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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2025
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-42263
iTonic Holdings Ltd
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Room 405, LongHu Hailanyinqing Industrial Park, Building 6
No. 8 Beiyuan Xiaojie, Chaoyang District, Beijing, China
(Address of principal executive offices)
Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
(800) 221-0102
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A Ordinary Shares | ITOC | The Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
An aggregate of 9,382,000 Class A ordinary shares, par value $0.0001 per share, and 7,668,000 Class B ordinary shares, par value $0.0001 per share, were issued and outstanding as of December 31, 2025.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large-accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large-accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Emerging growth company | ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D 1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
| * | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐ |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ In this annual report on Form 20-F, unless the context otherwise requires, references to:
TABLE OF CONTENTS
INTRODUCTION
| ● | “Beijing Feitian,” “PRC operating entity” and “our operating entity” are to Beijing Feitian Zhaoye Technology Co., Ltd., a PRC limited liability company, which is wholly owned by Jinruixi; | |
| ● | “brachytherapy” are to a form of radiation therapy or radiotherapy that involves placing radioactive sources or seeds inside or near the tumor to deliver a high dose of radiation directly to the cancerous tissue while minimizing exposure to surrounding healthy tissues; | |
| ● | “CAGR” are to compound annual growth rate; | |
| ● | “China” or the “PRC” are to the People’s Republic of China, and “mainland China”, unless otherwise specified herein, are to the People’s Republic of China excluding, for the purpose of this annual report only, Taiwan, the Hong Kong Special Administrative Region, and the Macau Administrative Region; | |
| ● | “Class A Ordinary Shares” are to our Class A ordinary shares, par value $0.0001 per share; | |
| ● | “Class B Ordinary Shares” are to our Class B ordinary shares, par value $0.0001 per share; | |
| ● | “Class II medical devices” are to the medical devices with moderate risks, which shall be strictly controlled and administered to ensure their safety and effectiveness defined by the National Medical Products Administration of the PRC under the Regulation on the Supervision and Administration of Medical Devices (2021 Revision); | |
| ● | “Class III medical devices” are to the medical devices with relatively high risks, which shall be strictly controlled and administered through special measures to ensure their safety and effectiveness, as defined by the National Medical Products Administration of the PRC under the Regulation on the Supervision and Administration of Medical Devices (2021 Revision); | |
| ● | “CT” or “computerized tomography” are to a type of scan that makes use of computer processed combinations of many X-ray images taken from different angles to produce cross-sectional tomographic images of specific areas of a scanned object, which can be used for the examination of multiple diseases; | |
| ● | “FTTPS” are to Feitian Treatment Planning Software, our lead product, which is a treatment planning system used for making treatment plans for radioactive particle implantation, which has broad clinical indications for the treatment of multiple malignant solid tumors throughout the body. | |
| ● | “Hong Kong” or “HK” are to the Hong Kong Special Administrative Region of the PRC; | |
| ● | “Jinruixi” are to Beijing Jinruixi Medical Technology Co., Ltd., a PRC limited liability company incorporated on March 15, 2023, which is wholly owned by Pheton HK; | |
| ● | “Medical Auxiliary Supplies” are to supplies used in brachytherapy treatment, such as implant guns, body supporting stents, 3D printing molds, and immobilization devices that hold patients in place, etc.; | |
| ● | “MRI” are to magnetic resonance imaging, a type of scan that uses strong magnetic fields and radio waves to produce detailed images of the inside of the body; | |
| ● | “oncology” are to a branch of medicine that addresses with the prevention, diagnosis, and treatment of cancer; | |
| ● | “ordinary shares” are, collectively, to our Class A Ordinary Shares and Class B Ordinary Shares, par value $0.0001 per share; | |
| ● | “iTonic” and “our Company” are to iTonic Holdings Ltd, our holding company, a Cayman Islands exempted company incorporated in the Cayman Islands on November 2, 2022, and its predecessor; | |
| ● | “Pheton BVI” are to Pheton (BVI) Ltd, a limited liability company incorporated in BVI on November 22, 2022, which is wholly owned by Pheton; |
| ● | “Pheton HK” are to Pheton (HK) Limited, a limited liability company incorporated in Hong Kong on December 14, 2022, which is wholly owned by Pheton BVI; | |
| ● | “radioactive particle implants” are to one of the techniques used in brachytherapy to deliver radiation to a tumor, in which technique, small radioactive particles or seeds are placed directly into the tumor or the surrounding tissue using a needle or catheter; | |
| ● | “radiation therapy” and “radiotherapy” are to a treatment that uses high-energy radiation from x-rays, gamma rays, neutrons, protons, and other sources to kill cancer cells and shrink tumors, which radiation may come from a machine outside the body (external beam radiation therapy), or from radioactive material placed in the body near cancer cells (internal radiation therapy or brachytherapy); | |
| ● | “Relevant Jurisdiction” are to a jurisdiction that (i) has a jurisdictional nexus with the issuer or its securities, as determined by the SEC, and (ii) either (a) the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in the jurisdiction, or (b) the SEC determines that, based on material considerations, it is not reasonably possible to obtain or use in an investigation or inspection in the jurisdiction; | |
| ● | “RMB” and “Renminbi” are to the legal currency of China; | |
| ● | “SEC” are to the U.S. Securities and Exchange Commission; | |
| ● | “Special Resolution” are to a resolution of a general meeting or a resolution of a meeting of the holders of any class of shares in a class meeting duly constituted in accordance with iTonic’s articles of association, as amended from time to time, in each case passed by a majority of no less than two-thirds of members who (being entitled to do so) vote in person or by proxy at that meeting; | |
| ● | “Treatment planning system” or “TPS” are to a system/software used in radiotherapy to pre-plan the actual treatment plan for the patient based on the patient’s diagnostic images, to give the three-dimensional positioning of the tumor, to give the mode of operation of the treatment machine and the corresponding patient’s positional data, and to give other means of correction in the course of dose implementation; | |
| ● | “U.S. dollars,” “$,” “USD,” and “dollars” are to the legal currency of the United States; | |
| ● | “U.S. GAAP” are to accounting principles generally accepted in the United States; | |
| ● | “we,” “us,” and “our” are to iTonic and/or its consolidated subsidiaries; and | |
| ● | “WFOE” are to wholly-foreign owned enterprise. |
This annual report on Form 20-F includes our audited consolidated balance sheets as of December 31, 2024 and 2025, the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2025. In this annual report, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in U.S. dollars. Certain dollar references are based on the exchange rate of RMB to U.S. dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of U.S. dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).
This annual report contains translations of certain RMB amounts into U.S. dollars at specified rates. Unless otherwise stated, the following exchange rates are used in this annual report:
| December 31, | ||||||||||||
| US$ Exchange Rate | 2025 | 2024 | 2023 | |||||||||
| At the end of the year - RMB | $1 = RMB 6.9931 | $1 = RMB 7.2993 | $1 = RMB 7.0999 | |||||||||
| Average rate for the year - RMB | $1 = RMB 7.1875 | $1 = RMB 7.1957 | $1 = RMB 7.0809 | |||||||||
Part I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
Item 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Relating to Conducting Business in the PRC
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business, results of operations and financial condition.
All of our revenues were derived in China, and all of our operations are conducted in China through Beijing Feitian. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including the degree of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
In addition, the healthcare and medical device industry historically has experienced cyclical fluctuations in financial results due to economic recessions, downturns in the business cycles of customers, interest rate fluctuations, and other economic factors beyond our control. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economics and political policies and the expected or perceived overall economic growth rate in China. 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 Beijing Feitian to not reach its long-term growth goals.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing since 2021. A downturn in the economy could affect the discretionary spending power of customers and, in turn, depress the number of orders for Beijing Feitian’s products and services. Any adverse changes in the policies of the Chinese government or in the laws and regulations in China could also have a material adverse effect on the overall economic growth of China, and adversely affect Beijing Feitian’s operation. As a result, changes in economic conditions and government policies could adversely affect our business and results of operations, lead to reduction in demand for our services and adversely affect our competitive position.
All of our revenues are generated in the PRC, but an increase of our international presence could expose us to fluctuations in foreign currency exchange rates, or a change in monetary policy may harm our financial results.
Our functional currency and the reporting currency of the PRC entities is the Renminbi. Currently, all our revenue comes from our operations through Beijing Feitian within the PRC. However, if we expand our international presence in the future, we could face exposure to foreign currency exchange rate fluctuations. As of the date of this annual report, Beijing Feitian has not entered into agreements with any foreign entities outside the PRC in this regard. Nonetheless, any future expansion into international markets may expose us to the impact of exchange rate variations. These fluctuations can be influenced by various factors, including governmental policies and domestic and international economic and political developments. If our non-Chinese revenues increase substantially in the future, any significant change in the value of the currencies of the countries in which we do business against the Renminbi could adversely affect our financial condition and results of operations due to translational and transactional differences in exchange rates.
We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the amount of our revenues that will be generated in other countries, the variability of currency exposures, and the potential volatility of currency exchange rates. We do not take actions to manage our foreign currency exposure, such as entering into hedging transactions.
If Beijing Feitian fails to timely renew its medical device licenses, registration certificates, or business license, it could adversely affect its reputation, financial conditions, and results of operations.
Pursuant to the Administrative Measures on the Operation Supervision of Medical Devices, promulgated on July 30, 2014 and came into effect on October 1, 2014, amended on March 10, 2022, and which amendment came into effect on May 1, 2022, filing and licensing are not required for the operation of Class I medical devices. Pursuant to the Administrative Measures on the Operation Supervision of Medical Devices, operators engaged in the operation of Class II medical devices are subject to filing administration and will receive a Class II medical device operation filing certificate upon satisfaction of filing requirement and no pre-approval of the authorities is needed (the “Class II Medical Device Operation Filing Certificate”). Operators engaged in the operation of Class III medical devices are subject to pre-approval licensing administration and will receive a medical device operation license upon the authorities’ approval (the “Class III Medical Device Operation License”). A Class III Medical Device Operation License is valid for five years and may be renewed within 90 to 30 working days prior to the expiration date. The renewed Class III Medical Device Operation License will be valid for five years. A Class II Medical Device Operation Filing Certificate will be effective in the long term until it is revoked or canceled by the issuing authorities. In addition, Chinese companies also need to apply for and obtain business licenses (the “Business License”) before conducting any business activities.
As of the date of this annual report, Beijing Feitian has received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China. Such licenses and permissions include a Business License, Class II Medical Device Operation Filing Certificate, Class III Medical Device Operation License, Class I Medical Device Production Record Certificate, and Class III Medical Device Production License. See “Item 4. Information on the Company - B. Business Overview - Licenses and Certificates” for details. Beijing Feitian plans to apply to renew its certificates and licenses in a timely manner before the respective expiration dates.
As of the date of this annual report, no event which could cause these certificates or licenses to be revoked or canceled has occurred. However, we cannot assure you that certificates or licenses Beijing Feitian relies its business on will not be revoked or canceled in the future, and we cannot guarantee that our application for renewal will be timely granted. If Beijing Feitian fails to maintain effective certificates and licenses for selling and production of its products, or if Beijing Feitian fails to maintain its business licenses, it could adversely affect our and Beijing Feitian’s reputation, financial conditions and results of operations.
Uncertainties in the interpretation and enforcement of PRC laws and regulations and changes in policies, rules, and regulations in China, which may be quick with little advance notice, could limit the legal protection available to you and us.
The PRC legal system is a civil law system based on written statutes. Prior court decisions are encouraged to be used for reference but it remains unclear to what extent the prior court decisions may impact the current court ruling as the encouragement policy is new and there is limited judicial practice in this regard. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The legislation over the past three decades has significantly increased the protection afforded to various forms of foreign or private-sector investment in China. Beijing Feitian is subject to various PRC laws and regulations generally applicable to companies in China. Although the PRC legal system is evolving rapidly, its current slate of laws may not be sufficient to cover all aspects of the economic activities in China, including such activities that relate to or have an impact on our business. Implementation and interpretations of laws, regulations and rules are not always undertaken in a uniform matter and enforcement of these laws, regulations and rules involves uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since the PRC legal system is based on written statutes and legal interpretations by the Standing Committee of the National People’s Congress, and the PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies, internal rules, and regulations that may have retroactive effect and may change quickly with little advance notice. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual property), and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
The PRC government’s significant oversight over our business operations could result in a material adverse change in our operations and the value of our securities. We may also be required to obtain additional permissions from PRC authorities to operate our business and to offer securities to foreign investors.
A substantial part of our business is conducted through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our subsidiaries in China, including the medical device registration certificate, multiple medical device record certificates, the Class III Medical Device Production License and the Class III Medical Device Operation License. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the services in the future.
Furthermore, in connection with our issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we and our PRC subsidiaries, (i) are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, for this offering; (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, as we do not fall into the category of operators of “critical information infrastructure” or data processors that affect or may affect national security, nor do we process personal information of more than one million users; and (iii) have not been notified by nor have we received any inquiry from any PRC authority that we are required to obtain such permissions.
However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers.
If any of our Company, our subsidiaries do not receive or maintain the requisite permissions or approvals for our operations, or inadvertently conclude that such permissions or approvals are not required, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures, including imposing fines, confiscating our incomes and products that are deemed to have been obtained through illegal operations, and discontinuing or restricting our operations. It could result in substantial additional costs, adversely affect our ability to conduct our business, compete with other companies, our financial performance and negatively affect investors’ confidence in our financial performance and business prospects. Even if such permissions or approvals are ultimately granted, we may not successfully maintain or renew them and they may be withdrawn. Since applicable laws, regulations, or interpretations for the permissions or approvals may change and we may be required to obtain additional permissions or approvals in the future, we cannot assure you that we may obtain such permissions or approvals in a timely manner, or at all. It could result in a material change in our operations and we may be required to recall some of our current or future products, or even to partially suspend or totally shut down our production. In addition, regulatory changes may relax certain requirements that could benefit our competitors or lower market entry barriers and increase competition. Furthermore, it could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or become worthless.
As the CSRC determines that we need to complete the required filing procedures for any such subsequent securities offerings in the same overseas market where we have previously offered and listed securities, or if such government authorities promulgate any interpretation or implement rules that would require us to obtain approvals from the CSRC or other regulatory authorities or complete required filing or other administrative procedures for any future offshore securities offering or other financing activities, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing or other administrative procedures, or obtain any waiver of aforesaid requirements if and when procedures are established to obtain such waiver. Any failure to obtain or delay in obtaining such approval or completing such filing or other administrative procedures for any future offshore securities offering, or a rescission of any such approval obtained by us, could subject us to sanctions by the CSRC or other PRC regulatory agencies. In any such event, these regulatory authorities may also impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from any future offshore securities offering into the PRC or take other actions that could adversely affect our business, operating results and financial condition, as well as our ability to complete any future offshore securities offering. The CSRC or any other PRC government authorities may also take actions requiring us, or making it advisable for us, to halt any future offshore securities offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur. Any uncertainties or negative publicity regarding such approval requirements could materially and adversely affect the trading price of our shares.
Recent greater oversight by the Cyberspace Administration of China (CAC) over data security could adversely impact our business.
On December 28, 2021, the CAC, together with 12 other governmental departments of the PRC, jointly promulgated the Measures for Cybersecurity Review, or the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provides that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, data processing operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures further requires that CIIOs and data processing operators that possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting listings in foreign countries. As advised by our PRC counsel, PacGate Law Group, as of the date of this annual report, we are not subject to cybersecurity review with the CAC under the Measures for Cybersecurity Review (2021 version), since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Measures for Cybersecurity Review (2021 version). On September 24, 2024, the State Council published the Regulations on the Network Data Security Administration, or the Security Administration, which became effective on January 1, 2025, and provides that the network data processor shall apply for a cybersecurity review in compliance with relevant national regulations if it conducts network data processing activities that impact or may impact national security. As of the date of this annual report, we have not been involved in any investigations on cybersecurity review initiated by the CAC and other relevant competent authorities, and we have not received any warning, sanction or penalty in such respect. However, the Measures for Cybersecurity Review (2021 version) was recently adopted and, therefore, it is uncertain how it will be enacted, interpreted or implemented, and how it will affect us. Since these regulatory actions are new or have not been formally enacted, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, or our ability to accept foreign investments. As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could be subject to cybersecurity review, and if so, there is no assurance that we would be able to pass such review in relation to future offerings in a timely manner or at all. In addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any non-compliance with the related laws and regulations may result in fines or other penalties against us, which may have material adverse effect on our business, financial condition or results of operations.
Under PRC laws and regulations, personal information collected, shared, and used in Beijing Feitian’s operations is likely to be deemed held by Beijing Feitian. As of the date of this annual report, Beijing Feitian’s software has been operated offline without the provision of network or cloud services, and Beijing Feitian has not collected customers’ data. Beijing Feitian has not experienced any material breach of its system or cybersecurity measures as of the date of this annual report. Despite the fact that personal information collected by Beijing Feitian’s customers and shared with Beijing Feitian may subject Beijing Feitian to cybersecurity review, we believe it remains unlikely to be required, as the number of users whose personal information are collected is unlikely to reach the threshold of one million in the foreseeable future. Beijing Feitian has not been considered as an “operator of critical information infrastructure” by competent authority, nor has it been informed by any PRC governmental authority of any requirement that Beijing Feitian files for a cybersecurity review.
As of the date of this annual report, we have not received any notice from any authorities identifying Beijing Feitian as CIIOs or requiring us to go through cybersecurity review or network data security review by the CAC, and we have not received any investigation, warning, sanction or penalty in such respect. As the Cybersecurity Review Measures and the Security Administration became effective, we believe that the operations of Beijing Feitian will not be affected and that we are not subject to cybersecurity review or network data security review by the CAC, given that: (i) as companies that mainly manufacture and sell medical devices, the PRC operating entity is unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) Beijing Feitian makes substantially all of its sales through physical distributions and does not own any online store, and it does not collect personal data of customers who use its software; as a result, Beijing Feitian possess personal data of fewer than one million individual clients in its business operations of selling offline software as of the date of this annual report. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we or Beijing Feitian will not be subject to cybersecurity review and network data security review in the future. During such reviews, we may be required to suspend our operation or experience other disruptions to our operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations.
If we become directly subject to the scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price, and reputation.
U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism, and negative publicity by investors, financial commentators, and regulatory agencies, such as the SEC. Much of the scrutiny, criticism, and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism, and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism, and negative publicity will have on us, our business, and the price of our Class A Ordinary Shares. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from developing our business. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our Class A Ordinary Shares.
Increases in labor costs in the PRC may adversely affect our business and profitability and failure to comply with PRC labor laws may subject us to penalties.
China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China are expected to continue to grow. The average wage levels for Beijing Feitian’s employees have also increased in recent years. Beijing Feitian expects that its labor costs, including wages and employee benefits, will continue to increase.
In addition, Beijing Feitian has been subject to stricter regulatory requirements with respect to labor contracts with its employees and the payment of various statutory employee benefits, including pensions, housing fund deposits, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance to designated government agencies for the benefit of its employees. Pursuant to the PRC Labor Contract Law, or the “Labor Contract Law” that became effective in January 2008 and its amendments that became effective in July 2013 and its implementing rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation, and unilaterally terminating labor contracts. In the event that Beijing Feitian decides to terminate some of its employees or otherwise change its employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
Companies operating in China are required to participate in various government-sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where the employees are based. In the past, Beijing Feitian did not make full contributions to social insurance and housing provident funds for its employees. Starting from July 2024 and as of the date of this annual report, Beijing Feitian has paid full contributions to social insurance and housing provident funds for its employees. In the event that Beijing Feitian fails to make full contributions to social insurance and to comply with applicable PRC labor-related laws regarding housing funds, Beijing Feitian could be subject to late payment penalties and other fines or labor disputes, and Beijing Feitian could be required to make up the contributions for these plans, which could adversely affect our financial condition and results of operations. As of the date of this annual report, Beijing Feitian has not received any notice or demand from any relevant authority of the PRC government.
The interpretation and implementation of labor-related laws and regulations are still constantly evolving, which may be further amended from time to time. Due to the constant evolution of the labor-related laws, we cannot assure you that our current employment practices will not violate any future labor-related laws and regulations in China, which may subject Beijing Feitian to labor disputes or government investigations. If Beijing Feitian is deemed to have violated relevant labor laws and regulations, it could be required to provide additional compensation to its employees, and our business, financial condition and results of operations could be materially and adversely affected.
Beijing Feitian has not made adequate social insurance and housing fund contributions for all employees as required by PRC regulations, which may subject us to penalties.
According to the PRC Social Insurance Law and the Administrative Regulations on the Housing Funds, companies operating in China are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance (collectively known as “social insurance”), and housing funds plans, and the employers must pay all or a portion of the social insurance premiums and housing funds for their employees. For more details, please see “Item 4. Information on the Company - B. Business Overview - Regulations - Regulations relating to Employment and Social Welfare - Regulations on Social Insurance and Housing Provident Fund.” Commencing July 2024 and as of the date of this annual report, Beijing Feitian has made adequate social insurance and housing fund contributions for all its employees. If Beijing Feitian fails to make adequate social insurance and housing fund contributions in the future, according to the Social Insurance Law, it may be required to make up the social insurance contributions as well as to pay late fees at a rate of 0.05% per day of the outstanding amount for each day of delay. For failure to make the adequate housing provident fund contributions, Beijing Feitian may be ordered by the competent authorities to make such contributions within the prescribed time and any delay in doing so may subject Beijing Feitian to a court order to make up the contributions. As of the date of this annual report, Beijing Feitian has not received any notice or demand from any other relevant authority of the PRC government, and Beijing Feitian has not been subject to any administrative penalties, material litigation or legal proceedings, or notifications of any material employee complaints, labor disputes with respect to social insurance and housing provident fund contributions. Given the situations detailed above, the Company believes the probability of such requirements is remote. Beijing Feitian expects to comply as necessary and pay any shortfall within a prescribed time period if demanded by the relevant government authorities and make contributions to social insurance for all employees when required. Nevertheless, should Beijing Feitian be required to make full contributions to the social insurance and/or housing funds in the future, and is subject to late fees and\or fines pertaining to underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Failure to keep up with the changes in domestic industry policies or standards could have a material and adverse effect on our reputation, financial condition, and results of operations.
The treatment planning system and Medical Auxiliary Supplies Beijing Feitian sells are closely related to human health, which is subject to strict supervision by relevant PRC authorities. The related national government authorities have issued a series of regulatory guidelines and industry policies to ensure the healthy development of the industry. In recent years, as China further deepens the reform of its medical and health system, relevant government departments have successively implemented a series of regulations and policies regarding industry standards, bidding, price formation mechanisms, circulation systems and other related fields, which have had a wide and profound impact on the livelihood and development of pharmaceutical companies.
In April 2016, the General Office of the State Council issued the Notice on Key Tasks for Deepening the Reform of the Pharmaceutical and Healthcare System in 2016, proposing to encourage the implementation of the “two-invoice system” in pilot cities for comprehensive reform of public hospitals. In December 2016, the Medical Reform Office of the State Council promulgated the Opinions on the Implementation of the “two-invoice system” in Drug Procurement by Public Medical Institutions (for trial implementation), which means that the “two invoice system” has been officially launched and will be further promoted nationwide. Under the “two-invoice system,” invoices are issued once when pharmaceutical products are sold from manufacturers to wholesalers. Then, invoices are issued again when wholesalers resell the products to hospitals. This is aimed at shortening the circulation links and reducing hospital procurement costs. Under the “two-invoice system,” consumable products manufacturers with brand recognition and economies of scale could increase their coverage of terminals. At the same time, the “two-invoice system” also presents consumable products manufacturers with higher requirements for the construction and optimization of marketing channels. Manufacturers will need to grow their marketing teams, expand sales networks and improve refined service capabilities.
The deepening of the reform of the domestic healthcare industry and the strengthening of supervision may affect our business plan and profitability in the domestic market. If Beijing Feitian fails to adapt to the changes in industry policies timely, it could materially and adversely affect their business, financial condition, and results of operations.
We may be subject to enterprise income tax on our worldwide income if our Company or any of our subsidiaries were considered a PRC “resident enterprise” under the PRC Enterprise Income Tax Law.
Under the EIT Law, and its implementation rules, enterprises established outside of China with “de facto management bodies” within China are considered a “resident enterprise” and will be subject to enterprise income tax, or EIT, at a rate of 25% on their worldwide income. The implementation rules under EIT define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the production, operation, personnel, accounting and properties of an enterprise.” The State Administration of Taxation of the PRC, or SAT promulgated the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009, which provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. On July 27, 2011, SAT issued the Measures for Administration of Income Tax of Chinese Controlled Resident Enterprises Incorporated Overseas (Trial), or Circular 45, to supplement Circular 82 and other tax laws and regulations. Circular 45 clarifies certain issues relating to resident status determination. Although Circular 82 and Circular 45 apply only to offshore enterprises controlled by PRC enterprises or PRC group companies and not those controlled by PRC individuals or foreigners, the determining criteria set forth in Circular 82 and Circular 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or individuals or foreign enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board customers or senior executives habitually reside in the PRC.
We believe that neither our Company nor our subsidiaries are PRC resident enterprises for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that our Company or any of our subsidiaries are PRC resident enterprises for enterprise income tax purposes, our Company or any of our subsidiaries would be subject to PRC enterprise income tax on our worldwide income at the rate of 25%. Furthermore, our Company or any of our subsidiaries would be required to withhold a 10% tax from dividends our Company or any of our subsidiaries pay to shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to PRC tax on gains realized on the sale or other disposition of our Class A Ordinary Shares, if such income is treated as sourced from within the PRC. Furthermore, if our Company or any of our subsidiaries are deemed as PRC resident enterprises, dividends paid to their non-PRC individual shareholders and any gain realized on the transfer of our Class A Ordinary Shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of us would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our Class A Ordinary Shares.
Dividends payable to our foreign investors and gains on the sale of our shares by our foreign investors may become subject to PRC tax.
Under the EIT Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, including those registered in the Cayman Islands, which do not have an establishment or place of business in China or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within China. Similarly, any gain realized on the transfer of our Class A Ordinary Shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions, if such gain is regarded as income derived from sources within China.
If we are deemed a PRC resident enterprise, dividends paid on our Class A Ordinary Shares, and any gain realized from the transfer of our Class A Ordinary Shares, would be treated as income derived from sources within China and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of our Class A Ordinary Shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions. If we, Pheton BVI, or Pheton HK are considered to be PRC resident enterprises, it is unclear whether holders of our Class A Ordinary Shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our Class A Ordinary Shares by such investors, are deemed as income derived from sources within China and thus are subject to PRC tax, the value of your investment in our Class A Ordinary Shares may decline significantly.
We may rely on dividends and other distributions on equity paid by Beijing Feitian to fund any cash and financing requirements we may have, and any limitation on the ability of Beijing Feitian to make payments to us could have a material and adverse effect on our ability to conduct or fund our whole business.
We are a Cayman Islands holding company and conduct all of our business through Beijing Feitian. We rely principally on dividends and other distributions on equity from Beijing Feitian for our cash and financial requirements we may incur.
The ability of Beijing Feitian to distribute dividends is based upon its distributable earnings. Current PRC regulations permit Beijing Feitian to pay dividends to its shareholders only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. If Beijing Feitian incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on Beijing Feitian’s ability to distribute dividends or other payments to its shareholders could materially and adversely limit our ability to make investments or acquisitions that could be beneficial to our whole business, pay dividends or otherwise fund our business.
PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our operating entity to liability or penalties, limit our ability to inject capital into our operating entity or limit its ability to increase its registered capital or distribute profits.
In July 2014, the State Administration of Foreign Exchange of the PRC, or 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, which replaces the previous SAFE Circular 75. 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 may make in the future.
Under 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, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its 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 to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the 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 subsidiaries in China. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our Company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our operating entity, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit its ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and 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. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. 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.
PRC 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 from future financing activities to make loans or additional capital contributions to our PRC operating entity.
We are an offshore holding company with all of our operations conducted in China through Beijing Feitian. We may make loans to our PRC subsidiaries, subject to the approval, registration, and filing with governmental authorities and limitations of amount, or we may make additional capital contributions to Jinruixi as our wholly foreign-owned subsidiary in China. Any loans to wholly foreign-owned subsidiaries or operating entities in China are treated as foreign-invested enterprises under PRC law, and are subject to foreign exchange loan registrations with the NDRC, and SAFE or its local branches.
Any funds we transfer to Beijing Feitian, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign investors in China, capital contributions to wholly foreign-owned subsidiaries or PRC operating entities are subject to submission of information to and registration with certain PRC government authorities, including MOFCOM or its local counterparts and the State Administration of Market Regulation (“SAMR”) through its Enterprise Registration System, the National Enterprise Credit Information Publicity System and the local counterpart of SAFE. In addition, any foreign loan procured by those PRC operating entities cannot exceed statutory limits and is required to be registered with SAFE or its respective local branches.
On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect on June 1, 2015, and amended in December 2019 and in March 2023. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of foreign investors and allows foreign investors to settle their foreign exchange capital at their discretion, but continues to prohibit foreign investors from using the Renminbi fund converted from their foreign exchange capital for expenditure beyond their business scopes, providing entrusted loans or repaying loans between nonfinancial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 2016 and amended in December 2023. Pursuant to SAFE Circular 16, enterprises registered in China may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered in China. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while such converted Renminbi shall not be provided as loans to its non-affiliated entities. As this circular is relatively new, there remains uncertainty as to its interpretation and application and any other future foreign exchange related rules. Violations of these Circulars could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to use Renminbi converted from the proceeds received from our public offering, to invest in or acquire any other PRC companies through our operating entity, which may adversely affect our business, financial condition and results of operations.
On October 23, 2019, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Convenience of Cross-border Trade and Investment, or the SAFE Circular 28, which was amended in December 2023, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since the SAFE Circular 28 is newly promulgated, it is unclear how SAFE and competent banks will carry this out in practice.
In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of a foreign invested enterprise shall not be used for the following purposes: (1) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (2) directly or indirectly used for investment in securities or other investment and wealth management (except for wealth management products and structured deposits with risk ratings not higher than Level 2), unless otherwise expressly stipulated; (3) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (4) the purchase of residential properties not for self-use (except for enterprises engaged in real estate development and operation, and real estate leasing and operation).
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, 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 or future capital contributions by us to Beijing Feitian. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from future financing activities and to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our whole business.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by our offshore subsidiaries.
On February 3, 2015, the State Administration of Taxation, or the SAT, issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets, as such persons need to determine whether their transactions are subject to these rules and whether any withholding obligation applies.
On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.
Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who pays for the transfer is obligated to withhold the applicable taxes currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. We may be subject to filing obligations or taxed if we are transferor in such transactions, and may be subject to withholding obligations if we are transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in us by investors who are non-PRC resident enterprises, Beijing Feitian may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that we should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission (the “SASAC”), the State Administration of Taxation (the “SAT”), the State Administration of Industry and Commerce (the “SAIC”), the CSRC, and the SAFE, jointly adopted the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The M&A Rules and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that shall obtained an approval from MOFCOM, in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles. See “Item 4. Information on the Company - B. Business Overview - Regulations - M&A Rules and Regulation on Overseas Listings.”
In the future, we may grow our business by acquiring businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions, if required, could be time-consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected. Furthermore, according to the M&A Rules, if a PRC entity or individual plans to merge or acquire its related PRC entity through an overseas company legitimately incorporated or controlled by such entity or individual, such a merger and acquisition will be subject to examination and approval by the MOFCOM. There is a possibility that the PRC regulators may promulgate new rules or explanations requiring that we obtain the approval of the MOFCOM or other PRC governmental authorities for our completed or ongoing mergers and acquisitions. There is no assurance that, if we plan to make an acquisition, we can obtain such approval from the MOFCOM or any other relevant PRC governmental authorities for our mergers and acquisitions, and if we fail to obtain those approvals, we may be required to suspend our acquisition and be subject to penalties. Any uncertainties regarding such approval requirements could have a material adverse effect on our business, results of operations and corporate structure.
Moreover, the Anti-Monopoly Law requires that MOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by MOFCOM that became effective in September 2011 specify that 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 MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
Chinese government agencies may exert more oversight and control over offerings that are conducted overseas and involve foreign investment in China-based issuers. Additional compliance procedures may be required in connection with our future offerings under PRC rules, regulations, or policies.
The M&A Rules also include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. Since this document is relatively new, uncertainties still exist regarding how soon legislative or administrative regulation-making bodies will respond, what, if any, existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, and the potential impact such modified or new laws and regulations will have on our Chinese operations.
Further, the Chinese government continues to exert more oversight and control over Chinese companies. On July 2, 2021, the Chinese cybersecurity regulator announced that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s application be removed from smartphone application stores. On July 5, 2021, the Chinese cybersecurity regulator launched the same investigation on two other Internet platforms, Chinese Full Truck Alliance of Full Truck Alliance Co. Ltd. (NYSE: YMM) and BOSS Zhipin of Kanzhun Limited (Nasdaq: BZ). On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment in such firms via mergers and acquisitions, trusteeship, franchise chains, and variable interest entities are banned from this sector.
On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures and relevant five guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. At a press conference held for these new regulations, officials from the CSRC clarified that the domestic companies that have already been listed overseas on or before the effective date of the Overseas Listing Trial Measures shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file with the CSRC when subsequent matters such as refinancing are involved. Further, according to the officials from the CSRC, domestic companies that have obtained approval from overseas regulatory authorities or securities exchanges for their indirect overseas offering and listing prior to the effective date of the Overseas Listing Trial Measures but have not yet completed their indirect overseas issuance and listing, are granted a six-month transition period from March 31, 2023. Those who complete their overseas offering and listing within such six months are deemed as Existing Issuers. Within such six-month transition period, however, if such domestic companies need to reapply for offering and listing procedures to the overseas regulatory authority or securities exchanges, or if they fail to complete their indirect overseas issuance and listing, such domestic companies shall complete the filling procedures with the CSRC. We completed such filing procedures in connection with our initial public offering on December 8, 2023, the completion of which was posted on the official website of the CSRC on December 11, 2023. However, given the current PRC regulatory environment, it is uncertain whether we or our PRC subsidiaries will be required to obtain approvals from the PRC government to offer securities to foreign investors in the future, and whether we would be able to obtain such approvals. On July 7, 2022, the Outbound Data Transfer Security Assessment Measures formally promulgated, which became effective from September 1, 2022. The Outbound Data Transfer Security Assessment Measures stipulate the circumstances under which security assessment of outbound data transfers should be declared, including: (i) outbound transfer of important data, which means any data, the tampering, damage, leakage, or illegal acquisition or use of which, if it happens, may endanger national security, the operation of the economy, social stability, public health and security, by a data processor; (ii) outbound transfer of personal information by a critical information infrastructure operator or a personal information processor who has processed the personal information of more than 1,000,000 people; (iii) outbound transfer of personal information by a personal information processor who has made outbound transfers of the personal information of 100,000 people cumulatively or the sensitive personal information of 10,000 people cumulatively since 1 January of the previous year; or (iv) other circumstances in which an application for the security assessment of an outbound data transfer is required as prescribed by the national cyberspace administration authority. On December 28, 2021, the Cybersecurity Review Measures (2021 version) was promulgated and became effective on February 15, 2022, which iterates that any “online platform operators” controlling personal information of more than 1,000,000 users which seeks to list in a foreign stock exchange should be subject to cybersecurity review. The Cybersecurity Review Measures (2021 version), further elaborates the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exiting the country; and (ii) the risk of critical information infrastructure, core data, important data, or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. We do not believe we apply for a cybersecurity review according to the relevant measures; however, the Cybersecurity Review Measures (2021 version) was recently adopted, and we do not know what regulations will be adopted or how such regulations will affect us and our continued listing on Nasdaq. As there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could be subject to cybersecurity review, and if so, we may not be able to pass such review. In addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business, website closure, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have a material adverse effect on our business, financial condition or results of operations. As of the date of this annual report, we have not been involved in any investigations on cybersecurity review initiated by the CAC or related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect.
Beijing Feitian is not operating in an industry that prohibits or limits foreign investment, but our business is subject to various government regulations and regulatory interference. As of the date of this annual report, Beijing Feitian has received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China, and no permission or approval has been denied. Such licenses and permissions include Business License, Class II Medical Device Operation Filing Certificate, Class III Medical Device Operation License, etc. As a result, as advised by our PRC counsel, other than those requisite for a domestic company in China to engage in the businesses similar to ours and the filing procedures with the CSRC as disclosed in this annual report, Beijing Feitian is not required to obtain any other permission from Chinese authorities including the CSRC, CAC or any other governmental agency that is required to approve our operating entity’s operations. However, the PRC government may take actions to exert more oversight and control over offerings by China-based issuers conducted overseas and/or foreign investment in such companies, if Beijing Feitian does not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that Beijing Feitian is required to obtain approval in the future, Beijing Feitian may be subject to investigations by competent regulators, fines or penalties, ordered to suspend its relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in Beijing Feitian’s operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.
Substantial uncertainties exist with respect to the interpretation and implementation of newly enacted PRC Foreign Investment Law and its Implementation Rules and how they may impact the viability of our corporate structure, corporate governance, and operations.
On March 15, 2019, the PRC National People’s Congress approved the PRC Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. On December 26, 2019, the State Council of the People’s Republic of China, or the State Council, approved the Implementation Rules of Foreign Investment Law, which came into effect on January 1, 2020. The PRC Foreign Investment Law and its Implementation Rules embody an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since the PRC Foreign Investment Law is relatively new, substantial uncertainties exist with respect to its interpretation and implementation.
The PRC Foreign Investment Law specifies that foreign investments shall be conducted in line with the “negative list” issued by the State Council. Foreign investors would not be allowed to make investments in prohibited industries in the “negative list,” while the foreign investors must satisfy certain conditions stipulated in the “negative list” for investment in restricted industries. It is uncertain whether the brachytherapy TPS market, in which Beijing Feitian operates, will be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued in the future. If any business operation of Beijing Feitian were to fall in the “negative list,” Beijing Feitian would face uncertainties as to whether such clearance can be timely obtained, or at all. There are uncertainties as to how the PRC Foreign Investment Law would be further interpreted and implemented. We cannot assure you that the interpretation and implementation of the PRC Foreign Investment Law made by the relevant governmental authorities in the future will not materially impact the viability of our corporate structure, corporate governance and business operations in any aspect.
The Chinese government exerts substantial influence over the manner in which the PRC operating entity must conduct its business activities. If the Chinese government significantly regulates our operating entity’s business operations in the future and it is not able to substantially comply with such regulations, our operating entity’s business operations may be materially adversely affected, and the value of our Class A Ordinary Shares may significantly decrease.
The Chinese government exerts substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The ability of Beijing Feitian to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters relate to our industry. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure the compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest or properties we then hold in China.
As such, the business operations of Beijing Feitian and the brachytherapy TPS industry may be subject to various governmental control or regulatory interference in the provinces in which Beijing Feitian operates. We and any of our subsidiaries could be subject to regulation by various political and regulatory authorities, including various local and municipal agencies and government sub-divisions. It may trigger increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In the event that we or any of our subsidiaries are not able to substantially comply with any existing or newly adopted laws and regulations, Beijing Feitian’s business operations may be materially adversely affected and the value of our Class A Ordinary Shares may significantly decrease.
Furthermore, the PRC government authorities may strengthen oversight and control over offerings and/or listings that are conducted overseas and/or foreign investment in China-based issuers like us. Such actions taken by the PRC government authorities may intervene or influence operations of Beijing Feitian at any time, which are beyond our control. Therefore, any such action may adversely affect the operations of Beijing Feitian and result in material changes in its operations and/or the value of our Class A Ordinary Shares. In addition, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to you and cause the value of such securities to significantly decline or be worthless.
Compliance with PRC advertising laws, rules and regulations may be difficult, and any non-compliance could subject us to government sanctions.
We are obligated to ensure all of our advertising content complies with applicable laws and regulations. According to the PRC Advertising Laws, advertisements shall be truthful and lawful, and shall not contain any false or misleading content. Furthermore, advertisements for medical treatment, pharmaceuticals, medical devices, agricultural pesticides, veterinary medicines and healthcare food, and other advertisements required to be reviewed by laws and administrative regulations shall be reviewed by the relevant authorities before they are published. As of the date of this annual report, Beijing Feitian utilizes both online and offline marketing strategies to acquire customers. In particular, the Beijing Feitian’s sales team engages in regular offline visits to hospitals and suppliers, and seeks out brachytherapy market bidding opportunities online. Additionally, the sales team reaches potential customers by attending industry conferences and seminars to expand its network. According to the PRC Advertising Law, such law applies to all commercial advertising activities for direct or indirect introduction of products or services promoted by product business operators or service providers via a certain media and in a certain form within the territory of the People’s Republic of China. Such media may include, but are not limited to, mass media other than news reports or medical professional publications. Such forms may include, but are not limited to, videos or articles. As of the date of this annual report, Beijing Feitian’s marketing strategies generally do not involve publishing advertisements for its medical devices via a certain medium and in a certain form, and Beijing Feitian has not received any notification from any relevant regulatory authority that any of its online or offline marketing activities have violated any PRC advertising laws. However, there remains uncertainty whether any governmental authority will consider Beijing Feitian’s current or future online and offline marketing strategies incompliant with relevant requirements under the PRC advertising laws in the future. Moreover, if Beijing Feitian plans to publish any advertisement in the future, we cannot guarantee you that such advertisements will be able to pass the regulatory reviews. Additionally, we cannot assure you that all of our advertising content or conduct will comply with applicable laws and regulations at all times, and any violation of the relevant laws and regulations may subject us to governmental penalties, impair our brand and reputation, and adversely impact our financial condition and results of operations.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management named in the annual report based on foreign laws. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
We are a company incorporated under the laws of the Cayman Islands, and we conduct most of our operations in China through Beijing Feitian and most of our assets are located in China. In addition, four of our directors and officers are nationals or residents of the PRC, one of our directors is a national of the U.S., and one of our directors is a national of Singapore. Except for Mr. Ye, who is a national of the U.S., all or substantially all of the assets of other directors and officers are located outside the U.S. As a result, it may be difficult for you to effect service of process upon us or those persons outside the U.S. In addition, there is uncertainty as to whether the courts of the Cayman Islands, Singapore, or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of U.S. securities laws or those of any U.S. state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the U.S. may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
If the U.S. Public Company Accounting Oversight Board, or the PCAOB, is unable to inspect our auditors as required under the Holding Foreign Companies Accountable Act, the SEC will prohibit the trading of our Class A Ordinary Shares. A trading prohibition for our Class A Ordinary Shares, or the threat of a trading prohibition, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the benefits of such inspections.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, 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.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operating in a “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or the board of directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditor. On October 4, 2021, the SEC approved Nasdaq’s revised proposal for the rule changes.
On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. Pursuant to the HFCA Act, if the PCAOB is unable to inspect an issuer’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. The PCAOB issued a Determination Report on December 16, 2021 (the “Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. Furthermore, the Determination Report identified the specific registered public accounting firms as “PCAOB Identified Firms” which are subject to these determinations.
On March 24, 2021, the SEC announced the adoption of interim final amendments to implement the submission and disclosure requirements of the HFCA Act. In the announcement, the SEC clarifies that before any issuer will have to comply with the interim final amendments, the SEC must implement a process for identifying covered issuers. The announcement also states that the SEC staff is actively assessing how best to implement the other requirements of the HFCA Act, including the identification process and the trading prohibition requirements.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the board of directors of a company is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the 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 PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On 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 mainland China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions. The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our Class A Ordinary Shares to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
On August 26, 2022, the PCAOB announced that it had signed the Protocol with the CSRC and the MOF of the People’s Republic of China, governing inspections and investigations of audit firms based in mainland China and Hong Kong. Pursuant to the Protocol, the PCAOB conducted inspections on select registered public accounting firms subject to the Determination Report in Hong Kong between September and November 2022.
