0001678848
true
NONE
CN
0001678848
2022-12-30
2022-12-30
0001678848
dei:FormerAddressMember
2022-12-30
2022-12-30
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
Quality Certifications
and Accreditations
In
a continuous effort to meet various international production and quality manufacturing standards, Liaoning Kangbaier has obtained ISO
and JIS certificate certifications: (1) to show evidence of high quality manufacturing standards applied to the production and management
processes; and (2) to access domestic and foreign markets. The management believes that maintaining objectively verifiable quality standards
fosters consumer confidence and loyalty and maximizes customer satisfaction and recognition.
Raw Materials and Suppliers
All of our raw materials (carrots)
are either grown on our own property or sourced through cooperative arrangements with local farmers. Farmers with whom we cooperate are
selected based on several criteria including but not limited to quality, farm location, delivery cycle, and price. As we have a variety
of options for suppliers, we do not anticipate difficulties in obtaining suppliers to produce our products. The prices for these raw materials
are subject to market forces largely beyond our control, including weather and growing cycles, market demand, economy trend, and freight
costs. The prices for raw materials have fluctuated in the past and may fluctuate significantly in the future.
Our quality control system
starts from procurement. Before entering our production flow, we inspect the farms to confirm that no harmful insecticides and chemical
fertilizers are used, and the raw materials must be certified for quality. We also perform quality reexaminations and unannounced inspections
on raw materials in the production process. We review the performance of our suppliers based on the defective percentage of their supplies
and adjust the amount of procurement from them accordingly. Our supplier agreements usually contain a quality control clause, under which
we may seek remedies against our suppliers, such as damages and rectification, in the event the supplies fall below por quality standard
or exceed minimum defective percentage.
Production Facilities
We exclusively entrust a third
party contract manufacturer to process and produce our products, and we have established a long-term cooperative relationship. We provide
standardized production process and technical support for contract manufacturer, and they produce in full accordance with our standards.
This enterprise has the relevant production license qualification.
Sales and Marketing
The
Ministry of Commerce and other 12 departments issued "opinions on promoting the construction of 15-minute urban convenient life
circles" put forward, a quarter of an hour for the convenience of life circle in community residents as the service object, service
radius for about 15 minutes’ walk, in order to meet the residents' daily life basic consumption and quality consumption as the
goal, with more forms agglomeration formation of community business circle.
The Ministry of Commerce
and other 13 departments issued "guidance on promoting the brand chain convenience store to speed up the development" is put
forward, to improve the urban public service infrastructure, weave dense for the convenience of consumption grid, optimize the convenience
store business environment, promote convenience store brand, chain, intelligent development, better play to the convenience store service
the important role of the people's livelihood and promote consumption.
The Company’s product
marketing and distribution strategy has been developed in accordance with the national policy guidance issued by the Ministry of Commerce
which encouraged “the construction of an urban convenient life circle”, by “promoting brand name convenience stores”
so that all of a resident’s basic daily needs can be satisfied within a fifteen walk from their home to centrally located convenience
stores developed through comprehensive urban planning. Consistent with this guidance and to address market needs, the Company targets
community residents and ensure sales growth expanding the scope of services provided.
The Company’s distribution
channels consist of sales companies, regional agents (provincial, urban and county) and the franchising of Baijiakang Healthy Lifestyle
Supermarkets which are divided into flagship and community stores. Localized agents have the advantage of familiarity of local resources
as well as the ability to identify a potential franchisee for the Baijiakang Healthy Lifestyle Supermarkets.
The Company collects agency
fees from agents at all levels across the country, collects franchise fees from Baijiakang Healthy Lifestyle Supermarkets nationwide,
to which it provides products nationwide.
As of November 30, 2022,
we have more than 5 sales companies, 15 agents and 55 Baijiakang Healthy Lifestyle Supermarkets, including 13 BaiJiaKang flagship stores
and 42 community stores. These are concentrated in Shenyang City, Fushun City, Panjin City, Fuxin City, Inner Mongolia Autonomous Region,
Liaoyang City, Anshan City, Kaiyuan City, Yingkou City, Jilin City, as well as in Jilin, Hebei, Shandong, and Guangxi Provinces.
According to statistics,
the average number of members of each flagship store is 500, the average number of members of each community store is 200, and the total
number of members is about 15,000. Some of our agents and franchisees are also transformed from our members. After experiencing our products
and services, the members have improved their physical health. They are willing to establish a deeper partnership with us, which also
enhances the stickiness between us and our members and strengthens the close relationship between us and our agents and Baijiakang Healthy
Lifestyle Supermarkets.
We provide marketing plans,
sales support, and personnel training for all Baijiakang Healthy Lifestyle Supermarkets using our extensive sales network which has effectively
promoted our sales and enhanced our brand image.
According to the civil affairs
statistics of the third quarter of 2022 released by the official data of the Ministry of Civil Affairs of the NPC, PRC, there are 38,586
townships, towns, and streets, and 531,541 community service centers and service stations nationwide. According to the calculation of
one community store serving 10 communities, we plan to expand the scale of Baijiakang Healthy Lifestyle Supermarket to more than 10,000
in five years. With the gradual improvement of the service system, the service project escalating, each store membership will have a
lot of growth space, is expected to keep [70%] growth rate every year, build conform to the trend of healthy life multiple formats integration
development of community business circle, reach the last kilometer connectivity, finally establish people and community ecological civilization
health circle, for the people's healthy life to create sustainable circulation of ecological community alliance.
The Baijiakang Healthy Lifestyle Supermarket
Concept
The
Baijiakang Healthy Lifestyle Supermarket, offered as a franchise, is intended to serve the middle-aged and elderly residents in the community
by providing a comprehensive platform for one-stop shopping, physiotherapy, integrated health evaluation and consultation, health therapy,
health classroom and related health services. The goal is to meet the basic needs of the residents for a healthy life based upon natural
β -carotene series products. Each store is equipped with professional health testing instruments, so that customers can participate
in health evaluations and consultations. A personal profile is created for each member, recording their personal health data in detail,
which, together with an analysis of the results of health testing instruments, can provide health-related disease prevention recommendations
and health-related products.
BaiJiaKang APP (www.baijiakang.wx.chinakbegf.com),
provides technical support for offline stores, enabling stores, where customers can register free as “members” through the
mobile link, purchase goods and enjoy other benefits. The mobile link also connects supply chains, distributors, franchisees, allied
merchants, users, with sales volume, customers, distributors, revenue, channels, and valuable customers, Win&win, community alliance
and inter-connected ecosystem.
We will provide pre-sales
and after-sales tracking, maintenance, feedback, and emergency response services for store members. A consumer satisfaction evaluation
system is employed to continuously improve our customer’s shopping experience, strengthen customer stickiness and their repurchase
rate
Competition
At present, the well-known
brands familiar to consumers, such as Huiyuan, Weiquan, and Meiyuan, occupy most of the market share in the field of fruit juice drinks.
Most of their products are made up of concentrated fruit juice and pure inlet water and mixed together. The fruit juice content is about
10%, and the main element that is helpful to the human body is VC. Our ultra-thick carrot juice, fruit juice content is as high as 85%,
rich in VC, and every 100ml of ultra-thick carrot juice contains 4mg of β carotene, β -carotene can be converted in the human
body into VA, VA has a good effect on the human eyes, skin, immunity, anti-aging and other aspects. So, most of their products contain
food additives, and in terms of nutrients, these brands are not absolutely focused on health nutrition.
As a biotech company, we
have been focusing on extracting natural β -carotene from carrots. The continuous r & d investment and continuous technological
innovation have increased our extraction cost, which has also led to the higher price of our products than the chemically synthesized
carotene products on the market. But the nutritional health value of our natural β -carotene series is much higher than similar
products in other markets.
With the continuous growth
of the market demand for carrot deep processing products and the further development of the development industry, the domestic and foreign
market competition has accelerated. Quality, technology, and cost form a huge network of relationships between enterprises and customers.
We believe that the company's products should focus on customers more accurately, quickly gain a foothold in the market and occupy a
certain share, and then continue to develop and grow, otherwise we will face the double pressure from the international and domestic
markets. If the company has the following situations, such as the decision-making mistakes, poor market expansion, unable to maintain
the advanced technology and production level, or the market supply and demand situation has undergone significant adverse changes, we
will face an adverse market competition situation.
We believe that our ability
to compete depends on many factors within and outside our control, including:
|
● |
promote agriculture by
applying scientific and technological advances |
|
● |
Large-scale planting base |
|
● |
Continuous R & D investment
and continuous technological innovation |
|
● |
Excellent
professional management team |
|
● |
Continuous
marketing and promotion |
|
● |
Market-oriented
adjustment of the product structure |
|
● |
Consumer
trust and loyalty to the products |
|
● |
Our brand
advantage over our competitors in the market |
We also work with regional
and globally renowned health product business partners and health organizations:
|
● |
Cooperated
with Hong Xinghua, a researcher from Shijiazhuang Institute of Agricultural Modernization, Chinese Academy of Sciences, to create
a production project with high carotene content. |
|
● |
Establish
cooperation with China Polypeptide Industry Group and devote ourselves to the development of carrot-based peptide products based
on the cooperation of clear protein polypeptide powder. |
|
● |
China
Polypeptide Industry Group is the first polypeptide research base in China, the forward-looking leader in China's polypeptide industry,
and the most professional polypeptide application commercial organization in Asia. At present, it has established a government-funded
professional peptide application research institute (Development and Application Research Center) and the only albumin polypeptide
raw material production base in China, which is the polypeptide research base of Chinese Society of Health Science and Technology
(national). Participated in the formulation of national industry standards for albumin polypeptide and soybean polypeptide. |
|
● |
Cooperate
with Professor Zhu Beiwei of Dalian University of Technology to develop fruit and vegetable deep processing products. |
Intellectual Property
Protection
of our intellectual property is a strategic priority for our business. We rely on a combination of patent, trademark, and trade secret
laws, as well as confidentiality agreements, to establish and protect our proprietary rights. We do not rely on third-party licenses
of intellectual property for use in our business.
In order to protect our intellectual
property rights, we have filed trademark registration applications in China, including but not limited to the following:
Brand Name | |
Figure | |
Trademark No | |
Trademark category |
Kangbaier | |
| |
1666988 30505039 | |
32 30 |
Ao Wei Jian AWAYK | |
Text without graphics | |
10502470 | |
30 |
AWAYK; Ovian Health | |
Text without graphics | |
4614729 | |
30 |
Eagle bright god jiongjiong | |
Text without graphics | |
41401770 | |
5 |
BaiJia kang garden | |
Text without graphics | |
67601794 | |
44 |
BaiJia kang garden | |
Text without graphics | |
67621263 | |
35 |
Bai Jia Kang | |
| |
58482246 | |
44 |
Pending
patent filings:
Country |
|
Patent Number |
|
Patent Name |
|
Document
Serial Number |
|
Proposer |
China |
|
202223232350.X |
|
A beverage-processing device |
|
2022120400695070 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223225332.9 |
|
A beverage processing and blending device |
|
2022120300320500 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223238634.X |
|
A residue filter device for beverage processing |
|
2022120500916620 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223232363.7 |
|
An integrated beverage capping system for processing |
|
2022120400700010 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223231375.8 |
|
A beverage processing and storage dustproof device |
|
2022120400296310 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223231536.3 |
|
A carrot juice beverage processing with raw material mixing equipment |
|
2022120400367610 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223238640.5 |
|
A water treatment device used for beverage processing |
|
2022120500915880 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
China |
|
202223215658.3 |
|
A filter device for processing fruit and vegetable drinks |
|
2022120200953210 |
|
Liaoning Kangbaier Biotechnology Development Co., Ltd. |
While
we highly value our intellectual properties and related assets, we do not believe that our market position and competitiveness are heavily
dependent on them, or that our operations are dependent upon any single patent or group of related patents to manufacture our products.
We nevertheless face intellectual property-related risks.
Seasonality
We
have not experienced, and do not expect to experience, any seasonal fluctuations in our results of operations for either our wheelchair
business or living aids products business.
Insurance
Liaoning
Kangbaier and its subsidiaries maintain certain insurance policies to safeguard against risks and unexpected events. For example, Liaoning
Kangbaier and its subsidiaries provide social security insurance including pension insurance, unemployment insurance, work-related injury
insurance and medical insurance for employees. Liaoning Kangbaier and its subsidiaries also maintain property insurance for fixed assets
and inventories. Liaoning Kangbaier and its subsidiaries are not required to maintain business interruption insurance or product liability
insurance in China under PRC laws and do not maintain key man insurance, insurance policies covering damages to network infrastructures
or information technology systems nor any insurance policies for properties. During the fiscal years 2021 and 2021, Liaoning Kangbaier
and its subsidiaries did not file any material insurance claims in relation to their businesses.
Regulations
Because all of our operating
entities are located in the PRC, we are regulated by the national and local laws of the PRC. This section summarizes the major PRC regulations
relating to our business.
PRC Laws and Regulations Relating to Food
Industry.
The food manufacturing industry
in China is highly regulated. The primary regulatory authority is the State Administration for Market Regulation (SAMR), including its
provincial and local branches. As a manufacturer of food, we are subject to regulation and oversight by the SAMR and its provincial and
local branches. The Food Safety Law of the People’s Republic of China (2021 Amendment, Food Safety Law) provides the basic legal
framework for the administration of the production and sales of food in China and covers the processing, sales, trading, storage, transport,
safety management and other supervisory regulations on food. These regulations set forth detailed rules with respect to the administration
of food safety in China. We are also subject to other PRC laws and regulations that are applicable to business operators, distributors
in general.
PRC Licenses for Food Manufacturers and
Operators.
Pursuant to the Food Safety
Law, China implements a licensing system for the food production and operation. A person or a legal person who engages in food production,
food selling, or catering services shall obtain the Food Production License and/or Food Operation License from the food safety administrations
of local people’s governments at the county level or above in accordance with the law. Our Food Production License was issued on
July 6, 2018 by the former authority named Food and Drug Administration of Liu An City and will be valid until July 5, 2023. Our Food
Operation License was issued by the Food and Drug Administration of Shu Cheng County on September 5, 2016 and will be expired after September
4, 2021.
PRC Laws and Regulations Regarding Foreign
Investment
Investment activities in the
PRC by foreign investors were principally governed by the Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue,
which was promulgated and is amended from time to time by the Ministry of Commerce (the “MOFCOM”) and the NDRC. Industries
listed in the Catalogue were divided into three categories: encouraged, restricted, and prohibited. Industries not listed in the Catalogue
were generally deemed as constituting a fourth “permitted” category. The Catalog was replaced by the Special Administrative
Measures for Access of Foreign Investment (Negative List) and the Catalogue of Industries for Encouraging Foreign Investment in 2018
and 2019, respectively. On December 27, 2021, the NDRC and MOFCOM issued the latest Special Administrative Measures for Access of Foreign
Investment (Negative List) (2021 Edition) (the “Negative List 2021”), which came into effect on January 1, 2022. The Negative
List 2021 sets out the areas where foreign investment is prohibited and the areas where foreign investment is allowed only on certain
conditions. Foreign investment in areas not listed in the Negative List 2021 is treated equally with domestic investment and the relevant
provisions of the Negative List for Market Access shall apply to domestic and foreign investors on a unified basis. Moreover, according
to Negative List 2021, PRC entities which engage in any field forbidden by the Negative List 2021 for access of foreign investment shall
be approved by competent PRC authorities when they seek listing offshore, and foreign investors shall not participate in operation and
management and their shareholding ration shall be in compliance with PRC laws. As of the date of this report Liaoning Kangbaier’s
online sales services fall into the value-added telecommunications services which is considered restricted. To comply with PRC laws and
regulations, we conduct our online sales services in China through Liaoning Kangbaier, based on the VIE structure and a series of VIE
Agreements by and among WFOE, Liaoning Kangbaier and the Registered Shareholders.
On March 15, 2019, the National
People’s Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January
1, 2020, repealing simultaneously the Law of the PRC on Sino-foreign Equity Joint Ventures, the Law of the PRC on Wholly Foreign-owned
Enterprises, and the Law of the PRC on Sino-foreign Cooperative Joint Ventures. The Foreign Investment Law adopts the management system
of pre-establishment national treatment and negative list for foreign investment. Policies in support of enterprises shall apply equally
to foreign-funded enterprises according to laws and regulations. Foreign investment enterprises shall be guaranteed that they could equally
participate in the setting of standards, and the compulsory standards formulated by the State shall be equally applied. Fair competition
for foreign investment enterprises to participate in government procurement activities shall be protected. The Foreign Investment Law
also stipulates the protection on intellectual property rights and trade secrets. The State also establishes information reporting system
and national security review system according to the Foreign Investment Law.
PRC Laws and Regulations on Wholly Foreign-owned
Enterprises
The establishment, operation,
and management of corporate entities in China are governed by the PRC Company Law, which was promulgated by the SCNPC on December 29,
1993, and became effective on July 1, 1994. It was last amended on October 26, 2018, and the amendments became effective on October 26,
2018. Under the PRC Company Law, companies are generally classified into two categories, namely, limited liability companies and joint
stock limited companies. The PRC Company Law also applies to limited liability companies and joint stock limited companies with foreign
investors. Where there are otherwise different provisions in any law on foreign investment, such provisions shall prevail.
The Foreign Investment Law
of the PRC was promulgated on March 15, 2019 and became effective on January 1, 2020. Implementation Regulations for the Foreign Investment
Law of the People’s Republic of China were promulgated by the State Council on December 26, 2019 and became effective on January
1, 2020. Measures on Reporting of Foreign Investment Information were promulgated by MOFCOM on December 30, 2019 and became effective
on January 1, 2020. The above-mentioned laws form the legal framework for the PRC Government to regulate WFOEs. These laws and regulations
govern the establishment, modification, including changes to registered capital, shareholders, corporate form, merger and split, dissolution
and termination of WFOEs.
According to the above regulations,
a WFOE should submit an initial report through the Enterprise Registration System at the time of completion of establishment registration
for the foreign investment enterprise. Baijiakang Consulting is a WFOE since established and has submit an initial report. Its establishment
and operation are in compliance with the above-mentioned laws.
PRC Laws and Regulations on Intellectual Property
Rights
Regulations on Trademarks
The Trademark Law of the
PRC was adopted at the 24th meeting of the SCNPC on August 23, 1982. Four amendments were made on February 22, 1993, October 27, 2001,
August 30, 2013 and April 23, 2019. The Regulations on the Implementation of the Trademark Law of the PRC were promulgated by the State
Council of the People’s Republic of China on August 3, 2002, which took effect on September 15, 2002. It was revised on April 29,
2014 and became effective as of May 1, 2014. According to the Trademark Law and the implementing regulations, a trademark which has been
approved and registered by the trademark office is a registered trademark, including a trademark of goods, services, collective trademark,
and certification trademark. The trademark registrant shall enjoy the exclusive right to use the trademark and shall be protected by
law. The trademark law also specifies the scope of registered trademarks, procedures for registration of trademarks and the rights and
obligations of trademark owners. We are currently holding five registered trademarks in China and enjoy the corresponding rights.
