What changed in this filing

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Item 1A. Risk Factors

2024-04-17 compared with 2023-04-17 · 650 added, 624 removed, 613 unchanged (68% of the section changed)

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In that event, the market price of our common stock could decline, and you could lose all or part of your investment.

of Risks Affecting Our Company

following summarizes key risks and uncertainties that could materially adversely affect us.

You should read this summary together with

the more detailed description of each risk factor contained below.

Related to Our Business and Industry

current COVID-19 pandemic, as well as other epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks

could disrupt our delivery and operations, which could materially and adversely affect our business, financial condition, and results

of operations.

the year ended December 31, 2022, our revenues were approximately $37.9 million, a decrease of $2.9 million, or 7.1%, compared with

$40.8 million for year ended December 31, 2021.

The current COVID-19 pandemic adversely affected many aspects of our business,

including production, supply chain, and sales and delivery.

Our manufacturing facility underwent temporary yet prolonged closure in

February 2020 as part of China’s nationwide efforts to contain the spread of the novel coronavirus.

Even though our business

is currently operational, our production capacity, delivery, warranty services including after-sale services and technical support,

and operational efficiency are still adversely affected by the COVID-19 pandemic due to insufficient workforce in production, sales,

and delivery as a result of temporary travel restrictions in China and the necessity to comply with disease control protocols in our

business establishments and manufacturing facility.

Our suppliers’ abilities to timely deliver raw materials, parts and

components, or other services were also adversely affected for similar reasons.

The global spread of COVID-19 may also affect our

overseas sales.

As a result of varying levels of travel and other restrictions for public health concerns in various regions of

China, we also temporarily postponed the delivery of our products to our customers.

While the duration of the impact of the pandemic

on our business and related financial impacts cannot be reasonably estimated at this time, our results of operations for the first

half of 2020 were adversely affected with potential continuing impacts on subsequent periods.

In addition, further outbreaks of the

COVID-19 pandemic may adversely affect our PRC subsidiary’s manufacturing ability, our PRC subsidiary’s delivery and

after-sale services in China.

COVID-19 has had a global economic impact on the financial markets.

The global spread of COVID-19 pandemic may result in global

economic distress, and the extent to which it may affect our results of operations will depend on future developments, which are

highly uncertain and cannot be predicted.

We cannot assure you that the COVID-19 pandemic can be eliminated or contained in the near

future, or at all, or a similar outbreak will not occur again.

If the COVID-19 pandemic and the resulting disruption to our business

were to extend over a prolonged period, it could materially and adversely affect our business, financial condition, and results of

pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD),

coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9

flu, and avian flu, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could disrupt our business operations, reduce

identified in our financial reporting during audits could impair our ability to accurately report financial results.

on major customers presents risks if we cannot retain or attract new customers effectively.

Our operating history may not be indicative of our future growth or financial results and we may not be able to sustain our historical growth rates.

to secure new land for facilities could severely impact our operations and financial health.

We are subject to risks related to construction of our factory in Sichuan

Province, China.

The COVID-19 pandemic and other crises could disrupt operations and negatively

affect our business, financial condition, and results.

recessions could have a significant adverse impact on our business.

property infringement claims could be costly and disrupt business operations.

significant amount of accounts receivable could become uncollectible, affecting financial stability.

industry dynamics could lead to harmful price fluctuations.

to maintain product quality and safety could damage our reputation and financial standing.

competition in the touchscreen display industry could reduce market share and profitability.

financing could restrict our ability to execute our business plan.

in related party transaction pricing could lead to significant tax liabilities.

of tax treatments or government subsidies could necessitate paying additional taxes.

Interruptions

from third-party suppliers could disrupt operations.

in the cost and availability of raw materials could negatively affect results.

on key executives and the lack of long-term supplier contracts pose risks.

to adopt new technologies might affect competitiveness.

claims or adverse publicity could impact customer confidence and business results.

on inventories and lack of business insurance could expose us to significant costs.

Related to Doing Business in China

changes in China could increase compliance costs and complicate capital raising.

HFCAA could lead to delisting of our common stock if audits are not inspected properly.

We may be subject to substantial fine if the CSRC has determined that we

have failed to comply with the post-offering filing obligations.

in U.S.-China trade policies could adversely impact our business operations.

regulation of loans and currency conversion could delay or prevent capital usage, affecting liquidity.

laws in the PRC might negatively impact our operational flexibility and financial results.

under the Foreign Corrupt Practices Act and Chinese anti-corruption law could lead to penalties.

or liquidation of our PRC subsidiary could significantly disrupt operations.

and policy changes in China could limit our ability to offer securities.

Uncertainties

in the PRC legal system could limit legal protections.

in enforcing foreign judgments in China could undermine contractual protections.

control of currency conversion and fluctuations in exchange rates could impact financial results and investments.

Chinese government’s substantial influence over business operations could lead to significant operational changes.

Related to Our Common Stock

in the price of our common stock may not reflect our operating performance.

limiting the judicial forum for disputes could restrict stockholder litigation options.

short selling could drive down our stock price.

exposure to negative publicity involving U.S.-listed Chinese companies could harm our business and reputation.

volumes of our common stock being sold could negatively affect the market price.

of dividends means stockholders must rely on stock price appreciation for returns.

Deteriorating

U.S.-China relations could lower our stock price and complicate access to capital markets.

Related to Our Business and Industry

COVID-19 pandemic, as well as other epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt

our delivery and operations, which could materially and adversely affect our business, financial condition, and results of operations .

has had a global economic impact on the financial markets.

The global spread of COVID-19 pandemic may result in global economic distress,

and the extent to which it may affect our results of operations will depend on future developments, which are highly uncertain and cannot

be predicted.

We cannot assure you that the COVID-19 pandemic can be eliminated or contained in the near future, or at all, or a similar

outbreak will not occur again.

If the COVID-19 pandemic and the resulting disruption to our business were to extend over a prolonged

period, it could materially and adversely affect our business, financial condition, and results of operations.

addition, global pandemics, epidemics in Mainland China or elsewhere in the world, or fear of spread of contagious diseases, such as

Ebola virus disease (EVD), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, and

avian flu, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could also disrupt our business operations, reduce

or restrict our supply of products and services, incur significant costs to protect our employees and facilities, or result in regional

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manufacturing facility as well as adversely affect our business, financial condition, and results of operations.

connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2022 and 2023, we identified

certain material weaknesses in our internal control over financial reporting.