On December 15, 2022, the PCAOB board announced that it has completed the inspections, determined that it had complete access to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and voted to vacate the Determination Report.
Notwithstanding the foregoing, the Company’s ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to us, may depend on the relevant positions of U.S. and Chinese regulators. Our auditor prior to November 28, 2025, Marcum Asia CPAs LLP (“Marcum Asia”), had been inspected by the PCAOB on a regular basis in the audit period, and our new auditor, Fortune CPA (“Fortune”), as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Fortune is headquartered in Garden Grove, California, and is inspected by the PCAOB on a regular basis. Neither of Marcum Asia or Fortune is subject to the determinations issued by the PCAOB on December 16, 2021. However, the recent developments would add uncertainties to our offerings and we cannot assure you whether the national securities exchange or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach, or experience as it relates to our audit. In addition, the HFCA Act, which requires that the PCAOB be permitted to inspect an issuer’s public accounting firm within three years, may result in the delisting of our Company or prohibition of trading in our Class A Ordinary Shares in the future if the PCAOB is unable to inspect our accounting firm at such future time. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and 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 two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. As a result, the risks mentioned above have been heightened.
If our Class A Ordinary Shares are subject to a trading prohibition under the HFCA Act or the Accelerating Holding Foreign Companies Accountable Act, the price of our Class A Ordinary Shares may be adversely affected, and the threat of such a trading prohibition would also adversely affect their price. If we are unable to be listed on another securities exchange that provides sufficient liquidity, such a trading prohibition may substantially impair your ability to sell or purchase our Class A Ordinary Shares when you wish to do so.
The HFCA Act also imposes additional certification and disclosure requirements for companies that are identified by the SEC as having a substantial connection to a foreign jurisdiction that has limitations on U.S. regulatory oversight (the “Commission Identified Issuers”), and these requirements apply to issuers in the year following their listing as Commission Identified Issuers. The additional requirements include a certification that the issuer is not owned or controlled by a governmental entity in the Relevant Jurisdiction, and the additional requirements for annual reports include disclosure that the issuer’s financials were audited by a firm not subject to PCAOB inspection, disclosure on governmental entities in the Relevant Jurisdiction’s ownership in and controlling financial interest in the issuer, the names of Chinese Communist Party, or CCP, members on the board of the issuer or its operating entities, and whether the issuer’s articles include a charter of the CCP, including the text of such charter.
Risks Relating to Our Business and Operations
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.
Our operating history may not be indicative of our future growth or financial results. There is no assurance that we will be able to grow our revenues in future periods. Our growth rates may decline for any number of possible reasons, and some of them are beyond our operating entity’s control, including decreasing customer demand, increasing competition, declining growth of the brachytherapy TPS industry in general, emergence of alternative business models, or changes in government policies or general economic conditions. We expect to 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 Class A Ordinary Share could decline accordingly.
We may not be able to generate sufficient revenue from the commercialization of FTTPS to achieve and maintain profitability.
We rely mostly on the commercialization of FTTPS to generate revenue, and we expect to generate a majority of our revenue in the future from sales of FTTPS. In order to successfully commercialize FTTPS, we need to continuously expand our marketing efforts to develop new relationships and expand existing relationships with customers, to receive clearance or approval for FTTPS in additional countries, to achieve and maintain compliance with all applicable regulatory requirements and to develop and commercialize new features for FTTPS.
We cannot assure you that we will be able to achieve or maintain profitability. If we fail to successfully commercialize new-generation FTTPS in the future, we may not receive a return on the substantial investments in product development, sales and marketing, regulatory compliance, and quality assurance we have made, as well as further investments we intend to make, which may cause us to fail to generate revenue and gain economies of scale from such investments. In addition, potential customers may decide not to purchase FTTPS or our customers may decide to cancel orders due to changes in treatment offerings, research and product development plans, difficulties in obtaining medical insurance reimbursement for radiation therapy treatment, complications with facility build-outs, utilization of brachytherapy or other cancer treatment methods developed by other parties, lack of financing or the inability to obtain or delay in obtaining a certificate of need from state regulatory agencies, all of which are circumstances outside of our control. In addition, demand for FTTPS may not increase as quickly as we predict, and we may be unable to increase our revenue levels as we expect. Even if we succeed in increasing adoption of FTTPS by hospitals and other healthcare providers, maintaining and creating relationships with our existing and new customers and developing and commercializing new features for FTTPS, we may not be able to generate sufficient revenue to achieve or maintain profitability.
If FTTPS does not perform as expected, or if we are unable to satisfy customers’ demands for additional product features, our business and results of operations will suffer.
Our success depends on the market’s acceptance of TPS’s reliable guidance for brachytherapy. We believe that our customers are likely to be particularly sensitive to product defects and errors, including functional downtime that limits the number of patients that can be treated using the system or a failure that is costly to repair. As of the date of this annual report, we have not noticed any product defects or errors. However, we cannot assure you that any product defects or other errors will not occur in the future. This could also include the mistreatment of a patient with FTTPS caused by human error on the part of FTTPS’s operators or prescribing physicians or as a result of a machine malfunction. We may be subject to regulatory enforcement action or legal claims arising from any defects or errors that may occur. Any failure of FTTPS to perform as expected could harm our reputation, business and results of operations.
In addition, our customers are technologically well informed and at times have specific demands or requests for additional functionality. If we are unable to meet those demands through the development of new features for FTTPS or future products, those new features or products do not function at the level that our customers expect, we are unable to increase throughput as expected or we are unable to obtain regulatory clearance or approval of those new features or products, where applicable, our reputation, business and results of operations could be harmed.
Our ability to generate sufficient revenue and achieve growth prospects depends on the widespread adoption of radiotherapy and brachytherapy as cancer treatment, as well as our success in gaining market acceptance in the constantly evolving technological landscape.
The TPS for brachytherapy market is characterized by frequent improvements and evolving technology, which may lead to the emergence of new equipment and services. Beijing Feitian’s success in the market will depend on its ability to adapt to technological changes, which may require additional regulatory approvals and significant expenditures. TPS provides models for treatment devices and sources used for the different types of radiotherapy, such as brachytherapy, and is at the heart of radiotherapy, because it can determine the accuracy of the dose of radiotherapy and is closely related to the clinical outcome of radiotherapy. However, widespread adoption of TPS for brachytherapy depends on many factors, including acceptance by clinicians, demand by patients, successful education of clinicians, and adequate financial coverage and reimbursement. We cannot guarantee you that FTTPS as a TPS will gain significant acceptance in the marketplace.
If hospitals are not convinced that radiotherapy provides equivalent or superior treatment results compared to existing technologies, we may experience reluctance or refusal on the part of hospitals to order a treatment in which FTTPS is utilized. Our ability to achieve commercial market acceptance for FTTPS or any other future products also depends on the strength of our sales, marketing and distribution organizations. In addition, healthcare providers may have difficulty in obtaining adequate reimbursement from the government and/or third-party payors for cancer treatment, which may negatively impact adoption of FTTPS.
To remain competitive, Beijing Feitian must continue to stay abreast of the constantly evolving industry trends and to enhance and improve its technology accordingly. Its ability to identify, develop or acquire leading technologies useful in its business will also impact its success. Beijing Feitian currently outsources its research and development (“R&D”) activities and does not have its own R&D team. To eliminate the risks associated with outsourcing R&D activities, Beijing Feitian plans to establish its own R&D team in the future. Although the long-term development agreements Beijing Feitian has entered in to with third-party developers may mitigate some of the risks associated with outsourcing R&D, we cannot assure you that such agreements will be successful in keeping up with technological advancements, and any failure to do so could harm its future development. Failure to adapt successfully to technological changes or obtain access to new technologies in a timely manner could strain Beijing Feitian’s ability to compete in the marketplace, and any failure to continuously upgrade FTTPS or future medical devices or supplies following the adaptation of new technologies could adversely affect its long-term competitiveness.
Moreover, potentially revolutionary technological and therapeutic changes in cancer treatment, such as chemotherapy, surgery, interventional radiology, or biological therapy, could reduce the demand or eliminate the need for radiotherapy treatment. Patients and physicians may also choose other kinds of radiotherapy over brachytherapy for various reasons. Any shifts in physicians’ or patients’ preferences for other oncology therapies over radiotherapy or brachytherapy could materially and adversely affect our business, results of operations, and financial condition.
Beijing Feitian may not be able to gain the support of leading hospitals and key opinion leaders, or scientific and medical results of TPS products may not be sufficiently novel or worthy of publication in peer-reviewed journals, which may make it difficult to achieve market acceptance of FTTPS.
Our strategy includes developing relationships with leading hospitals and key opinion leaders in the industry. If these hospitals and key industry leaders determine that TPS products are not clinically effective in assisting brachytherapy or that alternative technologies are more effective, our ability to achieve market acceptance of FTTPS could be significantly limited. We believe that publication of scientific and medical results in peer-reviewed journals and presentation of data at leading conferences are critical to the broad adoption of TPS products. Publication in leading medical journals is subject to a peer-review process, and peer reviewers may not consider the results of studies involving TPS products sufficiently novel or worthy of publication, which is beyond our control.
Failure to maintain the quality and safety of our products could have a material and adverse effect on our business, financial condition and results of operations.
The quality and safety of our products are critical to our success. Quality and safety are always our core values, as medical devices are directly or indirectly used for treatment on the human body and thus essential to human health. The quality of our products is critical to the success of our business, and such quality, to a large extent, depends on the effectiveness of our quality control system. Beijing Feitian does not engage in any manufacturing activities itself, but purchases its medical products from third-party suppliers instead. For the fiscal years ended December 31, 2023, 2024 and 2025, Beijing Feitian has 17, 22 and 22 suppliers, respectively, including one supplier located in the U.S. and the remainder of which are located in the PRC. For more information about large suppliers, see “Item 4. Information on the Company - B. Business Overview - Manufacturing and Supply.” To maintain the quality and safety of products, Beijing Feitian has developed a rigorous quality control system that enables monitoring at each stage of the production process, from procurement to packaging and from warehouse to delivery. Yet, maintaining consistent product quality depends significantly on the effectiveness of this quality control system, which in turn depends on a number of factors, including, but not limited to, the design of the quality control system, employee training to ensure that our employees adhere to and implement such quality control policies and procedures, and the effectiveness of monitoring any potential violation of such quality control policies and procedures. However, we still cannot eliminate all risks of errors, defects or failures. We may fail to detect or cure defects as a result of a number of factors, many of which are outside our control, including, but not limited to:
| ● | technical or mechanical malfunctions in the production process; |
| ● | human error or malfeasance by quality control personnel; |
| ● | tampering by third parties; and |
| ● | defective raw materials or equipment. |
In addition, the quality of the products or services provided by our suppliers or business partners is subject to factors beyond our control, including the effectiveness and the efficiency of our quality control systems, among others. There can be no assurance that our suppliers or business partners may always be able to adopt appropriate quality control systems and meet our stringent quality control requirements in respect of the products or services they provide. Any failure of our suppliers or business partners to provide satisfactory products or services could harm our reputation and adversely impact our operations. In addition, we may be unable to receive sufficient compensation from suppliers and business partners for the losses caused by them.
As of the date of this annual report, we are unaware of any material quality deficiencies with respect to our operations or any of our suppliers or business partners.
Beijing Feitian faces competition from numerous competitors, many of whom have greater resources than we do, which may make it more difficult for us to achieve significant market penetration.
The TPS market is intensely competitive and has numerous players. The market for radiation therapy equipment, in particular, is characterized by intense competition and pricing pressure. As more medical device companies outsource design, prototyping, and manufacturing of their products, as Beijing Feitian does, we may encounter competition from other companies with similar capabilities.
We consider the competition for the FTTPS to be existing TPS, particularly for brachytherapy. According to data from the National Medical Products Administration of the PRC, as of the date of this annual report, there are 6 TPS products for brachytherapy that have been approved for marketing in China. Among them, there are 3 TPS products specifically approved for radioactive particle implantation, which is a kind of technique of brachytherapy, including five domestic products and two imported products. Except for existing competitors, some companies with greater name recognition, greater operating revenues, larger customer bases, longer customer relationships, and greater financial, technical, personnel and marketing resources than us may enter into our industry segment and be our potential competitor. If they do, these companies may be better positioned than we are to spend more aggressively on research and development, marketing, sales and other product initiatives. Beijing Feitian’s current competitors or other companies may at any time develop new products for the treatment of tumors. If Beijing Feitian is unable to develop products that compete effectively against the products of existing or future competitors, our net revenue could decline. Some of Beijing Feitian’s competitors may compete by changing their pricing model or by lowering the price of their conventional radiation therapy systems or ancillary supplies. If these competitors’ pricing techniques are effective, it could result in downward pressure on the price of radiation therapy systems. If Beijing Feitian is unable to maintain or increase its selling prices in the face of competition, it may not improve our gross margins. Although Beijing Feitian is continuously growing its customer base, there is no assurance that we will be able to continue to do so in the future against current or future competitors, and such competitive pressures may have a material adverse effect on our business, financial condition, and results of operations.
Beijing Feitian is subject to risks relating to its leased property.
The leasehold interests of Beijing Feitian in the real property used for its workspace have not been registered with the relevant PRC government authorities, as required by PRC law, which may expose Beijing Feitian to potential fines if it fails to remediate such lapse after receiving any notice from the relevant PRC government authorities.
Failure to complete lease registration for a lease agreement typically does not affect the legal effectiveness of such agreement according to PRC law, but relevant real estate administrative authorities may require the parties to the lease agreement to complete lease registration within a prescribed period of time, and the failure to do so may result in fines from RMB1,000 (approximately $141) to RMB10,000 (approximately $1,408) for each of such lease agreements.
To mitigate the risk of potential claims or challenges brought by any third parties regarding the validity of its leasehold interest, Beijing Feitian signed a short-term occupancy agreement with the property owner of its office space on December 30, 2024, recognizing its occupation of the real property used for its workspace. As of the date of this annual report, we are not aware of any claim or challenge brought by any third party concerning the use of Beijing Feitian’s leased property without obtaining proper ownership proof. Should Beijing Feitian be dispossessed of any of its leased properties, we cannot assure you that suitable alternative locations are readily available on commercially reasonable terms, or at all, and if Beijing Feitian is unable to relocate its facilities, equipment, offices and employees in a timely manner, Beijing Feitian’s operations may be interrupted.
Beijing Feitian may experience significant liability claims or complaints from customers, litigation, and regulatory investigations and proceedings relating to medical device safety, or adverse publicity involving our products, which could adversely affect our financial condition and results of operations.
We face an inherent risk of liability claims or complaints from our customers. Although, we take those complaints and claims seriously and endeavor to reduce such complaints by implementing various remedial measures, we cannot assure you that we can successfully prevent or address all complaints as and when they occur.
Any complaints or claims against us, even if meritless and unsuccessful, may divert management’s attention and other resources from our business and adversely affect our business and operations. Customers may lose confidence in us and our brand, which may adversely affect our business and results of operations. Furthermore, negative publicity including but not limited to negative online reviews on social media and crowd-sourced review platforms, industry findings, or media reports related to medical device quality and safety, public health concerns, illness, injuries, whether or not accurate, and whether or not concerning our products, can adversely affect our business, results of operations and reputation.
Despite not having its own manufacturing facilities or engaging in manufacturing activities, Beijing Feitian still faces potential legal liability due to the nature of its business. For example, customers may assert legal claims against Beijing Feitian in connection with personal injuries or illnesses related to the use of medical devices sold by Beijing Feitian. In recent years, the PRC government, media outlets, and public advocacy groups have been increasingly focused on consumer protection, making it important for companies such as Beijing Feitian and its suppliers to prioritize the quality and safety of products sold in the PRC. If Beijing Feitian sells defective products, it may be held liable for compensation and penalties associated with consumer protection laws. In addition, it may also be held responsible for other kinds of losses caused by its suppliers or other business partners who fail to comply with applicable PRC product quality rules and safety regulations. Although Beijing Feitian may have recourse to the responsible parties for indemnity, its reputation could still be adversely affected. For more details, see “Item 4. Information on the Company - B. Business Overview - Regulation - Regulation on Product Quality and Consumer Protection.”
Any claims and lawsuits could also divert management’s time and attention away from our business and result of operations, regardless of the merits of the claims. In some instances, we may be elected or forced to pay substantial damages if Beijing Feitian is unsuccessful in its efforts to defend against these claims, which could harm our financial condition and results of operations. In addition, our directors, management and employees may from time to time be subject to litigation and regulatory investigations and proceedings or otherwise face potential liability and expense in relation to medical device quality and safety, commercial, labor, employment, securities or other matters, which could also adversely affect our reputation and results of operations. We do not carry business liability insurance or disruption insurance insuring the potential losses as aforementioned. See “Item 3. Key information - D. Risk factors - Risks Relating to Our Business and Operations - The PRC operating entity has no business liability or disruption insurance, which could expose the PRC operating entity to significant costs and business disruption.”
As of the date of this annual report, we are not aware of any warning, investigations, prosecutions, disputes, claims or other proceedings in respect of customer rights protection, nor have we been punished or can foresee any punishment to be made by any governmental authorities in any domestic or overseas jurisdiction.
Beijing Feitian faces the risk of fluctuations in the cost, availability, and quality of supplies. A significant interruption in Beijing Feitian’s suppliers and other business partners could also adversely affect our results of operations.
The cost, availability, and quality of the principal supplies, such as our Medical Auxiliary Supplies sold to customers, are essential to our operations. There were certain suppliers individually represented more than 10% of our total purchases for the fiscal years ended December 31, 2023, 2024 and 2025. Substantially all costs and expenses were attributed to suppliers located in China or the United States. See “Item 4. Information on the Company - B. Business Overview - Manufacturing and Supply - Supply Chain” for details of these major suppliers. While a significant portion of Beijing Feitian’s annual purchases is attributed to two suppliers, we have worked to ensure that Beijing Feitian is not overly reliant on them. We have not guaranteed any minimum purchase amount to any large suppliers and have proactively sought to locate and qualify additional manufacturers to introduce redundancies into the supply chain. While we believe that we have established healthy and stable relationships with these large suppliers through years of cooperation, factors such as policy changes, market price fluctuations, or other unforeseen circumstances may lead to an increase in the cost of supplies, potentially affecting our financial performance. Additionally, supply shortages, delays, interruptions, or failures in timely delivery could disrupt our operations and negatively impact our financial results.
Furthermore, we have limited control over the operations of our third-party suppliers and other business partners. Any significant interruption in such suppliers and business partners’ operations may have an adverse impact on our operations, leading to delays or termination of shipments of supplies to us and causing damage to our customer relationships. While we believe that we could establish alternate sources of supplies, there is no assurance that these replacement suppliers will provide the necessary quantities, quality, or prices as required. Any shortage in supplies, deficiency in quality, or increase in prices could harm our reputation, financial condition, and results of operations. Failure to adequately address the impact of interruptions of operations of these third-party suppliers could materially and adversely affect our business operations and financial results.\
Changes in general economic conditions, geopolitical conditions, U.S.-China trade relations and other factors beyond the Company’s control may adversely impact our business and operating results.
Our operations and performance depend significantly on global and regional economic and geopolitical conditions. Adverse developments in these areas—particularly in U.S.-China relations—could materially affect our business, financial condition, results of operations, or cash flows.
In recent years, escalating trade tensions between the United States and China have resulted in the imposition of tariffs, export controls, and other trade barriers. These measures have increased the cost of doing business, disrupted supply chains, and created uncertainty for companies operating across borders. If such trade restrictions continue or intensify, they may negatively impact our ability to serve customers, manage costs, or maintain competitive pricing.
As of October 2025, U.S.-China trade tensions have sharply escalated, with the U.S. announcing 100% tariffs on all Chinese imports effective November 1, 2025, in response to China’s new export controls on rare earth minerals. China has retaliated with its own restrictions and port fees targeting U.S. vessels. These developments mark a significant intensification of the ongoing trade war, disrupting global supply chains, increasing costs for businesses, and contributing to market volatility. The situation remains fluid, with a potential meeting between U.S. and Chinese leaders at the upcoming APEC Summit offering a possible, though uncertain, path toward de-escalation.
In addition to trade-related risks, a number of other economic and geopolitical factors could also adversely affect our operations, including:
| ● | instability in political or economic conditions, including but not limited to inflation, recession, foreign currency exchange restrictions and devaluations, restrictive governmental controls on the movement and repatriation of earnings and capital, and actual or anticipated military or political conflicts, particularly in emerging markets; |
| ● | intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars, retaliatory tariffs, and acts of terrorism or war; and |
| ● | interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limited to, strikes, financial instabilities, computer malfunctions or cybersecurity incidents, inventory excesses, natural disasters or other disasters such as fires, floods, earthquakes, hurricanes or explosions. |
Any of the foregoing or similar factors could result in reduced demand for our services which, in turn, could have material adverse effects on our business and results of operations.
Changes in international trade policies, trade disputes, barriers to trade, or the emergence of a trade war may dampen growth in China, our principal place of business.
Political events, international trade disputes, and other disruptions to international commerce could harm the global economy and adversely affect our business, customers, suppliers, and other business partners. Recent shifts in U.S. tariff policies, including increased tariffs on goods imported from China and other regions, as well as the potential for additional protectionist measures, may impact our operations. Specifically, if U.S. suppliers face higher costs for materials or components due to these tariffs, they may pass those increased costs onto us, resulting in higher prices for the goods we purchase.
For the fiscal years ended December 31, 2023, 2024 and 2025, our major supplier, SSGI Asia, Inc., located in the U.S., accounted for 11%, 24% and nil of our total purchases, respectively. The Company made no purchases from SSGI Asia, Inc. during the fiscal year ended December 31, 2025. The Company may, however, resume such purchases in future periods. Therefore, any escalation in U.S. tariffs or trade restrictions, particularly those affecting Chinese imports, could result in higher costs, reduced profitability, or supply chain disruptions for us.
Moreover, political uncertainty surrounding international trade disputes, particularly the ongoing tension between the U.S. and China, could damage customer confidence and decision-making, leading to a material adverse effect on our business. Such uncertainty may also limit our access to new business opportunities, negatively impacting our operations. Additionally, current and potential future actions by the U.S. or the PRC that affect trade relations could contribute to global economic instability, which may harm our markets, our business, or our financial performance. The financial condition of our customers could also be adversely affected by trade-related disruptions, and we cannot predict the extent or form of future actions or escalations.
Our business is dependent on large customers. If Beijing Feitian fails to acquire new customers or retain existing customers in a cost-effective manner, our business, financial condition, and results of operations may be materially and adversely affected.
Maintaining existing customers and developing new customers have been essential to our success. Although Beijing Feitian is not heavily dependent on one or two customers during its history of operations, revenues are generated from some of Beijing Feitian’s large customers. For the fiscal year ended December 31, 2023, Beijing Feitian’s top three customers accounted for 13%, 11% and 11%, respectively, of revenue. For the fiscal year ended December 31, 2024, Beijing Feitian’s top two customers accounted for 15% and 13%, respectively, of our total revenue. For the fiscal year ended December 31, 2025, Beijing Feitian’s top two customers accounted for 26% and 25%, respectively, of our total revenue. Except for the large customers mentioned above, none of the other customers individually contributed more than 10% of the Company’s revenue in the fiscal years ended December 31, 2023, 2024 or 2025. Most of Beijing Feitian’s large customers do not have any obligation to purchase additional products from Beijing Feitian. Therefore, there can be no assurance that any of Beijing Feitian’s large customers will continue to purchase products at levels comparable to previous years. Although Beijing Feitian’s products are mostly sold one time to new customers with limited repurchases, a substantial loss or reduction in Beijing Feitian’s existing large customers could adversely affect future revenues and earnings and in turn, adversely affect our business, financial condition, and results of operations.
Beijing Feitian’s ability to attract new customers and retain existing customers with its customized products and services, especially top customers, is crucial to driving its net revenues growth and achieving profitability. Beijing Feitian acquires customers through a combination of online and offline marketing efforts. Beijing Feitian’s sales team conducts regular visits to hospitals and their suppliers, and seeks out bidding opportunities online in the brachytherapy market. In addition, Beijing Feitian’s sales team participates in industry conferences and seminars to expand network and reach potential customers.
We will continue to seek to expand customer base to achieve sustainable growth. However, there can be no assurance that new customers will stay with us, or the net revenues from new customers we acquire will ultimately exceed the cost of acquiring those customers. In addition, if our existing customers, especially the existing top customers, no longer find our products appealing, or if our competitors offer more attractive products, prices, discounts or better customer services, the existing customers may lose interest in us, decrease their orders or even stop ordering from us. If we are unable to retain our existing customers, especially our top customers, or to fail to acquire new customers in a cost-effective manner, our revenues may decrease and results of operations will be adversely affected.
Beijing Feitian may fail to effectively develop and commercialize new products, which would materially and adversely affect our business, financial condition, and results of operations.
The brachytherapy TPS market is developing rapidly and related technology trends are constantly evolving. This results in frequent introduction of new products, short product life cycles and significant price competition. Consequently, our future success depends on our ability to anticipate technology development trends and identify, develop, and commercialize in a timely and cost-effective manner new and advanced products that our customers demand. Whether we are successful in developing and commercializing new products is determined by our ability, among other things, to:
| ● | accurately assess technology trends and customer needs and meet market demands; |
| ● | optimize our procurement processes to predict and control costs; |
| ● | package and deliver products in a timely manner; |
| ● | increase customer awareness and acceptance of our products; |
| ● | minimize the time and costs required to obtain required regulatory clearances or approvals; |
| ● | anticipate technology trends and compete effectively with other market players in similar industries; |
| ● | price our products competitively; and |
| ● | effectively integrate customer feedback into our R&D planning. |
We cannot assure you that we can effectively develop and commercialize new products. In the event we fail to develop and commercialize new products, it would materially and adversely affect our business, financial condition, and results of operations.
If we are not able to implement our strategies to achieve our business objectives, our business operations and financial performance will be adversely affected.
Our business plan and growth strategies are based on currently prevailing circumstances and the assumption that certain circumstances will or will not occur. However, there are uncertainties involved in various stages of development, and there is no assurance that we will be successful in implementing our strategies or that our strategies, even if implemented, will lead to the successful achievement of our objectives. If we are not able to successfully implement our strategies, our business operations and financial performance will be adversely affected.
The payment structure Beijing Feitian uses in its customer arrangements may lead to fluctuations in operating cash flows in a given period, and our results of operations and cash flows could be adversely affected if we are unable to collect accounts receivable from customers.
Beijing Feitian’s customers who purchase products typically make contract payments in stages along with the installation, acceptance, and commissioning of the equipment. Generally, 10% of payments will be taken as a quality assurance deposit, which will be paid after the termination of the quality assurance period or 12-24 months after the equipment’s normal operation. If Beijing Feitian misses targeted installments or its customers do not work towards completing installation or acceptance, Beijing Feitian’s receipt of payments and our operating cash flows could be impacted. In addition, if customers do not adhere to payments terms, our operating cash flows could be impacted in any given period. Due to these fluctuations in operating cash flows and other potential fluctuations, you should not rely upon our operating results in any particular period as an indication of future performance.
In addition, our whole business depends on Beijing Feitian’s ability to successfully obtain payment from customers of the amounts they owe us for products sold. As of December 31, 2023, 2024 and 2025, our accounts receivable balance amounted to approximately $206,329, $281,585 and $288,456, respectively. If we are unable to collect our accounts receivable on a timely and consistent basis, our cash flows and access to operating capital could be adversely affected.
Any disruption of the operation of Beijing Feitian’s suppliers could materially and adversely affect our business and results of operations.
Beijing Feitian’s products are primarily purchased from its suppliers located in China and the United States. As of the date of this annual report, Beijing Feitian does not own any factories and does not engage in any manufacturing activities. Nevertheless, natural disasters or other unanticipated catastrophic events, including storms, fires, explosions, earthquakes, terrorist attacks and wars, as well as changes in governmental planning for the land where those suppliers’ factories are located could significantly impair Beijing Feitian’s ability to supply products to its customers. Catastrophic events could also destroy the inventories stored in those suppliers’ factories and affect Beijing Feitian’s supply chain. The occurrence of any catastrophic event could result in the temporary or long-term closure of those suppliers’ manufacturing facilities, and may severely disrupt our business operations indirectly.
In addition, factories of Beijing Feitian’s suppliers are subject to fire control and environmental inspections and regulations. If such facilities fail to rectify and pass the fire control and environmental inspections or comply with relevant fire control and environmental requirements relating to production activities in a timely manner, they may be subject to fines, rectification, suspension and closure, which may materially and adversely affect the production and in turn may impact our business. In the event of any changes in the PRC laws and/or regulations and/or government policies on environmental protection and more stringent requirements are imposed on Beijing Feitian’s suppliers in manufacturing, Beijing Feitian’s suppliers may have to incur extra costs and expenses to comply with such requirements, and our business and results of operations in PRC may be adversely affected by increased price in such supplies and components.
Beijing Feitian may be exposed to intellectual property infringement and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial condition and results of operations.
Beijing Feitian operates in an industry in which participants own a large number of patents and other intellectual property rights that are material to competing operations and such competitors may vigorously pursue remedies to protect and defend their rights. Beijing Feitian’s competitors or other third parties, many of which have substantial resources and have made substantial investments in competing technologies, may have or may obtain patents that may prevent, limit or interfere with Beijing Feitian’s ability to use or sell its products in either China or other countries in South Asia, as planned. It may be difficult to monitor all of the patent applications and other intellectual property rights registrations or applications that are filed in China or in other relevant jurisdictions. If Beijing Feitian offers products that may potentially infringe on any such pending applications and the applications are granted, third parties may initiate intellectual infringement claims against us.
As Beijing Feitian plans to expand operations with new products and into new markets, and as litigation becomes more common in PRC, Beijing Feitian faces a higher risk of being the subject of claims for intellectual property infringement, invalidity or indemnification relating to other parties’ proprietary rights. The validity and scope of claims relating to medical device technology patents involve complex scientific, legal and factual questions and analysis and, as a result, may be highly uncertain. In addition, the defense of intellectual property suits, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become parties could cause us to:
| ● | pay damage awards; |
| ● | seek licenses from third parties; |
| ● | pay ongoing royalties; |
| ● | redesign our products; or |
| ● | be restricted by injunctions. |
Each of them could effectively prevent us from pursuing some or all of Beijing Feitian’s business and result in its customers or potential customers deferring or limiting our purchase or use of Beijing Feitian’s products, which could have a material adverse effect on our financial condition and results of operations.
We may not be able to prevent others from unauthorized use of Beijing Feitian’s intellectual property, which could harm our business and competitive position.
We rely on a combination of copyright and domain name protection laws in China, as well as confidentiality procedures and contractual provisions, to protect our intellectual property rights. Beijing Feitian enters into confidentiality agreements with Beijing Feitian’s employees that include terms identifying all employee-developed intellectual properties as service inventions belonging to Beijing Feitian. In addition, Beijing Feitian regards its intellectual property as critical to its success. Beijing Feitian may become an attractive target to intellectual property attacks in the future with the increasing recognition of our brand. Any of Beijing Feitian’s intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. Beijing Feitian seeks to protect its marketed products and the technology that Beijing Feitian considers commercially important by filing copyright registration applications. Beijing Feitian obtained the copyright for FTTPS in 2018. As of the date of this annual report, Beijing Feitian does not own a valid patent for its 3D printing technology (which is considered a method of medical treatment that is ineligible for patent protection, according to the China National Intellectual Property Administration) or other Medical Auxiliary Supplies sold to the market, and, as such, there is no assurance that its competitors won’t appropriate such technology. We cannot assure you that (i) all of our intellectual property rights will be adequately protected, or (ii) Beijing Feitian’s intellectual property rights will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable. Intellectual property protection may not be sufficient in China. Confidentiality agreements may be breached by counter-parties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. In addition, policing any unauthorized use of our intellectual property is difficult, time-consuming and costly and the steps Beijing Feitian has taken may be inadequate to prevent the misappropriation of its intellectual property.
In the event that Beijing Feitian resorts to litigation to enforce its intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that it will prevail in such litigation. In addition, Beijing Feitian’s intellectual property may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing Beijing Feitian’s intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
The PRC operating entity has no business liability or disruption insurance, which could expose the PRC operating entity to significant costs and business disruption.
The insurance industry in China is still at an early stage of development, and insurance companies in China currently offer limited business-related insurance products. Beijing Feitian does not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured risks may result in substantial costs and the diversion of resources, which could adversely affect our results of operations and financial condition.
Pandemics and 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.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), 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 Beijing Feitian’s business operations, reduce or restrict our supply of products, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Actual or threatened war, terrorist activities, political unrest, civil strife, and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations. Any one or more of these events may impede our production and delivery efforts and adversely affect our sales results, whether short-term or for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.
We are also vulnerable to natural disasters and other calamities. We cannot assure you that we are adequately protected from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks, or similar events. Any of the foregoing events may give rise to interruptions, damage to our place of business, delays in product deliveries, breakdowns, system failures, or internet failures, which could adversely affect our business, financial condition, and results of operations.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results of operations or prevent fraud, and investor confidence and the market price of our Class A Ordinary Shares may be materially and adversely affected.
We are subject to reporting obligations under U.S. securities laws. The SEC adopted rules pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of its internal control over financial reporting. In addition, if we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting on an annual basis. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, we are now a public company in the United States subject to the Sarbanes-Oxley Act of 2002, our reporting obligations may place a burden on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
Our failure to implement and maintain effective internal controls over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which may result in volatility in and a decline in the market price of our Class A Ordinary Shares.
In the course of preparing our consolidated financial statements as of and for the year ended December 31, 2025 and in the course of auditing our consolidated financial statements as of and for the year ended December 31, 2025, we and our independent registered public accounting firm identified three material weakness in our internal control over financial reporting as of December 31, 2025, in accordance with the standards established by the Public Company Accounting Oversight Board of the United States (PCAOB). The PCAOB has defined a material weakness as “a deficiency, or a 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 statements will not be prevented or detected on a timely basis.”
In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Generally speaking, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of our Class A Ordinary Shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud, misuse of corporate assets and legal actions under the United States securities laws and subject us to potential delisting from Nasdaq, to regulatory investigations and to civil or criminal sanctions.
Following the identification of the material weakness and other control deficiencies, we have taken measures and plan to continue to take measures to remedy these control deficiencies. See “Item 15. Controls and Procedures- Disclosure Controls and Procedures.” However, the implementation of these measures may not fully address these deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these control deficiencies or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.
Any domestic or global systemic economic and financial crisis could negatively affect our business, results of operations and financial condition.
Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. Concerns over geopolitical tensions in Ukraine, the Middle East, and Africa have led to volatility in financial and other markets. Additionally, concerns about potential changes to United States trade policies, treaties, and tariffs, including those regarding China, have contributed to market uncertainty. The economic effects of tensions in the relationship between China and surrounding Asian countries, coupled with worries about rising inflation and potential recessionary measures, further compound the uncertainties.
As of the date of this annual report, while the majority of our operations are in China, the inflation in China has not materially affected our results of operations. However, in the event of inflation intensifying in China, we may be compelled to raise the price level of our products and services, while our costs and operating expenses may also increase. Our profit margin would then depend on our ability to pass on the additional costs to our customers. Rising inflation levels may also impact the willingness and ability of customers to pay for our offerings, reducing demand and negatively affecting our financial results and condition. While inflation in China has not materially affected our operations as of the date of this annual report, we remain vigilant about potential future inflationary pressures and their impact on our business and financial performance.
The development and integration of artificial intelligence in our products may present significant risks.
As part of our continued investment in research and development, we plan to incorporate artificial intelligence (“AI”) features into our products, including the AI recognition feature within our FTTPS system aimed at identifying malignant tumors and sensitive structures surrounding them. However, we do not plan to utilize open-source AI as of the date of this annual report. See “Item 4. Information on the Company - B. Business Overview - Our Growth Strategies - Continue to invest in research and development.” While we believe that these innovations will improve the quality and accuracy of FTTPS, there are inherent risks associated with the development and integration of AI technology.
AI technology is complex and still evolving, and there are several challenges that could impact its successful implementation. The development of reliable and effective AI systems may face technical difficulties, including inaccuracies, limitations in data processing, and unforeseen complications in adapting AI to our existing systems. Any shortcomings in the AI feature could affect the performance, reliability, and overall effectiveness of FTTPS, potentially leading to inaccurate results or failures that could harm patient care or customer confidence.
Furthermore, as we look to develop artificial intelligence surgical robotic devices, we face additional risks related to the complexity of integrating AI with robotics, such as unanticipated technical hurdles, regulatory challenges, and the need for rigorous validation of these technologies. The regulatory landscape for AI-powered medical devices is evolving, and delays in obtaining necessary approvals or changes in regulatory requirements could affect our ability to bring these innovations to market on time.
Additionally, the reliance on AI-based technologies introduces risks related to cybersecurity, including potential vulnerabilities that could expose our systems to hacking or data breaches. Any such security incidents could damage our reputation, result in legal liabilities, or harm our relationships with customers and partners.
Given these challenges, there is no assurance that our AI developments will meet expectations or achieve the desired results, and there is a risk that these technologies could not deliver the anticipated benefits, leading to delays, increased costs, or a negative impact on our business.
Risks Relating to Our Corporate Structure and Governance
Investors in our Class A Ordinary Shares are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company.
Investors in our Class A Ordinary Shares are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company. iTonic Holdings Ltd is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries in China. Such structure involves unique risks to investors in our Class A Ordinary Shares. Investors may never directly hold equity interests in our subsidiaries with substantive operations. We also cannot assure you that the Chinese regulatory authorities will not disallow such a structure. If the Chinese regulatory authorities disallow the structure, it would likely result in a material change in our operations and cause the value of our Class A Ordinary Shares to significantly decline or become worthless.
Because of the significant ownership of our Class B Ordinary Shares and combined voting powers, our Chief Executive Officer has substantial control over our business, and his interests may differ from our interests or those of other shareholders.
As of the date of this annual report, our Chief Executive Officer, Mr. Jianfei Zhang, controls approximately 94.24% of the combined voting power of our equity interests through the Class B Ordinary Shares held by ZJW (BVI) LTD and BANYAN (BVI) LTD. Mr. Jianfei Zhang will, for the foreseeable future, have significant influence over corporate management and affairs, and will be able to control virtually all matters requiring shareholder approval so long as Mr. Jianfei Zhang owns a majority of the combined voting power of our outstanding equity interests. Mr. Jianfei Zhang is able to, subject to applicable law, elect a majority of the members of our board of directors and control actions to be taken by us and our board of directors, including amendments to our articles of incorporation and approval of significant corporate transactions, including, among other matters, mergers and sales of substantially all of our assets, as well as incurrence of indebtedness by us. The directors so elected will have the authority, subject to the terms of our indebtedness and applicable rules and regulations, to issue additional shares, implement share repurchase programs, declare dividends and make other decisions. It is possible that the interests of Mr. Jianfei Zhang may in some circumstances conflict with our interests and the interests of our other shareholders, including you. For additional information about our relationships with Mr. Jianfei Zhang, you should read the information under the headings “Item 6. Directors, Senior Management and Employees-E. Share Ownership” and “Item 7. Related Party Transactions - Material Transactions with Related Parties.”
Since we are a “controlled company” within the meaning of the Nasdaq listing standards and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements in the future. You would not have the same protections afforded to shareholders of companies that are subject to such requirements.
As of the date of this annual report, Mr. Jianfei Zhang, through ZJW (BVI) LTD and BANYAN (BVI) LTD, controls over 50% of the combined voting power of our equity interests through the ownership of Class B Ordinary Shares. Because of the voting power of Mr. Jianfei Zhang, we are considered a “controlled company” for the purposes of the Nasdaq Capital Market. As such, we are exempt from certain corporate governance requirements of Nasdaq, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that we have a Nominating and Corporate Governance Committee that is composed entirely of independent directors and (iii) the requirement that we have a Compensation Committee that is composed entirely of independent directors. Although we do not intend to rely on the controlled company exemptions under the Nasdaq listing standards, we could elect to rely on some or all of these exemptions in the future, so long as we are considered a “controlled company” under Nasdaq requirements. If so, we may not have a majority of independent directors, we may not have a Nominating and Corporate Governance Committee, and our Compensation Committee may not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
The interests of Mr. Jianfei Zhang may conflict with ours or yours in the future.
Various conflicts of interest between Mr. Jianfei Zhang and us could arise. Ownership interests of Mr. Jianfei Zhang in our Class B Ordinary Shares could create or appear to create potential conflicts of interest when Mr. Jianfei Zhang is faced with decisions that could have different implications for himself and us. These decisions could, for example, relate to:
| ● | disagreement over corporate opportunities; |
| ● | management stock ownership; |
| ● | employee retention or recruiting; |
| ● | our dividend policy; and |
| ● | the services and arrangements from which we benefit as a result of our relationship with Mr. Jianfei Zhang. |
Potential conflicts of interest could also arise if we enter into any new commercial arrangements with Mr. Jianfei Zhang in the future.
We may experience extreme share price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.
Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater share price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. In particular, our Class A Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.
In addition, if the trading volumes of our Class A Ordinary Shares are low, persons buying or selling in relatively small quantities may easily influence prices of our Class A Ordinary Shares. This low volume of trades could also cause the price of our Class A Ordinary Shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our Class A Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Class A Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Class A Ordinary Shares. A decline in the market price of our Class A Ordinary Shares also could adversely affect our ability to issue additional Class A Ordinary Shares or other securities and our ability to obtain additional financing in the future. No assurance can be given that an active market in our Class A Ordinary Shares will develop or be sustained. If an active market does not develop, holders of our Class A Ordinary Shares may be unable to readily sell the shares they hold or may not be able to sell their shares at all.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and all of our assets are located outside the United States. All of our current operations are conducted in China. In addition, except for Mr. Edward C Ye, all of our current directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act of the Cayman Islands, as amended and the common law of the Cayman Islands. The rights of shareholders or investors in our Class A Ordinary Shares to act against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under the Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body of securities laws than the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association, our register of mortgages and charges and special resolutions of our shareholders) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obligated to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. We have relied on and plan to rely on home country practice with respect to our corporate governance. Specifically, we have elected to be exempt from the requirements under Nasdaq Listing Rule 5635 to obtain shareholder approval for (i) the issuance 20% or more of our outstanding Ordinary Shares or voting power in a private offering, (ii) the issuance of securities pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended, (iii) the issuance of securities when the issuance or potential issuance will result in a change of control of our Company, and (iv) certain acquisitions in connection with the acquisition of the stock or assets of another company.
As a result of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| ● | the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
Risks Related to the Class A Ordinary Shares and the Trading Market
Our dual class share structure with different voting rights may adversely affect the value and liquidity of the Class A Ordinary Shares.
We cannot predict whether our dual class share structure with different voting rights will result in a lower or more volatile market price of the Class A Ordinary Shares, in adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indices. Because of our dual class structure, we will likely be excluded from these indices and other stock indices that take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make the Class A Ordinary Shares less attractive to investors. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structure and our dual class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which case the market price and liquidity of the Class A Ordinary Shares could be adversely affected.
Our dual class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A Ordinary Shares may view as beneficial.
We have adopted a dual class share structure such that our ordinary shares consist of Class A Ordinary Shares and Class B Ordinary Shares. In respect of matters requiring the votes of shareholders, each Class A Ordinary Share is entitled to one (1) vote and each Class B Ordinary Share is entitled to twenty (20) votes. Each of our Class B Ordinary Share is convertible into one Class A Ordinary Share at any time by the holder thereof. Our Class A Ordinary Shares are not convertible into our Class B Ordinary Shares under any circumstances.
As of the date of this annual report, only our Class A Ordinary Shares are tradable on the market. This voting structure may discourage investors from pursuing any change of control transactions that holders of our Class A Ordinary Shares may view as beneficial.
