{"url_path":"/sec/sxtc/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 KEY INFORMATION","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-07-01","source_url":"https://www.sec.gov/Archives/edgar/data/1723980/0001213900-26-074310-index.html","accession_number":"0001213900-26-074310","cik":"0001723980","ticker":"SXTC","issuer_name":"China SXT Pharmaceuticals, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1723980/0001213900-26-074310-index.html","primary_entity_key":"0001723980","primary_entity_name":"China SXT Pharmaceuticals, Inc."},"word_count":21221,"has_tables":true,"body_markdown":"ITEM 3. KEY INFORMATION\n\n \n\n3.A. [Reserved]\n\n \n\n3.B. Capitalization and Indebtedness\n\n \n\nNot Applicable.\n\n \n\n3.C. Reasons For The Offer And Use Of Proceeds\n\n \n\nNot Applicable.\n\n \n\n3.D. Risk Factors\n\n \n\n*An investment in our Class\nA Ordinary Shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below together\nwith all other information contained in this annual report, including the matters discussed under the headings “Forward-Looking\nStatements” and “Item 5. Operating and Financial Review and Prospects” before you decide to invest in our Class A Ordinary\nShares. We are a holding company with substantial operations in China and are subject to a legal and regulatory environment that in many\nrespects differs from the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable\nto us, actually occur, our business, financial condition, results of operations, liquidity and our future growth prospects could be materially\nand adversely affected.*\n\n \n\nSummary of Risk Factors\n\n \n\n*Risks Related to Our Business*\n\n \n\nRisks and uncertainties related\nto our business include, but are not limited to, the following:\n\n \n\n●We\nface risks related to natural disasters, unusually adverse weather conditions, pandemic outbreaks,\nin particular, the current coronavirus pandemic, terrorist acts and global political events,\nall of which could result in adverse effects to our business and financial performance. See\na more detailed discussion of this risk factor on page 7 of this annual report.\n\n \n\n●We\nhave limited sources of working capital and will need substantial additional financing. See\na more detailed discussion of this risk factor on page 7 of this annual report.\n\n   \n\n ●Our failure to compete effectively may adversely\naffect our ability to generate revenue. See a more detailed discussion of this risk factor\non page 8 of this annual report.\n\n \n\n●Our\ndependence on a small number of customers could adversely affect our business or results\nof operations. See a more detailed discussion of this risk factor on page 8 of this annual\nreport.\n\n \n\n●We\nare dependent on certain key personnel and loss of these key personnel could have a material\nadverse effect on our business, financial condition and results of operations. See a more\ndetailed discussion of this risk factor on page 8 of this annual report.\n\n \n\n●We\nmay not be able to hire and retain qualified personnel to support our growth and if we are\nunable to retain or hire these personnel in the future, our ability to improve our products\nand implement our business objectives could be adversely affected. See a more detailed discussion\nof this risk factor on page 8 of this annual report.\n\n \n\n●If\nwe fail to increase our brand recognition, we may face difficulty in obtaining new customers.\nSee a more detailed discussion of this risk factor on page 9 of this annual report.\n\n   \n\n ●Any\ndisruption in the supply chain of raw materials and our products could adversely impact our\nability to produce and deliver products. See a more detailed discussion of this risk factor\non page 9 of this annual report.\n\n   \n\n ●Our\nsuccess depends on our ability to protect our intellectual property. See a more detailed\ndiscussion of this risk factor on page 9 of this annual report.\n\n \n\n3\n\n \n\n \n\n ●Our\nTCMP business is subject to inherent risks relating to product liability and personal injury\nclaims. See a more detailed discussion of this risk factor on page 10 of this annual report.\n\n   \n\n ●We\nface risks related to research and the ability to develop new TCMP products. See a more detailed\ndiscussion of this risk factor on page 10 of this annual report.\n\n   \n\n ●Our\nbusiness requires a number of permits and licenses. See a more detailed discussion of this\nrisk factor on page 10 of this annual report.\n\n   \n\n ●Price\ncontrol regulations in the PRC may decrease our profitability. See a more detailed discussion\nof this risk factor on page 11 of this annual report.\n\n   \n\n ●If\nthe TCMP products we produce are replaced by other medicines or are removed from the PRC’s\ninsurance catalogue in the future, our revenue may suffer. See a more detailed discussion\nof this risk factor on page 11 of this annual report.\n\n   \n\n ●Adverse\npublicity associated with our products, ingredients or network marketing program, or those\nof similar companies, could harm our financial condition and operating results. See a more\ndetailed discussion of this risk factor on page 11 of this annual report.\n\n \n\n*Risks Related to Our Corporate Structure*\n\n \n\nWe are also subject to risks\nand uncertainties related to our corporate structure, including, but are not limited to, the following:\n\n \n\n●We\ndo not have direct ownership of our operating entities in China and rely on VIE Agreements\nwith the VIE for our business operations, which may not be as effective in providing operational\ncontrol or enabling us to derive benefits as through ownership of controlling equity interests.\nSee a more detailed discussion of this risk factor on page 12 of this annual report.\n\n   \n\n ●Taizhou Suxuantang’s shareholders may have\npotential conflicts of interest with us, which may materially and adversely affect our business\nand financial condition. See a more detailed discussion of this risk factor on page 12\nof this annual report.\n\n \n\n●Contractual\narrangements in relation to our variable interest entity may be subject to scrutiny by the\nPRC tax authorities and they may determine that we or our PRC variable interest entity owe\nadditional taxes, which could negatively affect our results of operations and the value of\nyour investment. See a more detailed discussion of this risk factor on page 13 of this annual\nreport.\n\n \n\n●The\napproval of the China Securities Regulatory Commission and other compliance procedures may\nbe required in connection with this offering, and, if required, we cannot predict whether\nwe will be able to obtain such approval. As a result, both you and us face uncertainty about\nfuture actions by the PRC government that could significantly affect our financial performance\nand the enforceability of the VIE Agreements. See a more detailed discussion of this risk\nfactor on page 13 of this annual report.\n\n \n\n●PRC\nlaws and regulations governing our current business operations are sometimes vague and uncertain.\nSee a more detailed discussion of this risk factor on page 15 of this annual report.\n\n \n\n●Uncertainties\nexist with respect to the interpretation and implementation of the PRC Foreign Investment\nLaw and how it may impact the viability of our current corporate structure and business operations.\nSee a more detailed discussion of this risk factor on page 16 of this annual report.\n\n \n\n●We\nare a holding company and we rely for funding on dividend payments from our variable interest\nentity, which are subject to restrictions under PRC laws. See a more detailed discussion\nof this risk factor on page 16 of this annual report.\n\n \n\n●If\nwe exercise the option to acquire equity ownership of Taizhou Suxuantang, the ownership transfer\nmay subject us to certain limitation and substantial costs. See a more detailed discussion\nof this risk factor on page 17 of this annual report.\n\n \n\n4\n\n \n\n \n\n*Risks Related to Our Class A Ordinary Shares\nOrdinary Shares*\n\n \n\nIn addition to the risks\ndescribed above, we are subject to general risks and uncertainties relating to our Class A Ordinary Shares, including, but not limited\nto, the following:\n\n \n\n●Our\nClass A Ordinary Shares may be thinly traded and you may be unable to sell at or near ask\nprices or at all if you need to sell your shares to raise money or otherwise desire to liquidate\nyour shares. See a more detailed discussion of this risk factor on page 17 of this annual\nreport.\n\n   \n\n ●The\nmarket price for our Class A Ordinary Shares may be volatile. See a more detailed discussion\nof this risk factor on page 17 of this annual report.\n\n   \n\n ●Our\ndual-class voting structure will limit your ability to influence corporate matters and could\ndiscourage others from pursuing any change of control transactions that holders of our Class\nA Ordinary Shares may view as beneficial. See a more detailed discussion of this risk factor\non page 18 of this annual report.\n\n   \n\n ●We\ncannot predict the effect our dual-class structure may have on the market price of our Class\nA Ordinary Shares. See a more detailed discussion of this risk factor on page 18 of this\nannual report.\n\n   \n\n ●If\nwe fail to establish and maintain proper internal financial reporting controls, our ability\nto produce accurate financial statements or comply with applicable regulations could be impaired.\nSee a more detailed discussion of this risk factor on page 19 of this annual report.\n\n   \n\n ●As\na foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements\nthat apply to a domestic U.S. issuer, and are permitted to adopt certain home country practices\nin relation to corporate governance matters that differ significantly from the NASDAQ Stock\nMarket corporate governance listing standards. See a more detailed discussion of this risk\nfactor on page 19 of this annual report.\n\n   \n\n ●We\nmay lose our foreign private issuer status in the future, which could result in significant\nadditional costs and expenses. See a more detailed discussion of this risk factor on page\n20 of this annual report.\n\n   \n\n ●The\nrequirements of being a public company may strain our resources and divert management’s\nattention. See a more detailed discussion of this risk factor on page 20 of this annual report.\n\n   \n\n ●We\ndo not intend to pay dividends for the foreseeable future. See a more detailed discussion\nof this risk factor on page 20 of this annual report.\n\n   \n\n ●The\nobligation to disclose information publicly may put us at a disadvantage to competitors that\nare private companies. See a more detailed discussion of this risk factor on page 21 of this\nannual report.\n\n \n\n*Risks Related to Doing Business in China*\n\n \n\nWe face risks and uncertainties\nrelating to doing business in the PRC in general, including, but not limited to, the following:\n\n \n\n●Joint\nstatement by the SEC and the PCAOB, rule changes by Nasdaq, and the HFCA Act all call for\nadditional and more stringent criteria to be applied to emerging market companies upon assessing\nthe qualification of their auditors, especially the non-U.S. auditors who are not inspected\nby the PCAOB. These developments could add uncertainties to our offerings. See a more detailed\ndiscussion of this risk factor on page 21 of this annual report.\n\n   \n\n ●Changes\nin China’s economic, political, or social conditions could have a material adverse\neffect on our business and operations. See a more detailed discussion of this risk factor\non page 22 of this annual report.\n\n \n\n●The\nPRC government has significant authority to intervene or influence the China operations of\nan offshore holding company, such as ours, at any time. The PRC government may exert more\ncontrol over offerings conducted overseas and/or foreign investment in China-based issuers.\nIf the PRC government exerts more oversight and control over offerings that are conducted\noverseas and/or foreign investment in China-based issuers and we were to be subject to such\noversight and control, it may result in a material adverse change to our business operations,\nsignificantly limit or completely hinder our ability to offer or continue to offer securities\nto investors, and cause the Class A Ordinary Shares to significantly decline in value or\nbecome worthless. See a more detailed discussion of this risk factor on page 22 of this annual\nreport.\n\n   \n\n ●Recent greater oversight by the CAC over data\nsecurity, particularly for companies seeking to list on a foreign exchange, could adversely\nimpact our business and our offering. See a more detailed discussion of this risk factor\non page 23 of this annual report.\n\n   \n\n ●The Opinions, the Trial Measures, and the revised\nProvisions recently issued by the PRC authorities may subject us to additional compliance\nrequirements in the future. See a more detailed discussion of this risk factor on page 23\nof this annual report.\n\n \n\n●The\nuncertainties with respect to the Chinese legal system, including uncertainties regarding\nthe enforcement of laws, and sudden or unexpected changes in laws and regulations in China\nwith little advance notice could adversely affect us and limit the legal protections available\nto you and us. See a more detailed discussion of this risk factor on page 24 of this annual\nreport.\n\n \n\n5\n\n \n\n \n\n ●If the PRC government determines that\nthe contractual arrangements constituting part of the VIE structure do not comply with PRC\nregulations, or if these regulations change or are interpreted differently in the future,\nwe may be unable to assert our contractual rights over the assets of the VIE, and our Class\nA Ordinary Shares may decline in value or become worthless. See a more detailed discussion\nof this risk factor on page 25 of this annual report.\n\n \n\n●We\nmay have difficulty in enforcing any rights we may have under the VIE Agreements in PRC.\nSee a more detailed discussion of this risk factor on page 25 of this annual report.