If we fail to develop and maintain an effective system

of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management

report on such company’s internal controls over financial reporting, which contains management’s assessment of the effectiveness

of internal controls over financial reporting.

reporting obligations as a public company place a significant strain on our management and operational and financial resources and systems.

Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports

and are important to prevent fraud.

As a result, our failure to achieve and maintain effective internal controls over financial reporting

may result in the loss of investor confidence in the reliability of our financial statements, which in turn may harm our business and

negatively impact the trading price of our stock.

Furthermore, we anticipate that we will continue to incur considerable costs and use

significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley

connection with the auditing of our consolidated financial statements as of and for the years ended December

31, 2023 and 2022, we identified the following material weaknesses in our internal control over financial reporting:

segregation of duties consistent with control objectives;

of formal policies and procedures;

of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner.

defined in the rules and regulations adopted by the SEC, a “material weakness” is a deficiency, or combination of deficiencies,

in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual

or interim financial statements will not be prevented or detected on a timely basis.

has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness

are remediated, such that these controls are designed, implemented, and operating effectively.

The remediation actions planned include:

to search for and evaluate qualified independent outside directors;

gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company;

to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing

controls and procedures.

have also engaged with a third-party financial consulting firm during the year to assist with the preparation of SEC reporting.

committed to maintaining a strong internal control environment, and believe that these remediation efforts will deliver improvements

in our control environment.

Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness

of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing

additional enhancements or improvements, as necessary and as funds allow.

the implementation of these measures may not fully address these weaknesses in our internal control over financial reporting, and we

cannot conclude that they have been fully remedied.

Our failure to correct these weakness and deficiencies or our failure to discover

and address any other weakness and deficiencies could result in our inability to accurately report our financial results, prevent or

detect fraud or provide timely and reliable financial and other information pursuant to the reporting obligations we have as a public

company, which could have a material adverse effect on our business, financial condition and results of operations.

Further, it could

cause our investors to lose confidence in the information we report, which could adversely affect the price of our shares.

are heavily dependent on our top customers.

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our business, financial condition and results of operations may be materially and adversely affected.

are heavily dependent on our top customers.

We currently sell our products primarily through direct customers in the PRC and to some

extent, the overseas customers in European countries and East Asia such as South Korea and Taiwan.

For the year ended December 31, 2022,

three customers accounted for 32.2%, 22.8%, and 14.0% of the total accounts receivable balance, respectively.

For the year ended December

31, 2021, six customers accounted for 25.7%, 18.6%, 12.5%, 11.5%, 11.3% and 10.2% of the total accounts receivable balance, respectively.

ability to cost-effectively attract new customers and retain existing customers, especially our top customers, is crucial to driving

are heavily dependent on our top customers, each of which accounted for 10% or more of our revenues.

We currently sell our products primarily

to customers in the PRC and to a lesser extent, overseas customers in European countries and East Asia such as South Korea and

For the year ended December 31, 2023, four customers accounted for 31.7%, 16.2%, 15.8% and 11.5% of the total accounts receivable

balance, respectively.

For the year ended December 31, 2022, three customers accounted for 32.2%, 22.8%, and 14.0% of the

total accounts receivable balance, respectively.

ability to attract new customers and retain existing customers cost-effectively, especially our top customers, is crucial to driving

net revenues growth and achieving profitability.

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customers since our inception.

For example, we attend domestic and international expos and exhibitions in marketing our products and

attracting new customers.

For example, we attend domestic and international expos and exhibitions to market our products and attract

new customers.

We also expect to continue to invest significantly to acquire new customers and retain existing ones, especially

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of operations will be adversely affected.

operating history may not be indicative of our future growth or financial results and we may not be able to sustain our historical growth

operating history may not be indicative of our future growth or financial results.

There is no assurance that we will be able to grow

in future periods.

Our growth rates may decline for any number of possible reasons and some of them are beyond our control, including

decreasing customer demand, increasing competition, declining growth of the touchscreen display industry in general, emergence of alternative

business models, or changes in government policies or general economic conditions.

We will continue to expand our sales network and product

offerings to bring greater convenience to our customers and to increase our customer base and number of transactions.

However, the execution

of our expansion plan is subject to uncertainty and the total number of items sold and number of transacting customers may not grow at

the rate we expect for the reasons stated above.

If our growth rates decline, investors’ perceptions of our business and prospects

may be adversely affected and the market price of our common stock could decline.

to secure a new parcel of land for the construction of our new buildings and facilities, and failure to acquire and install new production

lines on the new parcel may materially and adversely affect our business, financial condition and results of operations.

the year ended December 31, 2021, our use right to the Property was withdrawn by the local government and all ownership certificates

pertaining to the buildings on the Property were returned to the local government for cancellation.

order to minimize the interruption of our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March

The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at

a monthly rent of RMB300,000 (approximately $46,154), which period has been extended to October 31, 2022.

On October 16, 2022,

Sichuan Vtouch entered an extension to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch

to lease back the Properties until October 31, 2023, then subsequently extended to October 31, 2024, at a monthly rent of RMB400,000

(approximately $59,941).

The management believes that the Company can further renew the lease if necessary.

On July 23, 2021, Sichuan Vtouch entered into a contract with the Chengdu Wenjiang District Planning and Natural

Resources Bureau for the purchase of a land use right for a parcel of land spanning 131,010 square feet, for a consideration of RMB3,925,233

(equivalent to $537,998) for the Company’s new facility.

The Company paid the consideration in full on November 18, 2021.

estimates receiving the certificate of land use right from the local government in the fourth quarter of 2024.

of the date of this Annual Report, we estimate to finish the building construction by the end of 2024 and commence production in the third quarter of 2025, but there is no assurance and we may need extended time to achieve our

business plan.

If we fail to complete such construction prior to estimated period and the extended period, if any, we will have to

cease all or part of our operations, and as a result, our business, financial condition and results of operations may be materially

and adversely affected.

are subject to risks related to construction of our factory in Sichuan Province, China.

are constructing new facilities and office buildings, located in Sichuan Province, China.