Regulations on Patents
Pursuant to the Patent Law
of the PRC, promulgated by the SCNPC on March 12, 1984, as latest amended on October 17, 2020, and became effective on June 1, 2021,
and the Implementation Rules of the Patent Law of the PRC, promulgated by the State Council on June 15, 2001 and latest amended on January
9, 2010, there are three types of patent in the PRC: invention patent, utility model patent and design patent. The protection period
is 20 years for invention patent and 10 years for utility model patent and design patent, commencing from their respective application
dates. Any individual or entity that utilizes a patent or conducts any other activity in infringement of a patent without prior authorization
of the patentee shall pay compensation to the patentee and is subject to a fine imposed by relevant administrative authorities and, if
constituting a crime, shall be held criminally liable in accordance with the law. In the event that a patent is owned by two or more
co-owners without an agreement regarding the distribution of revenue generated from the exploitation of any co-owner of the patent, such
revenue shall be distributed among all the co-owners. As of the date of this report, we have filed 8 patent applications with the Patent
Administration Department of the PRC. To our knowledge, we do not violate the existing patent rights of any third party.
Regulations on Domain Names
The
Ministry of Industry and Information Technology of the PRC, or the MIIT, promulgated the Measures on Administration of Internet Domain
Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017, and replaced the Administrative Measures
on China Internet Domain Name promulgated by the MIIT on November 5, 2004. According to the Domain Name Measures, the MIIT is in charge
of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration
of domain names shall provide true, accurate and complete information of their identities to domain name registration service institutions.
The applicant will become the holder of such domain names upon completion of the registration procedure. As of the date of this report,
we have completed registration for our domain name of www.chinakbegf.com.
PRC Laws and Regulations Regarding Foreign
Exchange
General Administration of Foreign Exchange
The principal regulation
governing foreign currency exchange in the PRC is the Administrative Regulations of the PRC on Foreign Exchange (the “Foreign Exchange
Regulations”), which were promulgated on January 29, 1996, became effective on April 1, 1996, and were last amended on August 5,
2008. Under these rules, Renminbi is generally freely convertible for payments of current account items, such as trade- and service-related
foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer,
direct investment, investment in securities, derivative products, or loans unless prior approval by competent authorities for the administration
of foreign exchange is obtained. Under the Foreign Exchange Regulations, foreign-invested enterprises in the PRC may purchase foreign
exchange without the approval of SAFE to pay dividends by providing certain evidentiary documents, including board resolutions, tax certificates,
or for trade- and services-related foreign exchange transactions, by providing commercial documents evidencing such transactions.
Circular No. 37 and Circular No. 13
Circular 37 was released
by SAFE on July 4, 2014, and abolished Circular 75 which had been in effect since November 1, 2005. Pursuant to Circular 37, a PRC resident
should apply to SAFE for foreign exchange registration of overseas investments before it makes any capital contribution to a special
purpose vehicle, or SPV, using his or her legitimate domestic or offshore assets or interests. SPVs are offshore enterprises directly
established or indirectly controlled by domestic residents for the purpose of investment and financing by utilizing domestic or offshore
assets or interests they legally hold. Following any significant change in a registered offshore SPV, such as capital increase, reduction,
equity transfer or swap, consolidation or division involving domestic resident individuals, the domestic individuals shall amend the
registration with SAFE. Where an SPV intends to repatriate funds raised after completion of offshore financing to the PRC, it shall comply
with relevant PRC regulations on foreign investment and foreign debt management. A foreign-invested enterprise established through return
investment shall complete relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration
regulations on foreign direct investment and truthfully disclose information on the actual controller of its shareholders.
If any shareholder who is
a PRC resident (as determined by the Circular No. 37) holds any interest in an offshore SPV and fails to fulfil the required foreign
exchange registration with the local SAFE branches, the PRC subsidiaries of that offshore SPV may be prohibited from distributing their
profits and dividends to their offshore parent company or from carrying out other subsequent cross-border foreign exchange activities.
The offshore SPV may also be restricted in its ability to contribute additional capital to its PRC subsidiaries. Where a domestic resident
fails to complete relevant foreign exchange registration as required, fails to truthfully disclose information on the actual controller
of the enterprise involved in the return investment or otherwise makes false statements, the foreign exchange control authority may order
them to take remedial actions, issue a warning, and impose a fine of less than RMB 300,000 on an institution or less than RMB 50,000
on an individual.
Circular 13 was issued by
SAFE on February 13, 2015 and became effective on June 1, 2015. Pursuant to Circular 13, a domestic resident who makes a capital contribution
to an SPV using his or her legitimate domestic or offshore assets or interests is no longer required to apply to SAFE for foreign exchange
registration of his or her overseas investments, instead, he or she shall register with a bank in the place where the assets or interests
of the domestic enterprise in which he or she has interests are located if the domestic resident individually seeks to make a capital
contribution to the SPV using his or her legitimate domestic assets or interests; or he or she shall register with a local bank at his
or her permanent residence if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate
offshore assets or interests.
Circular 19 and Circular 16
Circular 19 was promulgated
by SAFE on March 30, 2015 and became effective on June 1, 2015. According to Circular 19, the foreign exchange capital in the capital
account of foreign-invested enterprises, meaning the monetary contribution confirmed by the foreign exchange authorities or the monetary
contribution registered for account entry through banks, shall be granted the benefits of Discretional Foreign Exchange Settlement (“Discretional
Foreign Exchange Settlement”). With Discretional Foreign Exchange Settlement, foreign capital in the capital account of a foreign-invested
enterprise for which the rights and interests of monetary contribution have been confirmed by the local foreign exchange bureau, or for
which book-entry registration of monetary contribution has been completed by the bank, can be settled at the bank based on the actual
operational needs of the foreign-invested enterprise. The allowed Discretional Foreign Exchange Settlement percentage of the foreign
capital of a foreign-invested enterprise has been temporarily set to be 100%. The Renminbi converted from the foreign capital will be
kept in a designated account and if a foreign-invested enterprise needs to make any further payment from such account, it will still
need to provide supporting documents and to complete the review process with its bank.
Furthermore, Circular 19
stipulates that foreign-invested enterprises shall make bona fide use of their capital for their own needs within their business scopes.
The capital of a foreign-invested enterprise and the Renminbi it obtained from foreign exchange settlement shall not be used for the
following purposes:
| ● | directly
or indirectly used for expenses beyond its business scope or prohibited by relevant laws or regulations; |
| ● | directly
or indirectly used for investment in securities unless otherwise provided by relevant laws or regulations; |
| ● | directly
or indirectly used for entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including
advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; or |
| ● | directly
or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate
enterprises). |
Circular 16 was issued by
SAFE on June 9, 2016. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency
to Renminbi on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange capital items
(including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis applicable to all enterprises
registered in the PRC. Circular 16 reiterates the principle that an enterprise’s Renminbi capital converted from foreign currency-denominated
capital may not be directly or indirectly used for purposes beyond its business scope or purposes prohibited by PRC laws or regulations,
and such converted Renminbi capital shall not be provided as loans to non-affiliated entities.
Taxation
PRC Enterprise Income Tax
The Enterprise Income Tax
Law of the People’s Republic of China (the “EIT Law”) was promulgated by the Standing Committee of the National People’s
Congress on March 16, 2007, and became effective on January 1, 2008, and was last amended on December 29, 2018. The Implementation Rules
of the EIT Law (the “Implementation Rules”) were promulgated by the State Council on December 6, 2007 and amended on April
23, 2019. According to the EIT Law and the Implementation Rules, enterprises are divided into resident enterprises and non-resident enterprises.
Resident enterprises shall pay enterprise income tax on their incomes obtained in and outside the PRC at the rate of 25%. Non-resident
enterprises setting up institutions in the PRC shall pay enterprise income tax on the incomes obtained by such institutions in and outside
the PRC at the rate of 25%. Non-resident enterprises with no institutions in the PRC, and non-resident enterprises whose incomes having
no substantial connection with their institutions in the PRC, shall pay enterprise income tax on their incomes obtained in the PRC at
a reduced rate of 10%.
The Arrangement between the
PRC and Hong Kong Special Administrative Region for the Avoidance of Double Taxation the Prevention of Fiscal Evasion with respect to
Taxes on Income (the “Arrangement”) was promulgated by the State Administration of Taxation (“SAT”) on August
21, 2006 and came into effect on January 1, 2007. According to the Arrangement, a company incorporated in Hong Kong will be subject to
withholding tax at the lower rate of 5% on dividends it receives from a company incorporated in the PRC if it holds a 25% interest or
more in the PRC company. Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in
Tax Treaties (the “Notice”) was promulgated by SAT on February 3, 2018 and became effective on April 1, 2018. According to
the Notice, a beneficial ownership analysis will be used based on a substance-over-form principle to determine whether or not to grant
tax treaty benefits.
Value-added Tax
Pursuant to the Provisional
Regulations on Value-added Tax of the PRC, or the VAT Regulations, which were promulgated by the State Council on December 13, 1993,
took effect on January 1, 1994, and were amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the
Rules for the Implementation of the Provisional Regulations on Value-added Tax of the PRC, which were promulgated by the MOF on December
25, 1993, and were amended on December 15, 2008, and October 28, 2011, respectively, entities and individuals that sell goods or labor
services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory
of the People’s Republic of China are taxpayers of value-added tax. The VAT rate is 17% for taxpayers selling goods, labor services,
or tangible movable property leasing services or importing goods, except otherwise specified; 11% for taxpayers selling services of transportation,
postal, basic telecommunications, construction, and lease of immovable, selling immovable, transferring land use rights, selling and
importing other specified goods including fertilizers; 6% for taxpayers selling services or intangible assets.
According to the Notice on
the Adjustment to the Value-added Tax Rates issued by the SAT and the MOF on April 4, 2018, where taxpayers make VAT taxable sales or
import goods, the applicable tax rates shall be adjusted from 17% to 16% and from 11% to 10%, respectively. Subsequently, the Notice
on Policies for Deepening Reform of Value-added Tax was issued by the SAT, the MOF and the General Administration of Customs on March
20, 2019 and took effective on April 1, 2019, which further adjusted the applicable tax rate for taxpayers making VAT taxable sales or
importing goods. The applicable tax rates shall be adjusted from 16% to 13% and from 10% to 9%, respectively.
Business license
Any company that conducts
business in the PRC must have a business license that covers a particular type of work. Other than regular business licenses that we
have already obtained, there is no special license or permit required for us to engage in the current businesses under PRC laws and regulations.
Any company that conducts
business in the PRC must have a business license that covers the scope of the business in which such company is engaged. Following the
Share Exchange, we conduct our business through our control of Liaoning Kangbaier. Each of Doron Kangbaier and Liaoning Health holds
a business license that covers its present business.
The business license of Doron
Kangbaier was issued on June 9, 2022. The scope of registered business of Doron Kangbaier includes agricultural technology development,
research and manufacture and sale of carrot-related beverages, food products and plant extracts, food production technology development,
consultation, transfer and promotion services; sale of edible agricultural products, acquisition, processing and sale of agricultural
and sideline products.
The business license of Liaoning
Health was issued on April 16, 2021. The scope of registered business of Liaoning Health includes research and manufacture and sale of
carrot-related beverages.
Dividend Distributions
Under applicable PRC regulations,
FIEs in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards
and regulations. In addition, a FIE in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards
each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves
are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits
to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
After-tax profits/losses
with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant
to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in
our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. generally
accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair
value of contingent consideration rising from business combinations.
In addition, under the EIT
Law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on
January 29, 2008, the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation
and Prevention of Fiscal Evasion, which became effective on December 8, 2006, and the Announcement of the State Administration of Taxation
on Issues Relating to “Beneficial Owner” in Tax Treaties, which became effective on April 1, 2018, dividends from our PRC
operating subsidiaries paid to us through our Hong Kong subsidiary may be subject to a withholding tax at a rate of 10%, or at a rate
of 5% if our Hong Kong subsidiary is considered a “beneficial owner” that is generally engaged in substantial business activities
and entitled to treaty benefits under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance
of Double Taxation and Prevention of Fiscal Evasion
PRC Laws and Regulations Related to Employment
and Labor Protection
On June 29, 2007, the National
People’s Congress promulgated the Employment Contract Law of PRC (“Employment Contract Law”), which became effective
as of January 1, 2008 and amended on December 28, 2012. The Employment Contract Law requires employers to provide written contracts to
their employees, restricts the use of temporary workers and aims to give employees long-term job security.
Pursuant to the Employment
Contract Law, employment contracts lawfully concluded prior to the implementation of the Employment Contract Law and continuing as of
the date of its implementation shall continue to be performed. Where an employment relationship was established prior to the implementation
of the Employment Contract Law but no written employment contract was concluded, a contract must be concluded within one month after
its implementation.
On September 18, 2008, the
State Council promulgated the Implementing Regulations for the PRC Employment Contract Law which came into effect immediately. These
regulations interpret and supplement the provisions of the Employment Contract Law.
Pursuant to the PRC Labor
Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must comply
with local minimum wage standards. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines
and other administrative and criminal liability in the case of serious violations.
Our standard employment contract
complies with the requirements of the Employment Contract Law and its implementing regulations. We have entered into written employment
contracts with all of our employees.
Social Insurance and Housing Fund
Pursuant to the Social Insurance
Law of the PRC, which was promulgated by the Standing Committee of the NPC on October 28, 2010 and last amended on December 29, 2018,
employers in the PRC shall provide their employees with welfare schemes covering basic pension insurance, basic medical insurance, unemployment
insurance, maternity insurance, and occupational injury insurance. The employer shall apply to the local social insurance agency for
social insurance registration within 30 days from the date of its formation. And it shall, within 30 days from the date of employment,
apply to the social insurance agency for social insurance registration for the employee. Any employer who violates the regulations above
shall be ordered to make correction within a prescribed time limit; if the employer fails to rectify within the time limit, the employer
and its directly liable person will be fined.
In accordance with the Regulations
on Management of Housing Provident Fund, which were promulgated by the State Council on April 3, 1999 and last amended on March 24, 2019,
employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds.
Employers and employees are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary
of the employee in the preceding year in full and on time. Any entity that fails to make deposit registration of the housing accumulation
fund or fails to open a housing accumulation fund account for its employees shall be ordered to complete the relevant procedures within
a prescribed time limit. Any entity failing to complete the relevant procedure within the time limit will be fined RMB10,000 to RMB50,000.
Any entity fails to make payment of housing provident fund within the time limit or has shortfall in payment of housing provident fund
will be ordered to make the payment or make up the shortfall within the prescribed time limit, otherwise, the housing provident management
center is entitled to apply for compulsory enforcement with the People’s Court.
Employees
As of December 1, 2022, we
had 11 employees. The following table sets forth the number of our employees by function as of December 1, 2022:
Department | |
Number
of
Employees | |
Department of Technology and Production | |
| 3 | |
Market Operations | |
| 2 | |
Accounting Department | |
| 2 | |
Planning Product Publicity | |
| 1 | |
Administration | |
| 2 | |
Total | |
| 11 | |
We have entered into employment
contracts with our full-time employees.
As required by regulations
in China, Liaoning Kangbaier and its subsidiaries participate in various employee social security plans that are organized by municipal
and provincial governments for our PRC-based full-time employees, including pension, unemployment insurance, childbirth insurance, work-related
injury insurance, medical insurance, and housing insurance. Liaoning Kangbaier and its subsidiaries are required under PRC law to make
contributions from time to time to employee benefit plans for PRC-based full-time employees at specified percentages of the salaries,
bonuses, and certain allowances of such employees, up to a maximum amount specified by the local governments in China. For more details,
please see “Regulations - PRC Laws and Regulations Related to Employment and Labor Protection”
None of our employees belong
to a union or are a party to any collective bargaining or similar agreement. We consider our relationships with our employees to be good.
RISK FACTORS
An investment in our common stock involves
a high degree of risk. Before deciding whether to invest in our common stock, you should consider carefully the risks described below,
together with all of the other information set forth in this report, including the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If
any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely
affected, which could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment.
The risks described below and, in the sections, and documents referenced above are not the only ones that we face. Additional risks not
presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our common
stock if you can bear the risk of loss of your entire investment.
Risks Related to Our Business
The ability of the Company to continue as
a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan.
Our financial statements appearing
at the end of this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of
business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations,
and to pursue financing arrangements to support its working capital requirements.
Our ability to continue as
a going concern depends on our ability to raise additional financing. If we are unable to raise additional capital, we may be required
to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending
the pursuit of our business plan, and reducing overhead expenses. We cannot provide any assurance that new financing will be available
to us on commercially acceptable terms, if at all. if we cannot continue as a going concern the holders of our common stock and our shareholders
could lose all or a part of their investment. In such situations, our business, prospects, financial condition and results of operations
would be materially and adversely affected.
We operate in highly competitive markets,
and the scale and resources of some of our competitors may allow them to compete more effectively than we can, which could result in
a loss of our market share and a decrease in our net revenues and profitability.
The market for health products
is highly competitive and we compete in various aspects, including brand recognition, value for money, user experience, breadth of product
and service offerings, product quality, sales and distribution, supply chain management, customer loyalty, and talents, among others.
Intensified competition may result in pricing pressures and reduced profitability and may impede our ability to achieve sustainable growth
in our revenues or cause us to lose market share. Our competitors may also engage in aggressive and negative marketing or public relations
strategies which may harm our reputation and increase our marketing expenses. Any of these results could substantially harm our results
of operations.
Some of our existing and
potential competitors enjoy substantial competitive advantages, including longer operating history, access to larger and broader user
bases, greater brand recognition, greater financial, research and development, marketing, distribution, and other resources. We cannot
assure you that we will compete with them successfully.
A disruption,
termination, or alteration of the supply of raw materials due to natural disasters, political and economic turmoil, and widespread disease
or pandemics (such as the recent COVID-19 pandemic) could materially adversely affect the sales of our products.
Our business depends on the
supply of raw materials, and we are reliant on a consistent supply of raw materials and components in order to maintain our production
capability. If our suppliers experience delays in delivering raw materials, , or if the quality does not meet our standards we could
incur substantive costs or disruptions to our business, which could have a material adverse effect on our net sales, financial condition,
profitability and cash flows.
Further, conditions such
as public health crises could impair our ability to procure necessary materials. Such public health crises may also increase the cost
of these materials. For example, an outbreak of a new strain of coronavirus in Wuhan, China (“COVID-19”) has resulted in
widespread quarantines and travel bans issued by the Chinese government for a certain period of time in 2020. Such quarantines and travel
bans have had a substantial impact on our corporate operations in China and our operational results and our revenues in 2021 were materially
and adversely impacted. There has been a resurgence of the COVID-19 pandemic in China since early 2022, which has caused disruptions
in our operations and we expect that our financial results may be negatively impacted as a result,
Increases in the price of raw materials
or impact of currency value fluctuations could impact our ability to sustain and grow earnings.
Our manufacturing processes
consume substantive amounts of raw materials, the costs of which may be subject to supply and demand factors, as well as other factors
beyond our control such as financial market trends. Raw material price fluctuations may adversely affect our results.
Our business depends on the performance
of sales companies, regional agents and our branded supermarkets and disruptions within our distribution network could have a negative
effect on our business.
We sell our products through
a network of sales companies, regional agents and our branded supermarkets and our business is therefore affected by our ability to establish
new relationships and maintain relationships with our existing distribution channels. We can provide no assurance that we will be able
to maintain such goodwill with our sales companies and agents and renew our existing agreements on favorable terms, if at all.
We have limited sources of working capital
and will need substantial additional financing.
The working capital required
to implement our business strategy and R&D efforts will most likely be provided by funds obtained through offerings of our equity,
debt, debt-linked securities, and/or equity-linked securities, and revenues generated by us. No assurance can be given that we will have
revenues sufficient to sustain our operations or that we would be able to obtain equity/debt financing in the current economic environment.