\n\n \n\n●It\nmay be difficult for overseas shareholders and/or regulators to conduct investigation or\ncollect evidence within China. See a more detailed discussion of this risk factor on page\n26 of this annual report.\n\n \n\n●We\nface exposure to foreign currency exchange rate fluctuations. See a more detailed discussion\nof this risk factor on page 26 of this annual report.\n\n   \n\n ●PRC regulation of loans to, and direct\ninvestments in, PRC entities by offshore holding companies may delay or prevent us from using\nproceeds from our future financing activities to make loans or additional capital contributions\nto our PRC operating subsidiaries. See a more detailed discussion of this risk factor on\npage 27 of this annual report.\n\n   \n\n ●Labor disputes could significantly affect\nour operations. See a more detailed discussion of this risk factor on page 27 of this annual\nreport.\n\n   \n\n ●Adverse changes in political and economic\npolicies of the PRC government could have a material adverse effect on the overall economic\ngrowth of China, which could reduce the demand for our products and materially and adversely\naffect our competitive position. See a more detailed discussion of this risk factor on page\n27 of this annual report.\n\n   \n\n ●Labor laws in the PRC may adversely affect\nour results of operations. See a more detailed discussion of this risk factor on page 27\nof this annual report.\n\n   \n\n ●Under the Enterprise Income Tax Law, we\nmay be classified as a “Resident Enterprise” of China. Such classification will\nlikely result in unfavorable tax consequences to us and our non-PRC stockholders. See a more\ndetailed discussion of this risk factor on page 27 of this annual report.\n\n   \n\n ●We may be exposed to liabilities under\nthe Foreign Corrupt Practices Act and Chinese anti-corruption law. See a more detailed discussion\nof this risk factor on page 28 of this annual report.\n\n   \n\n ●Governmental control of currency conversion\nmay affect the value of your investment. See a more detailed discussion of this risk factor\non page 29 of this annual report.\n\n   \n\n ●Our business may be materially and adversely\naffected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution\nor liquidation proceeding. See a more detailed discussion of this risk factor on page 29\nof this annual report.\n\n   \n\n ●Fluctuations in exchange rates could adversely\naffect our business and the value of our securities. See a more detailed discussion of this\nrisk factor on page 29 of this annual report.\n\n   \n\n ●If we become directly subject to the recent\nscrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may\nhave to expend significant resources to investigate and resolve the matter which could harm\nour business operations, and our reputation and could result in a loss of your investment\nin our stock, especially if such matter cannot be addressed and resolved favorably. See a\nmore detailed discussion of this risk factor on page 30 of this annual report.\n\n   \n\n ●You may face difficulties in protecting\nyour interests and exercising your rights as a stockholder since we conduct substantially\nall of our operations in China, and almost all of our officers and directors reside outside\nthe U.S. See a more detailed discussion of this risk factor on page 30 of this annual report.\n\n   \n\n ●You may experience difficulties in effecting\nservice of legal process, enforcing foreign judgments or bringing actions in China against\nus or our management named in this annual report based on foreign laws. See a more detailed\ndiscussion of this risk factor on page 30 of this annual report.\n\n \n\n6\n\n \n\n \n\n*Risks Related to Our Business*\n\n \n\n*We face risks related to natural disasters,\nunusually adverse weather conditions, pandemic outbreaks, in particular, the current coronavirus pandemic, terrorist acts and global\npolitical events, all of which could result in adverse effects to our business and financial performance.*\n\n \n\nGlobal pandemics, epidemics\nin China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), COVID-19, Middle East\nrespiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, and avian flu, as well as hurricanes, earthquakes,\ntsunamis, or other natural disasters could disrupt our business operations, reduce or restrict our supply of products, incur significant\ncosts to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely\naffect our business, financial condition, and results of operations. Actual or threatened war, terrorist activities, political unrest,\ncivil strife, and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results\nof operations. Any one or more of these events may impede our production and delivery efforts and adversely affect our sales results,\nwhether short-term or for a prolonged period of time, which could materially and adversely affect our business, financial condition,\nand results of operations.\n\n \n\nWe are also vulnerable to\nnatural disasters and other calamities. We cannot assure you that we are adequately protected from the effects of fire, floods, typhoons,\nearthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks, or similar events. Any of the foregoing\nevents may give rise to interruptions, damage to our place of business, delays in product deliveries, breakdowns, system failures, or\ninternet failures, which could adversely affect our business, financial condition, and results of operations.\n\n \n\n*We have limited sources of working capital\nand will need substantial additional financing*\n\n \n\nThe working capital required\nto implement our business plan will most likely be provided by funds obtained through offerings of our equity, debt, debt-linked securities,\nand/or equity-linked securities, and revenues generated by us. No assurance can be given that we will have revenues sufficient to sustain\nour operations or that we would be able to obtain equity/debt financing in the current economic environment. If we do not have sufficient\nworking capital and are unable to generate sufficient revenues or raise additional funds, we may delay the completion of or significantly\nreduce the scope of our current business plan; delay some of our development and clinical or marketing efforts; postpone the hiring of\nnew personnel; or, under certain dire financial circumstances, substantially curtail or cease our operations.\n\n \n\nTo date, we have relied almost\nexclusively on organically generated revenues and financing transactions to fund our operations. Our inability to obtain sufficient additional\nfinancing would have a material adverse effect on our ability to implement our business plan and, as a result, could require us to significantly\ncurtail or potentially cease our operations. As of March 31, 2026, we had cash and cash equivalents and restricted cash of $28,176,233,\ntotal current assets of $34,509,722 and total current liabilities of $4,349,320. As of March 31, 2025, we had cash and cash equivalents\nand restricted cash of $18,129,432, total current assets of $21,296,491 and total current liabilities of $6,012,063. We will need to\nengage in capital-raising transactions in the near future. Such financing transactions may well cause substantial dilution to our shareholders\nand could involve the issuance of securities with rights senior to the outstanding shares. Our ability to complete additional financings\nis dependent on, among other things, the state of the capital markets at the time of any proposed offering, market reception of the Company\nand the likelihood of the success of its business model and offering terms. There is no assurance that we will be able to obtain any\nsuch additional capital through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally,\nno assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and to support our operations.\nIf we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations and the value of our Class\nA Ordinary Shares and Class A Ordinary Share equivalents would be materially negatively impacted and we may cease our operations.\n\n \n\n7\n\n \n\n \n\n*Our failure to compete effectively may\nadversely affect our ability to generate revenue.*\n\n \n\nWe compete with other companies,\nmany of whom are developing or can be expected to develop products similar to ours. Many of our competitors are also more established\nthan we are, and have significantly greater financial, technical, marketing and other resources than we presently possess. Some of our\ncompetitors, such as “Huichuntang” and “Tongrentang”, have greater name recognition and a larger customer base.\nThese competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake\nmore extensive promotional activities, offer more attractive terms to customers, and adopt more aggressive pricing policies. We cannot\nassure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will\nnot harm our business.\n\n \n\n*Our dependence on a small number of customers\ncould adversely affect our business or results of operations.*\n\n \n\nWe derive a substantial portion\nof our revenue from a relatively small number of customers. Suxuantang had one significant customer which accounted for 86.95% of our\ntotal revenue during the year ended March 31, 2026. Suxuantang had one significant customer which accounted for 68.72% of our total revenue\nduring the year ended March 31, 2025. We expect that Suxuantang’s largest customers will continue to account for a substantial\nportion of its total net revenue for the foreseeable future. Suxuantang has long-standing relationships with many of its significant\ncustomers. However, because Suxuantang’s customers generally contract with a finite duration, Suxuantang may lose these customers\nif the contracts are not renewed or replaced. The loss or reduction of, or failure to renew or replace, any significant contracts with\nany of these customers could materially reduce Suxuantang’s revenue and cash flows. If Suxuantang does not replace them with other\ncustomers, the loss of business from any one of such customers could have a material adverse effect on our business or results of operations.\n\n \n\n*We are dependent on certain key personnel\nand loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.*\n\n \n\nOur success is, to a certain\nextent, attributable to the management, sales and marketing, and research and development expertise of key personnel. We are dependent\nupon the services of Mr. Zhou, our President, Co-Chief Executive Officer and Chairman of the Board, for the continued growth and operation\nof our Company, due to his industry experience, as well as his personal and business contacts in the PRC. We may not be able to retain\nMr. Zhou for any given period of time. Although we have no reason to believe that Mr. Zhou will discontinue his services with us or Taizhou\nSuxuantang, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our\nbusiness strategy as well as our results of operations. There can be no assurance that we will be able to retain these officers after\nthe terms of their employment expire. The loss of these officers could have a material adverse effect upon our business, financial condition,\nand results of operations. We do not carry key man life insurance for any of our key personnel, nor do we foresee purchasing such insurance\nto protect against the loss of key personnel.\n\n \n\n*We may not be able to hire and retain qualified\npersonnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products\nand implement our business objectives could be adversely affected.*\n\n \n\nWe must attract, recruit\nand retain a sizeable workforce of technically competent employees. Competition for senior management and personnel in the PRC is intense\nand the pool of qualified candidates in the PRC is very limited. We may not be able to retain the services of our senior executives or\npersonnel, or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely\naffect our future growth and financial condition.\n\n \n\n8\n\n \n\n \n\n*If we fail to increase our brand recognition,\nwe may face difficulty in obtaining new customers.*\n\n \n\nAlthough our brand is well-respected\nin traditional Chinese medicine pieces (the “TCMP”) industry, we still believe that maintaining and enhancing our brand recognition\nin a cost-effective manner outside of that market is critical to achieving widespread acceptance of our current and future products and\nservices and is an important element in our effort to increase our customer base. Successful promotion of our other brands, or Suxuantang\noutside the TCMP industry, will depend largely on our ability to maintain a sizeable and active customer base, our marketing efforts\nand ability to provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased\nrevenue, and even if they do, any increased revenue may not offset the expenses we will incur in building our brand. If we fail to successfully\npromote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we\nmay fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our\nbrand-building efforts, in which case our business, operating results and financial condition, would be materially adversely affected.\n\n \n\n*Any disruption in the supply chain of raw\nmaterials and our products could adversely impact our ability to produce and deliver products.*\n\n \n\nAs to the products we manufacture,\nwe manage our supply chain for raw materials and delivery of our products. Supply chain fragmentation and local protectionism within\nChina may complicate supply chain disruption risks. Local administrative bodies and physical infrastructure built to protect local interests\npose transportation challenges for raw material transportation as well as product delivery throughout China. In addition, profitability\nand volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal,\nnatural disasters, and other events that could impact both supply and price. Any of these occurrences could cause significant disruptions\nto our supply chain, manufacturing capability and distribution system that could adversely impact our ability to produce and deliver\nsome of our products.