As of the date of this Annual Report, we

estimates receiving the certificate of land use right from the local government in the fourth quarter of 2024.

We plan to finish the

building construction by the end of 2024 and commence production in the third quarter of 2025.

construction could experience delays or other difficulties, and will require significant capital.

We may not generate sufficient cash

flow to satisfy our capital expenditure commitments.

We may need to raise additional capital to fund a portion of our capital expenditures,

and such capital may not be available when needed or on terms favorable to our company.

The construction may not be completed on schedule

due to various reasons, such as supply chain issues and increased difficulty for workforce recruitment, which could result in increased

expenses and construction costs, and may result in reduced profitability of the project.

Any failure to complete the construction plan

on schedule and within budget could adversely affect our financial condition and results of operations.

construction may be subject to legal claims and proceedings instituted by contractors, workers and other parties involved in such project

from time to time.

Such claims and proceedings may include claims in respect of personal injuries and labor compensation in relation

to the construction project.

The construction of a factory is also subject to risks related to health and safety incidents and site accidents

and any non-compliance with building codes and other local regulations.

If any of the aforementioned incidents or accidents were to occur,

it could have a substantial negative impact on our success and result in a material adverse effect on our financial condition or results

of operations.

recessions could have a significant, adverse impact on our business.

revenues are generated from sales of our capacitive touchscreen products both domestically and internationally and we anticipate that

revenues from such sales will continue to represent the substantial portion of our total revenues in the near future.

Our sales and earnings

can also be affected by changes in the general economy.

touchscreen display industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in

business cycles of our customers, interest rate fluctuations, and other economic factors beyond our control.

Deterioration in the economic

environment subjects our business to various risks, which may have a material and adverse impact on our operating results and cause us

to not reach our long-term growth goals.

For example, a downturn in the economy could directly affect the discretionary spending power

of our customers and in turn, depress the number of orders for our products.

may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate intellectual

property rights held by third parties.

We have not but in the future may be, subject to legal proceedings and claims relating to the

intellectual property rights of others.

There could also be existing intellectual property of which we are not aware that our products

may inadvertently infringe.

We cannot assure you that holders of intellectual property purportedly relating to some aspect of our technology

or business, if any such holders exist, would not seek to enforce such intellectual property against us in China, or any other jurisdictions.

If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities

or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our

In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our

business and operations to defend against these infringement claims, regardless of their merits.

Successful infringement or licensing

claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting

or prohibiting our use of the intellectual property in question, and our business, financial position and results of operations could

be materially and adversely affected.

the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still

evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis.

have a significant amount of accounts receivable, which could become uncollectible .

of December 31, 2023, we had approximately $7.5 million in accounts receivable.

Our accounts receivable primarily includes balance

due from customers when our products are sold and delivered to customers.

Our accounts receivable primarily include

balance due from customers when our products are sold and delivered to customers.

Our customers are required to make full payment within

three to five months from delivery date, although our industry typical payment term is 180 days from delivery.

As a result of the

COVID-19 outbreak in January 2020, collection activities from some of our customers affected by the pandemic resulted in longer

payment terms.

We impliedly granted extended payment terms until December 31, 2020 to some of our customers.

As of December 31,

2020, we collected all overdue accounts receivable and resumed our typical payment term.

For the years ended December 31, 2022 and

2021, we did not provide any extended payment terms to any of our customers.

Deteriorating conditions in, bankruptcies, or financial

difficulties of a customer or within their industries generally may impair the financial condition of our customers and hinder their

ability to pay us on a timely basis or at all, and accounts receivable are written off against allowances only after exhaustive

For the years ended December

31, 2023 and 2022, we did not provide any extended payment terms to any of our customers.

Deteriorating conditions in, bankruptcies,

or financial difficulties of a customer or within their industries generally may impair the financial condition of our customers and

hinder their ability to pay us on a timely basis or at all, and accounts receivable are written off against allowances only after exhaustive

collection efforts.

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our liquidity and results of operations.

industry is cyclical, with recurring periods of capacity increases.

As a result, price fluctuations in response to supply and demand

imbalances could harm our results of operations.

touchscreen display industry in general is characterized by cyclical market conditions.

From time to time, the industry has been subject

to imbalances between excess supply and a slowdown in demand, and in certain periods, resulting in declines in selling prices.

capacity expansion anticipated in the touchscreen display industry may lead to excess capacity.

Capacity expansion in the industry may

be due to scheduled ramp-up of new manufacturing facilities, and any large increases in capacity as a result of such expansion could

further drive down the selling prices of our products, which would affect our results of operations.

We cannot assure you that any continuing

or further decrease in selling prices or future downturns resulting from excess capacity or other factors affecting the industry will

not be severe or that any such continuation, decrease or downturn would not seriously harm our business, financial condition and results

of operations.

ability to maintain or increase our revenues will primarily depend upon our ability to maintain market share, increase unit sales of

existing products and introduce and sell new products that offset the anticipated fluctuation and long-term declines in the selling prices

of our existing products.

We cannot assure you that we will be able to maintain or expand market share, increase unit sales, and introduce

and sell new products, to the extent necessary to compensate for market oversupply.

to maintain the quality and safety of our products could have a material and adverse effect on our reputation, financial condition and

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from suppliers and service providers for the losses caused by them.

face intense competition in the touchscreen industry in general.

face intense competition in the touchscreen display industry in general.

If we fail to compete effectively, we may lose market share and customers,

and our business, financial condition and results of operations may be materially and adversely affected.

touchscreen industry is intensely competitive in general.

We face few competition as we produce medium to large size capacitive touchscreens

touchscreen display industry is intensely competitive in general.

We face less competition as we produce medium to large size capacitive touchscreens

which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical, and POS,

etc., and requires more stable supply, longer guaranty and life span, compared with small size touchscreens which is characteristic with

shorter life cycle and guaranty but more demand in quantity.

However, we still have some competitors competing in China and globally

Our competitors may have more financial, technical, geographical advantage, marketing and other resources than we do and may

be more experienced and able to devote greater resources to the development, promotion and support of their business.

