{"url_path":"/sec/mens/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1954488/0001213900-26-057073-index.html","accession_number":"0001213900-26-057073","cik":"0001954488","ticker":"MENS","issuer_name":"Jyong Biotech Ltd.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1954488/0001213900-26-057073-index.html","primary_entity_key":"0001954488","primary_entity_name":"Jyong Biotech Ltd."},"word_count":9821,"has_tables":true,"body_markdown":"**Item 5. OPERATING AND FINANCIAL REVIEW AND\nPROSPECTS**\n\n** **\n\nThe following discussion of our financial condition\nand results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related\nnotes included in this annual report. This annual report contains forward-looking statements. In evaluating our business, you should carefully\nconsider the information provided under the caption “Item 3. Key Information — D.  Risk Factors” and elsewhere\nin this annual report. in this annual report. We caution you that our businesses and financial performance are subject to substantial\nrisks and uncertainties and that our actual results and the timing of events may differ materially from those anticipated in these forward-looking\nstatements.\n\n \n\n**A. Operating Results**\n\n \n\nWe are a science-driven biotechnology\ncompany based in Taiwan and are committed to developing and commercializing innovative and differentiated new drugs mainly specializing\nin the treatment of urinary system diseases, with an initial focus on the markets of the U.S., the EU and Asia.\n\n \n\nSince our inception in 2002, we have built integrated capabilities\nthat encompass all key functionalities of drug development, including early-stage drug discovery and development, clinical trials,\nregulatory affairs, manufacturing, and commercialization. Leveraging our strong research and development capabilities and proprietary\nplatform, we have been developing a series of botanical drug candidates, including our primary botanical drug candidate of Botreso®,\nanother clinical-stage botanical drug candidate of PCP, and other preclinical-stage botanical drug candidates.\n\n \n\nIn June 2025, we completed our IPO. In connection\nwith our IPO, we issued and sold 2,666,667 ordinary shares, at a price to the public of $7.50 per share. As a result of the IPO, the Company\nreceived $17,771 thousand in net proceeds, after deducting underwriting discounts, commissions and offering costs.\n\n \n\nOur pipeline features three innovative and differentiated\nnew drug candidates, and we are developing them for (i) the treatment of benign prostate hyperplasia/lower urinary tract symptoms,\nor BPH/LUTS, (ii) prostate cancer prevention (PCP), and (iii) the treatment of interstitial cystitis, respectively.\n\n \n\n●**Botreso®:**\nBotreso® is our new botanical drug candidate developed for treatment\nof BPH/LUTS. Botreso® is expected to be our core product in the\nfuture. Botreso® is a softgel capsule containing patented active pharmaceutical\ningredients derived from botanical raw materials, specifically, Lycopersecum Esculentum.\nBotreso® contains, in the largest concentrations, five carotenoids including\nlycopene, phytoene, phytofluene, tocopherol and beta-carotene. We developed Botreso® using\nchylomicron technology to improve its bioavailability. Chylomicron is a type of lipoprotein\nparticles consisting of triglycerides and phospholipids.\n\n \n\nWe have conducted four Phase III clinical trials for Botreso® in\nthe U.S. and Taiwan, including two pivotal trials (one in the US and one in Taiwan) and two open-label extension studies (one\nin the US and one in Taiwan), using API-1. Our pivotal Phase III clinical trial for Botreso® in the U.S. failed\nto show a difference between treatment groups for the primary efficacy endpoint in the intent-to-treat population.\n\n \n\n122\n\n \n\n \n\nWe resubmitted an NDA for Botreso® using API-1 to\nthe US FDA on December 17, 2021, the US FDA accepted our NDA for review “with issues identified.” In the February 22,\n2022 Filing Issues Identified letter, the US FDA identified, among other things, the lack of demonstrated difference between Botreso® and\nplacebo for the primary efficacy endpoint in the MCS-2-US-a study. US FDA identified additional issues, including issues regarding\npharmacology, toxicology, and our pharmacokinetic submission, statistical analyses, and the content and format of our proposed Prescribing\nInformation. In a Mid-Cycle meeting and communication with the US FDA on May 24, 2022, the US FDA also identified the fact that\nAPI-1, the botanical drug substance used in our clinical trials and that was the basis for our NDA, was not available. Based upon these\nobservations, we voluntarily withdrew our NDA on November 30, 2022, to develop more information about API-2 for the US FDA’s\nreview, to address the US FDA’s concerns of a lack of demonstrated difference between Botreso® and placebo for\nthe primary efficacy endpoint, and to resolve other issues the US FDA had previously identified (and discussed above). In the December 12,\n2022 Acknowledge Withdrawal from the US FDA, the US FDA stated that “this withdrawal will not prejudice any future decisions on\nfiling” if we decide to resubmit our NDA, and we can retain the application number (NDA 212872).\n\n \n\nWe have been conducting further research and development\non Botreso® and identified an additional source for the botanical drug substance API-2. API-1 and API-2 are\nsimilar drug substances covered by the same patent owned by us; however, because they are sourced from raw materials manufactured in different\nlocations, the US FDA considers them to be different botanical drug substances.\n\n \n\nWe submitted a meeting request to the US FDA on April 14,\n2023 with our very preliminary comparative specifications of API-1 and API-2, and request that the agency provide a WRO to questions\nabout our refiling of the NDA for Botreso® using API-2. The US FDA agreed to our request and responded in writing\non June 26, 2023. The US FDA informed us that the information we provided on API-2 was not sufficient to demonstrate comparability\nwith API-1. In addition to a lack of API source, US FDA explained that we had not demonstrated a statistically significant difference\nbetween Botreso® with API-1 and placebo in the primary efficacy endpoint in the MCS-2-US-a study. The US\nFDA stated that without new clinical information, any resubmission of the NDA for Botreso® would be at risk of the\nagency refusing to accept the application, a RTF action.\n\n \n\nWe submitted a Type D WRO meeting request to the US FDA on\nDecember 12, 2023. We asked that the US FDA provide a written response to questions focused on obtaining US FDA review and comments\non a new, proposed Phase III clinical trial protocol for Botreso® with API-2 and a Phase I pharmacokinetic\nstudy. We proposed to address chemistry and manufacturing controls for Botreso® in a separate, future meeting. FDA\ngranted our WRO meeting request but clarified that they viewed the meeting as a Type C meeting because it encompasses an entirely\nnew drug development program, including Phase 1 PK study and Phase III clinical trial for Botreso® made\nfrom API-2, which the agency characterizes as a new product with a new active pharmaceutical ingredient.\n\n \n\nIf our new Phase 1 PK and Phase III studies are successful\nand we address the other deficiencies the US FDA has previously identified (including clinical, pharmacological, statistical, pharmaceutical\nmanufacturing, validation, and other issues), we plan to resubmit our NDA for Botreso® under the same NDA number to\nthe US FDA. The resubmission timeline is unclear at this point, depending on the comments from the US FDA.\n\n \n\nBPH/LUTS is the most common urinary tract disease in the\nmiddle-aged male population.\n\nAccording to Frost & Sullivan, the global prevalence\nof BPH increased from 88.4 million in 2017 to 94.2 million in 2020, representing an increase of 6.5%.