If we do not have sufficient working capital and are unable to generate sufficient revenues or raise additional funds, we may delay the
completion of or significantly reduce the scope of our current business plan; delay some of our development and clinical or marketing
efforts; postpone the hiring of new personnel; or, under certain dire financial circumstances, substantially curtail or cease our operations.
Our inability to obtain
sufficient additional financing would have a material adverse effect on our ability to implement our business plan and, as a result,
could require us to significantly curtail or potentially cease our operations. As of September 30, 2022, we had cash of $167,364,
total current assets of $2,249,299 and total current liabilities of $5,018,577. We may need to engage in capital-raising
transactions in the near future. Such financing transactions may well cause substantial dilution to our shareholders and could
involve the issuance of securities with rights senior to the outstanding shares. Our ability to complete additional financings is
dependent on, among other things, the state of the capital markets at the time of any proposed offering, market reception of the
Company and the likelihood of the success of its business model and offering terms. There is no assurance that we will be able to
obtain any such additional capital through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms
or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs
and to support our operations. If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and
operations and the value of our common stock and Ordinary Share equivalents would be materially negatively impacted and we may cease
our operations.
We are dependent on certain key personnel
and loss of these key personnel could have a material adverse effect on our business, financial condition, and results of operations.
Our future business and results
of operations depend in significant part upon the continued contributions of our management, marketing, and technical personnel. They
also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales
and support personnel for our operations. As China is building its powerful technology industry and enhancing its market-oriented economic
system, competition for talents becomes increasingly fierce. Many of our potential competitors have greater financial, personnel, technical,
manufacturing, marketing, sales, and other resources than we do. If we lose a key employee or if a key employee fails to perform in his
or her current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. We depend
on the skills and abilities of these key employees in managing the technical, marketing and sales aspects of our business, any part of
which could be harmed by further turnover.
Our success depends on our ability to protect
our intellectual property.
We rely on or intend to rely
on our trademarks, trade names and brand names to distinguish our products from the products of our competitors and have registered or
will apply to register a number of these trademarks. However, third parties may oppose our trademark applications or otherwise challenge
our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products,
which could result in loss of brand recognition and could require us to devote resources to advertising and marketing these new brands.
Further, our competitors may infringe our trademarks, or we may not have adequate resources to enforce our trademarks.
If we fail to maintain an effective quality
control system, our business could be materially and adversely affected.
We place great emphasis on
product quality and adhere to stringent quality control measures and have obtained quality control certifications for our products. To
meet our customers’ requirements and expectations for the quality and safety of our products, we have adopted a stringent quality
control system to ensure that every step of the production process is strictly monitored and managed. Failure to maintain an effective
quality control system or to obtain or renew our quality standards certifications may result in a decrease in demand for our products
or cancellation or loss of purchase orders from our customers. Moreover, our reputation could be impaired. As a result, our business
and results of operations could be materially and adversely affected.
We rely on third-party
logistics service providers to deliver our products. Disruption in logistics may prevent us from meeting customer demand and our business,
results of operations and financial condition may suffer as a result.
We
engage third-party logistics service providers to deliver our products from our warehouses to our distributors and retail outlets. Disputes
with or termination of our contractual relationships with one or more of our logistics service providers could result in delayed delivery
of products or increased costs. There can be no assurance that we can continue or extend relationships with our current logistics service
providers on terms acceptable to us, or that we will be able to establish relationships with new logistics service providers to ensure
accurate, timely and cost-efficient delivery services. If we are unable to maintain or develop good relationships with our preferred
logistics service providers, it may inhibit our ability to offer products in sufficient quantities, on a timely basis, or at prices acceptable
to our consumers. If there is any breakdown in our relationships with our preferred logistics service providers, we cannot assure you
that no interruptions in our product delivery occur or that they would not materially and adversely affect our business, prospects, and
results of operations.
As we do not have any direct
control over these logistics service providers, we cannot guarantee their quality of service. In addition, services provided by these
logistics service providers could be interrupted by unforeseen events beyond our control, such as poor handling provided by these logistics
service providers, natural disasters, pandemics, adverse weather conditions, riots and labor strikes. If there is any delay in delivery,
damage to products or any other issue, we may lose customers and sales and our brand image may be tarnished.
Our production facilities may be unable
to maintain efficiency, encounter problems in ramping up production or otherwise have difficulty meeting our production requirements.
The relevant nutritional
products are manufactured under contract with a company entrusted by Liaoning Kangbaier “which holds a Food Production License.
Our future growth will depend upon our ability to maintain efficient operations at their existing production facilities and our ability
to expand their production capacity as we require. The average utilization rate of our production lines was __ %, and __% for the fiscal
years 2021 and 2020, respectively. The utilization rate of our production facilities depends primarily on the demand for our products
and the availability and maintenance of our equipment but may also be affected by other factors, such as the availability of employees,
seasonal factors and changes in environmental laws and regulations. In order to meet our customers’ demands and advancements in
technology, we maintain and upgrade our equipment periodically. If we are unable to maintain our production facilities’ efficiency,
we may be unable to fulfill our purchase orders in a timely manner, or at all. This would negatively impact our reputation, business,
and results of operations.
The global coronavirus COVID-19 pandemic
has caused significant disruptions in our business, which may continue to materially and adversely affect our results of operations and
financial condition.
On March 11, 2020, the World
Health Organization declared the COVID-19 outbreak a global pandemic. Many businesses and social activities in China and other countries
and regions were severely disrupted in 2020, including those of our suppliers, customers, and employees. This pandemic has also caused
market panics, which materially and negatively affected the global financial markets, such as the plunge of global stocks on major stock
exchanges in March 2020. Such disruption and slowdown of the world’s economy in 2020 and beyond had, and may continue to have,
a material adverse effect on our results of operations and financial condition. We and our customers experienced significant business
disruptions and suspension of operations due to quarantine measures to contain the spread of the pandemic, which caused shortage in the
supply of raw materials, reduced our production capacity, increased the likelihood of default from our customers and delayed our product
delivery. All of these had resulted in a material adverse effect on our results of operations and financial condition in the fiscal year
2021. The extent to which the COVID-19 pandemic may impact our business, operations and financial results will depend on numerous evolving
factors that the Company cannot accurately predict at this time, including the uncertainty on the potential resurgence of the COVID-19
cases in China, and the instability of local government policies and restrictions. We are closely monitoring the development of the COVID-19
pandemic and continuously evaluating any further potential impact on our business, results of operations and financial condition. If
the pandemic persists or escalates, we may be subject to further negative impact on our business operations and financial condition.
Risks Related to Our Corporate Structure
We control and receive the economic benefits
of the business operations of the VIE through the VIE Agreements among our WFOE, the VIE and the VIE’s shareholders to operate
our business solely because we met the conditions for consolidation of the VIE under U.S. GAAP for accounting purpose; however, the VIE
Agreements have not been tested in a court of law and are subject to significant risks, as set forth in the following risk factors.
If the PRC government finds that the agreements
that establish the structure for operating our businesses in China do not comply with PRC regulations relating to the relevant industries,
or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties and
our common stock may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of
our PRC operating entities that conduct all of our operations.
We are a holding company
incorporated in the British Virgin Islands and operate our business through Liaoning Kangbaier, a VIE entity, via a series of contractual
arrangements, as a result of which, under United States generally accepted accounting principles, the assets and liabilities of Liaoning
Kangbaier are treated as our assets and liabilities and the results of operations of Liaoning Kangbaier are treated in all aspects as
if they were the results of our operations. For a description of these contractual arrangements, see “Business— Contractual
Arrangements among WFOE, Liaoning Kangbaier and Liaoning Kangbaier’s Shareholders”.
In the opinion of our PRC
legal counsel, based on its understandings of the relevant PRC laws and regulations, (i) the ownership structures of Liaoning Kangbaier
and WFOE, are not in violation of applicable PRC laws and regulations currently in effect; and (ii) the VIE Agreements among WFOE, Liaoning
Kangbaier and its shareholders is legal, valid, binding, and enforceable in accordance with its terms and applicable PRC laws. However,
our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current
or future PRC laws and regulations. Accordingly, the PRC regulatory authorities may ultimately take a view contrary to the opinion of
our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be
adopted or if adopted, what they would provide. If we or Liaoning Kangbaier are found to be in violation of any PRC laws or regulations,
if the contractual arrangements among WFOE, Liaoning Kangbaier and its shareholders are determined as illegal or invalid by the PRC court,
arbitral tribunal or regulatory authorities, or if we or Liaoning Kangbaier fail to obtain or maintain any of the required permits or
approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures,
including without limitation to:
| ● | revoking the business and/or operating licenses of WFOE or
Liaoning Kangbaier; |
| ● | discontinuing or restricting the operations of WFOE or Liaoning
Kangbaier; |
| ● | imposing conditions or requirements with which we, WFOE,
or Liaoning Kangbaier may not be able to comply; |
| ● | requiring us, WFOE, or Liaoning Kangbaier to restructure
the relevant ownership structure or operations which may significantly impair the rights of the holders of our common stock in the equity
of Liaoning Kangbaier; and |
The imposition of any of
these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what
impact the PRC government actions would have on us and on our ability to consolidate the financial results of Liaoning Kangbaier in our
consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to
be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct
the activities of Liaoning Kangbaier or our right to receive substantially all the economic benefits for accounting purposes and residual
returns from Liaoning Kangbaier and we are not able to restructure our ownership structure and operations in a satisfactory manner, we
would no longer be able to consolidate the financial results of Liaoning Kangbaier in our consolidated financial statements. Either of
these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on
our financial condition and results of operations and cause our Common stock to decline in value or become worthless.
We rely on contractual arrangements with
our variable interest entity and its subsidiaries in China for our business operations, which may not be as effective in providing operational
control or enabling us to derive economic benefits as through ownership of controlling equity interests.
We rely on and expect to
continue to rely on our wholly owned PRC subsidiary’s contractual arrangements with Liaoning Kangbaier and its shareholders to
operate our business. These contractual arrangements may not be as effective in providing us with control over Liaoning Kangbaier as
ownership of controlling equity interests would be in providing us with control over or enabling us to derive economic benefits from
the operations of Liaoning Kangbaier. Under the current contractual arrangements, as a legal matter, if Liaoning Kangbaier or any of
its shareholders executing the VIE Agreements fails to perform its, his or her respective obligations under these contractual arrangements,
we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws,
including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For
example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity
to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take
a legal action to compel them to fulfill their contractual obligations.
If (i) the applicable PRC
authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity
or its shareholders terminate the contractual arrangements or (iii) any variable interest entity or its shareholders fail to perform
their obligations under these contractual arrangements, our business operations in China would be materially and adversely affected,
and the value of your common stock would substantially decrease. Further, if we fail to renew these contractual arrangements upon their
expiration, we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses
in China.
In addition, if any variable
interest entity or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue
some or all of our business activities, which could materially and adversely affect our business, financial condition and results of
operations. If any of the variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its shareholders or
unrelated third- party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business,
which could materially and adversely affect our business and our ability to generate revenues.
All of these contractual
arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment
in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal
system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements,
we may not be able to exert effective control over our PRC operating entities and we may be precluded from operating our business, which
would have a material adverse effect on our financial condition and results of operations.
Liaoning Kangbaier Shareholders may have
potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
The equity interests of Liaoning
Kangbaier are held by a total of six shareholders. Their interests may differ from the interests of our Company as a whole. They may
breach, or cause Liaoning Kangbaier to breach, or refuse to renew the existing VIE Agreements, which would have a material adverse effect
on our ability to effectively control Liaoning Kangbaier and receive economic benefits from them through the VIE Agreements. Pursuant
to the VIE Agreements, the VIE shall pay service fees equal to all of its net profit after tax payments to WFOE, while WFOE has the power
to direct the activities of the VIE, which can significantly impact the VIE’s economic performance and has the right to receive
substantially all of the economic benefits of the VIE. Such contractual arrangements are designed so that the operations of the VIE are
solely for the benefit of WFOE and, ultimately, the Company. As such, under U.S. GAAP, the Company is deemed to have a controlling financial
interest in, and be the primary beneficiary of, the VIE for accounting purposes and must consolidate the VIE because it met the conditions
under U.S. GAAP to consolidate the VIE.
The Liaoning Kangbaier Shareholders
may be able to cause the VIE Agreements to be performed in a manner adverse to us by, among other things, failing to remit payments due
under the VIE Agreements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders
will act in the best interests of our Company, or such conflicts will be resolved in our favor.
Currently, we do not have
any arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise
our purchase option under the Equity Disposal Agreement and Equity Pledge Agreement with these shareholders to request them to transfer
all of their equity interests in Liaoning Kangbaier to a PRC entity or individual designated by us, to the extent permitted by PRC laws.
If we cannot resolve any conflict of interest or dispute between us and the Liaoning Kangbaier Shareholders, we would have to rely on
legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of
any such legal proceedings.
Contractual arrangements in relation to
our variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC variable
interest entity owe additional taxes, which could negatively affect our results of operations and the value of your investment.
Under applicable PRC laws
and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities
within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise
in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant
tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions
that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities
determine that the contractual arrangements between our WFOE, our variable interest entity Liaoning Kangbaier and the Liaoning Kangbaier
Shareholders were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under
applicable PRC laws, rules and regulations, and adjust Liaoning Kangbaier’s income in the form of a transfer pricing adjustment.
A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Liaoning Kangbaier for
PRC tax purposes, which could in turn increase their tax liabilities without reducing WFOE’s tax expenses. In addition, if WFOE
requests the of Liaoning Kangbaier Shareholders to transfer their equity interests in Liaoning Kangbaier at nominal or no value pursuant
to these contractual arrangements, such transfer could be viewed as a gift and subject WFOE to PRC income tax. Furthermore, the PRC tax
authorities may impose late payment fees and other penalties on Liaoning Kangbaier for the adjusted but unpaid taxes according to the
applicable regulations. Our results of operations could be materially and adversely affected if Liaoning Kangbaier’s tax liabilities
increase or if they are required to pay late payment fees and other penalties.
If we exercise the option to acquire equity
ownership of Liaoning Kangbaier, the ownership transfer may subject us to certain limitation and substantial costs.
Pursuant to the contractual
arrangements, WFOE has the exclusive right to purchase all or any part of the equity interests in Liaoning Kangbaier from Liaoning Kangbaier
Shareholders for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum price
amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request. The shareholders
of Liaoning Kangbaier will be subject to PRC individual income tax on the difference between the equity transfer price and the then current
registered capital of Liaoning Kangbaier. Additionally, if such a transfer takes place, the competent tax authority may require WFOE
to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could
be substantial.
We may lose the ability to use and enjoy
assets held by Liaoning Kangbaier that are material to the operation of certain portion of our business if Liaoning Kangbaier goes bankrupt
or become subject to a dissolution or liquidation proceeding.
As part of our contractual
arrangements with Liaoning Kangbaier, Liaoning Kangbaier and its subsidiaries hold certain assets that are material to the operation
of certain portion of our business, including intellectual property and licenses. If Liaoning Kangbaier goes bankrupt and all or part
of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities,
which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements,
Liaoning Kangbaier may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the
business without our prior consent. If Liaoning Kangbaier undergoes a voluntary or involuntary liquidation proceeding, independent third-party
creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially
and adversely affect our business, financial condition and results of operations.
The custodians or authorized users of our
tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets, all
of which may jeopardize our control over our PRC subsidiary and the VIE.
Under the PRC law, legal
documents for corporate transactions, including agreements and contracts are usually executed using the chop or seal of the signing entity
or with the signature of a legal representative whose designation is registered and filed with relevant PRC market regulation administrative
authorities.
In order to secure the use
of our chops and seals, we have established internal control procedures and rules for using these chops and seals. In any event that
the chops and seals are intended to be used, the responsible personnel will submit the application through our office automation system
and the application will be verified and approved by authorized employees in accordance with our internal control procedures and rules.
In addition, in order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only
to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances
of abuse or negligence. There is a risk that our employees could abuse their authority, for example, by entering into a contract not
approved by us or seeking to gain control of one of our PRC subsidiaries or the VIE entity. If any employee obtains, misuses, or misappropriates
our chops and seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business
operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management
from our operations.
Risks Related to Doing Business in China
A severe or prolonged downturn in the global
or Chinese economy could materially and adversely affect our business and our financial condition.
Although the Chinese economy
expanded well in the last two decades, the rapid growth of the Chinese economy has slowed down since 2012, and there is considerable
uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the People’s Bank of China and
financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns
over unrest and terrorist threats in the Middle East, Europe, and Africa, which have resulted in volatility in oil and other markets.
There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts
in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in
domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged
slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.
PRC regulation of loans to, and direct
investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future
financing activities to make loans or additional capital contributions to our PRC operating entities.
As an offshore holding company
with PRC entities, we may transfer funds to our PRC subsidiary or finance our PRC operating entities by means of loans or capital contributions.
Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiary, including from the proceeds of this offering,
are subject to PRC regulations. Any loans to our PRC subsidiary, which is a foreign-invested enterprise, cannot exceed statutory limits,
and shall be registered with China’s State Administration of Foreign Exchange (“SAFE”), or its local counterparts.
Furthermore, for any capital increase contributions we make to our PRC subsidiary, we shall submit a change report through relevant system
to China’s Ministry of Commerce (“MOFCOM”), or its local counterparts. If we are not able to conform to these government
requirements on a timely basis, our ability to make equity contributions or provide loans to our PRC operating entities or to fund their
operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion
projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be
negatively affected.
We must remit the offering proceeds to
China before they may be used to benefit our business in China, and this process may take several months to complete.
The proceeds of this offering
must be sent back to China, and the process for sending such proceeds back to China may take as long as six months after the closing
of this offering. In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore
holding company of our PRC operating entities (our PRC subsidiary, the VIE and the VIE’s subsidiaries), we may make loans to our
PRC subsidiary, or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary are subject to
PRC regulations. For example, loans by us to our subsidiary in China, Erhua, which is a foreign-invested enterprise, to finance its activities
cannot exceed statutory limits and must be registered with SAFE.
To remit the proceeds of
the offering, we must take the following steps:
| ● | First, we will open a special foreign exchange account for
capital account transactions. To open this account, we must submit to the banks at the place of registration certain application forms,
identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and
the relevant business registration certificate of the invested company. |
| ● | Second, we will remit the offering proceeds into this special
foreign exchange account. |
| ● | Third, we will apply for settlement of the foreign exchange.
In order to do so, we must submit to the banks at the place of registration certain application forms, identity documents, payment order
to a designated person, and a tax certificate. |
The timing of the process
is difficult to estimate because the efficiencies of different banks and SAFE branches can vary significantly. Ordinarily the process
takes several months but is required by law to be accomplished within 180 days of application.
If we decide to finance our
PRC operating entities by means of capital contributions, we are required to apply for an enterprise change registration to the relevant
market supervision authority, and a change report of capital contributions must be submitted at the time of completion of enterprise
change registration. We cannot assure you that we will be able to obtain these government approvals or complete the necessary government
registrations on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to complete
such registrations or receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations
may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. If we fail to
receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected,
which could adversely affect our liquidity and our ability to fund and expand our business.
Changes in China’s economic, political,
or social conditions or government policies could have a material adverse effect on our business and operations.
Substantially all of our
assets and operations are currently located in China. Accordingly, our business, financial condition, results of operations, and prospects
may be influenced to a significant degree by political, economic, and social conditions in China generally. The Chinese economy differs
from the economies of most developed countries in many respects, including the level of government involvement, level of development,
growth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing
the utilization of market forces for economic reform, including the reduction of state ownership of productive assets and the establishment
of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government.