Some competitors

are well-established in China and globally and any defensive measures they take in response to our expansion could hinder our growth

and adversely affect our sales and results of operations.

and requires more stable supply, longer guaranty and life span, compared with small size touchscreens which are characteristic with shorter

life cycle and guaranty but more demand in quantity.

However, we still have some competitors competing in China and globally with us.

Our competitors may have more financial, technical, geographical advantage, marketing and other resources than we do and may be more

experienced and able to devote greater resources to the development, promotion and support of their business.

Some competitors are well-established

in China and globally and any defensive measures they take in response to our expansion could hinder our growth and adversely affect

our sales and results of operations.

increased competition may reduce our market share and profitability and require us to increase our sales and marketing efforts and capital

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and results of operations.

we do not obtain substantial additional financing, our ability to execute on our business plan may be impaired.

we do not obtain substantial additional financing, our ability to execute our business plan may be impaired.

to the withdrawal of the land use right to the Property and cancellation of our ownership certificates pertaining to the buildings on

the Property by the local government pursuant to the Guidelines and the Compensation Agreement, we are actively searching for an appropriate

parcel in Chengdu Medicine City (Technology Park), Wenjiang District, Chengdu for the construction of our PRC subsidiary’s new

production facilities and office buildings.

As of the date of Annual Report, our management estimates that our capital needs for this

acquisition and construction will be approximately RMB170.0 million ($26.2 million), but there is no assurance that the estimated amount

is sufficient to achieve our goals.

We may need additional financing for our business development.

addition, our plans call for significant new investments in research and development, marketing, expanded productions capacity, and working

capital for raw materials and other items.

Should our capital needs be higher than our estimation, we will be required to seek additional

investments, loans or debt financing to fully pursue our business plans.

Such additional investment may not be available to us on terms

which are favorable or acceptable.

Should we be unable to meet our full capital needs, our ability to fully implement our business plan

will be impaired.

to secure a new piece of parcel for the construction of our new buildings and facilities, and failure to acquire and install new production

lines on the new parcel, our business, financial condition and results of operations may be materially and adversely affected.

the year ended December 31, 2021, our use right to the Property was withdrawn by the local government and all ownership certificates

pertaining to the buildings on the Property were returned to the local government for cancellation.

order to minimize the interruption of our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16,

The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly

rent of RMB300,000 (approximately $46,154), which period was extended to October 31, 2022.

On October 16, 2022, Sichuan Vtouch entered

an extension to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties

until October 31, 2023, at a monthly rent of RMB400,000 (approximately $59,941).

of the date of this Annual Report, we are actively searching for an appropriate parcel in Chengdu Medicine City (Technology Park), Wenjiang

District, Chengdu for the construction of our new production facilities and office buildings.

We estimate the new production lines and

construction of the new facilities and office buildings on the new parcel will be completed prior to October 31, 2023, but there is no

assurance and we may need extended time to achieve our business plan.

If we fail to secure such construction prior to October 31, 2023

and the extended period, if any, our business, financial condition and results of operations may be materially and adversely affected.

the Property by the local government pursuant to the Guidelines and the Compensation Agreement, on July 23, 2021, Sichuan Vtouch entered

into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use right for a parcel

of land spanning 131,010 square feet, for a consideration of RMB3,925,233 (equivalent to $537,998) for the Company’s new facility.

The Company paid the consideration in full on November 18, 2021.

The Company estimates receiving the certificate of land use right from

the local government in the fourth quarter of 2024.

business plan.

If we fail to complete such acquisition and construction within the estimated period, if any, we will have to cease

all or part of our operations, and as a result, our business, financial condition and results of operations may be materially and

adversely affected.

addition, our plans may call for significant new investments in research and development, marketing, expanded productions capacity,

and working capital for raw materials and other items.

Should our capital needs be higher than our estimation, we will be required

to seek additional investments, loans or debt financing to fully pursue our business plans.

Such additional investment may not be

available to us on terms which are favorable or acceptable.

Should we be unable to meet our full capital needs, our ability to fully

implement our business plan will be impaired.

adjustment of related party transaction pricing could lead to additional taxes, and therefore substantially reduce our consolidated net

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is successfully challenged by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions.

Chinese government has provided tax incentives to our former subsidiary in China, Sichuan Wetouch, including reduced enterprise income

Chinese government has provided tax incentives to our former subsidiary in Mainland China, Sichuan Wetouch, including reduced enterprise

income tax rates.

For example, under the PRC Enterprise Income Tax Law and its implementation rules, the statutory enterprise income

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However, the income tax of an enterprise that has been determined to be a qualified enterprise located in western region

of PRC can be reduced to a preferential rate of 15%.

The qualification of preferential tax rate is effective for a renewable three-year

As Sichuan Wetouch’s business and operations have been assumed by our PRC subsidiary Sichuan Vtouch, Sichuan Vtouch

has reapplied for the preferential rate of 15% as a qualified enterprise.

Such application is currently pending with the PRC tax authorities.

If our PRC subsidiary’s application for the qualification of preferential tax rate benefit is not approved, our PRC subsidiary

will be subject to the statutory enterprise income tax rate of 25%.

Further, in the ordinary course of our business, we are subject to

complex income tax and other tax regulations, and significant judgment is required in the determination of a provision for income taxes.

Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required

to pay tax, interest, and penalties in excess of our tax provisions, our financial condition and results of operations would be materially

and adversely affected.

of Mainland China can be reduced to a preferential rate of 15%.

The qualification of preferential tax rate is effective for a renewable

three-year permitted.

As we have dissolved Sichuan Wetouch, and its business and operations have been assumed by Sichuan Vtouch, Sichuan Vtouch has reapplied for the preferential rate of 15% as a qualified enterprise.

Such application is currently

pending with the PRC tax authorities.

If Sichuan Vtouch’s application for the qualification of preferential

tax rate benefit is not approved, our PRC subsidiary will be subject to the statutory enterprise income tax rate of 25%.

the ordinary course of our business, we are subject to complex income tax and other tax regulations, and significant judgment is required

in the determination of a provision for income taxes.