\n\n \n\nThe global BPH drugs market increased from US$3.7 billion\nin 2017 to US$4.1 billion in 2020, representing a CAGR of 4.6%. We are establishing a strong sales and marketing team that is expected\nto consist of employees with experience in relevant areas and our target markets, and plan to work with both domestic and international\nbusiness partners to seize the great market opportunities and to help more patients reduce their distress caused by BPH/LUTS and drug\nside effects caused by chemical drugs.\n\n \n\n123\n\n \n\n \n\n \n●\n\n**PCP:**\nPCP is our new botanical drug candidate developed for the prevention of prostate cancer.\nPCP, like Botreso®, contains patented active pharmaceutical ingredients derived\nfrom botanical raw materials, specifically, *Lycopersecum esculentum*. PCP contains,\nin the largest concentrations, five carotenoids including lycopene, phytoene, phytofluene,\ntocopherol and beta-carotene. PCP and Botreso® are essentially the same\nin terms of active ingredients, dosage form, strength and route of administration; however,\nthey are different drug candidates targeting different indications. PCP has completed the\ndata lock in May 2025, and statistical analysis was completed in September 2025.\n\n \n\nProstate cancer begins when cells in the prostate gland start\nto grow out of control. In general, the more quickly prostate cells grow and divide, the more chances there are for mutations to occur.\nAccording to Frost & Sullivan, the global prevalence of prostate cancer increased from 10.0 million in 2017 to 11.2 million\nin 2020, representing a CAGR of 3.9%. The global prostate cancer market increased from US$9.7 billion in 2017 to US$12.6 billion\nin 2019, representing a CAGR of 9.1%. In addition, the prostate-specific antigen abnormal population, or PSA abnormal population,\nrepresenting men over 40 years old with a prostate-specific antigen test value of 4.0 ng/ml or higher, is exposed to a high\nrisk of prostate cancer. From 2015 to 2020, the total number of PSA abnormal populations in the U.S., Taiwan and China increased from\n5.0 million to 5.3 million.\n\n \n\n●**IC:** Interstitial Cystitis (IC) is our additional key\nnew drug candidate which is composed of polysorbate loaded micelles as nanocarriers which can be used in the intravenous injection and\nintravesical instillation. The micelles enhance the bioavailability by prolonging the duration of stay in the bladder and increase the\npenetration of drug across the bladder wall. IC/BPS, refers to interstitial cystitis and bladder pain symptoms that is often associated\nwith voiding symptomatology and other systemic chronic pain disorders.\n\n** **\n\n**Key Factors Affecting Our Results of Operations**\n\n** **\n\n**Costs and Expenses Structure**\n\n \n\nOur results of operations are significantly affected\nby our cost structure, which primarily consists of research and development expenses and general and administrative expenses.\n\n \n\nResearch and development activities are central\nto our business operations. We believe our ability to successfully develop drug candidates will be the primary factor affecting our long-term competitiveness,\nas well as our future growth and development. Developing high-quality drug candidates requires a significant investment of resources\nover a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. Since our inception,\nwe have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials,\nand engaging in activities related to regulatory filings for our drug candidates. Clinical studies become increasingly more expensive\nfrom Phase I/II and onwards due to an increase in the number of subjects enrolled in such studies. Research and development costs\nare expensed as incurred. Costs for certain activities, such as activities performed by third-party contractors relating to the manufacturing\nand preclinical studies and clinical trials of our drug candidates, are generally accrued based on our estimates of the actual services\nperformed for a given period. These estimates are based on our evaluation of the progress to completion of specific tasks to be performed\nusing information and data provided to us by our third-party contractors and vendors.\n\n \n\nAt this time, we cannot reasonably estimate the nature, timing and\nestimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash\ninflows may commence from, any of our drug candidates. We expect research and development costs to continue to increase for the foreseeable\nfuture as we continue to support and advance the clinical trials of our drug candidates, including Botreso®, PCP and IC.\n\n \n\nOur general and administrative expenses consist\nprimarily of employee salaries and related benefit costs for personnel in executive, finance and administrative functions, professional\nfees for legal, audit and accounting services, and expenses for rental of facilities. We expect our employee salaries and related costs\nfor personnel in executive to increase in the future to support our clinical program and research and development efforts, and the commercialization\nof our product candidates in the event approval is obtained. We also anticipate that our general and administrative expenses will increase\nas we operate as a public company.\n\n** **\n\n124\n\n \n\n** **\n\n**Funding for Our Operations**\n\n \n\nDuring the periods presented, our operations have\nbeen primarily financed through the issuance and sale of ordinary shares in our initial public offering, as well as loans from banks,\nrelated parties, and third parties. As our business and drug candidate pipeline continue to expand, we anticipate the need for additional\nfunding through public or private offerings, debt financing, collaborations, licensing arrangements, or other sources. Any fluctuations\nin our ability to secure financing may affect our development plans, operating strategies, and overall results of operations. Upon the\nsuccessful development and commercialization of one or more of our drug candidates, we expect to partially fund our operations with revenue\ngenerated from sales of our commercialized products. Additionally, if we enter into out-licensing or collaboration arrangements, we expect\nto supplement our funding with revenue derived from such agreements.\n\n** **\n\n**Our Ability to Commercialize and/or Out-License Our\nDrug Candidates**\n\n \n\nOur business and results of operations depend on our ability to out-license our\ndrug candidates or, in the event any of our drug candidates are approved for marketing by the respective regulatory authority in a country,\ncommercialize such drug candidates. Our core drug candidate, Botreso®, is under further clinical development in the U.S. If\nour new Phase 1 PK and Phase III studies are successful and we address the other deficiencies the US FDA has previously identified\n(including clinical, pharmacological, statistical, pharmaceutical manufacturing, validation, and other issues), we plan to resubmit our\nNDA for Botreso® under the same NDA number to the US FDA. The resubmission timeline is unclear at this point,\ndepending on the comments from the US FDA. Although we currently do not have any product approved for commercial sale and have not\ngenerated revenue from product sales, we expect to generate revenue either from sales of a drug candidate if we obtain regulatory approval\nand successfully commercialize Botreso®, or from out-licensing arrangements if we enter into an out-license and/or\ncollaboration agreement for Botreso® and other drug candidates.\n\n** **\n\n**Key Components of Results of Operations**\n\n** **\n\n**Revenue**\n\n \n\nAs of the date of this annual report, we have\nnot generated any revenue. Our ability to generate revenue and to become profitable will depend upon the successful commercialization\nof, and/or our successful entry into out-license and/or collaboration arrangements in connection with, one or more of our drug candidates.\nBecause of the numerous risks and uncertainties associated with product development and regulatory approval, and out-license and/or\ncollaboration arrangements, we are unable to predict the amount or timing of product revenue or out-license and/or collaboration\nrevenue.