In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies.
The Chinese government also exercises significant control over China’s economic growth by allocating resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or
companies.
While the Chinese economy
has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the
economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government, or in the laws and regulations
in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business
and operating results, reduce demand for our products, and weaken our competitive position. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy
but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government
control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain
measures, including interest rate adjustments, to control the pace of economic growth. These measures may cause decreased economic activities
in China, which may adversely affect our business and operating results.
Furthermore, we and our PRC
operating entities, as well as our investors, face uncertainty about future actions by the Chinese government that could significantly
affect our financial performance and operations, including the enforceability of the VIE contractual arrangements. If future laws, administrative
regulations, or provisions mandate further actions to be taken by companies with respect to existing VIE contractual arrangements, we
may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
appropriate measures to adapt to any of these or similar regulatory compliance challenges could materially and adversely affect our current
corporate structure and business operations.
We may be exposed to liabilities under
the Foreign Corrupt Practices Act and Chinese anti-corruption law.
As a result of this transaction,
we became subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other laws that prohibit improper payments
or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the
statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit
the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may
experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees,
consultants or distributors of our Company, because these parties are not always subject to our control.
Although we believe to date,
we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and
any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage
in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal
or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial
condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies
in which we invest or that we acquire.
Uncertainties with respect to the PRC legal
system could adversely affect us.
We conduct all of our business
through our subsidiary and variable interest entities in China. Our operations in China are governed by PRC laws and regulations. Our
PRC subsidiary and variable interest entities are generally subject to laws and regulations applicable to foreign investments in China
and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior
court decisions may be cited for reference but have limited precedential value.
Since 1979, PRC legislation
and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China
has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of
economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume
of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.
In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely
basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until
sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of
resources and management attention.
PRC regulation of loans and
direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make
loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability
to fund and expand our business.
Any loans to our PRC subsidiary
are subject to PRC regulations. For example, loans by us to our subsidiary in China, which is a foreign invested entity (“FIE”),
to finance its activities cannot exceed statutory limits and must be registered with SAFE. On March 30, 2015, SAFE promulgated Hui Fa
[2015] No. 19, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB. The foreign exchange capital,
for which the monetary contribution has been confirmed by the foreign exchange authorities (or for which the monetary contribution has
been registered for account entry) in the capital account of a foreign-invested enterprise may be settled at a bank as required by the
enterprise’s actual management needs. Foreign-invested enterprises with investment as their main business (including foreign-oriented
companies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are allowed to, under the
premise of authenticity and compliance of their domestic investment projects, carry out based on their actual investment scales direct
settlement of foreign exchange capital or transfer the RMB funds in the foreign exchange settlement account for pending payment to the
invested enterprises’ accounts.
On May 10, 2013, SAFE released
Circular 21, which came into effect on May 13, 2013. According to Circular 21, SAFE has simplified the foreign exchange administration
procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as
fund remittances.
Circular 21 may significantly
limit our ability to convert, transfer and use the net proceeds from any offering of additional equity securities in China, which may
adversely affect our liquidity and our ability to fund and expand our business in the PRC.
We may also decide to finance
our PRC operating entities by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart,
which usually takes no more than 30 working days to complete. We may not be able to obtain these government approvals on a timely basis,
if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will
not be able to capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business.
Recent greater oversight by the CAC over
data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our proposed
offering.
On December 28, 2021, the
CAC, together with 12 other governmental departments of the PRC, jointly promulgated the Cybersecurity Review Measures, which became
on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to critical information infrastructure operators (“CIIOs”)
that intend to purchase Internet products and services, data processing operators engaging in data processing activities that affect
or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the
Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement,
data processing, or overseas listing. The Cybersecurity Review Measures further require that CIIOs and data processing operators that
possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting
listings in foreign countries.
On November 14, 2021, the
CAC published the Security Administration Draft, which provides that data processing operators engaging in data processing activities
that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration
of the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million
users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace
Administration of the PRC. The deadline for public comments on the Security Administration Draft was December 13, 2021.
As of the date of this Report,
we have not received any notice from any authorities identifying any of our PRC subsidiaries or the VIE as a CIIOs or requiring us to
go through cybersecurity review or network data security review by the CAC. We believe that our listing in the U.S. will not be affected
by the Cybersecurity Review Measures or Security Administration Draft, and our PRC operations are not subject to cybersecurity review
or network data security review by the CAC, because our PRC subsidiaries are not CIIOs or data processing operators with personal information
of more than 1 million users. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration
Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations,
rules, or detailed implementation and interpretations related to the Cybersecurity Review Measures and the Security Administration Draft.
If any such new laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all reasonable measures
and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject
to cybersecurity review or network data security review in the future.
The Chinese government exerts substantial
influence over the manner in which we must conduct our business and may intervene or influence our operations at any time, which could
result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and cause the value of our Common stock to significantly decline or be worthless.
The Chinese government has
exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation,
environmental regulations, land use rights, property, and other matters. The central or local governments of these jurisdictions may
impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on
our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including
any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular
regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
As such, our business is
subject to various government and regulatory interferences. We could be subject to regulation by various political and regulatory entities,
including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply
with existing and newly adopted laws and regulations or penalties for any failure to comply. Our operations could be adversely affected,
directly or indirectly, by existing or future laws and regulations relating to its business or industry, which could result in a material
change in our operation and the value of our Common stock.
There are uncertainties regarding the enforcement
of laws and rules and regulations in China, which can change quickly with little advance notice, and there is a risk that the Chinese
government may exert more oversight and control over offerings that are conducted overseas, which could materially and adversely affect
our business and hinder our ability to offer or continue our operations and cause the value of our securities to significantly decline
or become worthless.
The PRC legal system is based
on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. There are uncertainties
regarding the enforcement of PRC laws, and rules and regulations in China can change quickly with little advance notice. Any actions
by the Chinese government to exert more oversight and control over offerings that are conducted overseas could materially and adversely
affect our business and hinder our ability to offer or continue our operations and cause the value of our securities to significantly
decline or become worthless. For example, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation
of Didi Global Inc. (NYSE: DIDI) and two days later ordered that company’s app be removed from smartphone app stores. In December
2021, DIDI announced that it would delist from the New York Stock Exchange less than six months after its initial public offering.
There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.
In fact, the PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies
and enforcement of these laws, regulations and rules involves uncertainties. The effectiveness and interpretation of newly enacted laws
or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on
laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations.
New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. Furthermore, if China
adopts more stringent standards with respect to environmental protection or social issues, which are increasingly becoming the focus
globally, we may incur increased compliance cost or become subject to additional restrictions in our operations. We cannot predict what
effect the interpretation of existing or new PRC laws or regulations may have on our business.
From time to time, we may
have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have
significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome
of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal
systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published
in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and
rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property
(including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China
could materially and adversely affect our business and impede our ability to continue our operations.
For example, on July 6, 2021,
the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement
to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among
other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation,
to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application
of the PRC securities laws. Since this announcement is relatively new, uncertainties still exist in relation to how soon legislative
or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and
interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have
on companies like us. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas
and/or foreign investment in China-based issuers could significantly limit or completely hinder your ability to offer or continue to
offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Our contractual arrangements with Liaoning
Kangbaier are governed by the laws of the PRC and we may have difficulty in enforcing any rights we may have under these contractual
arrangements.
As all of our contractual
arrangements with Liaoning Kangbaier are governed by the PRC laws and provide for the resolution of disputes through arbitration in the
PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures.
Disputes arising from these contractual arrangements between us, and Liaoning Kangbaier will be resolved through arbitration in China,
although these disputes do not include claims arising under the United States federal securities law and thus do not prevent you from
pursuing claims under the United States federal securities law. The legal environment in the PRC is not as developed as in the United
States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these contractual arrangements,
through arbitration, litigation and other legal proceedings remain in China, which could limit our ability to enforce these contractual
arrangements and exert effective control over Liaoning Kangbaier. Furthermore, these contracts may not be enforceable in China if PRC
government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable
for public policy reasons. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective
control over Liaoning Kangbaier, and our ability to conduct our business may be materially and adversely affected.
We are a holding company, and we rely for
funding on dividend payments from our PRC operating entities, which are subject to restrictions under PRC laws.
We are a holding company
incorporated in the British Virgin Islands, and we operate our core businesses through the VIE and its subsidiaries in the PRC. Therefore,
the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received
from the VIE and its subsidiaries. If the VIE and its subsidiaries incur debt or losses, their ability to pay dividends or other distributions
to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that
dividends be paid only out of the after-tax profit of our PRC entities calculated according to PRC accounting principles, which differ
in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in
the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution
as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter
into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These restrictions on the availability of
our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.
Our business may be materially and adversely
affected if any of our PRC operating entities declare bankruptcy or become subject to a dissolution or liquidation proceeding.
The Enterprise Bankruptcy
Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated
if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably,
insufficient to clear such debts.
Our PRC operating entities
hold certain assets that are important to our business operations. If any of our PRC operating entities undergoes a voluntary or involuntary
liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability
to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
According to SAFE’s
Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for
Direct Investment, effective on December 17, 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct
Investment by Foreign Investors, effective May 13, 2013, if any of our PRC operating entities undergoes a voluntary or involuntary liquidation
proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still
need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality
or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.
Under the PRC Enterprise Income Tax Law,
or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences
to us and our non-PRC shareholders.
The EIT Law and its implementing
rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered
“resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de
facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance,
and assets of an enterprise.
In April 2009, the State
Administration of Taxation, or SAT, issued the Circular on Issues Concerning the Identification of Chinese- Controlled Overseas Registered
Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management, known as SAT Circular 82, which
has been revised by the Decision of the State Administration of Taxation on Issuing the Lists of Invalid and Abolished Tax Departmental
Rules and Taxation Normative Documents on December 29, 2017 and by the Decision of the State Council on Cancellation and Delegation of
a Batch of Administrative Examination and Approval Items on November 8, 2013. Circular 82 has provided certain specific criteria for
determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located
in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those
controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how
the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises.
According to SAT Circular
82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto
management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following
criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production,
operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions
(such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal,
salary and wages) are made or need to be made by organizations or persons located within the territory of China; (iii) main property,
accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are
located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the
right to vote habitually reside within the territory of China.
We believe that Cambell International
is not a resident enterprise for PRC tax purpose. Cambell Internationals is not controlled by a PRC enterprise or PRC enterprise group,
and we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key
assets, and records of Cambell International, including the resolutions and meeting minutes of our board of directors and the resolutions
and meeting minutes of our shareholders, are located, and maintained outside the PRC. In addition, we are not aware of any offshore holding
companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities.
However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain
with respect to the interpretation of the term “de facto management body”.
If we are deemed as a PRC
“resident enterprise” by PRC tax authorities, we will be subject to PRC enterprise income tax on our worldwide income at
a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiary and any other PRC subsidiaries which
we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient”
status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income.
Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition,
if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized
from the transfer of our common stock may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate
of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable
tax treaty). It is unclear whether holders of our common stock would be able to claim the benefits of any tax treaties between their
country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse
effect on the value of your investment in us and the price of our common stock.
Substantial uncertainties exist with respect
to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate
governance, and business operations.
On March 15, 2019, the National
People’s Congress (“NPC”) promulgated the PRC Foreign Investment Law, which took effect on January 1, 2020. Since it
is relatively new, substantially uncertainties exist in relation to its interpretation and implementation. The PRC Foreign Investment
Law does not explicitly classify whether consolidated affiliated entities based on contractual arrangements would be deemed as foreign
invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under
definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided
by laws, administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws,
administrative regulations, or provisions of the State Council to provide for contractual arrangements as a form of foreign investment,
at which time it will be uncertain whether the contractual arrangements will be deemed to be in violation of the market access requirements
for foreign investment in the PRC and if yes, how the VIE Agreements should be dealt with.
The PRC Foreign Investment
Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified
as either “restricted” or “prohibited” from foreign investment in the Negative List (2021). The PRC Foreign Investment
Law provides that (i) foreign-invested entities operating in “restricted” industries are required to obtain market entry
clearance and other approvals from relevant PRC government authorities; and (ii) foreign investors shall not invest in any industries
that are “prohibited” under the Negative List (2021). If VIE Agreements with Liaoning Kangbaier are deemed as foreign investment
in the future, and any business of Liaoning Kangbaier is “restricted” or “prohibited” from foreign investment
under the Negative List (2021) effective at the time, we may be deemed to be in violation of the PRC Foreign Investment Law, the VIE
Agreements with Liaoning Kangbaier may be deemed as invalid and illegal, and we may be required to unwind such VIE Agreements and/or
restructure our business operations, any of which may have a material adverse effect on our business operation.
Furthermore, if future laws,
administrative regulations, or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements,
we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely
and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our
current corporate structure, business operations and the value of our Ordinary Shares.
Fluctuations in exchange rates could adversely
affect our business and the value of our securities.
Changes in the value of the
RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political
and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition,
and 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.
dollars we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would
have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars
for the purpose of paying dividends on our Common stock or for other business purposes, appreciation of the U.S. dollar against the RMB
would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies
may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products
of foreign manufacturers or products relying on foreign inputs.
Since July 2005, the RMB
is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market
to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against
the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations
in the RMB exchange rate and lessen intervention in the foreign exchange market.
Government control in currency conversion
may adversely affect our financial condition, our ability to remit dividends, and the value of your investment.
The PRC government imposes
controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China.
We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our British Virgin Islands holding company
may rely on dividend payments from our PRC operating entities to fund any cash and financing requirements we may have.
Under existing PRC foreign
exchange regulations, Renminbi cannot be freely converted into any foreign currency, and conversion and remittance of foreign currencies
are subject to PRC foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, we will have sufficient
foreign exchange to meet our foreign exchange requirements. Under the current PRC foreign exchange control system, foreign exchange transactions
under the current account conducted by us, including the payment of dividends, do not require advance approval from SAFE, but we are
required to present documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks within
China that have the licenses to carry out foreign exchange business. Foreign exchange transactions under the capital account conducted
by us, however, must be approved in advance by SAFE.
Under existing foreign exchange regulations,
we are able to pay dividends in foreign currencies without prior approval from SAFE by complying with certain procedural requirements.
However, we cannot assure you that these foreign exchange policies regarding payment of dividends in foreign currencies will continue
in the future.
In fact, in light of the
flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange
policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial
vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders
regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all,
it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in
the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining
sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our
shareholders, including holders of the Common stock. Our capital expenditure plans, and our business, operating results and financial
condition may be materially and adversely affected.
To the extent cash or assets of our business,
or of our PRC or Hong Kong subsidiaries, or of the VIE is in mainland China or Hong Kong, such cash or assets may not be available to
fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations
by the PRC government to the transfer of cash or assets.
The transfer of funds and
assets among Cambell International, its subsidiaries and the VIE is subject to governmental control and restriction. The PRC government
imposes controls on the conversion of the RMB into foreign currencies and the remittance of currencies out of mainland China. In addition,
the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to
dividends payable by Chinese companies to enterprises who are not mainland China resident enterprises, unless reduced under treaties
or arrangements between the PRC central government and the governments of other countries or regions where the enterprises that are not
mainland China resident enterprises are tax resident.
As of the date of this report,
there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong
Kong (including funds from Hong Kong to the PRC), except for the transfer of funds involving money laundering and criminal activities.
However, there is no guarantee that the Hong Kong government will not promulgate new laws or regulations that may impose such restrictions
in the future.
As a result of the above,
to the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, or of the VIE is in mainland China or Hong Kong,
such funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in
or the imposition of restrictions and limitations by the competent government to the transfer of cash or assets.
Increases in labor costs in the PRC may
adversely affect our business and results of operations.
The currently effective PRC
Labor Contract Law, or the Labor Contract Law was first adopted on June 29, 2007 and later amended on December 28, 2012. The PRC
Labor Contract Law has reinforced the protection of employees who, under the Labor Contract Law, have the right, among others, to have
written employment contracts, to enter into employment contracts with no fixed term under certain circumstances, to receive overtime
wages and to terminate or alter terms in labor contracts. Furthermore, the Labor Contract Law sets forth additional restrictions and
increases the costs involved with dismissing employees. To the extent that we need to significantly reduce our workforce, the Labor Contract
Law could adversely affect our ability to do so in a timely and cost-effective manner, and our results of operations could be adversely
affected. In addition, for employees whose employment contracts include noncompetition terms, the Labor Contract Law requires us to pay
monthly compensation after such employment is terminated, which will increase our operating expenses.
We expect that our labor
costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to
our customers by increasing the prices of our products, our financial conditions and results of operations would be materially and adversely
affected.
We may be subject to penalties if we are
not in compliance with the PRC’s regulations relating to employee’s social insurance and housing funds.
Pursuant to the Social Security
Law of the PRC, or the Social Security Law, which was promulgated by the Standing Committee of the National People’s Congress (“SCNPC”)
on October 28, 2010, and amended on December 29, 2018, employers shall pay the basic pension insurance, medical insurance, work-related
injury insurance, unemployment insurance and maternity insurance for all eligible employees. Liaoning Kangbaier and its subsidiaries
have been making social security premium payments at least at the minimum wage level for all eligible employees.
In accordance with the Regulations
on Management of Housing Provident Fund (the “Regulations of HPF”), which were promulgated by the PRC State Council on April
3, 1999, and last amended on March 24, 2002, employers must register at the designated administrative centers and open bank accounts
for employees’ housing funds deposits. Employers and employees are also required to pay and deposit housing funds, in an amount
no less than 5% of the monthly average salary of each of the employees in the preceding year in full and on time. Liaoning Kangbaier
and its subsidiaries have opened bank accounts for its employees’ housing funds deposits, and deposited housing funds at least
at the minimum wage level for all eligible employees.
Liaoning Kangbaier did not
make contributions in full for the social insurance fund and housing provident fund for its employees as required under the relevant
PRC laws and regulations. Although Liaoning Kangbaier has not received any order or notice from the local authorities nor any claims
or complaints from its current and former employees regarding its non-compliance in this regard, Liaoning Kangbaier cannot assure you
that Liaoning Kangbaier will not be subject to any order to rectify non-compliance in the future, nor can Liaoning Kangbaier assures
you that there are no, or will not be any, employee complaints regarding social insurance payment or housing provident fund contributions
against Liaoning Kangbaier, or that it will not receive any claims in respect of social insurance payment or housing provident fund contributions
under the PRC laws and regulation. In addition, Liaoning Kangbaier may incur additional costs to comply with such laws and regulations
by the PRC Government or relevant local authorities. Any such development could materially and adversely affect its business, financial
condition and results of operations.
If we become directly subject to the recent
scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate
and resolve the matter, which could harm our business operations, this offering, and our reputation, and could result in a loss of your
investment in our stock, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies
that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity
by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity
has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism
and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases,
has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting
internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative
publicity will have on our Company, our business and this offering. If we become the subject of any unfavorable allegations, whether
such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or
defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless,
our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless.
You may face difficulties in protecting
your interests and exercising your rights as a shareholder since we conduct substantially all of our operations in China, and almost
all of our officers and directors reside outside the U.S.
