Advanced Biomed Inc. 10-K

ITEM 1. Business Overview and Recent Developments We are a holding company incorporated in the State of Nevada. We operate through Advanced Biomed Taiwan and Advanced Biomed HK. Advanced Biomed Taiwan is responsible for the main operation and the design and development of the company’s primary technologies and products. Since our establishment in 2014, we have been focusing on the integration of multiple interdisciplinary technologies and established our own microfluidic technology platform. Utilizing the physical and molecular biological characteristics of tumor cells, we have developed various advanced and original research through the joint application of semiconductor technology and biotechnology. This includes complex precision structures, dielectric detection, functional microfluidic biochips, microfluidic integrated semiconductor sensors, related application modules, and key components of medical testing equipment. We have also developed a series of medical testing equipment and related products by integrating various functions of microfluidic modules, automation software, and hardware. Our technologies and products can be used for early screening and detection, diagnosis and staging, and treatment of cancer through the detection of circulating tumor cells and related tumor markers in blood samples, capture of single circulating tumor cells, and single-cell sorting and determination. These products provide assistance in treatment selection and patient prognosis intervention once the required licenses and approvals have been obtained. Advanced Biotech HK is our first localized operation company, mainly responsible for market operation and management in China, localized production, product registration, and future local market sales of our products in accordance with relevant local regulations in China. Our Shanghai subsidiary owns some of our R&D equipment and patents and will be responsible for operations related to clinical trials in Mainland China through CROs. In the future, we also plan to establish operation centers in countries and regions in North America and Europe. Our devices, A + Pre, AC-1000, A + CellScan, and A + SCDrop, and three corresponding microfluidic biochips, A + Pre Chip and AC-1000 CTC Enrichment Chip and A + CellScan Chip, are designed to provide rapid and affordable assay products and services to cancer patients. Among them, A + Pre is mainly used to reduce the viscosity of blood samples, and AC-1000 is used to complete the separation and enrichment of circulating tumor cells (“CTCs”) and tumor-related targeted cells in blood samples. The A + CellScan is mainly used for fluorescent labeling and automatic scanning judgment of targeted cells while A + SCDrop preserves the original viability of single cells. A+PerfusC™ system, our latest development, is a compact, all in one perfusion-based 3D cell culture incubator engineered to replicate human physiological conditions to form 3D tumor spheroids/organoids in vitro. The system supports up to 12 days of continuous, hands-free culture, reducing the risk of human error and contamination. By maintaining uniform nutrient delivery and preventing waste accumulation, the platform promotes tumor spheroid and organoid formation, enhancing cell viability, growth, and drug response predictability. Additionally, we have finished the research and development stage for four matching immunostaining kits, A + CTCE, A + CTCM, A + EMT and A + CM, and submitted registration applications in China. The immunostaining kit use antibodies combined with fluorescent groups of different colors to bind to specific proteins on the cell surface or inside the cells. The presence and intensity of fluorescent signals can be observed through a separate fluorescent imaging system, and the expression of the target protein and the cell type can be judged and determined accordingly. Different cell types can be distinguished using multiplexed combined staining with different antibodies. The A + CTCE kit is mainly used to identify epithelial circulating tumor cells, the A + CTCM kit is used to identify mesenchymal circulating tumor cells, the A + EMT kit is mainly used to identify epithelial-to-mesenchymal circulating tumor cells, and the A + CM kit is used to identify tumor-associated macrophages (cancer-associated macrophage-like cells). We also developed a product for early screening of lung cancer, the A + LCGuard Lung Cancer Early Screening Kit (“A + LCGuard”), which is used to assist in the determination of benign and malignant pulmonary nodules. From August 2020 to September 2022, we finalized the research, design, and development of A + LCGuard. A + LCGuard is a Class III medical device and is required to conduct clinical trials before completing the registration process, and we plan to begin A+LCGuard’s clinical research in November 2025. We believe clinical research serves as the foundation for clinical trials, bridging the gap between preclinical studies and large-scale clinical trials. We believe clinical trials enables an understanding of subject recruitment, facilitates the development of appropriate inclusion and exclusion criteria for later stages, and helps verify trial procedures. Additionally, we believe it increases familiarity with the trial products. In June 2025, the Company and the CRO began collaborating on drafting the clinical research protocol and started preparing the necessary equipment, consumables, reagent kits, and other materials for the study. We expect that the clinical research protocol may pass ethical review and receive ethics committee approval by the end of October 2025. Thereafter, we plan to initiate the trial stage of the clinical research, with completion anticipated within six months of November 2025. We believe the results of the clinical research will inform the work plan for future large-scale clinical trials, minimizing waste from an excessively large sample size or insufficient statistical power due to a sample size that is too small. We recognize that the clinical research results may differ from expectations and may not support our expected progression to clinical trials. If so, we plan to promptly optimize the product, adjust participant group selection, and modify the final protocol for large-scale clinical trials. However, we cannot guarantee that any clinical research or trial will meet our anticipated outcomes. Furthermore, delays in obtaining ethical approval or recruiting participants could prevent the clinical research from being completed on schedule. Such delays could subsequently postpone the large-scale clinical trial and ultimately the product launch date. 1 All of our products must go through three steps to receive the required clearance from the NMPA before they can be sold to customers. The three steps are research and development, registration application, and registration review, which must be done in that order. At the registration application stage, we have to assemble all the required application materials, complete clinical trials (if required by NMPA), and work with an NMPA accredited third-party organization to examine our products in accordance with NMPA rules. NMPA will review our application during the registration review period and may request additional information before officially approving or denying our applications. Currently, A + Pre and AC-1000 and their corresponding chips have been cleared by the NMPA; A + SCDrop, A + CellScan, A + CellScan Chip, and A + LCGuard are at the registration application stage; the four matching immunostaining kits are under registration review. A + LCGuard is a Class III medical device and is required to conduct clinical trials before completing the registration process. As of the date of this Report, we have not applied for similar clearances from other jurisdictions. We participated in a scientific research project at Shanghai Pulmonary Hospital from July 17, 2019 to December 2021, and completed a total of 123 case studies to test A+Pre, AC-1000 and A + LCGuard. In the study, we selected 123 individuals, and among them, 75 were surgical patients with nodular changes or shadows in the lungs reported by imaging studies and 48 healthy patients without lung nodules reported by imaging studies. 7ml blood samples were taken from test subjects either before the clinical operation (for cancer patients) or after the physical examination (for healthy individuals), and A + Pre, AC-1000, and A + LCGuard kits were used to determine whether there were circulating tumor cells and other tumor markers in the blood samples. Finally, the pathological and physical examination results of the tested individuals were compared with the test results of our products. Our test results achieved 96% sensitivity and 99.9% specificity, which provides the research and development basis for our products. Specifically, A+Pre and AC-1000 were at the research and development stage, and we completed their effectiveness and performance indicators testing through this project. At the same time, A + LCGuard finished its feasibility and functional verification testing. All three products were tested together throughout the entire project. All of our products must be approved by applicable regulatory authorities before being sold to customers. A + Pre and A + CellScan can work with third-party products to achieve their designed objectives. AC-1000 and A + SCDrop may be used together with other devices according to different application scenarios below. For the A + LCGuard early screening kit, it has to be used in combination with A + Pre and AC-1000. Our four staining kits, A + CTCE, A + CM, A + CTCM, and A + EMT, can be used independently or with third-party products. A + Pre, AC-1000, and A + CellScan require the use of our supporting microfluidic chips. ● For the analysis of high-viscosity blood samples: A + Pre can be independently used for pretreatment, retaining the original cell activity while preventing blood samples from clogging the equipment pipeline after entering the detection equipment. ● For the identification and counting application of circulating tumor cells: blood samples are diluted with A + Pre, and then AC-1000 is used to separate and enrich circulating tumor cells and related tumor markers. The enriched samples are stained, calibrated, and finally identified and counted. We can provide this service to the public if using third-party staining reagents already on the market in China. However, we plan to officially roll out this service once our in-house developed staining reagents, A + CTCE, A + CTCM, A + EMT and A + CM, complete the registration process. The identification and counting of circulating tumor cells and related tumor marker cells can provide auxiliary references for relevant clinical applications. ● The capture of circulating tumor cells: we follow the same process as the identification of circulating tumor cells to obtain enriched samples with A + Pre and AC-1000, and then the samples are captured and separated by A + SCDrop to isolate single circulating tumor cells. This service can provide tumor cells with high purity and high activity. ● For early screening of lung cancer: peripheral blood samples of the subjects are first obtained, and the target cells are enriched and captured sequentially by A + Pre and AC-1000. After that, A + LCGuard performs cell fluorescence staining on the enriched samples to determine the number of targeted cells, and finally makes a judgment. 2 Due to the different regulatory requirements for the marketing of medical device products and in-vitro diagnostics (“IVD”) products in various regions/countries, it is necessary to complete the registration application and obtain the corresponding license in accordance with the local regulations before engaging in commercial activities in the respective regions/countries (“localization registration”). Afterward, marketing and sales can be carried out. We follow the principle of modularization when design and develop all of our products and equipment so that products and equipment can be produced locally to meet different regulatory requirements. Based on the current development of the early tumor screening and preventive treatment industry and the characteristics of the products we are planning to register and apply in the future, we have adopted the operation model of centralized research and development and localized management. We have started the registration process with the NMPA in China for all of our products. Later on, the Company may establish subsidiaries in the United States and Europe to produce products and carry out product registration. To achieve that, our products must be cleared by the United States Food and Drug Administration and go through the conformity assessment process to obtain the Conformite Europeenne marking (“CE marking”) from competent authority in each European Union member state. We are looking for suitable locations in the states of California and Washington for our planned expansion to the North America market. We aim to complete site selection and personnel recruitment in the United States by the end of December 2025 and start product registration, testing and production afterward. Our US subsidiary will be responsible for the production and registration of our equipment and related products in the US. Production, testing, and clinical trials in our US market will be conducted in accordance with US regulations, and clinical data from trials conducted in China will not be used to establish product standards. In addition, we plan to break into the European market in 2025 and conduct localized management and operations in accordance with European regulations. In 2025, we also plan to start the localized registration of our IVD products in Europe. As of the date of this Report, we have not conducted any clinical trials for our products. However, as of the date of this Report, we have not commenced sales of our products nor have any revenue-generating products and do not expect sales of revenue-generating product candidates until we have completed clinical development, submitted regulatory filings, and received applicable regulatory approvals for candidate products. Due to differences in regulatory and clinical registration requirements, we may not be able to obtain device and product approvals or provide product service on time. We expect to be in a state of continuous loss for the next two to three years. Nasdaq Notification Letter s On July 18, 2025, we received a written notification from the Nasdaq Stock Market LLC (“Nasdaq”) notifying us that we were not in compliance with the minimum bid price requirement set forth in Nasdaq rules for continued listing on the Nasdaq, and we were provided 180 calendar days, or until January 14, 2026, to regain compliance (the “Compliance Period”). If we do not regain compliance by the end of the Compliance Period, we may be eligible for an additional 180 calendar day compliance period, provided that we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market (except for the bid price requirement), and provides written notice to Nasdaq of its intent to cure the deficiency during the second compliance period, including, if necessary, by effecting a reverse stock split. We intend to monitor the closing bid price of our common stock and will consider all available options to regain compliance with the Minimum Bid Price Requirement within the Compliance Period. Registration Statement On July 23, 2025, we filed with the SEC a registration statement on Form S-1 (File No. 333-288907) to register under the Securities Act an aggregate of up to 40,000,000 shares of our common stock, par value $0.001 per share (the “Common Stock”), which represents the shares available for issuance under the ELOC Agreement (as defined below). 3 Entry into A Material Agreement On June 6, 2025, we entered into a purchase agreement (the “ELOC Agreement”) with HELENA GLOBAL INVESTMENT OPPORTUNITIES I LTD. (the “Investor” or “Selling Stockholder”), pursuant to which we have the right to issue and sell to the Investor, from time to time as provided therein, and the Investor is obligated to purchase from us, up to Twenty-Five Million United States Dollars ($25,000,000) of our Common Stock, subject to terms and conditions set forth in the ELOC Agreement. Corporate History and Corporate Structure We were incorporated in Nevada in July 2021 as a holding company. We started operations in 2014 through Advanced Biomed Taiwan as a research and development center for technology research and product development. In August 2021, we established Advanced Biomed HK as the wholly owned subsidiary of Advanced Biomed Taiwan to integrate market development and commercialization in the PRC. On January 1, 2022, Advanced Biomed HK acquired 100% equity interest of Shanghai Sglcell from its stockholders for a consideration of RMB12 million. In March 2022, Advanced Biomed HK established Sglcell (Huangshan) Biotech Co., Ltd. In July 2022, we consummated a reorganization pursuant to which we acquired 100% equity interest of Advanced Biomed Taiwan, making it our wholly owned subsidiary. On November 7, 2022, we obtained the approval of Taiwan Investment Commission for the reorganization, the Issue No. of which is “ 經審一字第 11100116890 號 ”. Additionally, the Bureau of Economic Development of Tainan City Government has also approved the reorganization in accordance with the Taiwan Company Act on December 26, 2022. On June 8, 2023, pursuant to the Share Transfer Agreement entered into by Ting Wang and Haifeng Zhang, who are independent third-party individuals, and Shanghai Sglcell on June 2, 2023, Shanghai Sglcell transferred its wholly owned subsidiary, Nanjing Yitian Biotech Co., Ltd. and its subsidiary, Beijing Yitan Jiarui Technology Co., Ltd., to Ting Wang and Haifeng Zhang at aggregate consideration of RMB500,000 (approximately US$72,780) without any other obligations arising from the transfers. On June 9, 2023, pursuant to the Share Transfer Agreement entered into by Ting Wang and Haifeng Zhang, who are independent third-party individuals, and Shanghai Sglcell on May 31, 2023, Shanghai Sglcell transferred its wholly owned subsidiary, Shandong Sglcell Medical Devices Co., Ltd., to Ting Wang and Haifeng Zhang at zero consideration without any other obligations arising from the transfers. On June 15, 2023, pursuant to the Share Transfer Agreement entered into by Quantum Capital (Hong Kong) Limited, who is an independent third-party corporation, and Advanced Biomed HK on June 9, 2023, Advanced Biomed HK transferred its wholly owned subsidiary, Sglcell (Huangshan) Biotech Co., Ltd., to Quantum Capital (Hong Kong) Limited at zero consideration without any other obligations arising from the transfers. As of the date of this Report, our Shanghai subsidiary is the only operating entity we have in the PRC and owns all of our patents and some of our R&D equipment while the rest of our R&D equipment are owned by Advanced Biomed Taiwan. Our Shanghai subsidiary will also be responsible for operations related to clinical trials in Mainland China through CROs. The chart below depicts the corporate structure of the Company as of the date of this Report. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system. 