\n\n** **\n\n**Research and Development Expenses**\n\n \n\nResearch and development expenses consist of costs\nassociated with planning and conducting clinical trials of our drug candidates. Our research and development expenses primarily consist\nof:\n\n \n\n●payroll\nand other related costs of personnel engaged in research and development activities;\n\n \n\n●costs\nfor preclinical testing of our technologies and clinical trials such as payments to CROs, investigators and clinical trial sites that\nconduct the clinical studies;\n\n \n\n●costs\nto develop our drug candidates, including raw materials and supplies, product testing, clinical trial equipment and its depreciation,\nand facility related expenses;\n\n \n\n●costs\nincurred in seeking regulatory approval of our drug candidates; and\n\n \n\n●other\nresearch and development expenses.\n\n \n\n125\n\n \n\n \n\nClinical trial costs are a significant component\nof our research and development expenses. Our current research and development activities primarily related to the clinical development\nof the following drug candidates:\n\n \n\n \n●\n**Botreso®.** Botreso® is our drug candidate being developed\nfor BPH/LUTS treatment. Botreso® has been subjected various stages of regulatory review by US FDA or TFDA. We\nhave conducted four Phase III clinical trials for Botreso® in the U.S. and Taiwan, including two pivotal\ntrials and two open-label extension studies (one in the US and one in Taiwan), using API-1. Our pivotal Phase III clinical\ntrial for Botreso® in the U.S. failed to show a difference between treatment groups for the primary efficacy\nendpoint in the intent-to-treat population. In a communication with the US FDA on May 24, 2022, the US FDA also identified\nthe fact that API-1, the botanical drug substance used in our clinical trials and that was the basis for our pending NDA, was not\navailable. Based upon these observations, we voluntarily withdrew our pending NDA on November 30, 2022, to develop more information\nabout API-2 for the US FDA’s review, to address the US FDA’s concerns of a lack of demonstrated difference between\nBotreso® and placebo for the primary efficacy endpoint, and to resolve other issues the US FDA had previously\nidentified. We submitted a Type D Written Response Only (WRO) meeting request to the US FDA on December 12, 2023. We asked that\nthe US FDA provide a written response to questions focused on obtaining US FDA review and comments on a new, proposed Phase III\nclinical trial protocol for Botreso® with API-2 and a pharmacokinetic study. We proposed to address chemistry\nand manufacturing controls (CMC) data for our proposed drug product in a separate, future meeting. US FDA granted our WRO meeting\nrequest but clarified that they viewed the meeting as a Type C meeting because it encompasses an entirely new drug development program,\nincluding Phase 1 PK study and Phase III clinical trial for a new product with a new active pharmaceutical ingredient.\nOn May 23, 2024, we received a denial notice from the FDA, stating that it is premature for this stage of drug development, and until\nthe company can provide complete Chemistry, Manufacturing, and Controls (CMC) information on the active pharmaceutical ingredient-2\n(API-2) and a plan to establish comparability between API-1 and API-2, the U.S. FDA is unable to reach agreement on protocols designed\nto establish the safety and efficacy of Botreso®. We have completed the CMC documentation on the active pharmaceutical\ningredient-2 (API-2) and a plan to establish comparability between API-1 and API-2, which was initially submitted to the U.S FDA\nin October 2024. We are currently updating the Module 3, stability data and other data, which will be submitted in Quarter 2 of 2026\nto get any feedback from the U.S. FDA.\n\n \n\n \n●\n**PCP.**\nPCP is our key drug candidate being developed for the prevention of prostate cancer. We received the investigation (IND) implication\napproval from the TFDA and initiated in November 2014. We have completed the phase II clinical trial, with data lock in May\n2025 and statistical analysis completed in September 2025.The results indicated it met its primary endpoint, showing a positive trend\nin positive biopsy rates and incidence of higher-grade prostate cancer after 104 weeks of administration, and indicated a significant\nsecondary potential therapeutic profile regarding metabolic regulation.\n\n \n\nWe incurred research and development expenses of approximately US$1,071\nthousand, US$927 thousand, and US$813 thousand for the year ended December 31, 2023, 2024, and 2025, representing approximately 38%,\n45%, and 31% of our total operating expenses for those periods, respectively. Our research and development expenses may vary substantially\nfrom period to period according to the status of our research and development activities. The timing of expenses is impacted by the commencement\nof clinical trials and enrollment of patients in clinical trials. We expect our research and development expenses to continue to increase\nfor the foreseeable future, as we advance our core drug candidates, Botreso® and key drug candidate, PCP, toward later\nstages and continue to expand our operations.\n\n** **\n\n**General and Administrative Expenses**\n\n \n\nOur general and administrative expenses consist\nprimarily of employee salaries and related benefit costs for personnel in executive, finance and administrative functions. General and\nadministrative expenses include professional fees for legal, audit and accounting services, expenses for rental of facilities and litigation\nexpenses. For the year ended December 31, 2023, 2024, and 2025, our general and administrative expenses amounted to approximately\nUS$1,679 thousand, US$1,085 thousand, and US$1,749 thousand, respectively.\n\n \n\nWe anticipate that our general and administrative\nexpenses will increase in the future to support ongoing and planned research and development of our core drug candidate and additional\nexpenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the\nSEC, investor relations activities and other administrative and professional services.\n\n** **\n\n126\n\n \n\n** **\n\n**Selling and Marketing Expenses**\n\n \n\nOur selling and marketing expenses consist primarily\nof employee salaries and related benefit costs for personnel in selling and marketing functions. Other selling and marketing expenses\ninclude promotion costs. For the year ended December 31, 2023, 2024, and 2025, our selling and marketing expenses amounted to approximately\nUS$47 thousand, US$44 thousand, and US$45 thousand, respectively.\n\n \n\nWe anticipate that our selling and marketing expenses\nwill increase in the future to support commercial activities for the potential commercialization of drug candidates.\n\n** **\n\n**Interest Income (Expense)**\n\n \n\nInterest income consists primarily of interest income derived from\nour cash and loan to shareholder. Interest expense consists primarily of interest on borrowings under outstanding loan agreements and\naccrued interest incurred pursuant to loans due to related parties.\n\n** **\n\n**Other Gains and Losses**\n\n \n\nOther gains and losses consist primarily of foreign exchange gains\nand losses, contingent losses due to litigations, and non-operating gains or losses.\n\n** **\n\n**Taxation**\n\n** **\n\n**Cayman Islands**\n\n \n\nThe Cayman Islands currently levies no taxes on\nindividuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax\nor estate duty or withholding tax applicable to us or to any holder of our ordinary shares. There are no other taxes likely to be material\nto us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after\nexecution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares\nof Cayman Islands companies except those which hold interests in land in the Cayman Islands. Save and except that the Cayman Islands is\na party to a double tax treaty entered into with the United Kingdom in 2010, the Cayman Islands are not party to any double tax treaties\nthat are applicable to any payments made to or by the Company. There are no exchange control regulations or currency restrictions in the\nCayman Islands. Payments of dividends and capital in respect of ordinary shares will not be subject to taxation in the Cayman Islands\nand no withholding will be required on the payment of a dividend or capital to any holder of ordinary shares, nor will gains derived from\nthe disposal of ordinary shares be subject to Cayman Islands income or corporation tax.