Although we are incorporated
in the British Virgin Islands, we conduct substantially all of our operations in China. All of our current officers and almost all of
our 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
difficult for you to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders
meeting if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially
in China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions
against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly
within the U.S.
We may not be able to prevent others from
unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our patents, trademarks,
domain names, trade secrets, proprietary technologies, and other intellectual property as critical to our business. We rely on a combination
of intellectual property laws and contractual arrangements to protect our proprietary rights. It is often difficult to register, maintain,
and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement
and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality agreements and license
agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly,
we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any
unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation
of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation
could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will
prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered
by, our competitors. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on
our business, financial condition, and results of operations.
Risks Related to Our Common Stock
Our common stock is quoted on the OTC market,
which may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted
on the OTC market. The OTC market is a significantly more limited market than the New York Stock Exchange or NASDAQ. The quotation of
our shares on the OTC market may result in a less liquid market available for existing and potential stockholders to trade shares of
our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise
capital in the future. We plan to list our common stock as soon as practicable. However, we cannot assure you that we will be able to
meet the initial listing standards of any stock exchange, or that we will be able to maintain any such listing.
We are subject to penny stock regulations
and restrictions, and you may have difficulty selling shares of our common stock.
The SEC has adopted regulations
which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and
is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally,
individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses).
For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received
the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers
to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly
making it more difficult for us to raise additional capital.
For any transaction involving
a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared
by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer
and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance
that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the
Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person
from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.
Since our CEO owns at least 49% of our Common
Stock, she could have the ability to elect directors and approve matters requiring shareholder approval by way of resolutions of members.
Ms. Sun Xiuzhi, our
Chief Executive Officer, after the completion of the reverse merger, owns 850,640, or 12% of our outstanding common stock and also
beneficially owns 7,655,760 shares of our Series A Preferred Shares (“Preferred Shares”) which are convertible into
7,655,760 shares of our common stock. Therefore, if she converts all of her preferred shares into common shares, she will own
8,506,400 shares of our common stock or 49% and therefore could have the power to elect all directors and approve all ordinary
resolutions requiring a simple majority shareholder. She would also have significant influence over any decision to enter into any
corporate transaction and the ability to prevent any transaction that requires the approval of shareholders, regardless of whether
or not our other shareholders believe that such transaction is in the Company’s best interests. Such concentration of voting
power could have the effect of delaying, deterring, or preventing a change of control or other business combination, which could, in
turn, have an adverse effect on the market price of our common stock or prevent our shareholders from realizing a premium over the
then-prevailing market price for their common stock.
If we fail to implement and maintain an
effective system of internal controls or fail to remediate the material weaknesses in our internal control over financial reporting that
have been identified, we may fail to meet our reporting obligations or be unable to accurately report our results of operations or prevent
fraud, and investor confidence and the market price of our Common stock may be materially and adversely affected.
Prior to this transaction,
we have been a private company with limited accounting personnel and other resources with which to address our internal controls and
procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.
However, in preparing our consolidated financial statements as of and for the fiscal years ended 2022 and 2021, we and our independent
registered public accounting firm have identified material weaknesses in our internal control over financial reporting, as defined in
the standards established by the Public Company Accounting Oversight Board of the United States, or “PCAOB,” and other control
deficiencies. The material weaknesses identified included (i) a lack of accounting staff and resources with appropriate knowledge of
U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of formal internal controls over financial closing and reporting
processes; and (iii) a lack of independent directors and an audit committee. Following the identification of the material weaknesses
and control deficiencies, we plan to continue to take remedial measures including (i) hiring more qualified accounting personnel with
relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial
and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs
for our accounting and financial reporting personnel; (iii) setting up an internal audit function as well as engaging an external consulting
firm to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control; and (iv) appointing
independent directors, establishing an audit committee, and strengthening corporate governance. However, the implementation of these
measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material
weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies
in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related
regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as
the trading price of our Common stock, may be materially and adversely affected. Moreover, ineffective internal control over financial
reporting significantly hinders our ability to prevent fraud.
As a public company in the
United States, we are subject to the Sarbanes-Oxley Act of 2002. Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required
to file a report by our management on our internal control over financial reporting, including an attestation report on internal control
over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company,
we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered
public accounting firm. The presence of material weaknesses in internal control over financial reporting could result in financial statement
errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us
to restate our operating results. We might not identify one or more material weaknesses in our internal controls in connection with evaluating
our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls
and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management
oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and
employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete
and divert management’s attention from other business concerns. These changes may not, however, be effective in maintaining the
adequacy of our internal control.
As a foreign private issuer, we are not
subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information
publicly available to our shareholders.
As a foreign private issuer,
we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore
there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the
proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by British Virgin Islands’
requirements. In addition, our officers, directors, and principal shareholders are exempt from the reporting and “short-swing”
profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely
basis when our officers, directors and principal shareholders purchase or sell our Common stock.
The newly enacted “Holding Foreign
Companies Accountable Act” and the “Accelerating Holding Foreign Companies Accountable Act” passed by the U.S. Senate,
all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their
auditors, especially the non-U.S. auditors who are not inspected by the Public Company Accounting Oversight Board of the United States
(the “PCAOB”). These developments could add uncertainties to our offering and listing on the Nasdaq Capital Market and Nasdaq
may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor, which may cause
the value of our securities to decline or become worthless.
On April 21, 2020, SEC and
PCAOB released a joint statement highlighting the risks associated with investing in companies based in or having substantial operations
in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect
auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed
three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operating in a “Restrictive
Market,” (ii) adopt a new requirement relating to the qualification of management or the board of directors for Restrictive Market
companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the
company’s auditor.
On December 18, 2020, the
“Holding Foreign Companies Accountable Act” was signed by President Donald Trump and became law. This legislation requires
certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must
make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting
firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer’s public accounting firm
for three consecutive years beginning in 2021, the issuer’s securities are banned from trade on a national exchange or through
other methods.
On June 22, 2021, the U.S.
Senate passed the “Accelerating Holding Foreign Companies Accountable Act”, which, if passed by the U.S. House of Representatives
and signed into law by the President, would decrease the number of non-inspection years for foreign companies to comply with PCAOB audits
from three to two years, thus reducing the time period before their securities may be prohibited from trading or delisted.
On November 5, 2021, the
SEC approved the PCAOB’s Rule 6100, Board Determinations Under the “Holding Foreign Companies Accountable Act”. Rule
6100 provides a framework for the PCAOB to use to determine whether it is unable to inspect or investigate registered public accounting
firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021,
The SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies
Accountable Act (HFCAA). The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued
by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate.
If the PCAOB is prevented
from fully evaluating audits and quality control procedures of the auditors, investors may be deprived of the benefits of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness
of these accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject
to the PCAOB inspections, which could cause investors and potential investors to lose confidence in audit procedures and reported financial
information and the quality of financial statements of China-based companies.
On December 16, 2021, the
PCAOB issued a report on its determination that the PCAOB is unable to inspect or investigate completely PCAOB- registered public accounting
firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC),
because of positions taken by PRC authorities in those jurisdictions (the “Determination”). The Board made these determinations
pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies
Accountable Act (HFCAA).
On August 26, 2022, the China
Securities Regulatory Commission (the “CSRC”), the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed
a Statement of Protocol (the “Protocol”) to allow the PCAOB to inspect and investigate completely registered public accounting
firms headquartered in mainland China and Hong Kong, consistent with the Holding Foreign Companies Accountable Act (the “HFCA Act”),
and the PCAOB will be required to reassess its determinations by the end of 2022. Pursuant to the fact sheet with respect to the Protocol
disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has
the unfettered ability to transfer information to the SEC.
On December 15, 2022, the
PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms
headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities
obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new
determination. On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was enacted, which amended the HFCA Act
by decreasing the number of non-inspection years from three years to two, thus reducing the time period before our common stock may be
prohibited from trading or delisted. Notwithstanding the foregoing, in the event it is later determined that the PCAOB is unable to inspect
or investigate completely our auditor, then such lack of inspection could cause our securities to be delisted from the stock exchange.
Any lack of access to the
PCAOB inspection in China may prevent the PCAOB from fully evaluating audits and quality control procedures of the auditors based in
China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections
of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality
control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and
potential investors to lose confidence in audit procedures and reported financial information and the quality of financial statements
of China-based companies.
Our
auditor, an independent registered public accounting firm that issues the audit report included elsewhere in this Report, is headquartered
in San Mateo, California and registered with the PCAOB. Our auditor is subject to laws in the United States pursuant to which the PCAOB
conducts regular inspections to assess our auditor’s compliance with the applicable professional standards and has been inspected
by the PCAOB on a regular basis. As such, as of the date of this report, our auditor is not subject to the Determinations announced by
the PCAOB and our listing is not affected by the Holding Foreign Companies Accountable Act and related regulations. However, the recent
developments would add uncertainties to our continued listing, and we cannot assure you whether Nasdaq or regulatory authorities would
apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality
control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as related to the
audit of our financial statements. Furthermore, there is a risk that our auditor cannot be inspected by the PCAOB in the future. The
lack of inspection could cause trading in our securities to be prohibited on a national exchange or in the over-the-counter trading market
under the Holding Foreign Companies Accountable Act, and, as a result, Nasdaq may determine to delist our securities, which may cause
the value of our securities to decline or become worthless.
As a foreign private issuer, we are not
subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer and are exempt from certain Nasdaq
corporate governance standards applicable to U.S. issuers, which may limit the information publicly available to our investors and afford
them less protection than if we were an U.S. issuer.
As
a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq Stock Market listing rules that allow
us to follow British Virgin Islands law for certain governance matters. Certain corporate governance practices in the British Virgin
Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care,
British Virgin Islands law has no corporate governance regime which prescribes specific corporate governance standards. When our common
shares are listed on the Nasdaq Capital Market, we intend to continue to follow British Virgin Islands corporate governance practices
in lieu of the corporate governance requirements of the Nasdaq Stock Market in respect of the following: (i) the majority independent
director requirement under Section 5605(b)(1) of the Nasdaq Stock Market listing rules, (ii) the requirement under Section 5605(d) of
the Nasdaq Stock Market listing rules that a compensation committee comprised solely of independent directors governed by a compensation
committee charter oversee executive compensation, (iii) the requirement under Section 5605(e) of the Nasdaq Stock Market listing rules
that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominations committee
comprised solely of independent directors and (iv) the requirement under Section 5605(b)(2) of the Nasdaq Stock Market listing rules
that our independent directors hold regularly scheduled executive sessions. British Virgin Islands law does not impose a requirement
that our board of directors consist of a majority of independent directors. Nor does British Virgin Islands law impose specific requirements
on the establishment of a compensation committee or nominating committee or nominating process. Therefore, our shareholders may be afforded
less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.
As a foreign private issuer,
we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore
there may be less publicly available information about us than if we were a U.S. domestic issuer. We are exempt from certain provisions
of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with
the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation
of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file
public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period
of time; and the selective disclosure rules by issuers of material non-public information under Regulation FD. |
We are required to file an
annual report on Form 20-F within four months of the end of each fiscal year. However, the information we are required to file with or
furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers.
As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a
U.S. domestic issuer.
We may lose our
foreign private issuer status in the future, which could result in significant additional costs and expenses.
As
discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and
current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business
day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination with respect to our
status will be made on ___________. We would lose our foreign private issuer status if, for example, more than 50% of our common stock
are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign
private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports
and registration statements on U.S. domestic issuer forms beginning on ________, which are more detailed and extensive than the forms
available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers,
directors and principal shareholders will become subject to the short- swing profit disclosure and recovery provisions of Section 16
of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under
the Nasdaq Stock Market listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant
additional legal, accounting, and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other
expenses in order to maintain a listing on a U.S. securities exchange.
We do not intend to pay dividends for the
foreseeable future.
For the foreseeable future,
we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends
on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn
an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination
to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations,
financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.
The laws of the British Virgin Islands
may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United
States.
Our corporate affairs are
governed by our memorandum and articles of association, by the BVI Business Companies Act (Revised 2020) of the British Virgin Islands
and by the common law of the British Virgin Islands. The rights of shareholders to take action against our directors, actions by minority
shareholders and the fiduciary responsibilities of our directors to us under British Virgin Islands law are to a large extent governed
by the common law of the British Virgin Islands. The common law in the British Virgin Islands is derived in part from comparatively limited
judicial precedent in the British Virgin Islands and from English common law. which has persuasive, but not binding, authority on a court
in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British
Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the
United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United
States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. Therefore, our
public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Because we are a British Virgin Islands
company and all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors
or to enforce any judgment you may obtain, and the U.S. regulatory bodies may be limited in their ability to conduct investigations or
inspections of our operations in China.
We are incorporated in the
British Virgin Islands and conduct our operations primarily in China. Substantially all of our assets are located outside of the United
States and the proceeds of this offering will primarily be held in banks outside of the United States. In addition, the majority of our
directors and officers reside outside of the United States. As a result, it may be difficult or impossible for you to bring an action
against us or against these individuals in the United States in the event that you believe we have violated your rights, either under
United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing
an action of this kind, the laws of the British Virgin Islands and of China may not permit you to enforce a judgment against our assets
or the assets of our directors and officers.
The SEC, the U.S. Department
of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive
officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations
or litigation in China. China has recently adopted a revised securities law, and Article 177 of which provides, among other things, that
no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory
of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information
relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted
by overseas regulators, which could present significant legal and other obstacles to obtaining information needed for investigations
and litigation conducted in China.
Provisions in our charter documents and
under Nevada law could discourage a takeover that stockholders may consider favorable.
Provisions in our articles
of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our board
of directors has the right to determine the authorized number of directors and to elect directors to fill a vacancy created by the expansion
of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to control
the size of or fill vacancies on our board of directors. In addition, we are authorized to issue up to 40,000,000 shares of common stock,
in one or more classes or series as may be determined by our board of directors. The issuance of shares of common stock, while providing
desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock.
You may be unable to present proposals
before annual general meetings or extraordinary general meetings not called by shareholders.
British Virgin Islands law
provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put
any proposal before a general meeting. These rights, however, may be provided in a company’s articles of association. Our articles
of association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capital in issue,
to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advance notice of
at least twenty-one clear days is required for the convening of our annual general shareholders’ meeting and at least 14 clear
days’ notice any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least
one shareholder present or by proxy, representing not less than one-third of the total issued shares carrying the right to vote at a
general meeting of the Company.
General Risk Factors
We may not be able to hire and retain qualified
personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products
and implement our business objectives could be adversely affected.
We must attract, recruit,
and retain a sizeable workforce of technically competent employees. Competition for senior management and personnel in the PRC is intense
and the pool of qualified candidates in the PRC is limited. We may not be able to retain the services of our senior executives or personnel
or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely affect our
future growth and financial condition.
Our success depends on our ability to increase
awareness of our brands and develop customer loyalty.
Our portfolio of nutritional
products is comprised of quality products. Our brands are integral to our sales and marketing efforts. We believe that maintaining and
enhancing our brand name recognition in a cost-effective manner is critical to achieving widespread acceptance of our current and future
products and is an important element in our effort to increase our customer base. Successful promotion of our brand names will depend
largely on our marketing efforts and ability to provide reliable and quality products at competitive prices. Brand promotion activities
may not necessarily yield increased revenue, and even if they do, any increased revenue may not offset the expenses we will incur in
marketing activities. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful
attempt to promote and maintain our brands, we may fail to attract new customers or retain our existing customers, in which case our
business, operating results and financial condition, would be materially adversely affected.
We require various approvals, licenses,
permits and certifications to operate our business. If we fail to obtain or renew any of these approvals, licenses, permits or certifications,
it could materially and adversely affect our business and results of operations.
In accordance with the laws
and regulations in the jurisdictions in which we operate, we are required to maintain various approvals, licenses, permits and certifications
in order to operate our business or engage in the business we plan to enter into. Complying with such laws and regulations may require
substantial expenses, any non-compliance may expose us to liability. In the event of that government authorities consider us to be in
non-compliance, we may have to incur significant expenses and divert substantial management time to rectify the incidents. If we fail
to obtain all the necessary approvals, licenses, permits and certifications, we may be subject to fines or the suspension of operations
of the facilities that do not have the requisite approvals, licenses, permits or certifications, which would adversely affect our reputation,
business and results of operations. See “Regulation” for further details on the requisite approvals license permits and certifications.
Adverse publicity associated with our products,
materials, or network marketing program, or those of similar companies, could harm our financial condition and operating results.
The results of our operations
may be significantly affected by the public’s perception of our product and similar companies. This perception is dependent upon
opinions concerning:
| ● | the safety and quality of our products; |
| ● | the safety and quality of similar products distributed by
other companies; and |
Adverse publicity concerning
any actual or purported failure to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing
practices, or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have
an adverse effect on our goodwill and could negatively affect our sales and ability to generate revenue. In addition, our consumers’
perception of the safety and quality of products and ingredients as well as similar products and distributed by other companies can be
significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and other
publicity concerning our products or ingredients, or similar products and ingredients distributed by other companies. Adverse publicity,
whether or not accurate or resulting from consumers’ use or misuse of our products, that associates consumption of our products
or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar
products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could
negatively impact our reputation or the market demand for our products.
An active, liquid,
and orderly trading market for our common stock may not r be maintained, and our stock price may be volatile.
An
active, liquid, and orderly trading market for our common stock which usually result in less price volatility and more efficiency in
carrying out investors’ purchase and sale orders may not be maintained. The market price of our common stock may vary significantly
as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our common stock,
you could lose a substantial part or all of your investment in our common stock.
The following factors could
affect our share price:
| ● | our operating and financial performance; |
| ● | quarterly variations in the rate of growth of our financial
indicators, such as net income per share, net income and revenues; |
| ● | the public reaction to our press releases, our other public
announcements and our filings with the SEC; |
| ● | strategic actions by our competitors; |
| ● | changes in revenue or earnings estimates, or changes in recommendations
or withdrawal of research coverage, by equity research analysts; |
| ● | speculation in the press or investment community; |
| ● | the failure of research analysts to cover our common stock; |
| ● | sales of our common stock by us or other shareholders, or
the perception that such sales may occur; |
| ● | changes in accounting principles, policies, guidance, interpretations
or standards; |
| ● | additions or departures of key management personnel; |
| ● | actions by our shareholders; |
| ● | domestic and international economic, legal and regulatory
factors unrelated to our performance; and |
| ● | the realization of any risks described under this “Risk
Factors” section. |
We may experience extreme stock price volatility
unrelated to our actual or expected operating performance, financial condition, or prospects, making it difficult for prospective investors
to assess the rapidly changing value of our common stock.
There have been recent instances
of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public
offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively
small public float, we may experience greater share price volatility, extreme price run-ups, lower trading volume and less liquidity
than large-capitalization companies. In particular, our common stock may be subject to rapid and substantial price volatility, low volumes
of trades and large spreads in bid and ask prices. Such volatility, including any share run-up, may be unrelated to our actual or expected
operating performance, financial condition, or prospects, making it difficult for prospective investors to assess the rapidly changing
value of our common stock. In addition, investors of our common stock may experience losses, which may be material, if the price of our
common stock declines after investors purchase common stock prior to any price decline.
The
stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation
has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s
securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention
and resources and harm our business, operating results and financial condition.
For as long as
we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to
accounting standards and disclosure about our executive compensation, that apply to other public companies.