4 Our Oncology Detection Solutions The current market uses positive antibody-labeling selection to capture CTCs out of the blood by a specific epithelial cell adhesion molecule (EpCAM). This method could detect tumor cells in the patient’s blood for diagnosing lung, prostate, pancreatic, and breast cancers. However, this technology costs approximately $1,000 per chip, and the processing time per patient is up to 12 hours. Besides, antibody-based methods such as immunomagnetic methods are highly dependent on antigen expression of CTC. Some CTCs may show low or no EpCAM expression on the cell membrane, and thus cannot be effectively captured using the proposed biomarkers and makes it difficult to detect cancer in the early stage. More importantly, the capture of dying or dead CTCs cannot provide meaningful information to doctors for diagnosis or treatment. Our products use pure physical mechanisms (antigen-independent) and can effectively enrich and detect the CTCs with high or low antigen expressions with high viability. Among them, A + Pre is mainly used to reduce the viscosity of blood samples, and AC-1000 is used to complete the separation and enrichment of circulating tumor cells (“CTCs”) and tumor-related targeted cells in blood samples. The A + CellScan is mainly used for fluorescent labeling and automatic scanning judgment of targeted cells while A + SCDrop preserves the original viability of single cells. For three corresponding microfluidic biochips, A + Pre Chip and AC-1000 CTC Enrichment Chip have been cleared by NMPA and can be mass-produced and sold to customers. A + CellScan Chip is expected to start the registration application by the end of 2025. The A + CellScan Chip and A + CellScan will enrich our product chain by upgrading our immunochromogenic kits to tumor cell assay equipment. Specifically, A + CellScan, together with A + Pre and AC-1000, can serve as a liquid biopsy IVD product to accelerate downstream assay and reduce the amount of labor required for assaying tumor cells. We use our own product features combined with different application scenarios to achieve the corresponding work objectives. To identify CTCs in liquid biopsy, blood samples are first diluted through equipment A + Pre, then AC-1000 is used to separate and enrich circulating tumor cells, and then the obtained cells are stained for identification and counting. We have been cleared by NMPA to provide this service to customers in China and plan to do so once our matching immunostaining kits pass the NMPA’s registration review. The counting of circulating tumor cells can provide auxiliary reference for clinical diagnosis, treatment evaluation, prognosis evaluation, recurrence, and metastasis detection, etc. In the future, we can also use our A + LCGuard early screening kit combined with two devices, A + Pre and AC-1000, for early screening of lung cancer. In addition, we use A + SCDrop together with A + Pre and AC-1000 to complete the capture of a single circulating tumor cell, which retains the original activity of the cell and can provide high-purity, high-activity tumor cells for relevant clinical applications. It can be applied to various applications such as single-cell sequencing, whole gene sequencing, protein sequencing, new drug development, cancer biomarker research, individualized diagnosis, and individualized drug sensitivity testing. The above product applications need to be approved by the local regulatory authorities before they can be provided to customers. A + Pre A + Pre is a fully automated sample preparation system that enables to pre-concentrate diluted blood sample and it is able to deplete approximately 90 % blood cells in 10 minutes and reduce sample volume with a lower blood cell density (hematocrit approximately 4%). A + Pre provides dual channels to simultaneously process two patients’ samples per run, and 8 samples could be done in an hour. A + Pre is easy to operate with two simple steps: (1) dilute the samples by 10-fold; (2) insert the samples and A + Pre chips into A + Pre system and press “START.” Our A + Pre sample-pretreatment could provide clotting-free and clogging-free samples for downstream microfluidic applications. A + Pre Chip Blood sample includes several billions blood cells and millions white blood cells with a hematocrit of approximately 45% (“Hct”). The high-density blood cells in microfluidic chip typically induces clotting or clogging in microchannel and microstructs, causing trail failure or unstable system. Sample dilution can effectively reduce the clotting and clogging. However, dilution may increase sample volume and prolong the processing time for downstream precise separation and makes analysis more difficult. 5 A + Pre chip utilizes microfluidic inertial forces to rapidly pre-enrich (deplete approximately 90% blood cells) and pre-concentrate (reduce over 90% sample volume) the diluted blood sample in 10 minutes. We can dilute a 5ml blood sample with approximately 45% by a factor of 10 and obtain a 50ml blood sample. After concentration and enrichment using the A + Pre chip, the total volume of the 50ml blood sample can be reduced by 10-13 times to around 4 ml while maintaining low red blood cell density (Hct approximately 4.5%), and we can recover more than 90% of the targeted tumor cells. It reduces blood cell density of oncology patients to make it possible for clotting-free downstream precise separation, A + Pre treated sample provide AC-1000 with high purity rare tumor cells in 20 minutes (12 mL/hour). A + Pre chip plays an important role to reduce sample volume and density to make downstream applications much faster and more stable. A + Pre A + Pre Chip AC-1000 AC-1000 is a rare cell enrichment device to solve the problem of detection of hypercoagulable state samples of tumor patients. Our rare cell enrichment system uses semiconductor fabrication method to implant high-aspect-ratio functional microstructures inside the microchannel and patented microfluidic chip technology to separate rare cells with complete cell activity. The system is convenient and efficient. We take 5 mL of blood from a patient and the whole process takes only 20 minutes. Compatible to A + Pre, AC-1000 also provides dual channels to simultaneously process two patients’ samples per run, and 8 samples could be done with high-purity enrichment of tumor cells in one and half hours. The blood sample enriched by AC-1000 can maintain the capture rate of 76-90% of the targeted cells, and the isolated product after blood sample separation can achieve a leukocyte removal rate of 99.9%, which is convenient for downstream detection. Because the rare cell enrichment system is non-destructive, highly active and label-free, it can carry out pure physical and high-purity enrichment, completely maintain the original characteristics of the desired target cells and improve accuracy. What we get is highly active cells, which can be used for different applications in the future, and can be used for tumor screening, auxiliary diagnosis, treatment evaluation, prognosis evaluation, recurrence and metastasis detection, individualized medication guidance, and companion diagnosis. Our rare cell enrichment system is low-cost, and the cost will be further reduced after mass production. It has great potential to be applied to routine liquid biopsy and companion diagnostic platforms in the future. 6 AC-1000 CTC Enrichment Chip AC-1000 chip utilizes a hybrid mechanism with microfluidics induced lateral displacement to combine the difference in cell deformability and to remove all of red blood cells (“RBCs”) and deplete over three logs White Blood Cell (“WBCs”). The remaining cells, including few WBCs and rare cell-based cancer biomarkers, are all sorted out. A + SCDrop A + SCDrop is a CTCs single cell capture device. It preserves the original viability of single cells. The polymer microfluidic chip combines the cell dielectric sensing technology, without the need for antibody fluorescence calibration and image recognition. CTC sorting combined with AC-1000 achieves tandem for complete label-free live cell sorting. A + SCDrop can sort single circulating tumor cells into nanoliter droplet collection samples while maintaining single cell biological activity: a. Precise counting of CTCs while separating and capturing single cells; b. In vitro culture and expansion of non-destructive Single-CTC; drug sensitivity test; c. Single-CTC encapsulated in oil droplets, single-cell sequencing or genetic screening d. Single CTCs were independently sorted into 96-well plates in suspension liquid mode for CTC proteomic study. 7 A + CellScan Currently, A + CellScan are developed as an analyzer with immunostaining chip for reducing hands-on time, manual discrimination, and accelerating immunostaining/analysis of the AC-1000 product. A + CellScan provides a novel approach for rapid on-chip immunofluorescence staining, which may take approximately 30 minutes, and artificial intelligence analysis of enriched sample for detecting, identification, and counting of rare CTCs/clusters from white blood cells with four color immune-fluorescent images. The prototype we designed can (a) autofocus for capturing and analyzing images of four colors fluoresces in A + CellScan chip, (b) perform on-chip immunostaining, and (c) automatically count tumor cells and labeling them on each image. We also completed A + CellScan’s performance study, which examine (i) its autofocus ability and precision for automatically capturing and analyzing cell images, (ii) whether it can detect and analyze 3-1000 cancer cells in <106 WBCs, and (iii) its maximum on-chip immunostaining ability. Performance study (i) to (iii) were completed in December 2022, January 2023, and March 2023, respectively. During the performance study, we have thoroughly evaluated A + CellScan’s autofocus precision in capturing cell images. Out of 6,400 cell pictures that were captured through a non-stop and fully automated process, less than 2 pictures were found to be out-of-focus. We also analyzed the presence of 3-1,000 cancer cells stained with fluorescence within samples containing 104, 105, and 106 WBCs, resulting in reliable detection of cancer cells. We have optimized the antibody concentrations for CK+, DAPI, and CD14/45 combination, resulting in a maximum on-chip immunostaining ability with high specificity. A + CellScan Chip Conventional immuno-staining is labor-intensive with multiple processes, and its reaction is based on diffusion-dominated mechanism, thus causing a long operating time (about 4-5 hours per sample). A + CellScan chip consists of fluid device and 5 μm micro-pores membrane that is used as a filter to trap nucleated cells on the membrane surface form the through-flow. Only fluid and RBCs are allowed to pass through the pores. Captured cells are kept in wells during flowing staining and washing. The active through-flow plays two important roles: 1. carrying antibodies to cells rapidly, thus accelerating the reaction rate of specific binding between reporting antibody and cells; 2. simplifying the operation processes in reagent spiking and repeated washing steps. A + CellScan chip stains rare cells such as CTCs and CTC clusters without cell loss during fixation, permeabilization, blocking, incubation and washing. The device provides flexibility to process up to eight samples per run. On-chip immunostaining only need 30 minutes for one sample, and batch process for eight samples can be completed in one and half hours. After cell staining, A + CellScan and A + CellScan chips automatically captures cell images and analyses the stained cells in 30 minutes. Compared to conventional methods, A + CellScan chip significantly reduces the total detection time by 4-5 hours per 1 sample. 8 The following diagrams illustrate the procedures using our devices for diagnostic detection of blood samples from oncology patients: Diagram 1: A + Pre reduces blood density of oncology patients. For the analysis of high-viscosity blood samples, the A + Pre equipment can be used for pretreatment, retaining the original cell activity while preventing blood samples from clogging the equipment pipeline after entering the detection equipment. Diagram 2: AC-1000 completes targeted cell enrichment work. A + Pre and AC-1000 equipment can be combined for the identification and counting application of circulating tumor cells purposes. First, blood samples are diluted with A + Pre, and then AC-1000 is used to separate and enrich circulating tumor cells and related tumor markers. The enriched samples are stained, calibrated, and finally identified and counted. A + Pre combined with AC-1000 provide the purified solution of cell-based cancer biomarkers, which can be easily identified, analyzed and tested. The total purification process can be completed in only 40 minutes. A + Pre combined with AC-1000 capture multi-cell-based cancer markers simultaneously with a high recovery rate (76~90%), and therefore making it possible to diagnose cancer and predict cancer progression in very early stage. This application service can already be commercialized in the Chinese market. Calibration and staining currently use staining reagents that are already on the market. Once our products are registered, we will start using our own developed reagents. The identification and counting of circulating tumor cells and related tumor marker cells can provide auxiliary reference for relevant clinical applications. 9 Diagram 3: A + SCDrop completes single targeted cell capture. The capture of circulating tumor cells requires the use of A + Pre, AC-1000, and A + SCDrop in combination. First, the user needs to follow the same process as the identification of circulating tumor cells to obtain enriched samples, and then the samples are captured and separated by A + SCDrop equipment to isolate single circulating tumor cells. This combined application can provide tumor cells with high purity and high activity. Products Four Immunochromogenic Kits The four immunochromogenic kits, A + CTCE, A + CM, A + CTCM and A + EMT, are currently under NMPA registration review. 10 For the four immunochromogenic kits, the basic principle is to use antibodies combined with different colored fluorophores to bind to specific proteins on the cell surface or inside the cells and observe the presence or absence of fluorescent signals through a fluorescent imaging system (to be obtained separately). Afterwards, the expression of the target protein can be examined, and the cell type can be determined accordingly. Different cell types can be distinguished using multiplexed combined staining with different antibodies. The A + CTCE kit is mainly used to identify epithelial circulating tumor cells, and is determined by immunochromogenicity of EpCAM, CK (pan), CD45, and CD14 antibodies. The A + CTCM kit is used to identify mesenchymal circulating tumor cells based on the immunochromogenicity of Vimentin, CD45, and CD14 antibodies. A + EMT is mainly used to identify epithelial-to-mesenchymal circulating tumor cells, which are determined by immunochromogenicity of Cell-Surface Vimentin (CSV), CD45 antibody, and CD14 antibody. A + CM is used to identify tumor-associated macrophages (cancer-associated macrophage-like cells) based on immunochromogenicity of PD-L1, CD45, and CD14 antibodies. With the assistance of the four kits, targets are stained using antibodies conjugated with different fluorophores that specifically bind to antigens in cells. In immunohistochemical reaction or in situ hybridization reaction, it is combined with the primary antigen antibody, and the target is marked by staining. It is suitable for the staining of blood cells enriched by A + Pre and AC-1000 hemocytometer. We transfer the cell suspension separated and obtained by A + Pre and AC-1000 into a centrifuge tube, use the kits to stain the cell suspension, and observe and count the fluorescently stained cells under a fluorescence microscope or a fluorescence scanner. Observed under a fluorescence microscope, all nuclei are stained blue, and the cell membrane of leukocytes is red, and the color of the cell membrane we observe under the fluorescence microscope is the marked color, which is the target cell we want to obtain. Our 3D Cell Culture Platform Conventional cell culture equipment is bulky and requires frequent manual intervention. In addition, in static culture, nutrients are unevenly distributed and waste products from cell metabolism tend to accumulate. This can negatively affect cell growth, viability, and experimental consistency. In addition, unlike 2D cultures, 3D cell culture better mimics the structural and functional complexity of human tissues. It enables more physiologically relevant cell-cell and cell-matrix interactions, leading to improved accuracy in drug response prediction and disease modeling. Notably, in certain high-density culture scenarios, particularly within multi-microwell 3D culture devices, metabolic waste can rapidly accumulate inside the micro-grooves. Our A+PerfusC ™ is a compact All-in-One 3D cell culture system that integrates automated perfusion with environmental control in a compact format. A+PerfusC ™ ensures a more uniform supply of nutrients while simultaneously removing metabolic waste, thereby reducing cellular stress and enhancing viability over extended periods, providing more accurate drug response and disease modeling. A+PerfusC ™ System A+PerfusC ™ an automatic perfusion 3D cell culture system revolutionizes in vitro 3D cell culture by integrating automated perfusion and environmental control to closely replicate human physiological conditions. This system ensures uniform nutrient delivery, prevents waste accumulation, and promotes spheroid/organoid formation, significantly enhancing cell viability, growth, and drug response predictability. The system designed to mount directly onto a microscope for real-time observation, it supports up to 12 days of hands-free culture, reducing human error and contamination risks. The system is characterized and proved by: ● 8 independent channel/patient source per plate ● 600 tumor spheroids per row for one patient ● 4,800 tumor spheroids per plate ● Easy to transfer into 96 or 384 well plate for high-throughput drug screening ● Easy to mount on microscopy platforms for real-time analysis 11 A+PerfusC ™ system and its perfusion-based 3D culture plate (consumable) have passed internal testing and validation with design finalized. Currently we are advancing its mass-production development. The commercialization can be achieved following mass-production development finalized, quality control standards established, and system electrical safety verification (IEC 61010-1). Product in the Pipeline Our A + LCGuard was designed for early screening of lung cancer. In order to detect lung cancer, peripheral blood samples of the subjects are first obtained, and the target cells are enriched and captured sequentially by A + Pre and AC-1000. Then, A + LCGuard performs cell fluorescence staining on the enriched samples to determine the number of targeted cells, and finally makes a judgment. We completed A + LCGuard’s research and development in China between August 2020 and September 2022. A + LCGuard is a Class III medical device and is required to conduct clinical trials before completing the registration process. We plan to begin A+LCGuard’s clinical research in November 2025. Specifically, in June 2025, the Company and the CRO began collaborating on drafting the clinical research protocol and started preparing the necessary equipment, consumables, reagent kits, and other materials for the study. We expect that the clinical research protocol may pass ethical review and receive ethics committee approval by the end of October 2025. Thereafter, we plan to initiate the trial stage of the clinical research, with completion anticipated within six months of November 2025. Based on the results of clinical research, we plan to formulate a work plan for large-scale clinical trials and proceed with the clinical trial. We believe the registration declaration will be made after we complete the clinical trials. The following diagrams illustrate the procedures using our detection solutions for CTC enriched samples: 12 We participated in scientific research projects at Shanghai Pulmonary Hospital from July 17, 2019 to December 2021, and completed a total of 123 case studies. In the study, we selected 123 individuals, and among them, 75 were surgical patients with nodular changes or shadows in the lungs reported by imaging studies and 48 healthy patients without lung nodules reported by imaging studies. 