\n\n** **\n\n**Taiwan**\n\n \n\nEntities incorporated in Taiwan are subject to\ncorporate income tax rate of 20% and a 5% surtax on undistributed earnings. Effective from 2020, Taiwan Statute for Industrial Innovation\nwas amended, which extends the tax incentive by 10 years until December 31, 2029 for research and development (“R&D”)\nexpenditure. Under the tax incentive program, a company conducting qualifying R&D activities may select one of the following incentives:\n(i) up to 15% of qualifying R&D expenses may be credited against corporate income tax payable in the current year; or (ii) up\nto 10% of qualifying R&D expenses may be credited against corporate income tax payable in the year expenses incurred and carried forward\nfor the next 2 years. In addition, if a company uses NTD 1 million or more of its undistributed earnings to construct or purchase\nbuildings, software or hardware equipment, or technology for use in production or operation within 3 years from the year such earnings\nare derived, such investment amounts may be deducted from the undistributed earnings in calculation of the current year’s undistributed\nearnings for assessment of surtax imposed on undistributed earnings from the year 2018. The alternative minimum tax (“AMT”)\nimposed under the Taiwan Income Basic Tax Act is a supplemental income tax which applies if the amount of regular income tax calculated\npursuant to the Taiwan Income Tax Act and relevant laws and regulations is below the amount of basic tax prescribed under the Taiwan Income\nBasic Tax Act. The taxable income for calculating AMT includes most income that is exempt from income tax under various legislations,\nsuch as capital gains from qualified securities and future transactions. The prevailing AMT rate for business entities is 12%.\n\n \n\n127\n\n \n\n \n\nOur subsidiaries, Health Ever Bio-Tech Co.,\nLtd. and Genvace Biotechnology Co., Ltd. which are both incorporated in Taiwan, and are subject to corporate income tax at a rate of 20%\nand surtax on undistributed earnings at a rate of 5%. Both entities have no taxable income for the years ended December 31,\n2023, 2024, and 2025; therefore, no provision for income taxes has been provided.\n\n** **\n\n**Singapore**\n\n \n\nEntities incorporated in Singapore are subject\nto corporate income tax rate of 17%. Our subsidiary, Jyong Biotech International Pte. Ltd., which was incorporated under the law of Singapore\non September 29, 2022, and is subject to corporate income tax rate of 17%. The Singapore entity has no taxable income for the years\nended December 31, 2023, 2024, and 2025.\n\n** **\n\n**Hong Kong**\n\n \n\nEntities incorporated in Hong Kong are subject\nto profits tax in Hong Kong at the rate of 16.5%. According to Tax (Amendment) (No. 3) Ordinance 2018 published by Hong Kong\ngovernment, effective April 1, 2018, under the two-tiered profits tax rates regime, the profits tax rate for the first HKD2 million\nof assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for\ncorporations.\n\n \n\nOur subsidiary, Top ShunXing Bio-Tech Co.,\nLimited is subject to Hong Kong profits tax at a tax rate of 8.25% for assessable profits on the first HKD2 million and 16.5%\nfor any assessable profits in excess. No Hong Kong profit tax was provided as there was no estimated assessable profit that was subject\nto Hong Kong profits tax for the years ended December 31, 2023, 2024, and 2025.\n\n** **\n\n**PRC**\n\n \n\nUnder the Enterprise Income Tax Laws of the PRC,\nor the EIT Laws, domestic enterprises and Foreign Investment Enterprises, or the FIEs, are usually subject to a unified 25% enterprise\nincome tax rate, while preferential tax rates, tax holidays and tax exemption may be granted on case-by-case basis.\n\n \n\nOur PRC subsidiary, Innovative Biotech Co., Ltd.,\nis subject to the statutory rate of 25%, in accordance with the EIT Law. No provision for PRC corporate income tax has been made for the years\nended December 31, 2023, 2024, and 2025, as Innovative Biotech Co., Ltd. had no such assessable profit.\n\n** **\n\n**Results of Operations**\n\n** **\n\n**Comparison of the Fiscal Years Ended December 31, 2023 and 2024**\n\n \n\nThe following table sets forth a summary of our\nconsolidated results of operations for the years ended December 31, 2023 and 2024. This information should read together with our consolidated\nfinancial statements and related notes included elsewhere in this Annual Report. The operating results in any period are not necessarily\nindicative of the results that may be expected for any future period.\n\n \n\n  \nYears Ended December 31,  \nChange \n\n  \n2023  \n2024  \nUS$  \n% \n\n  \n(amounts in US$ and in thousands)  \n   \n  \n\nExpenses \n   \n   \n   \n  \n\nResearch and development \n US $1,071  \n US $927  \n (144) \n (13)\n\nSelling and marketing \n 47  \n 44  \n (3) \n (6)\n\nGeneral and administrative \n 1,679  \n 1,085  \n (594) \n (35)\n\nTotal operating expenses \n 2,797  \n 2,056  \n (741) \n (26)\n\nLoss from operations \n (2,797) \n (2,056) \n 741  \n 26 \n\n  \n    \n    \n    \n   \n\nOther incomes (expenses): \n    \n    \n    \n   \n\nInterest income \n 56  \n 7  \n (49) \n (88)\n\nInterest expenses \n (757) \n (1,035) \n (278) \n (37)\n\nOther (losses) gains, net \n (902) \n 65  \n 967  \n 107 \n\nTotal other expense, net \n (1,603) \n (963) \n 640  \n 40 \n\nLoss before income tax \n (4,400) \n (3,019) \n 1,381  \n 31 \n\nIncome tax expense \n —  \n —  \n —  \n — \n\nNet loss \n US $(4,400)  \n US $(3,019)  \n 1,381  \n 31 \n\n** **\n\n128\n\n \n\n** **\n\n**Revenue**\n\n \n\nWe did not generate any revenue for the years ended December 31,\n2023 and 2024.\n\n** **\n\n**Research and Development Expenses**\n\n \n\nOur research and development expenses decreased by 13% from approximately\nUS$1,071 thousand for the year ended December 31, 2023, to approximately US$927 thousand for the year ended December 31, 2024.\nThe decrease was primarily attributable to a decrease in contracted research expenses and clinical trial expenses relating to our Phase II\nclinical trials for PCP and the preparation of the initial new drug application for Botreso® for submission to the\nUS FDA. Additionally, there was a decrease in payroll and other headcount-related expense due to a reduction in the research\nand development office staff in our Taiwan subsidiary. We anticipate research and development expenses to increase in the future\nas we plan to initiate further clinical trials for PCP in Taiwan and apply for the necessary approvals to conduct the same clinical trials\nfor PCP in other relevant jurisdictions. Further, given the withdrawal of our NDA from US FDA review for Botreso® with\nAPI-1, we anticipate further drug substance and drug product development and additional clinical trials for that key drug candidate with\nAPI-2. We have asked that the US FDA to provide a written response to questions focused on obtaining US FDA review and comments on a new,\nproposed Phase III clinical trial protocol for Botreso® with API-2 and a pharmacokinetic study. On May 23,\n2024, we received a denial notice from the FDA, stating that it is premature for this stage of drug development, and until we can provide\ncomplete Chemistry, Manufacturing, and Controls (CMC) information on the active pharmaceutical ingredient-2 (API-2) and a plan to establish\ncomparability between API-1 and API-2, the U.S. FDA is unable to reach agreement on protocols designed to establish the safety and efficacy\nof Botreso®. We have completed the CMC documentation on the active pharmaceutical ingredient-2 (API-2) and a plan to establish\ncomparability between API-1 and API-2, which was initially submitted to the U.S FDA in October 2024. We are currently updating the Module\n3, stability data and other data, which will be submitted in Quarter 2 of 2026 to get any feedback from the U.S. FDA.