\n\n \n\nAdditionally, some of the\nraw materials we use are procured from farmers, who can be faced with environmental risks outside of their control. If these farmers\nare unable to control any environmental issues, they may not have the ability to supply continuously and stably.\n\n \n\n*Our success depends on our ability to protect\nour intellectual property.*\n\n \n\nOur success depends on our\nability to obtain and maintain patent protection for products developed utilizing our technologies, in the PRC and in other countries,\nand to enforce these patents. There is no assurance that any of our existing and future patents will be held valid and enforceable against\nthird-party infringement or that our products will not infringe any third-party patent or intellectual property. Although we have filed\nadditional patent applications with the Patent Administration Department of the PRC, there is no assurance that they will be granted.\n\n \n\nAny patents relating to our\ntechnologies may not be sufficiently broad to protect our products. In addition, our patents may be challenged, potentially invalidated\nor potentially circumvented. Our patents may not afford us protection against competitors with similar technology or permit the commercialization\nof our products without infringing third-party patents or other intellectual property rights.\n\n \n\nWe also rely on or intend\nto rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered\nor will apply to register a number of these trademarks. However, third parties may oppose our trademark applications or otherwise challenge\nour use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products,\nwhich could result in loss of brand recognition and could require us to devote resources to advertising and marketing these new brands.\nFurther, our competitors may infringe our trademarks, or we may not have adequate resources to enforce our trademarks.\n\n \n\nIn addition, we also have\ntrade secrets, non-patented proprietary expertise and continuing technological innovation that we shall seek to protect, in part, by\nentering into confidentiality agreements with licensees, suppliers, employees and consultants. These agreements may be breached and there\nmay not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability\nof confidentiality agreements. Moreover, our trade secrets and proprietary technology may otherwise become known or be independently\ndeveloped by our competitors. If patents are not issued with respect to products arising from research, we may not be able to maintain\nthe confidentiality of information relating to these products.\n\n \n\n9\n\n \n\n \n\n*Our TCMP business is subject to inherent\nrisks relating to product liability and personal injury claims.*\n\n \n\nTCMP companies, similar to\npharmaceutical companies, are exposed to risks inherent in the manufacturing and distribution of TCMP products, such as with respect\nto improper filling of prescriptions, labeling of prescriptions, adequacy of warnings, and unintentional distribution of counterfeit\ndrugs. In addition, product liability claims may be asserted against us with respect to any of the products we sell and as a distributor,\nwe are required to pay for damages for any successful product liability claim against us, although we may have the right under applicable\nPRC laws, rules and regulations to recover from the relevant manufacturer for compensation we paid to our customers in connection with\na product liability claim. We may also be obligated to recall affected products. If we are found liable for product liability claims,\nwe could be required to pay substantial monetary damages. Furthermore, even if we successfully defend ourselves against this type of\nclaim, we could be required to spend significant management, financial and other resources, which could disrupt our business, and our\nreputation as well as our brand name may also suffer. We, like many other similar companies in China, do not carry product liability\ninsurance. As a result, any imposition of product liability could materially harm our business, financial condition and results of operations.\nIn addition, we do not have any business interruption insurance due to the limited coverage of any available business interruption insurance\nin China, and as a result, any business disruption or natural disaster could severely disrupt our business and operations and significantly\ndecrease our revenue and profitability.\n\n \n\n*We face risks related to research and the\nability to develop new TCMP products.*\n\n \n\nOur growth and survival depend\non our ability to consistently discover, develop and commercialize new products and find new and improved technology and platforms. As\nsuch, if we fail to make sufficient investments in research, be attentive to consumer needs or focus on the most advanced technology,\nour current and future products could be surpassed by more effective or advanced products of other companies.\n\n \n\n*Our business requires a number of permits\nand licenses.*\n\n \n\nPharmaceutical companies\nin China are required to obtain certain permits and licenses from various PRC governmental authorities, including passing Good Manufacturing\nPractice (“GMP”) compliance-inspection without notification. We are also required to obtain a Pharmaceutical Product Permit.\n\n \n\nAlso, we participate in the\nmanufacture of Chinese medicine, which is subject to various PRC laws and regulations pertaining to the pharmaceutical industry. We have\nobtained certificates, permits, and licenses required for the operation of a pharmaceutical enterprise and the manufacturing of pharmaceutical\nproducts in the PRC. We are required to meet GMP standards in order to continue manufacturing pharmaceutical products. There is no guarantee\nwe will always be able to pass the GMP compliance-inspection in the future.\n\n \n\nWe cannot assure you that\nwe can maintain all required licenses, permits and pass the GMP compliance-inspection to carry on our business at all times, and in the\npast from time to time we may have not been in compliance with all such required licenses, permits and pass the GMP compliance-inspection.\nMoreover, these licenses, permits and pass the GMP compliance-inspection are subject to periodic renewal and/or reassessment by the relevant\nPRC governmental authorities and the standards of such renewal or reassessment may change from time to time. We intend to apply for the\nrenewal of these licenses, permits and to pass the GMP compliance-inspection when required by then applicable laws and regulations. Any\nfailure by us to obtain and maintain all licenses, permits and to pass the GMP compliance-inspection necessary to carry on our business\nat any time could have a material adverse effect on our business, financial condition and results of operations. In addition, any inability\nto renew these licenses, permits and to pass the GMP compliance-inspection could severely disrupt our business and prevent us from continuing\nto carry on our business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess our\nbusiness licenses, permits and to pass the GMP compliance-inspection, as well as any enactment of new regulations that may restrict the\nconduct of our business, may also decrease our revenue and/or increase our costs and materially reduce our profitability and prospects.\nFurthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect\nrequiring us to obtain any additional licenses, permits or pass any GMP compliance-inspection that were previously not required to operate\nour existing businesses, we cannot assure you that we will successfully obtain such licenses, permits or pass the GMP compliance-inspection.\n\n \n\nOur innovative Directly-Oral-TCMP\nand After-Soaking-Oral-TCMP in China are subject to continuing regulation by the National Medical Products Administration (“NMPA”)\nof China. If the labeling or manufacturing process of an approved medicine is significantly modified, the NMPA requires that we obtain\na new pre-market approval or pre-market approval supplement. Furthermore, there is no specific law or details of regulations that apply\nto our innovative Directly-Oral-TCMP and After-Soaking-Oral-TCMP, but we will be required to comply with all existing and new rules related\nto them.\n\n \n\n10\n\n \n\n \n\n*Price control regulations in the PRC may\ndecrease our profitability.*\n\n \n\nThe laws of the PRC provide\nfor the government to fix and adjust prices. The prices of certain TCMP products we distribute, including those listed in the Chinese\ngovernment’s catalogue of medications that are reimbursable under the PRC’s social insurance program, or the Insurance Catalogue,\nare subject to control by the relevant state or provincial price administration authorities. The PRC establishes price levels for products\nbased on market conditions, average industry cost, supply and demand and social responsibility. In practice, price control with respect\nto these medicines sets a ceiling on their retail price. The actual price of such medicines set by manufacturers, wholesalers and retailers\ncannot historically exceed the price ceiling imposed by applicable government price control regulations. Although, as a general matter,\ngovernment price control regulations have resulted in lower drug prices over time, there has been no predictable pattern for such decreases.\nIt is possible that additional products may be subject to price control, or that price controls may be increased in the future. To the\nextent that our products are subject to price control, our revenue, gross profit, gross margin and net income will be affected since\nthe revenue we derive from our sales will be limited and we may face no limitation on our costs. Further, if price controls affect both\nour revenue and costs, our ability to be profitable and the extent of our profitability will be effectively subject to determination\nby the applicable regulatory authorities in the PRC. Since May 1998, the relevant PRC governmental authorities have ordered price reductions\non thousands of pharmaceutical products. Such reductions, along with any future price controls or government mandated price reductions\nmay have a material adverse effect on our financial condition and results of operations, including significantly reducing our revenue\nand profitability. \n\n \n\n*If the TCMP products we produce are replaced\nby other medicines or are removed from the PRC’s insurance catalogue in the future, our revenue may suffer.*\n\n \n\nUnder Chinese regulations,\npatients purchasing medicine listed by the central and/or provincial governments in the insurance catalogue may be reimbursed, in part\nor in whole, by a social medicine fund. Accordingly, pharmaceutical distributors prefer to engage in the distribution of medicine listed\nin the insurance catalogue. Currently, 95% of our TCMP products, including 18 Advanced TCMP products are listed in the insurance catalogue.\nThe content of the insurance catalogue is subject to change by the PRC Ministry of Labor and Social Security, and new medicine may be\nadded to the insurance catalogue by provincial level authorities as part of their limited ability to change certain medicines listed\nin the insurance catalogue. If the TCMP products we produce are replaced by other medicines or removed from the insurance catalogue in\nthe future, our revenue may suffer.\n\n \n\n*Adverse publicity associated with our products,\ningredients or network marketing program, or those of similar companies, could harm our financial condition and operating results.*\n\n \n\nThe results of our operations\nmay be significantly affected by the public’s perception of our product and similar companies. This perception is dependent upon\nopinions concerning:\n\n \n\n●the\nsafety and quality of our products and ingredients;\n\n \n\n●the\nsafety and quality of similar products and ingredients distributed by other companies; and\n\n \n\n●our\nsales force.\n\n \n\nAdverse publicity concerning\nany actual or purported failure to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing\npractices, or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have\nan adverse effect on our goodwill and could negatively affect our sales and ability to generate revenue. In addition, our consumers’\nperception of the safety and quality of products and ingredients as well as similar products and ingredients distributed by other companies\ncan be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and\nother publicity concerning our products or ingredients or similar products and ingredients distributed by other companies. Adverse publicity,\nwhether or not accurate or resulting from consumers’ use or misuse of our products, that associates consumption of our products\nor ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar\nproducts or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could\nnegatively impact our reputation or the market demand for our products.\n\n \n\n11\n\n \n\n \n\n*Risks Related to Our Corporate Structure*\n\n \n\n*We do not have direct ownership of our\noperating entities in China and rely on VIE Agreements with the VIE for our business operations, which may not be as effective in providing\noperational control or enabling us to derive benefits as through ownership of controlling equity interests.