If we cannot continue to satisfy the listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.
Our Class A Ordinary Shares are listed on the Nasdaq Capital Market.
In order to maintain our listing on the Nasdaq Capital Market, we are required to comply with certain rules of the Nasdaq Capital Market, including those regarding minimum stockholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. Even if we initially meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.
If the Nasdaq Capital Market subsequently delists our securities from trading, we could face significant consequences, including:
| ● | a limited availability for market quotations for our securities; |
| ● | reduced liquidity with respect to our securities; |
| ● | a determination that our Class A Ordinary Share is a “penny stock,” which will require brokers trading in our Class A Ordinary Share to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Class A Ordinary Share; |
| ● | limited amount of news and analyst coverage; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
An active trading market for our Class A Ordinary Shares may not develop or sustain, and the trading price for our Class A Ordinary Shares may fluctuate significantly.
No assurance can be given that an active market in our Class A Ordinary Shares will develop or be sustained. If an active market does not develop, the market price and liquidity of our Class A Ordinary Shares may be materially and adversely affected, and holders of our Class A Ordinary Shares may be unable to readily sell the shares they hold or may not be able to sell their shares at all. There can be no guarantee that we will continue to satisfy the continued listing standards of Nasdaq. If we fail to satisfy the continued listing standards, we could be de-listed, which would have a negative effect on the price of our Class A Ordinary Shares and impair your ability to sell your shares. As a result, investors in our securities may experience a significant decrease in the value of their Class A Ordinary Shares.
The price of our Class A Ordinary Shares could be subject to rapid and substantial volatility, and such volatility may make it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.
There have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with recent initial public offerings, especially among those with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. In particular, our Class A Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.
In addition, if the trading volumes of our Class A Ordinary Shares are low, persons buying or selling in relatively small quantities may easily influence prices of our Class A Ordinary Shares. This low volume of trades could also cause the price of our Class A Ordinary Shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our Class A Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Class A Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Class A Ordinary Shares. A decline in the market price of our Class A Ordinary Shares also could adversely affect our ability to issue additional Class A Ordinary Shares and our ability to obtain additional financing in the future. No assurance can be given that an active market in our Class A Ordinary Shares will develop or be sustained. If an active market does not develop, holders of our Class A Ordinary Shares may be unable to readily sell the shares they hold or may not be able to sell their shares at all.
The sale or availability for sale, or perceived sale or availability for sale, of substantial amounts of our Class A Ordinary Shares could adversely affect their market price.
Sales of substantial amounts of our shares in the public market, or the perception that these sales could occur, could adversely affect the market price of our shares and could materially impair our ability to raise capital through equity offerings in the future. Our Class A Ordinary Shares sold in the initial public offering are freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our Class A Ordinary Shares.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our Class A Ordinary Shares and trading volume could decline.
The trading market for our Class A Ordinary Shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our Company, the market price for our Class A Ordinary Shares would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our Class A Ordinary Shares or publishes inaccurate or unfavorable research about our business, the market price for our Class A Ordinary Shares would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class A Ordinary Shares could decrease, which could cause the market price for our Class A Ordinary Shares and trading volume to decline.
Techniques employed by short sellers may drive down the market price of our Class A Ordinary Shares.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s best interests for the price of the stock to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. These short attacks have, in the past, led to selling of shares in the market.
Public companies have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which it can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact its business operations and shareholders’ equity, and any investment in our Class A Ordinary Shares could be greatly reduced or rendered worthless.
We do not currently intend to pay dividends on our Class A Ordinary Shares for the foreseeable future.
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and subject to limitations under applicable law. Therefore, you are not likely to receive any dividends on your Class A Ordinary Shares for the foreseeable future, and the success of an investment in our Class A Ordinary Shares will depend upon any future appreciation in its value. Moreover, any ability to pay may be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or our subsidiaries. Consequently, investors may need to sell all or part of their holdings of our Class A Ordinary Shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that our Class A Ordinary Shares will appreciate in value or even maintain the price at which our shareholders have purchased our Class A Ordinary Shares. See “Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy.”
If we are classified as a passive foreign investment company, United States taxpayers who own our Class A Ordinary Shares may have adverse United States federal income tax consequences.
A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either
At least 75% of our gross income for the year is passive income; or
The average percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or which are held for the production of passive income is at least 50%.
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.
If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Class A Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
Based on our operations and the composition of our assets we do not expect to be treated as a PFIC under the current PFIC rules. It was determined we are not a PFIC for the current year. However, we must make a separate determination each year as to whether we are a PFIC, and there can be no assurance with respect to our status as a PFIC for any future taxable year. Depending on the amount of assets held for the production of passive income, it is possible that, for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. In addition, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A Ordinary Shares, our PFIC status will depend in large part on the market price of our Class A Ordinary Shares. Accordingly, fluctuations in the market price of our Class A Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend our liquid assets. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Class A Ordinary Shares from time to time) that may not be within our control. If we are a PFIC for any year during which you hold Class A Ordinary Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Class A Ordinary Shares. If we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you still may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the Class A Ordinary Shares.
For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Item 10. Additional Information-E. Taxation-Material United States Federal Income Tax Considerations-Passive Foreign Investment Company (“PFIC”) Consequences.”
Our Class A Ordinary Shares are equity and are subordinate to our existing and future indebtedness and any preferred stock we may issue in the future.
Our Class A Ordinary Shares are our equity interests and do not constitute indebtedness. As such, our Class A Ordinary Shares will rank junior to all indebtedness and other non-equity claims on us with respect to assets available to satisfy claims on us, including in a liquidation of us. Additionally, holders of our shares may be subject to prior dividend and liquidation rights of any holders of our preferred shares representing such preferred shares then outstanding.
Our board of directors is authorized to issue additional classes or series of preferred shares without any action on the part of the shareholders. The board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred shares that may be issued, including voting rights, dividend rights, and preferences over our Class A Ordinary Shares with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue preferred shares in the future that has a preference over our Class A Ordinary Shares with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred shares with voting rights that dilute the voting power of our Class A Ordinary Shares, the rights of holders of our Class A Ordinary Shares or the market price of our Class A Ordinary Shares could be adversely affected.
Because we are an “emerging growth company” within the meaning of the Securities Act, we may take advantage of certain exemptions from disclosure requirements available to emerging growth companies, and this will make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions provided to emerging growth companies, including the extended transition period for complying with new or revised financial accounting standards under Section 102(b)(1) of the JOBS Act.
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This will make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
We are an “emerging growth company” within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies, including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We intend to avail ourselves of the extended transition period.
We expect to incur increased costs after we cease to qualify as an “emerging growth company.”
As a company with less than $1.235 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to maintain directors and officers liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages.
Certain data and information in this annual report were obtained from third-party sources and were not independently verified by us.
We engaged Frost & Sullivan Limited to prepare a commissioned industry report that analyzes the PRC medical device industry. Information and data relating to the PRC TPS market have been derived from the F&S report. Statistical data included in F&S report also include projections based on a number of assumptions. The TPS market in China may not grow at the rate projected by market data, or at all. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.
We have not independently verified the data and information contained in the F&S report or any third-party publications and reports Frost & Sullivan Limited has relied on in preparing its report. Data and information contained in such third-party publications and reports may be collected using third-party methodologies, which may differ from the data collection methods used by us. In addition, these industry publications and reports generally indicate that the information contained therein is believed to be reliable, but do not guarantee the accuracy and completeness of such information.
The sale of our Class A ordinary shares in the recent private placement was at a price significantly below the recent market price, which could cause the market price of our shares to decline and will result in substantial dilution to existing shareholders.
On March 23, 2026, we entered into a subscription agreement with certain investors for the March 2026 Private Placement to sell 100,000,000 of our Class A ordinary shares at a purchase price of $0.2 per share. This purchase price represents a significant discount to the recent market price of our Class A ordinary shares. For example, the closing price of our Class A ordinary shares on the Nasdaq Capital Market on March 25, 2026, was $0.4141, making the private placement price a discount of approximately 51.7%.
The Class A ordinary shares issued in the March 2026 Private Placement are subject to a six-month lock-up period. Upon the expiration of this period, these investors may have an incentive to sell their shares. Because these shares were acquired at a substantial discount, these investors may be able to realize a profit even if they sell at prices below the then-prevailing market price. The sale of a large number of these shares, or the perception that such sales could occur, could create significant downward pressure on the market price of our Class A ordinary shares.
Furthermore, the issuance of 100,000,000 Class A ordinary shares in the March 2026 Private Placement will result in immediate and substantial dilution to the ownership interest and voting power of our existing shareholders. The issuance will also decrease our earnings per share in future periods, which could also negatively affect the market price of our shares. As a result of these factors, the market price of our Class A ordinary shares could decline significantly following the closing of the private placement, and you could lose a substantial portion of your investment.
Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Corporate History and Structure
We are a Cayman Islands holding company and primarily conduct our operations in China through Beijing Feitian, a limited liability company formed in the PRC in 1998. Beijing Feitian is a healthcare solution provider dedicated to the development and commercialization of TPS for brachytherapy. Through Beijing Feitian, we are committed to leveraging our products and services to establish a potential new standard of care across multiple malignant tumor applications. In connection with the initial public offering, we underwent a series of restructuring of our corporate structure, which primarily included:
| ● | On November 2, 2022, we incorporated Pheton, our holding company, as an exempted company with limited liability under the laws of the Cayman Islands. | |
| ● | On November 22, 2022, Pheton BVI was incorporated in the BVI as a business company with limited liability, which is a wholly owned subsidiary of our Company. | |
| ● | On December 14, 2022, we incorporated Pheton HK in Hong Kong as a wholly owned subsidiary of Pheton BVI. | |
| ● | On March 15, 2023, we incorporated Jinruixi, our onshore holding company, as a wholly owned subsidiary of Pheton HK. | |
| ● | On March 23, 2023, the Company authorized share capital of $50,000, divided into 500,000,000 ordinary shares consisting of 400,000,000 Class A Ordinary Shares and 100,000,000 Class B Ordinary Shares, par value $0.0001 per share. | |
| ● | On March 27, 2023, Jinruixi acquired the entire equity interests in Beijing Feitian. |
| ● | In April 2025, our board of directors approved our 2025 Equity Incentive Plan with a share reserve of 2,800,000 ordinary shares of the Company, par value $0.0001 per share. | |
| ● | On August 27, 2025, we entered into a Stock Purchase Agreement with iTonic Corporation and certain selling stockholders, pursuant to which we acquired 51% of the outstanding shares the capital stock of iTonic Corporation. Pursuant to the foregoing Stock Purchase Agreement, as amended on September 28, 2025, as consideration for the acquisition of iTonic Corporation, we issued to the selling stockholders warrants to purchase up to 3,000,000 Class A ordinary shares and will issue, subject to the accomplishment or waiver of certain milestones, up to 4,000,000 Class A ordinary shares to the selling stockholders. | |
| ● | On August 28, 2025, the Company entered into an Advisory Services Agreement with Comane International Group Ltd, which provided for the potential issuance of a warrant for the purchase of up to 4,000,000 Class A ordinary shares. The Advisory Services Agreement was terminated on September 10, 2025 and consequently the warrant was never issued. |
| ● | On August 29, 2025, we entered into a Stock Purchase Agreement with Geri-Safe, Ltd. and certain selling shareholders, pursuant to which we acquired 30% of the outstanding shares of Geri-Safe, Ltd. As consideration, we issued 4,000,000 Class A ordinary shares to the selling shareholders. | |
| ● | On October 20, 2025, we received a notification from Nasdaq indicating that we were not in compliance with the minimum bid price requirement of $1.00 per share for 30 consecutive business days, and that the Company has a compliance period of one hundred eighty (180) calendar days, or until April 20, 2026, to regain compliance with Nasdaq’s minimum bid price requirement pursuant to Nasdaq Listing Rule 5810(c)(3)(A). | |
| ● | On December 19, 2025, our shareholders authorized the Board of Directors to implement one or more share consolidations at a cumulative ratio of not more than 1:4,000 at any time within a two-year period. |
| ● | Effective from January 16, 2026, our legal name has been changed from “Pheton Holdings Ltd” to “iTonic Holdings Ltd”. Concurrently, our ticker symbol on the Nasdaq Capital Market has been changed from “PTHL” to “ITOC”. | |
| ● | On March 23, 2026, the Company entered into a private placement subscription agreement with certain investors for a private placement offering (the “March 2026 Private Placement”) of 100,000,000 Class A ordinary shares at a price per share of US$0.2. The March 2026 Private Placement is expected to close in April 2026. The Class A ordinary shares issued in the March 2026 Private Placement are subject to a six-month lock-up period from the date of issuance. |
Our current corporate structure does not contain any VIE structures in the PRC and neither we nor any of our subsidiaries have any current intention establishing any VIEs in the PRC in the future. As of the date of this annual report, substantially all of our business is conducted by Beijing Feitian. We intend to use Jinruixi as our holding WFOE.
Completion of the Initial Public Offering (“IPO”)
On September 6, 2024, we closed our IPO of 2,250,000 Class A Ordinary Shares at a public offering price of $4.00 per share. Gross proceeds of our IPO totaled approximately US$9 million, before deducting underwriting discounts and other related expenses. The Class A Ordinary Shares were previously approved for listing on the Nasdaq Capital Market. We currently traded under the ticker symbol “ITOC.
Corporate Structure
The following chart illustrates our corporate structure as of the date of this annual report.
For details of our principal shareholders’ ownership, please refer to the beneficial ownership table in “Item 6. Directors, Senior Management and Employees-E. Share Ownership.”
Corporate Information
Our principal executive offices are located at Beijing Feitian is Room 306, NET Building, Hong Jun Ying South Road, Chaoyang District, Beijing, China, and our phone number is +86 010-84817665. Our registered office in the Cayman Islands is located at Ogier Global (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman, KY1-9009, Cayman Islands. Our website address is http://www.ftzy.com.cn/. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
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.
B. Business Overview
Overview
We are an exempted company with limited liability incorporated in the Cayman Islands on November 2, 2022. We are a holding company that has no material operations ourselves. As of the date of this annual report, all of our business is conducted through our PRC operating entity, Beijing Feitian, and we are formulating a business plan for iTonic Corporation, a recently acquired U.S. subsidiary. Beijing Feitian is committed to leveraging our products and services to establish a potential new standard of care across multiple malignant tumor applications, and iTonic Corporation aims to build an operating system for intergenerational care integrating AI, medical device automation and clinical expertise to support home care.
Beijing Feitian, our PRC operating entity, is a healthcare solution provider dedicated to the development and commercialization of brachytherapy TPS specifically used for radioactive particle implantation, a type of radiotherapy used in treating cancer patients by placing radioactive sources inside the patient that kill cancer cells and shrink tumors. Beijing Feitian’s proprietary TPS is designed to promote the efficiency, accuracy, and safety of brachytherapy. TPS is generally a computer software used in different types of radiotherapy. In brachytherapy, radiation treatment planning is the process in which a team of professionals will plan the appropriate brachytherapy for cancer patients with malignant tumors. For the fiscal years ended December 31, 2023, 2024 and 2025, Beijing Feitian’s revenue was generated through (i) the sales of FTTPS; and (ii) the sales of Medical Auxiliary Supplies.
FTTPS, the lead product of Beijing Feitian, is an advanced and user-oriented TPS for treating a wide variety of malignant tumors. FTTPS is also a modifiable and expandable TPS combined with proprietary algorithms open to more advanced features, such as 3D printing, and different deployment models adapted to fit patients’ personalized needs. During the operation, FTTPS can determine the target volume, prescription dose, and dose limitation to protect OARs and produce a safe, effective, and accurate dose distribution plan for brachytherapy for cancer patients. This system simulates and calculates the treatment effect in preoperative planning, as well as over the course of treatments and upon the completion of the radioactive particle implants. Based on daily usage experience, the entire process, from image acquisition to the generation of an optimal treatment plan can be quickly completed, while allowing for the ability to re-plan while the patient is being treated. In rare cases, the processing may take longer than 60 minutes. We believe that the process of making iterative adjustments to a patient’s treatment plan may become a trend for the treatment of most cancer patients with malignant tumors receiving internal radiation therapy in the future. As of the date of this annual report, Beijing Feitian has registered FTTPS’s software copyright and finished the registration as a Class III medical device. With TPS such as FTTPS, radiation therapists and medical physicists of hospitals can precisely destroy malignant tumor cells and reduce radiation exposure to surrounding healthy tissues, thus improving treatment outcomes.
The picture below is our FTTPS installed in the customary equipment in which it is used.
In recent years, the 3D printing sector has evolved in China, followed by increased awareness of its use as a viable manufacturing method. Beijing Feitian has developed a method that enables the digitization of cancer patients’ CT or MRI images for radiation treatment planning, and generates data to be printed as physical 3D guided molds, which are applied to patients in positioning tumors and assisting in administering brachytherapy. Beijing Feitian has generated revenues through sales of printed 3D molds to individual patients as a kind of Medical Auxiliary Supplies.
Beijing Feitian is also committed to continuing to improve and update its products and services, with plans to incorporate a 3D printing technology as a build-in feature in the next-generation FTTPS. The goal is to enhance the efficiency during the operation, increase the accuracy of brachytherapy, and minimize human errors during clinical procedures. As indicated by Frost & Sullivan, a 1% increase in the accuracy of radiotherapy dose distribution could result in a 2% increase in the healing rate of cancer patients. We believe that these features allow FTTPS to help with sophisticated brachytherapy with high precision and efficiency requirements.
Beijing Feitian’s product portfolio also includes Medical Auxiliary Supplies such as seed implant needles, computer workstations, patient positioning device, etc. Beijing Feitian does not own or operate, and currently has no plans to establish, any manufacturing facilities for Medical Auxiliary Supplies or other treatment-related products that it sells to its customers.
iTonic Corporation, a recently acquired U.S. subsidiary, is a development-stage entity. The Company is formulating a business plan for iTonic Corporation centered on the development of an operating system for intergenerational care. This proposed system is intended to integrate AI, medical device automation, and clinical expertise to support home care. A planned central component of this system is SAVi, an emotionally intelligent, voice-enabled health companion designed to guide daily medication use, strengthen family connections and enable providers to deliver proactive, personalized care.
For the fiscal years ended December 31, 2023, 2024 and 2025, we had revenue of $628,591, $448,196 and $523,031, respectively. For the fiscal years ended December 31, 2023, 2024 and 2025, we recorded net loss of $241,217, $660,588 and $5,098,384, respectively.
Our Competitive Strengths
We believe that the following strengths contribute to our success and are the differentiating factors that set us apart from our peers:
| ● | Leading TPS provider in China to capture the market opportunity. According to data from the National Medical Products Administration of the PRC, as of the date of this annual report, there are 6 domestic brachytherapy TPS products approved in China by the National Medical Products Administration of the PRC, and Beijing Feitian’s FTTPS is considered technologically advanced and has a wide range of clinical indications. FTTPS is widely used in diseases caused by many types of malignant tumors, including but not limited to prostate cancer, lung cancer, pancreatic cancer, liver cancer, esophageal cancer, and breast cancer. |
| ● | Formidable entry barrier. We are in an industry with multiple entry barriers, including technical, industry, and R&D barriers. According to Frost & Sullivan’s analysis, TPS is a multi-disciplinary technology, a comprehensive skillset and knowledge are required to meet the first-class standard and the long-term usage satisfaction from the users. The high technical barriers of TPS makes it difficult for new entrants to achieve a technological breakthrough. Additionally, obtaining a product registration license in China from the NMPA requires extensive efforts, including testing by a local authorized test lab and local clinical trials. NMPA has also introduced policies to raise the entry barrier for medical devices in China to promote the healthy development of the medical device industry. Furthermore, the high R&D barriers of TPS require professional technicians to develop an accurate and efficient algorithm supported by a large amount of clinical data, computer programming, and numerous calculations and iterations. According to data from the National Medical Products Administration of the PRC, as of the date of this annual report, there are 6 TPS products for brachytherapy that have been approved for marketing. Despite this, we believe that our mature and commercialized FTTPS has scaled the high entry barrier, setting us apart from competitors given the long R&D cycle of products in our industry. Through years of research, development, and consultation with third-party experts, we believe that our proprietary design concept cannot be easily replicated without years of research and experience. |
| ● | Visionary team leader with deep industry experience. Led by CEO, Mr. Jianfei Zhang, Beijing Feitian has more than 20 years’ experience in the medical device and computer software industry. Utilizing his extensive experience in the intersection of oncology, nuclear medicine and software design, Mr. Jianfei Zhang has developed a strong understanding of domestic markets and customer needs. Mr. Jianfei Zhang has also accumulated a wealth of experience in corporate governance and corporate development, providing a solid foundation for our development in our industry segment. |
| ● | Commitment to quality control. We attach importance to product quality and adhere to stringent quality control measures. Beijing Feitian has implemented a comprehensive quality control system in accordance with the internationally recognized requirements, ISO 13485:2016, to ensure that every step of the business operation is strictly monitored and managed. We plan to continue to maintain and strengthen the quality control systems throughout Beijing Feitian’s operations, closely monitor product quality and market feedback, keep daily operational records, and comply with national and local laws and regulations on product quality, labor and environmental sustainability. See “Item 4. Information on the Company - B. Business Overview - Quality Control and Regulatory Approvals” for details. |
Our Growth Strategies
We will focus on the following key growth strategies to realize our mission:
| ● | Enhance our ability to attract, incentivize and maintain good relationships with talented professionals. We believe our success greatly depends on our ability to attract, incentivize and maintain long-term relationships with talented professionals. To maintain and improve our competitive advantage in the market, we plan to implement a series of initiatives to attract additional personnel and to retain mid- to high-level personnel, including formulating a market-oriented employee compensation structure and implementing a standardized multilevel performance review mechanism. In addition, we aim to keep long-term relationships with third-party development teams or experts. As part of this effort, Beijing Feitian has established collaborative relationships with third-party developers, including Beijing Sovio Medical Technology Co. Ltd., TEAMSMART INTERNATIONAL LTD (“Teamsmart”) and Zhengyu Liu, to develop software. Beijing Feitian has entered into several agreements with these outside experts to acquire the copyright and any other rights derived therefrom of developed software and receive continuous software upgrades, improvements, and maintenance. Further details on these agreements can be found in “- Research and Development.” We believe these outside experts provide valuable technical support, shared research capacity, database and operational know-how to drive sustainable growth of the business and strengthen our ability to innovate. |
| ● | Continue to invest in research and development. We attribute part of our success to our continued investment in and focus on R&D. Over the three fiscal years ended December 31, 2023, 2024 and 2025, Beijing Feitian has invested a total of approximately $495,135 in the ongoing functional development of FTTPS. Our outsourced R&D in 2025 focused specifically on an AI recognition feature within FTTPS, which is aimed to identify malignant tumors and sensitive structures surrounding them, thereby improving the quality and accuracy of FTTPS in general. Looking ahead, we plan to further invest capital in R&D to enhance our technology and develop a new generation system that will incorporate new features into our existing FTTPS. We also plan to develop artificial intelligence surgical robotic devices. In the era of precision medicine, we expect to realize the precise layout of particle implantation through robot-based devices by combining the technological developments of robotics with our existing TPS to facilitate dose accuracy and surgical standardization. |
| ● | Expand into overseas markets, notwithstanding all of Beijing Feitian’s revenues are presently generated in China. Beijing Feitian’s sales and marketing efforts have been primarily focused on the PRC domestic market. As of December 31, 2025, Beijing Feitian had 233 systems installed in China. To expand its market reach and increase sales, Beijing Feitian intends to gradually introduce its products to the Southeast Asian market in the foreseeable future. Beijing Feitian expects to cooperate with Southeast Asian hospitals to promote its products and services, where it will begin to explore sales capabilities in Southeast Asia. In 2021 and 2022, Beijing Feitian developed an expansion plan for the Southeast Asian market, with Vietnam identified as the primary country for its initial outreach, and successfully obtained the Export Certificate for its FTTPS in 2021 in anticipation of this expansion. However, this plan was halted due to travel restrictions resulting from the COVID-19 pandemic. In January 2025, the Company renewed the Export Certificate for its FTTPS. As of the date of this annual report, Beijing Feitian has not entered into agreements with any entities in the Southeast Asian market. Moving forward, once the expansion plan is reinitiated, Beijing Feitian intends to establish partnerships with healthcare providers and distributors across other Southeast Asian countries. This strategy is expected to enable Beijing Feitian to gain more profound insights into local market needs and to tailor its product offerings more effectively for these new markets. |
| ● | Create new revenue channels through upgrade services for FTTPS. We plan to generate additional revenue by offering upgrade services for our next-generation FTTPS. FTTPS is an expandable software and can be customized to meet the evolving demands of the market as Chinese nuclear medicine and other related disciplines continue to develop. For example, although the isotope generally used in China for radioactive particle implantation is Iodine-125, Beijing Feitian has embedded FTTPS with a database for newly-introduced isotopes, such as Iridium-192 and Palladium-103, which reflects the trend in nuclear medicine development. Isotopes are different forms of the same chemical element, each having a different number of neutrons in its nucleus. As new functionalities such as the newly-introduced database for isotopes are developed, we can offer upgrade services on top of the existing FTTPS for a fee, thereby generating additional revenue and creating value for our customers. |
Market Trends and Opportunities
Our products and services are closely related to radiotherapy, a primary clinical approach to cancer treatment worldwide. Below are some detailed descriptions of the market trends and opportunities related to our business.
China’s Cancer Burden and the Growing Opportunity in Radiotherapy Oncology Market
According to the WHO, China faces a significant public health challenge, with cancer being one of the leading causes of death. According to the International Agency for Research on Cancer (IARC), which is the WHO’s cancer agency, approximately 4.8 million new cancer cases were reported in 2022, contributing to around 2.6 million deaths, which is about 26.4% of total global cancer deaths. Both the number of new cancer cases and cancer death ranked first in the world in 2022. In recent years, influenced by risk factors such as environmental pollution, aging population, increasing societal pressures leading to anxiety and depression, and unhealthy lifestyles, the global incidence of cancerous tumors has been rising, continuing to be one of the most important factors of fatal diseases in China and worldwide. IARC also estimates that the number of new cancer cases in China will continue to grow in the future, reaching 6.8 million in 2030, which, as a burden, will directly promote the development of China’s radiotherapy oncology market.
Despite the potential increase in cancer cases, China’s radiotherapy resources remain insufficient compared to global standards. WHO and the International Atomic Energy Agency each suggested in 2021 and 2023 that over 50% of cancer patients require radiotherapy as part of their treatment. While radiotherapy is widely available in the United States and Western Europe, many countries such as China currently do not have enough medical resources to adequately treat their domestic cancer patient populations. According to the Notice on “14th Five-Year” Large-scale Medical Equipment Allocation Plan issued by the National Health Commission on June 21, 2023, a total of 2,085 sets of radiotherapy equipment are planned for distribution nationwide during the period from 2021 to 2025.
In recent years, national and local governments in China have been making efforts to support the development of high-end medical devices through multiple policies, including the popularization of radiotherapy equipment. Specifically, according to the guidance of “Medium and Long-term Development Plan for Medical Isotopes (2021-2035)”, all Class III public hospitals shall set up their nuclear medicine departments by 2025, which means at least 1,500 additional departments of nuclear medicine will be built nationwide in the coming years, with radiotherapy equipment included.
According to the estimate of Frost & Sullivan, the market size of China’s nuclear medical equipment is expected to reach RMB25.6 billion (approximately $36.1 billion) by 2030, with a CAGR of 10.3% from 2025 to 2030. Radiotherapy equipment per million people in China will reach 2.03 by the end of 2026, indicating a five-year CAGR of 4.7%.
Despite that China’s oncology healthcare services are still in the early stages of development compared to more advanced and streamlined cancer care methodologies and procedures in developed countries, China’s substantial cancer burden, nationwide supportive policies, and rising demands for patient-oriented cancer care to enhance the quality of life will drive the rapid growth of China’s radiotherapy oncology market. In addition, since TPS is at the heart of the radiotherapy process, we also believe the above-mentioned construction of nuclear medicine departments provides a solid growth for the potential needs for our star product.
With these factors in play, plus the economic development and advancements in medical technology, we believe the number of radiotherapy medical devices in China, our target market, still has room for growth in the coming future.
Treatment Planning Systems are important in Radiotherapy for Cancer Patients
TPS is an important tool in treating cancer patients, which provides models for treatment devices and sources used for the different types of radiotherapy. It pre-plans the actual treatment plan for the patient based on diagnostic images, providing 3D positioning of the tumor, the mode of operation of the treatment machine, and the corresponding patient’s positional data, and other means of correction during dose implementation. It allows for the design and optimization of the radiation dose received by the tumor and healthy tissues, thus it is crucial in determining the accuracy of the dose of radiotherapy and is closely related to the clinical outcome of radiotherapy. The use of TPS in radiation therapy is essential for ensuring the desired treatment effect and minimizing harm to healthy tissues. Studies have shown that even a 1% increase in radiotherapy dose accuracy can increase patient recovery rates by 2%. According to Frost & Sullivan, Chinese TPS market has demonstrated a notable growth from RMB 507.4 million (approximately $71.5 million) in 2016 to RMB 1,042.8 million (approximately $146.9 million) in 2021, representing a CAGR of 15.5%. The market expects an ongoing expansion to an anticipated market size of RMB 2,325.6 million (approximately $327.6 million) in 2026, reflecting a five-year CAGR of 17.2%.
A Thriving Future for Brachytherapy and TPS products related to Trend for Precision in Cancer Treatment.
Radiation energy is an effective method for killing target cells and is used to treat various cancers. However, the exposure of healthy tissue to radiation energy can result in accumulated damage to healthy tissue in a patient’s body and limit the patient’s future radiation therapy possibilities. Therefore, the clinician targets radiation delivery to the tumor as precisely as possible in the radiation therapy process to maximize the radiation dose delivered to cancerous tissue and minimize the exposure of healthy tissue. As technology evolves, radiotherapy technology has developed from two-dimensional conventional radiotherapy to three-dimensional conformal radiation therapy (3DCRT), intensity modulated radiation therapy (IMRT), and image-guided radiation therapy (IGRT), which demonstrates a growing need for precision and personalization treatment.
Brachytherapy, a minimally invasive radiotherapy treatment, involves placing a radioactive implant directly within or near the tumor. According to Frost & Sullivan, brachytherapy as an internal radiotherapy offers unique advantages over traditional external radiotherapy, as it reduces the radioactive exposure to healthy tissues while delivering an optimized dose to target tumor or area, relatively enhancing the effectiveness of treatment, life quality of patients, and survival rates. In the future, the adoption of brachytherapy is expected to grow due to its accuracy and minimal side effects, and is projected to play an increasingly vital role in cancer treatment.
In addition, to irradiate a tumor while minimizing the damage to critical organs, developing a preoperative treatment plan is essential. The National Health Commission of the People’s Republic of China (NHC) has issued the “Code of Practice for the Clinical Application of Radioactive Particle Implantation Therapy (2022 Edition)”, which obligates medical institutions to maintain a TPS when carrying out radioactive particle implantation, in order to promote the standardization of surgical procedures further. Based on the growing demand for precise cancer treatment and the mandatory requirement for TPS in radioactive particle implantation, we believe there will be a thriving future for the market.
Our Revenue
Beijing Feitian generates revenues through (i) the sales of FTTPS; and (ii) the sales of Medical Auxiliary Supplies. Our total revenue decreased by $180,395, or 28.70%, from $628,591 for the fiscal year ended December 31, 2023, to $448,196 for the fiscal year ended December 31, 2024. Our total revenue increased in $74,835, or 16.70%, from $448,196 for the fiscal year ended December 31, 2024, to $523,031 for the fiscal year ended December 31, 2025. During the fiscal years ended December 31, 2023, 2024 and 2025, sales of FTTPS generated $609,348, $369,550 and $362,850 in revenue for the respective periods, accounting for 96.94%, 82.45% and 69.37% of our revenue, respectively.
Our Products and Services
FTTPS
We, through Beijing Feitian, have developed and commercialized our lead product, FTTPS, an advanced and user-oriented TPS used for radiation treatment planning in brachytherapy. Brachytherapy treatment planning is the process in which a team of professionals plans the appropriate brachytherapy for cancer patients with malignant tumors. After importing quantitative images, FTTPS delineates patients’ malignant tumors and sensitive structures surrounding the tumor, which can assist in formulating a suitable treatment plan with dose constraints, optimizing the treatment efficacy, and providing support during the entire care continuum. In particular, our proprietary system can model the patient’s lesion site using medical images as a reference, imitate the position of radioactive seed implant needles, calculate the dose combined with specialized nuclear medicine algorithms, and enable flexibility to reform the treatment plan over the course of the treatment. FTTPS can be applied to treatment for various cancers resulting from malignant tumors, such as prostate cancer, lung cancer, pancreatic cancer, liver cancer, and breast cancer.
FTTPS is developed based on the Microsoft Windows operating system, which enables it to be simple, intuitive, and user-friendly. It is also a modifiable and expandable system, as its proprietary algorithms are open to more advanced features, such as 3D printing, and different deployment models adapted to fit patients’ personalized needs. The principle of FTTPS’s algorithms is consolidated and derived from the recommendations on the radionuclide designs, postimplant analysis, dosimetry of interstitial brachytherapy sources, radial dose functions, etc., published by different task groups of the American Association of Physicists in Medicine (AAPM) since 1995 and revised from time to time.
Beijing Feitian published the software copyright of FTTPS(V3.00.00) with the State Copyright Administration (SCA) for the first time on September 1, 2021 and registered this software copyright on November 22, 2021. Under the PRC Copyright Law, the term of protection for copyrighted software is 50 years, expiring on December 31 of the fiftieth year after the first publication of such software. Furthermore, Beijing Feitian has registered FTTPS as a Class III medical device with the National Medical Products Administration of the PRC. As of the date of this annual report, Beijing Feitian has a valid People’s Republic of China Medical Device Registration Certificate. This certificate was renewed on September 22, 2023, and is valid until August 11, 2029. Below are two pictures of FTTPS that depict the shape of malignant tumors, surrounding tissues, and the suggested position of seed implant needles.
The planning process of FTTPS typically includes delineating the target, predicting the dose, and optimizing the treatment plan. FTTPS has a variety of tools for sketching the outline of the tumor and surrounding organs using inputs from CT, MRI or B ultrasound image(s). Clinicians and physicists can localize the target volume and OARs, calculate the prescription doses, and designate the needle path (depth, direction, and angles), which is referred to as “preoperative planning”. FTTPS simulates and calculates the treatment effect in the preoperative planning, over the course of treatments and upon the completion of the radioactive particle implantation. Based on daily usage experience, the entire process, from image acquisition to the generation of an optimal treatment plan solution can be quickly completed and can be re-planned while the patient is still being treated.
The graph below illustrates the successive steps of a radioactive particle implantation.
Our FTTPS plays an important role in the three phases for radioactive particle implantation: the preoperative planning stage, the real-time intraoperative stage, and the post-operative verification stage.
Preoperative stage. First, a quantitative CT, MRI or other medical images of the patient’s target area is taken to identify the location, size, shape, and density of the malignant tumor and surrounding healthy tissues. Clinicians input such medical imaging information to FTTPS. FTTPS digitalizes the image(s) and shows patient’s tissues and bones on the screen. Clinicians can delineate the target area, organ endangerment, and set a preliminary dose distribution plan. To deliver more precise radiation therapy, FTTPS, based on the patient’s tumor it models, then generates a plan which optimizes the way particles are implanted into the malignant tumor, and recommends the dose distribution of each implant needle. Clinicians can edit the treatment plan based on their medical judgments until satisfied. FTTPS’s plan in radiation therapy is to maximize the radiation dose to the target tumor cells, and minimize the exposure to healthy tissues.
Real-time intraoperative stage. FTTPS allows clinicians to make modifications to a patient’s treatment plan, as changes in the location, size, shape and density of tumors or needle location occur over the course of treatment. After new quantitative medical images are input into the system, it can optimize its previous treatment plan by recalculating the radiation dose distribution to maximize the dose to the malignant tumor and minimize exposure of healthy tissue alongside the treatment. The clinician also uses data regarding dose distribution to evaluate and, if necessary, adjust the real-time treatment to address changes in patient anatomy, as well as any previous errors accumulated in treatment delivery over the course of treatment. FTTPS’s functions of real-time verification, restoration of plan, and ability to optimize at one-click help to improve the efficiency of implantation and enhance the effectiveness of treatment.
Post-operative verification stage. Clinicians input the post-operative medical images of target areas to FTTPS. FTTPS can automatically identify the location of particles implanted and the relevant dosimetry data. It can assess the immediate post-operative treatment result, and rate the treatment based on its built-in dose calculation formalism.
The revenue generated by sales of FTTPS for the fiscal years ended December 31, 2023, 2024 and 2025 was $609,348, $369,550 and $362,850, respectively, and accounted for 96.94%, 82.45% and 69.37% of our total revenue, respectively.
Medical Auxiliary Supplies
Beijing Feitian’s revenues are also generated through sales of Medical Auxiliary Supplies, such as printed 3D molds, seed implant needles, computer workstations, etc. The revenue generated by sales of Medical Auxiliary Supplies for the fiscal years ended December 31, 2023, 2024 and 2025 was $19,243, $78,646 and $160,181, respectively, and accounted for 3.06%, 17.55% and 30.63% of total revenue, respectively.
The chart below provides selected summary information about Beijing Feitian’s key Medical Auxiliary Supplies:
| Picture | Name | Description | ||
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Computer Workstation | This workstation is designed as a movable working desk equipped with adjustable wheels, designed to accommodate both computers and monitors. It serves point-of-care workspaces, hospitals, pharmacies and offices. This workstation is generally sold with FTTPS. | ||
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Patient Positioning Device | Patient Positioning Device is a device to hold patients in place during surgery. | ||
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Seed Implant Needles | Seed Implant Needles are used to implant radioactive seeds into tumor cells. | ||
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Seed Implant Guns | Seed Implant Guns are used to upload radioactive seeds and inject seeds into tumor cells via seed implant needles. | ||
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Seed Containers | Seed containers are used for storing radioactive materials. |
| Picture | Name | Description | ||
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Printed 3D Mold | Printed 3D Mold is used as molds applied to patients in positioning tumors and assisting radioactive particle implantation |
Recent Development of 3D Printing Technologies
In recent years, Beijing Feitian’s R&D has experienced growth driven by the rapidly evolving 3D printing technology. Specifically, Beijing Feitian developed a method for 3D template data output (the “3D Printing Method”). This method enables the digitization of cancer patients’ CT or MRI images for radiation treatment planning, and generates locally the data of the built-in 3D printing templates which is an embedded feature in the FTTPS. Beijing Feitian has been updating and commercializing its new generation FTTPS by incorporating built-in 3D printing templates and the 3D Printing Method. The built-in 3D printing templates, as a virtual function of the FTTPS, allows FTTPS to generate a more precise 3D model than previous iterations. In addition, this built-in 3D printing technology has strong synergies with the 3D Printing Method. With the 3D Printing Method, FTTPS can output the dosimetry data set and other related treatment planning information in a standard 3D file format to be printed directly with a 3D printer, creating physical 3D printed molds that can be used in positioning tumors and assisting brachytherapy. The 3D printed mold and how it is applied to patients are pictured below.
This upgrade of FTTPS can save the time of modeling and designing 3D printing templates from the very beginning and can reduce the conformation errors between templates and the patient’s body. This, in turn, can improve the accuracy of dose distribution calculations. According to Frost & Sullivan, the TPS is a critical component of the radiotherapy process, and any errors at the planning stage can impact the entire course of treatment. A calculation error or misinterpretation will affect not just one fraction but the whole of a patient’s course of treatment. Utilizing 3D printing templates also helps to minimize the potential for human errors in brachytherapy and improves the accuracy of dose distribution calculations.
Beijing Feitian generated revenue through sales of printed 3D molds as a kind of Medical Auxiliary Supplies to individual patients, which is recorded as sales of Medical Auxiliary Supplies.
Customers
Beijing Feitian’s customers are (i) hospitals; (ii) the third-party procurement service providers of hospitals, and (iii) individual cancer patients. Beijing Feitian sells FTTPS and Medical Auxiliary Supplies to hospitals and their procurement service providers, and sells printed 3D molds to individual cancer patients. Specifically, for those FTTPS and Medical Auxiliary Supplies, Beijing Feitian directly installed devices and provides services to hospitals according to agreements. Hospitals and their third-party procurement service providers are Beijing Feitian’s main customers. As of December 31, 2025, Beijing Feitian has served a total of 231 hospitals in 127 different cities across 27 provinces in the PRC.
Hospitals and their procurement service providers
Beijing Feitian acquires its hospital customers through (a) the public bidding process, and (b) by developing business relationships with third-party procurement service providers of hospitals. Third-party procurement service providers of hospitals refer to the designated purchaser of the hospital, which are commissioned by hospitals to purchase medical equipment. As of the date of this annual report, Beijing Feitian has a team of 3 sales personnel dedicated to identifying and pursuing bidding opportunities while also preparing related documents, and reaching out to selected procurement service providers to initiate and foster business relationships.
Beijing Feitian’s public bidding process includes the following:
Find tender information: the sales personnel searches for hospital tenders. Beijing Feitian’s sales personnel will inform the management team when they receive tender information.
Evaluate tender: the management team evaluates the tender before submitting bidding documents. The evaluation is based on whether Beijing Feitian can meet the maintenance requirements of the tendering hospital and what the outcome and revenue likely will be if Beijing Feitian wins the tender.
Submit bidding documents: once deciding to participate in the bid, the sales personnel will prepare and submit bidding documents according to the bidding requirements. In general, such bidding documents include a quoted price, Beijing Feitian’s business licenses, requested ISO certificates, and a commitment letter.
Win the bid and enter into agreements: the tendering hospitals or bidding agencies will notify Beijing Feitian about the bidding result. If Beijing Feitian wins the bid, it will enter into sales and services agreements with the tendering hospitals.
Beijing Feitian enters into agreements directly with its hospital customers after winning the bids, or with third-party hospital procurement service providers after mutual consent. Such agreements typically include payment details, scope of services, force majeure provisions, and choice of law/venue provisions. In particular, payment terms are typically structured to be disbursed in stages, primarily linked to milestones, such as equipment testing, acceptance, and specific operational conditions. Beijing Feitian will be obligated to ensure the timely delivery of products, adhering to the agreed-upon terms and conditions, which may vary depending on the specific agreement. In addition, Beijing Feitian assumes responsibility for transporting, installing, and commissioning the equipment, as well as providing training and free maintenance during the warranty period. Warranty periods typically range from one to three years. See “Item 4. Information on the Company - B. Business Overview - Customer Services and After Sales Services” for more details.
Beijing Feitian’s hospital customers include many Class III Grade A public hospitals in China, which generally refer to top-level, large public hospitals in the country, such as Peking University Third Hospital, Beijing PLA 301 Hospital, Peking Union Medical College Hospital, Beijing Friendship Hospital and Guangdong Province Second Hospital of Traditional Chinese Medicine.
The distribution of Beijing Feitian’s hospital customers as of December 31, 2025 is shown in the following table:
For the fiscal year ended December 31, 2023, Beijing Feitian’s top three customers, Beijing Hospital of Traditional Chinese Medicine, Affiliated Hospital of Jiangsu University and Shenzhen Risun Supply Chain Management Co., Ltd, accounted for 13%, 11% and 11%, respectively, of revenues. For the fiscal year ended December 31, 2024, Beijing Feitian’s top two customers, Guoyao Lianzhong Zhiyuan (Beijing) Medical Equipment Co., Ltd and Wuxi Huishan New Community Development Co., Ltd, accounted for 15% and 13%, respectively, of our total revenues. For the fiscal year ended December 31, 2025, Beijing Feitian’s top two customers, Inner Mongolia Autonomous Region People’s Hospital and Chongqing Zhanpeng Medical Equipment Co., Ltd., accounted for 26% and 25%, respectively, of revenues. Over the fiscal years ended December 31, 2023, 2024 and 2025, none of the customers other than the aforementioned large customers contributed more than 10% of the revenue. All of Beijing Feitian’s products and services are distributed through direct sales or procurement service providers. In 2023, 2024 and 2025, all of Beijing Feitian’s customers were in China. Throughout 2026, we intend to explore additional market opportunities in overseas markets, especially in Southeast Asia.