In
April 2012, President Obama signed into law the JOBS Act. We are classified as an “emerging growth company” under the JOBS
Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will
not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness
of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any
new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which
the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide
certain disclosure regarding executive compensation required of larger public companies or (iv) hold nonbinding advisory votes on executive
compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more
than $1.235 billion of revenues in a fiscal year, have more than $700 million in market value of our Common stock held by non-affiliates,
or issue more than $1.0 billion of non-convertible debt over a three-year period.
To the extent that we rely
on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and
internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our Common stock
to be less attractive as a result, there may be a less active trading market for our Common stock and our stock price may be more volatile.
The requirements of being a public company
may strain our resources and divert management’s attention.
As
a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act,
the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable
securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will
nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some
activities more difficult, time- consuming or costly and increase demand on our systems and resources, particularly after we are no longer
an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current
reports with respect to our business and operating results as well as proxy statements.
As
a result of disclosure of information in this report and in filings required of a public company, our business and financial condition
will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties.
If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation
or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management
and adversely affect our business, brand and reputation and results of operations.
We also expect that being
a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make
it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee
and compensation committee, and qualified executive officers.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This report contains certain statements that
may be deemed “forward-looking statements” within the meaning of United States of America securities laws. All statements,
other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or
anticipate and similar expressions or future conditional verbs such as will, should, would, could or may occur in the future are forward-looking
statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and
their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
These statements include, without limitation,
statements about our anticipated expenditures, including those related to general and administrative expenses; the potential size of
the market for our services, future development and/or expansion of our services in our markets, our ability to generate revenues, our
ability to obtain regulatory clearance and expectations as to our future financial performance. Our actual results will likely differ,
perhaps materially, from those anticipated in these forward-looking statements as a result of various factors, including: our need and
ability to raise additional cash. The forward-looking statements included in this report are subject to a number of additional material
risks and uncertainties, including but not limited to the risks described in our filings with the Securities and Exchange Commission.
The following discussion and analysis of our
financial condition and results of operations should be read together with our financial statements and the related notes to those statements
included in this filing. In addition to historical financial information, this discussion may contain forward-looking statements reflecting
our current plans, estimates, beliefs and expectations that involve risks and uncertainties. As a result of many important factors, particularly
those set forth under “Special Note Regarding Forward-Looking Statements”, our actual results and the timing of events may
differ materially from those anticipated in these forward-looking statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion
of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements
and the notes to those consolidated financial statements appearing elsewhere in this report.
Certain statements in
this report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties,
regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends
in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable
by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,”
“potential,” “project,” “continuing,” “ongoing,” “expects,” “management
believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words
or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained
in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements
speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation
to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect
the occurrence of unanticipated events.
Overview
Following
the consummation of the Share Exchange, we engage in the research and development of extraction processes of natural β -carotene,
the planting and harvesting of raw materials as well as the production, distribution marketing and sales of natural β -carotene
health food products. Natural β -carotene is a safe source of vitamin A which is an essential nurturant important for vision, growth,
cell division, reproduction and immunity as well as containing antioxidant properties which offer protection from diabetes, heart disease
and cancer.
Bitmis Corp., or Bitmis,
owns 100% of the issued and outstanding capital stock of Cambell International Holding Limited, which was incorporated on September 23,
2020 under the law of British Virgin Islands. Cambell International Holding Limited is a holding company holding the following entities:
Win&win Industrial Development Limited |
|
● |
A British Virgin Islands company |
|
100% |
(“Win&win”) |
|
● |
Principal activities: Investment holding |
|
|
|
|
|
|
|
|
BJK Holding Group Limited |
|
● |
A Hong Kong company |
|
100% |
(“BJK Holding”) |
|
● |
Principal activities: Investment holding |
|
|
|
|
|
|
|
|
Baijiakang (LiaoNing) Health Information Consulting
Service Co., Ltd |
|
● |
A PRC limited liability company and deemed a wholly
foreign-invested enterprise |
|
100% |
(“Baijiakang Consulting”) |
|
● |
Principal activities: Consultancy and information technology
support |
|
|
|
|
|
|
|
|
LiaoNing KangBaiEr Biotechnology Development Co., Ltd. |
|
● |
A PRC limited liability company |
|
VIE by contractual |
(“Liaoning Kangbaier”) |
|
● |
Incorporated on September 22, 2015 |
|
arrangements |
|
|
● |
Principal activities: research and development of
extraction processes of natural β - carotene, the planting and harvesting of raw materials as well as the production,
distribution marketing and sales of natural β -carotene health food products. |
|
|
|
|
|
|
|
|
Doron KangBaier Biotechnology Co. LTD |
|
● |
A PRC limited liability company |
|
100% owned by LiaoNing KangBaiEr |
|
|
● |
Principal activities: research and support |
|
|
|
|
|
|
|
|
LiaoNing
BaiJiaKang Health Technology Co. LTD |
|
● |
A PRC limited liability company |
|
100% owned by LiaoNing KangBaiEr |
|
|
● |
Principal activities: promotion and support |
|
|
VIE Agreements
In November 2022, Baijiakang
Consulting, LiaoNing KangBaiEr, and the shareholders of LiaoNing KangBaiEr entered into a series of contractual agreements for LiaoNing
KangBaiEr to qualify as variable interest entity or VIE (the “VIE Agreements”). The VIE Agreements are as follows:
Consulting Service Agreement
Pursuant to the terms of
the Exclusive Consulting and Service Agreement dated November 27, 2022, between Baijiakang Consulting and Kangbaier Liaoning (the “Consulting
Service Agreement”), Baijiakang Consulting is the exclusive consulting and service provider to Kangbaier Liaoning to provide business-related
software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance,
monitor, and problem-solving services; employees training services; technology development and sublicensing services; public relations
services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance
consultation services; marketing events and membership related activities planning and organizing services; intellectual property permits;
equipment and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the
service fee is the remaining amount after Kangbaier Liaoning’s profit before tax in the corresponding year deducts Kangbaier Liaoning’s
losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdraws
of the statutory provident fund. Kangbaier Liaoning agreed not to transfer its rights and obligations under the Consulting Service Agreement
to any third party without prior written consent from Baijiakang Consulting. In addition, Baijiakang Consulting may transfer its rights
and obligations under the Consulting Service Agreement to Baijiakang Consulting’s affiliates without Kangbaier Liaoning’s
consent, but Baijiakang Consulting shall notify Kangbaier Liaoning of such transfer. This Agreement is valid for a term of 10 years subject
to any extension requested by Baijiakang Consulting unless terminated by Baijiakang Consulting unilaterally prior to the expiration.
The foregoing summary of
the Consulting Service Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Consulting
Service Agreement, which is filed as Exhibit 10.2 to this Form 8-K.
Business Operation Agreement
Pursuant to the terms of the
Business Operation Agreement dated November 27, 2022, among Baijiakang Consulting, Kangbaier Liaoning and the shareholders of Kangbaier
Liaoning (the “Business Operation Agreement”), Kangbaier Liaoning has agreed to subject the operations and management of its
business to the control of Baijiakang Consulting. According to the Business Operation Agreement, Kangbaier Liaoning is not allowed to
conduct any transactions that has substantial impact upon its operations, assets, rights, obligations, and personnel without the Baijiakang
Consulting’s written approval. The shareholders of Kangbaier Liaoning and Kangbaier Liaoning will take Baijiakang Consulting’s
advice on appointment or dismissal of directors, employment of Kangbaier Liaoning’s employees, regular operation, and financial
management of Kangbaier Liaoning. The shareholders of Kangbaier Liaoning have agreed to transfer any dividends, distributions, or any
other profits that they receive as the shareholders of Kangbaier Liaoning to Baijiakang Consulting without consideration. The Business
Operation Agreement is valid for a term of 10 years or longer upon the request of Baijiakang Consulting prior to the expiration thereof.
The Business Operation Agreement might be terminated earlier by Baijiakang Consulting with a 30-day written notice.
The foregoing summary of
the Business Operation Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Business Operation
Agreement, which is filed as Exhibit 10.3 to this Form 8-K.
Proxy Agreement
Pursuant to the terms of
the Proxy Agreements dated November 27, 2022, among Baijiakang Consulting, and the shareholders of Kangbaier Liaoning (each, the “Proxy
Agreement”, collectively, the “Proxy Agreements”), each shareholder of Kangbaier Liaoning has irrevocably entrusted
his/her shareholder rights as Kangbaier Liaoning’s shareholder to Baijiakang Consulting , including but not limited to, proposing
the shareholder meeting, accepting any notices with regard to the convening of shareholder meeting and any other procedures, conducting
voting rights, and selling or transferring the shares held by such shareholder, for 10 years or earlier if the Business Operation Agreement
was terminated for any reasons.
The foregoing summary of
the Proxy Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the Proxy Agreements, which
are filed as Exhibit 10.4 to this Form 8-K.
Equity Disposal Agreement
Pursuant to the terms of
the Equity Disposal Agreement dated November 27, 2022, among Baijiakang Consulting, Kangbaier Liaoning, and the shareholders of Kangbaier
Liaoning (the “Equity Disposal Agreement”), the shareholders of Kangbaier Liaoning granted Baijiakang Consulting or its designees
an irrevocable and exclusive purchase option (the “Option”) to purchase Kangbaier Liaoning’s all or partial equity
interests and/or assets at the lowest purchase price permitted by PRC laws and regulations. The option is exercisable at any time at
Baijiakang Consulting’s discretion in full or in part, to the extent permitted by PRC law. The shareholders of Kangbaier Liaoning
agreed to give Kangbaier Liaoning the total amount of the exercise price as a gift, or in other methods upon Baijiakang Consulting’s
written consent to transfer the exercise price to Kangbaier Liaoning. The Equity Disposal Agreement is valid for a term of 10 years or
longer upon the request of Baijiakang Consulting.
The foregoing summary of
the Equity Disposal Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Equity Disposal
Agreement, which is filed as Exhibit 10.5 to this Form 8-K.
Equity Pledge Agreement
Pursuant to the terms of
the Equity Pledge Agreement dated November 27, 2022, among Baijiakang Consulting and the shareholders of Kangbaier Liaoning (the “Pledge
Agreement”), the shareholders of Kangbaier Liaoning pledged all of their equity interests in Kangbaier Liaoning to Baijiakang Consulting,
including the proceeds thereof, to guarantee Kangbaier Liaoning’s performance of its obligations under the Business Operation Agreement,
the Consulting Service Agreement and the Equity Disposal Agreement (each, a “Agreement”, collectively, the “Agreements”).
If Kangbaier Liaoning or its shareholders breach its respective contractual obligations under any Agreements, or cause to occur one of
the events regards as an event of default under any Agreements, Baijiakang Consulting, as pledgee, will be entitled to certain rights,
including the right to dispose of the pledged equity interest in Kangbaier Liaoning. During the term of the Pledge Agreement, the pledged
equity interests cannot be transferred without Baijiakang Consulting’s prior written consent. The Pledge Agreements is valid until
all the obligations due under the Agreements have been fulfilled.
The foregoing summary of
the Equity Pledge Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Equity Pledge Agreement,
which is filed as Exhibit 10.6 to this Form 8-K.
Foreign Operations
All of our business operations
are conducted in Mainland China. Accordingly, our results of operations, financial condition and prospects are subject to a significant
degree to economic, political, and legal developments in the PRC. Operating in foreign countries involves substantial risk. For example,
our business activities subject us to a number of Chinese laws and regulations, such as anti-corruption laws, tax laws, foreign exchange
controls and cash repatriation restrictions, data privacy and security requirements, labor laws, intellectual property laws, privacy laws,
and anti-competition regulations, which have uncertainties. Any failure to comply with the PRC laws and regulations could subject us to
fines and penalties, make it more difficult or impossible to do business in China and harm our reputation.
Operating in foreign countries
also subjects us to risk from currency fluctuations. Our primary exposure to movements in foreign currency exchange rates relates to
non-U.S. dollar denominated sales and operating expenses. The weakening of foreign currencies relative to the U.S. dollar adversely affects
the U.S. dollar value of our foreign currency-denominated sales and earnings. This could either reduce the U.S. dollar value of our prices
or, if we raise prices in the local currency, it could reduce the overall demand for our offerings. Either could adversely affect our
revenue. Conversely, a rise in the price of local currencies relative to the U.S. dollar could adversely impact our profitability because
it would increase our costs denominated in those currencies, thus adversely affecting gross margins.
Critical Accounting Policies, Judgments and Estimates
Basis of Presentation
The consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”).
Principle of Consolidation
The consolidated financial
statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances are eliminated upon
consolidation.
Use of Estimates
The preparation of these
consolidated financial statements requires management of the Company to make estimates and judgments that affect the reported amounts
of assets including application of discount on long-term other receivables with present value, liabilities, revenues, costs and expenses,
and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most
significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating
its consolidated financial statements.
In March 2020 the World Health
Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces,
customers, and created significant volatility and disruption of financial markets. The pandemic may impact Company’s future estimates
including, but not limited to, our allowance for doubtful accounts, inventory valuations, fair value measurements, asset impairment charges.
It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on its
business or results of operations at this time.
Revenue Recognition
Effective January 1, 2018,
the Company adopted ASC Topic 606, Revenue from Contracts with Customers, which replaced ASC Topic 605, using the modified retrospective
method of adoption.
The Company recognizes revenues
when its customer obtains control of promised goods, in an amount that reflects the consideration which the Company expects to receive
in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify
contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate
the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the
performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in
significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for
all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed
that there were no differences in the pattern of revenue recognition. Hence, the Company’s accounting for revenue remains substantially
unchanged. There were no cumulative effect adjustments for service contracts in place prior to the adoption. The effect from the adoption
of ASC Topic 606 was not material to the Company’s consolidated financial statements.
The Company applies judgment
in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s
historical payment experience.
Judgment
is used in determining: (1) whether the financing component in the sales agreement is significant and, if so, (2) the discount rate used
in calculating the significant financing component. The Company assesses the significance of the financing component based on the timing
of payments agreed to by the parties to the contract that provides the customer with a significant benefit of financing. If determined
to be significant, the Company adjusts the promised amount of consideration for the effects of the time value of money.
Judgment
is also used in assessing whether the long-term accounts receivable results in variable consideration and, if so, the amount to be included
in the transaction price. The Company applies the portfolio approach to estimating the amount of variable consideration in these arrangements
using the most likely amount method that is based on the Company’s historical collection experience under similar arrangements.
Based on the above significant
judgements, the financing component, arising from the long-term accounts receivable was recognized as financing revenue over the time
of payment. There was no financing revenue for the years ended June 30, 2022 and 2021, respectively.
The Company is in
traditional production business operation and its performance obligation is delivery of the products to customers within the agreed
upon time and location. Customers sign on the delivery notes to indicate their acceptance. The typical payment term is either
advance payment or agreed-upon credit terms after delivery of products. There is no warranty and return policy for the customers.
The Company accounts for the sales of health care products using the gross method, as its controls the products that it sells until
at which point it transfers control of the products to its customers and recognizes revenue.
There are two revenue streams within the Company’s operations:
(1) sales of health care products which constitutes the majority of the revenues, and (2) others.
| |
Years Ended June 30 | |
| |
2022 | | |
2021 | |
| |
Sales | | |
Sales | |
Health care product sales | |
$ | 817,954 | | |
$ | 771,755 | |
Others | |
| 11,417 | | |
| - | |
Total revenues | |
$ | 829,371 | | |
$ | 771,755 | |
|
|
Three Months Ended September 30 |
|
|
|
2022 |
|
|
2021 |
|
|
|
Sales |
|
|
Sales |
|
Normal product sales |
|
$ |
68,035 |
|
|
$ |
292,936 |
|
Others |
|
|
- |
|
|
|
- |
|
Total revenues |
|
$ |
68,035 |
|
|
$ |
292,936 |
|
There is no variable consideration
and non-cash consideration agreed with the customers. The transaction price is fixed and allocated to the agreed product, the only performance
obligation. The revenue is recognized at a point in time once the Company has determined that the customers have obtained control over
the products. Control is typically deemed to have been transferred to the customers when the performance obligation is fulfilled, usually
at the time of delivery, at the net sales price (transaction price).
There is no contract asset
that the Company has right to consideration in exchange for the product sales that the Company has transferred to customers. Such right
is not conditional on something other than the passage of time.
Practical expedients and exemption
The Company elected a practical
expedient that it does not adjust the promised amount of consideration for the effects of a significant financing component if the Company
expects that, upon the inception of revenue contracts, the period between when the Company transfers its promised deliverables to its
customers and when the customers pay for those deliverables will be more than one year.
Advertising and promotional expenses
Advertising costs are expensed
as incurred and included in selling expenses. Advertising costs amounted to $161,853 and $14,057 for the years ended June 30, 2022 and
2021, respectively.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier
hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy
also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The three-tier fair value hierarchy is:
Level 1 – observable inputs that
reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that are directly or indirectly
observable in the marketplace.
Level 3 –
unobservable inputs which are supported by little or no market activity.
The carrying value of the
Company’s financial instruments, including cash, accounts receivable, other current assets, accounts payable, and accruals and
other payable approximate their fair value due to their short maturities.
In accordance with ASC 825,
for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected
the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected
in the accompanying consolidated statements of operations and comprehensive loss as other income (expense). To estimate fair value, the
Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company
classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.
As of June 30, 2022 and 2021, the Company had
no investments in financial instruments.
Income tax
The Company’s subsidiary
in China are subject to the income tax laws of the relevant tax jurisdiction. No taxable income was generated outside the PRC for the
years ended June 30, 2022 and 2021. The Company accounts for income tax in accordance with U.S. GAAP.
Current income taxes are
provided on the basis of net profit (loss) for financial reporting purposes, adjusted for income and expense items which are not assessable
or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are
recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial
statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes
are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted
rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred
tax assets and liabilities of changes in tax rates is recognized in the statement of comprehensive loss in the period of the enactment
of the change.
The Company considers positive
and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This
assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability,
the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies.
The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the
carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing
the realization of deferred tax assets, the Company has considered possible sources of taxable income including (i) future reversals
of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards,
(iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be
reflected within the industry.
An uncertain tax position
is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely
of being realized upon examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. PRC
tax returns filed in 2022 and 2021 are subject to examination by any applicable tax authorities. The Company had no uncertain tax position
for the years ended June 30, 2022 and 2021.
Recent Accounting Pronouncements
See the discussion of the
recent accounting pronouncements contained in Note 2 to the consolidated financial statements, “Summary of Significant Accounting
Policies”.