\n\n \n\nThe following table sets forth a breakdown of\nthe major components of our research and development expenses in absolute amounts and as a percentage of our total research and development\nexpenses for the years ended December 31, 2023 and 2024:\n\n \n\n  \nYears ended December 31, \n\n  \n2023  \n2024 \n\n(in US$ thousands, except percentages) \nUS$  \n%  \nUS$  \n% \n\nContracted research expenses and clinical trial expenses \n 273  \n 26  \n 184  \n 20 \n\nPayroll \n 453  \n 42  \n 436  \n 47 \n\nDepreciation \n 110  \n 10  \n 103  \n 11 \n\nConsultancy and professional service fees \n 6  \n 1  \n 11  \n 1 \n\nOther expenses \n 229  \n 21  \n 193  \n 21 \n\nTotal \n 1,071  \n 100  \n 927  \n 100 \n\n** **\n\n129\n\n \n\n** **\n\n**General and Administrative Expenses**\n\n \n\nOur general and administrative expenses decreased\nby approximately US$594 thousand from the year ended December 31, 2023, to the year ended December 31, 2024, which was primarily\ndue to a US$534 thousand decrease in professional service expenses in connection with this offering and other consulting services and\na US$5 thousand decrease in payroll and other headcount-related expense due to a decrease in headcount of the general and administrative\noffice in the Taiwan subsidiary. We expect these costs to increase materially in the near future as we become a public company.\n\n** **\n\n**Interest Expense**\n\n \n\nOur interest expense increased by approximately\nUS$278 thousand from the year ended December 31, 2023 to the year ended December 31, 2024, which was primarily due to an increase\nin the interest rate of bank loan and loan from related parties, partially offset by a decrease in the short-term and long-term borrowing\nfor the year ended December 31, 2024.\n\n** **\n\n**Other Gain or Losses, net**\n\n \n\nOther gains and losses are primarily foreign exchange gains or losses,\ncontingency loss due to litigations and other non-operating gains or losses. Other gains increased by approximately US$967 thousand from\nthe year ended December 31, 2023 to the year ended December, 2024, primarily due to US$828 thousand of initial loss contingencies related\nto the penalty be paid to Taizhou Resource Bureau, which was recognized in 2023.\n\n** **\n\n**Comparison of the Fiscal Years Ended December 31, 2024 and 2025**\n\n \n\nThe following table sets forth a summary of our\nconsolidated results of operations for the years ended December 31, 2024 and 2025. This information should read together with our consolidated\nfinancial statements and related notes included elsewhere in this Annual Report. The operating results in any period are not necessarily\nindicative of the results that may be expected for any future period.\n\n \n\n \n \nYears Ended December 31,\n \n \nChange\n \n\n \n \n2024\n \n \n2025\n \n \nUS$\n \n \n%\n \n\n \n \n(amounts in US$ and in thousands)\n \n \n \n \n \n \n \n\nExpenses\n \n \n \n \n \n \n \n \n \n \n \n \n\nResearch and development\n \nUS$\n927\n \n \nUS$\n813\n \n \n \n(114\n)\n \n \n(12\n)\n\nSelling and marketing\n \n \n44 \n \n \n \n45 \n \n \n \n1\n \n \n \n2\n \n\nGeneral and administrative\n \n \n1,085 \n \n \n \n1,749 \n \n \n \n664\n \n \n \n61\n \n\nTotal operating expenses\n \n \n2,056 \n \n \n \n2,607 \n \n \n \n551\n \n \n \n27\n \n\nLoss from operations\n \n \n(2,056 \n)\n \n \n(2,607 \n)\n \n \n(551\n)\n \n \n(27\n)\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nOther incomes (expenses):\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nInterest income\n \n \n7 \n \n \n \n610 \n \n \n \n603\n \n \n \n8,614\n \n\nInterest expenses\n \n \n(1,035 \n)\n \n \n(2,539 \n)\n \n \n(1,504\n)\n \n \n(145\n)\n\nOther (losses) gains, net\n \n \n65 \n \n \n \n(135 \n)\n \n \n(200\n)\n \n \n(308\n)\n\nTotal other expense, net\n \n \n(963 \n)\n \n \n(2,064 \n)\n \n \n(1,101\n)\n \n \n(114\n)\n\nLoss before income tax\n \n \n(3,019 \n)\n \n \n(4,671 \n)\n \n \n(1,652\n)\n \n \n(55\n)\n\nIncome tax expense\n \n \n—\n \n \n \n—\n \n \n \n—\n \n \n \n—\n \n\nNet loss\n \nUS$\n(3,019)\n \n \nUS$\n(4,671)\n \n \n \n(1,652\n)\n \n \n(55\n)\n\n** **\n\n130\n\n \n\n** **\n\n**Revenue**\n\n \n\nWe did not generate any revenue for the years\nended December 31, 2024 and 2025.\n\n \n\n**Research and Development Expenses**\n\n \n\nOur research and development expenses decreased by 12% from approximately\nUS$927 thousand for the year ended December 31, 2024, to approximately US$813 thousand for the year ended December 31, 2025. This decrease\nwas primarily driven by lower contracted research and clinical trial expenses for our PCP program; as the Phase II trials reached their\nfinal stages in the first half of 2025, the majority of significant milestone costs and clinical activities had already been recognized\nin 2024. Additionally, there was a decrease in depreciation and payroll and other headcount-related expense due to a reduction in the\nresearch and development office staff in our Taiwan subsidiary. We anticipate research and development expenses to increase in the future\nas we plan to initiate further clinical trials for PCP in Taiwan and apply for the necessary approvals to conduct the same clinical trials\nfor PCP in other relevant jurisdictions. Further, given the withdrawal of our NDA from US FDA review for Botreso® with\nAPI-1, we anticipate further drug substance and drug product development and additional clinical trials for that key drug candidate with\nAPI-2.\n\n \n\nThe following table sets forth a breakdown of the\nmajor components of our research and development expenses in absolute amounts and as a percentage of our total research and development\nexpenses for the years ended December 31, 2024 and 2025:\n\n \n\n  \nYears ended December 31, \n\n  \n2024  \n2025 \n\n(in US$ thousands, except percentages) \nUS$  \n%  \nUS$  \n% \n\nContracted research expenses and clinical trial expenses \n 184  \n 20  \n 81  \n 10 \n\nPayroll \n 436  \n 47  \n 422  \n 52 \n\nDepreciation \n 103  \n 11  \n 82  \n 10 \n\nConsultancy and professional service fees \n 11  \n 1  \n 28  \n 3 \n\nOther expenses \n 193  \n 21  \n 200  \n 25 \n\nTotal \n 927  \n 100  \n 813  \n 100 \n\n** **\n\n**General and Administrative\nExpenses**\n\n \n\nOur general and administrative expenses increased\nby approximately US$664 thousand for the year ended December 31, 2025, from the year ended December 31, 2024. This increase\nwas primarily attributable to a US$287 thousand increase in Nasdaq annual listing fees, US$181 thousand\nin professional service fees related to regulatory compliance and reporting obligations, and US$135 thousand in additional directors’\nand officers’ liability insurance premiums. We expect these expenses to increase for the foreseeable future as we expand our\nheadcount and infrastructure to support our operations as a public company.\n\n \n\n**Interest Income**\n\n** **\n\nOur interest income increased by approximately US$603 thousand from\nthe year ended December 31, 2024 to the year ended December 31, 2025, was primarily attributable to interest earned on a new loan issued\nto shareholder during the year ended December 31, 2025.\n\n \n\n**Interest Expense**\n\n** **\n\nOur interest expense increased by approximately US$1,504 thousand from\nthe year ended December 31, 2024 to the year ended December 31, 2025, which was primarily driven by a US$1,436 thousand upward\nadjustment in accrued interest on accrued liabilities - guarantee obligation arising from the share purchase agreement with Taizhou City\nOptimization and Upgrade Investment Partnership, following an updated assessment of legal claims and correspondence from its counsel.\nFurthermore, the increase was influenced by higher prevailing interest rates on bank and related-party loans, the effects of which were\npartially offset by a decrease in our average outstanding borrowings during 2025.\n\n \n\n131\n\n \n\n \n\n**Other Losses, net**\n\n** **\n\nOther gains and losses are primarily foreign exchange gains or losses,\ncontingency loss due to litigations and other non-operating gains or losses. Other losses increased by approximately US$200 thousand from\nthe year ended December 31, 2024 to the year ended December, 2025, primarily due to an increase in the foreign exchange loss.