Although we believe our tax provisions are reasonable, if the PRC tax authorities

successfully challenge our position and we are required to pay tax, interest, and penalties in excess of our tax provisions, our financial

condition and results of operations would be materially and adversely affected.

significant interruption in the operations of our third-party suppliers could potentially disrupt our operations.

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For example, a significant interruption in the operations of our supplier’s

manufacturing facilities could cause delay or termination of shipment of the raw materials to us, which may cause delay or termination

of shipment of our products to our customers, thus resulting in penalties or fines due to our breach of contract.

manufacturing facilities could cause delays or termination of shipments of the raw materials to us, which may cause delays or termination

of shipments of our products to our customers, thus resulting in penalties or fines due to our breach of contract.

If we could not solve

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face the risk of fluctuations in the cost, availability and quality of our raw materials, which could adversely affect our results of

cost, availability and quality of the raw materials, such as indium tin oxide glasses, panels, are important to our operations.

cost of raw materials increases due to large market price fluctuation or due to any other reason, our business and results of operations

cost, availability and quality of the raw materials, such as indium tin oxide glasses and panels, are important to our operations.

the cost of raw materials increases due to large market price fluctuation or due to any other reason, our business and results of operations

could be adversely affected.

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sales, administration, development and operating personnel.

can be no assurance that our existing personnel will be adequate or qualified to carry out our strategy, or that we will be able to hire

or retain experienced, qualified employees to carry out our strategy.

The loss of one or more of our key management or operating personnel,

or the failure to attract and retain additional key personnel, could have a material adverse effect on our business, financial condition

and results of operations.

can be no assurance that our existing personnel will be adequate or qualified to carry out our strategy and operations, or that we will

be able to hire or retain experienced, qualified employees to carry out our strategy and operations.

The loss of one or more of our key

management or operating personnel, or the failure to attract and retain additional key personnel, could have a material adverse effect

on our business, financial condition and results of operations.

do not have long-term contracts with our suppliers and they can reduce order quantities or terminate their sales to us at any time.

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for technical, legal, financial or other reasons, our business may be materially and adversely affected.

may experience significant liability claims or complaints from customers, or adverse publicity involving our products and our services.

may experience significant liability claims or complaints from customers, or adverse publicity involving our products

and our services.

face an inherent risk of liability claims or complaints from our customers.

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or not concerning our products, can adversely affect our business, results of operations and reputation.

regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial

owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’

ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore

Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant

Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special

Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37.

SAFE Circular 37 requires

PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their

direct or indirect offshore investment activities.

SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be

applicable to any offshore acquisitions that we make in the future.

SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments

in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches.

any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch

of SAFE with respect to that SPV, to reflect any material change.

Moreover, any subsidiary of such SPV in China is required to urge the

PRC resident shareholders to update their registration with the local branch of SAFE.

If any PRC shareholder of such SPV fails to make

the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from

distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be

prohibited from making additional capital contributions into its subsidiary in China.

On February 13, 2015, the SAFE promulgated a Notice

on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective

on June 1, 2015.

Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound

overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE.

qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

of our shareholders that we are aware of are subject to SAFE regulations, and we expect all of these shareholders will have completed

all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37.

We cannot assure you, however,

that all of these shareholders may continue to make required filings or updates in a timely manner, or at all.

We can provide no assurance

that we are or will in the future continue to be informed of identities of all PRC residents holding direct or indirect interest in our

Any failure or inability by such shareholders to comply with SAFE regulations may subject us to fines or legal sanctions, such

as restrictions on our cross-border investment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain

foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends.

As a result, our business

operations and our ability to make distributions to you could be materially and adversely affected.

as these foreign exchange regulations are still relatively new and their interpretation and implementation have been constantly evolving,

it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted,

amended and implemented by the relevant government authorities.

For example, we may be subject to a more stringent review and approval

process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings,

which may adversely affect our financial condition and results of operations.

In addition, if we decide to acquire a PRC domestic company,

we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete

the necessary filings and registrations required by the foreign exchange regulations.

This may restrict our ability to implement our

acquisition strategy and could adversely affect our business and prospects.

of the date of this Annual Report, the PRC residents have either not completed, or have not applied for, foreign exchange registration

under the SAFE Circular 37 and other related rules.

Although they are either in the process of making foreign exchange registration or

plan to make foreign exchange registrations, they may still face with the above said possible fines in accordance with the PRC Laws.

may experience losses on inventories.

new product introductions in the technology industry can result in a decline in the selling prices of our products and the obsolescence

of our existing inventory.

This can result in a decrease in the stated value of our inventory, which we value at the lower of cost or

net realizable value.

manage our inventory based on our customers’ and our own forecasts.

Although we regularly make adjustments based on market conditions,

we typically deliver our goods to our customers several weeks after a firm order is placed.

While we maintain open channels of communication

with our top customers to avoid unexpected decreases in firm orders or subsequent changes to placed orders, and try to minimize our inventory

levels, such actions by our customers may have a material adverse effect on our inventory management and our results of operations.

have no business liability or disruption insurance, which could expose us to significant costs and business disruption.

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may incur liabilities that are not covered by insurance.

we seek to maintain appropriate levels of insurance, not all claims are insurable and we may experience major incidents of a nature that

are not covered by insurance.

We do not have other insurances that cover, among other things, employee-related accidents and injuries,

we seek to maintain appropriate levels of insurance , not all claims are insurable and we may experience major incidents of a nature

that are not covered by insurance.

We do not have any insurance that cover, among other things, employee-related accidents and injuries,

product or business liability and other property damage and liability deriving from our activities.

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of several events within one calendar year.

In addition, our insurance costs may increase over time in response to any negative development

in our claims history or due to material price increases in the insurance market in general.

In addition, our insurance costs may increase over time in response to any negative

development in our claims history or due to material price increases in the insurance market in general.

may not be able to adequately protect and maintain our intellectual property.

success will depend on our ability to continue to develop and market our products.

We have been have five pending patent

applications as of the date of this Annual Report.

No assurance can be given that such patents will not be challenged, invalidated,

infringed or circumvented, or that such intellectual property rights will provide a competitive advantage to us.

