\n \n\n**Our status as a foreign private issuer under\nthe NYSE American Company Guide will allow us to adopt certain home country practices in relation to corporate governance matters which\nmay differ significantly from the NYSE American corporate governance listing standards applicable to a U.S. domestic NYSE American listed\ncompany.**\n\n \n\nAs a foreign private issuer, we are permitted to take advantage of\ncertain provisions in the NYSE American Company Guide that allow us to follow our home country law for certain governance matters. Certain\ncorporate governance practices in our home country, the Cayman Islands, may differ significantly from corporate governance listing standards.\nCurrently, we do not plan to rely on any home country practices with respect to our corporate governance. Under the NYSE American Company\nGuide, we may in the future decide to use the home country practices exemption with respect to some or all of the other corporate governance\nrules, provided that we disclose the requirements we are not following and describe the home country practices we are following. However,\nif we choose to follow home country practices in the future, our shareholders may be afforded less protection than they would otherwise\nenjoy under the NYSE American corporate governance listing standards applicable to U.S. domestic issuers.\n\n** **\n\n**We will incur increased costs as a result\nof being a public company.**\n\n \n\nWe will incur significant legal, accounting and\nother expenses as a public company that we did not incur as a private company. Compliance with U.S. laws and regulations and the NYSE\nAmerican Company Guide increases our legal and financial compliance costs and makes some corporate activities more time-consuming and\ncostly. As a public company, we will be required to increase the number of independent directors and adopt policies regarding internal\ncontrols and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance.\nIn addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us\nto find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments\nwith respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs\nwe may incur or the timing of such costs.\n\n \n\nThe Sarbanes-Oxley Act, as well as rules subsequently\nimplemented by the SEC, impose various requirements on the corporate governance practices of public companies.\n\n \n\n30\n\n \n\n**Our status as an “emerging growth\ncompany” under the JOBS Act may make it more difficult to raise capital as and when we need it.**\n\n \n\nWe are an “emerging growth\ncompany,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”) and will remain an emerging growth\ncompany until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of our initial\npublic offering in February 2025; (b) in which we have total annual gross revenue of at least US$1.235 billion; or (c) in which we\nare deemed to be a large accelerated filer, which means the market value of our Shares that is held by non-affiliates exceeds US$700\nmillion as of the last business day of our most recently completed second fiscal quarter, and (ii) the date on which we have issued\nmore than US$1.0 billion in non-convertible debt during the prior 3-year period. An emerging growth company may take advantage of\nspecified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions\ninclude exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act in the assessment of the\nemerging growth company’s internal control over financial reporting. If we elect not to comply with such auditor attestation\nrequirements, our investors may not have access to certain information they may deem important. The JOBS Act also provides an\nemerging growth company with the permission to delay adopting new or revised accounting standards until such time as those standards\napply to private companies. We do not plan to opt-out of such exemptions afforded to an emerging growth company. As a result of this\nelection, our financial statements may not be comparable to companies that comply with public company effective data.\n\n \n\nBecause of the exemptions from various reporting requirements provided\nto us as an “emerging growth company,” we may be less attractive to investors and it may be difficult for us to raise additional\ncapital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that\nour reporting is not as transparent as the reporting of other companies in our industry. Such differences may prevent us from raising\nadditional capital in the public market as and when we need it.\n\n \n\n**There can be no assurance that we\nwill not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result\nin adverse U.S. federal income tax consequences to U.S. holders of our Ordinary Shares.**\n\n \n\nA non-U.S. corporation will be a PFIC for any taxable year if either\n(1) at least 75% of its gross income for such year consists of certain types of “passive” income; or (2) at least 50% of the\nvalue of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce\npassive income or are held for the production of passive income, or the asset test. Based on our current and expected income and assets,\nwe do not presently expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in\nthis regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an annual basis that\ndepends, in part, upon the composition of our income and assets. In addition, there can be no assurance that the Internal Revenue Service,\nor IRS, will agree with our conclusion or that the IRS would not successfully challenge our position. Fluctuations in the market price\nof our Ordinary Shares may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets for the\npurpose of the asset test may be determined by reference to the market price of our Ordinary Shares. The composition of our income and\nassets may also be affected by how, and how quickly, we use our liquid assets.\n\n \n\nIf we were to be, or become, classified as a PFIC\nfor any taxable year during which a U.S. Holder holds our Shares, certain adverse U.S. federal income tax consequences could apply to\nsuch U.S. Holder. We urge U.S. investors to consult their tax advisors regarding the possible application of the PFIC rules.\n\n** **\n\n31\n\n \n\n**You are strongly urged to consult your tax\nadvisors regarding the impact of our being a PFIC in any taxable year on your investment in our Shares as well as the application of the\nPFIC rules.**"}