*\n\n \n\nWe do not have direct ownership\nof Taizhou Suxuantang, or the VIE, in China and rely on and expect to continue to rely on the VIE Agreements with the VIE in China and\nits respective shareholders to operate business. Pursuant to the VIE Agreements, we are regarded as the primary beneficiary of the VIE\nfor accounting purpose, and, therefore, we are able to consolidate the financial results of the VIE in our consolidated financial statements\nin accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in the VIE, and that the investors will not and\nmay never directly hold equity interests in the VIE either. VIE Agreements may not be as effective as an ownership of controlling equity\ninterests would be in providing us with control over the VIE, or in enabling us to derive economic benefits from the operations of the\nVIE. Under the current VIE Agreements, as a legal matter, if any of the affiliated consolidated entities or any of their shareholders\nfails to perform its, his or her respective obligations under the VIE Agreements, we may have to incur substantial costs and resources\nto enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive\nrelief, and claiming damages, which we cannot assure you will be effective. For example, if shareholders of a variable interest entity\nwere to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the\npurchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual\nobligations.\n\n \n\nIf (i) the applicable PRC\nauthorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity\nor its shareholders terminate the contractual arrangements or (iii) any variable interest entity or its shareholders fail to perform\ntheir obligations under these contractual arrangements, our business operations in China would be materially and adversely affected,\nand the value of your stock would substantially decrease. Further, if we fail to renew these contractual arrangements upon their expiration,\nwe would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in\nChina.\n\n \n\nIn addition, if any variable\ninterest entity or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue\nsome or all of our business activities, which could materially and adversely affect our business, financial condition and results of\noperations. If any of the variable interest entity undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated\nthird-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could\nmaterially and adversely affect our business and our ability to generate revenues.\n\n \n\nAll of these contractual\narrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment\nin the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal\nsystem could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements,\nwe may not be able to exert effective control over our operating entities and we may be precluded from operating our business, which\nwould have a material adverse effect on our financial condition and results of operations.\n\n \n\n*Taizhou Suxuantang’s shareholders\nmay have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.*\n\n \n\nThe equity interests of Taizhou\nSuxuantang are held by Mr. Feng Zhou, who is our founder, director. His interests may differ from the interests of our Company as a whole.\nHe may breach, or cause Taizhou Suxuantang to breach, or refuse to renew the existing contractual arrangements we have with Taizhou Suxuantang,\nwhich would have a material adverse effect on our ability to effectively control Taizhou Suxuantang and receive economic benefits from\nthem. For example, the shareholders may be able to cause our agreements with Taizhou Suxuantang to be performed in a manner adverse to\nus by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure\nyou that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts\nwill be resolved in our favor.\n\n \n\n12\n\n \n\n \n\nCurrently, we do not have\nany arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise\nour purchase option under the exclusive option agreement with these shareholders to request them to transfer all of their equity interests\nin Taizhou Suxuantang to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict\nof interest or dispute between us and the shareholders of Taizhou Suxuantang, we would have to rely on legal proceedings, which could\nresult in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.\n\n \n\n*Contractual arrangements in relation to\nour variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC variable\ninterest entity owe additional taxes, which could negatively affect our results of operations and the value of your investment.*\n\n \n\nUnder applicable PRC laws\nand regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities\nwithin ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise\nin China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant\ntax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions\nthat are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities\ndetermine that the contractual arrangements between our WFOE, our variable interest entity Taizhou Suxuantang and the shareholders of\nTaizhou Suxuantang were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes\nunder applicable PRC laws, rules and regulations, and adjust Taizhou Suxuantang’s income in the form of a transfer pricing adjustment.\nA transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Taizhou Suxuantang for\nPRC tax purposes, which could in turn increase their tax liabilities without reducing WFOE’s tax expenses. In addition, if WFOE\nrequests the shareholders of Taizhou Suxuantang to transfer their equity interests in Taizhou Suxuantang at nominal or no value pursuant\nto these contractual arrangements, such transfer could be viewed as a gift and subject WFOE to PRC income tax. Furthermore, the PRC tax\nauthorities may impose late payment fees and other penalties on Taizhou Suxuantang for the adjusted but unpaid taxes according to the\napplicable regulations. Our results of operations could be materially and adversely affected if Taizhou Suxuantang’s tax liabilities\nincrease or if they are required to pay late payment fees and other penalties.\n\n \n\n*The approval of the China Securities Regulatory\nCommission and other compliance procedures may be required in connection with an offering under PRC rules, regulations or policies, and,\nif required, we cannot predict whether or how soon we will be able to obtain such approval. As a result, both you and us face uncertainty\nabout future actions by the PRC government that could significantly affect the operating company’s financial performance and the\nenforceability of the VIE Agreements.*\n\n \n\nThe Regulations on Mergers\nand Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”) requires an overseas special purpose\nvehicle that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an overseas stock exchange\nthrough acquisitions of PRC domestic companies using shares of such special purpose vehicle or held by its shareholders as considerations\nto obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose\nvehicle’s securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval\nis required, it is uncertain whether it would be possible for us to obtain the approval. Any failure to obtain or delay in obtaining\nCSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.\n\n \n\nBased on the current PRC\nlaws, regulations and rules that the CSRC’s approval may not be required for the listing and trading of our Class A Ordinary Shares\non the Nasdaq Capital Market in the context of this offering, given that: (i) the CSRC currently has not issued any definitive rule or\ninterpretation concerning whether offerings like ours in this annual report are subject to this regulation, (ii) we establish our WFOE\nby means of direct investment and acquiring equity interest or assets of an entity other than “PRC domestic company” as defined\nunder the M&A Rules, and (iii) no explicit provision in the M&A Rules clearly classifies VIE Agreements as a type of transaction\nsubject to such Rules.\n\n \n\n13\n\n \n\n \n\nHowever, there remains some\nuncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized\nabove are subject to any new laws, regulations and rules or detailed implementations and interpretations in any form relating to the\nM&A Rules. We cannot assure you that relevant PRC regulatory agencies, including the CSRC, would reach the same conclusion as our\nPRC legal counsel does. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other\nPRC regulatory agencies for failure to obtain or delay in obtaining CSRC approval for this offering. These sanctions may include fines\nand penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation\nof the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries\nin China, or other actions that could have a material and adverse effect on our business, reputation, financial condition, results of\noperations, prospects, as well as the trading price of the Class A Ordinary Shares. The CSRC or other PRC regulatory agencies may also\ntake actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the Class A Ordinary\nShares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement\nand delivery of the Class A Ordinary Shares we are offering, you would be doing so at the risk that the settlement and delivery may not\noccur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their\napprovals for this offering, we may be unable to obtain a waiver of such approval requirements.\n\n \n\nRecently, the General Office\nof the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe\nand Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These opinions emphasized the\nneed to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies.\nThese opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the\nrisks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned\npolicies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As of\nthe date of this annual report, we have not received or been denied of any permission from the PRC authorities to list on U.S. stock\nexchanges. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects\nat this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions\nor any future implementation rules on a timely basis, or at all. We face uncertainty about future actions by the PRC government that\ncould significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements.\n\n \n\nFurthermore, on February\n17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the\n“Trial Measures”), which took effect on March 31, 2023. The Trial Measures clarified and emphasized several aspects, which\ninclude but are not limited to: (1) comprehensive determination of the “indirect overseas offering and listing by PRC domestic\ncompanies” in compliance with the principle of “substance over form” and particularly, an issuer will be required to\ngo through the filing procedures under the Trial Measures if the following criteria are met at the same time: a) 50% or more of the issuer’s\noperating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most\nrecent accounting year is accounted for by PRC domestic companies, and b) the main parts of the issuer’s business activities are\nconducted in mainland China, or its main places of business are located in mainland China, or the senior managers in charge of its business\noperation and management are mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements\nfor issuers that a) have already been listed or registered but not yet listed in foreign securities markets, including U.S. markets,\nprior to the effective date of the Trial Measures, and b) are not required to re-perform the regulatory procedures with the relevant\noverseas regulatory authority or the overseas stock exchange, c) whose such overseas securities offering or listing shall be completed\nbefore September 30, 2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing\nor are involved in other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing\nor offering overseas, such as (a) issuers whose listing or offering overseas have been recognized by the State Council of the PRC as\npossible threats to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers\nunder ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance\nwith web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations,\nsuch as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation\nafter offering or listing overseas to report to the CSRC material events including change of control or voluntary or forced delisting\nof the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million RMB for failure\nto comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation.\n\n \n\n14\n\n \n\n \n\n*PRC laws and regulations governing our\ncurrent business operations are sometimes vague and uncertain.* \n\n \n\nWe are an offshore holding\ncompany conducting all of our business through our subsidiaries and variable interest entities in China. Our operations in China are\ngoverned by PRC laws and regulations. Our PRC subsidiaries and the consolidated variable interest entities are generally subject to laws\nand regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned\nenterprises.\n\n \n\nThe PRC legal system is based\non the PRC Constitution and is made up of written laws, regulations, circulars and directives. The PRC government is still in the process\nof developing its legal system, so as to meet the needs of investors and to encourage foreign investment. As the PRC economy is generally\ndeveloping at a faster pace than its legal system, some degree of uncertainty exists in connection with whether and how existing laws\nand regulations will apply to certain events or circumstances.\n\n \n\nSome of the laws and regulations,\nand the interpretation, implementation and enforcement thereof, are still subject to policy changes. There is no assurance that the introduction\nof new laws, changes to existing laws and the interpretation or application thereof or the delays in obtaining approvals from the relevant\nauthorities will not have an adverse impact on our PRC subsidiaries’ business, financial performance and prospects.\n\n \n\nFurther, precedents on the\ninterpretation, implementation and enforcement of the PRC laws and regulations are limited, and unlike other common law countries such\nas the United States, decisions on precedent cases are not binding on lower courts. As such, the outcome of dispute resolutions may not\nbe consistent or predictable as in the other more developed jurisdictions and it may be difficult to obtain swift or equitable enforcement\nof the laws in the PRC, or obtain enforcement of judgment by a court of another jurisdiction.