Also, litigation

may be necessary to enforce our intellectual property rights or determine the validity and scope of the proprietary rights of

The outcome of such potential litigation may not be in our favor and any success in litigation may not be able to adequately

protect our rights.

Such litigation may be costly and divert management attention away from our business.

An adverse determination

in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation.

Enforcement of judgments in China is uncertain and even if we are successful in such litigation it may not provide us with an

effective remedy.

introduction of new technologies and products may increase the likelihood that third parties will assert claims that our products infringe

upon their proprietary rights.

rapid technological changes that characterize our industry require that we quickly implement new processes and components with respect

to our products.

Often with respect to recently developed processes and components, a degree of uncertainty exists as to who may rightfully

claim ownership rights in such processes and components.

Uncertainty of this type increases the risk that claims alleging that such components

or processes infringe upon third party rights may be brought against us.

Although we take and will continue to take steps to ensure that

our new products do not infringe upon third party rights, if our products or manufacturing processes are found to infringe upon third

party rights, we may be subject to significant liabilities and be required to change our manufacturing processes or be prohibited from

manufacturing certain products, which could have a material adverse effect on our operations and financial condition.

may be required to defend against charges of infringement of patent or other proprietary rights of third parties.

Although patent and

other intellectual property disputes in our industry have often been settled through licensing or similar arrangements, such defense

could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could

result in our loss of rights to develop or make certain products or require us to pay monetary damages or royalties to license proprietary

rights from third parties.

Furthermore, we cannot be certain that the necessary licenses would be available to us on acceptable terms,

Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could

prevent us from manufacturing and selling certain of our products.

Any such litigation, whether successful or unsuccessful, could result

in substantial costs to us and diversions of our resources, either of which could adversely affect our business.

Related to Doing Business in China

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after the overseas listing application is submitted.

On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of

Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”), which took effect

on March 31, 2023.

On February 17, 2023, the CSRC promulgated the Trial Administrative Measures, which took effect on

March 31, 2023.

The Trial Administrative Measures further stipulate the rules and requirements for overseas offering and listing conducted

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On December 28, 2021, the Measures for Cybersecurity Review (2021 version) were promulgated

and will become effective on February 15, 2022 (the “Measures”), which iterates that any “online platform operators”

and became effective on February 15, 2022 (the “Measures”), which iterates that any “online platform operators”

controlling personal information of more than one million users that seeks to list on a foreign stock exchange shall also be subject

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for companies with China-based operations.

the effectiveness of the Trial Administrative Measures, we could be subject to the Trial Administrative Measures, as the Company has:

(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 PRC domestic companies;

and (ii) the main parts of the issuer’s

business activities are conducted in mainland China, or its main places of business are located in mainland China, or the senior managers

in charge of its business operation and management are mostly Chinese citizens or domiciled in mainland China;

and, if required, we cannot

assure you that we will be able to complete such process on time or at all.

February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic

Companies (the “Trial Administrative Measures”), which took effect on March 31, 2023.

Compared to the Draft Rules, the

Trial Administrative Measures further clarified and emphasized several aspects, including:

(i) comprehensive determination of the

“indirect overseas offering and listing by PRC domestic companies” in compliance with the principle of “substance

over form” and particularly, an issuer will be required to go through the filing procedures under the Trial Administrative

Measures if the following criteria are met at the same time:

a) 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 PRC domestic companies, and b) the main parts of the issuer’s business activities are conducted in mainland

China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation and

management are mostly Chinese citizens or domiciled in mainland China;

(ii) exemptions from immediate filing requirements for

issuers that a) have already been listed or registered but not yet listed in foreign securities markets, including U.S.

prior to the effective date of the Trial Administrative Measures, and b) are not required to re-perform the regulatory procedures

with the relevant overseas regulatory authority or the overseas stock exchange, c) whose such overseas securities offering or

listing shall be completed before September 30, 2023.

However, such issuers shall carry out filing procedures as required if they

conduct refinancing or are involved in other circumstances that require filing with the CSRC;

(iii) a negative list of types of

issuers banned from listing overseas, such as issuers under investigation for bribery and corruption;

(iv) regulation of issuers in

specific industries;

(v) issuers’ compliance with national security measures and the personal data protection laws;

certain other matters such as:

an issuer must file with the CSRC within three business days after it submits an application for

initial public offering to competent overseas regulators;

and subsequent reports shall be filed with the CSRC on material events,

including change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.

According to the Relevant Officials of the CSRC Answered Reporter Questions (“CSRC Answers”) and Trial Administrative

Measures, upon effectiveness, as a company applying for listing on Nasdaq, we could be subject to the filing process since we have not

obtained the clearance from SEC or Nasdaq before the effective date of the Trial Administrative Measures.

As the Trial Administrative Measures are newly issued, there remains uncertainty as to how it will be

interpreted or implemented.

Therefore, we cannot assure you that we will

be able to obtain clearance from the CSRC in a timely fashion or at all.

joint statement by the SEC and the Public Company Accounting Oversight Board (United States), or the PCAOB, proposed rule changes submitted

by Nasdaq, and the newly enacted Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be

applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S.

auditors who are not

inspected by the PCAOB.

These developments could add uncertainties to the trading of our common stock on U.S.

stock exchanges, including

the possibility that our securities can be delisted if the PCAOB cannot inspect or fully investigate our auditor.

April 21, 2020, the SEC Chairman and PCAOB Chairman, along with other senior SEC staff, released a joint statement highlighting the risks

associated with investing in companies based in or have substantial operations in emerging markets including China.

The joint statement

emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks

of fraud in emerging markets.

May 18, 2020, Nasdaq filed three proposals with the SEC to (1) apply minimum offering size requirement for companies primarily operating

in “Restrictive Market,” (2) adopt a new requirement relating to the qualification of management or board of director for

Restrictive Market companies, and (3) apply additional and more stringent criteria to an applicant or listed company based on the qualifications

of the company’s auditor.

June 4, 2020, the U.S.

President issued a memorandum ordering the President’s working group on financial markets to submit a report

to the President within 60 days of the date of the memorandum that should include recommendations for actions that can be taken by the

executive branch and by the SEC or PCAOB to enforce U.S.

regulatory requirements on Chinese companies listed on U.S.

stock exchanges

and their audit firms.