Individual Customers
Since hospitals in China provide only those treatments and services specified in catalogues established by local medical authorities (the “Hospital Catalogues”), they may not be able to directly offer or endorse products that are not included in the Hospital Catalogues. Beijing Feitian currently sells printed 3D molds directly to individual customers who are cancer patients, as these molds are not yet listed in the Hospital Catalogues. Those patients purchase printed 3D molds from Beijing Feitian based on their needs and the recommendations of their oncologists. Beijing Feitian has sold printed 3D molds to a total of 24 individual customers over the fiscal years ended December 31, 2023, 2024 and 2025. For the fiscal years ended December 31, 2023, 2024 and 2025, Beijing Feitian’s sales to individual patients comprised 0.24%, 0.88% and 1.32% of its total revenues, respectively.
Starting in 2022, Beijing Feitian made adjustments to its sales operations for printed 3D molds. Rather than selling directly to individuals, the Company has been utilizing third-party procurement service providers of hospitals to facilitate sales to individual customers. By working with these third-party providers, Beijing Feitian is able to offer its products to potentially more individual customers while complying with the existing regulatory framework. In the future, Beijing Feitian may consider selling printed 3D molds directly to hospitals in China, once local medical authorities include printed 3D molds in the Hospital Catalogues.
Research and Development
Currently, Beijing Feitian collaborates with Beijing Sovio Medical Technology Co. Ltd. (“Beijing Sovio”), TEAMSMART INTERNATIONAL LTD (“Teamsmart”) and Zhengyu Liu to develop software on an ongoing basis.
On July 10, 2015, Beijing Feitian entered into a technology development contract with Teamsmart. The contract was for a term of 2 years, during which Teamsmart agreed to develop radioactive particle implant TPS according to Beijing Feitian’s requirements. Pursuant to the agreement, Beijing Feitian was granted the right to use the software developed by Teamsmart, and had the exclusive right to purchase the copyright and ownership of the software for a consideration of RMB1.5 million (approximately $214,285) during the term of the contract.
On October 8, 2020, Beijing Feitian entered into a cooperation agreement with Teamsmart and Zhengyu Liu (the “2020 Cooperation Agreement”). 2020 Cooperation Agreement recognized Beijing Feitian’s copyright of the software named “Radiation Implant Treatment 3D-Planning System V1.3.118” (“FTTPS V1.3.118”) and any other rights derived therefrom. Teamsmart confirmed in the contract that FTTPS V1.3.118 would not infringe on the rights and interests of any third party and had an obligation to take measures to protect the intellectual property rights of FTTPS V1.3.118. If any third party infringes on FTTPS V1.3.118’s intellectual property rights, Teamsmart agreed to provide all necessary assistance as requested by Beijing Feitian. If Teamsmart materially breach the agreement, Beijing Feitian has the right to terminate the agreement and demand that Teamsmart and/or Liu Zhengyu compensate for any losses incurred thereafter. Additionally, all parties agreed to mutual confidentiality provisions which prohibit any party from disclosing the software’s proprietary information during the term of the agreement. The confidentiality obligations remain valid at all times. Teamsmart also consented to the non-competition clauses outlined in the agreement.
On the October 8, 2020, Beijing Feitian and Teamsmart also entered into a software transfer agreement (the “2020 Transfer Agreement”), pursuant to which Beijing Feitian acquired the intellectual property rights of FTTPS V1.3.118 and any other rights derived therefrom developed by Teamsmart for a consideration of RMB2.5 million (approximately $357,143).
The 2020 Cooperation Agreement and 2020 Transfer Agreement was later terminated upon negotiation on October 25, 2022. As of the date of this annual report, no payment was made pursuant to 2020 Cooperation Agreement and 2020 Transfer Agreement.
On October 25, 2022, Beijing Feitian entered into a technical service agreement (the “2022 Agreement”) with Beijing Sovio, Teamsmart and Zhengyu Liu (“2022 Agreement Counter-parties”) for a perpetual term, which supersedes the 2020 Cooperation Agreement and 2020 Transfer Agreement. Based on the 2022 Agreement, 2022 Agreement Counter-parties are responsible for providing software upgrades, continuous improvements, and maintenance of FTTPS. As provided in the 2022 Agreement, Beijing Feitian has the ultimate right to use the software before and after any updates by 2022 Agreement Counter-parties, and also maintains the right to register the copyrights of the updated software to the National Copyright Administration of The People’s Republic of China, and 2022 Agreement Counter-parties shall provide necessary assistance for such copyright registration. As per the 2022 Agreement, Beijing Feitian has the exclusive right to purchase the copyrights of the updated software and any other rights derived therefrom for RMB2.5 million (approximately $357,143). Additionally, Beijing Feitian can grant third-party usage rights to the software for a fee paid to 2022 Agreement Counter-parties of RMB25,000 (approximately $3,571) per license until June 30, 2023, and RMB30,000 (approximately $4,286) per license thereafter.
Apart from the agreements enclosed above, neither we nor Beijing Feitian have any other outsourcing R&D agreements. Our R&D expenses totaled $84,474, $93,324 and $459,135 for the fiscal years ended December 31, 2023, 2024 and 2025, respectively. R&D expenses mainly consist of outsourcing research expense, salary, employee benefits, and other related expense for product development. We will continue to evaluate opportunities to further upgrade our existing products and develop new products, components, and features. We expect that our R&D expenses will increase significantly in the near future, as we continue to develop new products and new features, and enhance our existing products and technologies through the operation of Beijing Feitian.
Manufacturing and Supply
Service Fulfillment
For the sale of FTTPS and related medical supplies, the service process commences with our technical personnel providing on-site installation, testing, and adjustment of our core software, ensuring seamless integration with other hardware peripherals. To preempt any potential disruptions and system breakdowns, Beijing Feitian provides a burned CD as a backup option to customers whose computers are equipped with CD-ROMs at no extra charge. FTTPS is designed to operate in an offline mode and run on streamlined computer operating systems. During the fiscal year ended December 31, 2023, 2024 and 2025, approximately 95% of customers have CD-ROM-equipped computers, and all of them selected this backup solution.
Supply Chain
Aligned with the business model, Beijing Feitian purchases CDs from third-party suppliers, and subsequently burns FTTPS on CDs in accordance with customers’ requests. In addition, it purchases other medical supplies from third-party suppliers, such as computer workstations, seed implanting needles, and seed implanting guns. Beijing Feitian packs CDs and other hardware equipment as required by customer contracts before shipping them to the customers’ sites through third-party couriers. Another type of outsourced product is the customized 3D template. Beijing Feitian sends requirements to suppliers based on patient’s information, and suppliers will directly ship the 3D product to the patient who ordered it from Beijing Feitian.
As of the date of this annual report, Beijing Feitian does not own or operate, and currently has no plan to establish, any manufacturing facilities for Medical Auxiliary Supplies or other treatment-related products that it sells to its customers. Beijing Feitian is working with its current manufacturers from whom Beijing Feitian acquires medical supplies, to ensure that they will be able to scale up their manufacturing capabilities to support the growing needs of Beijing Feitian. As of the date of this annual report, Beijing Feitian has not experienced any shortage of supplies by their manufacturers. Beijing Feitian is also in the process of locating and qualifying additional manufacturers to build redundancies into its supply chain, including computer suppliers with stable performance histories and competitive prices, and suppliers of high-quality medical consumables. We believe that this strategy allows Beijing Feitian to maintain a more efficient infrastructure by eliminating the need to invest in its own manufacturing facilities, equipment, and personnel, while enabling it to focus its resources on the design and development of FTTPS.
Beijing Feitian’s above-mentioned products for sales are primarily outsourced from suppliers in China. For the fiscal year ended December 31, 2023, Beijing Feitian had five principal suppliers who individually contributed to more than 10% of Beijing Feitian’s total purchases; namely, Tianjin Yan Zhihua Technology Development Co., Nanjing Dianfeng Medical equipment Co., LTD, Beijing Zhengfang Kangte Information Technology Co., Beijing Hicheer Sci-Tec Co., Ltd and SSGI Asia, Inc., representing 32%, 20%, 11%, 11% and 11%, respectively, of Beijing Feitian’s total purchases. For the fiscal year ended December 31, 2024, Beijing Feitian had three principal suppliers who individually contributed to more than 10% of Beijing Feitian’s total purchases; namely, SSGI Asia, Inc., Shanghai Datu Medical Technology Co., Ltd, and Shanghai Hekang Medical Appliances Co., Ltd., representing 24%, 18% and 17%, respectively, of Beijing Feitian’s total purchases. For the fiscal year ended December 31, 2025, Beijing Feitian had 2 principal suppliers who individually contributed to more than 10% of Beijing Feitian’s total purchases; namely, Guangxi Xinhai Kangcheng Medical Devices Co., Ltd. and Tianjin Yanzhihua Technology Development Co., Ltd. representing 54% and 14% respectively. Except for the above-mentioned major customers, no other customer contributed more than 10% of the revenue for the fiscal years ended December 31, 2023, 2024 and 2025. There are no minimum purchase requirements with any of the suppliers, including the significant ones. Although Beijing Feitian can utilize any supplier it selects, it believes that it has established healthy and stable relationships with these significant suppliers through years of cooperation.
Quality Control and Regulatory Approvals
Beijing Feitian’s Medical Auxiliary Supplies and software are mostly applied to the human body and are closely related to the life and health of the patients. Beijing Feitian has its own independent quality control system which we believe is strict and in accordance with the requirements of the PRC laws and regulations and in line with international standards. Beijing Feitian devotes significant attention to quality control for the designing, manufacturing, and testing of its products.
Beijing Feitian has implemented a comprehensive quality control system that covers all of its products, whether outsourced or self-packaged. Beijing Feitian’s quality control systems are based on the Quality Management Code for Medical Device Production and the internationally recognized quality standard for medical devices, ISO 9001: 2015. The overall process of the quality control system includes (1) development of inspection procedures, (2) procurement control and incoming inspection, (3) process control and process inspection, (4) product inspection before delivery, and (5) other quality control steps tailored for specific products.
To ensure quality assurance, Beijing Feitian has implemented an internal control system where a limited number of employees are assigned cross-functional responsibilities. This approach allows for effective and efficient quality control measures despite having a relatively small workforce. In particular, the staff for technical control is responsible for preparing the protocols for incoming goods, process and final inspection, specifying the verification methods, testing methods, judgment bases and inspection tools and equipment to be used, etc. The staff for quality control is responsible for inspecting the quality of incoming materials, packaging and assembling processes and final products. Also, a dedicated staff is responsible for quality control and signs the release instructions for products to be sent to customers.
Beijing Feitian emphasizes quality control in all aspects of its operations to ensure its products meet stringent internal standards, international and industry standards, as well as detailed requirements of various laws and regulations relating to medical devices, including but not limited to the registration and filings for medical devices, the production and operation license, the production and quality management. Although Beijing Feitian endeavors to stay in compliance with such laws and regulations, we cannot assure you that Beijing Feitian complies with relevant laws and regulations at all times. Any such failure may have a material and adverse effect on our business, financial condition and results of operations.
As of the date of the annual report, we are not aware of any investigations, prosecutions, disputes, claims or other proceedings in respect of quality issues, nor has Beijing Feitian been penalized additionally or can foresee any penalty to be made by any related PRC government authorities.
Customer Services and After Sales Services
Providing quality customer service is a top priority for us. Beijing Feitian generally sells FTTPS with the necessary hardware equipment according to the specific needs of each hospital. Beijing Feitian’s sales of FTTPS and Medical Auxiliary Supplies includes on-site technical support as specified in the sales contract, and Beijing Feitian typically offers a 1-5 years free warranty service to customers that covers transportation, installation, insurance, and other related costs for system maintenance and parts replacement. Beijing Feitian guarantees a remote maintenance response time of within two hours and commits to performing maintenance and parts replacement services within two days, if required on-site, as specified in the sales contract. Lifetime maintenance services are offered to customers who adhere to reasonable use and maintenance conditions for the equipment, and Beijing Feitian only charges for replacement parts without any additional service fees.
Competition
The TPS market is characterized by rapid product development, technological advances, intense competition and a strong emphasis on proprietary products. Across all product lines and product tiers, Beijing Feitian faces direct competition both domestically in China and internationally. Factors such as price, value, customer support, brand recognition, reputation, and product functionality, reliability, and compatibility are key considerations in the competition.
According to data from the National Medical Products Administration of the PRC, as of the date of this annual report, there are six TPS products for brachytherapy approved for marketing in China, including three for radioactive particle implantation. They are all NMPA-approved Class III medical devices software products for medical use. In addition to domestic competition, Beijing Feitian also competes with imported treatment planning system products for radioactive particle implantation and breach-loading therapy.
Intellectual Property
Our business is dependent on a combination of protections provided by copyrights, domain names and confidentiality clauses in labor agreements with our employees and others to protect proprietary rights. As of the date of this annual report, Beijing Feitian has registered seven software copyrights and one domain name in the PRC.
Domain Name
Beijing Feitian owns the domain name of “ftzy.com.cn”, with a registration date of August 28, 2002, which has an expiration date of August 28, 2027 upon our certificate renewal in August 2024.
Copyrights
Set forth below are descriptions of Beijing Feitian’s registered copyrights:
| No. | Copyright No. | Copyright Name | Place of Registration |
Registered Owner |
Date of First Publication |
|||||
| 1 | 2018SR004675 | Radiation Implant Treatment 3D-Planning System V1.3.118 (放射植入治疗三维计划系统 V1.3.118) |
PRC | Beijing Feitian | 10-08-2016 | |||||
| 2 | 2018SR758272 | Alignment Image Sequence Test System V6.0 (配准图像序列测试系统 V6.0) |
PRC | Beijing Feitian | 10-08-2016 | |||||
| 3 | 2018SR763206 | Input Patient Data Test System V6.0 (输入病人数据测试系统 V6.0) |
PRC | Beijing Feitian | 10-15-2016 | |||||
| 4 | 2018SR763109 | Define and View Area of Interest Test System V6.0 (定义和查看兴趣区测试系统 V6.0) |
PRC | Beijing Feitian | 10-22-2016 | |||||
| 5 | 2018SR762624 | Design Plan Test System V6.0 (设计计划测试系统 V6.0) |
PRC | Beijing Feitian | 10-28-2016 | |||||
| 6 | 2018SR762631 | Manage Case Database Test System V6.0 (管理病例数据库测试系统 V6.0) |
PRC | Beijing Feitian | 10-29-2016 | |||||
| 7 | 2021SR1830440 | Radioactive Particle Implantation Treatment Planning Software V3.00.00 (粒籽植入放射治疗计划软件 V3.00.00) |
PRC | Beijing Feitian | 09-01-2021 |
Licenses and Certificates
The following table provides details on the licenses and certificates material to our business currently conducted in China.
| Company | License/Certificate | Issuing Authority/Entity | Validity | |||
| Beijing Feitian | Class I Medical Device Production Record Certificate (File No. 20180004) | Beijing Chaoyang District Market Supervision Administration | long-term* | |||
| Beijing Feitian | Class I Medical Device Record Certificate (File No. 20230003) | Beijing Chaoyang District Market Supervision Administration | long-term* | |||
| Beijing Feitian | Class I Medical Device Record Certificate (File No. 20230004) | Beijing Chaoyang District Market Supervision Administration | long-term* | |||
| Beijing Feitian | Class I Medical Device Record Certificate (File No. 20230005) | Beijing Chaoyang District Market Supervision Administration | long-term* | |||
| Beijing Feitian | Class II Medical Device Selling Record Operation Filing Certificate | Beijing Chaoyang District Market Supervision Administration | long-term* | |||
| Beijing Feitian | Class III Medical Device Production License | Beijing Municipal Drug Administration | 12-26-2029(3) | |||
| Beijing Feitian | Class III Medical Device Operation License | Beijing Chaoyang District Market Supervision Administration | 02-28-2029(1) | |||
| Beijing Feitian | People’s Republic of China Medical Device Registration Certificate | PRC State Drug Administration | 08-11-2029(2) | |||
| Beijing Feitian | High-tech Enterprise Certificate | Beijing Municipal Science & Technology Commission, Beijing Municipal Finance Bureau and Beijing State Administration of Taxation | 12-31-2027 | |||
| Beijing Feitian | Medical Device Management System Certification ISO13485:2016 | ORLIS CERTIFICATION CO., LTD. | 01-02-2028 |
| * | the “long-term” licenses and certificate will remain effective indefinitely and will not need to be renewed until Beijing Feitian has been determined by such authorities to have failed to meet certain requirements to obtain such licenses and certificate. |
| (1) | the previous Class III Medical Device Operation License expired on February 29, 2024. Beijing Feitian has renewed the license, which is valid from March 1, 2024 to February 28, 2029. |
| (2) | the previous People’s Republic of China Medical Device Registration Certificate expired on August 11, 2024. Beijing Feitian has renewed this certificate, which is valid from August 12, 2024 to August 11, 2029. |
| (3) | the previous Class III Medical Device Production License expired on December 26, 2024. Beijing Feitian has renewed the license, which is valid from December 27, 2024 to December 26, 2029. |
The following table provides details on the awards and certifications that recognize our business operations and credit records.
| Company | Awards | Issuing Authority/Entity | Validity | |||
| Beijing Feitian | AAA level integrity management model unit | Xinrong (Jiangsu) Credit Evaluation Co., Ltd | 01-26-2027 | |||
| Beijing Feitian | AAA class credit enterprise | Xinrong (Jiangsu) Credit Evaluation Co., Ltd | 01-26-2027 | |||
| Beijing Feitian | AAA class contract and trustworthy enterprise | Xinrong (Jiangsu) Credit Evaluation Co., Ltd | 01-26-2027 | |||
| Beijing Feitian | AAA quality service integrity unit | Xinrong (Jiangsu) Credit Evaluation Co., Ltd | 01-26-2027 | |||
| Beijing Feitian | AAA credit suppliers | Xinrong (Jiangsu) Credit Evaluation Co., Ltd | 01-26-2027 |
Employees
As of December 31, 2023, 2024 and 2025, Beijing Feitian had 11, 10 and 7 full-time employees, respectively. The following table sets forth the number of employees categorized by function as of December 31, 2025:
| Function | Number of Employees |
% of Total |
||||||
| Management | 1 | 14 | % | |||||
| Administration | 1 | 14 | % | |||||
| Sales | 3 | 43 | % | |||||
| Technical Support | 2 | 29 | % | |||||
| Total | 7 | 100 | % | |||||
As required by PRC laws and regulations, as of December 31, 2023, 2024 and 2025, Beijing Feitian participated in various employee benefit plans that are organized by municipal and provincial governments, including, among other things, pension, medical insurance, unemployment insurance, maternity insurance, on-the-job injury insurance, and housing fund plans through a PRC government-mandated benefit contribution plan. As of the date of this annual report, Beijing Feitian is required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Commencing July 2024 and as of the date of this annual report, Beijing Feitian has made sufficient contributions to employee benefit plans, as required. See “Item 3. Key Information - Risk Factors - Risks Relating to Conducting Business in the PRC - Increases in labor costs in the PRC may adversely affect our business and profitability and failure to comply with PRC labor laws may subject us to penalties” for details.
Beijing Feitian generally enters into a fixed-term employment contract of 1 year, or an indefinite employment contract with its employees. We believe that Beijing Feitian maintains a good working relationship with its employees, and it has not experienced any material labor disputes as of the date of this annual report.
Properties
Beijing Feitian occupies an office space located at Room 405, LongHu Hailanyinqing Industrial Park, Building 6, No. 8 Beiyuan Xiaojie, Chaoyang District, Beijing, China, under a lease agreement with Beijing Ruihengtai Park Management Services Co., Ltd. This property consists of an aggregate building area of approximately 226.27 square meters and serves as our headquarters and office space, with quarterly rent of RMB82,588 (approximately $11,491). The lease agreement has a term of three (3) years.
Insurance
As of the date of this annual report, we maintain directors and officers’ liability insurance for our directors and officers. Besides the government-mandated social insurance and housing provident fund schemes, Beijing Feitian does not maintain any insurance covering its properties, equipment, inventory or employees, and it does not carry any business interruption or product liability insurance or any third-party liability insurance to cover claims in respect of personal injuries or any damages arising from accidents in relation to its operations. We believe that Beijing Feitian’s insurance coverage is adequate and is in line with industry practice.
Legal Proceedings
We and our subsidiaries may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. As of the date of this annual report, neither we nor any of our subsidiaries are involved in any ongoing litigation or other material legal or administrative proceedings.
Regulations
We are subject to a variety of PRC and foreign laws, rules and regulations across a number of aspects of our business. This section summarizes the principal PRC laws, rules and regulations relevant to our business and operations.
Regulation on Foreign Investment Restrictions
Investment activities in the PRC by foreign investors are principally governed by the Catalog of Industries for Encouraging Foreign Investment (2025 Edition), or the Catalog, as promulgated by the Ministry of Commerce of the People’s Republic of China (“MOFCOM”), and the NDRC on December 15, 2025 and will become effective from February 1, 2026, and the Special Administrative Measures for Access of Foreign Investment (2024 Edition), or the Negative List (2024), as promulgated on September 6, 2024. According to the Negative List (2024), our businesses operated by us in PRC do not fall into the restricted or prohibited categories.
In addition, a foreign-invested enterprise in the PRC is required to comply with other regulations on its incorporation, operation and changes. On March 15, 2019, the National People’s Congress (“NPC”) adopted the Foreign Investment Law (the “FIL”), which became effective on January 1, 2020. Pursuant to the FIL, PRC will grant national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries that fall within “restricted” or “prohibited” categories as prescribed in the Negative List to be released or approved by the State Council.
On December 26, 2019, the State Council promulgated the Implementation Rules to the Foreign Investment Law, which became effective on January 1, 2020. The implementation rules further clarify that the state encourages and promotes foreign investment, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to optimize a foreign investment environment, and advances a higher-level opening. On December 30, 2019, the 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 PRC, directly or indirectly, the foreign investor or the foreign-invested enterprise shall submit the investment information to the competent commerce department.
Regulation on Medical Devices
The manufacturing, using and operation of medical devices in China are subject to extensive regulations.
The Regulation on the Supervision and Administration of Medical Devices (the “Medical Devices Regulation”), as amended by the State Council in December 2024 and became effective from January 20, 2025, regulates entities that engage in the research and development, production, operation, use, supervision and administration of medical devices in the PRC. Medical devices are classified according to their risk levels. Class I medical devices are medical devices with low risks, and the safety and effectiveness of which can be ensured through routine administration. Class II medical devices are medical devices with moderate risks, which are strictly controlled and administered to ensure their safety and effectiveness. Class III medical devices are medical devices with relatively high risks, which are strictly controlled and administered through special measures to ensure their safety and effectiveness. The evaluation of the risk levels of medical devices take into consideration the medical devices’ objectives, structural features, methods of use and other factors. Class I medical devices shall be subject to product filing management, and Class II and Class III medical devices shall be subject to product registration management. The classification of specific medical devices is stipulated in the Medical Device Classification Catalog, which was issued by the China Food and Drug Administration on August 31, 2017 and became executive on August 1, 2018, which was later amended in December 2020, March 2022, August 2023 and December 2025. The Administrative Measures for the Registration and Record-filing of In Vitro Diagnostic Reagents promulgated by State Administration for Market Regulation in August 2021 and became effective from October 1, 2021 further provides the registration, record-filing, supervision and management of in vitro diagnostic reagents.
Registration and Filing of Medical Devices
Pursuant to the Administrative Measures for the Registration and Record-filing of Medical Devices, promulgated by State Administration for Market Regulation (the “SAMR”) in August 2021 and became effective on October 1, 2021, among domestic manufactured medical devices, (i) applicants for the record-filing of Class-I domestic medical devices shall submit record-filing materials to the departments in charge of medical products administration at the level of cities divided into districts; (ii) Class-II domestic medical devices shall be reviewed by medical products administrations of all provinces, autonomous regions and municipalities directly under the Central Government, which shall issue a medical device registration certificate upon approval after review; (iii) Class-III domestic medical devices shall be reviewed by the National Medical Products Administration (the “NMPA”) which shall issue a medical device registration certificate upon approval after review. The registration and record-filing of medical devices shall follow the relevant requirements of the classification rules and contents of medical devices. Except for the circumstances stipulated in the Administrative Measures for the Registration and Record-filing of Medical Devices, the registration or record-filing of medical device products shall be subject to clinical evaluation. Besides, the product registration certificate is valid for five years, and the holder of such certificate shall apply for renewal within six months prior to its expiration.
Production Permit and GMP for Medical Devices
Pursuant to the Medical Devices Regulation and the Measures for the Supervision and Administration of the Production of Medical Devices, promulgated by the SAMR in March 2022 and effective from May 1, 2022, an entity engaging in the production of medical devices of Class I shall complete record-filing with the NMPA at city level where such entity is located; and an entity engaging in the production of medical devices of Class II or III shall obtain a production permit of medical devices from the NMPA at provincial level. The production permit of medical devices is valid for five years and the holder of such permit shall apply for extension within 90 to 30 working days prior to its expiration.
According to the Good Manufacturing Practice of Medical Devices promulgated by China Food and Drug Administration and effective from March 1, 2015, an entity engaging in the design, developing, production, sales after-sales of medical devices shall establish and effectively maintain a quality control standard.
Operation Permit and GSP for Medical Devices
Pursuant to the Medical Devices Regulation and the Measures for the Supervision and Administration of the Operation of Medical Devices, promulgated by the SAMR in March 2022 and effective from May 1, 2022, an entity engaging in the operation of medical devices of Class I is not required to obtain approval or filing for record with the NMPA or its local counterparts; an entity engaging in the operation of medical devices of Class II shall file for record with the NMPA at city level where such entity is located; an entity engaging in the operation of medical devices of Class III shall apply for an operation permit from the NMPA at city level. The operation permit of medical devices is valid for five years and the holder of such permit shall apply for extension within 90 to 30 working days prior to its expiration. According to Medical Devices Regulation, the operating enterprises and users of medical devices shall not operate or use the medical devices that are not registered or filed according to law, have no qualification certificates, or have expired or been eliminated.
Pursuant to the Good Sales Practice of Medical Devices promulgated by China Food and Drug Administration, which was effective from December 12, 2014 and was amended on December 4, 2023 and effective on July 1, 2024, medical devices businesses shall take quality control measures in the process of procurement, acceptance, storage, sales, transportation, and after-sale services to ensure product quality.
Export of Medical Devices or Medical Supplies
Pursuant to the Medical Devices Regulation, an enterprise that exports medical instruments shall ensure that its exported medical instruments meet the requirements of the importing country (region).
Tendering Processes for Medical Devices
The Chinese government has implemented measures to encourage pooled procurement of expensive medical consumables through tendering processes. In June 2007, MOH issued the Notice on Further Strengthening the Administration of Centralized Procurement of Medical Devices, which requires that all non-profit medical institutions established by local governments, associations or state-owned enterprises participate in the centralized procurement. Public tendering will be the principal method for centralized procurement.
Regulation on Product Quality and Consumer Protection
Product Quality
Pursuant to the Product Quality Law of the PRC which was promulgated by the SCNPC on February 22, 1993 and became effective as of September 1, 1993, and latest amended and came into force on December 29, 2018, a manufacturer is liable for the quality of products that it produces. The quality of a product shall be inspected and proved to be conformed to the standards. Industrial products which may be hazardous to health or safety of human life and property shall be in compliance with national and industrial standards safeguarding the health and safety of human life and property; in the absence of such national or industrial standards, such products shall meet the requirements for procuring the protection of health and safety of human life and property. Besides, consumers or other victims who suffer personal injury or property losses due to product defects may demand compensation from the manufacturer as well as the seller. Where the responsibility for product defects lies with the manufacturer, the seller shall, after settling compensation, have the right to recover such compensation from the manufacturer, and vice versa.
Pursuant to the Civil Code promulgated by the National People’s Congress in May 2020 and effective from January 1, 2021, where a defect of a product causes damage to another person, the manufacturer shall bear tort liability. Where a defect of a product causes damage to another person, the infringed person may claim compensation against the manufacturer or the seller of the product. Where a defect is caused by the manufacturer, the seller who has paid compensation has the right to indemnification against the manufacturer. Where a defect is caused by the fault of the seller, the manufacturer who has paid compensation has the right to indemnification against the seller.
Consumer Protection
Pursuant to the Consumer Protection Law of the PRC which was promulgated by the SCNPC on October 31, 1993, and latest amended and came into force on March 15, 2014, the rights and interests of the consumers who buy or use commodities or receive services for the purposes of daily consumption are protected, and all manufacturers and sellers involved shall ensure that the products and services provided will not cause damage to the customers. Violations of the Consumer Protection Law of the PRC may result in the imposition of fines. In addition, the manufacturers and sellers may be ordered to suspend operations and its business license may be revoked, while criminal liability may be imposed in serious cases.
Regulation on Commercial Bribery
The SCNPC adopted the Anti-Unfair Competition Law, which became effective on December 1, 1993 and was amended on November 4, 2017, with the most recent amendment coming into force on October 15, 2025. The Anti-Unfair Competition Law states that offering money or any other bribes during the course of selling or purchasing products is a crime for business operators. Pursuant to the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Medicine Purchase and Sales Industry, which became effective on March 1, 2014, provincial health and family planning administrative departments are responsible for establishing the implementing measures for the establishment of Adverse Records of Commercial Briberies. Medical device companies involved in criminal investigations or administrative proceedings related to bribery are listed in the Adverse Records of Commercial Briberies by their respective provincial health and family planning administrative departments. When a company is first included in the Adverse Records of Commercial Briberies, its products may not be purchased by public medical institutions or medical and health institutions that receive government funds specifically allocated for those purposes in its province for two years after the publication of the aforesaid adverse records. Such government-funded institutions in other provinces shall deduct the points of the aforesaid company’s products during bidding and procurement scoring within the two years. If a company is listed in the Adverse Records of Commercial Briberies twice in five years, all public medical institutions or medical and health institutions that receive government funds for those purposes in the entire country shall not purchase its products for two years.
Regulation on Foreign Exchange Control
In 1996, China published The Foreign Currency Administration Regulations, and late on amended on January 14, 1997 and August 5, 2008. This Regulation has been the major one governing the foreign exchange activities in China. Under this Regulation, the Renminbi is convertible for foreign currency account items, including the distribution of dividends, interest payments and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such as, loans, investment in securities and repatriation of investments, however, is subject to the registration of the State Administration of Foreign Exchange (“SAFE”) or its local counterparts.
In recent years, China has become more open to foreign currency exchange. Individual persons are allowed to buy $50,000 each year, but for companies there are still control policies. Under the Regulation and relevant rules, foreign-invested enterprises may buy, sell and remit foreign currencies at banks authorized to conduct foreign exchange transactions for settlement of currency account transactions after providing valid commercial documents and, in the case of capital account item transactions, only after registration with the SAFE and, as the case may be, other relevant PRC government authorities as required by law.
According to the Overseas Investment Regulation which was issued in 2014, capital investments directed outside of China by domestic or foreign-invested enterprises are also subject to restrictions, which include registration filing with Ministry of Commerce, even though the Notice on Further Improving and Adjusting the Foreign Exchange Management Policy for Capital Account (“No. 2 Notice”) passed in February of 2014 by SAFE has made domestic enterprises much easier releasing foreign currency overseas to foreign companies including connected companies.
The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. We receive a significant portion of our revenue in Renminbi, which is not a freely convertible currency. Under our current structure, our income will be primarily derived from dividend payments from our subsidiaries in China. Even though we may remit the income from China to anywhere we want, the fluctuation of exchange rate may be a disadvantage to us if Renminbi depreciated.
On January 26, 2017, the SAFE promulgated the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control (the “SAFE Circular 3”), which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to the SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
On October 23, 2019, the SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting Cross-border Trade and Investment Facilitation (the “SAFE Circular 28”), amended on December 4, 2023, which expressly allows foreign-invested enterprises that do not have equity investments in their approved business scope to use their capital obtained from foreign exchange settlement to make domestic equity investments as long as there is a truthful investment and such investment is in compliance with the foreign investment-related laws and regulations.
Regulation on Foreign Exchange Registration of Offshore Investment by PRC Residents
In October of 2005, SAFE promulgated a Notification known as “Notification 75”, in which SAFE requires PRC residents to register their direct establishment or indirect control of an offshore entity (referred to in Notification as “special purpose vehicle.”), where such offshore entity is established for the purpose of overseas financing, provided that PRC residents contribute their legally owned assets or equity into such entity. In July of 2014, this Notification was replaced by Notification 37, “Notification on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Returning Investment through Special Purpose Vehicles”, which expanded SAFE oversight scope to include overseas investment registration as well. Meanwhile, Notification 37 also covers more areas such as PRC residents paying capital contribution with overseas assets or equity. Furthermore, Notification 37 requires amendment to the registration where any significant changes with respect to the special purpose vehicle capitalization or structure of the PRC resident itself (such as capital increase, capital reduction, share transfer or exchange, merger or spin off). On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or Notice 13, which became effective on June 1, 2015 and was amended on December 30, 2019. Under Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under Notification 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.
Regulation on Dividend Distributions
Our PRC subsidiary, Jinruixi, is a wholly foreign-owned enterprise, or WFOE, under the PRC law. The principal regulations governing the distribution of dividends paid by Jinruixi include Corporate Law (1993) as lastly amended in 2023; the Foreign Investment Law and its Implementing Regulations; and the Enterprise Income Tax Law (2007) as lastly amended in 2018 and its Implementation Regulations (2007) as lastly amended in 2024.
Under these requirements, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. A PRC company is required to allocate at least 10% of their respective accumulated after-tax profits each year, if any, to fund certain capital reserve funds until the aggregate amount of these reserve funds have reached 50% of the registered capital of the enterprises. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
On March 16, 2007, the NPC enacted the Enterprise Income Tax Law, and on December 6, 2007, the State Council issued the Implementation Regulations on the Enterprise Income Tax Law, both of which became effective on January 1, 2008. The Enterprise Income Tax Law was lately amended on December 29, 2018 and the Implementation Regulations on the Enterprise Income Tax Law was lately amended on December 6, 2024. Under this law and its implementation regulations, dividends payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject to a 10% (5% for Hong Kong residents) withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a lower withholding tax rate.
M&A Rules and Regulation on Overseas Listings
On August 8, 2006, six PRC regulatory agencies, Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly adopted the Regulation on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or so called the M&A Rules and amended it on June 22, 2009. The M&A Rules purport, among other things, to require that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interests held by such PRC companies or individuals, obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. After the FIL and its implementation regulations became effective on January 1, 2020, the provisions of the M&A Rules remain effective to the extent they are not inconsistent with the FIL and its implementation regulations.
On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures and relevant five guidelines, which became effective on March 31, 2023.
The Overseas Listing Trial Measures will comprehensively improve and reform the existing regulatory regime for overseas offering and listing of PRC domestic companies’ securities and will regulate both direct and indirect overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based regulatory regime.
According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (i) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (ii) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (iii) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (iv) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (v) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
The Overseas Listing Trial Measures also provides that if the issuer both meets the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (i) 50% or more of any 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 fiscal year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China. Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business days after such application is submitted. The Overseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.
The Overseas Listing Trial Measures provide that 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 three (3) working days after the occurrence and public disclosure in the event of any: (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; or (iv) voluntary or mandatory delisting. The Overseas Listing Trial Measures also provide that 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 three (3) working days after occurrence of the changes. Additionally, the Overseas Listing Trial Measures provide that 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 three (3) working days after the offering is completed.
On February 24, 2023, the CSRC promulgated the Confidentiality and Archives Administration Provisions, which also became effective on March 31, 2023. According to the Confidentiality and Archives Administration Provisions, domestic companies that seek overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall institute a sound confidentiality and archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. They shall not leak any state secret and working secret of government agencies, or harm national security and public interest. Therefore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level. The above-mentioned documents and materials that, if leaked, will be detrimental to national security or public interest, the domestic company shall strictly fulfill relevant procedures stipulated by applicable regulations.
Furthermore, the Confidentiality and Archives Administration Provisions stipulates that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable regulations. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed.
Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Operating Entity.
China has been open to foreign direct and indirect investments. An offshore company may invest in a PRC company. Such investment is subject to the FIL. Under the FIL, foreign investments no longer need to be approved by Chinese government, but only need to register the investment with Chinese regulatory agency.
However, Chinese government still has foreign exchange control policy. The money transfer in or out of China is still under tight control. So, shareholder loans made by offshore parent holding companies to their PRC operating entity are regarded as foreign debts in China for regulatory purposes, which debts are subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, Administration Rules on the Settlement, Sale and Payment of Foreign Exchange, Administration of Foreign Debts Tentative Procedures, 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 Provisional Measures on Administration of Foreign Debt.
Pursuant to the Provisional Measures on Administration of Foreign Debt (the “Foreign Debt Measures”) issued by the State Development Planning Commission (revised), Ministry of Finance and SAFE in July 2022 and became effective on September 1, 2022, any loans provided by us to our PRC subsidiary in foreign currencies shall be classified as foreign debt under the Foreign Debt Measures. According to the Foreign Debt Measures, the sum of cumulative accrued amounts of medium-term to long-term foreign loans and balance amounts of short-term foreign loans taken by a foreign investment enterprise shall be limited to the difference between the total project investment amount approved by the government and the amount of registered capital. Foreign investment enterprises may take foreign loans freely within the scope of difference.
On January 12, 2017, the People’s Bank of China (the “PBOC”) issued the Notice of People’s Bank of China on Matters Concerning Macro-prudential Management on All-round Cross-border Financing (the “No. 9 Notice”), which improved the policy framework of the cross-border financing. The No. 9 Notice clarifies the new calculation methods of the upper limit of the risk-weighted balance for all types of cross-border financing, in particular, the upper limit for risk-weighted balance for cross-border financing equals to the capital or the net assets multiplied by the leverage rate of cross-border financing and the macro-prudential adjustment parameters. In the case of our PRC subsidiary, the capital or the net assets is calculated at the net assets of each subsidiary, the leverage rate for cross-border financing for an enterprise is 2, and the macro-prudential adjustment parameter is 1 (the “All-Round Mode”). On March 11, 2020, the PBOC and SAFE promulgated the Circular of the People’s Bank of China and the State Administration of Foreign Exchange on Adjusting the Macro-prudential Regulation Parameter for Full-covered Cross-border Financing, which provides that based on the current macro economy and international balance of payments, the macro-prudential regulation parameter as set forth in the Notice 9 is updated from 1 to 1.25. On January 7, 2021, the PBOC and SAFE promulgated the Notice of PBC and SAFE on Adjusting the Macro-prudential Adjustment Parameter for Cross-border Financing of Companies, which provides that the macro-prudential regulation parameter of companies is updated from 1.25 to 1, which was further changed to 1.5 subsequently. Currently, the implementation of the foregoing methodologies in cross-border financing have not been formally determined by the PBOC and the SAFE. In the practice, according to the Q&A on Macro-prudential Regulation Parameter for Full-Covered Cross-border Financing (Phase I) (the “Q&A”) issued by the SAFE on May 27, 2017, FIEs shall submit a written filing report to the local foreign exchange bureau when they handle the foreign debt signing filing (registration) for the first time after the issuance of the Q&A, so as to clarify the cross-border financing management mode they choose during the transition period. If the All-Round Mode is selected, the latest audited net assets data shall be reported at the same time. Once the cross-border financing management mode is determined, it shall not be changed. Alternatively, if we choose to use the All-Round Mode, the amount of loans we can make to our PRC subsidiary as calculated according to the No. 9 Notice and the Notice of PBC and SAFE on Adjusting the Macro-prudential Adjustment Parameter for Cross-border Financing of Companies will not be more than 2 times of the net assets of such entities.
Moreover, as the debtors of cross-border financing, our PRC subsidiary is also required to comply with certain registration formalities for execution of foreign debt contracts with the foreign exchange bureau at the locality within fifteen working days after signing the contracts according to the Notice of State Administration of Foreign Exchange on Promulgation of the Administrative Measures on Registration of Foreign Debt which was promulgated by the SAFE in April 2013 and revised in May 2015.
Pursuant to the Administrative Measures for Review and Registration of Medium- and Long-term Foreign Debts of Enterprises promulgated by the NDRC on January 5, 2023 and became effective from February 10, 2023 (“Foreign Debts Measures”), before borrowing foreign debts, an enterprise shall obtain the Certificate of Review and Registration of Enterprise Borrowing of Foreign Debts (the “Certificate of Review and Registration”) and complete the review and registration formalities. Without review and registration, no foreign debt may be borrowed. An enterprise shall, within ten working days after borrowing each foreign debt, report the information on borrowing foreign debt to the review and registration authority via the network system established by the NDRC. The medium- and long-term foreign debts of enterprises (“foreign debts”) mentioned in the Foreign Debts Measures refer to debt instruments with a maturity of one year or more that are borrowed from overseas by enterprises within the territory of the People’s Republic of China and by overseas companies or branches controlled by them, denominated in local or foreign currency, and of which principal with interest are repaid as agreed, and debt instruments include, but are not limited to, senior debts, perpetual debts, capital debts, medium-term notes, convertible bonds, exchangeable bonds, financial leasing, and commercial loans.
Regulations Relating to Employment and Social Welfare
Regulations on Employment
The major PRC laws and regulations that govern employment relationship are the PRC Labor Law, or the Labor Law (issued by the SCNPC on July 5, 1994, came into effect on January 1, 1995 and revised on August 27, 2009 and December 29, 2018), the Labor Contract Law, promulgated by the SCNPC on June 29, 2007 and became effective on January 1, 2008, and then amended on December 28, 2012 and became effective on July 1, 2013, and the Implementation Rules of the Labor Contract Law of the PRC, or the Implementation Rules of the Labor Contract Law, issued by the State Council on September 18, 2008 and came into effect on the same day. According to the aforementioned laws and regulations, labor relationships between employers and employees must be executed in written form. The laws and regulations above impose stringent requirements on the employers in relation to entering into fixed-term labor contracts, hiring of temporary employees and dismissal of employees. As prescribed under the laws and regulations, employers shall ensure its employees have the right to rest and the right to receive wages no lower than the local minimum wages. Employers must establish a system for labor safety and sanitation that strictly abide by state standards and provide relevant education to its employees. Violations of the Labor Contract Law and the Labor Law may result in the imposition of fines and other administrative liabilities and/or incur criminal liabilities in the case of serious violations.
Regulations on Social Insurance and Housing Provident Fund
According to the Social Insurance Law of PRC, which issued by the SCNPC on October 28, 2010 and came into effect on July 1, 2011 and was latest revised on December 29, 2018, enterprises and institutions in the PRC shall provide their employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and other welfare plans. The employer shall apply to the local social insurance agency for social insurance registration within 30 days from the date of its formation. And it shall, within 30 days from the date of employment, apply to the social insurance agency for social insurance registration for the employee. Any employer who violates the regulations above shall be ordered to make correction within a prescribed time limit; if the employer fails to rectify within the time limit, the employer and its directly liable person will be fined. Meanwhile, the Interim Regulation on the Collection and Payment of Social Insurance Premiums, issued by the State Council on January 22, 1999 and came into effect on the same day and was recently revised on March 24, 2019, prescribes the details concerning the social securities.
Apart from the general provisions about social insurance, specific provisions on various types of insurance are set out in the Regulation on Work-Related Injury Insurance, issued by the State Council on April 27, 2003, came into effect on January 1, 2004 and revised on December 20, 2010 and January 1, 2011, the Regulations on Unemployment Insurance, issued by the State Council on January 22, 1999 and came into effect on the same day, the Trial Measures on Employee Maternity Insurance of Enterprises, issued by the Ministry of Labor on December 14, 1994 and came into effect on January 1, 1995. Enterprises subject to these regulations shall provide their employees with the corresponding insurance.