7ml blood samples were taken from test subjects either before the clinical operation (for cancer patients) or after the physical examination (for healthy individuals), and A + Pre, AC-1000, and A + LCGuard kits were used to determine whether there were circulating tumor cells and other tumor markers in the blood samples. Finally, the pathological and physical examination results of the tested individuals were compared with the test results of our products. Our test results achieved 96% sensitivity and 99.9% specificity, which provides the research and development basis for our kit products. Below are two comparable blood testing methods in the current market. We have not tested the sensitivity of our products against these two comparable blood testing products in head-to-head comparisons. Universal Diagnostics (UDX), a Spanish vitro diagnostic company, announced the preliminary research data of its liquid biopsy method for early detection of lung cancer at the International Association for the Study of Lung Cancer 2020 World Conference. In a preliminary study, UDX detected 37 lung cancer patients and 71 asymptomatic control subjects with a panel of 10 methylation sites. The results showed that lung cancer patients could be detected with a sensitivity of 73% (27/37) with 90% (64/71) specificity. The “Aifeiming” gene methylation detection kit (P)R-fluorescent probe method) by Beijing Akron Medical Technology Co., Ltd. won the NMPA Class III certification. The clinical sensitivity of this product is 86.83%. Quality Control System We have established quality control system in accordance with the following regulations: 1. Medical Device Quality Management System for Regulatory Requirements 2. Quality Management System Requirements 3. Regulations on the Supervision and Administration of Medical Devices 4. Measures for the Supervision and Administration of Medical Device Production 5. Appendix of Good Manufacturing Practice for Medical Devices In Vitro Diagnostic Reagents 6. Guiding Principles for Clinical Trial of In Vitro Diagnostic Reagents Our quality control system includes quality manuals specifically designed for each product, procedure documents, supporting documents and quality records. We implement, maintain and improve the quality control system to ensure that product quality can be effectively and compliantly controlled throughout the entire process of procurement, production, formation and realization. Specifically, our quality control team (“QC”) consists of three members who are responsible to examine the entire production process from raw materials to finished products. QC also collaborate with various internal departments of the Company to conduct periodic review on all aspects of our research, development, and production process and provide their recommendations to the management to ensure our products and processes adhere to the regulations apply to us. Commercialization Preparation We are committed to the development of microfluidic chips, reagents and detectors for capturing circulating tumor cells in blood. We have integrated various complex precision structures, dielectric detection and functional microfluidic biochips. Our devices include a variety of expensive semiconductor manufacturing and precision micro-manufacturing related equipment. We signed a research project equipment use contract with TSRI and used their semiconductor manufacturing equipment and precision micro-nano processing equipment for chip technology research and development such as concept presentation of each R&D process, cross-scale composite structure production, rapid wafer trial production, material testing, and thin film production. 13 The contract between Advanced Biomed Taiwan and TSRI was executed on August 1, 2022 and expired on July 31, 2023. The total cost of the study, including tax, is NTD 1,300,000. Advanced Biomed Taiwan will pay the research fee to the National Institute of Experimental Research in two installments. The first installment of NTD 650,000 was paid on September 23, 2022, and the second installment of NTD650,000 was paid on April 18, 2023. The agreement can be unilaterally terminated only if a party fails to fulfil its obligations, if Advanced Biomed Taiwan declares bankruptcy, or if its business activities are disrupted by the government. The agreement can only be terminated by mutual agreement in all other circumstances. The parties agree to take the Taiwan Taipei District Court as the jurisdiction court of first instance for any disputes arising from the execution of this agreement, which shall be subject to the laws of Taiwan. As for the designed microfluidic detector, since 2020, we have developed various functional microfluidic biomedical testing devices for microfluidic modules, automation software, and hardware. We also designed, manufactured and processed an increasing number of key components of our testing devices. All of our products must go through three steps to receive the required clearance from the NMPA before they can be sold to customers. The three steps are research and development, registration application, and registration review, which must be done in that order. At the registration application stage, we have to assemble all the required application materials, complete clinical trials (if required by NMPA), and work with an NMPA accredited third-party organization to examine our products in accordance with NMPA rules. NMPA will review our application during the registration review period and may request additional information before officially approving or denying our applications. Currently, A + Pre and AC-1000 and their corresponding chips have been cleared by the NMPA; A + SCDrop, A + CellScan, A + CellScan Chip, and A + LCGuard are at the registration application stage; the four matching immunostaining kits are under registration review. A + LCGuard is a Class III medical device and is required to conduct clinical trials before completing the registration process. As of the date of this Report, we have not applied for similar clearances from other jurisdictions. Although none of the chips has been mass produced as of the date of this Report, we have been cooperating with the injection molding machine manufacturer Riva and the mold manufacturer Unimold to conduct pre-mass production trial test for our A + Pre Chip and AC-1000 Enrichment Chip. During the mass production trial test, we examine the following factors: ● whether the tested chip can work with its corresponding product, and ● whether chips’ flatness, roughness, water leakage, critical size and thickness match the original design. A Chip is ready for mass-production if each individual production line can produce at least 2,500 pieces per month and pass the quality control examination. During the quality control examination, one chip out of every 48 chips will be randomly selected for verification and must achieve designed objectives when working with their corresponding products and meet all the product specifications to pass the examination. The product specifications are listed in the table below. Flatness Roughness No Water leakage Critical size compared with original design Thickness A + Pre Chip ΔF < 0.1 mm ΔR<1.5 um /mm 2 Under 2 bar within 5% 2 mm ±10% AC-1000 Enrichment Chip ΔF < 0.3 mm ΔR < 1.5 um/mm 2 Under 2 bar within 5% 1.5 mm ±10% Upon completion of the pre-mass production trial test, all of the randomly selected A + Pre Chips and AC-1000 Enrichment Chips can work with their corresponding A + Pre and AC-1000 products and meet or exceed the production specifications. One of every 48 chips was randomly selected and tested for performance verification by using A549 lung cancer cells spiked into human blood. In May 2023, a total of 20 A+Pre chips were tested, with a result of average tumor cell recovery rate of 94%, which exceeded the target rate of 90%, with the highest and lowest rates of 99% and 91.6%, respectively. The liquid and blood cells removal rate by A+Pre chip was between 90-92.5%, which is in line with the target rate of 90-94%. A total of 12 AC-1000 chips were examined and the average recovery rate is 79.5%, which exceeded the target rate of 75%, with the highest and lowest recovery rates of 88.6% and 76.8%, respectively. The blood cells depletion rate was >2.5 logs, exceeding the target rate of 2 logs, with the highest and lowest rate of 4 and 2.5 logs, respectively. 14 The specifications of the randomly selected A + Pre and AC-1000 chips produced during the pre-mass production trial test can be found in the table below: Flatness Roughness No Water leakage Critical size compared with original design Thickness A + Pre Chip ΔF < 0.05 mm ΔR<1.5 um /mm 2 Under 2 bar within 3% 2 mm ±5% AC-1000 Enrichment Chip ΔF < 0.08 mm ΔR < 1 um/mm 2 Under 2 bar within 5% 1.5 mm ±10% Riva is a mold manufacturing and injection molding machine manufacturer. We have purchased a Riva injection molding machine at the end of October 2022 and completed the mass production trial test for AC-1000 chips, and the production samples met our product specifications. The special structure mold core we made combined with the Riva injection molding machine has repeatedly produced hundreds of pieces of AC-1000 chips. The quality of the products is consistent and meet the product specifications of the microstructure characteristics. The operation on the equipment has achieved the expected efficiency and cell enrichment efficiency. Each equipment is expected to produce 2,000 pieces AC-1000 chips per month. Unimold is a mold manufacturer and an ISO9001 plastic injection molding foundry. We cooperate with Unimold to embed our specially manufactured mold core for A+Pre Chip into the mold cavity, which will be employed at our future production facility. Although there is no formal cooperation agreement between Unimold and us, Unimold produces custom-made molds for us on a make-to-order basis. Each time, we first discuss the mold specification with a Unimold representative, then receive an offer from Unimold with the price, and Unimold will produce the customized mold for us to test. To protect our intellectual property, Unimold and us entered into a Non-Disclosure Agreement (the “NDA”) with a term of three years. The NDA prohibits both parties from disclosing confidential information without authorization and hiring the other party’s employees during the term of the NDA or within two years of the termination of the NDA. The NDA is governed by the laws of Taiwan, and any disputes arising from the NDA must be resolved before Taiwan Tainan District Court. The chips produced by Unimold’s mold have met the specifications set by us, and a batch of small-scale trial production of 5,000 pieces was carried out in October 2022. Our A + Pre is operating to expected efficacy and performance specifications using the in-house produced A + Pre Chip. One injection-type production equipment is expected to produce 50,000 pieces of A + Pre Chip per month. Our Platform We have built our microfluidic technology platform to integrate research and development, design, and manufacture of biochips and microfluidic chips. The platform combines our patented chip technology and will enable localized operations of a variety of microfluidic chips, biosensors made by semiconductor fabrication technology, and integrated application patented technology. Each geographic territory will establish clean rooms for chip production in compliance with local regulations to meet local market demand. While performing its designed duties, our microfluidic technology platform can provide customized services to third parties for a fee. We envision providing services such as OEM production of microfluidic chips, micro-electromechanical components, biochips, sensors, and other components, customized product design, and commissioned development and research services to customers. Different from the general IC wafer OEM production, our production is based on our micro-nano manufacturing technology platform developed by professionals in various fields that integrates cross-field knowledge, including Micro Electro Mechanical Systems (MEMS), lithography-assisted micromachining (LIGA), semiconductor process, and soft materials such as silicone gel and polydimethylsiloxane. We boast the ability to develop, design, and manufacture micro-electromechanical components and sensors, including three-dimensional microstructures or micro-optical-electromechanical integrated components. The material of the microstructure can be multi-layer stacking of alloys and insulating materials, which may be used in a wide range of fields, such as pressure or environment detection, MEMS oscillators, optical actuators, biomedical components, passive components, silicon optical integration platforms, and microfluidic structures. 15 The platform integrates our AC-1000 and A + SCDrop devices. Our rare cell enrichment device AC-1000 integrates the A + Pre chip and AC-1000 CTC enrichment chip. AC-1000 uses semiconductor nano ultra-sensitive biosensors and patented microfluidic chip technology to isolate rare cells with complete cell activity. It has great potential to be applied to routine liquid biopsy and companion diagnosis in the future. AC-1000 can satisfy different applications with corresponding special chip products. Our products also have the potential to provide application services in tumor screening, auxiliary diagnosis, treatment evaluation, prognosis evaluation, recurrence and metastasis detection, individualized medication guidance, and companion diagnosis. In terms of tumor screening, we have developed a complete set of service models for early screening of lung cancer, and plan to begin the clinical research in November 2025. Our application services for the identification of CTCs have matured, and the identification of CTCs can be used for tumor screening, auxiliary diagnosis, and treatment evaluation, etc. Our CTCs single cell capture device A + SCDrop is used in combination with A + Pre and AC-1000. It preserves the original activity of single cells and polymer microfluidic chips combined with cell dielectric sensing technology. With the technical advantages combined with our IVD kit products, A + SCDrop can be used in a variety of applications, such as single-cell sequencing, whole gene sequencing, protein sequencing, new drug development, cancer biomarker research, individualized diagnosis, individualized drug susceptibility testing, and other aspects of individualized precision medicine. We are also working on prognosis assessment, recurrence and metastasis detection, individualized medicine, and companion diagnosis. Although no services have been provided to customers yet, we believe the application services using our products and devices will be an essential part of our future operations. Competitive Strengths Although we have not received any regulatory approvals necessary to commercialize our products, we believe that the following competitive strengths enable us to compete effectively in and capitalize on the growing oncology detection market: ● Our Microfluidic Technology Platform. We can quickly complete the product development and improvement we need on our own platform. ● Proprietary Ultra-Sensitive Biosensor Technology. Our self-developed proprietary semiconductor nano ultra-sensitive biosensor technology integrates various composite precision structures, dielectric detection and functional microfluidic biochips to complete the microfluidic chips and reagents for capturing circulating tumor cells in a patient’s blood. Our technology also enables a fast and inexpensive method for early cancer diagnosis because we mainly rely on self-developed equipment and products, including the microfluidic chips and the related reagents. Specifically, with the start and expansion of mass-production, the cost and price of microfluidic chips will drop multiple times. Also, since we estimate that we will enrich all the targeted cells, the amount of reagents required in the process will decrease correspondingly. Additionally, we are able to complete the detection and analysis in a short period of time while ensuring the accuracy of the results and reducing the death number of targeted cells throughout the process because we have a complete microfluidic technology platform, which uses self-developed microfluidic chips to separate and detect CTCs. By using automatic and efficient microfluidic chips, we can reduce human errors when capturing, releasing, counting, and detecting CTCs. For example, AC-1000 and its corresponding chip can achieve high throughput (800-1000 drops/s) and high flow rate (>0.7ml/hr) while completely removing red blood cells in peripheral blood samples within 30 minutes. Due to the non-destructive nature of the rare cell enrichment system, it can maintain the original characteristics of the desired target cells through purely physical and high-purity enrichment processes, improving the accuracy of the results and reducing the number of target cells that die during the entire process. 16 ● On Track to Commercialization. All of our products must go through three steps to receive the required clearance from NMPA before they can be sold to customers. The three steps are research and development, registration application, and registration review, which must be done in that order. Currently, A+Pre and AC-1000 and their corresponding chips have been cleared by the NMPA; A+SCDrop, A+CellScan, A+CellScan Chip, and A+LCGuard are at the registration application stage; the four matching immunostaining kits are under registration review. We expect to submit the A+CellScan, and A+CellScan Chip’s registrations to the NMPA in December 2024 while completing preliminary works for A+SCDrop’s application. We have been cooperating with the injection molding machine manufacturer Riva Machinery Co., Ltd. (“Riva”) and the mold manufacturer Unimold Technology Inc. (“Unimold”) to conduct mass production mode testing and trial production. Although none of the chips has been mass-produced as of the date of this Report, we have purchased a Riva injection molding machine at the end of October 2022 and completed the mass production trial test of AC-1000 CTC Enrichment chip. We also cooperate with Unimold to embed our specially manufactured mold core for A+Pre Chip into the mold cavity made by Unimold. The chips produced have met the specifications set by us, and a batch of small-scale trial production of 5,000 pieces has been carried out in October 2022. Our equipment is operating to expected efficacy and performance specifications using in-house produced chips. Moreover, the prototype of A+CellScan and its corresponding chip have completed the performance study. You can find more information on page 8 under the heading “A+CellScan.” We are refining the production method of A+CellScan chip and have submitted the results of our medical device safety test to a third party for independent evaluation. In addition, we have completed the mass production trial test using the mold manufactured by Unimold in December 2023, and an independent third-party is evaluating the test result. The A+CellScan and its corresponding chip will enrich our product chain by upgrading our immunochromogenic kits to tumor cell assay equipment. Specifically, A+CellScan, together with A+Pre and AC-1000, can serve as a liquid biopsy IVD product to accelerate downstream assay time and reduce the amount of labor required for assaying tumor cells. In addition, we are actively carrying out registration application for our A+LCGuard kit products, as well as work related to research programs. ● Multi-Disciplinary Management Team. We have a multi-disciplinary management team, an R&D team and strategic cooperation units composed of interdisciplinary and cross-field professionals and well-known experts. The R&D team has the ability to combine semiconductor/integrated circuits and biomedical expertise. Our team has accumulated valuable experience from chip development and design, manufacturing, mass production, design and development of detectors, research and development of system modules, and the operation of clinical laboratory personnel. Growth Strategy We will strive to be a leading provider of precision oncology detection solutions by the following growth strategies: ● Increase the market penetration of our oncology auxiliary products and expand our product portfolio to actively focus on in vitro early diagnosis, rapid evaluation of chemotherapy drugs, individualized treatment including clinical screening of drugs, detection of drug resistance, and monitoring of tumor recurrences. ● Develop cancer screening market in China and further expand to other regions. We plan to initially focus on developing our cancer screening market in China. We also plan to expand to North American and European market by setting up subsidiaries and localize production and operation to meet specific market demand and compliance requirements in the relevant market. ● Expand our R&D to strength and develop pipeline products. In the future, we will actively promote the research and development, application and registration of other cancer early screening products. Intellectual Property As of June 30, 2025 we had registered or applied with China Patent and Trademark Office 8 patents on novel separation technologies for antibody-free and label-free enrichment of rare cell-based cancer biomarkers (such as CTC, CTC cluster, tumor marker expressed cells) from very dense blood cells, 6 patents on high throughput droplet microfluidic chips for nano-liter scale reagent preparation and single-cell, 3 patents for the device of water phase single-cell isolation and capturing for single cell applications, 6 patents on single-CTC detection/discrimination and delivery for single-CTC sorting and downstream single-CTC analysis, and 3 patents on target cells pre-concentration and enrichment. Meanwhile, we also applied 2 of abovementioned patents with PCT and 2 of abovementioned patents with the U.S., and one of the U.S. application has been granted on October 11, 2022. As of June 30, 2025, we own a total of 20 patents and an additional patent application is pending. Several smart and key chip fabrication techniques/methods with mass production level are protected by commercial confidential to reduce exposed risk. 17 Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for our detection solutions and other commercially important products, technologies, invention and know-how, to operate without infringing, misappropriating or otherwise violating the proprietary or intellectual property rights of others and to prevent others from infringing, misappropriating or otherwise violating our proprietary or intellectual property rights. Our patent strategy is focused on seeking coverage for our core technologies and specific follow-on applications, implementations for detecting and monitoring cancer by determining genomic alterations and evaluating the status of specific biomarkers in liquid biopsy or tissue samples. In addition, we file for patent protection on our on-going research and development, particularly into early-stage cancer screening. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position. We generally require our R&D personnel to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except under specific circumstances. In the case of our R&D personnel, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive intellectual property. Furthermore, as a matter of company policy, our R&D personnel have entered into agreements that generally require disclosure and assignment to us of ideas, developments, discoveries and inventions made by them which relate to their employment with us. Patent Number Patent Type* Patent Description Jurisdiction Status Expiration Date Product Application ZL201821544689.4 Utility Models Target cells pre-concentration and enrichment China Granted 09/20/2028 A + Pre ZL201811418768.5 Invention Target cells pre-concentration and enrichment China Granted 11/26/2038 A + Pre ZL201811098975.7 Invention Target cells pre-concentration and enrichment China Granted 09/20/2038 A + Pre PCT/CN2018/103116 Invention Single-CTC detection/discrimination International Granted N/A A + SCDrop chip US11467081B216/639,117 Invention Single-CTC detection/discrimination USA Granted 08/30/2038 A + SCDrop chip ZL201821544716.8 Utility Models Single-CTC detection/discrimination China Granted 09/20/2028 A + SCDrop chip ZL201821544498.8 Utility Models Single-CTC detection/discrimination China Granted 09/20/2028 A + SCDrop chip PCT/CN2018/103171 Invention Separation technologies International Granted N/A AC-1000 US20200086320A1 16/617,634 Invention Separation technologies USA Granted 10/31/2040 AC-1000 ZL201821544718.7 Utility Models Separation technologies China Granted 09/20/2028 AC-1000 ZL201821544717.2 Utility Models Separation technologies China Granted 09/20/2028 AC-1000 ZL201810169100.5 Invention Separation technologies China Granted 02/28/2038 AC-1000 ZL201810381143.X Invention Single-CTC detection/discrimination China Granted 04/25/2038 A + SCDrop chip ZL201921425592.6 Utility Models Droplet microfluidics China Granted 08/29/2029 A + SCDrop ZL201910807870.2 Invention Droplet microfluidics China Granted 08/30/2038 A + SCDrop ZL201821961715.3 Utility Models Droplet microfluidics China Granted 11/26/2028 A + CellScan Chip & A + SCDrop ZL201821544526.6 Utility Models Droplet microfluidics China Granted 09/20/2028 A + SCDrop ZL201811470094.3 Invention Droplet microfluidics China Granted 11/26/2038 A + SCDrop chip ZL201811099052.3 Invention Droplet microfluidics China Granted 09/20/2038 A + SCDrop ZL201821562851.5 Utility Models Single-cell isolation and capturing China Granted 09/20/2028 A + Pre Chip, AC-1000 CTC Enrichment Chip, and A + CellScan Chip 202310325582.X Invention Separation technologies China Pending 03/29/2043 A + CellScan reagent * Chinese Patent Law defines three different types of patents for protecting invention-creation: invention, utility model, and design. “Invention” means any new technical solution proposed for a product, a process or the improvement thereof. “Utility Model” means any new technical solution proposed for the shape, the structure, or their combination, of a product, which is fit for practical use. “Design” means, with respect to an overall or partial product, any new design of the shape, the pattern, or their combination, or the combination of the colour with shape or pattern, which is rich in an aesthetic appeal and is fit for industrial application. 18 As of June 30, 2025, we had registered 12 trademarks in China, including 欣戈赛 and sglcell. We also own 1 registered domain name in China. Item Trademarks 1 欣戈赛 2 sglcell 3 Item Domain Names 1 sglcell.com 2 www.advanbiomed.com Employees As of June 30, 2025, we had 31 employees. The following table sets forth the number of our employees by function as of June 30, 2025. As of June 30, 2025 Number % of Total Employees Functions: Technology, Research and Development 18 58 % Medical Affairs 4 13 % Operations and Quality Assurance 2 6.5 % Sales and Marketing 2 6.5 % General and Administration 5 16 % Total number of employees 31 100.0 % 19 Our R&D personnel are imperative to our technological development. They are responsible for the early stage of biochip design and production, design improvement and optimization, self-developed microfluidic system, design and development of biomedical testing instruments, and establishment of biochip mass production mode. They also test the electrical safety of our medical devices, assist us to prepare FDA medical device regulatory certification and registration application documents. The R&D personnel are also responsible for the training of clinical laboratory personnel, the training of assembly, testing and maintenance of medical equipment production line personnel, and future chip mass production and packaging production. Our Shanghai subsidiary is required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. Our Shanghai subsidiary also enters into standard labor contracts with its employees. The labor contract typically includes a confidentiality covenant that requires employees to protect the company confidential information during their employment. In addition, employees are prohibited from entering into another employment relationship with a third party, which may adversely affect our business. Advisors and Industry-Academia Cooperation We focus on the research and development of various advanced and original microfluidic biochips and strive to provide tumor precision diagnosis and treatment technology and early cancer detection service. In order to strengthen our strategic development and research, we have worked with the following advisors (“Advisors”) and the National Taiwan University (the “NTU”) pursuant to certain advisory agreements and industry-academia cooperation agreements: Advisors Lin Jianhuang is currently President of Taipei Medical University, Director of National Applied Research Laboratory, Director of Biotechnology and Pharmaceutical Industry Research Institute, Executive Director of Taiwan Pharmacological Society, and Director of International Cooperation Foundation. Dr. Lin is mainly engaged in the field of molecular pharmacology signal transduction new drug development. Zhou Caicun Director of the Institute of Oncology, Tongji University School of Medicine, Director of the Department of Oncology. Director of Oncology Department of Shanghai Pulmonary Hospital, Director of Lung Cancer Immunology Research Office, Director of Clinical Pharmacology Institute. Mainly engaged in early diagnosis of lung cancer, comprehensive treatment, targeted therapy and individualized therapy, molecular imaging of tumor, phage vaccine. The Advisors attend quarterly meetings and provide professional advice to the Company. Advisors make recommendations and offer guidance on the Company’s long-term development strategy and major decisions, including providing consultation and suggestions on the Company’s development plans, research directions, scientific partnerships, and academic exchanges based on their abundant clinical experience to help the Company stay on the right track. For example, we used to focus on counting tumor cells, and our Advisors suggested to capture active single cells for further clinical application. Based on the suggestion, we eventually developed A + SCDrop. Furthermore, our Advisors suggested that we adopt the method of taking blood samples at multiple times, as the number of targeted cells contained in samples at different times is different, so as to ensure the accuracy of the obtained results. Accordingly, we adjusted our clinical plan regarding our prospective clinical trials. 20 Below are the material terms of the advisory agreements (the “Advisory Agreement”): Terms . The Advisory Agreement for Mr. Lin Jianhuang went into effect on November 1, 2022, and will end on October 31, 2025, unless terminated earlier in accordance with the provisions of the Advisory Agreement. The Advisory Agreement for Mr. Lin Jianhuang may be renewed if the parties start the renewal process three months prior to the end of this agreement and agree on the terms and conditions of the new agreement. The Advisory Agreement with Mr. Zhou Caicun went into effect on July 1, 2022, and was originally scheduled to end on June 30, 2025. On June 20, 2025, we renewed the Advisory Agreement with Mr. Zhou under the same terms and conditions, with a new expiration date of June 19, 2026. The Advisory Agreement may be renewed again if the parties initiate the renewal process at least one month prior to the expiration date and agree on the terms and conditions of the new agreement. Services . The Advisor is hired by us as its advisor (“Advisor”) and provide consulting service to us regarding our development plans and strategies. Compensation . We will reimburse Mr. Zhou Caicun any work-related expenses. We will reimburse Mr. Lin Jianhuang any work-related expenses and we agreed to grant Mr. Lin 0.5% of the total number of shares of the Initial Public Offering. The Common Stock will be distributed evenly among Mr. Lin’s three years of service. Termination . This Advisory Agreement can only be modified by both parties’ written consents and will remain in effect if either Party does not agree on the proposed modification. This Advisory Agreement is terminated once the end date has been reached or in accordance with the terms and conditions of this Advisory Agreement. Industry-Academia Cooperation Advanced Biomed Taiwan entered into two industry-academia cooperation agreements with the National Taiwan University under identical terms and conditions for identifying novel biomarkers for early detection of lung cancer (together the “Cooperation Agreements”). Advanced Biomed Taiwan renewed one of the two Cooperation Agreements on November 30, 2024 (the “Renewed Cooperation Agreement”). Below are the material terms of the Cooperation Agreements and the Renewed Cooperation Agreement: Terms. The Cooperation Agreements went into effect on April 15, 2023 and expired on October 14, 2024. The Renewed Cooperation Agreement went into effect on December 1, 2024 and will expire on November 30, 2025. Scopes . Research and development works stipulated in the Cooperation Agreements and the Renewed Cooperation Agreement focus on improving the accuracy of early lung cancer detection and exploring more novel biomarkers in that regard. Payment . Under the Cooperation Agreements, Advanced Biomed Taiwan is required to pay the NTU NTD 6 million in two equal installments, with the first one been paid on April 24, 2023. The second installment of NTD 3 million was paid in February 2024. Under the Renewed Cooperation Agreement, Advanced Biomed Taiwan is required to pay the NTU NTD 3 million in two installments, with the first one due on December 15, 2024. We received the required invoice from the NTU for the first installment and made the payment on January 24, 2025. The second installment of NTD 1.5 million was paid on June 23, 2025. Ownership . The parties recognize that the services provided by the advisor are advisory and consulting in nature and do not involve actual research activities. The NTU shall own the copyrights of any and all reports and works produced under the Cooperation Agreements, while Advanced Biomed Taiwan has the license to use any and all reports and works produced under the Cooperation Agreements freely. The Renewed Cooperation Agreement does not permit Advanced Biomed Taiwan to use any results or products under that agreement directly for profit. We do not believe this negatively impacts the development and commercialization of our products because this agreement focuses on studying the effect of certain proteins, unrelated to our products. Instead, the purpose of our involvement under the Renewed Cooperation Agreement is to support the NTU with funds and equipment for the separation and enrichment of target cells. Our participation under the Renewed Cooperation Agreement is aimed at demonstrating a potential application of our product to other research institutions, who could be our customers in the future. Therefore, the results of this research under the Renewed Cooperation Agreement and the patentability and commercialization of such proteins, do not affect the commercialization of our products. 21 Termination . Either party to the Cooperation Agreements and the Renewed Cooperation Agreement has the power to terminate such agreement if the NTU cannot perform its duties and obligations due to force majeure events or if Advanced Biomed Taiwan cannot perform its duties and obligations, provided that the NTU shall refund Advanced Biomed Taiwan any portion of the payment to the extent not actually spent. Licenses and Approvals The following table sets forth licenses and approvals that our subsidiaries are required to obtain for our operations in Taiwan and China as of the date of this Report: Name Licenses and Approvals PRC and Taiwan Regulatory Authority Expiration Date Advanced Biomed Taiwan Business Registration Certificate Tainan City Government indefinite Advanced Biomed HK Certificate of Incorporation Registrar of Companies, Hong Kong Special Administrative Region indefinite Business Registration Certificate Registrar of Companies, Hong Kong Special Administrative Region August 9, 2026 Shanghai Sglcell Business License Shanghai Administration for Market Regulation indefinite Insurance We and our subsidiaries do not currently maintain any commercial insurance. As such, we are susceptible to losses including property damage, accidents, or liabilities. In the event that such damages are substantial, we may experience materially negative impact on our business operations, financial condition, and results of operations. Government Regulation This section summarizes the principal Taiwan and PRC laws, rules and regulations related to our business and operations. Regulations in Taiwan Regulations Relating to Taiwan Companies Going to The Mainland to Engage in Technical Cooperation On March 1, 1993, the Ministry of Economic Affairs promulgated the Regulations Governing the Examination of Investment or Technical Cooperation in Mainland China (“Examination of Investment or Technical Cooperation”) which became effective immediately. The regulations were amended and took effect on December 30, 2020. On March 1, 1993, the Ministry of Economic Affairs also promulgated the Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China (“Approval of Investment or Technical Cooperation”). The regulations were amended and took effect on April 21, 2020. If a Taiwan company intends to go to Mainland China for technical cooperation, in principle, it must submit an application to the Taiwan Investment Commission in advance. According to the instructions of the Taiwan Investment Commission, the average review time for each case is 15-30 days. During the review, the competent authority will consider factors such as the impact on the core competitiveness of other Taiwanese companies, the layout of R&D and innovation, and the infringement of intellectual property rights of other companies to comprehensively determine whether to approve or not. If a Taiwan company and a Chinese company engage in technical cooperation without permission, the competent authority may impose a fine of not less than NTD 50,000 but not more than NTD 25,000,000 in accordance with Paragraph 1 of Article 86 of the Taiwan -Mainland People’s Relations Act, and may terminate it within a time limit, or require the companies to make corrections. Those who do not comply or make corrections within the time limit may be punished continuously. However, if a Taiwan company goes to Mainland China to engage in technical cooperation that does not involve substantial technology outflow, for example, if the Chinese company has no substantial involvement in product design and related R&D processes, it is not necessary to apply to the Investment Review Committee in advance. The competent authority may make alterations to the general and prohibited technical cooperation projects either by conducting regular reviews annually or by conducting special reviews on a case-by-case basis. 22 Regulations Relating to Exchange Control or Currency Regulations or any Registration Requirements Under Anti-Money Laundering Laws On October 23, 1996, the Ministry of Justice promulgated the Money Laundering Control Act (the “Act”), which became effective on April 23, 1997. The Act was amended and became effective on November 7, 2018. The Act is enacted to prevent money laundering activities and combat-related crimes; bolster anti-money laundering systems; maintain financial stability; increase transparency in money flows; and strengthen international cooperation. Pursuant to the Act, inward and outward remittances involving currency exchange between NTD and another foreign currency are subject to an annual ceiling of: USD 5 million for individuals and USD 50 million for businesses. Any total annual remittance exceeding these thresholds requires approval by the Central Bank of the Republic of China (CBC). Individual foreign exchange transactions over NTD 500,000 must be reported to the CBC. There are no other foreign exchange controls on trade, insurance, and authorized investment transactions, and no limit on repatriation of capital or profits from portfolio investments. There are also no registration requirements under anti-money laundering laws. Regulations Relating to Anti-bribery or Corruption Bribery and corruption of public officials in Taiwan are mainly regulated by the Anti-Corruption Act. The Anti-Corruption Act was promulgated by the Ministry of Justice and took effect on July 15, 1963. It was later amended on June 22, 2016 and became effective on July 1, 2016. The Anti-Corruption Act lists various behaviors that constitute bribery of public officials. Public officials who commit bribery may be punished by up to life imprisonment together with a fine of up to NTD 100 million. Any private individual who commits bribery of public officials may be punished by up to seven years of imprisonment together with a fine of up to NTD 3 million. Hospitality accepted by a public official is only allowed under limited circumstances specified in the Integrity and Ethics Directions for Civil Servants. The value of gifts received by a public official cannot exceed NTD500. Gifts received due to visits to companies cannot exceed NTD 3,000. The total value of gifts received from the same source in one year cannot exceed NTD 10,000. The Ethical Corporate Management Best Practice Principles were promulgated by the Taipei Exchange and became effective on September 3, 2010. The principles were amended and took effect on May 23, 2019. These principles are applicable to companies, their subsidiaries, any foundation to which the companies’ direct or indirect contribution of funds exceeds 50 percent of the total funds received, and other institutions or juridical persons which are substantially controlled by such companies. The purpose of the principles is to foster a corporate culture of ethical management and sound development and offer a reference framework for establishing good commercial practices. Regulations Relating to employment relationships The Employment Service Act was promulgated by the Ministry of Labor and became effective on May 8, 1992. It was amended and became effective on November 28, 2018. The Act is enacted to promote the employment of nationals with a view to enhance social and economic development. Labor Standards Act was promulgated by the Ministry of Labor and became effective on July 30, 1984. It was amended and took effect on June 10, 2020. The Act is enacted to provide minimum standards for working conditions, protect workers’ rights and interests, strengthen employee-employer relationships and promote social and economic development. 