\n\n \n\nAs an offshore holding company,\nwe may make loans to our PRC subsidiaries and the consolidated VIE.\n\n \n\nAny loans to our PRC subsidiaries\nare subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign invested entities (“FIEs”),\nto finance their activities cannot exceed statutory limits and must be registered with SAFE. On March 30, 2015, SAFE promulgated Hui\nFa [2015] No.19, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB. The foreign exchange\ncapital, for which the monetary contribution has been confirmed by the foreign exchange authorities (or for which the monetary contribution\nhas been registered for account entry) in the capital account of a foreign-invested enterprise may be settled at a bank as required by\nthe enterprise’s actual management needs. Foreign-invested enterprises with investment as their main business (including foreign-oriented\ncompanies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are allowed to, under the\npremise of authenticity and compliance of their domestic investment projects, carry out based on their actual investment scales direct\nsettlement of foreign exchange capital or transfer the RMB funds in the foreign exchange settlement account for pending payment to the\ninvested enterprises’ accounts.\n\n \n\nOn May 10, 2013, SAFE released\nCircular 21, which came into effect on May 13, 2013. According to Circular 21, SAFE has simplified the foreign exchange administration\nprocedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as\nfund remittances. Circular 21 may significantly limit our ability to convert, transfer and use the net proceeds from our financing activities\nand any offering of additional equity securities in China, which may adversely affect our liquidity and our ability to fund and expand\nour business in the PRC.\n\n \n\nWe may also decide to finance\nour subsidiaries by means of capital contributions. These capital contributions must be approved by the MOF or its local counterpart,\nwhich usually takes no more than 30 working days to complete. We may not be able to obtain these government approvals on a timely basis,\nif at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will\nnot be able to capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business.\n\n \n\n15\n\n \n\n \n\nIn addition, on July 6, 2021,\nthe General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document\nto crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among\nother things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation,\nto enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application\nof the PRC securities laws. Since this document is relatively new, uncertainties still exist in relation to how soon legislative or administrative\nregulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will\nbe modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us.\n\n \n\n*Uncertainties exist with respect to the\ninterpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure\nand business operations.*\n\n \n\nThe National People’s\nCongress promulgated the Foreign Investment Law on March 15, 2019 and the State Council adopted the Regulation on Implementing the Foreign\nInvestment Law (the “Implementation Regulations”) on December 12, 2019, effective from January 1, 2020, to replace the trio\nof existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign\nCooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and\nancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory\nregime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both\nforeign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and\nimplementation.\n\n \n\nFor instance, under the Foreign\nInvestment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals,\nenterprises or other entities in China. Though it does not explicitly classify contractual arrangements as a form of foreign investment,\nthere is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment\nactivities under the definition in the future. In addition, the definition contains a catch-all provision which includes investments\nmade by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council.\nTherefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide\nfor contractual arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements\nwill be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. Furthermore,\nif future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies\nwith respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in\na timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance\nchallenges could materially and adversely affect our current corporate structure, corporate governance and business operations.\n\n \n\n*We are a holding company and we rely for\nfunding on dividend payments from our variable interest entity, which are subject to restrictions under PRC laws.*\n\n \n\nWe are a holding company\nincorporated in the British Virgin Islands, and we operate our core businesses through our subsidiaries in the PRC and through our variable\ninterest entity, or VIE. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness\ndepends upon dividends received from these PRC subsidiaries and VIE. If our subsidiaries and VIE incur debt or losses, their ability\nto pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness\nwill be restricted. PRC laws require that dividends be paid only out of the after-tax profit of our PRC subsidiaries calculated according\nto PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC\nlaws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory\nreserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other\nagreements that we or our subsidiaries may enter into in the future may also restrict the ability of our subsidiaries to pay dividends\nto us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service\nour indebtedness.\n\n \n\n16\n\n \n\n \n\n*If we exercise the option to acquire equity\nownership of Taizhou Suxuantang, the ownership transfer may subject us to certain limitation and substantial costs.*\n\n \n\nPursuant to the contractual\narrangements, WFOE has the exclusive right to purchase all or any part of the equity interests in Taizhou Suxuantang from Taizhou Suxuantang’s\nshareholders for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum price\namount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request. The shareholders\nof Taizhou Suxuantang will be subject to PRC individual income tax on the difference between the equity transfer price and the then current\nregistered capital of Taizhou Suxuantang. Additionally, if such a transfer takes place, the competent tax authority may require WFOE\nto pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could\nbe substantial.\n\n \n\n*Risks Related to Our Class A Ordinary Shares*\n\n \n\n*Our Class A Ordinary Shares may be thinly\ntraded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire\nto liquidate your shares.*\n\n \n\nOur Class A Ordinary Shares\nmay be “thinly-traded”, meaning that the number of persons interested in purchasing our Class A Ordinary Shares at or near\nbid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including\nthe fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community\nthat generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might\nbe reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became\nmore seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent,\nas compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales\nwithout an adverse effect on share price. Broad or active public trading market for our Class A Ordinary Shares may not develop or be\nsustained.\n\n \n\n*The market price for our Class A Ordinary\nShares may be volatile.*\n\n \n\nThe market price for our\nClass A Ordinary Shares may be volatile and subject to wide fluctuations due to factors such as:\n\n \n\n●the\nperception of U.S. investors and regulators of U.S. listed Chinese companies;\n\n \n\n●our\noperating and financial performance;\n\n \n\n●quarterly\nvariations in the rate of growth of our financial indicators, such as net income per share,\nnet income and revenues;\n\n \n\n●the\npublic reaction to our press releases, our other public announcements and our filings with\nthe SEC;\n\n \n\n●strategic\nactions by our competitors;\n\n \n\n●changes\nin revenue or earnings estimates, or changes in recommendations or withdrawal of research\ncoverage, by equity research analysts;\n\n \n\n●speculation\nin the press or investment community;\n\n \n\n●the\nfailure of research analysts to cover our Class A Ordinary Shares;\n\n \n\n●sales\nof our Class A Ordinary Shares by us or other shareholders, or the perception that such sales\nmay occur;\n\n \n\n●changes\nin accounting principles, policies, guidance, interpretations or standards;\n\n \n\n●additions\nor departures of key management personnel;\n\n \n\n17\n\n \n\n \n\n●actions\nby our shareholders;\n\n \n\n●domestic\nand international economic, legal and regulatory factors unrelated to our performance; and\n\n \n\n●the\nrealization of any risks described under this “Risk Factors” section.\n\n \n\nThe stock markets in general\nhave experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market\nfluctuations may adversely affect the trading price of our Class A Ordinary Shares. Securities class action litigation has often been\ninstituted against companies following periods of volatility in the overall market and in the market price of a company’s securities.\nSuch litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources\nand harm our business, operating results and financial condition.\n\n \n\n*Our dual-class voting structure will limit\nyour ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders\nof our Class A Ordinary Shares may view as beneficial.*\n\n* *\n\nOn July 28, 2025, our shareholders\napproved through an EGM an amended and restated memorandum and articles of association to create a new class of Class B Ordinary Shares\nand re-designation of the existing issued and unissued Ordinary Shares as Class A Ordinary Shares. It was approved to change the Company’s\nauthorized share capital to comprise of a dual class of shares through (i) creating a new class of shares comprising unlimited Class\nB Ordinary Shares which entitle the holder to fifty (50) votes per Class B Ordinary Share on any resolution of shareholders; (ii) re-designating\nan aggregate of then issued 532 Ordinary Shares held by Feng Zhou Management Limited into 532 Class B Ordinary Shares (the “Re-designation\nof Class B Shares”); (iii) re-designating the remaining then issued 116,027,226 Ordinary Shares as 116,027,226 Class A Ordinary\nShares with no par value each.\n\n \n\n*We cannot predict the effect our dual-class\nstructure may have on the market price of our Class A Ordinary Shares.*\n\n \n\nWe cannot predict whether\nour dual-class structure will result in a lower or more volatile market price of our Class A Ordinary Shares, adverse publicity or other\nadverse consequences. For example, certain index providers have announced and implemented restrictions on including companies with multiple-class\nshare structures in certain of their indices. In July 2017, FTSE Russell announced that it would require new constituents of its indices\nto have greater than 5% of the company’s voting rights in the hands of public stockholders, and S&P Dow Jones announced that\nit would no longer admit companies with multiple-class share structures to certain of its indices. Affected indices include the Russell\n2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Also in 2017,\nMSCI, a leading stock index provider, opened public consultations on its treatment of no-vote and multi-class structures and temporarily\nbarred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity\nsecurities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights\nin its eligibility criteria. Under such announced and implemented policies, the dual-class structure of our Ordinary Shares would make\nus ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that\nattempt to passively track those indices would not invest in our Class A Ordinary Shares. These policies are relatively new and it is\nunclear what effect, if any, they will have on the valuations of publicly-traded companies excluded from such indices, but it is possible\nthat they may adversely affect valuations, as compared to similar companies that are included. Due to the dual-class structure of our\nordinary shares, we will likely be excluded from certain indices and we cannot assure you that other stock indices will not take similar\nactions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain\nstock indices would likely preclude investment by many of these funds and could make our Class A Ordinary Shares less attractive to other\ninvestors. As a result, the market price of our Class A Ordinary Shares could be adversely affected.\n\n \n\n18\n\n \n\n \n\n*If we fail to establish and maintain proper\ninternal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could\nbe impaired.*\n\n \n\nPursuant to Section 404 of\nthe Sarbanes-Oxley Act, we will be required to file a report by our management on our internal control over financial reporting, including\nan attestation report on internal control over financial reporting issued by our independent registered public accounting firm. The standards\nthat must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require\nsignificant documentation, testing, and possible remediation to meet the detailed standards. We might not identify one or more material\nweaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order\nto maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we\nwill need to expend significant resources and provide significant management oversight to Section 404 compliance on an ongoing basis.\nImplementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees,\nentail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert\nmanagement’s attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of\nour internal control.\n\n \n\nIf we are unable to conclude\nthat we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price\nof the Class A Ordinary Shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we\nare unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the Class A Ordinary Shares may not be able to remain listed\non the NASDAQ Capital Market.\n\n \n\n*As a foreign private issuer, we are not\nsubject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information\npublicly available to our shareholders.*\n\n \n\nAs a foreign private issuer,\nwe are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore\nthere may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to\nthe proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by British Virgin Islands\nrequirements. 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\ntimely basis when our officers, directors and principal shareholders purchase or sell our Class A Ordinary Shares.\n\n \n\n*As a foreign private issuer, we are permitted\nto adopt certain home country practices in relation to corporate governance matters that differ significantly from the NASDAQ Stock Market\ncorporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied\nfully with corporate governance listing standards.*\n\n \n\nAs a foreign private issuer,\nwe are permitted to take advantage of certain provisions in the NASDAQ Stock Market listing rules that allow us to follow British Virgin\nIslands law for certain governance matters. Certain corporate governance practices in the British Virgin Islands may differ significantly\nfrom corporate governance listing standards as, except for general fiduciary duties and duties of care, British Virgin Islands law has\nno corporate governance regime which prescribes specific corporate governance standards. When our Class A Ordinary Shares are listed\non the Nasdaq Capital Market, we intend to continue to follow British Virgin Islands corporate governance practices in lieu of the corporate\ngovernance requirements of the Nasdaq Stock Market in respect of the following: (i) the majority independent director requirement under\nSection 5605(b)(1) of the NASDAQ Stock Market listing rules, (ii) the requirement under Section 5605(d) of the NASDAQ Stock Market listing\nrules that a compensation committee comprised solely of independent directors governed by a compensation committee charter oversee executive\ncompensation, (iii) the requirement under Section 5605(e) of the NASDAQ Stock Market listing rules that director nominees be selected\nor recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent\ndirectors and (iv) the requirement under Section 5605(b)(2) of the NASDAQ Stock Market listing rules that our independent directors hold\nregularly scheduled executive sessions. British Virgin Islands law does not impose a requirement that our board of directors consist\nof a majority of independent directors. Nor does British Virgin Islands law impose specific requirements on the establishment of a compensation\ncommittee or nominating committee or nominating process. Therefore, our shareholders may be afforded less protection than they otherwise\nwould have under corporate governance listing standards applicable to U.S. domestic issuers.\n\n \n\n19\n\n \n\n \n\n*We may lose our foreign private issuer\nstatus in the future, which could result in significant additional costs and expenses.*\n\n \n\nAs discussed above, we are\na foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements\nof the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s\nmost recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on September\n30, 2026. We would lose our foreign private issuer status if, for example, more than 50% of our Class A Ordinary Shares are directly\nor indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer\nstatus. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration\nstatements on U.S. domestic issuer forms beginning on January 1, 2027, which are more detailed and extensive than the forms available\nto a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors\nand principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange\nAct. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the NASDAQ Stock\nMarket listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal,\naccounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order\nto maintain a listing on a U.S. securities exchange.\n\n \n\n*The requirements of being a public company\nmay strain our resources and divert management’s attention.*\n\n \n\nAs a public company, we are\nsubject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act,\nthe Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations.\nCompliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor\nrelations and public relations costs, make some activities more difficult, time-consuming or costly and increase demand on our systems\nand resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our\nbusiness and operating results as well as proxy statements.\n\n \n\nAs a result of disclosure\nof information in this annual report and in filings required of a public company, our business and financial condition will become more\nvisible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims\nare successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved\nin our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely\naffect our business, brand and reputation and results of operations.\n\n \n\nWe also expect that being\na public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance,\nand we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make\nit more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee\nand compensation committee, and qualified executive officers.\n\n \n\n*We do not intend to pay dividends for the\nforeseeable future.*\n\n \n\nWe currently intend to retain\nany future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the\nforeseeable future. As a result, you may only receive a return on your investment in our Class A Ordinary Shares if we are successfully\nlisted and the market price of our Class A Ordinary Shares increases.\n\n \n\n20\n\n \n\n \n\n*The obligation to disclose information\npublicly may put us at a disadvantage to competitors that are private companies.*\n\n \n\nAs a public company, we are\nrequired to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our\nCompany and shareholders. Although we may be able to attain confidential treatment of some of our developments, in some cases, we will\nneed to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private\ncompany. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in\ncompeting with our Company. Similarly, as a U.S. public company, we will be governed by U.S. laws that our competitors, which are mostly\nprivate Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our\ncompetitiveness against such companies, our public Company status could affect our results of operations.\n\n \n\n*Risks Related to Doing Business in China*\n\n \n\n*Joint statement by the SEC and the PCAOB,\nrule changes by Nasdaq, and the HFCA Act all call for additional and more stringent criteria to be applied to emerging market companies\nupon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments\ncould add uncertainties to our offerings.*\n\n \n\nOn May 20, 2020, the U.S.\nSenate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB\nis unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable\nto inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national\nexchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December 18, 2020, the HFCA Act was signed\ninto law.\n\n \n\nOn September 22, 2021, the\nPCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated\nunder the HFCA Act, whether the board of directors of a company is unable to inspect or investigate completely registered public accounting\nfirms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.\n\n \n\nOn December 16, 2021, the\nPCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting\nfirms headquartered in mainland China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions.\n\n \n\nOn August 26, 2022, the CSRC,\nChina’s Ministry of Finance, and the PCAOB signed the SOP Agreements governing inspections and investigations of audit firms based\nin mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public\naccounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the SOP Agreements disclosed\nby the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered\nability to transfer information to the SEC. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access\nto inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous\ndeterminations to the contrary.\n\n \n\nOur auditor, Enrome LLP,\nis headquartered in Singapore, not mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s\ndetermination. Therefore, our auditor was not subject to the determinations announced by the PCAOB on December 16, 2021, and it is currently\nsubject to the PCAOB inspections.\n\n \n\nUnder the PCAOB’s rules,\na reassessment of a determination under the HFCA Act may result in the PCAOB reaffirming, modifying or vacating the determination. However,\nrecent developments with respect to audits of China-based companies create uncertainty about the ability of Enrome LLP to fully cooperate\nwith the PCAOB’s request for audit work papers without the approval of the Chinese authorities. In the event it is later determined\nthat the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority\nin a foreign jurisdiction, then such lack of inspection could cause trading in the Company’s securities to be prohibited under\nthe HFCAA ultimately result in a determination by a securities exchange to delist the Company’s securities.\n\n \n\n21\n\n \n\n \n\n*Changes in China’s economic, political,\nor social conditions could have a material adverse effect on our business and operations.*\n\n \n\nSubstantially all of our\nassets and operations are currently located in China. Accordingly, our business, financial condition, results of operations, and prospects\nmay be influenced to a significant degree by political, economic, and social conditions in China generally. The Chinese economy differs\nfrom the economies of most developed countries in many respects, including the level of government involvement, level of development,\ngrowth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing\nthe utilization of market forces for economic reform, including 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 Chinese government continues to play a significant role in regulating industry development by imposing industrial policies.\nThe Chinese government also exercises significant control over China’s economic growth by allocating resources, controlling payment\nof foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or\ncompanies.\n\n \n\nWhile the Chinese economy\nhas experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the\neconomy. Any adverse changes in economic conditions in China, in the policies of the Chinese government, or in the laws and regulations\nin China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business\nand operating results, reduce demand for our services, and weaken our competitive position. The Chinese government has implemented various\nmeasures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy,\nbut may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government\ncontrol over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain\nmeasures, including interest rate adjustments, to control the pace of economic growth. These measures may cause decreased economic activities\nin China, which may adversely affect our business and operating results.\n\n \n\n*The PRC government has significant authority\nto intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert\nmore control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight\nand control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to\nsuch oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely\nhinder our ability to offer or continue to offer securities to investors, and cause the Class A Ordinary Shares to significantly decline\nin value or become worthless.*\n\n \n\nOur business, prospects,\nfinancial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions\nin China generally. The PRC government has significant authority to intervene or influence the China operations of an offshore holding\ncompany at any time, which could result in a material adverse change to our operations and the value of the Class A Ordinary Shares.\n\n \n\nFurthermore, given recent\nstatements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas,\nalthough we are currently not required to obtain permission from any of the PRC federal or local government and has not received any\ndenial to list on the U.S. exchange, it is uncertain whether or when we might be required to obtain permission from the PRC government\nto list on U.S. exchanges in the future. Even if such permission is obtained, it is uncertain whether it will be later denied or rescinded,\nwhich could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and result\nin a material adverse change to our business operations, and damage our reputation, therefore, cause the value of our shares to significantly\ndecline or be worthless.\n\n \n\n22\n\n \n\n \n\n*Recent greater oversight by the CAC over\ndata security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.*\n\n \n\nOn December 28, 2021, the\nCyberspace Administration of China, or the “CAC”, together with 12 other governmental departments of the PRC, jointly promulgated\nthe “CAC Revised Measures” , which became effective on February 15, 2022. The Cybersecurity Review Measures provides that,\nin addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services,\ndata processing operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity\nreview by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses\npotential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity\nReview Measures further requires that CIIOs and data processing operators that possess personal data of at least one million users must\napply for a review by the Cybersecurity Review Office of the PRC before conducting listings in foreign countries.