However, it remains unclear what further actions, if any, the U.S.

executive branch, the SEC, and PCAOB will take

to address the problem.

August 6, 2020, the President’s working group released a report recommending that the SEC take steps to implement the five recommendations

outlined in the report.

In particular, to address companies from jurisdictions that do not provide the PCAOB with sufficient access to

fulfill its statutory mandate, the President’s working group recommended enhanced listing standards on U.S.

stock exchanges.

would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for

the audit of the listed company.

Companies unable to satisfy this standard as a result of governmental restrictions on access to audit

work papers and practices in their jurisdiction may satisfy this standard by providing a co-audit from an audit firm with comparable

resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate

inspection of the co-audit firm.

The report permits the new listing standards to provide for a transition period until January 1, 2022

for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective.

August 10, 2020, the SEC announced that the SEC Chairman had directed the SEC staff to prepare proposals in response to the report of

the President’s working group, and that the SEC was soliciting public comments and information with respect to the development

of these proposals.

May 20, 2020, the U.S.

Senate passed the Holding Foreign Companies Accountable Act, or the Act.

The Act was approved by the U.S.

of Representatives on December 2, 2020.

On December 18, 2020, the Act was signed into public law by the President of the United States.

In essence, the Act requires the SEC to prohibit foreign companies from listing securities on U.S.

securities exchanges if a company

retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021.

2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure

requirements of the Act.

The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report

on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction

and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that

jurisdiction.

June 22, 2021, the U.S.

Senate passed the Accelerating Holding Foreign Companies Accountable Act and on December 29, 2022 the Accelerating

Holding Foreign Companies Accountable Act was enacted, which amended the HFCA Act by requiring the SEC to prohibit an issuer’s

securities from trading on any U.S.

stock exchanges if its auditor is not subject to PCAOB inspections for to two consecutive years instead

of three, thus reducing the time before our securities may be prohibited from trading or delisted.

December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act.

The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public

accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of

a position taken by an authority in a foreign jurisdiction.

December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered

public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those

jurisdictions.

The PCAOB has made such designations as mandated under the HFCA Act.

Pursuant to each annual determination by the PCAOB,

the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions

in the future.

August 26, 2022, the SEC issued a statement announcing that the PCAOB signed a Statement of Protocol (“SOP”) with the China

Securities Regulatory Commission, or CSRC, and the Ministry of Finance of the People’s Republic of China governing inspections

and investigations of audit firms based in China and Hong Kong, jointly agreeing on the need for a framework.

December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate registered public accounting firms

headquartered in Mainland China and Hong Kong and voted to vacate the previous Determination Report to the contrary.

are subject to the Trial Administrative Measures, as the Company has:

(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 PRC domestic companies;

and (ii) the main parts of the issuer’s business activities are conducted in mainland

China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation and management

are mostly Chinese citizens or domiciled in mainland China;

and, if required, we cannot assure you that we will be able to complete such

process on time or at all.

February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies

(the “Trial Administrative Measures”), which took effect on March 31, 2023.

Compared to the Draft Rules, the Trial Administrative

Measures further clarified and emphasized several aspects, including:

(i) comprehensive determination of the “indirect overseas

offering and listing by Mainland China domestic companies” in compliance with the principle of “substance over form”

and particularly, an issuer will be required to go through the filing procedures under the Trial Administrative Measures if the following

criteria are met at the same time:

a) 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 Mainland China domestic

companies, and b) the main parts of the issuer’s business activities are conducted in Mainland China, or its main places of business

are located in Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens

or domiciled in Mainland China;

(ii) exemptions from immediate filing requirements for issuers that a) have already been listed or registered

but not yet listed in foreign securities markets, including U.S.

markets, prior to the effective date of the Trial Administrative Measures,

and b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas stock

exchange, c) whose such overseas securities offering or listing shall be completed before September 30, 2023.

However, such issuers shall

carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the

(iii) a negative list of types of issuers banned from listing overseas, such as issuers under investigation for bribery and corruption;

(iv) regulation of issuers in specific industries;

(v) issuers’ compliance with national security measures and the personal data

protection laws;

and (vi) certain other matters such as:

an issuer must file with the CSRC within three business days after it submits

an application for initial public offering to competent overseas regulators;

and subsequent reports shall be filed with the CSRC on material

events, including change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.

Our PRC counsel has advised that because our common stock currently trades in the U.S., we were not required to submit filings to the

CSRC before the Offering was completed and the Offering was not conditioned on CSRC approval.

Rather, within three days of the closing

of the Offering, we are required to submit filings to the CSRC in accordance with the Trial Administrative Measures.

According to the

relevant provisions of the Trial Administrative Measures and its supporting guidelines, the Company is required to fulfill the filing

procedures with the CSRC within three days of the closing of the Offering.

According to the Trial Administrative Measures, the Company

has submitted the filing materials to the CSRC, but the materials were not complete due to lack of a commitment letter from the lead

underwriter for the Offering, and the Company withdrew the filing from the CSRC.

The Company will submit the filing materials again

when the materials are ready.

However, given that the Trial Administrative Measures were recently promulgated, there remain substantial

uncertainties as to their interpretation, application, and enforcement and there is no guarantee that the relevant PRC government agencies,

including the CSRC, would reach the same conclusion that we and our PRC counsel have reached.

If the CSRC has determined that

we have failed to comply with the post-offering filing obligations imposed by the Trial Administrative Measures or make a misrepresentation,

misleading statement or material omission in the materials we submit to the CSRC, the CSRC would have the right to order rectification,

issue a warning and impose a fine on us of between RMB 1 million and RMB 10 million and issuing a warning to the parties responsible

for such failure, misrepresentation or material omission and impose a fine on each of such individuals ranging from RMB 500,000 to RMB

common stock will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA,

if it is later determined that the PCAOB is unable to inspect and investigate completely our auditor.

The delisting of and prohibition

from trading of our common stock, or the threat of their being delisted and prohibited from trading, may cause the value of our common

stock to significantly decline or be worthless.

to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been

subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares from being traded on a national securities

exchange or in the over-the-counter trading market in the United States.

December 18, 2020, the HFCAA was signed into law.