According to the Regulation Concerning the Administration of Housing Provident Fund, implemented since April 3, 1999 and latest amended on March 24, 2019, any newly established entity shall make deposit registration at the housing accumulation fund management center within 30 days as of its establishment. After that, the entity shall open a housing accumulation fund account for its employees in an entrusted bank. Within 30 days as of the date an employee is recruited, the entity shall make deposit registration at the housing accumulation fund management center and seal up the employee’s housing accumulation fund account in the bank mentioned above within 30 days from termination of the employment relationship.
Any entity that fails to make deposit registration of the housing accumulation fund or fails to open a housing accumulation fund account for its employees shall be ordered to complete the relevant procedures within a prescribed time limit. Any entity failing to complete the relevant procedure within the time limit will be fined RMB10,000 (approximately $1,379) to RMB50,000 (approximately $6,895). Any entity fails to make payment of housing provident fund within the time limit or has shortfall in payment of housing provident fund will be ordered to make the payment or make up the shortfall within the prescribed time limit, otherwise, the housing provident management center is entitled to apply for compulsory enforcement with the People’s Court.
Regulations Relating to Tax
Enterprise income tax
According to the PRC Enterprise Income Tax Law (the “EIT Law”), which was promulgated by the SCNPC on March 16, 2007 and last amended and effective on December 29, 2018, and the Enterprise Income Tax Implementation Regulations of the PRC (the “EITIR”), which was promulgated by the State Council on December 6, 2007 and last amended and effective on December 6, 2024 and January 20, 2025, the enterprise income tax of both domestic and foreign-invested enterprises is unified at 25% with certain exceptions. According to the EIT Law, enterprises are classified as “resident enterprises” and “non-resident enterprises.” Pursuant to the EIT Law and the EITIR, 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%. Enterprises established under the laws of foreign countries or regions whose “de facto management bodies” (i.e., establishments that carry out substantial and overall management and control over production and operations, personnel, accounting and properties) are located in the PRC are considered as PRC tax resident enterprises, and will generally be subject to enterprise income tax at the rate of 25% of their global income.
Value-added tax
According to Provisional Regulations on Value-added Tax of the PRC, which were promulgated by the State Council on December 13, 1993 and last amended on November 19, 2017, and the Implementing Rules for the Interim Regulations on Value-added Tax of the PRC promulgated by Ministry of Finance on December 25, 1993 and last amended on November 1, 2011, all enterprises and individuals that engage in the sale of goods, the provision of processing, repair and replacement services, the sale of services, intangible assets or immovable properties and the importation of goods within the territory of the PRC must pay value-added tax. On December 25, 2024, the Law on Value-Added Tax of the People’s Republic of China (the “VAT Law”) was promulgated and will take effect on January 1, 2026. The VAT Law has refined, improved and adjusted relevant provisions on value-added tax on the basis of keeping the current tax framework and the tax burden generally unchanged.
Dividends withholding tax
According to the EIT Law and the EITIR, dividends paid by foreign-invested companies to their foreign investors that are non-resident enterprises as defined under the law are subject to withholding tax at a rate of 10%, unless otherwise provided in the relevant tax agreements entered into with the central government of the PRC. Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income (the “Double Tax Avoidance Arrangement”) promulgated on August 21, 2006, 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, the withholding tax rate on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% from 10% applicable under the EIT Law and the EITIR. However, based on the Notice of the State Taxation Administration on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties promulgated and took into effect on February 20, 2009 by the State Taxation Administration (the “STA”), 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. Based on the Notice of the State Taxation Administration on the Recognition of Beneficial Owners in Tax Treaties, which was promulgated by STA on February 3, 2018 and came into effect on April 1, 2018, a comprehensive analysis will be used to determine beneficial ownership based on the actual situation of a specific case combined with certain principles, and if an applicant was obliged to pay more than 50% of its income to a third country (region) resident within 12 months of the receipt of the income, or the business activities undertaken by an applicant did not constitute substantive business activities including substantive manufacturing, distribution, management and other activities, the applicant was unlikely to be recognized as a beneficial owner to enjoy tax treaty benefits.
Regulations on Intellectual Property
China joined WTO in 2001 and signed the treaty of TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights), therefore China’s IP laws are very much close to TRIPS.
Trademarks
Trademarks are protected by the PRC Trademark Law adopted in 1982 and lastly amended in 2019 as well as the Implementation Regulation of the PRC Trademark Law adopted by the State Council in 2002 and amended in 2014. The Trademark Office of China National Intellectual Property Administration handles trademark registrations. Trademarks can be registered for a term of ten years and can be repeatedly extended for another ten-year term at the time of expiry. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. According to Chinese Trademark Law, if anyone has a dispute the officially registered trademarks, he can file a petition to the review board of the Trademark Office, requesting a comprehensive review that may result in the revoking the registered trademarks. So far, we have not received any such kind of petition and we strongly believe there will not be such petition because our trademarks are firstly used as well as firstly registered by us.
Patents
According to the PRC Patent Law promulgated by the SCNPC on March 12, 1984 and last amended on October 17, 2020 with effect from June 1, 2021, and its latest Implementation Rules promulgated by the State Council on December 11, 2023 and took into effect on January 20, 2024, the National Intellectual Property Administration is responsible for administering patents in the PRC. Inventions, utility models, and designs with the features of novelty, inventiveness and practical applicability, are three kinds of patent defined and protected under China’s Patent Law. The State Intellectual Property Office is responsible for examining and approving patent applications. Once the application is approved, the applicants can have their patent under Chinese legal protection for a long term commencing from the application date; which is 20 years for inventions, ten years for utility models, and fifteen years for designs.
Copyright
Pursuant to the PRC Copyright Law promulgated by the SCNPC on September 7, 1990 and last amended on November 11, 2020 (the latest revision became effective from June 1, 2021) and the Implementing Regulations of the PRC Copyright Law promulgated by the State Council on August 2, 2002, last amended on January 30, 2013 (the latest revision became effective from March 1, 2013), the PRC nationals, legal persons, and other organizations shall enjoy copyright in their works, whether published or not, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Pursuant to the Regulations on the Protection of Computer Software promulgated by the State Council in June 1991 and most recently amended in January 2013, and the Rules for the Registration of Computer Software Copyright, which was promulgated by the China Copyright Office and came into effect in February 2002, anyone publishes, revises or translates computer software without obtaining the prior approval of the computer software copyright holders shall bear civil liability to the copyright owner because of harming the copyright. The corporate computer software copyright is valid for a term of 50 years until December 31 of the 50th year, starting from the date as of first publication. The computer software copyright owners shall register at the registration institution authorized by the PRC Copyright Office to obtain the computer software copyright registration certificates as preliminary evidence of the computer software copyright being registered.
Domain Names
Internet domain name registration and related matters are primarily regulated by the Measures on Administration of Internet Domain Names, which were promulgated by the MIIT on August 24, 2017 and took effect on November 1, 2017, and the Detailed Rules for the Implementation of National Top-level Domain Name Registration, which were promulgated by China Internet Network Information Center and took into effect on June 18, 2019. Domain name owners are required to register their domain names and the MIIT is in charge of the administration of PRC internet domain names. The domain name services follow a “first come, first file” principle. The applicants will become the holders of such domain names upon the completion of the registration procedure.
C. Organizational Structure
See “-A. History and Development of the Company.”
D. Property, Plants and Equipment
See “-B. Business Overview-Facilities.”
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This annual report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
A. Operating Results
The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2023, 2024 and 2025.
| For the Years Ended December 31, |
2025 Change |
For the Years Ended December 31, |
2024 Change |
|||||||||||||||||||||
| 2024 | 2025 | % | 2023 | 2024 | % | |||||||||||||||||||
| Revenues | $ | 448,196 | $ | 523,031 | 16.70 | $ | 628,591 | $ | 448,196 | (28.70 | ) | |||||||||||||
| Cost of revenues | (67,041 | ) | (195,680 | ) | 191.88 | (157,763 | ) | (67,041 | ) | (57.51 | ) | |||||||||||||
| Gross profit | 381,155 | 327,351 | (14.12 | ) | 470,828 | 381,155 | (19.05 | ) | ||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling and marketing | (307,534 | ) | (181,853 | ) | (40.87 | ) | (268,135 | ) | (307,534 | ) | 14.69 | |||||||||||||
| General and administrative | (750,563 | ) | (4,873,326 | ) | 549.29 | (424,899 | ) | (750,563 | ) | 76.65 | ||||||||||||||
| Research and development | (93,324 | ) | (459,135 | ) | 391.98 | (84,474 | ) | (93,324 | ) | 10.48 | ||||||||||||||
| Total operating expenses | (1,151,421 | ) | (5,514,314 | ) | 378.91 | (777,508 | ) | (1,151,421 | ) | 48.09 | ||||||||||||||
| Income (loss) from operations | (770,266 | ) | (5,186,963 | ) | 573.40 | (306,680 | ) | (770,266 | ) | 151.16 | ||||||||||||||
| Government subsidy | 108,309 | 22,270 | (79.44 | ) | 48,168 | 108,309 | 124.86 | |||||||||||||||||
| Other expense (income), net | 23,198 | 66,309 | 185.84 | (1,996 | ) | 23,198 | (1,262.22 | ) | ||||||||||||||||
| Other income, net | 131,507 | 88,579 | (32.64 | ) | 46,172 | 131,507 | 184.82 | |||||||||||||||||
| Income before income taxes | (638,759 | ) | (5,098,384 | ) | 698.17 | (260,508 | ) | (638,759 | ) | 145.20 | ||||||||||||||
| Income tax benefit (expense) | (21,829 | ) | — | (100.00 | ) | 19,291 | (21,829 | ) | (213.16 | ) | ||||||||||||||
| Net loss | $ | (660,588 | ) | $ | (5,098,384 | ) | 671.79 | $ | (241,217 | ) | $ | (660,588 | ) | 173.86 | ||||||||||
Comparison of Results of Operations for the Fiscal Years Ended December 31, 2023 and 2024
Revenue
We, through the operation of Beijing Feitian, generate revenue primarily from (i) the sales of FTTPS, and (ii) the sales of Medical Auxiliary Supplies. Total revenues increased by $74,835, or 16.7%, from $448,196 for the fiscal year ended December 31, 2024, to $523,031 for the fiscal year ended December 31, 2025.
The following table sets forth our revenue by sales categories for the periods indicated.
| For the Fiscal Years Ended December 31, |
Fluctuation of December 31, 2024 to |
|||||||||||||||||||||||
| 2024 | 2025 | December 31, 2025 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Sales of FTTPS | $ | 369,550 | 82.45 | $ | 362,850 | 69.37 | $ | (6,700 | ) | (1.81 | ) | |||||||||||||
| Sales of Medical Auxiliary Supplies | 78,646 | 17.55 | 160,181 | 30.63 | 81,535 | 103.67 | ||||||||||||||||||
| Total revenues | $ | 448,196 | 100.00 | $ | 523,031 | 100.00 | $ | 74,835 | 16.70 | |||||||||||||||
The following table sets forth the details of our sales of FTTPS for the periods indicated.
| For the Fiscal Years Ended December 31, | ||||||||||||||||
| 2024 | 2025 | Fluctuation of December 31, 2024 to December 31, 2025 |
||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Sales volume | 12 | 10 | (2 | ) | (17 | ) | ||||||||||
| Average contract prices | $ | 30,796 | $ | 36,285 | $ | 5,489 | 18 | |||||||||
Sales of FTTPS made up the majority of the Company’s total revenue for the fiscal years ended December 31, 2024 and 2025, accounting for 82.45% and 69.37% of our total revenue, respectively. The total revenue increased by $74,835, or 16.7%, from $448,196 for the fiscal year ended December 31, 2024 to $523,031 for the fiscal year ended December 31, 2025, primarily due to a 103.67% increase in sales revenue of Medical Ausiliary Supplies, raising from $78,646 in the fiscal year ended December 31, 2024 to $160,181 in the fiscal year ended December 31, 2025. The substantial increase in sales revenue of Medical Auxiliary Supplies. The substantial increase in Medical Auxiliary Supplies’ sales revenue was driven by i) the rise in the number of patients visiting hospitals, leading to increased demand for these supplies, and ii) the Company’s new sales channels for implant needles, resulting in more Medical Auxiliary Supplies being sold in fiscal year 2025 compared to fiscal year 2024.
Meanwhile, sales revenue for FTTPS is flat compared to 2024, mainly due to a 17% decrease in sales volume and an 18% increase in average contract prices, from $30,796 for the fiscal year ended December 31, 2024, to $36,285 for the fiscal year ended December 21, 2025. The increase in average contract price was largely due to contracts requiring highly personalized, tailored solutions.
Cost of revenues
The cost of revenues primarily consists of finished goods and personnel-related costs for employees responsible for training, advisory and technical customer support. The total cost of revenues increased by $128,639, or 191.88%, from $67,041 for the fiscal year ended December 31, 2024, to $195,680 for the fiscal year ended December 31, 2025.
The following table sets forth our cost of revenues by sales categories for the periods indicated.
| For the Fiscal Years Ended December 31, |
Fluctuation of December 31, 2024 to |
|||||||||||||||||||||||
| 2024 | 2025 | December 31, 2025 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| FTTPS | $ | 27,382 | 40.84 | $ | 110,525 | 56.48 | $ | 83,143 | 303.64 | |||||||||||||||
| Medical Auxiliary Supplies | 39,659 | 59.16 | 85,155 | 43.52 | 45,496 | 114.72 | ||||||||||||||||||
| Total | $ | 67,041 | 100.00 | $ | 195,680 | 100.00 | $ | 128,639 | 191.88 | |||||||||||||||
The approximately 191.88% overall increase in cost of revenue is primarily driven by increases in supplies and tailored medical facility costs under contracts requiring them. Which mainly due to both the sale cost of FTTPS, which increased by $83,143, or 303.64%, from $27,382 for the fiscal year ended December 31, 2024, to $110,525 for the fiscal year ended December 31, 2025, and the sale cost of medical auxiliary supplies, which increased by $45,496, or 114.72%, from $39,659 for the fiscal year ended December 31, 2024, to $85,155 for the fiscal year ended December 31, 2025.
Gross profit
For the fiscal years ended December 31, 2024 and 2025, our gross profits were $381,155 and $327,351, respectively, resulting in gross profit margins of 85.04% and 62.59%, respectively. The gross margin has been and will continue to be affected by several factors, including the FTTPS’s sales volume, the level of customization from our clients’ demand, and our ability to manage the variation of customization costs passed on to clients.
Operating expenses
Our operating expenses increased by $4,362,893, or 378.91%, from $1,151,421 for the fiscal year ended December 31, 2024, to $5,514,314 for the fiscal year ended December 31, 2025.
The following table sets forth a breakdown of our operating expenses and the percentage of operating expenses to revenue for the fiscal years ended December 31, 2024 and 2025:
| For the Fiscal Years Ended December 31, |
Fluctuation of December 31, 2024 to December 31, 2025 |
|||||||||||||||||||||||
| 2024 | % | 2025 | % | Amount | % | |||||||||||||||||||
| Revenues | $ | 448,196 | $ | 523,031 | $ | 74,835 | 16.70 | |||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling and marketing | 307,534 | 68.62 | 181,853 | 34.77 | (125,681 | ) | (40.87 | ) | ||||||||||||||||
| General and administrative | 750,563 | 167.46 | 4,873,326 | 931.75 | 4,122,763 | 549.29 | ||||||||||||||||||
| Research and development | 93,324 | 20.82 | 459,135 | 87.78 | 365,811 | 391.98 | ||||||||||||||||||
| Total operating expenses | $ | 1,151,421 | 256.90 | $ | 5,514,314 | 1054.3 | $ | 4,362,893 | 378.91 | |||||||||||||||
Selling and marketing expenses
Selling expenses primarily include promotion and advertising expenses, business travel expenses, staff costs, and other daily expenses related to the selling and marketing departments. Selling expenses decreased by $125,681, or 40.87%, from $307,534 for the fiscal year ended December 31, 2024, to $181,853 for the fiscal year ended December 31, 2025. The decrease was mainly due to the ongoing efforts to optimize the sales team’s structure and improve operational efficiency.
General and administrative expenses
General and administrative expenses refer to the costs associated with the company’s day-to-day running of the business. These expenses primarily include operating lease expenses, salary and welfare expenses and related expenses for employees involved in general corporate functions, such as accounting, legal and human resources. They also cover expenses associated with the operation of functions such as traveling and general expenses, professional service fees, and other related expenses. For the fiscal year ended December 31, 2025, general and administrative expenses increased by $4,122,763, or 549.29%, compared to the previous fiscal year, from $750,563 to $4,873,326. The increase was due to increased audit, legal, and accounting fees related to professional services after we became a public company. The increase was also attributable to professional service fees incurred from the company’s efforts to expand its international reach and the acquisition of iTonic Corporation, as well as general and administrative expenses generated during iTonic’s operational period.
Research and Development Expenses
During the fiscal year ended December 31, 2025, our research and development expenses increased by 365,811, or 391.98%, from $93,324 in the previous year to $459,135. These expenses included salaries, employee benefits, and third-party development expenses associated with product development. Specifically, our research and development expenses are primarily expenditures related to the ongoing functional development of FTTPS. This increase in expenses is attributable to the Company’s continuous collaboration with its outsourcing R&D team since 2024 to conduct research and develop an AI recognition feature within FTTPS, and the SAAS system of FTTPS, which can facilitate quicker and easier use of this product by hospitals.
Other income, net
Other expenses (income) include immaterial interest expenses, additional de minimis incidental income, and the gain on acquisition, which is the aggregate of the consideration transferred over the fair value of total assets. Other income, net decreased by $42,928, or 33%, from $131,507 for the fiscal year ended December 31, 2024, to $88,579 for the fiscal year ended December 31, 2025. The decrease is mainly due to the decrease of government subsidy.
Income tax benefit (expense)
Our income tax expense was $21,829 for the fiscal year ended December 31, 2024, and income tax benefit was nil for the fiscal year ended December 31, 2025. Corporate income tax benefit (expense) mainly consists of changes in deferred tax due to temporary differences, additional deduction for R&D expenses and others.
Net losses
As a result of the foregoing, our net loss increased by 671.79% from a net loss of $660,588 for the fiscal year ended December 31, 2024 to a net loss of $5,098,384 for the fiscal year ended December 31, 2025.
Comparison of Results of Operations for the Fiscal Years Ended December 31, 2023 and 2024
Revenue
We, through the operation of Beijing Feitian, generate revenue primarily from (i) the sales of FTTPS, and (ii) the sales of Medical Auxiliary Supplies. Total revenues decreased by $180,395, or 28.70%, from $628,591 for the fiscal year ended December 31, 2023, to $448,196 for the fiscal year ended December 31, 2024.
The following table sets forth our revenue by sales categories for the periods indicated.
| For the Fiscal Years Ended December 31, |
Fluctuation of December 31, 2023 to |
|||||||||||||||||||||||
| 2023 | 2024 | December 31, 2024 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Sales of FTTPS | $ | 609,348 | 96.94 | $ | 369,550 | 82.45 | $ | (239,798 | ) | (39.35 | ) | |||||||||||||
| Sales of Medical Auxiliary Supplies | 19,243 | 3.06 | 78,646 | 17.55 | 59,403 | 308.70 | ||||||||||||||||||
| Total revenues | $ | 628,591 | 100.00 | $ | 448,196 | 100.00 | $ | (180,395 | ) | (28.70 | ) | |||||||||||||
The following table sets forth the details of our sales of FTTPS for the periods indicated.
| For the Fiscal Years Ended December 31, | ||||||||||||||||
| 2023 | 2024 | Fluctuation of December 31, 2023 to December 31, 2024 |
||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Sales volume | 16 | 12 | (4 | ) | (25.00 | ) | ||||||||||
| Average contract prices | $ | 38,084 | $ | 30,796 | $ | (7,288 | ) | (19.14 | ) | |||||||
Sales of FTTPS made up the majority of the Company’s total revenue for the fiscal years ended December 31, 2023 and 2024, accounting for 96.94% and 82.45% of our total revenue, respectively. The total revenue decreased by $180,395, or 28.70%, from $628,591 for the fiscal year ended December 31, 2023 to $448,196 for the fiscal year ended December 31, 2024, primarily due to a 39.35% decrease in sales revenue of FTTPS, declining from $609,348 in the fiscal year ended December 31, 2023 to $369,660 in the fiscal year ended December 31, 2024. The substantial drop of sales revenue of FTTPS was caused by the decrease of sales volume by 25% and the decrease of average contract prices by 19.14% from $38,084 for the fiscal year ended December 31, 2023 to $30,796 for the fiscal year ended December 21, 2024. The decrease in average contract price was largely due to a reduction in contracts requiring highly personalized and tailored solutions. Such contracts, which demand extensive and complex field research to understand clients’ specific needs, were fewer in number. As these types of contracts typically command higher prices, their decline significantly impacted the average contract price in 2024. Consequently, our revenue from FTTPS sales for the fiscal year ended December 31, 2024, decreased compared to the fiscal year ended December 31, 2023.
Meanwhile, sales of Medical Auxiliary Supplies increased by 307.44%, from $19,243 for the fiscal year ended December 31, 2023 to $78,404 for the fiscal year ended December 31, 2024. This increase was mainly due to i) the rise in the number of patients visiting hospitals, leading to increased demand for these supplies, and ii) the Company’s new sales channels for implant needles, resulting in more Medical Auxiliary Supplies being sold in fiscal year 2024 compared to fiscal year 2023.
Cost of revenues
The cost of revenues primarily consists of finished goods and personnel-related costs for employees responsible for training, advisory and technical customer support. The total cost of revenues decreased by $90,722, or 57.51%, from $157,763 for the fiscal year ended December 31, 2023, to $67,041 for the fiscal year ended December 31, 2024.
The following table sets forth our cost of revenues by sales categories for the periods indicated.
| For the Fiscal Years Ended December 31, |
Fluctuation of December 31, 2023 to |
|||||||||||||||||||||||
| 2023 | 2024 | December 31, 2024 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| FTTPS | $ | 149,016 | 94.46 | $ | 27,382 | 40.84 | $ | (121,634 | ) | (81.62 | ) | |||||||||||||
| Medical Auxiliary Supplies | 8,747 | 5.54 | 39,659 | 59.16 | 30,912 | 354.40 | ||||||||||||||||||
| Total | $ | 157,763 | 100.00 | $ | 67,041 | 100.00 | $ | (90,722 | ) | (57.51 | ) | |||||||||||||
The costs of sales of FTTPS decreased by 81.62%, from $149,016 for the fiscal year ended December 31, 2023 to $27,382 for the fiscal year ended December 31, 2024. This decrease in cost can be attributed to a $37,154 decrease in the sales volume of FTTPS from 16 sets sold in fiscal year 2023 to 12 sets sold in fiscal year 2024, and a $84,480 decrease in reduction in the level of customization. During the fiscal year ended December 31, 2024, approximately 25% of FTTPS’s sales volume consisted solely of essential equipment such as computer workstations and computers.
The fluctuation in the costs of sales of Medical Auxiliary Supplies was primarily driven by an increase in customer demand for these products.
Gross profit
For the fiscal years ended December 31, 2023 and 2024, our gross profits were $470,828 and $381,155, respectively, resulting in gross profit margins of 74.90% and 85.04%, respectively. The gross margin has been and will continue to be affected by several factors, including the FTTPS’s sales volume, the level of customization from our clients’ demand, and our ability to manage the variation of customization costs passed on to clients.
Operating expenses
Our operating expenses increased by $373,913, or 48.09%, from $777,508 for the fiscal year ended December 31, 2023, to $1,151,421 for the fiscal year ended December 31, 2024.
The following table sets forth a breakdown of our operating expenses and the percentage of operating expenses to revenue for the fiscal years ended December 31, 2023 and 2024:
| For the Fiscal Years Ended December 31, |
Fluctuation of December 31, 2023 to December 31, 2024 |
|||||||||||||||||||||||
| 2023 | % | 2024 | % | Amount | % | |||||||||||||||||||
| Revenues | $ | 628,591 | $ | 448,196 | $ | (180,395 | ) | (28.70 | ) | |||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling and marketing | 268,135 | 42.66 | 307,534 | 68.62 | 39,999 | 14.69 | ||||||||||||||||||
| General and administrative | 424,899 | 67.60 | 750,563 | 167.46 | 325,664 | 76.65 | ||||||||||||||||||
| Research and development | 84,474 | 13.44 | 93,324 | 20.82 | 8,850 | 10.48 | ||||||||||||||||||
| Total operating expenses | $ | 777,508 | 123.69 | $ | 1,151,421 | 256.90 | $ | 373,913 | 48.09 | |||||||||||||||
Selling and marketing expenses
Selling expenses primarily include promotion and advertising expenses, business travel expenses, staff costs, and other daily expenses related to the selling and marketing departments. Selling expenses increased by $39,399, or 14.69%, from $268,135 for the fiscal year ended December 31, 2023, to $307,534 for the fiscal year ended December 31, 2024. The increase was mainly due to higher salesperson compensation, business travel, meals, and other expenses related to sales promotion and marketing activities, partially offset by lower conference expenses.
General and administrative expenses
General and administrative expenses refer to the costs associated with Beijing Feitian’s day-to-day running of the business. These expenses primarily include operating lease expenses, salary and welfare expenses and related expenses for employees involved in general corporate functions, such as accounting, legal and human resources. They also cover expenses associated with the operation of functions such as traveling and general expenses, professional service fees, and other related expenses. For the fiscal year ended December 31, 2024, general and administrative expenses increased by $325,664, or 76.65%, compared to the previous fiscal year, from $424,899 to $750,563. The increase was due to increased audit, legal, and accounting fees related to professional services after we became a public company. The increase was also attributable to general and administrative expenses incurred by new executive costs and business travel as a public company.
Research and Development Expenses
During the fiscal year ended December 31, 2024, our research and development expenses increased by $8,850, or 10.48%, from $84,474 in the previous year to $93,324. These expenses included salaries, employee benefits, and third-party development expenses associated with product development. Specifically, our research and development expenses are primarily expenditures related to the ongoing functional development of FTTPS. This increase in expenses is attributable to the Company’s continuous collaboration with its outsourcing R&D team since 2024 to conduct research and develop an AI recognition feature within FTTPS to delineate and identify malignant tumors and sensitive structures surrounding them, in order to improve the quality and accuracy of FTTPS in general.
Other income, net
Other income, net, primarily consisted of government subsidies and other expenses (income), net. The government subsidy mainly aims to encourage and support technology enterprises engaged in the software industry. Other expenses (income) include immaterial interest expenses and other additional de minimis incidental income. Other income, net increased by $85,335, or 184.82%, from $46,172 for the fiscal year ended December 31, 2023, to $131,507 for the fiscal year ended December 31, 2024. The increase in government subsidy was the main factor leading to an increase in other income, net, for the fiscal year ended December 31, 2024.
Income tax benefit (expense)
Our income tax benefit was $19,291 for the fiscal year end December 31, 2023 and income tax expense was $21,829 for the fiscal year ended December 31, 2024. Corporate income tax benefit (expense) mainly consists of changes in deferred tax due to temporary differences, additional deduction for R&D expenses and others.
Net losses
As a result of the foregoing, our net loss increased by 173.86% from a net loss of $241,217 for the fiscal year ended December 31, 2023 to a net loss of $660,588 for the fiscal year ended December 31, 2024.
B. Liquidity and Capital Resources
For the fiscal years ended December 31, 2023, 2024 and 2025, the Company generated net loss of $241,217, $660,588 and $5,098,384, respectively. As of December 31, 2025, our cash and restricted cash amounted to $1,490,129, as compared to $6,159,823 as of December 31, 2024.
On September 6, 2024, the Company consummated the initial public offering of 2,250,000 Class A Ordinary Shares, at a public offering price of $4.00 per share, and the gross proceeds were approximately $9 million, before deducting underwriting discounts and other related expenses. A portion of the net proceeds received from our initial public offering in September 2024 is available for supplemental liquidity. In assessing the liquidity, as of December 31, 2025, our working capital amounted to $3,625,621.
Considering the above effect, the management concluded that the Company’s available cash, and working capital will be sufficient to support its continuous operations and to meet its payment obligations when liabilities fall due within the next twelve months from the date of issuance of the consolidated financial statements for the fiscal year ended December 31, 2025.
However, if the Company experiences an adverse operating environment or unanticipated capital expenditure requirements, or if we decide to accelerate our business growth, additional financing may be necessary. We intend to explore additional financing through commercial lending and/or project financing. Based on our assessment of the future liquidity and performance of the Company and its available sources of financing, we believe that the current cash and cash flows generated from the Company’s future operating activities will be sufficient to meet the working capital needs within the next twelve months from the date of issuance of the consolidated financial statements.
Beijing Feitian’s current operations are conducted primarily in China, with all revenue, expenses, and cash denominated in RMB. Current foreign exchange and other regulations in the PRC may restrict Beijing Feitian in its ability to transfer its net assets to us. As of the date of this annual report, these restrictions had no impact on our ability to meet cash obligations, as all of the current cash obligations are due within the PRC.
Cash Flow Analysis
Cash Flows for the Fiscal Years ended December 31, 2024 and 2025
| For the Fiscal Years Ended December 31, |
||||||||
| 2024 | 2025 | |||||||
| Net cash used in operating activities | $ | (775,000 | ) | $ | (3,231,427 | ) | ||
| Net cash used in investing activities | (861 | ) | (1,352,149 | ) | ||||
| Net cash provided by (used in) financing activities | 6,712,263 | (91,645 | ) | |||||
| Effect of exchange rate changes on cash | (4,029 | ) | 5,527 | |||||
| Net increase in cash | 5,932,373 | (4,669,694 | ) | |||||
| Cash and restricted cash at the beginning of the year | 227,450 | 6,159,823 | ||||||
| Cash at the end of the year | 6,159,823 | 1,490,129 | ||||||
| Total cash and restricted cash at end of the year | 6,159,823 | 1,490,129 | ||||||
Operating Activities
During the fiscal year ended December 31, 2024, the Company experienced a net cash outflow of $775,000 from operating activities. This was mainly due to a net loss of $660,588, which was adjusted for (1) certain non-cash items, mainly including depreciation of property and equipment of $12,713, amortization of right-of-use assets of $59,718, provision for current expected credit losses of $37,927, deferred income tax of $21,829, and gain on disposal of right-of-use assets of negative $16,091, (2) changes in certain working capital items that positively impact the cash flow from operating activities, which include an increase in contract liabilities of $94,698, and (3) changes in certain working capital items that negatively impact the cash flow from operating activities, mainly including an increase in accounts receivable of $119,984, an increase in inventories of $67,545, an increase in prepayments and other current assets of $29,555, an increase in advances to a related party of $50,000, a decrease in accrued expenses and other current liabilities of $10,136, a decrease in accounts payable of $7,199, and a decrease in operating lease liabilities of $40,787.
During the fiscal year ended December 31, 2025, the Company experienced a net cash outflow of $3,231,427 from operating activities. This was mainly due to a net loss of $5,098,384, which was adjusted for (1) certain non-cash items, mainly including depreciation of property and equipment of $13,314, provision for current expected credit losses of $53,371, and share-based payment of $2,945,495, (2) changes in certain working capital items that positively impact the cash flow from operating activities, which include a decrease in inventories of $68,189, a decrease in advance to a related party of $32,951, an increase in account payable of $55,995, an increase in accrued expenses and other current liabilities of $89,618, and an increase in contract liabilities of $11,081, and (3) changes in certain working capital items that negatively impact the cash flow from operating activities, mainly including an increase in accounts receivable of $48,060, an increase in prepaid expenses and other current assets of $763,904, and an increase in other non current assets of $600,000.
Investing Activities
Net cash used in investing activities amounted to $861 for the fiscal year ended December 31, 2024, consisting of purchase of property and equipment of $861.
Net cash used in investing activities amounted to $1,352,149 for the fiscal year ended December 31, 2025, consisting of the purchase of short-term investments of $1,400,000, and the purchase of property and equipment of $3,806, which was offset by repayments of cash received from business acquisitions of $51,657.
Financing Activities
Net cash provided by financing activities amounted to $6,712,263 for the fiscal year ended December 31, 2024, primarily consisting of net proceeds from our initial public offering of $7,795,570, advances from related parties of $365,627, and proceeds from bank loan of $258,488, which was partially offset by repayments of due to related parties of $1,281,599, deferred offering costs of $418,946, and repayment of bank loans of $6,949.
Net cash used in financing activities amounted to $91,645 for the fiscal year ended December 31, 2025, primarily consisting of advances from related parties of $139,130, repayments of due to related parties of $30,000, and repayment to bank loans of $251,826, which was partially offset by paid in capital of $168,392, receive repayment from related party of $30,000, and proceeds from bank loans of $139,130.
Cash Flows for the Fiscal Years ended December 31, 2023 and 2024
| For the Fiscal Years Ended December 31, |
||||||||
| 2023 | 2024 | |||||||
| Net cash used in operating activities | $ | (63,636 | ) | $ | (775,000 | ) | ||
| Net cash used in investing activities | — | (861 | ) | |||||
| Net cash provided by financing activities | 220,592 | 6,712,263 | ||||||
| Effect of exchange rate changes on cash | (1,794 | ) | (4,029 | ) | ||||
| Net increase in cash | 155,162 | 5,932,373 | ||||||
| Cash and restricted cash at the beginning of the year | 72,288 | 227,450 | ||||||
| Cash at the end of the year | 217,885 | 6,159,823 | ||||||
| Restricted cash at the end of the year | 9,565 | — | ||||||
| Total cash and restricted cash at end of the year | 227,450 | 6,159,823 | ||||||
Operating Activities
During the fiscal year ended December 31, 2023, the Company experienced a net cash outflow of $63,636 from operating activities. This was mainly due to a net loss of $241,217, which was adjusted for (1) certain non-cash items, mainly including depreciation of property and equipment of $5,333, amortization of right-of-use assets of $57,801, provision for current expected credit losses of $21,517, and valuation allowance of deferred income tax of $19,291, (2) changes in certain working capital items that positively impact the cash flow from operating activities, which include a decrease in accounts receivable of $212,311, a decrease in inventories of $33,499 and an increase in accrued expenses and other current liabilities of $19,851, and (3) changes in certain working capital items that negatively impact the cash flow from operating activities, mainly including a decrease in lease liability of $57,201, and a decrease in contract liabilities of $101,732.
During the fiscal year ended December 31, 2024, the Company experienced a net cash outflow of $775,000 from operating activities. This was mainly due to a net loss of $660,588, which was adjusted for (1) certain non-cash items, mainly including depreciation of property and equipment of $12,713, amortization of right-of-use assets of $59,718, provision for current expected credit losses of $37,927, deferred income tax of $21,829, and gain on disposal of right-of-use assets of negative $16,091, (2) changes in certain working capital items that positively impact the cash flow from operating activities, which include an increase in contract liabilities of $94,698, and (3) changes in certain working capital items that negatively impact the cash flow from operating activities, mainly including an increase in accounts receivable of $119,984, an increase in inventories of $67,545, an increase in prepayments and other current assets of $29,555, an increase in advances to a related party of $50,000, a decrease in accrued expenses and other current liabilities of $10,136, a decrease in accounts payable of $7,199, and a decrease in operating lease liabilities of $40,787.
Investing Activities
There were no investing activities in fiscal year ended December 31, 2023.
Net cash used in investing activities amounted to $861 for the fiscal year ended December 31, 2024, consisting of purchase of property and equipment of $861.
Financing Activities
Net cash provided by financing activities amounted to $220,592 for the fiscal year ended December 31, 2023, primarily consisting of advances from related parties of $754,061, which was partially offset by repayments of due to related parties worth $138,400 and deferred offering costs of $396,197.
Net cash provided by financing activities amounted to $6,712,263 for the fiscal year ended December 31, 2024, primarily consisting of net proceeds from our initial public offering of $7,795,570, advances from related parties of $365,627, and proceeds from bank loan of $258,488, which was partially offset by repayments of due to related parties of $1,281,599, deferred offering costs of $418,946, and repayment of bank loans of $6,949.
Contractual obligations
As of December 31, 2025, our contractual obligations were as follows:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Beijing Rural Commercial Bank(a) | $ | 136,999 | $ | 142,998 | ||||
| Bank of Nanjing(b) | 110,970 | — | ||||||
| Total | $ | 247,969 | $ | 142,998 | ||||
| (a) |
(1) On March 22, 2024, the Company entered into a loan agreement with Beijing Rural Commercial Bank to obtain a loan of $136,999 (or RMB1,000,000) for the period from March 22, 2024 to March 22, 2025 with an annual interest rate of 4.95%. The Company is required to make monthly interest payment with principal due at maturity. Mr. Pengfei Zhang, a Director of the Company, guaranteed the repayment of these loans. On March 18, 2025, the Company repaid these loans.
(2) On March 18, 2025, the Company entered into a loan agreement with Beijing Rural Commercial Bank to obtain a loan of $142,998 (or RMB1,000,000) for the period from March 18, 2025 to March 18, 2026 with an annual interest rate of 4.95%. The Company is required to make monthly interest payment with principal due at maturity. Mr. Pengfei Zhang, a Director of the Company, guaranteed the repayment of these loans. |
| (b) | On April 16, 2024, the Company entered into a loan agreement with Bank of Nanjing to obtain a loan of $110,970 (or RMB810,000) for the period from April 28, 2024 to April 15, 2025 with an annual interest rate of 5.3%. The Company is required to make monthly interest payment with principal due at maturity. Mr. Jianfei Zhang, the Chairman of the Board of Directors and Chief Executive Officer of the Company, together with Mr. Pengfei Zhang, a Director of the Company, guaranteed the repayment of these loans. On April 15, 2025, the Company repaid the loan. |
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2023, 2024, and 2025.
C. Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenue, income from continuing operations, profitability, liquidity, or capital resources, or that would cause reported financial information not necessarily indicative of future operating results or financial condition.
Factors and Trends Affecting Our Results of Operations
We believe the following key factors may affect our financial condition and results of operations:
Our ability to compete effectively
Our financial conditions and results of operations depend on our operating entity’s ability to compete effectively in the industry. The competitive position may be influenced by various factors, such as the scope and quality of products, as well as the ability to innovate through research and development. We believe that Beijing Feitian’s proprietary technologies and research and development capabilities will enable it to meet its customers’ requirements, retain and expand its business with existing customers, and attract new customers. However, if Beijing Feitian fails to keep up with product development or timely innovation, it might not be able to attract new customers or expand its business effectively. Additionally, Beijing Feitian faces competition from other companies within its industry. It must contend with pricing pressure from its competitors, and its market share and revenue could decline if it is unable to innovate and update its products effectively to remain competitive. Increased competition may materially and adversely impact our business and results of operations.
Market acceptance of our products and services
The growth of our business depends on Beijing Feitian’s ability to gain broader acceptance of its current products and services. This can be achieved by educating physicians and hospital staff about the advantages of using Beijing Feitian’s products in radiotherapy treatment, which may increase demand and frequency of use, and ultimately boost sales to hospital customers. Furthermore, Beijing Feitian’s ability to grow its business will also depend on its ability to increase its customer base in existing or new target end markets, which may include other medical fields or other countries.
Although Beijing Feitian is working to increase market acceptance through established relationships and targeted sales efforts, we cannot guarantee that these efforts will lead to an increase in the use of Beijing Feitian’s products.
Evolving governmental policies may impact our business and operating results.
Our business and operating results may be affected by the overall economic growth and government policies in the jurisdictions where Beijing Feitian operates. Historically, Beijing Feitian’s customers have been primarily based in China, but we expect a growing portion of our revenues to be derived from sales outside China in the future. Therefore, we need to make efforts, and expect to incur costs, to ensure that Beijing Feitian is compliant with the evolving laws and regulations in the various jurisdictions where it operates and expects to operate. While we have not yet experienced any significant impacts of unfavorable governmental policies on Beijing Feitian’s business or industry as of the date of this annual report, unfavorable changes in governmental policies could materially and adversely affect our results of operations. Our ability to anticipate and respond to potential changes in government policies and regulations will have a significant impact on our business operations. We will seek to make necessary adjustments if and when government policies shift.
E. Critical Accounting Estimates
Going Concern
As reflected in the accompanying financial statements, during the year ended December 31, 2025, the Company incurred a to a net loss of $5,098,384 and negative cash flows from operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. We have evaluated the conditions or events that raise substantial doubt about the Company’s ability as a going concern within one year of issuance of the financial statements.
While the Company continues operations and generates revenue, its cash position is insufficient to support its daily operations. During the next twelve months, the Company intends to fund its operations with revenue from revenue-producing activities by intensifying sales strategies and key account management, and exploring additional equity and debt financing. If the Company cannot secure additional short-term capital, it may cease operations. The Company’s ability to continue as a going concern depends on its ability to further implement its business plan and generate revenues and cash flows. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Critical Accounting Estimates
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities in the future.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. The management determines there are no critical accounting estimates.
Recently Issued Accounting Pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 “Summary of Significant Accounting Policies — Recent Accounting Pronouncements” of our consolidated financial statements.
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
| Name | Age | Position(s) | ||
| Mr. Jianfei Zhang | 54 | Chairman of the Board of Directors, Chief Executive Officer and Director | ||
| Ms. Zhixin Li | 43 | Chief Financial Officer | ||
| Mr. Pengfei Zhang | 52 | Director | ||
| Mr. Richard Wee Yong Seow | 63 | Independent Director | ||
| Mr. Swee Leng Seng | 63 | Independent Director | ||
| Mr. Bin Wu | 60 | Independent Director |
The following is a brief biography of each of our executive officers and directors:
Mr. Jianfei Zhang founded Beijing Feitian in 1998. He was appointed as the Company’s Chief Executive Officer and Chairman of the Board of Directors on March 25, 2023. Mr. Zhang has 20 years of experience in computer software and medical device industry and a total working experience of over 28 years. Since the inception of Beijing Feitian, Mr. Zhang has played a crucial role in facilitating the Beijing Feitian’s technological and product advancements by closely collaborating with external partners and leveraging their expertise. Prior to founding Beijing Feitian, Mr. Zhang served as the vice general manager in Shanxi Chenguang Group from 1994 to 1998, where he was responsible for sales and business operation and other daily operational affairs. In 1998, Mr. Zhang founded Beijing Feitian, where he has been serving as the chief executive officer for over 20 years. Mr. Zhang obtained his Bachelor’s degree from Heilongjiang University in Telecommunications Engineering in 1994.
Ms. Zhixin Li has served as the Chief Financial Officer of the Company since March 2023. Prior to joining the Company and Beijing Feitian, Ms. Li held various positions in the finance and accounting industry. She began her career as an auditor at BDO China Shu Lun Pan Certified Public Accountants LLP from June 2006 to March 2010, where she participated in initial public offering audits and completed International Financial Reporting Standards (IFRS) and U.S. GAAP conversions consolidation financial reporting. She then worked as a Finance Director at Beijing Zhongneng Huanke Technology Development Co. from March 2010 to July 2011. In July 2011, Ms. Li became the chief financial officer of Beijing Fenxiang Zaixian Network Technology Co., where she led the group’s finance function and established and improved the internal control system. From May 2012 to September 2015, she worked as a Consulting Director at Beijing Jingruitong Investment Consulting Co., where she provided financial, tax, and legal advice to clients. Ms. Li then joined China Fortune Securities as a CPA from September 2015 to March 2017, where she participated in due diligence for the new third board listing business and signed for annual report as a certified public accountant. From October 2017 to March 2019, Ms. Li worked as a Financial Advisor at China Fortune Securities. From March 2019 to March 2020, Ms. Li worked as an Investment Director at Zhongguancun Qingshan Lvshui Fund Management Co., where she was responsible for due diligence and post-investment management. From March 2020 to June 2021, she served as an Investment Director at Xinjiang Zhongtai (Group) Co., where she was responsible for the selection and due diligence of proposed listed companies and worked with and coordinated with underwriters and agencies. From July 2021 to March 2023, Ms. Li served as the General Manager at Juesheng (Beijing) Enterprise Management Consulting Co., where she was responsible for the preparation of the company formation and consulting for pre-IPO companies. Ms. Li received her Bachelor’s degrees in English from Beijing International Studies University in 2006 and in Accounting from Beijing Technology and Business University in 2006. Ms. Li is a Chinese Institute of Certified Public Accountant (CICPA).