\n\n \n\n**B. Liquidity and Capital Resources**\n\n \n\nAs of the date of this annual report, we have\nnot generated any revenue. We incurred net losses of approximately US$4,400, thousand, US$3,019 thousand, and US$4,671 thousand for the years\nended December 31, 2023, 2024, and 2025, respectively. Our primary use of cash is funding our research and development expenses and\nprofessional services expenses. We used approximately US$2,601 thousand, US$3,624 thousand, and US$3,041 thousand in cash for our operating\nactivities for the years ended December 31, 2023, 2024, and 2025, respectively. In addition, we are involved in several legal\nproceedings and the outcomes may be unfavorable to us. One of legal proceedings was resolved on August 21, 2024 and we returned RMB\n10,952 thousand (US$1,507 thousand) of government subsidy to the New District Administrative Committee in 2024. The remaining subsidy\nand related interest expenses will be repaid in the future. As of December 31, 2024 and 2025, we have accrued liabilities of approximately\nUS$22,727 thousand and US$25,112 thousand, respectively, and will require additional resources to settle these obligations. We have financed\nour operations primarily through the issuance of our ordinary shares and loan from banks, third parties, and related parties. As of December 31,\n2024 and 2025, we had cash and cash equivalents of approximately thousand, US$98 thousand and US$1,175 thousand, respectively. Our\ncash consists primarily of bank deposits which are unrestricted as to withdrawal and use. Our ability to fund the operations is highly\ncontingent on raising additional capital until we receive a regulatory approval that provides an ability to generate sufficient revenue,\nif ever. As such, we concluded that there is substantial doubt about our ability to continue as a going concern within one year after\nthe issuance date of the consolidated financial statements.\n\n \n\nWe intend to pursue an additional offering to\nfund our future operations. However, there can be no assurance that we will be successful in completing such an offering on a timely basis\nor on terms acceptable to us. In the event that a public offering is not completed for a sufficient amount, our financing strategy includes\nobtaining credit facilities or bridge loans from related parties, in addition to pursuing other alternative such as third-party debt financing\nor strategic collaboration agreements. There can be no assurances, however, that the current operating plan will be achieved or that such\nrelated party funding or other financing will be available on commercially reasonable terms, or at all. If we are unable to obtain sufficient\nfunding from by April 2027, we may have to delay our development efforts, limit activities and reduce research and development costs,\nwhich could adversely affect our business and the consolidated financial statements.\n\n \n\nAlthough we conducted Phase III clinical\ntrials for our core drug candidate, Botreso®, and filed a new drug application for Botreso® to the\nUS FDA, the new drug application was subsequently withdrawn. We voluntarily withdrew our NDA on November 30, 2022, in order to develop\nmore information about API-2 for the US FDA’s review and to address ongoing questions regarding demonstrated difference between\nBotreso® and placebo for the primary efficacy endpoint in a clinical study for Botreso®, and to address\nother questions US FDA had previously identified in our NDA. Respecting our other drug candidates, PCP has just completed Phase II\nclinical trials and IC is under preclinical studies. We expect our expenses to increase substantially as compared to prior periods in\nconnection with our ongoing activities, particularly as we continue the development of PCP and perform additional clinical trials and\npursue regulatory approval for Botreso® and PCP. Furthermore, since the closing of our initial public offering,\nwe have incurred additional costs associated with operating as a public company. Accordingly, we anticipate that we will need substantial\nadditional funding in connection with our continuing operations. These factors raise substantial doubt about our ability to continue as\na going concern. Our consolidated financial statements have been prepared assuming that we will continue as a going concern, and do not\ninclude any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and\nclassification of liabilities that may result from our possible inability to continue as a going concern.\n\n \n\n132\n\n \n\n \n\nWe expect that our expenses will continue to increase\nsubstantially and that we will continue to incur significant operating losses and negative operating cash flows as we fund both ongoing\nresearch and development activities and new activities as well as working capital needs. We have based our estimates on assumptions that\nmay prove to be wrong, and we may use our available capital resources sooner than we currently expect or on alternative uses. Because\nof the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to\nestimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization\nof our drug candidates.\n\n \n\nWe believe that our cash and cash equivalents,\ntogether with our cash generated from our public offerings, will be sufficient to meet our current and anticipated needs for general corporate\npurposes for at least the next 12 months. However, we may consider to raise additional capital to fund future operations, and our future\ncapital requirements will depend on many factors, including:\n\n \n\n●the number and development requirements of the drug candidates\nwe pursue;\n\n \n\n●the scope, progress, timing, results and costs of discovering,\nresearching and developing drug candidates, and conducting preclinical studies and clinical trials;\n\n \n\n●the scope, prioritization and number of our research and\ndevelopment programs;\n\n \n\n●the costs, timing and outcome of regulatory review of our\ndrug candidates;\n\n \n\n●the cost of manufacturing our drug candidates and any products\nwe commercialize, including costs associated with expanding our supply chain;\n\n \n\n●the cost and timing of future commercialization activities,\nincluding product manufacturing, marketing, sales and distribution, for any of our drug candidates for which we receive regulatory approval;\n\n \n\n●the cash received, if any, from commercial sales of any drug\ncandidates for which we receive regulatory approval;\n\n \n\n●our ability to establish and maintain strategic collaborations,\nlicensing or other arrangements and the financial terms of such collaborations and arrangements;\n\n \n\n●the extent to which we acquire or in-license other drug\ncandidates and technologies;\n\n \n\n●our headcount growth and associated costs;\n\n \n\n●the costs, timing and outcome of preparing, filing and prosecuting\npatent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;\n\n \n\n●resources required to develop and implement policies and\nprocesses to promote ongoing compliance with applicable healthcare laws and regulations;\n\n \n\n●the costs of operating as a public company in the United States.\n\n \n\nUntil such time, if ever, as we can generate substantial\nproduct revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic\nalliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity,\nyour ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely\naffect your rights as a holder of our shares. Debt financing, if available, may involve agreements that include covenants limiting or\nrestricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.\nIf we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third\nparties, we may have to delay our future revenue streams or the development of drug candidates or grant licenses on terms that may not\nbe favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay,\nlimit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates\nthat we would otherwise prefer to develop and market ourselves. For additional information regarding\nthe risks related to our need to obtain additional capital, see “Risk Factors — Risks Related to Our Business and\nIndustry — We have recorded net cash outflow from operating activities since our inception and we expect to need to obtain\nadditional financing to fund our operations. If we are unable to obtain such financing, we may be unable to complete the development and\ncommercialization of our drug candidates.”