The HFCAA has since then been subject to amendments by the U.S.

Congress and interpretations

and rulemaking by the SEC.

On June 22, 2021, the U.S.

Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”),

which proposes to reduce the period of time for foreign companies to comply with PCAOB audits from three to two consecutive years, thus

reducing the time period before the securities of such foreign companies may be prohibited from trading or delisted.

On December 29,

2022, the Consolidated Appropriations Act, 2023 was signed into law, which contained, among other things, an identical provision to the

AHFCAA, and reduced the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three

years to two.

December 16, 2021, the PCAOB issued a report to notify the SEC of its determination relating to the PCAOB’s inability to inspect

or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong.

The inability of the PCAOB

to conduct inspections of auditors in China made it more difficult to evaluate the effectiveness of these accounting firms’ audit

procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could

cause existing and potential investors in issuers operating in China to lose confidence in such issuers’ procedures and reported

financial information and the quality of financial statements.

December 15, 2022, the PCAOB released a statement confirming it has secured complete access to inspect and investigate registered public

accounting firms headquartered in mainland China and Hong Kong, and it issued the 2022 HFCAA Determination Report to vacate its precious

determinations to the contrary.

The PCAOB is continuing to demand complete access, and it will act immediately to reconsider such determinations

should China obstruct, or otherwise fail to facilitate the PCAOB’s access, at any time.

auditor, the independent registered public accounting firm that issues the audit report, as an auditor of companies that are traded publicly

3 unchanged sentences

and has been inspected by the PCAOB on a regular basis.

developments related to the HFCAA could add uncertainties to our offering.

We cannot assure you what further actions the SEC, the PCAOB

or the stock exchanges will take to address these issues and what impact such actions will have on companies that have significant operations

in the PRC and have securities listed on a U.S.

stock exchange (including a national securities exchange or over-the-counter stock market).

In addition, any additional actions, proceedings, or new rules resulting from these efforts to increase U.S.

regulatory access to audit

information could create uncertainty for investors, the market price of our common stock could be adversely affected, and we could be

delisted if we and our auditor are unable to meet the PCAOB inspection requirement.

Such a delisting would substantially impair your

ability to sell or purchase our common stock when you wish to do so, and would have a negative impact on the price of our shares.

may be subject to substantial fine if the CSRC has determined that we have failed to comply with the post-offering filing obligations

imposed by the Trial Administrative Measure.

February 17, 2023, the CSRC promulgated the Trial Administrative Measures that require issuers to carry out filing procedures as required

if they conduct refinancing or are involved in other circumstances that require filing with the CSRC;

(iii) a negative list of types

of issuers banned from listing overseas, such as issuers under investigation for bribery and corruption;

(iv) regulation of issuers in

specific industries;

(v) issuers’ compliance with national security measures and the personal data protection laws;

and (vi) certain

other matters such as:

an issuer must file with the CSRC within three business days after it submits an application for initial public

offering to competent overseas regulators;

and subsequent reports shall be filed with the CSRC on material events, including change of

control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.

PRC counsel has advised that because our common stock currently trades in the U.S., we were not required to submit filings to the CSRC

before the Offering was completed and the Offering was not conditioned on CSRC approval.

Rather, within three days of the closing of

the Offering, we are required to submit filings to the CSRC in accordance with the Trial Administrative Measures.

We have submitted the

filing materials to the CSRC, but the materials were not complete due to lack of a commitment letter from the lead underwriter for the

Offering, and we withdrew the filing from the CSRC.

We will submit the filing materials again when the materials are ready.

given that the Trial Administrative Measures were recently promulgated, there remain substantial uncertainties as to their interpretation,

application, and enforcement and there is no guarantee that the relevant PRC government agencies, including the CSRC, would reach the

same conclusion that we and our PRC counsel have reached.

the CSRC has determined that we have failed to comply with the post-offering filing obligations imposed by the Trial Administrative Measures

or make a misrepresentation, misleading statement or material omission in the materials we submit to the CSRC, the CSRC would have the

right to order rectification, issue a warning and impose a fine on us of between RMB 1 million and RMB 10 million and issuing a warning

to the parties responsible for such failure, misrepresentation or material omission and impose a fine on each of such individuals ranging

from RMB 500,000 to RMB 5 million.

Our operations may be negatively affected, which could materially and adversely affect our liquidity

and our ability to fund and expand our business.

and international trade policies, particularly with regard to China, may adversely impact our business and operating results.

government has recently made statements and taken certain actions that may lead to potential changes to U.S.

and international trade

policies, including recently-imposed tariffs affecting certain products manufactured in China.

It is unknown whether and to what extent

new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry

and customers.

Although cross-border business may not be an area of our focus, if we plan to sell our products internationally in the

future, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our

products and services, impact the competitive position of our products or prevent us from being able to sell products in certain countries.

If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular,

government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could have an adverse

effect on our business, financial condition, results of operations.

regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion

may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our Chinese subsidiaries,

which could materially and adversely affect our liquidity and our ability to fund and expand our business.

are an offshore holding company conducting our operations in China.

We may make loans to our PRC subsidiaries to the approval, registration,

may delay or prevent us from using the proceeds of any offerings or financings to make loans or additional capital contributions to our

Chinese subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

conduct substantially all of our operations in China.

We may make loans to our PRC subsidiary, subject to the approval, registration,

and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned

subsidiaries in China.

Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises

under PRC law, are subject to foreign exchange loan registrations.

subsidiary in China.

Any loans to our wholly foreign-owned subsidiary in China, which is treated as a foreign-invested enterprise under

PRC law, are subject to foreign exchange loan registrations.

In addition, a foreign invested enterprise shall use its capital pursuant

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we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals

or filings on a timely basis, if at all, with respect to future loans by us to our Hong Kong or PRC subsidiaries or with respect to future

capital contributions by us to our Hong Kong or PRC subsidiaries.

or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect

to future capital contributions by us to our PRC subsidiary.

If we fail to complete such registrations or obtain such approvals,

our ability to use the proceeds from this offering and to capitalize or otherwise fund our Chinese operations may be negatively affected,

our ability to use the proceeds from the Offering and to capitalize or otherwise fund our Chinese operations may be negatively affected,