Results of Operations
Comparison of Years Ended June 30, 2022
and 2021
The following table sets
forth key components of our results of operations during the years ended June 30, 2022 and 2021, both in dollars and as a percentage
of our revenue.
| |
Years Ended June 30, | |
| |
2022 | | |
2021 | |
| |
Amount | | |
of Revenue | | |
Amount | | |
of Revenue | |
Revenues | |
| 829,371 | | |
| 100.00 | % | |
| 771,755 | | |
| 100.00 | % |
Cost of revenues | |
| (598,880 | ) | |
| (72.21 | )% | |
| (654,846 | ) | |
| (84.85 | )% |
Gross profit | |
| 230,491 | | |
| 27.79 | % | |
| 116,909 | | |
| 15.15 | % |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| (182,896 | ) | |
| (22.05 | )% | |
| (14,221 | ) | |
| (1.84 | )% |
General and administrative expenses | |
| (581,376 | ) | |
| (70.10 | )% | |
| (1,377,363 | ) | |
| (178.48 | )% |
Loss from operations | |
| (533,781 | ) | |
| (64.35 | )% | |
| (1,274,675 | ) | |
| (165.17 | )% |
| |
| | | |
| | | |
| | | |
| | |
Other Income (expense) | |
| | | |
| | | |
| | | |
| | |
Other incomes | |
| 13,869 | | |
| 1.67 | % | |
| 383 | | |
| 0.05 | % |
Other expenses | |
| (144,870 | ) | |
| (17.46 | )% | |
| (113 | ) | |
| (0.01 | )% |
Net loss before taxes | |
| (664,782 | ) | |
| (80.15 | )% | |
| (1,274,405 | ) | |
| (165.13 | )% |
Income tax expenses | |
| - | | |
| - | | |
| - | | |
| - | |
Net loss | |
| (664,782 | ) | |
| (80.15 | )% | |
| (1,274,405 | ) | |
| (165.13 | )% |
Revenues. Our
revenues were $829,371 for the year ended June 30, 2022, representing an increase of $57,616 or 7% from $771,755 for the year ended June
30,2021. There are two revenue streams within the Company’s operations: (1) normal product sales of carotene which constitutes
the majority of the revenues, and (2) others. The increase was mainly due to business promotion to get engaged by more customers in 2022.
The following table summarizes
our revenues by revenue streams for the years ended June 30, 2022 and 2021:
| |
Years Ended June 30 | |
| |
2022 | | |
2021 | |
| |
Sales | | |
Sales | |
Normal product sales | |
$ | 817,954 | | |
$ | 771,755 | |
Others | |
| 11,417 | | |
| - | |
Total revenues | |
$ | 829,371 | | |
$ | 771,755 | |
Cost of revenues.
Our cost of revenues was $598,880 for the year ended June 30, 2022, compared to $654,846 for the same period last year. Cost of revenue
refers to the cost of material and labor cost, direct material and overhead costs. With the similar scale of sales, the cost of revenues
of 2022 almost the same with 2021.
Gross profit and gross
margin. Our gross profit was $230,491 for the year ended June 30, 2022, compared with a gross profit of $116,909 for the same
period last year. The gross margin was increased from 15.15% during 2021 to 27.79% during 2022. The increase was in line with the business
growth.
Selling expenses.
As shown below, our selling expenses consist primarily of compensation and benefits to our selling department and other expenses incurred
in connection with general operations. Our selling expenses increased by $168,676 to $182,896 for year ended June 30, 2022, from $14,221
for the same period 2021. The increase due to the advertising fee increased by $147,796 from June 30, 2021 to June 30, 2022. The increases
were mainly in line with the expansion of revenue.
| |
June
30,
2022 | | |
June
30,
2021 | | |
Fluctuation | |
| |
Amount | | |
Proportion | | |
Amount | | |
Proportion | | |
Amount | | |
Proportion | |
Salaries and welfare | |
| 19,303 | | |
| 10.55 | % | |
| - | | |
| - | | |
| 19,303 | | |
| 100 | % |
Advertising fee | |
| 161,853 | | |
| 88.49 | % | |
| 14,057 | | |
| 98.85 | % | |
| 147,796 | | |
| 1,051 | % |
Others | |
| 1,740 | | |
| 0.95 | % | |
| 164 | | |
| 1.15 | % | |
| 1,576 | | |
| 963 | % |
Total selling expenses | |
$ | 182,896 | | |
| 100.00 | % | |
$ | 14,221 | | |
| 100.00 | % | |
$ | 168,676 | | |
| 1,186 | % |
General and administrative
expenses. As shown below, our general and administrative expenses consist primarily of compensation and benefits to our general
management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our
general and administrative expenses decreased by $795,987 to $581,376 for year ended June 30, 2022, from $1,377,363 for the same period
in 2021. Professional fee decreased by $931,125 or 90.58% from June 30, 2021 to June 30, 2022. The decrease was mainly due to several
third party has been hired during 2021 for company initial public offerings strategy. Salary and social insurance increased by $111,025
or 70.00% from June 30, 2020 to June 30, 2021. The increase was mainly in line with the expansion of revenue.
| |
June 30,
2022 | | |
June 30,
2021 | | |
Fluctuation | |
| |
Amount | | |
Proportion | | |
Amount | | |
Proportion | | |
Amount | | |
Proportion | |
Salary and Social Insurance | |
$ | 269,643 | | |
| 46.38 | % | |
$ | 158,618 | | |
| 11.52 | % | |
$ | 111,025 | | |
| 70.00 | % |
Business entertainment | |
| 14,792 | | |
| 2.54 | % | |
| 7,917 | | |
| 0.57 | % | |
| 6,876 | | |
| 86.85 | % |
Depreciation and amortization | |
| 55,405 | | |
| 9.53 | % | |
| 5,692 | | |
| 0.41 | % | |
| 49,713 | | |
| 873.32 | % |
Office expenses | |
| 29,821 | | |
| 5.13 | % | |
| 14,161 | | |
| 1.03 | % | |
| 15,659 | | |
| 110.58 | % |
Professional fee | |
| 96,889 | | |
| 16.67 | % | |
| 1,028,014 | | |
| 74.64 | % | |
| (931,125 | ) | |
| (90.58 | )% |
Bad debt provision | |
| (21,685 | ) | |
| (3.73 | )% | |
| 87,597 | | |
| 6.36 | % | |
| (109,282 | ) | |
| (124.76 | )% |
Materials expenses | |
| 86,197 | | |
| 14.83 | | |
| 5,959 | | |
| 0.43 | % | |
| 80,238 | | |
| 1,346.48 | % |
Research and development expenses | |
| - | | |
| - | | |
| 30,208 | | |
| 2.19 | % | |
| (30,208 | ) | |
| (100 | )% |
Rental fee | |
| 26 | | |
| 0.00 | | |
| 8,959 | | |
| 0.65 | % | |
| (8,933 | ) | |
| (99.71 | )% |
Travel fee | |
| 12,436 | | |
| 2.14 | | |
| 8,890 | | |
| 0.65 | % | |
| 3,546 | | |
| 39.89 | % |
Installation and maintenance fee | |
| 6,960 | | |
| 1.20 | % | |
| 3,334 | | |
| 0.24 | % | |
| 3,627 | | |
| 108.80 | % |
Taxation | |
| 2,621 | | |
| 0.45 | % | |
| 904 | | |
| 0.07 | % | |
| 1,717 | | |
| 189.84 | % |
Other | |
| 28,270 | | |
| 4.86 | % | |
| 17,110 | | |
| 1.24 | % | |
| 11,160 | | |
| 65.22 | % |
Total general and administrative expenses | |
$ | 581,376 | | |
| 100.00 | % | |
$ | 1,377,363 | | |
| 100.00 | % | |
$ | (795,987 | ) | |
| (57.79 | )% |
Income tax expense.
Our Income tax expense was nil for the years ended June 30,2022 and 2021.
Net loss. As
a result of the cumulative effect of the factors described above, our net loss was $664,782 for the year ended June 30, 2022 and net loss
$1,274,405 for the year ended June 30, 2021. The decrease was primarily due to decrease of operating expenses in 2022 as previously discussed.
Liquidity and Capital Resources
The Company’s primary
need for liquidity stems from its need to fund working capital requirements of the Company’s businesses, its capital expenditures
and its general operations, including debt repayment. The Company has historically financed its operations through short-term and long-term
commercial bank loans from Chinese banks, as well as its ongoing operating activities by using funds from loans from directors and shareholders,
and other third party. The Company routinely monitors current and expected operational requirements and financial market conditions to
evaluate the use of available financing sources. Considering the existing working capital position and the ability to access debt funding
sources, the management believes that the Company’s operations and borrowing resources are sufficient to provide for its current
and foreseeable capital requirements to support its ongoing operations for the next twelve months.
The following table set forth a summary of its
cash flows for the periods indicated:
| |
For the Years Ended | |
| |
June 30, | |
| |
2022 | | |
2021 | |
Net cash provided by (used in) operating activities | |
$ | 9,482,639 | | |
| (2,481,619 | ) |
Net cash used in investing activities | |
$ | (96,166 | ) | |
| (63,800 | ) |
Net cash provided by (used in) financing activities | |
| (9,238,562 | ) | |
| 2,573,769 | |
Operating Activities
Net cash provided by operating
activities was $9,482,639 for the year ended June 30, 2022, as compared to $2,481,619 net cash used in operating activities for the year
ended June 30, 2021.
The net cash provided by operating
activities for the year ended June 30, 2022 was mainly due to our net loss of $664,782, an increase in and an increase in other receivables
of $1,586,168, partially offset by an increase in advance from customers of $6,920,217 and an increase in other payables of $4,487,644.
The net cash used in operating activities for the year ended June 30, 2021 was mainly due to our net loss of $1,274,405, a decrease in
other payables of $1,100,063, and partially offset by a decrease in other receivable of $130,484.
Investing Activities
Net cash used in investing
activities was $96,166 for the year ended June 30, 2022, as compared to $63,800 net cash used in investing activities for the year ended
June 30, 2021. The net cash used in investing activities was mainly attributable to purchase of property and equipment for the year ended
June 30, 2022 and 2021.
Financing Activities
Net cash used in financing
activities was $9,238,562 for the year ended June 30, 2022, as compared to $2,573,769 net cash provided by financing activities for the
year ended June 30, 2021. The net cash used in financing activities was mainly attributable to repayment to related parties for the year
ended June 30, 2022. The net cash provided by financing activities was mainly attributable to advances from related parties for
the year ended June 30, 2021.
Comparison of three months ended September
30, 2022 and 2021
The following table sets
forth key components of our results of operations during the three months ended September 30, 2022 and 2021, both in dollars and as a
percentage of our revenue.
|
|
Three Months ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
Amount |
|
|
of Revenue |
|
|
Amount |
|
|
of Revenue |
|
Revenues |
|
|
68,035 |
|
|
|
100.00 |
% |
|
|
292,936 |
|
|
|
100.00 |
% |
Cost of revenues |
|
|
(64,133 |
) |
|
|
(94.27 |
)% |
|
|
(202,645 |
) |
|
|
(69.18 |
)% |
Gross profit |
|
|
3,902 |
|
|
|
5.73 |
% |
|
|
90,291 |
|
|
|
30.82 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
(941 |
) |
|
|
(1.38 |
)% |
|
|
(12,104 |
) |
|
|
(4.13 |
)% |
General and administrative expenses |
|
|
(75,129 |
) |
|
|
(110.43 |
)% |
|
|
(107,627 |
) |
|
|
(36.74 |
)% |
Loss from operations |
|
|
(72,168 |
) |
|
|
(106.08 |
)% |
|
|
(29,440 |
) |
|
|
(10.05 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other incomes |
|
|
8,148 |
|
|
|
11.98 |
% |
|
|
1,572 |
|
|
|
0.54 |
% |
Other expenses |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss before taxes |
|
|
(64,020 |
) |
|
|
(94.10 |
)% |
|
|
(27,868 |
) |
|
|
(9.51 |
)% |
Income tax expenses |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(64,020 |
) |
|
|
(94.10 |
)% |
|
|
(27,868 |
) |
|
|
(9.51 |
)% |
Revenues. Our
revenues were $68,035 for the three months ended September 30, 2022, representing an decrease of $224,901 or 77% from $292,936 for the
three months ended September 30, 2021. There are two revenue streams within the Company’s operations: (1) normal product sales
of carotene which constitutes the majority of the revenues, and (2) others. The decrease was mainly due to the explosion of COVID-19
during the three months ended September 30, 2022.
The following table summarizes
our revenues by revenue streams for the three months ended September 30, 2022 and 2021:
| |
Three Months ended
September 30, | |
| |
2022 | | |
2021 | |
| |
Sales | | |
Sales | |
Normal product sales | |
$ | 68,035 | | |
$ | 292,936 | |
Others | |
| - | | |
| - | |
Total revenues | |
$ | 68,035 | | |
$ | 292,936 | |
Cost of revenues.
Our cost of revenues was $64,133 for the three months ended September 30, 2022, compared to $202,645 for the same period last year. Cost
of revenue refers to the cost of material and labor cost, direct material and overhead costs. The decrease was in line with the revenue.
Gross profit and gross
margin. Our gross profit was $3,902 for the three months ended September 30, 2022, compared with a gross profit of $90,291 for
the same period last year. The gross margin was decreased from 30.82% during 2021 to 5.73% during 2022. The decrease was in line with
the business decline.
Selling expenses.
As shown below, our selling expenses consist primarily of compensation and benefits to our selling department and other expenses incurred
in connection with general operations. Our selling expenses decreased by $11,163 to $941 for the three months ended September 30, 2022,
from $12,104 for the same period 2021. The decrease due to the advertising fee decreased by $12,104 for the three months ended September
30, 2022. The decreases were mainly in line with the decline of revenue.
| |
September
30,
2022 | | |
September
30,
2021 | | |
Fluctuation | |
| |
Amount | | |
Proportion | | |
Amount | | |
Proportion | | |
Amount | | |
Proportion | |
Advertising fee | |
| - | | |
| - | % | |
| 12,104 | | |
| 100.00 | % | |
| (12,104 | ) | |
| (100 | )% |
Others | |
| 941 | | |
| 100.00 | % | |
| - | | |
| - | % | |
| 941 | | |
| 100 | % |
Total selling expenses | |
$ | 941 | | |
| 100.00 | % | |
$ | 12,104 | | |
| 100.00 | % | |
$ | (11,163 | ) | |
| 92 | % |
General and administrative
expenses. As shown below, our general and administrative expenses consist primarily of compensation and benefits to our general
management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our
general and administrative expenses decreased by $32,498 to $75,129 for the three months ended September 30, 2022, from $107,627 for
the same period in 2021. Professional fee decreased by $931,125 or 90.58% from June 30, 2021 to June 30, 2022. The decrease was mainly
due to the decline of salary and social insurance $17,358, depreciation and amortization $12,359 and office expense $11,162 for the three
months ended September 30, 2022. The decrease was mainly in line with the decline of revenue.
| |
September 30, 2022 | | |
September 30, 2021 | | |
Fluctuation | |
| |
Amount | | |
Proportion | | |
Amount | | |
Proportion | | |
Amount | | |
Proportion | |
Salary and Social Insurance | |
$ | 43,174 | | |
| 57.47 | % | |
$ | 60,532 | | |
| 56.24 | % | |
$ | (17,358 | ) | |
| (28.68 | )% |
Business entertainment | |
| 2,386 | | |
| 3.18 | % | |
| 3,307 | | |
| 3.07 | % | |
| (921 | ) | |
| (27.84 | )% |
Depreciation and amortization | |
| 4,832 | | |
| 6.43 | % | |
| 17,191 | | |
| 15.97 | % | |
| (12,359 | ) | |
| (71.89 | )% |
Office expenses | |
| 9,551 | | |
| 12.71 | % | |
| 20,713 | | |
| 19.25 | % | |
| (11,162 | ) | |
| (53.89 | )% |
Professional fee | |
| 11,622 | | |
| 15.47 | % | |
| 1,791 | | |
| 1.66 | % | |
| 9,831 | | |
| 548.96 | % |
Travel fee | |
| 1,546 | | |
| 2.06 | % | |
| 1,771 | | |
| 1.65 | % | |
| (225 | ) | |
| (12.70 | )% |
Other | |
| 2,018 | | |
| 2.68 | % | |
| 2,322 | | |
| 2.16 | % | |
| (304 | ) | |
| (13.11 | )% |
Total general and administrative expenses | |
$ | 75,129 | | |
| 100.00 | % | |
$ | 107,627 | | |
| 100.00 | % | |
$ | (32,498 | ) | |
| (30.19 | )% |
Income tax expense.
Our Income tax expense was nil for the three months ended September 30,2022 and 2021.
Net loss. As
a result of the cumulative effect of the factors described above, our net loss was $64,020 for the three months ended September 30, 2022
and net loss $27,868 for the three months ended September 30, 2021. The decrease was primarily due to decrease of revenue in 2022 as
previously discussed.
Liquidity and Capital Resources
The Company’s primary
need for liquidity stems from its need to fund working capital requirements of the Company’s businesses, its capital expenditures
and its general operations, including debt repayment. The Company has historically financed its operations through short-term and long-term
commercial bank loans from Chinese banks, as well as its ongoing operating activities by using funds from loans from directors and shareholders,
and other third party. The Company routinely monitors current and expected operational requirements and financial market conditions to
evaluate the use of available financing sources. Considering the existing working capital position and the ability to access debt funding
sources, the management believes that the Company’s operations and borrowing resources are sufficient to provide for its current
and foreseeable capital requirements to support its ongoing operations for the next twelve months.
The following table set forth a summary of its
cash flows for the periods indicated:
| |
For the Three Months Ended | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Net cash used in operating activities | |
$ | (9,981,867 | ) | |
$ | (126,547 | ) |
Net cash used in investing activities | |
$ | (47,807 | ) | |
$ | (36,702 | ) |
Net cash provided by financing activities | |
| 10,003,998 | | |
| 168,406 | |
Operating Activities
Net cash used in operating
activities was $9,981,867 for the three months ended September 30, 2022, as compared to $126,547 net cash used in operating activities
for the three months ended September 30, 2021.
The net cash provided by operating
activities for the three months ended September 30, 2022 was mainly due to our net loss of $64,020, a decrease in advance from customers
of $6,278,407 and a decrease in other payables of $3,759,841, partially offset by a decrease in other receivable of $49,825. The net cash
used in operating activities for the three months ended September 30, 2021 was mainly due to our net loss of $27,868, an increase in other
receivable of $530,082, and partially offset by an increase in accounts payable of $258,537 and a decrease in prepayment of $201,813.
Investing Activities
Net cash used in investing activities was $47,807
for the three months ended September 30, 2022, as compared to $36,702 net cash used in investing activities for the three months ended
September 30, 2021. The net cash used in investing activities was mainly attributable to purchase of property and equipment for the three
months ended September 30, 2022 and 2021.
Financing Activities
Net cash provided by financing activities was $10,003,998 for the three
months ended September 30, 2022, as compared to $168,406 net cash provided by financing activities for the three months ended September
30, 2021. The net cash provided by financing activities was mainly attributable to advances from related parties for the three months
ended September 30, 2022 and 2021.
Contractual Obligations
The Company had no short-term
and long-term bank loans as of September 30, 2022 and June 30, 2022.
Off-Balance Sheet Transactions
We do not have any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
JOBS Act
On April 5, 2012, the JOBS
Act was signed into law. The JOBS Act contains provisions that, among other things, eases certain reporting requirements for qualifying
public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new
or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay
the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the
relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements
may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
PROPERTIES
Liaoning
Kangbaier and its subsidiaries maintain the below corporate office space in Panjin City. We believe that our facilities are suitable
and adequate for our operations and are adequately maintained.