23 Regulations Relating to Intellectual Property Patents The Patent Act was promulgated by the Ministry of Economic Affairs and took effect on May 29, 1944. It was amended and took effect on May 4, 2022. The Patent Act is formulated to encourage, protect and utilize the creations of invention, utility model and design in order to promote industrial development. Trademarks The Trademark Act was promulgated by the Ministry of Economic Affairs and became effective on May 6, 1930. Articles 68, 70, 95, 96 and 97 were amended on May 4, 2022, which shall take effect on the date designated by Executive Yuan. This Act is enacted for protection of the rights of trademark, certification mark, collective membership mark, collective trademark and the interests of consumers, maintenance of fair competition, and promotion of development of the industry and commerce. Copyright The Copyright Act was promulgated by the Ministry of Economic Affairs and took effect on May 14, 1928. It was amended and took effect on June 15, 2022. This Act is specifically enacted for the purposes of protecting the rights and interests of authors with respect to their works, balancing different interests for the common good of society, and promoting the development of national culture. Matters not provided for herein shall be governed by the provisions of other acts. Trade Secrets The Trade Secrets Act was promulgated by the Ministry of Economic Affairs and became effective on January 17, 1996. It was amended and took effect on January 15, 2020. This Act is enacted to protect trade secrets, maintain industrial ethics and order in competition, and balance societal and public interests. Matters not provided for in this Act shall be governed by other laws. Regulations Relating to Data Protection The Personal Data Protection Act was promulgated by the National Development Council on August 11, 1995 and became effective on January 17, 1996. It was amended on December 30, 2015, and became effective on March 15, 2016. The Personal Data Protection Act (hereinafter, the “PDPA”) is enacted to regulate the collection, processing and use of personal data so as to prevent harm on personality rights, and to facilitate the proper use of personal data. Regulations on Taxation The Income Tax Act was promulgated by the Ministry of Finance and became effective on February 17, 1943. It was amended on April 28, 2021 and became effective on July 1, 2021. Income tax is classified into consolidated income tax and profit-seeking enterprise income tax. For any individual having income from sources in the Republic of China, consolidated income tax shall be levied in accordance with this Act on his income derived from sources in the Republic of China. The Tax Collection Act was promulgated by the Ministry of Finance and became effective on October 22, 1976. It was amended on December 17, 2021 and became effective on January 1, 2022. Collection of taxes shall be governed by this Act. Where a profit-seeking enterprise ceases to exist after a merger, the surviving or newly incorporated profit-seeking enterprise shall pay in full the taxes originally payable by the dissolved enterprise prior to the merger. Major taxes on corporations include: 24 Corporate income tax (“CIT”) If the total taxable income of a profit-seeking enterprise is NTD120,000 or less, the profit-seeking enterprise is exempt from tax. If the total taxable income of a profit-seeking enterprise is more than NTD120,000 but not more than NTD 200,000, the income tax payable is computed based on the following formula: (Profit-NTD120,000) x 50%. As for a profit-seeking enterprise with the total taxable income of more than NTD200,000, the income tax rate shall be: Profit x 20%. Profit retention tax An additional profit retention tax of 5% is imposed on any current earnings of a corporation that remain undistributed by the end of the following year. Regulations Relating to Bio Industry in Taiwan Act for the Development of Biotech and Pharmaceutical Industry In 2007, Act for the Development of Biotech and Pharmaceutical Industry (the “Statute”) was enacted in order to promote the development of the biotech and pharmaceutical industry in Taiwan so that it can bring about changes in the economic structure of the country. By 2022, the scope of the Statute covers industries that deals in new drugs, new dosage forms, high-risk medical devices, regenerative medicine, precision medicine, digital medicine, innovative technology platforms dedicated to biotech and pharmaceutical industry and other strategic biotech and pharmaceutical products used by human beings, animals and plants. The Statute permits biotech and new pharmaceutical companies to offset up to 30% of their expenses for personnel training and R&D against enterprise income tax over a period of five years. Up to five percent (5%) of the annual investment amount may be credited against the profit-seeking enterprise income tax payable by it in the then current year from the first year the biotech and pharmaceutical company has payable profit-seeking income tax; or up to three percent (3%) of the annual investment amount may be credited against the profit-seeking enterprise’s income tax payable in each of the three years from the first year the biotech and pharmaceutical company has payable profit-seeking income tax. In addition, based on Article 5, up to 25% of the research and development investment of the biotech companies that engage in research, development, and manufacturing may be deducted from the amount of profit-seeking enterprise income tax payable for each year within five years from the year in which the payable profit-seeking enterprise income tax is incurred with the annual deduction capped at 50% of the tax. The Statute provides for tax incentives to high-level professionals and technology investors to participate in company operations and R&D (Art. 7), to elaborate, up to 20% of the price paid for the shares may be deducted from the payable profit-seeking enterprise income tax for each year within five years from the year a payable profit-seeking enterprise income tax is incurred with the annual deduction capped at 50% of the tax. Moreover, if the senior professional staff or technology investors of the biotech companies receive newly issued stock or stock options as a result of reward or due to technology invested as capital stock and have held shares or stock options, been employed, or provided technical services cumulatively for two years, they may choose to be taxed at the lower of the “transfer price” or the “current price or price at which the stock was acquired.” Finally, researchers of schools and institutions who are the main technology providers of the start-up biotech companies are exempted from the prohibitions against business operation and part-time employment and the restrictions on shareholding percentage under Article 34 of the Act Governing the Appointment of Educators and Articles 13 and 14 of the Civil Servants Work Act. 25 Regulations in the PRC Regulations Relating to Medical Devices in the PRC Regulations Relating to Classification of Medical Devices Pursuant to the Regulations on the Supervision and Administration of Medical Devices promulgated on January 4, 2000, effective on June 1, 2014, amended by the State Council on May 4, 2017 and now effective, and then amended on February 9, 2021 but not yet effective until June 1, 2021 (“Regulation on Supervision and Administration of Medical Devices”), the China Food and Drug Administration (“CFDA”) of the State Council shall be responsible for the national administration and supervision of medical devices of the PRC and its local counterparts take charge of the local administration and supervision of medical devices of the PRC. Under this regulation, medical devices have been classified into three categories based on the degree of risk. Class I medical devices shall refer to those devices with low level of risks and whose safety and effectiveness can be ensured through routine administration. Class II medical devices shall refer to those devices with moderate risks that must be strictly controlled and regulated to ensure their safety and effectiveness. Class III medical devices shall refer to those devices with relatively high risks that must be strictly controlled and regulated through special measures to ensure their safety and effectiveness. Currently, the products we are approved by NMPA to manufacture and sell are Class I medical device. Registration and Filings of Medical Devices Pursuant to the Regulations on the Supervision and Administration of Medical Devices (“the Supervision and Administration of Medical Devices”), which was amended and came into effect on May 4, 2017. Then it was amended on February 9, 2021 and came into effect on June 1, 2021, Class I medical devices are subject to filing administration, and Class II and Class III medical devices are subject to pre-approval registration administration. A registration certificate for Class II and Class III medical devices are issued upon approval, which is valid for five years and may be renewed six months prior to its expiration date. In addition, a registrant or record-filing party of medical devices may manufacture medical devices on its own or entrust enterprises that meet the provisions hereof and have corresponding conditions to manufacture medical devices. In the event of entrusted manufacture of medical devices, the registrant or record-filing party of medical devices shall be responsible for the quality of medical devices manufactured under entrustment, and strengthen management of the manufacturing activities of the entrusted manufacturers to ensure that they carry out manufacturing in accordance with statutory requirements. The registrant or record-filing party of medical devices shall enter into an entrustment agreement with the entrusted manufacturer to specify the rights, obligations and responsibilities of both parties. The entrusted manufacturer shall organize manufacture of medical devices in accordance with laws and regulations, GMP, compulsory standards, product technical requirements and the entrustment agreement, be responsible for the manufacturing activities and accept the supervision of the entrusting party. Clinical trials are not required for the filing of the Class I medical devices, but necessary for the registration of Class II and Class III medical device with certain exceptions. Among our products, A + Pre and AC-1000 are Class I medical devices and have passed NMPA registration review. A + CellScan, A + CellScan Chip, and A + SCDrop are Class II medical devices but do not need to conduct clinical trials. A + LCGuard is Class III medical device and is required to conduct clinical trials before completing the registration process. We have already started the registration process and plan to begin the clinical research in November 2025. Specifically, in June 2025, the Company and the CRO began collaborating on drafting the clinical research protocol and started preparing the necessary equipment, consumables, reagent kits, and other materials for the study. We expect that the clinical research protocol may pass ethical review and receive ethics committee approval by the end of October 2025. Thereafter, we plan to initiate the trial stage of the clinical research, with completion anticipated within six months of November 2025. Based on the results of clinical research, we plan to formulate a work plan for large-scale clinical trials and proceed with the clinical trial. We anticipate that we will obtain the required registration certificate by October 2027. Production License for Medical Devices Pursuant to the Regulation on the Supervision and Administration of Medical Devices promulgated on July 30, 2014 and came into effect on October 1, 2014, as amended in 2017 and came into effect on May 4, 2017 (amended on February 9, 2021, came into effect on June 1, 2021), and the Administrative Measures on the Production Supervision of Medical Devices promulgated on July 30, 2014 and came into effect on October 1, 2014, as amended in March 10, 2022 and came into effect on May 1, 2022, manufacturers engaged in the manufacturing of Class I medical devices are subject to production filing administration and receive production filing certificates upon satisfaction of filing requirements; while those engaged in the manufacturing of Class II and Class III medical devices are subject to pre-approval licensing administration and receive medical device production licenses upon receipt of approval for licensing. A medical device production license is valid for five years and may be renewed six months prior to its expiration date. 26 Before obtaining production licenses from local government authorities, our product must pass NMPA’s registration review. Among our products, A + Pre and AC-1000 and their corresponding chips have passed NMPA registration review, A + CellScan, A + CellScan Chip, and A + SCDrop are at the registration application stage, the four matching immunostaining kits are under NMPA registration review. A + LCGuard is required to conduct clinical trials before completing the registration process. We have already started the registration process and plan to begin clinical research in November 2025. Specifically, in June 2025, the Company and the CRO began collaborating on drafting the clinical research protocol and started preparing the necessary equipment, consumables, reagent kits, and other materials for the study. We expect that the clinical research protocol may pass ethical review and receive ethics committee approval by the end of October 2025. Thereafter, we plan to initiate the trial stage of the clinical research, with completion anticipated within six months of November 2025. Based on the results of clinical research, we plan to formulate a work plan for large-scale clinical trials and proceed with the clinical trial. We anticipate that we will obtain the required registration certificate by October 2027. In addition, a manufacturer of medical devices shall satisfy the following conditions: ● possessing production sites, environmental conditions, production equipment and professional technicians that are suitable for such medical device produced; ● possessing organizations or professional examination staff and examination equipment that carry out quality examination for such medical device produced; ● formulating a management system which ensures the quality of such medical device; ● having capability of after-sale services that is suitable for such medical device produced; and ● satisfying the requirements as prescribed in production R&D and production technique documents. As of the date of this Report, we have obtained the license for the production of the Class I medical device. Production and Quality Management of Medical Devices Pursuant to the Administrative Measures on the Supervision of the Production of Medical Devices promulgated on December 29, 2014 and came into effect on March 1, 2015, as amended in March 10, 2022 and came into effect on May 1, 2022, and the Standards on Production and Quality Management of Medical Devices promulgated by the CFDA on December 29, 2014 and came into effect on March 1, 2015, an enterprise engaged in the production of medical devices shall establish and effectively maintain a quality control system in accordance to the requirements of the Standards on Production and Quality Management of Medical Devices. The enterprise engaged in the production of medical devices shall regularly conduct comprehensive self-inspection on the operation of quality management system and submit this report to the local food and drug supervision and administration authorities before the end of every year. The enterprise shall also establish its procurement control procedure and assess its suppliers by establishing an examination system to ensure the purchased products are in compliance with the statutory requirements. The enterprise shall apply risk management to the whole process of design and development, production, sales and after-sale services. Pursuant to The Notice of Four Guidelines including On-site Inspection Guidelines for the standards on Production and Quality Management of Medical Devices promulgated by the CFDA on September 25, 2015 and came into effect on September 25, 2015, during the course of on-site verification of the registration of medical devices and on-site inspection of production license t(including change production license), the inspection team shall, in accordance with the guidelines, issue recommended conclusions for on-site inspections, which shall be divided into “Passed,” “Failed” and “Reassessment after rectification.” During the supervision and inspection, if it is found that the requirements of the key items or ordinary items that may have direct impact on product quality are not satisfied, the enterprise shall suspend production and go through rectification. If it is found that the requirements of the ordinary items are not satisfied, and it does not directly affect product quality, the enterprise shall rectify in a prescribed time. The regulatory authorities will examine and verify the recommended conclusions and on-site inspection materials submitted by the inspection group and issue the final inspection results. 