\n\n \n\n133\n\n \n\n \n\nThe following table summarizes the key components\nof our cash flows for the period indicated.\n\n \n\n  \nYears ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \n(amounts in US$ and in thousands) \n\nNet cash used in operating activities \nUS$(2,601) \nUS$(3,624) \nUS$(3,041)\n\nNet cash provided by (used in) investing activities \n 95  \n -  \n (13,507)\n\nNet cash provided by financing activities \n 2,028  \n 1,990  \n 17,633 \n\nEffects of exchange rate changes on cash and restricted cash \n (54) \n (7) \n (8)\n\nNet (decreases) increase in cash and restricted cash \nUS$(532) \nUS$(1,641) \nUS$1,077 \n\n** **\n\n**Operating Activities**\n\n \n\nNet cash used in operating activities was approximately\nUS$2,601 thousand for the year ended December 31, 2023. This was primarily attributable to a net loss of US$4,400 thousand, adjusted for\nnon-cash items of US$681 thousand and further impacted by changes in operating assets and liabilities, including an increase in accrued\nexpenses of US$254 thousand, and an increase in other current liabilities of US$878 thousand, partially offset by a decrease in operating\nlease liabilities of US$128 thousand.\n\n \n\nNet cash used in operating activities was approximately\nUS$3,624 thousand for the year ended December 31, 2024. This primarily consisted of a net loss of US$3,019 thousand, adjusted for non-cash\nitems of US$881 thousand, and was further impacted by a decrease in other current liabilities of US$1,542 thousand. This decrease was\nprimarily associated with the repayment of a government subsidy to the New District Administrative Committee.\n\n \n\nNet cash used in operating activities was approximately US$3,041 thousand\nfor the year ended December 31, 2025. This result primarily reflected a net loss of US$4,671 thousand, adjusted for non-cash items of\nUS$19,105 thousand, and changes in working capital, including an increase in prepayments and other assets of US$749 thousand, mainly due\nto interest receivable on a loan provided to a shareholder, a decrease in accrued expenses of US$159 thousand, and a decrease in operating\nlease liabilities of US$130 thousand. These uses of cash were partially offset by an increase in accrued liabilities of US$21,603 thousand\nand an increase in accrued expenses due to related parties of US$134 thousand.\n\n** **\n\n**Investing Activities**\n\n \n\nNet cash provided by investing activities was approximately US$95 thousand\nfor the year ended December 31, 2023, which resulted from the proceeds from maturity of time deposits with original maturities more\nthan three months.\n\n \n\nNo cash was provided by or used in investing activities\nduring the year ended December 31, 2024.\n\n \n\nNet cash used in investing activities was approximately US$13,507 thousand\nfor the year ended December 31, 2025. This was primarily driven by loans provided to a shareholder and purchases of U.S. Treasury Bills,\npartially offset by proceeds from the partial collection of such loans and sale of U.S. Treasury Bills.\n\n** **\n\n134\n\n \n\n** **\n\n**Financing Activities**\n\n \n\nNet cash provided by financing activities was\napproximately US$2,028 thousand for the year ended December 31, 2023, which consisted primarily of proceeds from short-term bank\nloans and loan from related parties of approximately US$11,829 thousand, partially offset by repayment of short-term, long-term bank\nloans and loan from related parties of approximately US$9,356 thousand.\n\n \n\nNet cash provided by financing activities was\napproximately US$1,990 thousand for the year ended December 31, 2024, which consisted primarily of proceeds from short-term bank\nloans and loan from related parties of approximately US$11,668 thousand, partially offset by repayment of short-term and long-term bank\nloans of approximately US$9,465 thousand and an increase in payments of deferred offering costs of US$213 thousand.\n\n \n\nNet cash provided by financing activities was\napproximately US$17,633 thousand for the year ended December 31, 2025. This was primarily attributable to $17,771 thousand in net proceeds\nfrom our initial public offering and US$24,472 thousand in proceeds from short-term bank loans and loans from related parties. These inflows\nwere partially offset by US$24,496 thousand used for the repayment of short-term and long-term bank loans, as well as repayments of loans\nfrom related parties and third parties.\n\n \n\n**Material Cash Requirements**\n\n** **\n\n**Contingencies**\n\n** **\n\nFrom time to time, we may have certain contingent liabilities that\narise in the ordinary course of business activities. We accrue a liability for these matters when it is probable that a liability has\nbeen incurred and the amount can be reasonably estimated. As of the date of this annual report, we are not aware of any current pending\nlegal matters or claims other than the litigation with Taizhou City Optimization and Upgrade Investment Partnership (Limited Partnership)\nand Taizhou Bay New Administrative Committee. See “Business — Legal Proceeding and Compliance”.\n\n \n\n**Contractual Obligations and Commitments**\n\n \n\nIn the course of normal business operations, we\nhave agreements with contract service providers to assist in the performance of clinical trial activities. Such agreements are generally\ncancellable upon reasonable notice and payment of costs incurred. Upon such agreements, we need to pay expenditures related to clinical\ntrial activities, which are based on actual costs incurred.\n\n \n\nAs of December 31, 2025, the future minimum\npayments under certain of our contractual obligations and commitments were as follows:\n\n \n\n  \nPayments Due In \n\n  \nTotal  \nLess than 1 year  \n1-2 years  \n3-5 years  \nThereafter \n\nContractual obligations \n   \n   \n   \n   \n  \n\nOperating leases \nUS$109  \nUS$82  \nUS$23  \nUS$4  \nUS$       — \n\nShort-term loans \n 7,711  \n 7,711  \n —  \n —  \n — \n\nLong-term loans (including the current portion) \n 2,124  \n 571  \n 265  \n 841  \n 447 \n\nLoans from related parties \n 6,176  \n 3,122  \n 3,054  \n —  \n — \n\nLoans from third parties \n 2,431  \n 328  \n 2,103  \n —  \n — \n\nTotal \nUS$18,551  \nUS$\n11,814  \nUS$5,445  \nUS$845  \nUS$447 \n\n \n\n135\n\n \n\n \n\n**Off-Balance Sheet Arrangements**\n\n \n\nThere are no off-balance sheet arrangements between us and any\nother entity that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses,\nresults of operations, liquidity, capital expenditures or capital resources that is material to shareholders. We have not entered into\nany financial guarantees or other commitments to guarantee the payment obligations of any third parties except for the guarantee mentioned\nin Note 18 of our audited consolidated financial statements included elsewhere in this annual report. In addition, we have not entered\ninto any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in\nour consolidated financial statements included elsewhere in this annual report. Furthermore, we do not have any retained or contingent\ninterest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We\ndo not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us\nor engages in leasing, hedging or product development services with us.\n\n \n\n**C. Research and Development, Patents and\nLicenses, etc.**\n\n \n\nSee “Item 4. Information\non the Company — B. Business Overview — Intellectual Property.”\n\n \n\n**D. Trend Information**\n\n \n\nOther than as disclosed elsewhere in this annual\nreport, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect\non our net revenue, income from continuing operations, profitability, liquidity, or capital resources, or that would cause reported financial\ninformation not necessarily to be indicative of future operating results or financial condition. For a detailed discussion of trend information,\nsee “— A. Operating Results—key Factors affecting our results of operations.”