Property rental details |
| |
Location (within the Group Hospital) | |
Area (m 2) | |
use |
1 | |
Zhaojia # 1-17-1, Xinglongtai District,
Panjin City | |
2200 | |
factory building |
2 | |
Zhaojia # 1-17-1, Xinglongtai District,
Panjin City | |
800 | |
storehouse |
3 | |
Zhaojia # 1-17-1, Xinglongtai District,
Panjin City | |
1200 | |
Office building (including WOFE) |
4 | |
Zhaojia # 1-17-1, Xinglongtai District,
Panjin City | |
800 | |
dormitory building |
| |
amount to | |
5000 | |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
and Management
The following table sets
forth certain information concerning the number of shares of our common stock owned beneficially as of December 30, 2022, immediately
following the Reverse Takeover by: (i) each person (including any group) known to us to own more than five percent (5)% of any class
of our voting securities, (ii) each of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation
S-K), and (iii) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment
power with respect to the shares shown except to the extent voting power may be shared with a spouse. Unless otherwise indicated, the
address for each director and executive officer listed is: c/o Bitmis Corp., 1-17-1 ZhaoJia Road, XingLongTai District , PanJin City,
Liaoning Province, China.
| |
Common Stock Beneficially Owned (1) | |
Name and Address of Beneficial Owner | |
Number of Shares Beneficial Ownership | | |
Percentage of Total Common Equity (1) | |
Ms. Sun Xiuzhi (2) (3) | |
| 8,506,400 | | |
| 49 | % |
All executive officers and directors as a Group | |
| | | |
| 49 | % |
| |
| | | |
| | |
5% or Greater Stockholders: | |
| | | |
| | |
None | |
| | | |
| | |
(1) | Beneficial
ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Applicable
percentage ownership is based on 7,250,750 shares of common stock and 10,000,000 preferred shares outstanding as of December 30, 2022.
There are no options, warrants or other rights to acquire shares of our common stock. |
(2) | Represents Ms. Xiuzhi’s ownership of 850,640 shares of our common
stock and 7,655,760 shares of our Series A Preferred Shares which are convertible into 7,655,760 shares of our common stock. |
(3) | Represents shares held by each of the following entities of which Ms.
Xiuzhi is the sole director and owner of 100% of each entity: Kidde Holding Limited 1%; and Howell Holding Limited 39%. The address for
each such entity is c/o Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. |
DIRECTORS AND EXECUTIVE OFFICERS
In connection with the closing
of the Reverse Acquisition described above in Item 2.01 Ms. Yuan Xiaoyan our sole officer and director resigned from her positions as
Chief Executive Officer, President, Chief Financial Officer, and sole director, and appointed the following person as the Director and
Executive Officer of the Company effective with her resignation.
The following table sets
forth certain information concerning our newly appointed director and executive officer:
Name |
|
Age |
|
Position |
|
|
|
|
|
Ms.
Sun Xiuzhi |
|
66 |
|
Chief
Executive Officer, Chief Financial Officer and Director |
Ms. Sun Xiuzhi, Chief Executive Officer, Chief Financial Officer,
and Director
Ms. Xiuzhi has served as
the Company’s Chief Executive Office, Chief Financial Officer and Director since the closing of the Reverse Acquisition on December
30, 2022. Since 2015 she has served as the Chairperson of Liaoning Kangbaier Biotechnology Development Co., Ltd, a company she founded
which is focus on the research and development of technology related to natural β -carotene extraction as well as the commercialization
of products derived from such technology. Ms. Xiuzhi attended Shenyang University of Technology where she received a degree in September 2015.
Term of Office
Our director holds her position
until the next annual meeting of shareholders and until her successor is elected and qualified by our shareholders, or until earlier
death, retirement, resignation, or removal.
Director Independence
Our sole director does not
qualify as an “independent director” under the Rules of NASDAQ, Marketplace Rule 4200(a)(15).
Director Compensation
Our current sole director
is an employee of the Company. She has not received and will not receive compensation for her service outside the compensation set forth
in the Summary Compensation Table below.
If our board consists of
any non-employee directors in the future, we may compensate our non-employee directors for their service in the future. We also intend
to allow our non-employee directors to participate in any equity compensation plans that we adopt in the future.
Family Relationships
There
are no family relationships between any of our directors, executive officers, or directors.
Communications with the Board of Directors
Stockholders with questions
about the Company are encouraged to contact the Company by sending communications to the attention of the Chief Executive Officer at
1-17-1 Zhaojia Road, XingLongTai District, PanJin City, Liaoning Province, PRC. Stockholders may communicate with the Board of Directors
by sending their communications to the Board of Directors, c/o the Chief Executive Officer at the same address.
Involvement in Certain
Legal Proceedings
To our knowledge, during
the past ten years no current director or executive officer of the Company has been involved in the following:
|
(1) |
A petition under the Federal
bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed
by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business association of which he was an executive officer at or within two
years before the time of such filing; |
|
(2) |
Such person was convicted
in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses)
; |
| (3) | Such person was the subject of any order, judgment, or decree,
not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from,
or otherwise limiting, the following activities: |
i. Acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other
person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in
any type of business practice; or
iii. Engaging in any activity in connection
with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal
commodities laws;
| (4) | Such person was the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than
60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with
persons engaged in any such activity; |
| (5) | Such person was found by a court of competent jurisdiction
in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed, suspended, or vacated; |
| (6) | Such person was found by a court of competent jurisdiction
in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; |
| (7) | Such person was the subject of, or a party to, any Federal
or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to
an alleged violation of: |
i. Any Federal
or State securities or commodities law or regulation; Or
ii. Any law or regulation respecting
financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease and desist order, or removal or prohibition order; Or
iii. Any law or
regulation prohibiting mail or wire fraud or fraud in connection with any business entity; Or
| (8) | Such person was the subject of, or a party to, any sanction
or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the
Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))),
or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated
with a member. |
Director Responsibilities
and Qualifications
Directors are responsible
for overseeing the Company’s business consistent with their fiduciary duty to the stockholders. This significant responsibility
requires highly-skilled individuals with various qualities, attributes and professional experience. Our director believes that there
are general requirements for service on the Board that are applicable to directors and that there are other skills and experience that
should be represented on the Board as a whole but not necessarily by each director. The Board considers the qualifications of director
and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current
and future needs.
Qualifications for All Directors
In its assessment of each
potential candidate, including those recommended by the stockholders, the Board will consider the nominee’s judgment, integrity,
experience, independence, understanding of the Company’s business or other related industries and such other factors it determines
are pertinent in light of the current needs of the Board. The Board also takes into account the ability of a director to devote the time
and effort necessary to fulfill his or her responsibilities to the Company.
The Board requires that each
director be a recognized person of high integrity with a proven record of success in his or her field. Each director must demonstrate
innovative thinking, familiarity with and respect for corporate governance requirements and practices, an appreciation of multiple cultures
and a commitment to sustainability and to dealing responsibly with social issues. The Board believes that it should include some directors
with a high level of financial literacy and some directors who possess relevant business experience as a chief executive officer, president
or similar position at a company. In addition to the qualifications required of all directors, the Board conducts interviews of potential
director candidates to assess intangible qualities including the individual’s ability to ask difficult questions and, simultaneously,
to work collegially.
Board Leadership Structure and Role in Risk Oversight
The Board of Directors intends to exercise its
oversight in the following manner:
|
- |
appointing,
retaining, and overseeing the work of the independent auditors, including resolving disagreements between the management and the
independent auditors relating to financial reporting; |
|
|
|
|
- |
approving
all auditing and non-auditing services permitted to be performed by the independent auditors; |
|
|
|
|
- |
reviewing
annually the independence and quality control procedures of the independent auditors; |
|
|
|
|
- |
reviewing
and approving all proposed related party transactions; |
|
|
|
|
- |
discussing
the annual audited financial statements with the management; and |
|
|
|
|
- |
meeting
separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls,
the auditor’s engagement letter and independence letter and other material written communications between the independent auditors
and the management. |
Board Committees
Audit Committee. We
intend to establish an audit committee of the Board which will consist of soon-to-be-nominated independent directors. The audit committee’s
duties will be to recommend to the Board the engagement of independent auditors to audit our financial statements and to review our accounting
and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations
performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Board,
free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding
of financial statements and generally accepted accounting principles.
Audit Committee Financial
Expert. The Board currently acts as our audit committee. The Board is still in the process of finding an “audit committee financial
expert” as defined in Regulation S-K and directors that are “independent” as that term is used in Section 10A of the
Exchange Act.
Compensation Committee.
We intend to establish a compensation committee of the Board. The compensation committee will review and approve our salary and benefits
policies, including compensation of executive officers.
Nominating Committee.
We do not presently have a nominating committee. Our board of directors currently acts as our nominating committee.
Code of Ethics
We are developing a Code
of Business Conduct and Ethics that applies to our principal executive officers and principal financial officer, principal accounting
officer or controller, or persons performing similar functions and also to other employees.
EXECUTIVE COMPENSATION
Our executive compensation
program is designed to help us attract talented individuals to manage and operate all aspects of our business, to reward those individuals
fairly over time and to retain those individuals who continue to meet our high expectations.
The following is a summary
of the compensation we paid to our Chief Executive Officer, Chief Financial Officer and Vice President from September 22, 2022 through
December 30, 2022 and from December 30, 2022 through December 31, 2022. This includes all compensation, including any compensation paid
to the officer by any of our subsidiaries. Other than otherwise disclosed, no executive officer received compensation in excess of $100,000
from during 2022.
Summary Compensation Table
Name & Principal Position | |
Fiscal Year | |
Base
Compensation
(annual, unless
otherwise
noted) | | |
Performance
Award | | |
Stock
Options | | |
Total
Annual | |
| |
| |
| | |
| | |
| | |
| |
Ms. Yuan Xiaoyan, CEO, CFO, COO, Chairman and Director of the Board (1) | |
From September 22, 2022 through December 30, 2022 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| |
| | | |
| | | |
| | | |
| | |
Ms. Sun Xiuzhi, CEO, CFO, COO, Chairman and Director of the Board (2) | |
December 30, 2022 through December 31, 2022 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| (1) | Ms.
Yuan Xiaoyan was appointed as Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chairman and Director of the
Board of Directors of the Company on September 22, 2022. Ms. Ms. Yuan Xiaoyan resigned from those positions on December 30, 2022 in conjunction
with the Reverse Acquisition. |
| (2) | Ms.
Sun Xiuzhi was appointed as our Chief Executive Office, Chief Financial Officer, and Director on December 30, 2022. |
Employment Agreements
As of the reporting date,
the Company has not entered into any employment agreements.
Compensation Discussion and Analysis
We strive to provide our
named executive officer (as defined in Item 402 of Regulation S-K) with a competitive base salary that is in line with their roles and
responsibilities when compared to peer companies of comparable size in similar locations.
It is not uncommon for PRC
private companies in to have base salaries as the sole form of compensation. The base salary level is established and reviewed based
on the level of responsibilities, the experience and tenure of the individual and the current and potential contributions of the individual.
The base salary is compared to the list of similar positions within comparable peer companies and consideration is given to the executive’s
relative experience in his or her position. Base salaries are reviewed periodically and at the time of promotion or other changes in
responsibilities.
We will consider forming
a compensation committee to oversee the compensation of our named executive officers. The majority of the members of the compensation
committee would be independent directors.
Compensation of Directors
Directors are permitted to
receive fixed fees and other compensation for their services as directors. The board of directors has the authority to fix the compensation
of directors. No amounts have been paid to, or accrued to, directors in such capacity.
As of the date of this report,
our director has received no compensation for her service on the board of directors. We plan to implement a compensation program for
our independent directors, as and when they are appointed, which we anticipate will include such elements as an annual retainer, meeting
attendance fees and stock options. The details of that compensation program will be negotiated with each independent director.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
There were no stock options
exercised during the 12 months ended September 30, 2022 and subsequently through December 31, 2022, by the executive officers named in the Executive Compensation
Table. Further, there are no option, warrants or rights to receive any of the Company’s securities outstanding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except for the ownership
of our securities, and except as set forth below, none of the directors, executive officers, holders of more than five percent of our
outstanding common stock, or any member of the immediate family of any such person have, to our knowledge, had a material interest, direct
or indirect, in any transaction or proposed transaction which may materially affect our company.
The amount due from and due to related parties
are as follow:
| |
Note | |
September 30, 2022 | | |
June 30, 2022 | |
Amounts due from related parties: | |
| |
| | | |
| | |
Duolun Kangbaier Biotechnology Co. LTD | |
(a) | |
$ | 1,124 | | |
$ | 1,194 | |
Panjin Kangying Health Food Co., LTD | |
(a) | |
| 141 | | |
| 149 | |
Liaoning Baijiakang Health Technology Co. LTD | |
(a) | |
| 42 | | |
| 45 | |
Ms. Xiuzhi Sun | |
(b) | |
| - | | |
| 4,757,546 | |
Ms. Xiuhua Sun | |
(c) | |
| 544,336 | | |
| 1,087,722 | |
Mr. Yuewen Sun | |
(d) | |
| - | | |
| 970,281 | |
Mr. Zengwen Wang | |
(e) | |
| - | | |
| 746,370 | |
Mr. Mingkai Cao | |
(f) | |
| 4,216 | | |
| 4,479 | |
Total | |
| |
$ | 549,859 | | |
$ | 7,567,786 | |
| |
| |
| | | |
| | |
Amounts due to related parties: | |
| |
| | | |
| | |
Jilin Kangbaier Biotechnology Co., LTD | |
(a) | |
$ | | | |
$ | 298,548 | |
Panjin Double Eagle Green Health Food Co. LTD | |
(g) | |
| 107,492 | | |
| 114,180 | |
Panjin Double Eagle Weishi Green Health Food Co. LTD | |
(g) | |
| 101,576 | | |
| 107,897 | |
Mr. Zengwen Wang | |
(e) | |
| - | | |
| 620,846 | |
Ms. Xiuhua Sun | |
(c) | |
| 47,318 | | |
| 67,173 | |
Ms. Xiuzhi Sun | |
(b) | |
| 3,926,429 | | |
| - | |
Total | |
| |
$ | 4,182,815 | | |
$ | 1,208,644 | |
| (a) | The companies of the representative of the Company. |
| (b) | The representative of the Company. |
| (c) | Sister of Ms. Xiuzhi Sun. |
| (d) | Brother of Ms. Xiuzhi Sun. |
| (e) | Nephew of Ms. Xiuzhi Sun. |
| (f) | Family member of Ms. Xiuzhi Sun. |
| (g) | Shareholder of the Company. |
| (h) | Companies under the control of the Company’s shareholders. |
All the above balances are due on demand,
interest-free and unsecured. The Company used the funds for its operations. $7,017,927 amounts due from related parties was settled
subsequently from July to September 30, 2022.
Procedures for Approval of Related Party
Transactions
Our board of directors is
charged with reviewing and approving all potential related party transactions. All such related party transactions must then be reported
under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead
review them on a case-by-case basis.
LEGAL PROCEEDINGS
We know of no material, active,
pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant
in any material proceeding or pending litigation.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is not listed
on any securities exchange and is quoted on the OTC Expert Market under the symbol “BITM.” No quotations are currently available
since BITM is listed in the Expert Market. Our common stock has not been traded on the OTC market except on a limited and sporadic basis
and there is no assurance that a regular public trading market will ever develop. OTC market securities are not listed and traded on
the floor of an organized national or regional stock exchange. Instead, OTC market securities transactions are conducted through a telephone
and computer network connecting dealers. OTC market issuers are traditionally smaller companies that do not meet the financial and other
listing requirements of a regional or national stock exchange.
Holders of Our Common Stock
As of December 30, 2022, there
were 10 holders of record of our common stock based upon the records of the shareholders provided by the Company’s transfer agent.
The Company’s transfer agent is VStock Transfer, LLC, 18 Lafayette Place Woodmere, NY 11598, Telephone 212-828-8436.
Dividends
We have not paid dividends
on our common stock and do not anticipate paying such dividends in the foreseeable future. We will rely on dividends from our PRC operation
entity for our funds and PRC regulations may limit the amount of funds distributed to us from our PRC operation entity, which will affect
our ability to declare any dividends.
Stock Option and Warrant Grants
We have no stock option and
warrant granted to our executives, employees, vendors, consultants, and any other parties as of the reporting date.
Registration Rights
We have not granted registration
rights to any person.
Equity Compensation Plans
We have not adopted any equity
compensation plans as of the reporting date.
Penny Stock Regulations
Our shares of common stock
are subject to the “penny stock” rules of the Securities Exchange Act of 1934 and various rules under this Act. In general
terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share, subject to certain
exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded
on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded
from the definition on the basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues.
In the last case, the issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or
$5,000,000 if in operation for less than three years, or the issuer’s average revenues for each of the past three years must exceed
$6,000,000.
Trading in shares of penny
stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established
customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual
income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by
these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the
purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock,
the rules require the delivery, prior to the first transaction of a risk disclosure document relating to the penny stock. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the
security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict
the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the
ability of shareholders to sell their shares.
DESCRIPTION OF SECURITIES
The following is a summary
description of our capital stock and certain provisions under the laws of the State of Nevada where the Company was incorporated. The
following discussion is qualified in its entirety by reference to such exhibits.
General
We are authorized to issue
75,000,000 shares of common stock, par value $0.001 per share, of which 7,250,750 shares of common stock are issued and outstanding following
the completion of the Reverse Takeover.
Common Stock
The holders of our common
stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting
with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of our common stock are entitled to receive dividends when,
as and if declared by the board of directors out of funds legally available therefor. In the event of liquidation, dissolution or winding
up of our company, the holders of common stock are entitled to share ratably in all assets remaining which are available for distribution
to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common
stock. Holders of shares of our common stock, as such, have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the common stock.
Series A Preferred Stock
We are authorized to issue
200,000,000 shares of preferred stock, $0.001 per value per share. Similarly, the Board will be authorized to fix or alter the
designations, powers, preferences, and the number of shares which constitute each such class or series of preferred stock. Such designations,
powers or preferences may include, without limitation, dividend rights (and whether dividends are cumulative), conversion rights, if
any, voting rights (including the number of votes, if any, per share), redemption rights (including sinking fund provisions, if any),
and liquidation preferences of any unissued shares or wholly unissued series of preferred stock.
As
of the date of this report, there are 10,000,000 shares of Series A preferred stock issued and outstanding, with $0.001 per value per
share. The Series A Preferred Shares being issued are, by its principal terms:
| (a) | Each
convertible into 1 shares of Common Stock; |
| (b) | have
the same voting rights as holders of Common Stock on an as-converted basis for any matters that are subject to shareholder
vote; |
| (c) | not
be entitled to any dividends; and |
| (d) | be
treated pari passu with the Common Stock on liquidation, dissolution or winding up of the Company. |
Indemnification of Directors and Officers
Under provisions of the certificate
of incorporation and bylaws of the registrant, directors and officers will be indemnified for any and all judgments, fines, amounts paid
in settlement and reasonable expenses, including attorney’s fees, in connection with threatened, p ending or completed actions,
suits or proceedings, whether civil, or criminal, administrative or investigative (other than an action arising by or in the right of
the registrant), if such director or officer has been wholly successful on the merits or otherwise, or is found to have acted in good
faith and in a manner he or she reasonably believes to be in or not opposed to the best interests of the registrant, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, directors and
officers will be indemnified for reasonable expenses in connection with threatened, pending or completed actions or suits by or in the
right of registrant if such director or officer has been wholly successful on the merits or otherwise, or is found to have acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the registrant, except in the case
of certain findings by a court that such person is liable for negligence or misconduct in his or her duty to the registrant unless such
court also finds that such person is nevertheless fairly and reasonably entitled to indemnity. The registrant’s Articles of Incorporation
also eliminates the liability of directors of the registrant for monetary damages to the fullest extent permissible under Nevada law.
Indemnification against Public Policy
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling an issuer pursuant to
the foregoing provisions, the opinion of the SEC is that such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than by a director,
officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The effect of indemnification
may be to limit the rights of the Company and the stockholders (through stockholders’ derivative suits on behalf of the Company)
to recover monetary damages and expenses against a director for breach of fiduciary duty.