Mr. Pengfei Zhang has served as the Director of our Company and Beijing Feitian since March 2023. From 1996 to 1999, he served as the General Manager of the Business Department at Shanxi Chenguang Group Company Kunming, where he was responsible for sales and business operations, as well as handling daily affairs of the company. In 2007, Mr. Zhang joined Beijing Zhongshi Cuican Culture Development Co., Ltd as Vice General Manager, where he continued to oversee sales and business operations while also managing daily affairs of the company until March 2023.
Mr. Richard Wee Yong Seow has served as the Company’s independent director since November 8, 2025. Mr. Seow is an experienced professional in business consulting. He obtained a bachelor’s degree of Electrical & Electronics Engineering from California State University and a master’s degree of Business Administration from Oklahoma City University. From August 2022 to March 2024, he worked at the Lenovo (Singapore) Pte Ltd, a technology company, as head of sales. Prior to that, from September 2019 to June 2022, he was the business development director at Atos Information Technology (S) Pte Ltd, a technology company. He also served as an alternate director of Hin Fah Medical Company Limited, a company engaged in the sale of traditional Chinese medicine, from September 2012 to May 2024.
Mr. Swee Leng Seng has served as the Company’s independent director since March 29, 2024. Mr. Seng is an experienced finance and business professional with over 25 years of experience in accounting, finance, financial planning and analysis, and controllership. He obtained a Master of Business Administration degree from Heriot-Watt University of Edinburgh in 1993. He also has a Graduate Diploma of Business and majored in Finance in 1988 and a Bachelor of Business Studies and majored in accounting in 1986, both from Edith Cowan University. He is also a certified public accountant, certified from the Australian Society of Certified Practicing Accountants since 1989 and a Chartered Secretary from the Institute of Chartered Secretaries & Administrators (Australia) recognized in 1989. Mr. Seng has held various positions in multinational companies across Singapore, Australia, and China. He is currently serving as the Head of Origin & Market Development at SATS LIMITED (XSES: S58) in Singapore. Prior to this, he worked as a consultant at the CAPITALAND GROUP from May 2019 to May 2020, and served as the chief executive officer of SUPRIMA GROUP from August 2017 to December 2018. He also worked as the chief finance officer of SHIPSFOCUS GROUP from April 2016 to July 2017, and served as a Corporate Advisor at TEMASEK INTERNATIONAL from January 2015 to February 2016.
Mr. Bin Wu has served as the Company’s independent director since January 22, 2026. Mr. Wu obtained a Bachelor of Science in cell biology from Wuhan University in 1987 and an MBA in Finance from Duke University in 1996. Mr. Bin Wu has held various positions in multinational companies. He Served as a fund manager for the Biotechnology Portfolio at Changqing Fund from 1995 to 1996; served as a Fund Manager of the Commodity Futures Hedge Fund at Goldman Sachs from 1996 to 1998; served as a Fund Manager of the Global Arbitrage Hedge Fund at Credit Suisse First Boston from 1998 to 2000; served as an Investment Director at China Merchants Fund from 2000 to 2002; served as an Executive Director at China City Gas from 2003 to 2007, and concurrently served as Chairman of CNPC Zhongtai Gas Company; served as an Independent Director at Fano Yachts from 2018 to 2022; and served as a Managing Partner at Tiger Global Management Asia from 2007 to 2025.
Family Relationships
Except for our Director, Mr. Pengfei Zhang, who is the brother of our Chief Executive Officer, Mr. Jianfei Zhang, none of other directors or executive officers have a family relationship as defined in Item 401 of Regulation S-K.
B. Compensation
For the fiscal year ended December 31, 2025, we paid an aggregate of US$134,163, as compensation to our directors, and our executive officers. We did not set aside or accrue any amounts to provide pension, retirement or similar benefits for directors and officers for the fiscal year ended December 31, 2023, 2024, and 2025, other than contributions to our Provident Fund Plan as social insurances and housing provident fund, which aggregated US$3,287, US$5,869 and US$8,441, respectively, for officers and directors.
C. Board Practices
Board of Directors
Our board of directors consists of five directors, three of whom are “independent” within the meaning of the corporate governance standards of the Nasdaq Listing Rules and meet the criteria for independence set forth in Rule 10A-3 of the Exchange Act.
Duties of Directors
Under Cayman Islands law, our directors owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than what may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care, and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our Company has the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| ● | convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings; |
| ● | declaring dividends and distributions; |
| ● | appointing officers and determining the term of office of officers; |
| ● | exercising the borrowing powers of our Company and mortgaging the property of our Company; and |
| ● | approving the transfer of shares of our Company, including the registering of such shares in our share register. |
Terms of Directors and Executive Officers
Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders (unless he has sooner vacated office) or upon any specified event or after any specified period in a written agreement between the Company and the director, if any, and an appointment of a director may be on terms that the director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting; but no such term shall be implied in the absence of an express provision. The board of directors of our Company shall also have power at any time to appoint any person who is willing to act as a director, either to fill a vacancy or as an addition to the existing board. Any director so appointed shall if, still a director, retire at the next annual general meeting after his appointment and be eligible to stand for election as a director at such meeting. A director may retire from office as a director by giving notice in writing to that effect to the Company at the registered office, which notice shall be effective upon such date as may be specified in the notice, failing which upon delivery to the registered office. A director will cease to be a director if, among other things, the director (a) is prohibited by the law of the Cayman Islands from acting as a director; (b) is made bankrupt or makes an arrangement or composition with his creditors generally; (c) resigns his office by notice to the Company; (d) only held office as a director for a fixed term and such term expires; (e) in the opinion of a registered medical practitioner by whom is being treated he becomes physically or mentally incapable of acting as a director; (f) is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director); (g) is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or (h) without the consent of the other directors, is absent from meetings of directors for a continuous period of six months.
Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.
Qualification
The shareholding qualification for directors may be fixed by our shareholders by ordinary resolution and unless and until so fixed no share qualification shall be required.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Pursuant to employment agreements, we agree to employ each of our executive officers for a specified time period, which will be automatically renewed unless either party gives the other party a written notice to terminate the agreement six months prior to the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including, but not limited to, the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. Each executive officer agrees to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our Company.
Committees of the Board of Directors
We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee
Our audit committee consists of Mr. Swee Leng Seng, Mr. Bin Wu and Mr. Richard Wee Yong Seow. Mr. Swee Leng Seng is the chairman of our audit committee. We have determined that Mr. Swee Leng Seng, Mr. Bin Wu and Mr. Richard Wee Yong Seow satisfy the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of Nasdaq and Rule 10A-3 under the Exchange Act. We have determined that Mr. Swee Leng Seng qualify as “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our Company. The audit committee is responsible for, among other things:
| ● | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; |
| ● | discussing the annual audited financial statements with management and the independent auditors; |
| ● | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; |
| ● | reviewing and approving all proposed related party transactions; |
| ● | meeting separately and periodically with management and the independent auditors; and |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation Committee
Our compensation committee consists of Mr. Richard Wee Yong Seow, Mr. Swee Leng Seng, and Mr. Bin Wu. Mr. Swee Leng Seng is the chairman of our compensation committee. We have determined that Mr. Richard Wee Yong Seow, Mr. Swee Leng Seng, and Mr. Bin Wu satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
| ● | reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; |
| ● | reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; |
| ● | reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and |
| ● | selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Mr. Bin Wu, Mr. Richard Wee Yong Seow, and Mr. Swee Leng Seng. Mr. Bin Wu is the chairperson of our nominating and corporate governance committee. Mr. Bin Wu, Mr. Richard Wee Yong Seow, and Mr. Swee Leng Seng satisfy the “independence” requirements of 5605(a)(2) of the Listing Rules of Nasdaq. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | selecting and recommending to the board nominees for election by the shareholders or appointment by the board; |
| ● | reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; |
| ● | making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and |
| ● | advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. |
D. Employees
See “Item 4. Information on the Company-B. Business Overview-Employees.”
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Class A Ordinary Shares and Class B Ordinary Shares as of the date of this annual report for:
| ● | each of our directors and executive officers; and |
| ● | each person known to us to own beneficially more than 5% of our Class A Ordinary Shares or Class B Ordinary Shares. |
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Class A Ordinary Shares and/or Class B Ordinary Shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person is based on 9,382,000 Class A Ordinary Shares and 7,668,000 Class B Ordinary Shares outstanding as of the date of this annual report.
Information with respect to beneficial ownership has been furnished by each director, officer, or beneficial owner of 5% or more of our ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them.
| Class A Ordinary Shares* Beneficially Owned |
Class B Ordinary Shares Beneficially Owned |
Voting Power |
||||||||||||||||||
| Number | % | Number | % | |||||||||||||||||
| Directors and Executive Officers**: | ||||||||||||||||||||
| Mr. Jianfei Zhang (1) | 33,346 | 0.36 | 7,668,000 | 100 | % | 94.26 | % | |||||||||||||
| Ms. Zhixin Li | - | - | - | - | - | |||||||||||||||
| Mr. Pengfei Zhang | - | - | - | - | - | |||||||||||||||
| Mr. Richard Wee Yong Seow | - | - | - | - | - | |||||||||||||||
| Mr. Desmond Seng Swee Leng | - | - | - | - | - | |||||||||||||||
| Mr. Bin Wu | 24,800 | 0.26 | - | - | 0.02 | % | ||||||||||||||
| All directors and executive officers as a group: | 58,146 | 0.62 | 7,668,000 | 100 | % | 94.28 | % | |||||||||||||
| 5% Shareholders: | ||||||||||||||||||||
| ZJW (BVI) LTD(1) | - | - | 7,668,000 | 100 | % | 94.24 | % | |||||||||||||
Notes:
| * | Less than 1% of our total voting power as of the date of this annual report. |
| ** | Except as indicated otherwise below, the business address of our directors and executive officers is Room 405, LongHu Hailanyinqing Industrial Park, Building 6, No. 8 Beiyuan Xiaojie, Chaoyang District, Beijing, China. |
| *** | The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time after issuance at the option of the holder on a one-to-one basis. The number and percentage of Class A Ordinary Shares exclude Class A Ordinary Shares convertible from Class B Ordinary Shares as the beneficial ownership of Class B Ordinary Shares is presented separately. |
| (1) | Represents 7,668,000 Class B Ordinary Shares held through ZJW (BVI) LTD. As of the date of this annual report, ZJW (BVI) LTD is the sole shareholder of all issued and outstanding Class B Ordinary Shares of the Company. |
As of the date of this annual report, approximately 55% of our issued and outstanding Class A Ordinary Shares are held in the United States by one record holder (Cede and Company, as nominee for beneficial shareholders). We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
[Not applicable]
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees-E. Share Ownership.”
B. Related Party Transactions
Employment Agreements
See “Item 6. Directors, Senior Management and Employees-C. Board Practices-Employment Agreements and Indemnification Agreements.”
Material Transactions with Related Parties
The relationship and the nature of related party transactions are summarized as follow:
| Name of Related Party | Relationship to Us | |
| Mr. Jianfei Zhang | Controlling shareholder and CEO of the Company |
a. Due to/Advance to related parties
Due from related parties consisted of the following:
| Name | December 31, 2025 |
|||
| Due from related parties | ||||
| Mr. Jianfei Zhang (a) | $ | 16,203 | ||
| (a) | The Company advanced funds to Mr. Jianfei Zhang, our CEO, to serve as the petty cash for business-related expenses, such as business trips and other costs associated with supporting our business expansion. All payments had been received as of the date of this annual report. |
b. Directors’ remuneration and fees paid to related parties
As of December 31, 2025, Mr. Jianfei Zhang’s director remuneration was US$35,154 for the fiscal year ended December 31, 2025.
C. Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report. See “Item 18. Financial Statements.”
Legal Proceedings
We are currently not a party to any material legal proceeding. From time to time, however, we may be subject to various claims and legal actions arising in the ordinary course of business.
Dividend Policy
The payment of dividends will be at the discretion of our board of directors, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our Company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in our Company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, and other factors that the board of directors may deem relevant.
We do not have any present plan to declare or pay cash dividends on our ordinary shares in the foreseeable future and we currently intend to keep any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our PRC operating entity for our cash and financial requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC operating entity to pay dividends to us. Dividends distributed by our PRC operating entity are subject to PRC taxes.
A 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises. Any gain realized on the transfer of Class A Ordinary Shares by such investors is also subject to PRC tax at a current rate of 10%, which, in the case of dividends, will be withheld at source if such gain is regarded as income derived from sources within the PRC.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
Item 9. THE OFFER AND LISTING
A. Offer and Listing Details.
Our Class A Ordinary Shares have been listed on the Nasdaq Capital Market since September 5, 2024 under the symbol “PTHL.” Subsequent to the fiscal year ended December 31, 2025, in connection with our corporate name change, our stock ticker symbol was changed to “ITOC,” and our Class A Ordinary Shares began trading under this new symbol at the commencement of trading on January 16, 2026.
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A Ordinary Shares have been listed on the Nasdaq Capital Market since September 5, 2024 under the symbol “PTHL.” Subsequent to the fiscal year ended December 31, 2025, in connection with our corporate name change, our stock ticker symbol was changed to “ITOC,” and our Class A Ordinary Shares began trading under this new symbol at the commencement of trading on January 16, 2026.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue B. Memorandum and Articles of Association
Not applicable.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
On December 19, 2025, our shareholders approved the adoption of our third memorandum and articles of association. We incorporate by reference into this annual report the description of our third memorandum and articles of association, as currently in effect and filed as Exhibit 1.1 to this annual report, and the description of our securities filed as Exhibit 2.3 to this annual report.
C. Material Contracts
Stock Purchase Agreement with iTonic Corporation
On August 27, 2025, the Company entered into a Stock Purchase Agreement with iTonic Corporation and certain of its stockholders, pursuant to which the Company agreed to acquire a 51% equity interest in iTonic Corporation. The Stock Purchase Agreement was subsequently amended on September 28, 2025. At the closing, the Company issued warrants to the selling stockholders representing the right to acquire up to 3,000,000 of the Company’s Class A ordinary shares at an exercise price of $3.10 per share. In addition, the Company will issue up to 4,000,000 Class A ordinary shares as earn-out consideration (the “Earn-out Shares”). Both the exercisability of the warrants and the issuance of the Earn-out Shares are contingent upon iTonic’s achievement of specified quarterly and annual performance milestones, which are tied to business performance metrics measured over a performance period commencing on January 1, 2026 and ending on December 31, 2028.
Stock Purchase Agreement with Geri-Safe, Ltd.
On August 29, 2025, we entered into a Stock Purchase Agreement with Geri-Safe, Ltd. and its selling shareholders. Pursuant to the agreement, we acquired 30% of the Geri-Safe, Ltd.’s outstanding shares and issued 4,000,000 Class A ordinary shares to the selling shareholders in consideration for such acquisition. Geri-Safe, Ltd. is specialized in advanced medical device technologies with FDA 510(k) Class I clearance. The agreement contains customary representations, warranties, and closing conditions.
D. Exchange Controls
There are no exchange control regulations or currency restrictions in the Cayman Islands.
E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfer of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). The Cayman Islands is a party to a double tax treaty entered with the United Kingdom in 2010 but is otherwise not a party to any double tax treaties which are applicable to any payments made to or by our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our Class A Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Class A Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Class A Ordinary Shares be subject to Cayman Islands income or corporation tax.
Pursuant to Section 6 of the Tax Concessions Law of the Cayman Islands, we have applied for and obtained, an undertaking from the Financial Secretary of the Cayman Islands:
| (a) | that no law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations; and |
| (b) | in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable: |
| (i) | on or in respect of the shares, debentures or other obligations of our Company; or |
| (ii) | by way of the withholding in whole or part, of any relevant payment as defined the Tax Concessions Law. |
These concessions shall be for a period of 20 years from March 13, 2023.
People’s Republic of China Taxation
Under the Enterprise Income Tax Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
In addition, State Administration of Taxation (SAT) Circular 82 issued in April 2009 specifies that certain offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises perform their duties mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued Announcement of the State Administration of Taxation on Printing and Distributing the Administrative Measures for Income Tax on Chinese-controlled Resident Enterprises Incorporated Overseas (Trial Implementation) (the “SAT Bulletin 45”) on July 27, 2011, which took effect on September 1, 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine that Beijing Feitian is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, Beijing Feitian may be subject to enterprise income tax at a rate of 25% with respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our Class A Ordinary Shares and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ordinary shares.
It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
The SAT and the Ministry of Finance issued the Notice of Ministry of Finance and State Administration of Taxation on Several Issues relating to Treatment of Corporate Income Tax Pertaining to Restructured Business Operations of Enterprises (the “SAT Circular 59”) in April 2009, which took effect on January 1, 2008. On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, which took effect on December 1, 2017 and was amended on June 15, 2018 (the “SAT Circular 37”). By promulgating and implementing the SAT Circular 59 and the SAT Circular 37, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-PRC resident enterprise.
Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Tax Arrangement, where a Hong Kong resident enterprise which is considered a non-PRC tax resident enterprise directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect of the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax authority.
Pursuant to the Circular of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements (“Circular 81”), a resident enterprise of the counter-party to such Tax Arrangement should meet all of the following conditions, among others, in order to enjoy the reduced withholding tax under the Tax Arrangement: (i) it must take the form of a company; (ii) it must directly own the required percentage of equity interests and voting rights in such PRC resident enterprise; and (iii) it should directly own such percentage of capital in the PRC resident enterprise anytime in the 12 consecutive months prior to receiving the dividends. In October 2019, the SAT promulgated the Administrative Measures for Entitlement to Treaty Benefits for Non-resident Taxpayers (“Circular 35”), which became effective on January 1, 2020. Circular 35 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, dividends iTonic Holdings Ltd received from Beijing Feitian are subject to a withholding tax rate of 5%, if it satisfies the conditions prescribed under Circular 81 and other relevant tax rules and regulations. However, according to Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
Material United States Federal Income Tax Considerations
The following brief summary is a discussion of certain material United States federal income tax considerations relating to the acquisition, ownership, and disposition of our Class A Ordinary Shares by a U.S. Holder, as defined below, that acquires our Class A Ordinary Shares and holds our Class A Ordinary Shares as “capital assets” (generally, property held for investment) under the Code. This brief discussion is based on existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any of the United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This brief discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships (or other entities treated as partnerships for United States federal income tax purposes) and their partners, tax-exempt organizations (including private foundations)), investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) 5% or more of our voting shares, investors that hold their ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those briefly summarized below. In addition, this discussion does not address any tax laws other than the United States federal income tax laws, including any state, local, alternative minimum tax or non-United States tax considerations, or the Medicare tax on unearned income. Each potential investor is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our Class A Ordinary Shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our Class A Ordinary Shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our Class A Ordinary Shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our Class A Ordinary Shares are urged to consult their tax advisors regarding an investment in our Class A Ordinary Shares.
The brief discussion set forth below is addressed only to U.S. Holders that hold or purchase our Class A Ordinary Shares. Prospective purchasers are urged to consult their own tax advisors about the application of U.S. federal income tax law to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Class A Ordinary Shares.
Taxation of Dividends and Other Distributions on our Class A Ordinary Shares
Subject to the passive foreign investment company rules discussed below, distributions of cash or other property made by us to you with respect to the Class A Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the Class A Ordinary Shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. As of the date of this annual report, our Class A Ordinary Shares are traded on Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Class A Ordinary Shares, including the effects of any change in law after the date of this annual report.
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Class A Ordinary Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. For the fiscal year ended December 31, 2024, we did not distribute any dividends to our shareholders.
Taxation of Dispositions of Class A Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Class A Ordinary Shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the Class A Ordinary Shares for more than one year, you may be eligible for reduced tax rates on any such capital gains. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company (“PFIC”) Consequences
A non-U.S. corporation is considered a PFIC for any taxable year if either:
| ● | at least 75% of its gross income for such taxable year is passive income; or |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the shares. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash that we raised in our past offering will generally be considered to be held for the production of passive income and (2) the value of our assets must be determined based on the market value of our Class A Ordinary Shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets on any particular quarterly testing date for purposes of the asset test.
We must make a separate determination each year as to whether we are a PFIC. The amount of cash we raised in our past public offering, together with any other assets held for the production of passive income, we have to make a determination whether or not we are a PFIC. We have determined for the current taxable year that we are not a PFIC. We will continue to make this determination following the end of any particular tax year. Although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A Ordinary Shares and because cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part on the market price of our Class A Ordinary Shares and the amount of cash we raised in our past public offering. Accordingly, fluctuations in the market price of the Class A Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spent the cash we raised in our past public offering. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Class A Ordinary Shares from time to time and the amount of cash we raised in the past public offering) that may not be within our control. If we are a PFIC for any year during which you hold Class A Ordinary Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Class A Ordinary Shares. However, if we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the Ordinary Shares.
If we are a PFIC for your taxable year(s) during which you hold Class A Ordinary Shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Class A Ordinary Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Class A Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated pro rata over your holding period for the Class A Ordinary Shares; |
| ● | the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| ● | the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Class A Ordinary Shares cannot be treated as capital, even if you hold the Class A Ordinary Shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the first taxable year during which you hold (or are deemed to hold) our Class A Ordinary Shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the Class A Ordinary Shares as of the close of such taxable year over your adjusted basis in such Class A Ordinary Shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the Class A Ordinary Shares over their fair market value as of the close of the taxable year. However, such ordinary loss is allowable only to the extent of any net mark-to-market gains on the Class A Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Class A Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the Class A Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Class A Ordinary Shares. Your basis in the Class A Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “- Taxation of Dividends and Other Distributions on our Class A Ordinary Shares” generally would not apply.
The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including Nasdaq. If the Class A Ordinary Shares continue to be regularly traded on Nasdaq and if you are a holder of Class A Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently prepare or provide the information that would enable you to make a qualified electing fund election. If you hold Class A Ordinary Shares in any taxable year in which we are a PFIC, you will be required to file IRS Form 8621 in each such year and provide certain annual information regarding such Class A Ordinary Shares, including regarding distributions received on the Class A Ordinary Shares and any gain realized on the disposition of the Class A Ordinary Shares.
If you do not make a timely “mark-to-market” election (as described above), and if we become a PFIC at any time during the period you hold our Class A Ordinary Shares, then such Class A Ordinary Shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such Class A Ordinary Shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the Class A Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your Class A Ordinary Shares for tax purposes.
IRC Section 1014(a) provides for a step-up in basis to the fair market value for our Class A Ordinary Shares when inherited from a decedent that was previously a holder of our Class A Ordinary Shares. However, if we are determined to be a PFIC and a decedent that was a U.S. Holder did not make either a timely qualified electing fund election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) our Class A Ordinary Shares, or a mark-to-market election and ownership of those Class A Ordinary Shares are inherited, a special provision in IRC Section 1291(e) provides that the new U.S. Holder’s basis should be reduced by an amount equal to the Section 1014 basis minus the decedent’s adjusted basis just before death. As such if we are determined to be a PFIC at any time prior to a decedent’s passing, the PFIC rules will cause any new U.S. Holder that inherits our Class A Ordinary Shares from a U.S. Holder to not get a step-up in basis under Section 1014 and instead will receive a carryover basis in those Class A Ordinary Shares.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Class A Ordinary Shares and the elections discussed above.
Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends on and gains from the sale or other disposition of our Class A Ordinary Shares), or in the case of estates and trusts, on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Information Reporting and Backup Withholding
Dividend payments with respect to our Class A Ordinary Shares and proceeds from the sale, exchange or redemption of our Class A Ordinary Shares may be subject to information reporting to the IRS and possible U.S. backup withholding at a rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on IRS Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Certain U.S. Holders are required to report information relating to our Class A Ordinary Shares, subject to certain exceptions (including an exception for Class A Ordinary Shares held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Class A Ordinary Shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have previously filed with the SEC our registration statements on Form F-1 (File No. 333-274944), as amended.
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing, among other things, the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company-A. History and Development of the Company.”
J. Annual Report to Security Holders The Company operates in the PRC, which may give rise to significant foreign currency risks, mainly from fluctuations and the degree of volatility of foreign exchange rates between the USD and the RMB.
No applicable.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Risks
Currency Convertibility Risks
Substantially all of the Company’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.
Credit Risk
Credit risk is the potential financial loss to the Company resulting from the failure of a customer or a counterparty to settle its financial and contractual obligations to the Company, as and when they fall due. As the Company does not hold any collateral, the maximum exposure to credit risk is the carrying amounts of trade and other receivables (exclude prepayments), financial instrument and cash and bank deposits presented on the consolidated statements of financial position. The Company has no other financial assets which carry significant exposure to credit risk.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
Part II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information” for a description of the rights of securities holders.
Use of Proceeds
Registration Statement on Form F-1, as amended (File Number 333-274944)
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-274944) for our initial public offering, which was declared effective by the SEC on March 29, 2024 and September 4, 2024. In September 2024, we completed our initial public offering in which we issued and sold an aggregate of 2,250,000 Class A Ordinary Shares, at a price of $4.00 per share for total gross proceeds of $9 million, before deducting underwriting discounts and other related expenses. CATHY SECURITIES, INC. was the representative of the underwriters of our initial public offering.
We incurred a total of approximately $2.46 million in expenses in connection with our IPO. None of the transaction expenses included payments to directors or officers of our Company or their associates, persons owning more than 10% or more of our equity securities, or our affiliates. None of the net proceeds we received from the IPO were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities, or our affiliates.
We received approximately $7.80 million of offering proceeds after the deduction of $1.2 million in underwriter discounts and other expenses. As of the date of this annual report, we have used the proceeds for (i) research and development, technology upgrade, (ii) market expansion, (iii) improvements to our internal control and operation system, and (iv) supplemental liquidity, respectively. As of December 31, 2025, $2.62 million of the net proceeds from our IPO remained unused. We intend to use the remaining proceeds from our initial public offering in the manner disclosed in our registration statement on Form F-1, as amended (File Number 333-274944).
Item 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2025. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2025 were ineffective. In the course of preparing our consolidated financial statements as of and for the year ended December 31, 2025 and in the course of auditing our consolidated financial statements as of and for the year ended December 31, 2025, we and our independent registered public accounting firm identified three material weakness in our internal control over financial reporting as of December 31, 2025, in accordance with the standards established by the Public Company Accounting Oversight Board of the United States (PCAOB). The material weakness identified related to (i) we do not have sufficient in-house personnel in our accounting department with sufficient knowledge of the U.S. GAAP and SEC reporting rules; (ii) we lack formal policies and procedures to establish risk assessment processes and an internal control framework; and (iii) we lack information technology general control in the areas of: (a) risk and vulnerability assessment and management; (b) third-party (service organization) vendor management; (c) system change management; (d) backup and recovery management; (e) access to systems and data; (f) segregation of duties, privileged access, and monitoring; (g) password management and (h) cyber security management.
Our management is currently in the process of evaluating the steps necessary to remediate the ineffectiveness, such as (i) hiring additional qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; (ii) expanding the capabilities of existing accounting and financial personnel through implementing regular and continuous U.S. GAAP training programs; (iii) preparing comprehensive accounting policies, manuals and closing procedures to improve the quality and accuracy of our period-end financial closing process; (iv) enhancing our data backup procedures and computer operations monitoring; and (v) enhancing our user account management and segregation of duties, and risk assessment procedures and system controls.
We are fully committed to the implementation of these and other measures to remediate the material weakness in our internal control over financial reporting. However, the implementation of these measures may not fully address the deficiencies in our internal control over financial reporting. See “Item 3.D. Risk Factors-Risks Related to Our Business- If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results of operations or prevent fraud, and investor confidence and the market price of our Class A Ordinary Shares may be materially and adversely affected.”
Management’s Annual Report on Internal Control over Financial Reporting
This annual report on Form 20-F does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm, as permitted by the transition period established by rules of the SEC for newly public companies. Even though management’s report on internal control over financial reporting is not required, we and our independent registered public accounting firm identified three material weakness in our internal control over financial reporting as of December 31, 2025. See “Item 15. Controls and Procedures- Disclosure Controls and Procedures.
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC where domestic and foreign registrants that are non-accelerated filers, which we are, and “emerging growth companies,” which we also are, are not required to provide the auditor attestation report.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Mr. Swee Leng Seng qualify as “audit committee financial expert” as defined in Item 16A of Form 20-F. Mr. Richard Wee Yong Seow, Mr. Swee Leng Seng and Mr. Yun Fai Wong satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules as well as the independence requirements of Rule 10A-3 under the Exchange Act.
Item 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers, and employees. Our code of business conduct and ethics is publicly available on our website.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered and billed by Fortune, our independent registered public accounting firm since December 8, 2025, and Marcum Asia, our independent registered public accounting firm before November 28, 2025, for the years indicated.
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Audit fees(1) | $ | 198,050.26 | $ | 283,049 | $ | 289,156 | ||||||
| Audit-Related fees | — | — | — | |||||||||
| Tax fees | — | — | — | |||||||||
| All other fees(2) | — | — | — | |||||||||
| Total | $ | 198,050.26 | $ | 283,049 | $ | 289,156 | ||||||
| (1) | Audit fees include the aggregate fees billed for each of the fiscal years for professional services rendered by our independent registered public accounting firm for (i) the audit of our annual financial statements; or (ii) the audits of our financial statements and review of the interim financial statements in connection with our initial public offering. |
| (2) | All other fees include the aggregate fees billed in each of the fiscal years for products and services provided by our independent registered public accounting firm, other than the services reported under audit fees, audit-related fees, and tax fees. |
The audit committee of our board of directors has established its pre-approval policies and procedures, pursuant to which the audit committee approved the foregoing audit, tax, and non-audit services provided by Marcum Asia CPAs LLP and Fortune in the fiscal years as described above. Consistent with our audit committee’s responsibility for engaging our independent auditors, all audit and permitted non-audit services require pre-approval by the audit committee. The full audit committee approves proposed services and fee estimates for these services. One or more independent directors serving on the audit committee may be delegated by the full audit committee to pre-approve any audit and non-audit services. Any such delegation shall be presented to the full audit committee at its next scheduled meeting. Pursuant to these procedures, the audit committee approved the foregoing audit services provided by Marcum Asia CPAs LLP and Fortune.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On December 8, 2025, the Company appointed Fortune as its independent registered public accounting firm, effective on the same day. Fortune replaced Marcum Asia, the former independent registered public accounting firm of the Company, which the Company dismissed on November 28, 2025. The appointment of Fortune and the dismissal of Marcum Asia were made after careful consideration and evaluation process by the Company and were approved by the audit committee of the board of directors of the Company. The Company’s decision was not as a result of any disagreement between the Company and Marcum Asia on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
Marcum Asia served as the Company’s independent public accounting firm from September 30, 2022 to November 28, 2025. The audit report of Marcum Asia on the consolidated financial statements of the Company as of December 31, 2023 and 2024 and for the years ended December 31, 2023 and 2024 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s engagement of Marcum Asia until November 28, 2025, there had been no disagreements with Marcum Asia on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Marcum Asia’s satisfaction, would have caused Marcum Asia to make reference to the subject matter of the disagreement in connection with its reports on the Company’s financial statements for such periods.
During the Company’s engagement of Marcum Asia until November 28, 2025, there were no “reportable events” as that term is described in Item 16F(a)(1)(v) of Form 20-F, other than the material weaknesses reported by management in the Risk Factors section of the Company’s Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission, or SEC, on March 20, 2025.
During the two most recent fiscal years and any subsequent interim periods prior to the engagement of Fortune, neither the Company, nor someone on behalf of the Company, has consulted Fortune regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report was provided to the Company or oral advice was provided that Fortune concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue; or (b) any matter that was the subject of a disagreement as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16F of Form 20-F, or any reportable events as described in Item 16F(a)(1)(v) of Form 20-F.
Marcum Asia’s letter addressed to the SEC stating whether or not it agrees with the above statement is attached as Exhibit 15.1 of this annual report. The details of our change of auditor are described in the reports of foreign private issuer on Form 6-K filed with the SEC on November 28, 2025 (File No. 251534360) and December 11, 2025 (File No. 251563572), which are incorporated by reference herein.
Item 16G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq corporate governance listing standards. Nasdaq rules, however, permit a foreign private issuer like us to follow the corporate governance practices of its home country. Other than as described in this section, our corporate governance practices do not differ from those followed by domestic companies listed on the Nasdaq Capital Market.
Nasdaq Stock Market listing rule 5635 generally provides that shareholder approval is required for U.S. domestic companies listed on the Nasdaq Capital Market prior to issuance (or potential issuance) of securities (i) issuances in connection with the acquisition of the stock or assets of another company if upon issuance the issued shares will equal to 20% or more of the number of shares or voting power outstanding prior to the issuance, or if certain specified persons have a 5% or greater interest in the assets or company to be acquired (Rule 5635(a)); (ii) issuances or potential issuances that will result in a change of control (Rule 5635(b)); (iii) issuances in connection with equity compensation arrangements (Rule 5635(c)); and (iv) 20% or greater issuances in transactions other than public offerings, as defined in the Nasdaq rules (Rule 5635(d)).
Notwithstanding this general requirement, Nasdaq Stock Market listing rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. Cayman Islands does not require shareholder approval prior to any of the foregoing types of issuances. Our Company, therefore, is not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. Our board of directors has elected to follow our home country rules as to such issuances and will not be required to seek shareholder approval prior to entering into such a transaction.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Item 16J. INSIDER TRADING POLICIES
Our board of directors has adopted insider trading policies and procedures governing the purchase, sale, and other dispositions of our securities by directors, senior management, and employees that are reasonably designed to promote compliance with applicable insider trading laws, rules, and regulations, and any listing standards applicable to us.
Item 16K. CYBERSECURITY
The Company currently has an informal cybersecurity policy. As of the date of this annual report, our board of directors has oversight responsibility for the Company’s overall risk management, including cybersecurity risk. The Company’s executive officers oversee the strategic processes to safeguard data and comply with relevant regulations and report material cybersecurity incidents to the board. The Company does not currently engage any assessors, consultants, auditors, or other third parties in connection with any such processes, given the size and scale of the Company, the resources available to it, the anticipated expenditures, and the risks it faces in terms of cybersecurity. As of the date of this annual report, there have been no cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company.
Part III
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
The consolidated financial statements of iTonic Holdings Ltd, and its operating entities are included at the end of this annual report.
Item 19. EXHIBITS
EXHIBIT INDEX
| * | Filed with this annual report on Form 20-F |
| ** | Furnished with this annual report on Form 20-F |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| iTonic Holdings Ltd | ||
| By: | /s/ Jianfei Zhang | |
| Jianfei Zhang | ||
|
Chief Executive Officer and Chairman of the Board of Directors |
||
| Date: March 30, 2026 | ||
ITONIC HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
iTonic Holdings Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of iTonic Holdings Ltd. (formerly Pheton Holdings Ltd) (“the Company”) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss (income), changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations. Therefore, the Company has stated substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going Concern
As described further in Note 2 to the financial statements, the Company financial statements are prepared assuming that the Company will continue as a going concern.
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s future cash flows and the risk of bias in management’s judgments and assumptions in estimating these cash flows.
Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:
We reviewed the Company’s working capital and liquidity ratios, operating expenses, and uses and sources of cash used in management’s assessment of whether the Company has sufficient liquidity to fund operations for at least one year from the financial statement issuance date. This testing included the inquiries with management, analyzing the subsequent company financial position, and consideration the positive and negative evidence impacting management’s arrangements in place as of the report date.
/s/ Fortune CPA, Inc
We have served as the Company’s auditor since 2025.
Garden Grove, CA
March 30, 2026
PCAOB # 6901
F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
iTonic Holdings Ltd (formerly Pheton Holdings Ltd)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of iTonic Holdings Ltd (formerly Pheton Holdings Ltd) (the “Company”) as of December 31, 2024, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2024 , and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Marcum Asia CPAs LLP
We have served as the Company’s auditor from 2022 to 2025.
New York, New York
March 30, 2025
F-
ITONIC HOLDINGS LTD
CONSOLIDATED BALANCE SHEETS
(All amounts are in USD, except for share and per share data, unless otherwise noted)
| December 31, 2025 |
December 31, 2024 |
|||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,490,129 | $ | 6,159,823 | ||||
| Short-term investments | 1,435,901 | |||||||
| Accounts receivable, net | 288,456 | 281,585 | ||||||
| Advances to a related parties | 16,203 | 50,000 | ||||||
| Inventories, net | 52,479 | 117,422 | ||||||
| Prepayments and other current assets | 805,270 | 68,830 | ||||||
| Total Current Assets | 4,088,438 | 6,677,660 | ||||||
| Non-current Assets: | ||||||||
| Property and equipment, net | 37,818 | 45,594 | ||||||
| Intangible assets, net | 2,414,357 | |||||||
| Good will | 1,955,683 | |||||||
| Other non-current assets | 600,000 | |||||||
| Total Non-current Assets | $ | 5,007,858 | $ | 45,594 | ||||
| Total Assets | $ | 9,096,296 | $ | 6,723,254 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Currents Liabilities: | ||||||||
| Short-term bank loans | 142,998 | 247,969 | ||||||
| Accounts payables | $ | 66,882 | $ | 10,412 | ||||
| Contract liabilities | 137,936 | 121,239 | ||||||
| Accrued expenses and other current liabilities | 115,001 | 158,931 | ||||||
| Total Current Liabilities | 462,817 | 538,551 | ||||||
| Deferred tax liabilities | 507,015 | |||||||
| Total Non-current Liabilities | $ | 507,015 | $ | |||||
| Total Liabilities | $ | 969,832 | $ | 538,551 | ||||
| Commitments and Contingencies (Note 12) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| *Class A ordinary shares, $0.0001 par value, 400,000,000 shares authorized, 6,582,000 and 9,382,000 shares issued and outstanding as of December 31, 2024 and 2025, respectively | 938 | 658 | ||||||
| *Class B ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 7,668,000 shares issued and outstanding as of December 31, 2024 and 2025, respectively | 767 | 767 | ||||||
| Additional paid-in capital | 11,700,497 | 6,664,624 | ||||||
| Statutory reserves | 89,685 | 89,685 | ||||||
| Retained earnings/(Accumulated deficit) | (5,620,752 | ) | (522,851 | ) | ||||
| Accumulated other comprehensive loss | (48,168 | ) | (48,180 | ) | ||||
| Total Itonic Inc. shareholders’ equity | $ | 6,122,967 | $ | 6,184,703 | ||||
| Non-controlling Interest | 2,003,497 | |||||||
| Total shareholder’s Equity | $ | 8,126,464 | $ | 6,184,703 |
||||
| Total Liabilities and Shareholders’ Equity | $ | 9,096,296 | $ | 6,723,254 | ||||
| * | Giving retroactive effect to the re-denomination and nominal issuance of shares effected on March 23, 2023. |
F-
ITONIC HOLDINGS LTD
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(All amounts are in USD, except for share and per share data, unless otherwise noted)
| For the Year Ended December 31, 2025 |
For the Year Ended December 31, 2024 |
For the Year Ended December 31, 2023 |
||||||||||
| Revenues | $ | 523,031 | $ | 448,196 | $ | 628,591 | ||||||
| Cost of revenues | (195,680 | ) | (67,041 | ) | (157,763 | ) | ||||||
| Gross profit | 327,351 | 381,155 | 470,828 | |||||||||
| Operating expenses | ||||||||||||
| Selling and marketing | (181,853 | ) | (307,534 | ) | (268,135 | ) | ||||||
| General and administrative | (4,873,326 | ) | (750,563 | ) | (424,899 | ) | ||||||
| Research and development | (459,135 | ) | (93,324 | ) | (84,474 | ) | ||||||
| Total operating expenses | $ | (5,514,314 | ) | $ | (1,151,421 | ) | $ | (777,508 | ) | |||
| Loss from operations | (5,186,963 | ) | (770,266 | ) | (306,680 | ) | ||||||
| Other Income, net | ||||||||||||
| Government subsidy | 22,270 | 108,309 | 48,168 | |||||||||
| Other (expense) income, net | 66,309 | 23,198 | (1,996 | ) | ||||||||
| Total other income, net | 88,579 | 131,507 | 46,172 | |||||||||
| Loss) before income taxes | (5,098,384 | ) | (638,759 | ) | (260,508 | ) | ||||||
| Income tax benefit (expense) | (21,829 | ) | 19,291 | |||||||||
| Net loss | (5,098,384 | ) | (660,588 | ) | (241,217 | ) | ||||||
| Loss attributable to non-controlling interests | (483 | ) | ||||||||||
| Net loss attributable to owners of the parent | (5, 097,901 | ) | (660,588 | ) | (241,217 | ) | ||||||
| Other Comprehensive (Loss)/Income | ||||||||||||
| Net loss | (5,098,384 | ) | (660,588 | ) | (241,217 | ) | ||||||
| Foreign currency translation adjustments, net of nil tax | 12 | (5,116 | ) | (9,961 | ) | |||||||
| Total comprehensive loss | $ | (5,098,372 | ) | $ | (665,704 | ) | $ | (251,178 | ) | |||
| *Weighted average number of ordinary shares used in per share calculation: | 16,037,397 | 12,721,233 | 12,000,000 | |||||||||
| Net income (loss) per ordinary share – Basic and diluted | (0.318 | ) | (0.052 | ) | (0.020 | ) | ||||||
| * | Giving retroactive effect to the re-denomination and nominal issuance of shares effected on March 23, 2023. |
F-
ITONIC HOLDINGS LTD
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(All amounts are in USD, except for share and per share data, unless otherwise noted)
| Class A Ordinary shares |
Class B Ordinary shares |
Additional paid-in |
Statutory | Retained earnings / (Accumulated |
Accumulated other comprehensive |
Total Itonic Holdings shareholders’ |
Non-controlling | Total shareholders’ |
||||||||||||||||||||||||||||||||||||
| *Shares | Amount | *Shares | Amount | capital | reserves | deficit) | income/(loss) | equity | Interest | equity | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | 4,332,000 | $ | 433 | 7,668,000 | $ | 767 | $ | 119,586 | $ | 89,685 | $ | 378,954 | $ | (33,103 | ) | $ | 556,322 | $ | 556,322 | |||||||||||||||||||||||||
| Capital contribution | — | — | 1,128 | 1,128 | 1,128 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | (241,217 | ) | (241,217 | ) | (241,217 | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | (9,961 | ) | (9,961 | ) | (9,961 | ) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 4,332,000 | $ | 433 | 7,668,000 | $ | 767 | $ | 120,714 | $ | 89,685 | $ | 137,737 | $ | (43,064 | ) | 306,272 | $ | 306,272 | ||||||||||||||||||||||||||
| Capital contribution | 72 | 72 | 72 | |||||||||||||||||||||||||||||||||||||||||
| Initial public offering, net | 2,250,000 | 225 | — | 7,795,345 | 7,795,570 | 7,795,570 | ||||||||||||||||||||||||||||||||||||||
| Deferred IPO costs | — | — | — | (1,251,507 | ) | (1,251,507 | ) | (1,251,507 | ) | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | (660,588 | ) | (660,588 | ) | (660,588 | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | (5,116 | ) | (5,116 | ) | (5,116 | ) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | 6,582,000 | $ | 658 | 7,668,000 | $ | 767 | $ | 6,664,624 | $ | 89,685 | $ | (522,851 | ) | $ | (48,180 | ) | $ | 6,184,703 | $ | $ | 6,184,703 | |||||||||||||||||||||||
| Share-based payment | 2,800,000 | $ | 280 | — | $ | 5,035,873 | 5,036,153 | 5,036,153 | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | (5,098,384 | ) | (5,098,384 | ) | (5,098,384 | ) | ||||||||||||||||||||||||||||||||||||
| Profit attributable to non-controlling interests | — | — | 483 | 483 | 483 | |||||||||||||||||||||||||||||||||||||||
| Issuance of noncontrolling interest | — | — | 2,003,497 | 2,003,497 | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | 12 | 12 | 12 | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | 9,382,000 | $ | 938 | 7,668,000 | $ | 767 | 11,700,497 | 89,685 | (5,620,752 | ) | (48,168 | ) | 6,122,967 | 2,003,497 | 8,126,464 | |||||||||||||||||||||||||||||
| * | Giving retroactive effect to the re-denomination and nominal issuance of shares effected on March 23, 2023 |
F-
ITONIC HOLDINGS LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts are in USD, except for share and per share data, unless otherwise noted)
| For the Year Ended December 31, 2025 |
For the Year Ended December 31, 2024 |
For the Year Ended December 31, 2023 |
||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (5,098,384 | ) | $ | (660,588 | ) | $ | (241,217 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||||||
| Depreciation of property and equipment | 13,314 | 12,713 | 5,333 | |||||||||
| Financial expenses | 8,907 | |||||||||||
| Share-based payment | 2,945,495 | |||||||||||
| Gain on disposal of right-of-use assets | (16,091 | ) | ||||||||||
| Amortization of right-of-use assets | 59,718 | 57,801 | ||||||||||
| Provision for current expected credit losses | 53,371 | 37,927 | 21,517 | |||||||||
| Deferred income tax | 21,829 | (19,291 | ) | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (48,060 | ) | (119,984 | ) | 212,311 | |||||||
| Inventories | 68,189 | (67,545 | ) | 33,499 | ||||||||
| Prepayments and other current assets | (763,904 | ) | (29,555 | ) | (2,937 | ) | ||||||
| Other non-current assets | (600,000 | ) | 1,369 | |||||||||
| Advance to a related party | 32,951 | (50,000 | ) | |||||||||
| Accounts payable | 55,995 | (7,199 | ) | 7,061 | ||||||||
| Accrued expenses and other current liabilities | 89,618 | (10,136 | ) | 19,851 | ||||||||
| Contract liabilities | 11,081 | 94,698 | (101,732 | ) | ||||||||
| Operating lease liabilities | (40,787 | ) | (57,201 | ) | ||||||||
| Net cash used in operating activities | (3,231,427 | ) | (775,000 | ) | (63,636 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of short-term investments | (1,400,000 | ) | ||||||||||
| Purchase of property and equipment | (3,806 | ) | (861 | ) | ||||||||
| Cash received from acquisition | 51,657 | |||||||||||
| Net cash used in investing activities | (1,352,149 | ) | (861 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Capital contribution | 168,392 | 72 | 1,128 | |||||||||
| Initial public offering | 7,795,570 | |||||||||||
| Receive repayment from related party | 30,000 | |||||||||||
| Advances from related parties | (139,130 | ) | 365,627 | 754,061 | ||||||||
| Borrow from related parties | 696 | |||||||||||
| Proceeds from bank loans | 139,130 | 258,488 | ||||||||||
| Loans to realated parties | (30,000 | ) | ||||||||||
| Repayments of due to related parties | (1,281,599 | ) | (138,400 | ) | ||||||||
| Repayment to bank loans | (251,826 | ) | (6,949 | ) | ||||||||
| Deferred IPO costs | (418,946 | ) | (396,197 | ) | ||||||||
| Cash paid for interest expenses | (8,907 | ) | ||||||||||
| Net cash used in (provided by) financing activities | (91,645 | ) | 6,712,263 | 220,592 | ||||||||
| Effects of exchange rate changes on cash | 5,527 | (4,029 | ) | (1,794 | ) | |||||||
| Net (increase) decrease in cash and cash equivalents | (4,669,694 | ) | 5,932,373 | 155,162 | ||||||||
| Cash, cash equivalents and restricted cash at beginning of the year | 6,159,823 | 227,450 | 72,288 | |||||||||
| Cash, cash equivalents and restricted cash at end of the year | $ | 1,490,129 | $ | 6,159,823 | $ | 227,450 | ||||||
| Cash and cash equivalents at end of the year | 1,490,129 | 6,159,823 | 217,885 | |||||||||
| Restricted cash at end of the year | 9,565 | |||||||||||
| Total cash, cash equivalents and restricted cash at end of the year | 1,490,129 | 6,159,823 | 227,450 | |||||||||
| Supplemental cash flow information: | ||||||||||||
| Cash paid for interest expense | 8,907 | 9,166 | ||||||||||
| Cash paid for income taxes | $ | $ | $ | |||||||||
| Supplemental disclosure of noncash information: | ||||||||||||
| Property and equipment converted from inventory | 64,204 | |||||||||||
| Deferred IPO costs recognized as additional paid-in capital | 1,251,507 | |||||||||||
| Derecognition of ROU assets and lease liabilities | 100,363 | |||||||||||
| Fair value of contingent common stock and warrants issued as consideration for business acquisition | 1,996,488 | |||||||||||
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATIONAL AND BASIS OF PRESENTATION
iTonic Holdings Ltd (the “Company” or “iTonic”, formal known as “Pheton Holdings Ltd”) was established under the laws of the Cayman Islands on November 2, 2022. The Company has no substantive operations other than holding all of the shares of Pheton BVI Ltd (“Pheton BVI”), which entity was established under the laws of the British Virgin Islands on November 22, 2022.