\n\n \n\nOn November 14, 2021, the\nCAC published the Security Administration Draft, which provides that data processing operators engaging in data processing activities\nthat affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration\nof the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million\nusers or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace\nAdministration of the PRC. The deadline for public comments on the Security Administration Draft was December 13, 2021.\n\n \n\nAs of the date of this annual\nreport, we have not received any notice from any authorities identifying our WFOE or the VIE as CIIOs or requiring us to go through cybersecurity\nreview or network data security review by the CAC. As the Cybersecurity Review Measures became effective and if the Security Administration\nDraft is enacted as proposed, we believe that the operations of our WFOE and the VIE and our listing will not be affected and that we\nare not subject to cybersecurity review and network data security review by the CAC, given that: (i) as companies that focuses on the\nresearch, development, manufacture, marketing and sales of TCMP, our WFOE and the VIE are unlikely to be classified as CIIOs by the PRC\nregulatory agencies; (ii) our WFOE and the VIE do not possess personal data of more than one million individual customers in the business\noperations as of the date of this annual report; and (iii) since our WFOE and the VIE are in the TCMP industry, data processed in our\nbusiness is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the\nauthorities. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will\nbe interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or\ndetailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any\nsuch new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions\nto comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity\nreview and network data security review in the future. During such reviews, we may be required to suspend our operation or experience\nother disruptions to our operations. Cybersecurity review and network data security review could also result in negative publicity with\nrespect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business,\nfinancial conditions, and results of operations.\n\n \n\n*The Opinions, the Trial Measures, and the\nrevised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.*\n\n \n\nThe General Office of the\nCentral Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely\nCracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which were made available to the\npublic on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the\nsupervision on overseas listings by China-based companies. The Opinions proposed to take effective measures, such as promoting the construction\nof relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for\ncybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject\nus to additional compliance requirements in the future. On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting\nguidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities\noverseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures\nwithin three working days following its submission of initial public offerings or listing application. If a domestic company fails to\ncomplete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic\ncompany may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual\ncontrollers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as\nwarnings and fines.\n\n \n\n23\n\n \n\n \n\nAccording to the CSRC Notice,\nthe domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023)\nshall be deemed as existing issuers (the “Existing Issuers”). Existing Issuers are not required to complete the filing procedures\nimmediately, and they shall be required to file with the CSRC for any subsequent offerings.\n\n \n\nBased on the foregoing, we\nare currently not required to complete the filing procedures and submit the relevant information to the CSRC.\n\n \n\nOn February 24, 2023, the\nCSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised\nthe Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China\nin 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration\nof Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023 together with the Trial\nMeasures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and\nlisting, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that\nplans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities,\nincluding securities companies, securities service providers, and overseas regulators, any documents and materials that contain state\nsecrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file\nwith the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly\nthrough its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies,\nsecurities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national\nsecurity or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or\nperceived failure by our Company, our subsidiaries, or the VIE to comply with the above confidentiality and archives administration requirements\nunder the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent\nauthorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.\n\n \n\nThe Opinions, the Trial Measures,\nthe revised Provisions and any related implementing rules to be enacted may subject us to additional compliance requirements in the future.\nAs there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that\nwe will be able to comply with all new regulatory requirements of the Opinions, the Trial Measures, the revised Provisions, or any future\nimplementing rules on a timely basis, or at all.\n\n \n\n*The uncertainties with respect to the Chinese\nlegal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in\nChina with little advance notice could adversely affect us and limit the legal protections available to you and us.*\n\n \n\nThere are substantial uncertainties\nregarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing\nour business. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and\nenforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations,\nincluding amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations\nwhich are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New\nlaws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect\nthe interpretation of existing or new PRC laws or regulations may have on our business.\n\n \n\n24\n\n \n\n \n\nThe PRC legal system is a\ncivil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited\nfor reference but have limited precedential value.\n\n \n\nIn 1979, the PRC government\nbegan to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation\nover the past four decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However,\nChina has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects\nof economic activities in China. In particular, the PRC legal system is based on written statutes and prior court decisions have limited\nvalue as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations\nof many laws, regulations, and rules may not be uniform and enforcement of these laws, regulations and rules involves uncertainties.\nThese uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights\nor tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in\nattempts to extract payments or benefits from us. Furthermore, the PRC legal system is based in part on government policies and internal\nrules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware\nof our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings\nin China may be protracted, resulting in substantial costs and diversion of resources and management attention.\n\n \n\n*If the PRC government determines that the\ncontractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or\nare interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our Class\nA Ordinary Shares may decline in value or become worthless.*\n\n \n\nRecently, the PRC government\nadopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to VIE.\nThere are currently no relevant laws or regulations in the PRC that prohibit companies whose entity interests are within the PRC from\nlisting on overseas stock exchanges. The VIE Agreements have not been tested in a court of law in China as of the date of this annual\nreport. Although we believe that our corporate structure and contractual arrangements comply with current applicable PRC laws and regulations,\nin the event that PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with\nPRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual\nrights over the assets of the VIE, and our Class A Ordinary Shares may decline in value or become worthless.\n\n \n\n*We may have difficulty in enforcing any\nrights we may have under the VIE Agreements in PRC.*\n\n \n\nAs all of the VIE Agreements\nwith Taizhou Suxuantang are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, they\nwould be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal\nenvironment in the PRC is not as developed as in the United States. As a result, uncertainties in the PRC legal system could further\nlimit our ability to enforce these VIE Agreements. Furthermore, these VIE Agreements may not be enforceable in China if PRC government\nauthorities or courts take a view that such VIE Agreements contravene PRC laws and regulations or are otherwise not enforceable for public\npolicy reasons. In the event we are unable to enforce these VIE Agreements, we may not be able to exert effective control over Taizhou\nSuxuantang, and our ability to conduct our business may be materially and adversely affected. Our Class A Ordinary Shares may decline\nin value or become worthless if we are unable to assert your contractual control rights over the assets of the VIE that conduct all or\nsubstantially all of our operations.\n\n \n\n25\n\n \n\n \n\n*It may be difficult for overseas shareholders\nand/or regulators to conduct investigation or collect evidence within China.*\n\n \n\nShareholder claims or regulatory\ninvestigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For\nexample, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation\ninitiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory\nauthorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities\nregulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore,\naccording to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator\nis allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation\nof or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly\nconduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your\ninterests.\n\n \n\nOur principal business operation\nis conducted in the PRC. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation\nor collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence\ncollection directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities regulatory\nauthority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities\nregulatory authority of the PRC.\n\n \n\n*We face exposure to foreign currency exchange\nrate fluctuations, and such fluctuations could adversely affect our business, results of operations and financial condition.*\n\n \n\nThe conversion of Renminbi\ninto foreign currencies, including the USD, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against\nthe USD and other currencies, at times significantly and unpredictably. The value of Renminbi against the USD and other currencies is\naffected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things.\nWe cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the USD and other currencies in the\nfuture. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and\nUSD in the future.\n\n \n\nSignificant revaluation of\nthe Renminbi may have a material and adverse effect on your investment. For example, to the extent we need to convert USD we received\nfrom our IPO into Renminbi for our operations, appreciation of the Renminbi against the USD would have an adverse effect on the Renminbi\namount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into USD for the purpose of making payments\nfor dividends on our Class A Ordinary Shares or for other business purposes, appreciation of the USD against the Renminbi would have\na negative effect on the USD amount available to us.\n\n \n\nVery limited hedging options\nare available in China to reduce our exposure to exchange rate fluctuations. As of the date of this annual report, we have not entered\ninto any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.  While we may decide to\nenter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able\nto adequately hedge our exposure, or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations\nthat restrict our ability to convert Renminbi into foreign currency.\n\n \n\nSubstantially all of our\nrevenues and costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiaries\nin China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and\nfinancial position reported in Renminbi when translated into USD. To the extent that we need to convert USD we received from our IPO\ninto Renminbi for our operations, appreciation of the Renminbi against the USD would have an adverse effect on the Renminbi amount we\nwould receive. Conversely, if we decide to convert our Renminbi into USD for the purpose of making payments for dividends on our Class\nA Ordinary Shares or for other business purposes, appreciation of the USD against the Renminbi would have a negative effect on the USD\namount.