27 Good Clinical Practice for Medical Devices On March 24, 2022, the CFDA and the National Health and Family Planning Commission jointly promulgated the Good Clinical Practice for Medical Devices, which became effective as of May 1, 2022. The regulation includes full procedures of clinical trial of medical devices, including, among others, the protocol design, conduction, monitoring, verification, inspection, and data collection, recording, analysis and conclusion and reporting procedure of a clinical trial. For conducting clinical trials of medical devices, an applicant shall organize to formulate scientific and reasonable clinical trial protocol based on the categories, risks and intended use of the medical devices for the clinical study. The applicant shall be responsible for organizing to develop and revise of the researcher’s manual, clinical trial protocol, informed consent form, case report form, relevant standard operating procedures and other relevant documents, and shall be responsible for organizing necessary trainings for the clinical trials. The applicant shall select the clinical trial institutions and its researchers from the qualified medical device clinical trial institutions according to the characteristics of the medical devices to be used in the clinical study. As an applicant for clinical trials of medical devices, we are responsible for initiating, applying, organizing and monitoring such clinical trials, and shall be responsible for the authenticity and reliability of the clinical trials. Operation License for Medical Device Pursuant to the Supervision and Administration of Medical Devices, filing and licensing are not required for the operation of Class I medical devices. Operators engaged in the operation of Class II medical devices are subject to filing administration and will receive medical device operation filing certificate upon satisfaction of filing requirement, while operators engaged in the operation of Class III medical devices are subject to pre-approval licensing administration and will receive medical device operation license upon receipt of approval for licensing. A medical device operation license is valid for five years and may be renewed six months prior to its expiration date To engage in business operations of medical devices, the following requirements shall be met: ● Having a quality control institution or staff corresponding to the business scope and scale, and the staff shall have relevant education or professional titles certified by the state; ● Having an operation and storage premises corresponding to the business scope and scale; ● Having storage conditions corresponding to the business scope and scale; warehouses are not required if all storage is commissioned to other operators of medical devices; ● Having a quality control system corresponding to the medical devices concerned; and ● Possessing the capability of professional guidance, technical training and after-sale service corresponding to the medical devices it operates; or it has come into an agreement on technical support with a relevant institution. An enterprise to be engaged in business operations of Category III medical devices shall also have a computerized information management system compliant with quality standards to ensure traceability of products. An enterprise to be engaged in business operations of Category I or Category II medical devices is encouraged to set up such a system. 28 Special Procedures for Examination and Approval of Innovative Medical Devices On October 2017, the General Office of the CPC Central Committee and the General Office of the State Council issued the Opinions on Deepening the Reform of the Evaluation and Approval Systems and Encouraging Innovation on Drugs and Medical Devices, which aims to encourage the innovation for medical devices. Pursuant to the Opinions, the priority review and approval will be applicable to innovative medical devices supported by the National Science and Technology Major Projects and the National Key R&D Program of China, and the clinical trials of which having been conducted by the National Clinical Research Center and approved by the management department of National Clinical Research Center. Pursuant to the Special Procedures for Examination and Approval of Innovative Medical Devices which were promulgated by the NMPA on November 2, 2018 and came into effect on December 1, 2018, special procedures shall be applicable to the examination and approval for medical devices in the following circumstances: ● if the applicant legally owns the invention patent of the core technology of the product through its technological innovation activities in the PRC, or legally obtained the invention patent or the right of use thereof through transfer in the PRC, and that the interval between the date of application for the special examination and approval of innovative medical devices to the date of authorized publication should not exceed five years; or the patent administration department of the State Council has disclosed the application for the invention patent of the core technology and the Patent Search and Consultation Center of the National Intellectual Property Administration of the PRC has issued the patent search report setting out the novelty and innovation of the core technology solution of the product; ● the applicant has developed the prototype product and completed the preliminary research under a true and controllable process that generated complete and traceable data; and ● the product has major working mechanism or mechanism of action which is the first of its kind in the PRC, has fundamental improvement in product performance or safety compared with similar products, is of an internationally leading standard in terms of techniques and has significant clinical value. The Center for Medical Device Evaluation of the NMPA should give priority to the innovative medical devices in their technical review upon receiving the registration application, after which the NMPA will give priority to the product in their administrative approval. Advertisements of Medical Devices Pursuant to the Regulations on Tentative Measures for the Censorship of Advertisement for Drugs, Medical Devices, Dietary Supplements, Food Formula for Special Medical Purpose promulgated by SAMR on December 24, 2019 and came into effect on March 1, 2020, the State Administration for Market Regulation is responsible for organizing and guiding the review of advertisements for drugs, medical devices, health foods and formula foods for special medical purposes. The administrations for market regulation and drug administrations (hereinafter referred to as the “advertisement review authorities”) of all provinces, autonomous regions and centrally administered municipalities shall be responsible for the review of advertisements for drugs, medical devices, health food and formula food for special medical purposes, and may entrust other administrative authorities to implement review of advertisements pursuant to the law. The validity period of the advertisement approval number for drugs, medical devices, health food and formula food for special medical purposes shall be consistent with the shortest validity period of the product registration certificate, filing certificate or production license. If no valid period is prescribed in the product registration certificate, filing certificate or production license, the valid period of the advertisement approval number shall be two years. Advertisements for drugs, medical devices, health food and formula food for special medical purposes shall be true and legitimate and shall not contain any false or misleading contents. Advertisers shall be responsible for the veracity and legitimacy of the contents of advertisements for drugs, medical devices, health food and formula food for special medical purposes. 29 National Medical Insurance Program The National Medical Insurance Program (NMIP) was adopted pursuant to the Decision of the State Council on the Establishment of the Urban Employee Basic Medical Insurance Program issued by the State Council on December 14, 1998, under which all employers in urban cities are required to enroll their employees in the Urban Employee Basic Medical Insurance Program and the insurance premium is jointly contributed by the employers and employees. Pursuant to the Opinions on the Establishment of the New Rural Cooperative Medical System forwarded by the General Office of the State Council on January 16, 2003, China launched the New Rural Cooperative Medical System to provide medical insurance for rural residents in selected areas which has since spread to the whole nation. The State Council promulgated the Guiding Opinions of the State Council about the Pilot Urban Resident Basic Medical Insurance on July 10, 2007, under which urban residents of the pilot district, rather than urban employees, may voluntarily join Urban Resident Basic Medical Insurance. In 2015, the PRC government announced the Outline for the Planning of the National Medical and Health Service System (2015-2020) which aims to establish a basic medical and health care system that covers both rural and urban citizens by 2020. On January 3, 2016, the State Council issued the Opinions on Integrating the Basic Medical Insurance Systems for Urban and Rural Residents to integrate the Urban Resident Basic Medical Insurance and the New Rural Cooperative Medical System and the establishment of a unified Basic Medical Insurance for Urban and Rural Residents, which will cover all urban and rural non-working residents expect for rural migrant workers and persons in flexible employment arrangements who participate in the basic medical insurance for urban employees. The National Healthcare Security Administration (NHSA) is the responsible agency that makes the final determination on whether a product may be covered by the NMIP. With regard to reimbursement for medical devices and diagnostic tests, the Notice of Opinion on the Diagnosis and Treatment Management, Scope and Payment Standards of Medical Service Facilities Covered by the National Urban Employees Basic Medical Insurance Scheme (Lao She Bu Fa [1999] No. 22) prescribes the coverage of diagnostic and treatment devices and diagnostic tests where part of the fees is paid through the basic medical insurance scheme. It also includes a negative list that precludes certain devices and medical services from governmental reimbursement, which includes (i) examination and treatment items by applying large medical devices such as positron emission tomography (PET), electron beam CT, ophthalmic excimer laser therapy instruments, etc.; (ii) rehabilitation appliances such as spectacles, artificial dentures, artificial eyes, artificial limbs and hearing aids, etc.; (iii) medical devices for health care, massage, physical examination and treatment for own use; and (iv) disposable materials for medical use that cannot be charged separately as stipulated by price authorities of all provinces. Detailed reimbursement coverage and rate for medical devices and medical services (including diagnostic tests and kits) are subject to each province’s local policies. Therefore, every covered individual is eligible to request reimbursement from the NMIP for medical expenses, but the reimbursement rate and coverage are determined on a case-by-case basis. Based on our understanding of applicable PRC laws and regulations, the reimbursement rate and coverage for certain products are different for each individual and are subject to the following factors: ● Whether the product is covered by the NMIP or whether the product is part of a procedure or service that is covered by the NMIP. If not covered, the NMIP may deny the request for reimbursement or reduce the reimbursement rate and coverage; ● The region and status of individuals seeking reimbursement. NMIP varies in different regions and types, leading to different reimbursement ratios. For instance, the basic medical insurance for urban employees generally covers around 50% to 80% of basic medical expenses, while the rural resident medical insurance typically covers around 60% to 80%; ● Hospital level. The reimbursement ratio of NMIP is related to the level and grade of hospitals performing services. For example, a level 3 hospital’s service is generally more expensive than primary healthcare institutions, and the reimbursement ratio for level 3 hospitals is lower than for primary healthcare institutions. Typically, an individual who received services from a primary care provider can get a relatively high reimbursement rate and coverage for medical expenses; 30 ● Individual payment status. The reimbursement ratio of NMIP is also related to the individual payment status. If an individual contributes more and for a longer period of time, the reimbursement ratio will correspondingly increase; and ● Special diseases or major illnesses. For certain special diseases or major illnesses, the reimbursement ratio of medical insurance may be correspondingly increased, or special medical subsidies or assistance may be provided to alleviate the financial burden on patients by NHSA. As of the date of this Report, our products are not covered by any national or provincial medical insurance programs. Currently, A+LCGuard is the only product we are applying for NMIP coverage. There is no fixed timeline to get a product covered by NMIP, as the application process involves multiple procedures and interactions with NHSA that are beyond the applicant’s control. To our knowledge, the application process may take one to two years to complete. Currently, A+LCGuard is the only product we are applying for NMIP coverage. Although we strive to make our products covered by the NMIP in the future, there is no guarantee that the NHSA will approve our applications. Export Registration Pursuant to Administrative Measures on the Supervision of the Production of Medical Devices promulgated on December 29, 2014 and came into effect on March 1, 2015, as amended in March 10, 2022 and came into effect on May 1, 2022, in accordance with the spirit of the Notice of Guo Ban Fa [94] No. 66 of the State Council, conducts inspections of safety and legality of the exported products manufactured by domestic enterprises, grants legitimate production license in China (if these products are sold within Chinese territory) and files the relevant product information by its branches at the level of a districted city for recordation. In accordance with international practice, the quality of exported medical devices is mainly supervised by the importing countries. However, some importing countries/regions may require exporting enterprises to provide Medical Device Product Export Sales Certificates issued by the CFDA. Pursuant to Announcement on Issuing the Provisions on the Administration of Medical Device Product Export Sales Certificates, promulgated by the CFDA and effective on September 1, 2015, such exporting enterprises may apply to the provincial departments of the CFDA at the places where enterprises are located for Medical Device Product Export Sales Certificates. The premise of obtaining Medical Device Product Export Sales Certificates is that the relevant production enterprises have obtained medical device product registration certificates and production licenses or have undergone the formalities for recordation and production recordation of medical device products in China. The valid period of Medical Device Product Export Sales Certificates, except being specified for one time use, shall not expire after the earliest deadline of any certificate among various certificates submitted by the enterprise amid the application materials, and shall be no longer than two years. Where the relevant materials submitted by an enterprise change, the enterprise shall report to the certificate issuing department in a timely manner. Where the relevant materials change, or the Medical Device Product Export Sales Certificate still needs to be used after its expiration, the enterprise shall apply for a new Medical Device Product Export Sales Certificate. Where the CFDA find that any relevant enterprises fail to meet the requirements of relevant regulations on production, they shall downgrade the credit ratings of such enterprises to lower levels; or, when any enterprises are considered failing to meet the requirements for issuance of certificates anymore, or the relevant materials submitted by the enterprises change, the provincial CFDA departments shall notify the relevant information in a timely manner. Regulations Relating to M&A Rules and Overseas Listings On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or the CSRC, adopted the Regulations on Mergers of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. Foreign investors shall comply with the M&A Rules when they purchase equity interests of a domestic company or subscribe the increased capital of a domestic company, thus changing the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a foreign-invested enterprise in the PRC, purchase the assets of a domestic company and operate the assets; or when the foreign investors purchase the asset of a domestic company, establish a foreign-invested enterprise by injecting such assets and operate the assets. The M&A Rules purport, among other things, to require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. 31 According to the Anti-Monopoly Law which took effect as of August 1, 2008, where the concentration of business operators reaches the filing thresholds stipulated by the State Council, business operators shall file a declaration with the SAMR, and no concentration shall be implemented until the SAMR clears the anti-monopoly filing. Pursuant to the Notice of the General Office of the State Council on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and the Security Review Rules issued by the General Office of the State Council on February 3, 2011 and became effective on March 3, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns, and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns, are subject to strict review by the PRC government authorities. On August 25, 2011, the MOFCOM issued the Provisions of the Ministry of Commerce for the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which provides that if a foreign investor’s merger or acquisition of a domestic enterprise falls within the scope of security review specified in the Notice of the General Office of the State Council on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, the foreign investor shall file an application with MOFCOM for security review. Whether a foreign investor’s merger or acquisition of a domestic enterprise falls within the scope of security review or not shall be determined based on the substance and actual influence of the merger or acquisition transaction. No foreign investor is allowed to substantially avoid the security review in any way, including but not limited to, holding shares on behalf of others, trust arrangements, multi-level reinvestment, leasing, loans, contractual control, or overseas transactions. On February 17, 2023, the CSRC released Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) which came into effect on March 31, 2023. Pursuant to Trial Measures, a PRC domestic company that seeks to offer and list securities in overseas markets, either in direct or indirect overseas offering, shall fulfil the filing procedure with the CSRC per requirement of the Trial Measures, submit relevant materials that contain a filing report and a legal opinion, and provide truthful, accurate and complete information on the shareholder and etc. Direct overseas offering and listing by domestic companies refers to such overseas offering and listing by a joint-stock company incorporated domestically. Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect offering and listing in overseas market and, therefore, be subject to filing requirement: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in the Mainland China, or its main places of business are located in the Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on substance over form basis. In addition, initial public offerings or listings in overseas markets or subsequent securities offerings and listing of an issuer in overseas market other than where it has offered and listed shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. Subsequent securities offerings of an issuer in the same overseas market where it has previously offered and listed securities shall be filed with the CSRC within 3 working days after such offering is completed. A PRC domestic company that seeks to directly or indirectly list its domestic assets in overseas markets through single or multiple acquisitions, share swaps, transfers of shares or other means, shall also fulfil the filing procedure as prescribed above. Furthermore, upon the occurrence of any of the material events specified below after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (iii) change of listing status or transfer of listing segment; (iv) voluntary or mandatory delisting. Where an issuer’s main business undergoes material changes after overseas offering and listing, and is therefore beyond the scope of business stated in the filing documents, such issuer shall submit to the CSRC an ad hoc report and a relevant legal opinion issued by a domestic law firm within 3 working days after occurrence of the changes. However, the PRC Companies already listed overseas before effectiveness of Trial Measures are not required to submit any records with the CSRC until they have successive refinancing demand or other filing requirement. A six-month transition will be given to PRC domestic enterprises that have obtained the approval of overseas regulatory bodies or exchanges since implementation date of the Trial Measure but have not completed the overseas listing. If they fail to complete the overseas listing within six months, they should file records with CSRC according to the requirements. The Trial Measure further stipulate that CSRC may order rectification, issue warnings, and impose a fine between RMB1 million and RMB10 million if an applicant fails to fulfill the filing requirements with the CSRC or conducts an overseas offering or listing in violation of the Trial Measure. 