Pheton BVI is a holding Company holding all of the equity of Pheton (HK) Limited (“Pheton HK”), which was established under the laws of Hong Kong on December 14, 2022.
Pheton HK is a holding company holding all of the equity of Beijing Jinruixi Medical Technology Co., Ltd (“Jinruixi”), which was established under the laws of the People’s Republic of China on March 15, 2023.
Jinruixi acquired the entire equity interests in Beijing Feitian Zhaoye Technology Co., Ltd. (“Beijing Feitian”), which was established under the laws of the People’s Republic of China in 1998, is a healthcare solution provider dedicated to the development and commercialization of treatment software used for brachytherapy.
On March 27, 2023, iTonic completed a reorganization of entities under the common control of its then-existing shareholders, who collectively owned all of the equity interests of Pheton prior to the reorganization. Pheton, Pheton BVI, Pheton HK and Jinruixi were established as the holding companies of Beijing Feitian. All of these entities are under common control which results in the consolidation of Beijing Feitian which has been accounted as a reorganization of entities under common control at carrying value. The consolidated financial statements are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the accompanying consolidated financial statements of Pheton. The shares and per-share information are presented on a retroactive basis to reflect the re-denomination and nominal issuance of shares effected on March 23, 2023.
On September 6, 2024, the Company consummated the initial public offering of 2,250,000 Class A ordinary shares, at a public offering price of $4.00 per share. The gross proceeds to the Company from the offering, before deducting commissions, expense allowance, and expenses, were approximately $9 million. The Company received approximately $7.80 million of offering proceeds after the deduction of $1.2 million for underwriter discounts and other expenses.
On May 28, 2025, Beijing Feitian participated in the establishment of Mili (Jiangsu) Medical Technology Co., Ltd (“Jiangsu Mili”), a company incorporated under the laws of the People’s Republic of China specializing in healthcare solutions, and holds 60% of Jiangsu Mili’s equity.
On November 25, 2025, the Company acquired a 51% equity interest in iTonic Corporation, which was established under the laws of the U.S. state of Delaware on February 11, 2025.
| Subsidiaries | Date of incorporation | Place of incorporation | Ownership | Principle activities | ||||
| Pheton (BVI) Ltd | November 22, 2022 | British Virgin Islands | 100% owned by iTonic | Investment holding | ||||
| Pheton (HK) Limited | December 14, 2022 | Hong Kong | 100% owned by Pheton BVI | Investment holding | ||||
| Beijing Jinruixi Medical Technology Co., Ltd. | March 15, 2023 | Mainland China | 100% owned by Pheton HK | Investment holding | ||||
| Beijing Feitian Zhaoye Technology Co., Ltd. | December 17, 1998 | Mainland China | 100% owned by Jinruixi | Healthcare solution | ||||
| Mili (Jiangsu) Medical Technology Co., Ltd. | May 28, 2025 | Mainland China | 60% owned by Beijing Feitian | Healthcare solution | ||||
| iTonic Corporation | February 11, 2025 | U.S. Delaware | 51% owned by iTonic | Healthcare solution |
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”).
Going Concern
As of December 31, 2025, the Company incurred a net loss of $5,098,384 and negative cash flows from operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. During the next twelve months, the Company intends to fund its operations with revenue from revenue-producing activities by intensifying sales strategies and key account management, and exploring additional equity and debt financing. If the Company cannot secure additional short-term capital, it may cease operations. These financial statements and related notes thereto do not include any adjustments that might result from these uncertainties.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated on consolidation. A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove a majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
Use of Estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the assessment of the allowance for doubtful accounts, the realizability of deferred income tax assets and cost of assurance-type warranty. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
The Company is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Cash and Cash Equivalents
Cash and cash Equivalents represent cash on hand, time deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal and use, and which have original maturities of three months or less.
Restricted Cash
Restricted cash represents cash that cannot be withdrawn without the permission of third parties. The Company’s restricted cash is substantially cash balance in designated bank accounts as security for payment processing. Restriction on the use of such cash and the interest earned thereon is imposed by the banks and remains effective throughout the term of the security period. Upon maturities of the security period, the bank’s deposits are available for general use by the Company.
Short-term Investment
Short-term investments include wealth management products, which are certain deposits with principal not guaranteed with certain financial institutions and the Company can redeem the deposits at any time. The Company records wealth management products with maturities less than one year at fair value in accordance with ASC 825 Financial Instruments.
As of December 31, 2024 and 2025, the Company had short-term investments balance of nil and $1,435,901.
Fair Value of Financial Instruments
Fair Value of Financial Instruments – the Company adopted SFAS ASC 820-10-50, “Fair Value Measurements”. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| ● | Level one – Quoted market prices in active markets for identical assets or liabilities; |
| ● | Level two – Inputs other than level one inputs that are either directly or indirectly observable; and |
| ● | Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. |
The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, short-term investments, non-current financial investments, accounts receivable, accounts payable, short-term debts, notes payable and other liabilities.
Fair value measurements
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| ● | Level 1 — Observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, advances to a related party, prepaid expenses and other current assets, accounts payable, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities. The fair value of longer-term leases approximates their recorded values as their stated interest rates approximate the rates currently available.
The following table summarizes the equity measured at fair value on a recurring basis as of December 31, 2025, by level within the fair value hierarchy:
| December 31, 2025 | Level 3 | |||
| Equity | ||||
| Contingent consideration - common stock | $ | 1,943,100 | ||
| Contingent consideration - warant | 53,388 | |||
| Total equity measrued by fair value | 1,996,488 | |||
Accounts Receivable, net
Accounts receivable are recognized and carried at original invoiced amount net of allowance for doubtful accounts. Receivables are considered overdue after 90 days. We review accounts receivable on a periodic basis and make general and specific allowances when there is doubt as to the collectability of individual balances after due date. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, customer payment history, customer’s current creditworthiness, and current economic trends.
As for the year ended December 31, 2024 and 2025, the Company maintains an allowance for credit losses. Starting from January 1, 2023, the Company adopted ASU No.2016-13 “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”).” The Company used a modified retrospective approach, and the adoption does not have an impact on our consolidated financial statements. The Company estimates allowances for credit losses using relevant available information from both internal and external sources. In establishing the allowances, management considers historical losses, the financial condition, the accounts receivables aging, the payment patterns and the forecasted information in pooling basis upon the use of the Current Expected Credit Loss Model (“CECL Model”) in accordance with ASC topic 326, Financial Instruments - Credit Losses. The allowance is based on the current expected credit loss (“CECL”) model, which involves categorizing accounts receivable into age buckets (e.g., less than 1 year, 1 – 2 years and longer than 2 years), assessing the credit loss risk for each category.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Amounts are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company recognized no written-off amount recognized on accounts receivable for the fiscal years ended December 31, 2024 and 2025.
The Company made provisions for doubtful debts of $21,517, $37,927 and $53,371 for the fiscal years ended December 31, 2023, 2024 and 2025, respectively. The primary customers are public hospitals, with whom the Company had a track record of minimal credit losses in the past. This, along with our assessments of receivable aging, customer creditworthiness, and collection probability, supports our provision for expected credit losses.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost elements of inventories comprise the purchase price of products, and shipping charges to receive products from the suppliers when they are embedded in the purchase price. Cost is determined using the first-in-first-out (FIFO) method. Provisions are made for excessive, slow moving, expired and obsolete inventories as well as for inventories with carrying values in excess of market. Certain factors could impact the realizable value of inventory, so the Company continually evaluates the recoverability based on assumptions about customer demand and market conditions. The evaluation may take into consideration historical usage, inventory aging, expiration date, expected demand, anticipated sales price, product obsolescence and other factors. The reserve is equal to the difference between the cost of inventory and the estimated net realizable value based upon the assumptions about future demand and market conditions.
Acquisition
These consolidated financial statements include the operations of acquired businesses from the date of the acquisitions. On November 25, 2025, the Company completed the acquisition of a 51% share of the capital of an operating subsidiary of iTonic Corporation, a Delaware corporation. The decision of whether to consolidate an entity for financial reporting purposes requires consideration of majority voting interests, as well as effective economic or other control over the entity.
We account for business combinations using the acquisition method. Under this method, the identifiable assets acquired, liabilities assumed, and any non-controlling interest are recorded at their estimated fair values. We engage third-party valuation specialists to assist in determining fair values. Our income approach valuation process depends on the assets being valued. Goodwill is measured as the excess of consideration transferred over the fair value of the assets acquired and the liabilities assumed. The allocation of the purchase price relies on estimates and significant assumptions to determine the fair values of identifiable assets acquired and liabilities assumed, particularly for intangible assets. These estimates are based on all available information as of the acquisition date and may involve assumptions about the timing and amounts of future revenues and expenses associated with an asset.
Management applied judgment in determining the fair value of the acquired assets in the iTonic Corporation acquisitions. The judgments made in determining the estimated fair value of the assets acquired, as well as the estimated useful lives of those assets, can materially affect net income in periods subsequent to the acquisition through depreciation and amortization. In particular, judgment was applied with respect to determining the fair value of acquired customer relationships, intangible assets, which involved the use of estimates and significant assumptions with respect to the timing and amounts of cash flow projections, the revenue growth rates, the customer attrition rates, the EBITDA margins, and the discount rate. Unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions or estimates The Company accounts for business combinations using the acquisition method of accounting in accordance with US GAAP.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Business Combinations
The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed, and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortized as part of the effective interest, and costs to issue equity which are included in shareholders’ equity.
Any contingent consideration is included in the cost of the business combination at fair value as at the date of acquisition. Subsequent changes to the assets, liability or equity which arise as a result of the contingent consideration are not affected against goodwill, unless they are valid measurement period adjustments.
Otherwise, all subsequent changes to the fair value of contingent consideration that is deemed to be an asset or liability is recognized in either profit or loss or in other comprehensive income, in accordance with relevant IFRS. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within shareholders’ equity.
The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of ASC 350 — Intangibles—Goodwill and Other (“ASC 350”) are recognized at their fair values at acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 — Non-current Assets Held for Sale and Discontinued Operations, which are recognized at fair value less costs to sell.
Contingent liabilities are only included in the identifiable liabilities of the acquiree where there is a present obligation at acquisition date.
On acquisition, the acquiree’s assets and liabilities are reassessed in terms of classification and are reclassified where the classification is inappropriate for Company’s reporting purposes. This excludes lease agreements and insurance contracts whose classification remains as per their inception date.
Non-controlling interests in the acquiree are measured on an acquisition-by-acquisition basis either at fair value or at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. This treatment applies to non-controlling interests which are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation. All other components of non-controlling interests are measured at their acquisition date fair values unless another measurement basis is required by US GAAP.
In cases where the Company held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured to fair value as of the acquisition date. The measurement to fair value is included in profit or loss for the year. Where the existing shareholding was classified as an available-for-sale financial asset, the cumulative fair value adjustments recognized previously to other comprehensive income and accumulated in shareholders’ equity are recognized in profit or loss as a reclassification adjustment.
Goodwill is determined as the consideration paid, plus the fair value of any shares held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree. If, in the case of a bargain purchase, the result of this formula is negative, then the difference is recognized directly in profit or loss.
Goodwill is not amortized but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Goodwill and Other Intangibles
The Company accounts for business acquisitions in accordance with GAAP. Goodwill in such acquisitions is determined as the excess of fair value over amounts attributable to specific tangible and intangible assets. GAAP specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.
In accordance with GAAP, the Company does not amortize goodwill. Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. Amortizable intangible assets, including customer relationships are amortized on a straight-line basis over 10 years.
The Company tests goodwill for impairment annually as of December 31 or if an event occurs or circumstances change that indicate that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of such impact.
If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
We test goodwill for impairment annually in the fiscal fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable.
The useful life of intangible assets has been assessed as follows:
| Category | Useful Life | |
| Property rights | 5 years | |
| Software | 5 years | |
| License | 5 years | |
| Customer relationships | 5 years | |
| IP | 5 years |
Acquisition-related costs
Acquisition-related costs, such as legal, accounting, valuation, and other professional fees, are expensed as incurred and are not included in consideration transferred.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Leases
The Company early adopted Accounting Standards Update (“ASU”) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively “ASC 842”) on January 1, 2019 using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. As of December 31, 2024, all the leases of the Company have terms that are less than 12 months. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. For leases with lease term less than one year (short-term leases), the Company records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.
The most significant impact upon adoption relates to the recognition of new Right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets for office space leases. At the commencement date of a lease, the Company recognizes a lease liability for future fixed lease payments and a right-of-use (“ROU”) asset representing the right to use the underlying asset during the lease term. The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term. The lease term includes periods for which it’s reasonably certain that the renewal options will be exercised and periods for which it’s reasonably certain that the termination options will not be exercised. The future fixed lease payments are discounted using the rate implicit in the lease, if available, or the incremental borrowing rate (“IBR”). The Company will evaluate the carrying value of ROU assets if there are indicators of impairment and review the recoverability of the related asset group. If the carrying value of the asset group is determined to not be recoverable and is in excess of the estimated fair value, the Company will record an impairment loss in other expenses in the consolidated statements of operations.
In addition, the carrying amount of a lease liability is subject to remeasurement in certain circumstances including lease modifications, changes in the lease term, or changes in the in-substance fixed lease payments. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in consolidated statement of income and other comprehensive income if the carrying amount of the right-of-use asset has been reduced to zero.
Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers, effective as of January 1, 2020. Accordingly, the audited consolidated financial statements for the years ended December 31, 2023, 2024 and 2025 are presented under ASC 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is the transaction price the Company expects to be entitled to in exchange for the promised services in a contract in the ordinary course of the Company’s activities and is recorded net of value-added tax (“VAT”). To achieve that core principle, the Company applies the following steps:
Step 1: Identify the contract (s) with a customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract;
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
The Company is primarily engaged in the industry of medical instrumental software, with required medical instruments with which such software operates. Our main business during the reporting periods are sales of Particle Implantation Radiotherapy Treatment Planning System (FTTPS), sales of Medical Auxiliary Supplies, and others. No practical expedients were used when adoption ASC 606. Revenue recognition policies for each type of revenue stream are as follows:
Sales of FTTPS:
The Company sells FTTPS with computers, monitors or other medical equipment required by customers’ specific needs. The FTTPS sales contracts are primarily on a fixed price basis, which require the Company to provide core software, a set of hardware as peripherals to operate the software, and related services, including transportation, packaging, installation and training based on customers’ specific needs. The execution timeline of these sales contracts is typically within three months.
The hardware, software and services are considered as a single performance obligation, because the complete functionality required for brachytherapy is achieved only when these components are used in conjunction with one another. The customers cannot benefit from the hardware, software or services alone, but only upon the integration of software, hardware, installation and training. Typically, installation and training can be completed within two days after delivery. Revenue from sales of FTTPS is recognized at a point in time after the Company transferred control of the Company’s products and provided the services, generally upon the customer’s acceptance of the products and services. Beijing Feitian has not entered into any loss contracts to date.
In certain sales agreements, the Company provides an assurance-type warranty to the customers’ warranty. This type of warranty promises to repair or replace a delivered good or service if it does not perform as expected. Since an assurance-type warranty guarantees the functionality of a product, the warranty is not accounted for as a separate performance obligation, and thus no transaction price is allocated to it. Rather, to account for an assurance-type warranty the vendor should estimate and accrue a warranty liability when the promised products or service is delivered to the customer under ASC 460. Generally, the estimated claim rates of warranty are based on actual warranty experience or Company’s best estimate. There were no such reserves for the fiscal years ended December 31, 2022, 2023 and 2024 because the Company’s historical warranty expenses were immaterial to the Company’s consolidated financial statements.
Sales of Medical Auxiliary Supplies:
The Company sells Medical Auxiliary Supplies to customers for the operation of FTTPS system. The promised goods are considered as a single performance obligation because the sales of Medical Auxiliary Supplies are independent and irrelated to sales of FTTPS. Revenue from sales of Medical Auxiliary Supplies is recognized at the point in time when the goods are delivered and the customer has accepted the delivery.
Disaggregated information of revenues by products:
| Year Ended December 31, 2023 |
Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
||||||||||
| Sales of FTTPS | $ | 609,348 | $ | 369,550 | $ | 362,850 | ||||||
| Sales of Medical Auxiliary Supplies | 19,243 | 78,646 | 160,181 | |||||||||
| Total revenues | $ | 628,591 | $ | 448,196 | $ | 523,031 | ||||||
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Share-based compensation
The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 amended by ASU 2018-07. Under FASB ASC Topic 718, share compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or services are received. The Company amortized the share-based compensation expenses on a straight-line basis over the service period.
Contract balance
The Company recognizes accounts receivable in its consolidated balance sheets when it performs a service in advance of receiving consideration and it has the unconditional right to receive consideration. Payments received from its customers are based on the payment terms established in its contracts. Such payments are initially recorded to contract liabilities and are recognized into revenue as the Company satisfies its performance obligations. As of December 31, 2024 and 2025, the balance of contract liabilities amounted to $121,239 and $137,936, respectively.
During the years ended December 31, 2023, 2024 and 2025, the Company recognized $132,656, $28,668 and $31,637 revenue that was included in contract liabilities balance on January 1, 2023, 2024 and 2025, respectively. The Company expected to recognize the entire contract liabilities as of December 31, 2025 as revenue in the next 12 months.
Cost of revenue
The cost of revenue consists primarily of finished goods and personnel-related costs for employees responsible for training, advisory, and technical customer support.
Selling expenses
Selling expenses consist primarily of promotion and advertising expenses, business travel expenses, staff costs, and other daily expenses which are related to the selling and marketing departments. For the fiscal years ended December 31, 2023, 2024 and 2025, advertising expense was $2,128, $nil and $nil, respectively.
General and administrative expenses
General and administrative expenses consist primarily of operating lease expenses, salary and welfare expenses and related expenses for employees involved in general corporate functions, including accounting, legal and human resources, and expenses associated with the operation of these functions, such as traveling and general expenses, professional service fees and other related expenses.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Research and Development Expenses
Research and development expenses include outsourcing research expenses, salary, employee benefits, and related expenses for product development.
Income tax and deferred income taxation
The Company follows the liability method of accounting for income taxes in accordance with ASC 740 (“ASC 740”), Income Taxes. The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expenses in the period incurred.
The Company’s operating subsidiary in the PRC is subject to examination by the relevant tax authorities. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000 (approximately $14,085). In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion.
No significant penalties or interest relating to income taxes have been incurred for the fiscal years ended December 31, 2023, 2024 and 2025.
Value added tax (“VAT”)
The Company sells goods and renders services within the region of mainland China, and such business activities are subject to Value Added Tax (“VAT”) at 13% on sales. Output VAT on sales are collected from customers as a direct tax included in the contract considerations, and are later submitted to the tax authorities at a net amount after deducting input VAT we paid to suppliers on materials and services we purchased. The net VAT balance between input VAT and output VAT is recorded in taxes payable. All of the VAT returns filed by the Company’s subsidiaries in mainland China remain subject to examination by the tax authorities for five years from the date of filing.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Comprehensive income (loss)
Comprehensive income (loss) is defined as the changes in shareholders’ equity during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income (loss) is reported in the consolidated statements of operations and comprehensive income (loss). Accumulated other comprehensive income (loss), as presented on the accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustments.
Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings (loss) per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS are computed by dividing income (loss) available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. As of December 31, 2023, 2024 and 2025, there were no dilution impacts.
Foreign currency translation and transactions
The reporting currency of the Company is U.S. dollars (“$”) and the accompanying consolidated financial statements have been expressed in U.S. dollars. The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using the Chinese Yuan (“RMB”), the local currency, as the functional currency. The Company’s consolidated financial statements has been translated into the reporting currency U.S. dollars. The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in consolidated statements of changes in shareholders equity. Gains and losses from foreign currency transactions and balances are included in the results of operations.
The following table outlines the currency exchange rates that were used in preparing the consolidated financial statements:
| December 31, 2023 |
December 31, 2024 |
December 31, 2025 |
||||||||||
| Year-end spot rate | $ 1 = RMB 7.0999 | $ 1 = RMB 7.2993 | $ 1 = RMB 6.9931 | |||||||||
| Average rate | $ 1 = RMB 7.0809 | $ 1 = RMB 7.1975 | $ 1 = RMB 7.1875 |
Related parties
Related parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence, such as a family member or relative, shareholder, or a related corporation.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Employee benefit expenses
Full-time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits based on a certain percentage of the employee’s salary. The Company has no legal obligation for the benefits beyond the contributions. The Company recognized expenses for employee benefits of $38,342, $42,473 and $47,185, for the fiscal years ended December 31, 2023, 2024 and 2025, respectively.
Statutory reserves
The Company is required to allocate at least 10% of its after-tax profit to the general reserve in accordance with the PRC accounting standards and regulations. The allocation to the general reserve will cease if such reserve has reached to 50% of the registered capital of respective company. These reserves can only be used for specific purposes and are not transferable to the Company in form of loans, advances, or cash dividends. There is no such regulation of providing statutory reserve in Hong Kong.
Segment reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM), or decision making-group, in deciding how to allocate resources and in assessing performance.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands public entities’ segment disclosures, among others, requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss; an amount and description of its composition for other segment items; and interim disclosures of a reportable segment’s profit or loss and assets. This new guidance was effective for us beginning on this annual report for the year ended December 31, 2024, and applied retrospectively to all prior periods presented. The impact of the adoption of this guidance was not material to our financial position or results of operations, as the requirements impact only segment reporting disclosures in our notes to financial statements.
The Company operates as one operating and reportable segment. All of the Company’s long-lived assets, comprised of property and equipment, are based in China. All of the Company’s revenue was in China for the years ended December 31, 2023, 2024 and 2025, based on the location of the customers.
The Company’s CODM is our Chief Executive Officer. Our CODM makes decisions on resource allocation, evaluates operating performance, and monitors budget versus actual results using net income (loss). There is no reconciling items or adjustments between segment income (loss) and net income (loss) as presented in our statements of operations. The CODM does not review assets in evaluating the segment results and therefore such information is not presented.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Certain Risks and Concentration
Exchange Rate Risks
The Company operates in the PRC, which may give rise to significant foreign currency risks mainly from fluctuations and the degree of volatility of foreign exchange rates between the USD and the RMB.
Currency Convertibility Risks
Substantially all of the Company’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to the concentration of credit risks consist primarily of cash. The Company places its cash in good credit quality financial institutions in mainland China and Hong Kong. The bank deposits, with financial institutions in mainland China and Hong Kong are insured by the government authorities up to RMB500,000 and HKD800,000 per bank, respectively, as of December 31, 2025. The concentration of credit risks with respect to accounts receivable is linked to the concentration of revenue. To manage credit risk, the Company performs ongoing credit evaluations of customers’ financial condition. Cash balances in bank accounts in mainland China are insured by the People’s Bank of China Financial Stability Department (“FSD”) where there is an RMB 500,000 ($70,424) deposit insurance limit for a legal entity’s aggregated balance at each bank. As a result, the amounts not insured by the government authorities with amounts up to were $5,949,269 and $999,148 as of December 31, 2024 and 2025, respectively. As of December 31, 2025, substantially all of the Company’s cash were held by major financial institutions located in Hong Kong, which management believes are of high credit quality.
Risks and Uncertainties
The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations, including its organization and structure disclosed in Note1, this may not be indicative of future results.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Major Customers
For the fiscal year ended December 31, 2025, the Company’s top two customers accounted for approximately 26% and 25% of total revenues, respectively. For the fiscal year ended December 31, 2024, the Company’s top two customers accounted for approximately 15% and 13% of total revenues, respectively. For the fiscal year ended December 31, 2023, the Company’s top three customers accounted for approximately 13%, 11% and 11% of total revenues, respectively. Except for the large customers mentioned above, no other customers of the Company individually contributed more than 10% of the Company’s revenue in the fiscal years ended December 31, 2025, 2024 or 2023.
As of December 31, 2025, the balance due from the top one customers accounted for approximately 33% of the Company’s total accounts receivable, respectively. As of December 31, 2024, the balance due from the top two customers accounted for approximately 17% and 10% of the Company’s total accounts receivable, respectively. Except for the customers mentioned above, no other customers of the Company individually contributed more than 10% of the Company’s accounts receivable in the fiscal years ended December 31, 2025 and 2024.
Major Suppliers
For the fiscal year ended December 31, 2025, two major suppliers accounted for approximately 54% and 14% of the total purchases, respectively. For the fiscal year ended December 31, 2024, three major suppliers accounted for approximately 24%, 18% and 17% of the total purchases, respectively. For the fiscal year ended December 31, 2023, three major suppliers accounted for approximately 32%, 20%, 11%, 11% and 11% of the total purchases, respectively. Except for the principal suppliers mentioned above, no other suppliers of the Company individually contributed more than 10% of the Company’s purchases in the fiscal years ended December 31, 2025, 2024 and 2023.
As of December 31, 2025, one supplier accounted for the balance of all accounts payable. As of December 31, 2024, one supplier accounted for the balance of all accounts payable. Except for the suppliers mentioned above, no other suppliers of the Company individually contributed more than 10% of the Company’s accounts payable in the fiscal years ended December 31, 2025 and 2024.
Recent Accounting Pronouncements
| i. | New and amended standards adopted by the Company: |
The ASU 2023-07: Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures provides improvements to reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple measures of segment profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The ASU should be adopted retrospectively to all periods presented in the financial statements unless it is impracticable to do so. The Company adopted ASU 2023-09 for the year beginning on January 1, 2024. The adoption of ASU 2023-07 does not have a material impact on the Company’s consolidated balance sheets, statements of income and comprehensive income, cash flows or disclosures.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
| ii. | New and amended standards not yet adopted by the Company: |
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 expands existing income tax disclosures for rate reconciliations by requiring disclosure of certain specific categories and additional reconciling items that meet quantitative thresholds and expands disclosures for income taxes paid by requiring disaggregation by certain jurisdictions. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, and interim periods within those annual periods; early adoption is permitted. The Company adopted ASU 2023-09 for the year beginning on January 1, 2025 and does not expect the updated guidance to have a material impact on its disclosures.
ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), was issued in November 2024, which requires disclosure in the notes to the financial statements, of disaggregated information about certain costs and expenses that are included in expense line items on the face of the income statement. The requirements of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027 with early adoption permitted. The Company is currently evaluating the impact, if any, that the adoption of this standard will have on its Consolidated Financial Statements and disclosures.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent standards that are not anticipated to have an impact on or are unrelated to its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Reporting Comprehensive Income — Expense Disaggregation Disclosures,” which focuses on improving the disclosures about a public business entity’s expenses and addresses requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adopting the standard and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.
In November 2024, the FASB issued ASU 2024-04, Debt — Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. The amendments provide guidance on accounting for induced conversions of convertible debt instruments. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for entities that have adopted the amendments in ASU 2020-06. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows.
In January 2025, the FASB issued ASU 2025-01, “Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures.” The amendment in ASU 2025-01 amends the effective date of ASC 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of is permitted. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations and cash flows.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
In March 2025, the FASB issued ASU 2025-02, Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122. The amendments are effective immediately and must be applied on a fully retrospective basis to annual periods beginning after December 15, 2024. The Company does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. The amendments provide guidance on identifying the accounting acquirer in transactions involving a variable interest entity. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments provide a practical expedient and, if applicable, an accounting policy election to simplify the measurement of credit losses for certain receivables and contract assets. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows.
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software. The standard simplifies the accounting for internal-use software costs and is effective for fiscal years beginning after December 15, 2026. The Company does not expect adoption of this standard to have a material impact on its financial statements.
In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270): Improvements to Interim Disclosure Requirements. The standard clarifies disclosure requirements for interim financial statements and is effective for interim periods beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of operations and comprehensive loss and statements of cash flows.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
3. SHORT-TERM INVESTMENT
The following table summarizes the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2025:
|
Active Market for Identical Assets (Level 1) |
Active Market for Identical Assets (Level 2) |
Active Market for Identical Assets (Level 3) |
Total Carrying Value |
|||||||||||||
| Short-term investment | $ | 1,435,901 | $ | 1,435,901 | ||||||||||||
| Total | $ | $ | 1,435,901 | $ | $ | 1,435,901 | ||||||||||
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Accounts Receivable(i) | $ | 388,365 | $ | 454,766 | ||||
| Allowance for current expected credit losses | (106,780 | ) | (166,310 | ) | ||||
| Accounts receivable, net | $ | 281,585 | $ | 288,456 | ||||
| (i) | All accounts receivables are mainly from sales of FTTPS. |
The movement of allowance for doubtful accounts is as follows:
| Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
|||||||
| Balance at beginning of the year | $ | (71,341 | ) | $ | (106,780 | ) | ||
| Provision | (37,927 | ) | (53,371 | ) | ||||
| Exchange rate effect | 2,488 | (6,159 | ) | |||||
| Balance at end of the year | $ | (106,780 | ) | $ | (166,310 | ) | ||
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
5. PREPAYMENT AND OTHER ASSETS
The prepayments, other current assets and non-current assets, consisted of the following:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Current: | ||||||||
| Recoverable value-added taxes(a) | $ | 26,477 | $ | |||||
| Prepayment | 41,863 | 682,372 | ||||||
| Others | 490 | 122,898 | ||||||
| Prepayments and other current assets | $ | 68,830 | $ | 805,270 | ||||
| Non-current: | ||||||||
| Prepayment | 600,000 | |||||||
| Non-current assets | $ | $ | 600,000 | |||||
| (a) | Recoverable value-added taxes represent the balances that the Company can utilize to deduct its value-added tax liabilities within the next 12 months. |
| (b) | Prepayments to vendors were approximately $0.6 million in the financial year 2025. The increase in prepayments to vendors was primarily due to the Company’s exploration of a new platform to meet customers’ requirements. |
6. BUSINESS COMBINATION FOR ADDITIONAL DETAILS ON THE ACQUIRED INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the year ended December 31, 2025 by reporting segment are as follows:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Goodwill | $ | $ | 1,955,683 | |||||
| Customer relationships | 2,414,357 | |||||||
| Total goodwill and intangible assets, net | $ | $ | 4,370,040 | |||||
We estimated the fair value of the reporting unit based on the present value of its estimated future cash flows. Our determination of fair value involved judgment and the use of estimates and significant assumptions related to projected revenue growth rates, projected EBITDA margins, and the discount rate used to calculate estimated future cash flows. We believe that our assumptions used in discounting future cash flows are appropriate.
Goodwill acquired in our 2025 acquisitions has expanded our portfolio of an integrated home health hub in the U.S. market and expanded our market opportunities, including addressing major challenges within home health, particularly for Medicaid populations, including the 125,000 preventable deaths annually resulting from missed medications, and the high rate of chronic conditions among Medicaid beneficiaries. Goodwill will not be amortized, but will be tested for impairment at least annually. For 2025 acquisitions, no goodwill will be deductible for tax purposes.
During the year ended December 31, 2025, in connection with acquisitions made during the year, we purchased $2,414,357 intangible assets, primarily associated with customer relationships.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Salary and welfare payables | $ | 38,011 | $ | 15,466 | ||||
| Deposits from customers | 24,660 | 48,088 | ||||||
| Other tax payable | 32,682 | 14,543 | ||||||
| Service payable | 39,028 | 35,546 | ||||||
| Staff reimbursements | 24,550 | 1,358 | ||||||
| Total | $ | 158,931 | $ | 115,001 | ||||
8. LEASES
Operating leases as lessee
The Company’s leasing activities primarily consist of one operating lease for offices. ASC 842 requires leases to recognize right-of-use assets and lease liabilities on the balance sheet. The Company has elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet.
For the fiscal years ended December 31, 2023, 2024 and 2025, the Company incurred operating lease expenses of $58,471, $59,718 and $45,863, respectively. The operating lease expenses were charged to general and administrative expense.
The Company terminated its office leases on December 30, 2024 without penalty for termination and derecognized the lease liability and net right-of-use asset of $116,454 and $100,363, respectively, on the effective date of termination.
On December 30, 2024, Beijing Feitian signed a short-term lease agreement with the lessor, Beijing Chaoyang Laiguangying Agricultural and Industrial Corporation, starting from January 1, 2025, with a quarterly rent of RMB77,526 (approximately $10,774).
Cash flow information related to operating leases consists of the following:
| As of | ||||||||||||
| December 31, 2023 |
December 31, 2024 |
December 31, 2025 |
||||||||||
| Cash paid for amounts in the measurement of lease liabilities | $ | 57,201 | $ | 46,174 | $ | |||||||
| Derecognition of ROU assets and lease liabilities | $ | $ | 100,363 | $ | ||||||||
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
9. SHORT-TERM BANK LOANS
Short-term bank loans represent amounts due to various banks maturing within one year. The principal of the borrowings is due at maturity. Accrued interest is due either monthly or quarterly. Short-term borrowings consisted of the following:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Beijing Rural Commercial Bank(a) | $ | 136,999 | $ | 142,998 | ||||
| Bank of Nanjing(b) | 110,970 | |||||||
| Total | $ | 247,969 | $ | 142,998 | ||||
| (a) | (1) On March 22, 2024, the Company entered into a loan agreement with Beijing Rural Commercial Bank to obtain a loan of $136,999 (or RMB1,000,000) for the period from March 22, 2024 to March 22, 2025 with an annual interest rate of 4.95%. The Company is required to make monthly interest payment with principal due at maturity. Mr. Pengfei Zhang, a Director of the Company, guaranteed the repayment of these loans. On March 18, 2025, the Company repaid these loans.
(2) On March 18, 2025, the Company entered into a loan agreement with Beijing Rural Commercial Bank to obtain a loan of $142,998 (or RMB1,000,000) for the period from March 18, 2025 to March 18, 2026 with an annual interest rate of 4.95%. The Company is required to make monthly interest payment with principal due at maturity. Mr. Pengfei Zhang, a Director of the Company, guaranteed the repayment of these loans.
|
| (b) | On April 16, 2024, the Company entered into a loan agreement with Bank of Nanjing to obtain a loan of $110,970 (or RMB810,000) for the period from April 28, 2024 to April 15, 2025 with an annual interest rate of 5.3%. The Company is required to make monthly interest payment with principal due at maturity. Mr. Jianfei Zhang, the Chairman of the Board of Directors and Chief Executive Officer of the Company, together with Mr. Pengfei Zhang, a Director of the Company, guaranteed the repayment of these loans. On April 15, 2025, the Company repaid the loan. |
10. INCOME TAX EXPENSE
Corporation Income Tax (“CIT”)
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
British Virgin Islands (“BVI”)
Under the current laws of the BVI, the Company’s subsidiary incorporated in BVI is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the BVI company to its respective shareholder, no BVI withholding tax will be imposed.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAX EXPENSE (cont.)
Hong Kong, PRC
Under the current Hong Kong Inland Revenue Ordinance, a two-tier corporate income tax system was implemented in Hong Kong, which is 8.25% for the first HK$2.0 million taxable income, and 16.5% for the subsequent taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax. The Company did not make any provision for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong for any of the periods presented.
Mainland, PRC
Under the Enterprise Income Tax (“EIT”) Law in the PRC, the unified EIT rate for domestic enterprises and foreign invested enterprises is 25%, except for available preferential tax treatments.
For qualified small and low-profit enterprises, from January 1, 2022 to December 31, 2022, 12.5% of the first RMB 1.0 million of the assessable profit before tax is subject to preferential tax rate of 20% and the 25% of the assessable profit before tax exceeding RMB 1.0 million but not exceeding RMB 3.0 million is subject to preferential tax rate of 20%. From January 1, 2023 to December 31, 2027, 25% of the first RMB 3.0 million of the assessable profit before tax is subject to the tax rate of 20%. For the years ended December 31, 2023, 2024 and 2025, the PRC subsidiaries are qualified small and low-profit enterprises, as such term is defined, and thus are eligible for the above preferential tax rates for small and low-profit enterprises.
The following table presents the provision for income taxes from continuing operations:
| Year Ended December 31, 2023 |
Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
||||||||||
| Income tax (benefit)/ expense: | ||||||||||||
| Current income tax benefit | $ | $ | $ | |||||||||
| Deferred income tax (benefit)/expense | (19,291 | ) | 21,829 | |||||||||
| Total | $ | (19,291 | ) | $ | 21,829 | $ | ||||||
| 1) | Current tax |
Reconciliation from operating profit to current income tax expenses:
| Year Ended December 31, 2023 |
Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
||||||||||
| Profit/(loss) before income tax | $ | (260,508 | ) | $ | (638,759 | ) | $ | (5,098,384 | ) | |||
| PRC statutory income tax rate | 25 | % | 25 | % | 25 | % | ||||||
| Income tax expense/(benefit) computed at the PRC statutory tax rate | (65,127 | ) | (159,690 | ) | (1,274,596 | ) | ||||||
| Effect of true-up on NOL | 11,107 | (4,207 | ) | |||||||||
| Effect of preferential tax rate | 52,102 | 140,453 | 1,264,449 | |||||||||
| Additional deduction for R&D expenses | (3,634 | ) | (1,913 | ) | (3,785 | ) | ||||||
| Non-deductible expenses | 164 | 1,839 | 1,014 | |||||||||
| Changes in valuation allowance | 30,033 | 17,125 | ||||||||||
| Impact of changes in tax rates | (2,796 | ) | ||||||||||
| Income tax (benefit)/ expense | $ | (19,291 | ) | $ | 21,829 | $ | ||||||
| Effective tax rates | 7.41 | % | (3.42 | )% | % | |||||||
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAX EXPENSE (cont.)