\n\n \n\n26\n\n \n\n \n\n*PRC regulation of loans to, and direct\ninvestments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our future financing activities\nto make loans or additional capital contributions to our PRC operating subsidiaries.*\n\n \n\nAs an offshore holding company\nwith PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entity by means of loans or capital contributions.\nAny capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries are subject to PRC regulations.\nAny loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between\nthe amount of our investments and registered capital in such subsidiaries, and shall be registered with China’s State Administration\nof Foreign Exchange (“SAFE”), or its local counterparts. Furthermore, any capital increase contributions we make to our PRC\nsubsidiaries, which are foreign-invested enterprises, shall be approved by the MOF, or its local counterparts. We may not be able to\nobtain these government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration,\nour ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be\nnegatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and\nmeet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively\naffected. \n\n \n\n*Labor disputes could significantly affect\nour operations.*\n\n \n\nLabor disputes with our employees\nor labor disputes regarding social welfare could significantly disrupt operations or expansion plans. Delays caused by any such disruptions\ncould materially affect projections for increased capacity, production and revenues, which could have a material adverse effect on our\nbusiness, financial condition, results of operations and prospects.\n\n \n\n*Adverse changes in political and economic\npolicies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand\nfor our products and materially and adversely affect our competitive position.*\n\n \n\nSubstantially all of our\nbusiness operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject\nto economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government\ncontinues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax\npolicies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign\ninvestors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These\ngovernment involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global\nand Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the\nPRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC\ngovernment’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy,\nour results of operations could be adversely affected as a result.\n\n \n\n*Labor laws in the PRC may adversely affect\nour results of operations.*\n\n \n\nOn December 28, 2012, the\nPRC government released the revision of the Labor Contract Law of the PRC, which became effective on July 1, 2013. The Labor Contract\nLaw imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce.\nFurther, it requires certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease\nour workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous\nto our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results\nof operations.\n\n \n\n*Under the Enterprise Income Tax Law, we\nmay be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences\nto us and our non-PRC stockholders.*\n\n \n\nChina passed the Enterprise\nIncome Tax Law, or the EIT Law, and it is implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an\nenterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,”\nmeaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules\nof the EIT Law define de facto management as “substantial and overall management and control over the production and operations,\npersonnel, accounting, and properties” of the enterprise.\n\n \n\n27\n\n \n\n \n\nOn April 22, 2009, the State\nAdministration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled\nEnterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further\ninterpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group.\nPursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be\nclassified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations\nreside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in\nChina; (iii) its substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China;\nand (iv) all of its directors with voting rights or senior management reside in China. A resident enterprise would be subject to an enterprise\nincome tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders.\nBecause substantially all of our operations and senior management are located within the PRC and are expected to remain so for the foreseeable\nfuture, we may be considered a PRC resident enterprise for enterprise income tax purposes and therefore subject to the PRC enterprise\nincome tax at the rate of 25% on its worldwide income. However, it remains unclear as to whether the Notice is applicable to an offshore\nenterprise controlled by a Chinese natural person. Therefore, it is unclear how tax authorities will determine tax residency based on\nthe facts of each case.\n\n \n\nIf the PRC tax authorities\ndetermine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences\ncould follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise\nincome tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise\nincome tax at a rate of 25%. Currently, we do not have any non-China source income, as we conduct our sales, including export sales,\nin China. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would be deemed as “qualified\ninvestment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to the clause\n26 of the EIT Law. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification\ncould result in a situation in which the dividends we pay with respect to our Class A Ordinary Shares, or the gain our non-PRC stockholders\nmay realize from the transfer of our Class A Ordinary Shares, may be treated as PRC-sourced income and may therefore be subject to a\n10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect\nto the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required\nunder the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC stockholders, or if\nnon-PRC stockholders are required to pay PRC income tax on gains on the transfer of their shares of Class A Ordinary Shares, our business\ncould be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident\nenterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income,\nand our PRC tax may not be creditable against such other taxes.\n\n \n\n*We may be exposed to liabilities under\nthe Foreign Corrupt Practices Act and Chinese anti-corruption law.*\n\n \n\nIn connection with our initial\npublic offering, we became subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other laws that prohibit improper\npayments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined\nby the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly\nprohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which\nmay experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees,\nconsultants or distributors of our Company, because these parties are not always subject to our control.\n\n \n\nAlthough we believe to date\nwe have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and\nany future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage\nin conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal\nor civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial\ncondition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies\nin which we invest or that we acquire.\n\n \n\n28\n\n \n\n \n\n*Governmental control of currency conversion\nmay affect the value of your investment.*\n\n \n\nThe PRC government imposes\ncontrols on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We\nreceive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend\npayments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries\nto remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated\nobligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest\npayments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying\nwith certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted\ninto foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.\nThe PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If\nthe foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not\nbe able to pay dividends in foreign currencies to our security-holders.\n\n \n\n*Our business may be materially and adversely\naffected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.*\n\n \n\nThe Enterprise Bankruptcy\nLaw of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated\nif the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably,\ninsufficient to clear such debts.\n\n \n\nOur PRC subsidiaries hold\ncertain assets that are important to our business operations. If any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation\nproceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate\nour business, which could materially and adversely affect our business, financial condition and results of operations.\n\n \n\nAccording to SAFE’s\nNotice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for\nDirect Investment, effective on 17 December 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct\nInvestment by Foreign Investors, effective May 13, 2013, if any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation\nproceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still\nneed to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality\nor involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.\n\n \n\n*Fluctuations in exchange rates could adversely\naffect our business and the value of our securities.*\n\n \n\nChanges in the value of the\nRMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political\nand economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition,\nand the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S.\ndollars we receive from our initial public offering and/or other future financing activities into RMB for our operations, appreciation\nof the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we\ndecide to convert our RMB into U.S. dollars for the purpose of paying dividends on our shares of Class A Ordinary Shares or for other\nbusiness purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to\nus. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus\naffect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.\n\n \n\nSince July 2005, the RMB\nis no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market\nto prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against\nthe U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations\nin the RMB exchange rate and lessen intervention in the foreign exchange market.\n\n \n\n29\n\n \n\n \n\n*If we become directly subject to the recent\nscrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate\nand resolve the matter which could harm our business operations, and our reputation and could result in a loss of your investment in\nour stock, especially if such matter cannot be addressed and resolved favorably.*\n\n \n\nRecently, U.S. public companies\nthat have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity\nby investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity\nhas centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate\ncorporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism\nand negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases,\nhas become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting\ninternal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative\npublicity will have on our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to\nbe true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation\nmay be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations\nwill be severely hampered and your investment in our stock could be rendered worthless.\n\n \n\n*You may face difficulties in protecting\nyour interests and exercising your rights as a stockholder since we conduct substantially all of our operations in China, and almost\nall of our officers and directors reside outside the U.S.*\n\n \n\nAlthough we are incorporated\nin the British Virgin Islands, we conduct substantially all of our operations in China. All of our current officers and almost all of\nour directors reside outside the U.S. and substantially all of the assets of those persons are located outside of the U.S. It may be\ndifficult for you to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders\nmeeting if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially\nin China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions\nagainst our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly\nwithin the U.S.\n\n \n\n*You may experience difficulties in effecting\nservice of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual\nreport based on foreign laws.*\n\n \n\nWe are a company incorporated\nunder the laws of the British Virgin Islands, we conduct substantially all of our operations in China, and substantially all of our assets\nare located in China. In addition, all of our executive officers reside within China for a significant portion of the time and are PRC\nnationals. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside China.\nIn addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the British\nIslands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these\nnon-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.\n\n \n\nShareholder claims that are\ncommon in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of\nlaw or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed\nfor shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities\nin China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to\nimplement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the\nUnities States have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the\nPRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation\nor evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators\nand relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities\nto overseas parties.\n\n \n\n30"}