32 On February 24, 2023, the CSRC, together with other PRC government authorities, released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Confidentiality and Archives Administration Provisions”), which came into effect on March 31, 2023. The Confidentiality and Archives Administration Provisions require, among others, that PRC domestic enterprises seeking to offer and list securities in overseas markets, either directly or indirectly, shall establish the confidentiality and archives system, and shall complete approval and filing procedures with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets of PRC government agencies to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals. It further stipulates that providing or publicly disclosing documents and materials which may adversely affect national security or public interests, and accounting files or copies of important preservation value to the state and society shall be subject to corresponding procedures in accordance with relevant laws and regulations. Regulations Relating to Foreign Investment Investment activities in the PRC by foreign investors are principally governed by the Industry Guidelines of Encouraged Foreign Investment, or the Industry Guidelines, effective on January 27, 2021, and the Special Administrative Measures for Entrance of Foreign Investment (Negative List), or the Negative List, most recently amended on April 8, 2024 and effective on September 6, 2024, and together with the PRC Foreign Investment Law, which took effect on January 1, 2020, and its respective implementation rules and ancillary regulations. The Industry Guidelines and the Negative List lay out the basic framework for foreign investments in China, classifying businesses into three categories with regard to foreign investments: “encouraged”, “restricted” and “prohibited”. Industries not listed in the Industry Guidelines or the Negative List are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other PRC laws. The Negative List specifies that Investment in Internet news service, Internet publishing service, Internet audio-visual program service, cyber culture operation (except for music) and Internet information dissemination service (except for contents opened up in China’s WTO commitments) shall be prohibited. According to the PRC Foreign Investment Law, foreign investments shall enjoy pre-entry national treatment, except for those foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” While foreign investors shall refrain from investing in any of the foreign “prohibited” industries, foreign-invested entities operating in foreign “restricted” industries shall require market entry clearance and other approvals from relevant PRC governmental authorities. Furthermore, the PRC Foreign Investment Law provides that foreign-invested enterprises that have been established before the implementation of PRC Foreign Investment Law according to the then existing laws regulating foreign investments may maintain their structure and corporate governance within five years after the implementation of the PRC Foreign Investment Law. On December 19, 2020, MOFCOM and NDRC released the Measures for the Security Review of Foreign Investments, which took effect on January 18, 2021. For foreign investments within the following scope, foreign investors or the relevant parties in China (hereinafter referred to collectively as the “parties concerned”) shall take the initiative to declare to the office of the working mechanism prior to implementation of the investments:…(II) investments in important agricultural products, important energy and resources, important equipment manufacturing, important infrastructure, important transport services, important cultural products and services, important information technology and Internet products and services, important financial services, key technologies and other important fields relating to national security, and obtaining the actual controlling stake in the investee enterprise. Prior to a decision made by the office of the working mechanism, the parties concerned shall not make the investment. The parties concerned shall not make the investment unless the office of the working mechanism decides that security review is not required. Where the declared foreign investment affects national security, a decision on prohibiting the investment shall be made. Foreign-invested entities of the group have businesses that conduct Internet services, but not related to national security within the scope of the regulations above. 33 On December 26, 2019, the State Council promulgated the Regulations for Implementing the PRC Foreign Investment Law, which took effect on January 1, 2020. The implementation regulations further clarified that the State encourages and promotes foreign investments, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to optimize foreign investment environment, and advances a higher-level opening. On December 30, 2019, MOFCOM and SAMR jointly promulgated the Measures for Information Reporting on Foreign Investment, which became effective on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment, where a foreign investor carries out investment activities in China directly or indirectly, the foreign investor or the foreign-invested enterprise shall submit the investment information to the competent commerce department. Regulations relating to Anti-Monopoly and Competition On September 11, 2020, the Anti-Monopoly Commission of the State Council issued Anti-Monopoly Compliance Guideline for Business Operators, which requires business operators to establish anti-monopoly compliance management systems under the PRC Anti-Monopoly Law to manage anti-monopoly compliance risks. On August 17, 2021, the State Administration for Market Regulation, or the SAMR, issued a discussion draft of Provisions on the Prohibition of Unfair Competition on the Internet, under which business operators should not use data or algorithms to hijack traffic or influence users’ choices, or use technical means to illegally capture or use other business operators’ data. Furthermore, business operators are not allowed to (i) fabricate or spread misleading information to damage the reputation of competitors, or (ii) employ marketing practices such as fake reviews or use coupons or “red envelopes” to entice positive ratings. On February 7, 2021, the Anti-Monopoly Commission of the State Council published Anti-Monopoly Guidelines for the Internet Platform Economy Sector that specified circumstances where an activity of an internet platform will be identified as monopolistic act as well as concentration filing procedures for business operators. According to the PRC Anti-Monopoly Law, if a business operator carries out a concentration in violation of the law, the relevant authority shall order the business operator to terminate the concentration, dispose of the shares or assets or transfer the business within a specified time limit, or take other measures to restore the pre-concentration status, and impose a fine of up to RMB500,000. On October 23, 2021, the Standing Committee of the National People’s Congress issued a discussion draft of the amended Anti-Monopoly Law, which proposes to increase the fines for illegal concentration of business operators to no more than ten percent of its last year’s sales revenue if the concentration of business operator has or may have an effect of excluding or limiting competitions, or a fine of up to RMB5 million if the concentration of business operator does not have an effect of excluding or limiting competition. The draft also proposes that the relevant authority shall investigate a transaction where there is any evidence that the concentration has or may have the effect of eliminating or restricting competitions, even if such concentration does not reach the filing threshold. Regulations Relating to Cybersecurity and Privacy Protection The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these rights. In recent years, PRC government authorities have enacted legislation on the Internet use to protect personal information from any unauthorized disclosure. Under the Several Provisions on Regulating the Market Order of Internet Information Services which was promulgated by MIIT on December 29, 2011, an Internet content service operator may not collect any user personal information or provide any such information to third parties without the consent of a user, unless otherwise stipulated by laws and administrative regulations. An Internet content service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An Internet content service operator is also required to properly keep the user personal information, and in case of any leak or likely leak of the user personal information, the Internet content service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the telecommunication regulatory authority. 34 In addition, the Decision on Strengthening Network Information Protection, which was promulgated by the Standing Committee of NPC on December 28, 2012, provides that electronic information that is able to identify personal identities of citizens or is concerned with personal privacy of citizens is protected by law and shall not be unlawfully obtained or provided. Internet content service operators collecting or using personal electronic information of citizens shall specify purposes, manners and scopes of information collection and use, obtain the consent of citizens concerned, and strictly keep confidential personal information collected. Internet content service operators are prohibited from disclosing, tampering with, damaging, selling or illegally providing others with personal information collected. Technical and other measures are required to be taken by Internet content service operators to prevent personal information collected from unauthorized disclosure, damage or being lost. Internet content service operators are subject to legal liability, including warnings, fines, confiscation of illegal gains, revocation of licenses or filings, closing of websites concerned, public security administration punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on Internet privacy. Pursuant to the Order for the Protection of Telecommunication and Internet User Personal Information which was promulgated by MIIT on July 16, 2013, any collection and use of users’ personal information must be subject to the consent of the users, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. Pursuant to the Ninth Amendment to the Criminal Law which was issued by the Standing Committee of NPC on August 29, 2015 and became effective on November 1, 2015, any Internet service provider that fails to fulfil obligations to manage information and network security as required by applicable laws and refuses to rectify upon orders from government authorities, will be subject to the criminal penalty if such failure (i) causes dissemination of illegal information in large scale; (ii) causes user information leaks resulting in severe consequences; (iii) causes serious loss of evidence to criminal investigations; or (iv) implicates other severe circumstances. Moreover, any individual or entity that (i) sells or provides personal information to others in violation of applicable laws, or (ii) steals or illegally obtains any personal information, in either case implicating severe circumstances, will be subject to the criminal penalty. The PRC government, however, has the power and authority to order Internet content service operators to turn over personal information if an Internet user posts any prohibited content or engages in illegal activities on the Internet. To further regulate cybersecurity and privacy protection, the PRC Cybersecurity Law which was promulgated by the Standing Committee of NPC on November 7, 2016 and took effect on June 1, 2017, provides that: subject to certain exceptions, (i) to collect and use personal information, network operators must follow the principles of legitimacy, rightfulness, and necessity, disclose their rules of data collection and use, clearly express the purposes, means, and scope of collecting and using the information, and obtain the consent of the persons whose data is gathered; (ii) network operators can neither gather personal information unrelated to the services they provide, nor gather or use personal information in violation of the provisions of laws and administrative regulations or the scopes of consent given by the persons whose data is gathered, and must dispose of personal information they have saved in accordance with the provisions of laws and administrative regulations and agreements reached with users; (iii) network operators cannot divulge, tamper with, or damage the personal information they have collected, and cannot provide the personal information to others without the consent of persons whose data is collected. According to the PRC Cybersecurity Law, personal information refers to all kinds of information that are recorded electronically or that can otherwise be used to independently identify or be combined with other information to identify natural persons’ personal information, including but not limited to natural persons’ names, dates of birth, identification numbers, biologically identified personal information, addresses, and telephone numbers. Any Internet information services provider that violates these privacy protection requirements under the PRC Cybersecurity Law and related laws and regulations may be ordered to turn in illegal gains generated from unlawful operations and pay a fine of no less than one but no more than ten times of the illegal gains and may be ordered to cease the relevant business operations when the violation is serious. On June 28, 2016, the CAC issued the Administrative Provisions on Mobile Internet Applications Information Services, which became effective on August 1, 2016, to further strengthen the regulation of the mobile app information services. Pursuant to these provisions, owners or operators of mobile apps that provide information services are required to be responsible for information security management, establish and improve the protective mechanism for user information, observe the principles of legality, rightfulness and necessity, and expressly state the purpose, method and scope of, and obtain user consent to, the collection and use of users’ personal information. 35 On May 8, 2017, the Supreme People’s Court and the Supreme People’s Procuratorate issued the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’ Personal Information, or the Personal Information Interpretations, which became effective on June 1, 2017. The Personal Information Interpretations provides more practical conviction and sentencing criteria for the infringement of citizens’ personal information. On January 23, 2019, the PRC Office of the Central Cyberspace Affairs Commission and other three authorities jointly issued the Circular on the Special Campaign of Correcting Unlawful Collection and Usage of Personal Information via Apps. Pursuant to this circular, (i) app operators are prohibited from collecting any personal information irrelevant to their services; (ii) information collection and usage policy should be presented in a simple and clear way, and such policy should be consented by the users voluntarily, and; (iii) authorization from users should not be obtained by coercing users with default or bundling clauses or making consent a condition of service. App operators violating these rules can be ordered by authorities to correct their noncompliance within a given period of time, be publicly reported, or ordered to quit its operation or cancel its business license or operational permits. On April 10, 2019, the Ministry of Public Security promulgated the Guidelines for Internet Personal Information Security Protection, which establishes the management mechanism, security technical measures and business workflows for personal information security protection. On August 22, 2019, the CAC promulgated the Provisions on the Cyber Protection of Children’s Personal Information which requires, among others, that network operators who collect, store, use, transfer and disclose personal information of children under the age of 14 shall establish special rules and user agreements for the protection of children’s personal information, inform the children’s guardians in a noticeable and clear manner, and shall obtain the consent of the children’s guardians. On November 28, 2019, the CAC, MIIT, the Ministry of Public Security and SAMR jointly promulgated the Measures for the Determination of the Collection and Use of Personal Information by Apps in Violation of Laws and Regulations, which provides guidance for the regulatory authorities to identify the illegal collection and use of personal information through mobile apps, and for the app operators to conduct self-examination and self-correction and social supervision by citizens. On May 28, 2020, the NPC approved the Civil Code of the PRC or the Civil Code, which came into effect on January 1, 2021. Pursuant to the Civil Code, the personal information of a natural person shall be protected by the law. Any organization or individual that needs to obtain personal information of others shall obtain such information legally and ensure the safety of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase or sell, provide or make public personal information of others. Furthermore, information processors shall not divulge or tamper with personal information collected or stored by them; without the consent of a natural person, information processors shall not illegally provide personal information of such person to others, except for information that has been processed so that specific persons cannot be identified and that cannot be restored. In addition, an information processor shall take technical measures and other necessary measures to ensure the security of the personal information that is collected and stored and to prevent the information from being divulged, tampered with or lost; where personal information has been or may be divulged, tampered with or lost, the information processor shall take remedial measures in a timely manner, inform the natural person concerned in accordance with the provisions and report the case to the relevant competent department. On August 20, 2021, the SCNPC adopted the Personal Information Security Law, which took effect on November 1, 2021. The Personal Information Protection Law includes the basic rules for personal information processing, the rules for cross-border provision of personal information, the rights of individuals in personal information processing activities, the obligations of personal information processors, and the legal responsibilities for illegal collection, processing, and use of personal information. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court. 