\n\n \n\n**E. Critical Accounting Estimates**\n\n* *\n\nOur consolidated financial statements are prepared in accordance with\nU.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments\nthat affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience\nand other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis.\nOur actual results may differ from these estimates. Our most critical accounting policies are summarized below. See Note 3 “Summary\nof Significant Accounting Policies” to our consolidated financial statements beginning on page F-8 of this annual report for a description\nof our other significant accounting policies.\n\n \n\n**Research and Development Expenses**\n\n \n\nResearch and development expenses primarily include\n(1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to preclinical\ntesting of our technologies and clinical trials such as payments to CROs, investigators and clinical trial sites that conduct the clinical\nstudies; (3) costs to develop our drug candidates, including raw materials and supplies, product testing, clinical trial equipment\nand its depreciation, and facility related expenses, (4) other research and development expenses. Research and development expenses\nare charged to expenses as incurred when these expenditures relate to our research and development services and have no alternative future\nuses.\n\n \n\nAs part of the process of preparing our consolidated\nfinancial statements, we are required to estimate our accrued expenses resulting from obligations under contracts with vendors, consultants\nand CROs, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations,\nwhich vary from contract to contract and may result in payment flows that do not match the periods over which the services are provided\nunder such contracts. We reflect research and development expenses in our consolidated financial statements by matching those expenses\nwith the period in which services and efforts are expended. We account for these expenses according to the progress of the preclinical\nor clinical study as measured by the timing of various aspects of the study or related activities and determine accrual estimates through\nreview of the underlying contracts along with discussions with research and other key personnel as to the progress of studies, or other\nservices being conducted. During the course of a study, we adjust our rate of expense recognition if actual results differ from our estimates.\nEstimates for accrued research and development expenses are classified as accrued expenses on the accompanying consolidated balance sheet.\n\n \n\n136\n\n \n\n \n\n**Impairment of Long-lived Assets**\n\n** **\n\nWe review our long-lived assets, including\nintangible assets with finite lives, for recoverability whenever events or changes in circumstances indicate that the carrying amount\nof the assets may not be fully recoverable. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows,\nimpairment is measured based on the difference between the carrying amount of the assets and fair value which is generally an expected\npresent value cash flow technique. Our estimates of future cash flows attributable to our assets require significant judgment based on\nour historical and anticipated results and are subject to many factors. Factors we consider important which could trigger an impairment\nreview include significant negative industry or economic trends, under-performance of a drug candidate in relation to expectations,\nand significant changes in the manner of our use of the acquired assets or the strategy for our overall business. If our assumptions are\nnot correct, there could be an impairment loss in subsequent periods. For the years ended December 31, 2023, 2024, and 2025,\nno impairment loss of long-lived assets was recognized.\n\n** **\n\n**Guarantee Liabilities**\n\n \n\nWe provided a joint and several guarantee for\nthe performance of buyback shares obligation of the certain shareholders who transferred some of their shares in the Company to others.\nThe guarantee of buyback shares obligation falls within the scope of ASC 460-10-15-4(b). The guarantee liability is recognized at the\nfair value at the inception of the guarantee and subsequently remeasured at each reporting period. Changes in the fair value of the guarantee\nliability are recorded as changes in guarantee liabilities in the consolidated statements of operations and comprehensive loss. When we\nsettle the guarantee liability through the performance of the guarantee by making requisite payments to buy back shares, we record a corresponding\ndeduction to the guarantee liability. When we are released from the guarantee obligation due to the buyback of shares performed by certain\nshareholders, it is recognized as a reversal of the deduction to the guarantee liability.\n\n \n\n**Loss contingencies**\n\n** **\n\nWe are subject to certain legal proceedings and\ncontingencies, the outcome of which are subject to significant uncertainty. We accrue for estimated losses if it is probable that a liability\nhas been incurred and the amount of the loss can be reasonably estimated. Legal costs incurred in connection with loss contingencies are\nexpensed as incurred. We use judgment and evaluate whether a loss contingency arising from litigation or an unasserted claim should be\ndisclosed or recorded. The outcome of legal proceedings and other contingencies is inherently uncertain and often difficult to estimate.\nAccrued legal contingencies are reported within other current liabilities or other non-current liabilities in the consolidated balance\nsheets based on the period in which we expect the contingency to be settled.\n\n** **\n\n**F. Recent Issued Accounting Pronouncements**\n\n \n\nA list of recently issued accounting pronouncements\nthat are relevant to us is included in Note 3 “Summary of Significant Accounting Policies — Recent Accounting\nPronouncements” of our consolidated financial statements beginning on page F-15 of this annual report.\n\n \n\n**G. JOBS Act**\n\n \n\nIn April 2012, the JOBS Act was enacted. Section 107 of the\nJOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised\naccounting standards applicable to public companies. This provision allows an emerging growth company to delay the adoption of certain\naccounting standards until those standards would otherwise apply to private companies. This transition period is only applicable under\nU.S. GAAP, which is the standard under which we prepare our consolidated financial statements.\n\n \n\nWe evaluated the benefits of relying on other exemptions and reduced\nreporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we intend to rely on all of these\nexemptions, including but not limited to, (i) providing an auditor’s attestation report on our system of internal controls\nover financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) complying with any requirement that\nmay be adopted by the Public Company Accounting Oversight Board, regarding mandatory audit firm rotation or a supplement to the auditor’s\nreport providing additional information about the audit and the financial statements, known as the auditor discussion and analysis and\n(iii) complying with any new or revised financial accounting standards until such date that a private company is otherwise required\nto comply with such new or revised accounting standards. We will remain an emerging growth company until the earliest of (i) the\nlast day of the fiscal year in which we have total annual gross revenues of US$1.235 billion or more; (ii) the last day\nof the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the\ndate on which we have issued more than US$1.0 billion in non-convertible debt during the previous three years; and (iv) the\nlast day of the fiscal year in which we are deemed to be a “large accelerated filer” under the Securities Exchange Act\nof 1934, as amended, or the Exchange Act, which would occur if the market value of the ordinary shares that are held by non-affiliates\nexceeds US$700.0 million as of the last business day of our most recently completed second fiscal quarter. \n\n \n\n137"}