36 On November 14, 2021, the CAC published the Regulations of Internet Data Security Management (Draft for Comments), which further regulate the internet data processing activities and emphasize the supervision and management of network data security, and further stipulate the obligations of internet platform operators, such as to establish a system for disclosure of platform rules, privacy policies and algorithmic strategies related to data. Specifically, the draft regulations require data processors to, among others, (i) adopt immediate remediation measures when finding that network products and services they use or provide have security defects and vulnerabilities, or threaten national security or endanger public interest, and (ii) follow a series of detailed requirements with respect to processing of personal information, management of important data and proposed overseas transfer of data. In addition, the draft regulations require data processors handling important data or the data processors to be listed overseas to complete an annual data security assessment and file a data security assessment report to applicable regulators. Such annual assessment, as required by the draft regulations, would encompass areas including, but not limited to, the status of important data processing, data security risks identified and the measures adopted, the effectiveness of data protection measures, the implementation of national data security laws and regulations, data security incidents that occurred and their handling, and a security assessment with respect to sharing and provision of important data overseas. As of the date of this Report, the draft regulations have been released for public comment only and have not been formally adopted. The final provisions and the timeline for its adoption are subject to changes and uncertainties. Currently, our business does not involve the collection of user data, implicate cybersecurity, or involve any other type of foreign investment restricted industry. Regulations Relating to Intellectual Property Rights Patent Patents in the PRC are principally protected under the Patent Law of the PRC. The duration of a patent right is either 10 years or 15 year or 20 years from the date of application, depending on the type of patent right. The Patent Law of the PRC and its implementation rules provide for three types of patents, namely, “invention”, “utility model” and “design”. Invention patents are valid for twenty years, utility model patents are valid for fifteen years, while design patents are valid for ten years, from the date of application. The Chinese patent system adopts a “first-to-file” principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who files the application first. To be patentable, invention or utility models must meet three criteria: novelty, inventiveness and practicability. A third party must obtain consent or a proper license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of the patent rights. Copyright Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, promulgated in September 1990, implemented in June 1991, amended in October 2001, February 2010 and November 2020, and effective on June 1, 2021 the term of protection for copyrighted software is 50 years. The Regulation on the Protection of the Right to Communicate Works to the Public over Information Networks, as most recently amended on January 30, 2013, provides specific rules on fair use, statutory license, and a safe harbor for use of copyrights and copyright management technology and specifies the liabilities of various entities for violations, including copyright holders, libraries and Internet service providers. Trademark Registered Trademarks are protected by the PRC Trademark Law which was adopted by the Standing Committee of NPC on August 23, 1982 and most recently amended on April 23, 2019 as well as the Implementation Regulation of the PRC Trademark Law which was adopted by the State Council on August 3, 2002 and amended on April 29, 2014. The Trademark Office of the National Intellectual Property Administration under SAMR handles trademark registrations and grants a term of ten years to registered trademarks which may be renewed for consecutive ten-year periods upon request by the trademark owner. For licensed use of a registered trademark, the licensor shall file record of the licensing of the said trademark with the Trademark Office, otherwise it may not defend against a bona fide third party. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use. 37 Under PRC law, any of the following acts will be deemed as an infringement to the exclusive right to use a registered trademark: (i) use of a trademark that is the same as or similar to a registered trademark for identical or similar goods without the permission of the trademark registrant; (ii) sale of any goods that have infringed the exclusive right to use any registered trademark; (iii) counterfeit or unauthorized production of the label of another’s registered trademark, or sale of any such label that is counterfeited or produced without authorization; (iv) change of any trademark of a registrant without the registrant’s consent, and selling goods bearing such replaced trademark on the market; or (v) other acts that have caused any other damage to another’s exclusive right to use a registered trademark. According to the PRC Trademark Law, in the event of any of the foregoing acts, the infringing party will be ordered to stop the infringement immediately and may be imposed a fine; the counterfeit goods will be confiscated. The infringing party may also be held liable for the right holder’s damages, which will be equal to the losses suffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the infringement, or the gains obtained by the infringing party if the losses are difficult to be ascertained. If both gains and losses are difficult to be ascertained, the damages may be determined by referring to the amount of royalties for the license of such trademarks, which will be one to five times of the royalties in the case of any serious infringement with malicious intent. If the gains, losses and royalties are all difficult to be ascertained, the court may render a judgment awarding damages no more than RMB5 million. Notwithstanding the above, if a distributor does not know that the goods it sells infringe another’s registered trademark, it will not be liable for infringement provided that the seller shall prove that the goods are lawfully obtained and identify its supplier. Domain Name Domain names are protected under the Administrative Measures on Internet Domain Names promulgated by the MIIT on August 24, 2017 and effective as of November 1, 2017. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration. Regulations on Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended on August 5, 2008. Under PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China. On November 19, 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or Circular 59, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to Circular 59, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign stockholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In 2013, SAFE specified that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. Instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration. 38 In March 2015, SAFE promulgated the Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 replaced both the Circular of the SAFE on Issues Relating to the Improvement of Business Operations with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign-invested Enterprises, or Circular 142, and the Circular of the SAFE on Issues concerning the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises in Certain Areas, or Circular 36. Circular 19 allows all foreign-invested enterprises established in the PRC to settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operation, provides the procedures for foreign invested companies to use RMB converted from foreign currency-denominated capital for equity investments and removes certain other restrictions that had been provided in Circular 142. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB funds converted from their foreign exchange capital for expenditure beyond their business scope and providing entrusted loans or repaying loans between non-financial enterprises. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective June 2016, which reiterates some of the rules set forth in Circular 19. Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding RMB capital converted from foreign exchange may be used to extend loans to related parties or repay inter-company loans (including advances by third parties). However, there are substantial uncertainties with respect to Circular 16’s interpretation and implementation in practice. Circular 19 or Circular 16 may delay or limit us from using the proceeds of offshore offerings to make additional capital contributions to our Shanghai subsidiary and any violations of these circulars could result in severe monetary or other penalties. In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial statements, and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover, pursuant to Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment. On October 23, 2019, SAFE issued Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or the Circular 28, which took effect on the same day. Circular 28 allows non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, provided that such investments do not violate the effective special entry management measures for foreign investment (negative list) and the target investment projects are genuine and in compliance with laws. Regulation on Foreign Debt A loan made by a foreign entity as direct or indirect shareholder in a FIE is considered to be foreign debt in China and is regulated by various laws and regulations, including the Regulation of the People’s Republic of China on Foreign Exchange Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debts Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of External Debt, and the Administrative Measures for Registration of Foreign Debts. Under these rules and regulations, a shareholder loan in the form of foreign debt made to a PRC entity does not require the prior approval of SAFE. However, such foreign debt must be registered with and recorded by SAFE or its local branches within fifteen (15) business days after entering into the foreign debt contract. Pursuant to these rules and regulations, the maximum amount of the aggregate of (i) the outstanding balance of foreign debts with a term not longer than one year, and (ii) the accumulated amount of foreign debts with a term longer than one year, of a FIE shall not exceed the difference between its registered total investment and its registered capital, or Total Investment and Registered Capital Balance. 39 On January 12, 2017, the People’s Bank of China, or PBOC, promulgated the Notice of the People’s Bank of China on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or PBOC Circular 9, which sets forth an upper limit for PRC entities, including FIEs and domestic enterprises, regarding their foreign debts. Pursuant to PBOC Circular 9, the outstanding cross-border financing of an enterprise (the outstanding balance drawn, here and below) shall be calculated using a risk-weighted approach, or Risk-Weighted Approach, and shall not exceed the specified upper limit, namely: risk-weighted outstanding cross-border financing £ the upper limit of risk-weighted outstanding cross-border financing. Risk-weighted outstanding cross-border financing =∑ outstanding amount of RMB and foreign currency denominated cross-border financing * maturity risk conversion factor * type risk conversion factor +∑ outstanding foreign currency denominated cross-border financing * exchange rate risk conversion factor. Maturity risk conversion factor shall be 1 for medium- and long-term cross-border financing with a term of more than one year and 1.5 for short-term cross-border financing with a term of one year or less than one year. Type risk conversion factor shall be 1 for on-balance-sheet financing and 1 for off-balance-sheet financing (contingent liabilities) for the time being. Exchange rate risk conversion factor shall be 0.5. The PBOC Circular 9 further provides that the upper limit of risk-weighted outstanding cross-border financing for enterprises, or Net Asset Limits, shall be 200% of its net assets. The PBOC Circular 9 does not supersede the Interim Provisions on the Management of Foreign Debts, but rather serves as a supplement to it. PBOC Circular 9 provided for a one-year transitional period, or the Transitional Period, from its promulgation date for FIEs, during which period FIEs could choose to calculate their maximum amount of foreign debt based on either (i) the Total Investment and Registered Capital Balance, or (ii) the Risk-Weighted Approach and the Net Asset Limits. Under the PBOC Circular 9, after the Transitional Period ends on January 11, 2018, the PBOC and SAFE will determine the cross-border financing administration mechanism for the foreign-invested enterprises after evaluating the overall implementation of PBOC Circular 9. In addition, according to PBOC Circular 9, a foreign loan must be filed with SAFE through the online filing system of SAFE after the loan agreement is signed and at least three business days prior to the borrower withdraws any amount from such foreign loan. Regulations Relating to Dividend Distributions According to the PRC Company Law and Foreign Investment Law, each of our Shanghai subsidiary, as a foreign invested enterprise, or FIE, is required to draw 10% of its after-tax profits each year, if any, to fund a common reserve, which may stop drawing its after-tax profits if the aggregate balance of the common reserve has already accounted for over 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, under the EIT Law, which became effective in January 2008, the maximum tax rate for the withholding tax imposed on dividend payments from PRC foreign invested companies to their overseas investors that are not regarded as “resident” for tax purposes is 20%. The rate was reduced to 10% under the Implementing Regulations for the EIT Law issued by the State Council. However, a lower withholding tax rate might be applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, such as tax rate of 5% in the case of Hong Kong companies that holds at least 25% of the equity interests in the foreign-invested enterprise, and certain requirements specified by PRC tax authorities are satisfied. Regulations Relating to Employment, Social Insurance and housing fund The Labor Law and The Labor Contract Law provide requirements concerning employment contracts between an employer and its employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All employers must comply with local minimum wage standards. The Labor Contract Law and its implementation rules also require compensation to be paid upon certain terminations, which significantly affects the cost of reducing workforce for employers. In addition, if an employer intends to enforce a non-compete provision with an employee in an employment contract or non-competition agreement, it has to compensate the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract. Employers in most cases are also required to provide a severance payment to their employees after their employment relationship are terminated. 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. 40 Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. Regulations on Taxes Enterprise Income Tax Under the Enterprise Income Tax Law of the PRC, or the EIT Law, which became effective on January 1, 2008 and was subsequently amended on February 24, 2017 and December 29, 2018, and its implementing rules, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25% while non-PRC resident enterprises without any branches in the PRC should pay an enterprise income tax in connection with their income from the PRC at the tax rate of 10%. An enterprise established outside of the PRC with its “de facto management bodies” located within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define a de facto management body as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. Enterprises qualified as “High and New Technology Enterprises” are entitled to a 15% enterprise income tax rate rather than the 25% uniform statutory tax rate. The preferential tax treatment continues as long as an enterprise can retain its “High and New Technology Enterprise” status. The EIT Law and the implementation rules provide that an income tax rate of 10% should normally be applicable to dividends payable to investors that are “non-resident enterprises,” and gains derived by such investors, which (a) do not have an establishment or place of business in the PRC or (b) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends and gains are derived from sources within the PRC. Such income tax on the dividends may be reduced pursuant to a tax treaty between China and other jurisdictions. Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from in-charge tax authority. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the Announcement on Relevant Issues Concerning the “Beneficial Owners” in Tax Treaties issued on February 3, 2018 by the SAT and effective from April 1, 2018, which replaces the Notice on the Interpretation and Recognition of Beneficial Owners in Tax Treaties and the Announcement on the Recognition of Beneficial Owners in Tax Treaties by the SAT, comprehensive analysis based on the stipulated factor therein and actual circumstances shall be adopted when recognizing the “beneficial owner” and agents and designated wire beneficiaries are specifically excluded from being recognized as “beneficial owners.” 41 On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation (“MOF and SAT”), [2019] No. 13 for small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, approximately $426,627, the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 10%. On April 9, 2021, MOF and SAT issued [2021] No.12 which provides an enterprise income tax rate of 2.5% on a small-scale and low-profit enterprises whose annual taxable income less than RMB1,000,000, approximately $142,209, from January 1, 2021 to December 31, 2022. MOF and SAT [2022] No.13, issued on May 29, 2023, also provides an enterprise income tax rate of 5% on a small-scale and low-profit enterprises whose annual taxable income more than RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, approximately $426,627, from January 1, 2022 to December 31, 2024. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s Shanghai subsidiary met the criteria of small-scale and low-profit enterprises. Value-added Tax Pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry used to be generally required to pay a business tax at the rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technology development and transfer, such business tax may be exempted subject to approval by the relevant tax authorities. Whereas, pursuant to the Provisional Regulations on Value-Added Tax of the PRC and its implementation regulations, unless otherwise specified by relevant laws and regulations, any entity or individual engaged in the sales of goods, provision of processing, repairs and replacement services and importation of goods into China is generally required to pay a value-added tax, or VAT, for revenues generated from sales of products, while qualified input VAT paid on taxable purchase can be offset against such output VAT. In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax, which became effective on May 1, 2016. Pursuant to the pilot plan and relevant notices, VAT is generally imposed in lieu of business tax in the modern service industries, including the VATS, on a nationwide basis. VAT of a rate of 6% applies to revenue derived from the provision of some modern services. Certain small taxpayers under PRC law are subject to reduced value-added tax at a rate of 3%. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided. On April 4, 2018, the Ministry of Finance and the State Administration of Taxation issued the Notice on Adjustment of VAT Rates, which came into effect on May 1, 2018. According to the abovementioned notice, the taxable goods previously subject to VAT rates of 17% and 11%, respectively, become subject to lower VAT rates of 16% and 10%, respectively, starting from May 1, 2018. Furthermore, according to the Announcement on Relevant Policies for Deepening Value-added Tax Reform jointly promulgated by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs, which became effective on April 1, 2019, the taxable goods previously subject to VAT rates of 16% and 10%, respectively, become subject to lower VAT rates of 13% and 9%, respectively, starting from April 1, 2019. Under Provisional Regulations of the People’s Republic of China on Value-added Tax, amended and effective on November 19, 2017, for entities that are VAT small taxpayers, VAT is levied at a levy rate of 3%. On February 29, 2020, the State Administration of Taxation issued the Announcement on Taxation Matters to Support Individual Businesses in Resumption of Business, during the COVID-19, the small taxpayers are allowed to enjoy the preferred tax policy, tax rate from 3% to 1% for the period from March 1, 2020 to December 31, 2021. 42