2) Deferred tax
The significant components of deferred tax assets and liabilities were as follows:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Deferred tax assets: | ||||||||
| Allowance for credit loss | $ | 5,339 | $ | 8,316 | ||||
| Operating lease liabilities | ||||||||
| Net operating loss carried forward | 24,268 | 39,742 | ||||||
| Total deferred tax assets | 29,607 | 48,058 | ||||||
| Less: valuation allowance | (29,607 | ) | (48,058 | ) | ||||
| Total deferred tax assets, net of valuation allowance | ||||||||
| Net off against deferred tax liabilities | ||||||||
| Deferred tax assets, net | ||||||||
| Deferred tax liabilities: | ||||||||
| Outside basis differences in equity and other investments | 507,015 | |||||||
| Total deferred tax liabilities | 507,015 | |||||||
| Net off against deferred tax assets | ||||||||
| Deferred tax liabilities, net | $ | $ | 507,015 | |||||
The changes related to valuation allowance are as follows:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Balance at beginning of the year | $ | $ | ||||||
| Additions | 29,607 | 48,058 | ||||||
| Reversals | ||||||||
| Balance at beginning of the year | $ | 29,607 | $ | 48,058 | ||||
According to PRC tax regulations, the PRC enterprise net operating loss can generally carry forward for no longer than five years, starting from the year subsequent to the year in which the loss was incurred. Carryback of losses is not permitted. Total net operating losses (NOLs) carryforwards of the Company’s subsidiaries in mainland China is $485,349 and $773,347 as of December 31, 2024 and 2025, respectively. As of December 31, 2025, net operating loss carryforwards from PRC will expire in calendar years 2026 through 2030, if not utilized.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAX EXPENSE (cont.)
The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company’s experience with tax attributes expiring unused and tax planning alternatives. Valuation allowances have been established for deferred tax assets based on a more-likely-than-not threshold.
Under the applicable accounting standards, for the year of 2023, the Company has not established any valuation allowances for deferred tax assets as the Company determined it was more likely than not that the deferred tax assets would be realized before expiration.
In 2025, the management has considered the Company’s history of losses and the uncertainty of profitability due to market fluctuations, and concluded that it is more likely than not that the Company will not generate future taxable income to realize its deferred tax assets.
Accordingly, as of December 31, 2024 and 2025, a $29,607 and $48,058 valuation allowance has been established respectively.
3) Uncertain Tax Position
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2024 and 2025, the Company did not have any unrecognized uncertain tax positions and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. For the years ended December 31, 2024 and 2025, the Company did not incur any interest and penalties related to potential underpaid income tax expenses.
As of December 31, 2025, the tax years ended December 31, 2020 through 2024 for the Company’s subsidiaries in the PRC are generally subject to examination by the PRC tax authorities.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
11. RELATED PARTIES TRANSACTIONS AND BALANCES
The table below shows the major related parties and their relationships with the Company as of December 31, 2023, 2024 and 2025:
| Name of related parties | Relationship with the Company | |
| Mr. Jianfei Zhang | Controlling shareholder and CEO of the Company |
Balances with related parties
As of December 31, 2024 and 2025, the balances with related parties were as follows:
| As of | ||||||||
| December 31, 2024 |
December 31, 2025 |
|||||||
| Advance to related parties | ||||||||
| Mr. Jianfei Zhang(a) | $ | 50,000 | $ | 16,203 | ||||
| (a) | The Company advanced fund to Mr. Jianfei Zhang, our CEO, to serve as the petty cash fund for business-related expenses, such as business trips and other costs associated with supporting our business expansion. All payments had been received as of the date of this annual report. |
12. BUSINESS COMBINATION
On November 25, 2025, we successfully closed the acquisition of iTonic Corporation’s shares, which is an automated home health technology company that provides an integrated home health hub, incorporated in Delaware. At this time, the Selling Shareholders transferred their equity interests to the Company, and the Target recorded the Company as the holder of 5,100 shares of common stock, representing 51.00% of iTonic Corporation’s issued and outstanding share capital on a fully diluted basis. The contingent consideration was an aggregate of 4,000,000 newly issued Class A ordinary shares of ITOC (“Buyer Shares”) and up to 3,000,000 warrants to purchase ITOC Class A ordinary shares (“Warrants”). The issuance and release of these instruments are divided into 12 quarterly tranches over three years, contingent upon the Target achieving specific Sales Volume (Units) and Sales Revenue (USD) targets set forth in the Progress Schedule.
Based on projections as of the acquisition date, we estimated the aggregate fair value of the buyer shares using scenario probabilities and share prices, and the aggregate fair value of the warrants using the Black-Scholes Model.
The results of the Target have been included in the consolidated financial statements within ITOC since the date of acquisition. We are working to complete the valuation of assets acquired and liabilities assumed, and have recorded a preliminary purchase price allocation as of December 31, 2025. Net assets acquired totaled $51,657. Within definite-lived intangible assets, we allocated $2,414,357 to customer relationships which have an estimated useful life of 10 years. The fair value of customer relationships at the acquisition date was determined using the multi-period excess earnings method under the income approach. The fair value measurements are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of the intangible assets include discounted cash flows, customer attrition rates and discount rates. The deferred tax liability is negative $507,015.
The goodwill in the amount of 1,955,683 was recorded related to the 2025 acquisitions. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
12. BUSINESS COMBINATION (cont.)
The total purchase consideration was allocated to the assets acquired and liabilities assumed as set forth below:
| Allocation | Amount | |||
| Fair value of contingent shares | 1,943,100 | |||
| Fair value of contingent warrants | 53,388 | |||
| Total fair value of consideration transferred | 1,996,488 | |||
| Identifiable assets acquired and liabilities assumed | ||||
| Cash | 26,345 | |||
| Customer Relationship | 1,231,322 | |||
| Deferred tax liability | (258,577 | ) | ||
| Goodwill | 997,398 | |||
| Total | 1,996,488 | |||
As the acquisition was completed on November 25, 2025, the acquired entities did not contribute to the net revenues or to the net income of the Company during the year ended December 31, 2025.
13. SHAREHOLDER’S EQUITY
Ordinary shares
The Company’s authorized share capital is $50,000, divided into 500,000,000 ordinary shares consisting of 400,000,000 Class A ordinary shares and 100,000,000 Class B ordinary shares, par value $0.0001 per share. On March 23, 2023, the Company had 4,332,000 Class A ordinary shares and 7,668,000 Class B ordinary shares, issued and outstanding, respectively. On September 6, 2024, the Company consummated the initial public offering of 2,250,000 Class A ordinary shares. On May 12, 2025, the Company issued 2,800,000 Class A ordinary shares under its 2025 Equity Incentive Plan. As of December 31, 2025, the Company had 9,382,000 Class A ordinary shares and 7,668,000 Class B ordinary shares, issued and outstanding, respectively. Holders of Class A ordinary shares and Class B ordinary shares vote together as one class on all matters submitted to a vote by the shareholders at any general meeting of the Company and have the same rights, except each Class A ordinary share is entitled to one (1) vote and each Class B ordinary share is entitled to twenty (20) votes. The Class A ordinary shares are not convertible into shares of any other class. Upon any direct or indirect sale, transfer, assignment or disposition, the Class B ordinary shares will be automatically and immediately convertible into Class A ordinary shares on a one-to-one basis.
Statutory reserves
The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The statutory reserve as determined pursuant to PRC statutory laws amounted to approximately $89,685 and $89,685 as of December 31, 2024 and 2025, respectively.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
13. SHAREHOLDER’S EQUITY (cont.)
Share-based compensation
Grants and vesting:
On May 12, 2025, the Company granted and vested an aggregate of 1,800,000 of Class A ordinary shares to several service providers under its 2025 Equity Incentive Plan (the “First Grant”). Under the First Grant, the service providers are subject to provide services to the Company as independent consultants for a period of 24 months, commencing on May 12, 2025.
On May 12, 2025, the Company granted and vested an aggregate of 1,000,000 of Class A ordinary shares to several service providers under its 2025 Equity Incentive Plan (the “Second Grant”). Under the Second Grant, the service providers are subject to provide services to the Company as independent consultants for a period of 24 months, commencing on December 1, 2025.
The following table summarizes non-vested share activity during the six months ended December 31, 2025:
| Number of shares |
Weighted average grant date fair value |
|||||||
| Outstanding as of January 1, 2025 | $ | |||||||
| Granted | 2,800,000 | 4.755 | ||||||
| Vested | (2,800,000 | ) | 4.755 | |||||
| Outstanding as of December 31, 2025 | $ | |||||||
For the year ended December 31, 2024 and 2025, the Company recognized nil and $2,945,495 of share-based compensation expense, respectively, which are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.
Restricted net assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by Beijing Feitian only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiaries included in the Company’s consolidated net assets are also non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Beijing Feitian. The Company is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, the Company may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.
As of December 31, 2024 and 2025, the Company had net assets restricted in the aggregate, which include additional paid-in capital and statutory reserve of the Company’s PRC subsidiary that are included in the Company’s consolidated net assets, of approximately $458,016 and $772,612, respectively.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
14. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income (loss) per ordinary share for the fiscal years ended December 31, 2023, 2024 and 2025, respectively.
| Year Ended December 31, 2023 |
Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
||||||||||
| Numerator: | ||||||||||||
| Net income (loss) attributable to ordinary shareholders | $ | (241,217 | ) | $ | (660,588 | ) | $ | (5,098,384 | ) | |||
| Denominator: | ||||||||||||
| Weighted average number of ordinary shares outstanding – basic and diluted | 12,000,000 | 12,721,233 | 16,037,397 | |||||||||
| Net income (loss) per share – basic and diluted | $ | (0.020 | ) | $ | (0.052 | ) | $ | (0.318 | ) | |||
15. COMMITMENTS AND CONTINGENCIES
The Company is subject to some legal proceedings in the ordinary course of its business with respect to its commercial relationships, all of which have been settled by the Company. In the opinion of management, such proceedings did not result in a material adverse effect on the Company’s financial condition.
The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. While uncertainty exists, the Company does not believe there are any pending legal proceedings that would have a material impact on the Company’s financial position, cash flows or results of operations.
16. SUBSEQUENT EVENTS
The Company has evaluated all events and transactions that occurred after December 31, 2025 up through the date of the issuance of these consolidated financial statements. Except for the below subsequent event, the Company concluded that no material subsequent events have occurred that would require recognition or disclosure in the Company’s consolidated financial statements.
On March 23, 2026, the Company entered into Stock Purchase Agreements with an aggregate of 100,000,000 Class A ordinary shares of par value US$0.0001 each (the Class A Ordinary Shares, and such Class A Ordinary Shares issued pursuant to the PIPE financing, the PIPE Shares), for a purchase price of US$0.20 per share (the Purchase Price). The March 2026 Private Placement is expected to close in April 2026, subject to satisfaction or waiver of the conditions precedent set forth in the Subscription Agreement. The Class A Ordinary Shares issued in the March 2026 Private Placement are subject to a six-month lock-up period from the date of issuance.
17. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Company performed a test on the restricted net assets of consolidated subsidiary in accordance with Rule 4-08 (e)(3) of Regulation S-X, “General Notes to Financial Statements” and concluded that it was applicable to the Company; and, therefore, the financial statements for the parent company are included herein.
The Company did not pay any dividend to the shareholders for the periods presented. For presenting parent only financial information, the Company records its investment in its subsidiary under the equity method of accounting. Such investment is presented on the separate condensed balance sheets of the Company as “Investment in subsidiary” and the income of the subsidiary is presented as “Income from subsidiary”. Certain information and footnote disclosures are generally included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted.
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
17. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (cont.)
CONDENSED BALANCE SHEETS
| December 31, 2024 |
December 31, 2025 |
|||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | 6,052,260 | 1,179,880 | ||||||
| Financial assets held for trading | — | 1,435,901 | ||||||
| Advance to related parties | 50,000 | 19,964 | ||||||
| Prepayments and other current assets | 5,000 | 530,000 | ||||||
| Total Current Assets | 6,107,260 | 3,165,745 | ||||||
| Non-current Assets | ||||||||
| Investment in subsidiary | $ | 145,380 | $ | 2,483,593 | ||||
| Other non-current assets | 600,000 | |||||||
| Total Non-current Assets | 145,380 | 3,083,593 | ||||||
| Total Assets | $ | 6,252,640 | $ | 6,249,338 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | — | 55,336 | ||||||
| Due to subsidiary | 67,937 | 71,035 | ||||||
| Total Current Liabilities | 67,937 | 126,371 | ||||||
| Total Liabilities | $ | 67,937 | $ | 126,371 | ||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Shareholders’ Equity | ||||||||
| *Class A ordinary shares, $0.0001 par value, 400,000,000 shares authorized, 4,332,000 and 6,582,000 shares issued and outstanding as of December 31, 2024 and 2025, respectively | $ | 658 | $ | 938 | ||||
| *Class B ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 7,668,000 shares issued and outstanding as of December 31, 2024 and 2025 | 767 | 767 | ||||||
| Additional paid-in capital | 6,664,624 | 11,700,497 | ||||||
| Statutory reserves | 89,685 | 89,685 | ||||||
| Retained earnings/(Accumulated deficit) | (522,851 | ) | (5,620,752 | ) | ||||
| Accumulated other comprehensive loss | (48,180 | ) | (48,168 | ) | ||||
| Total Shareholders’ Equity | $ | 6,184,703 | $ | 6,122,967 | ||||
| Total Liabilities and Shareholders’ Equity | $ | 6,252,640 | $ | 6,249,338 | ||||
| * | Giving retroactive effect to the re-denomination and nominal issuance of shares effected on March 23, 2023. |
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
17. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (cont.)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, 2023 |
Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
||||||||||
| General and administrative expenses | (100 | ) | (269,169 | (4,593,832 | ) | |||||||
| Research and development | (375,000 | ) | ||||||||||
| Loss from operations | (100 | ) | (269,169 | ) | (4,968,832 | ) | ||||||
| Other income (loss) | (1,806 | ) | 15,135 | 73,389 | ||||||||
| Income (loss) from subsidiaries | $ | (239,311 | ) | $ | (406,554 | ) | $ | (202,941 | ) | |||
| Net income (loss) | (241,217 | ) | (660,588 | ) | (5,098,384 | ) | ||||||
| Foreign currency translation adjustments | (9,961 | ) | (5,116 | ) | 12 | |||||||
| Comprehensive Income (Loss) | $ | (251,178 | ) | $ | (665,704 | ) | $ | (5,098,372 | ) | |||
F-
ITONIC HOLDINGS LTD
NOTES TO FINANCIAL STATEMENTS
17. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (cont.)
CONDENSED STATEMENTS OF CASH FLOWS
| Year Ended December 31, 2023 |
Year Ended December 31, 2024 |
Year Ended December 31, 2025 |
||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income (loss) | $ | (241,217 | ) | $ | (660,588 | ) | $ | (5,098,384 | ) | |||
| Adjustments to reconcile net income (loss) to cash provided by operating activities | ||||||||||||
| Prepaid expenses and other current assets | (3,123 | ) | 1,877 | (560,901 | ) | |||||||
| Due from related party | — | 50,000 | 33,134 | |||||||||
| Accounts payable | — | — | 55,335 | |||||||||
| Share-based payment | — | 2,945,495 | ||||||||||
| Due to subsidiary | (61,712 | ) | (600,000 | ) | ||||||||
| Equity income (loss) of subsidiary | 239,311 | 406,554 | 202,941 | |||||||||
| Net cash used in operating activities | (5,029 | ) | (263,869 | ) | (3,022,380 | ) | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Purchase of short-term investments | — | (1,400,000 | ) | |||||||||
| Purchase of long-term investments in subsidiary | (250,000 | ) | (450,000 | ) | ||||||||
| Net cash used in investing activities | (250,000 | ) | (1,850,000 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Capital contribution | 1,128 | 72 | — | |||||||||
| Initial public offering | — | 7,795,570 | — | |||||||||
| Repayments of due to related parties | — | (930,000 | ) | (30,000 | ) | |||||||
| Receive repayment from related party | — | — | 30,000 | |||||||||
| Deferred IPO costs | — | (301,837 | ) | — | ||||||||
| Advances from related parties | 6,225 | — | — | |||||||||
| Net cash provided by financing activities | 7,353 | 6,563,805 | — | |||||||||
| CHANGES IN CASH | ||||||||||||
| Net increase (decrease) in cash | $ | 2,324 | $ | 6,049,936 | $ | (4,872,380 | ) | |||||
| Cash at beginning of the year | — | 2,324 | 6,052,260 | |||||||||
| Cash at end of the year | $ | 2,324 | $ | 6,052,260 | $ | 1,179,880 | ||||||
F-
Exhibit 1.1
Companies Act (Revised)
Company Limited by Shares
iTonic Holdings Ltd
THIRD AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
(adopted by special resolution passed on 19 December 2025)
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Companies Act (Revised)
Company Limited by Shares
Third Amended and Restated Memorandum of Association
of
iTonic Holdings Ltd
(adopted by special resolution passed on 19 December 2025)
| 1 | The name of the Company is iTonic Holdings Ltd. |
| 2 | The Company’s registered office will be situated at the office of Ogier Global (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman, KY1-9009, Cayman Islands or at such other place in the Cayman Islands as the directors may at any time decide. |
| 3 | The Company’s objects are unrestricted. As provided by section 7(4) of the Companies Act (Revised), the Company has full power and authority to carry out any object not prohibited by any law of the Cayman Islands. |
| 4 | The Company has unrestricted corporate capacity. Without limitation to the foregoing, as provided by section 27 (2) of the Companies Act (Revised), the Company has and is capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit. |
| 5 | Unless licensed to do so, the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of its business carried on outside the Cayman Islands. Despite this, the Company may effect and conclude contracts in the Cayman Islands and exercise in the Cayman Islands any of its powers necessary for the carrying on of its business outside the Cayman Islands. |
| 6 | The Company is a company limited by shares and accordingly the liability of each member is limited to the amount (if any) unpaid on that member’s shares. |
| 7 | The share capital of the Company is USD50,000 divided into (i) 400,000,000 class A ordinary shares of USD0.0001 par value each and (ii) 100,000,000 class B ordinary shares of USD0.0001 par value each. Subject to the Companies Act (Revised) and the Company’s articles of association, the Company has power to do any one or more of the following: |
| (a) | to redeem or repurchase any of its shares; and |
| (b) | to increase or reduce its capital; and |
| (c) | to issue any part of its capital (whether original, redeemed, increased or reduced): |
| (i) | with or without any preferential, deferred, qualified or special rights, privileges or conditions; or |
| (ii) | subject to any limitations or restrictions |
and unless the condition of issue expressly declares otherwise, every issue of shares (whether declared to be ordinary, preference or otherwise) is subject to this power; or
| (d) | to alter any of those rights, privileges, conditions, limitations or restrictions. |
| 8 | The Company has power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
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Companies Act (Revised)
Company Limited by Shares
iTonic Holdings Ltd
THIRD AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
(adopted by special resolution passed on 19 December 2025)
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CONTENTS
| 1 | Definitions, interpretation and exclusion of Table A | 1 |
| Definitions | 1 | |
| Interpretation | 5 | |
| Exclusion of Table A Articles | 6 | |
| 2 | Shares | 6 |
| Power to issue Shares and options, with or without special rights | 6 | |
| Power to pay commissions and brokerage fees | 7 | |
| Trusts not recognised | 7 | |
| Security interests | 7 | |
| Rights of Shares | 8 | |
| Power to vary class rights | 10 | |
| Effect of new Share issue on existing class rights | 10 | |
| No bearer Shares or warrants | 11 | |
| Treasury Shares | 11 | |
| Rights attaching to Treasury Shares and related matters | 11 | |
| Register of Members | 11 | |
| Annual Return | 12 | |
| 3 | Share certificates | 12 |
| Issue of share certificates | 12 | |
| Renewal of lost or damaged share certificates | 13 | |
| 4 | Lien on Shares | 13 |
| Nature and scope of lien | 13 | |
| Company may sell Shares to satisfy lien | 13 | |
| Authority to execute instrument of transfer | 14 | |
| Consequences of sale of Shares to satisfy lien | 14 | |
| Application of proceeds of sale | 14 | |
| 5 | Calls on Shares and forfeiture | 15 |
| Power to make calls and effect of calls | 15 | |
| Time when call made | 15 | |
| Liability of joint holders | 15 | |
| Interest on unpaid calls | 15 | |
| Deemed calls | 16 | |
| Power to accept early payment | 16 | |
| Power to make different arrangements at time of issue of Shares | 16 | |
| Notice of default | 16 | |
| Forfeiture or surrender of Shares | 16 | |
| Disposal of forfeited or surrendered Share and power to cancel forfeiture or surrender 22 Effect of forfeiture or surrender on former Member | 17 | |
| Evidence of forfeiture or surrender | 17 | |
| Sale of forfeited or surrendered Shares | 18 | |
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| 6 | Transfer of Shares | 18 |
| Form of Transfer | 18 | |
| Power to refuse registration for Shares not listed on a Designated Stock Exchange | 18 | |
| Suspension of transfers | 19 | |
| Company may retain instrument of transfer | 19 | |
| Notice of refusal to register | 19 | |
| 7 | Transmission of Shares | 19 |
| Persons entitled on death of a Member | 19 | |
| Registration of transfer of a Share following death or bankruptcy | 20 | |
| Indemnity | 20 | |
| Rights of person entitled to a Share following death or bankruptcy | 20 | |
| 8 | Alteration of capital | 21 |
| Increasing, consolidating, converting, dividing and cancelling share capital | 21 | |
| Dealing with fractions resulting from consolidation of Shares | 21 | |
| Reducing share capital | 22 | |
| 9 | Redemption and purchase of own Shares | 22 |
| Power to issue redeemable Shares and to purchase own Shares | 22 | |
| Power to pay for redemption or purchase in cash or in specie | 22 | |
| Effect of redemption or purchase of a Share | 22 | |
| 10 | Meetings of Members | 23 |
| Annual and extraordinary general meetings | 23 | |
| Power to call meetings | 23 | |
| Content of notice | 24 | |
| Period of notice | 25 | |
| Persons entitled to receive notice | 25 | |
| Accidental omission to give notice or non-receipt of notice | 25 | |
| 11 | Proceedings at meetings of Members | 26 |
| Quorum | 26 | |
| Lack of quorum | 26 | |
| Chairman | 26 | |
| Right of a Director to attend and speak | 27 | |
| Accommodation of Members at meeting | 27 | |
| Security | 27 | |
| Adjournment | 27 | |
| Method of voting | 28 | |
| Taking of a poll | 28 | |
| Chairman’s casting vote | 28 | |
| Written resolutions | 28 | |
| Sole-Member Company | 30 | |
| 12 | Voting rights of Members | 30 |
| Right to vote | 30 | |
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| Rights of joint holders | 31 | |
| Representation of corporate Members | 31 | |
| Member with mental disorder | 31 | |
| Objections to admissibility of votes | 32 | |
| Form of proxy | 32 | |
| How and when proxy is to be delivered | 32 | |
| Voting by proxy | 34 | |
| 13 | Number of Directors | 34 |
| 14 | Appointment, disqualification and removal of Directors | 34 |
| First Directors | 34 | |
| No age limit | 34 | |
| Corporate Directors | 34 | |
| No shareholding qualification | 34 | |
| Appointment of Directors | 35 | |
| Board’s power to appoint Directors | 35 | |
| Removal of Directors | 35 | |
| Resignation of Directors | 35 | |
| Termination of the office of Director | 36 | |
| 15 | Alternate Directors | 36 |
| Appointment and removal | 36 | |
| Notices | 37 | |
| Rights of alternate Director | 37 | |
| Appointment ceases when the appointor ceases to be a Director | 37 | |
| Status of alternate Director | 38 | |
| Status of the Director making the appointment | 38 | |
| 16 | Powers of Directors | 38 |
| Powers of Directors | 38 | |
| Directors below the minimum number | 38 | |
| Appointments to office | 38 | |
| Provisions for employees | 39 | |
| Exercise of voting rights | 39 | |
| Remuneration | 40 | |
| Disclosure of information | 40 | |
| 17 | Delegation of powers | 41 |
| Power to delegate any of the Directors’ powers to a committee | 41 | |
| Local boards | 41 | |
| Power to appoint an agent of the Company | 42 | |
| Power to appoint an attorney or authorised signatory of the Company | 42 | |
| Borrowing Powers | 42 | |
| Corporate Governance | 43 | |
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| 18 | Meetings of Directors | 43 |
| Regulation of Directors’ meetings | 43 | |
| Calling meetings | 43 | |
| Notice of meetings | 43 | |
| Use of technology | 43 | |
| Quorum | 44 | |
| Chairman or deputy to preside | 44 | |
| Voting | 44 | |
| Recording of dissent | 44 | |
| Written resolutions | 44 | |
| Validity of acts of Directors in spite of formal defect | 45 | |
| 19 | Permissible Directors' interests and disclosure | 45 |
| 20 | Minutes | 47 |
| 21 | Accounts and audit | 47 |
| Auditors | 47 | |
| 22 | Record dates | 48 |
| 23 | Dividends | 48 |
| Source of dividends | 48 | |
| Declaration of dividends by Members | 48 | |
| Payment of interim dividends and declaration of final dividends by Directors | 48 | |
| Apportionment of dividends | 49 | |
| Right of set off | 50 | |
| Power to pay other than in cash | 50 | |
| How payments may be made | 50 | |
| Dividends or other monies not to bear interest in absence of special rights | 51 | |
| Dividends unable to be paid or unclaimed | 51 | |
| 24 | Capitalisation of profits | 51 |
| Capitalisation of profits or of any share premium account or capital redemption reserve; | 51 | |
| Applying an amount for the benefit of Members | 52 | |
| 25 | Share Premium Account | 52 |
| Directors to maintain share premium account | 52 | |
| Debits to share premium account | 52 | |
| 26 | Seal | 52 |
| Company seal | 52 | |
| Duplicate seal | 52 | |
| When and how seal is to be used | 53 | |
| If no seal is adopted or used | 53 | |
| Power to allow non-manual signatures and facsimile printing of seal | 53 | |
| Validity of execution | 53 | |
| 27 | Indemnity | 54 |
| Release | 54 | |
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| Insurance | 54 | |
| 28 | Notices | 55 |
| Form of notices | 55 | |
| Electronic communications | 55 | |
| Persons entitled to notices | 55 | |
| Persons authorised to give notices | 56 | |
| Delivery of written notices | 56 | |
| Joint holders | 56 | |
| Signatures | 56 | |
| Giving notice to a deceased or bankrupt Member | 57 | |
| Date of giving notices | 57 | |
| Saving provision | 57 | |
| 29 | Authentication of Electronic Records | 57 |
| Application of Articles | 57 | |
| Authentication of documents sent by Members by Electronic means | 58 | |
| Authentication of document sent by the Secretary or Officers of the Company by Electronic means | 58 | |
| Manner of signing | 59 | |
| Saving provision | 59 | |
| 30 | Transfer by way of continuation | 59 |
| 31 | Winding up | 60 |
| Distribution of assets in specie | 60 | |
| No obligation to accept liability | 60 | |
| 32 | Amendment of Memorandum and Articles | 60 |
| Power to change name or amend Memorandum | 60 | |
| Power to amend these Articles | 60 | |
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Companies Act (Revised)
Company Limited by Shares
Third Amended and Restated Articles of Association
of
iTonic Holdings Ltd
(adopted by special resolution passed on 19 December 2025)
| 1 | Definitions, interpretation and exclusion of Table A |
Definitions
| 1.1 | In these Articles, the following definitions apply: |
Act means the Companies Act (Revised) of the Cayman Islands, including any statutory modification or re-enactment thereof for the time being in force;
Affiliate means in respect of a person or entity, any other person or entity that, directly or indirectly (including through one or more intermediaries), controls, is controlled by, or is under common control with, such person or entity, and (i) in the case of a natural person, shall include, without limitation, such person’s spouse, parents, children, siblings, mother- in-law and father-in-law, son-in-law, daughter-in-law and brothers and sisters-in-law, a trust solely for the benefit of any of the foregoing, a company, partnership or entity wholly owned by one or more of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any natural person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term “control” in this definition shall mean the ownership, directly or indirectly, of securities possessing more than fifty percent (50%) of the voting power of the corporation, or the partnership or other entity (other than, in the case of corporation, securities having such power only by reason of the happening of a contingency not within the reasonable control of such partnership, corporation, natural person or entity), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity;
Articles means, as appropriate:
| (a) | these articles of association as amended from time to time: or |
| (b) | two or more particular articles of these Articles; |
and Article refers to a particular article of these Articles;
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Auditors means the auditor or auditors for the time being of the Company;
Board means the board of Directors from time to time;
Business Day means a day when banks in Grand Cayman, the Cayman Islands are open for the transaction of normal banking business and for the avoidance of doubt, shall not include a Saturday, Sunday or public holiday in the Cayman Islands;
Cayman Islands means the British Overseas Territory of the Cayman Islands;
Class A Shares means the class A ordinary shares of the Company with a par value of USD0.0001 each, which have the rights set forth in the Memorandum and these Articles;
Class B Shares means the class B ordinary shares of the Company with a par value of USD0.0001 each, which have the rights set forth in the Memorandum and these Articles;
Class B Majority means the holders of a majority of the votes of the outstanding Class B Shares;
Clear Days, in relation to a period of notice, means that period excluding:
| (a) | the day when the notice is given or deemed to be given; and |
| (b) | the day for which it is given or on which it is to take effect; |
Commission means Securities and Exchange Commission of the United States of America or other federal agency for the time being administering the U.S. Securities Act;
Company means the above-named company;
Conversion Date means in respect of a Conversion Notice means the day on which that Conversion Notice is delivered;
Conversion Notice means a written notice delivered to the Company at its office (and as otherwise stated therein) stating that a holder of Class B Shares elects to convert the number of Class B Shares specified therein pursuant to Article 2.8(a);
Conversion Number in relation to any Class B Shares, such number of Class A Shares as may, upon exercise of the Conversion Right, be issued at the Conversion Rate;
Conversion Rate in relation to the conversion of Class B Shares to Class A Shares means, at any time, on a 1:1 basis. The foregoing Conversion Rate shall also be adjusted to account for any subdivision (by share split, subdivision, exchange, capitalisation, rights issue, reclassification, recapitalisation or otherwise) or combination (by reverse share split, share consolidation, exchange, reclassification, recapitalisation or otherwise) or similar reclassification or recapitalisation of the Class A Shares in issue into a greater or lesser number of shares occurring after the original filing of the Articles without a proportionate and corresponding subdivision, combination or similar reclassification or recapitalisation of the Class B Shares in issue;
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Conversion Right in respect of a holder of Class B Shares, subject to the provisions of these Articles and to any applicable fiscal or other laws or regulations including the Act, to convert all or any of its Class B Shares into the Conversion Number of Class A Shares in its discretion;
Default Rate means ten per cent per annum;
Designated Stock Exchanges means NASDAQ Capital Market in the United States of America for so long as any class of the Company’s Shares are there listed and any other stock exchange on which the Company’s Shares are listed for trading;
Designated Stock Exchange Rules means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares on the Designated Stock Exchanges;
Directors means the directors for the time being of the Company, and the expression Director shall be construed accordingly;
Electronic has the meaning given to that term in the Electronic Transactions Act (Revised) of the Cayman Islands;
Electronic Communication Facilities means video, video-conferencing, internet or online conferencing applications, telephone or tele-conferencing and/or any other video- communications, internet or online conferencing application or telecommunications facilities by means of which all persons participating in a meeting are capable of hearing and being heard by each other;
Electronic Record has the meaning given to that term in the Electronic Transactions Act (Revised) of the Cayman Islands;
Electronic Signature has the meaning given to that term in the Electronic Transactions Act (Revised) of the Cayman Islands;
Fully Paid Up means:
| (a) | in relation to a Share with par value, means that the par value for that Share and any premium payable in respect of the issue of that Share, has been fully paid or credited as paid in money or money’s worth; and |
| (b) | in relation to a Share without par value, means that the agreed issue price for that Share has been fully paid or credited as paid in money or money’s worth; |
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General Meeting means a general meeting of the Company duly constituted in accordance with the Articles;
Independent Director means a Director who is an independent director as defined in the Designated Stock Exchange Rules as determined by the Board;
Member means any person or persons entered on the register of Members from time to time as the holder of a Share;
Memorandum means the memorandum of association of the Company as amended from time to time;
month means a calendar month;
Officer means a person appointed to hold an office in the Company including a Director, alternate Director or liquidator and excluding the Secretary;
Ordinary Resolution means a resolution of a duly constituted general meeting of the Company passed by a simple majority of the votes cast by, or on behalf of, the Members who (being entitled to do so) vote in person or by proxy or, in the case of corporations, by their duly authorised representatives, at that meeting. The expression also includes a written resolution passed by the requisite majority in accordance with Article 11.14.
Partly Paid Up means:
| (c) | in relation to a Share with par value, that the par value for that Share and any premium payable in respect of the issue of that Share, has not been fully paid or credited as paid in money or money’s worth; and |
| (d) | in relation to a Share without par value, means that the agreed issue price for that Share has not been fully paid or credited as paid in money or money’s worth; |
Secretary means a person appointed to perform the duties of the secretary of the Company, including a joint, assistant or deputy secretary;
Share means a Class A Share or a Class B Share in the capital of the Company and the expression:
| (a) | includes stock (except where a distinction between shares and stock is expressed or implied); and |
| (b) | where the context permits, also includes a fraction of a Share; |
Special Resolution means a resolution of a general meeting or a resolution of a meeting of the holders of any class of Shares in a class meeting duly constituted in accordance with the Articles in each case passed by a majority of not less than two-thirds of the votes cast by, or on behalf of, Members who (being entitled to do so) vote in person or by proxy at that meeting. The expression includes a unanimous written resolution signed by all of the Members entitled to vote at such meeting;
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Treasury Shares means Shares held in treasury pursuant to the Act and Article 2.14; and
U.S. Securities Act means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.
Virtual Meeting means any general meeting of the Members at which the Members (and any other permitted participants of such meeting, including without limitation the chairman of the meeting and any Directors) are permitted to attend and participate solely by means of Electronic Communication Facilities.
Interpretation
| 1.2 | In the interpretation of these Articles, the following provisions apply unless the context otherwise requires: |
| (a) | A reference in these Articles to a statute is a reference to a statute of the Cayman Islands as known by its short title, and includes: |
| (i) | any statutory modification, amendment or re-enactment; and |
| (ii) | any subordinate legislation or regulations issued under that statute. |
Without limitation to the preceding sentence, a reference to a revised Act of the Cayman Islands is taken to be a reference to the revision of that Act in force from time to time as amended from time to time.
| (b) | Headings are inserted for convenience only and do not affect the interpretation of these Articles, unless there is ambiguity. |
| (c) | If a day on which any act, matter or thing is to be done under these Articles is not a Business Day, the act, matter or thing must be done on the next Business Day. |
| (d) | A word which denotes the singular also denotes the plural, a word which denotes the plural also denotes the singular, and a reference to any gender also denotes the other genders. |
| (e) | A reference to a person includes, as appropriate, a company, trust, partnership, joint venture, association, body corporate or government agency. |
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| (f) | Where a word or phrase is given a defined meaning another part of speech or grammatical form in respect to that word or phrase has a corresponding meaning. |
| (g) | All references to time are to be calculated by reference to time in the place where the Company’s registered office is located. |
| (h) | The words written and in writing include all modes of representing or reproducing words in a visible form, but do not include an Electronic Record where the distinction between a document in writing and an Electronic Record is expressed or implied. |
| (i) | The words including, include and in particular or any similar expression are to be construed without limitation. |
| (j) | The term “present” means, in respect of any person attending a meeting, such person’s presence at a general meeting of Members (or any meeting of the holders of any class of Shares), which may be satisfied by means of such person or, if a corporation or other non-natural person, its duly authorized representative (or, in the case of any Member, a proxy which has been validly appointed by such Member in accordance with these Articles), being: (a) physically present at the meeting; or (b) in the case of any meeting at which Electronic Communication Facilities are permitted in accordance with these Articles, including any Virtual Meeting, connected by means of the use of such Electronic Communication Facilities. |
| 1.3 | The headings in these Articles are intended for convenience only and shall not affect the interpretation of these Articles. |
Exclusion of Table A Articles
| 1.4 | The regulations contained in Table A in the First Schedule of the Act and any other regulations contained in any statute or subordinate legislation are expressly excluded and do not apply to the Company. |
| 2 | Shares |
Power to issue Shares and options, with or without special rights
| 2.1 | Subject to the provisions of the Act and these Articles about the redemption and purchase of the Shares, the Directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued Shares to such persons, at such times and on such terms and conditions as they may decide, provided that no Class B Shares shall be issued without the prior consent of the Class B Majority (which consent may be obtained either by written consent signed by the Class B Majority or by a vote at a separate general meeting of the holders of the Class B Shares). No Share may be issued at a discount except in accordance with the provisions of the Act. Subject to the Act, the Company may issue fractions of a Share of any class. A fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a Share of that class of Shares. |
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| 2.2 | Without limitation to the preceding Article, the Directors may so deal with the unissued Shares: |
| (a) | either at a premium or at par; or |
| (b) | with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise. |
| 2.3 | Without limitation to the two preceding Articles, the Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason. |
Power to pay commissions and brokerage fees
| 2.4 | The Company may pay a commission to any person in consideration of that person: |
| (a) | subscribing or agreeing to subscribe, whether absolutely or conditionally; or |
| (b) | procuring or agreeing to procure subscriptions, whether absolute or conditional, |
for any Shares. That commission may be satisfied by the payment of cash or the allotment of Fully Paid Up or Partly Paid Up Shares or partly in one way and partly in another.
| 2.5 | The Company may employ a broker in the issue of its capital and pay him any proper commission or brokerage. |
Trusts not recognised
| 2.6 | Except as required by law: |
| (a) | no person shall be recognised by the Company as holding any Share on any trust; and |
| (b) | no person other than the Member shall be recognised by the Company as having any right in a Share. |
Security interests
| 2.7 | Notwithstanding the preceding Article, the Company may (but shall not be obliged to) recognise a security interest of which it has actual notice over shares. The Company shall not be treated as having recognised any such security interest unless it has so agreed in writing with the secured party. |
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Rights of Shares
| 2.8 | Subject to Article 2.1, the Memorandum and any special resolution of the Members to the contrary and without prejudice to any special rights conferred thereby on the holders of any other Shares or class of Shares, Class A Shares and Class B Shares shall carry equal rights and rank pari passu with one another in all respects other than as set out below: |
| (a) | Conversion Rights: |
| (i) | Subject to the provisions hereof and to compliance with all fiscal and other laws and regulations applicable thereto, including the Act, a holder of Class B Shares shall have the Conversion Right in respect of each Class B Share in its holding. For the avoidance of doubt, a holder of Class A Shares shall have no rights to convert Class A Shares into Class B Shares under any circumstances. |
| (ii) | Each Class B Share shall be converted at the option of the holder, at any time after issuance and without the payment of any additional sum, into such Conversion Number of fully paid Class A Shares calculated at the Conversion Rate. Such conversion shall take effect on the Conversion Date. A Conversion Notice shall not be effective if it is not accompanied by the share certificates in respect of the relevant Class B Shares and/or such other evidence (if any) as the Directors may reasonably require to prove the title of the person exercising such right (or, if such certificates have been lost or destroyed, such evidence of title and such indemnity as the Directors may reasonably require). Any and all taxes and stamp, issue and registration duties (if any) arising on conversion shall be borne by the holder of Class B Shares requesting conversion. |
| (iii) | On the Conversion Date, subject to the Act, any conversion of Class B Shares into Class A Shares pursuant to these Articles shall be effected by repurchasing the relevant Class B Shares and in consideration therefor issuing fully-paid Class A Shares in equal number with such rights and restrictions attached thereto and shall rank pari passu in all respects with the Class A Shares then in issue and the Company shall enter or procure the entry of the name of the relevant holder of converted Class B Shares as the holder of the corresponding number of Class A Shares resulting from the conversion of the Class B Shares in, and make any other necessary and consequential changes to, the register of Members and shall procure that certificates in respect of the relevant Class A Shares, together with a new certificate for any unconverted Class B Shares comprised in the certificate(s) surrendered by the holder of the Class B Shares, are issued to the holders thereof. Such conversion shall become effective forthwith upon entries being made in the Register of Members to record the conversion of the relevant Class B Shares into Class A Shares. |
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| (iv) | Until such time as the Class B Shares have been converted into Class A Shares, the Company shall: |
| (A) | at all times keep available for issue and free of all liens, charges, options, mortgages, pledges, claims, equities, encumbrances and other third-party rights of any nature, and not subject to any pre- emptive rights out of its authorised but unissued share capital, such number of authorised but unissued Class A Shares as would enable all Class B Shares to be converted into Class A Shares and any other rights of conversion into, subscription for or exchange into Class A Shares to be satisfied in full; and |
| (B) | not make any issue, grant or distribution or take any other action if the effect would be that on the conversion of the Class B Shares to Class A Shares it would be required to issue Class A Shares at a price lower than the par value thereof. |
| (b) | Voting Rights: |
| (i) | Holders of Class A Shares and Class B Shares have the right to receive notice of, attend, speak and vote at general meetings of the Company. Holders of shares of Class A Shares and Class B Shares shall, at all times, vote together as a single class on all matters submitted to a vote for Members’ consent. |
| (ii) | Each Class A Share shall be entitled to one (1) vote on all matters subject to the vote by Members. |
| (iii) | Each Class B Share shall be entitled to twenty (20) votes on all matters subject to the vote by Members. |
| (c) | Transfer |
| (i) | Upon any sale, transfer, assignment or disposition of Class B Shares by a holder thereof to any person or entity which is not an Affiliate of such holder, such Class B Shares validly transferred to the new holder shall be automatically and immediately converted into such Conversion Number of Class A Shares calculated based on the Conversion Rate. |
| (ii) | For the avoidance of doubt, (i) a sale, transfer, assignment or disposition shall be effective upon the Company’s registration of such sale, transfer, assignment or disposition in the Company’s register of Members; and (ii) the creation of any pledge, charge, encumbrance or other third party right of whatever description on any of Class B Shares to secure a holder’s contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in the third party holding fee simple ownership interest to the related Class B Shares, in which case all the related Class B Shares shall be automatically converted into the same number of Class A Shares upon the Company’s registration of the third party or its designee as a Member holding that number of Class A Shares in the register of Members. |
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Power to vary class rights
| 2.9 | If the share capital is divided into different classes of Shares then, unless the terms on which a class of Shares was issued state otherwise, the rights attaching to a class of Shares may only be varied if one of the following applies: |
| (a) | the Members holding not less than two-thirds of the issued Shares of that class consent in writing to the variation; or |
| (b) | the variation is made with the sanction of a Special Resolution passed at a separate general meeting of the Members holding the issued Shares of that class. |
| 2.10 | For the purpose of Article 2.9(b), all the provisions of these Articles relating to general meetings apply, mutatis mutandis, to every such separate meeting except that: |
| (a) | the necessary quorum shall be one or more persons holding, or representing by proxy, not less than one third of the issued Shares of the class; and |
| (b) | any Member holding issued Shares of the class, present in person or by proxy or, in the case of a corporate Member, by its duly authorised representative, may demand a poll. |
| 2.11 | For the purposes of a separate class meeting, the Directors may treat two or more or all the classes of Shares as forming one class of Shares if the Directors consider that such classes of Shares would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate classes of Shares. |
Effect of new Share issue on existing class rights
| 2.12 | Unless the terms on which a class of Shares was issued state otherwise, the rights conferred on the Member holding Shares of any class shall not be deemed to be varied by the creation or issue of further Shares ranking pari passu with the existing Shares of that class. |
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No bearer Shares or warrants
| 2.13 | The Company shall not issue Shares or warrants to bearers. |
Treasury Shares
| 2.14 | Shares that the Company purchases, redeems or acquires by way of surrender in accordance with the Act shall be held as Treasury Shares and not treated as cancelled if: |
| (a) | the Directors so determine prior to the purchase, redemption or surrender of those shares; and |
| (b) | the relevant provisions of the Memorandum and Articles and the Act are otherwise complied with. |
Rights attaching to Treasury Shares and related matters
| 2.15 | No dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the Company’s assets (including any distribution of assets to Members on a winding up) may be made to the Company in respect of a Treasury Share. |
| 2.16 | The Company shall be entered in the register of Members as the holder of the Treasury Shares. However: |
| (a) | the Company shall not be treated as a Member for any purpose and shall not exercise any right in respect of the Treasury Shares, and any purported exercise of such a right shall be void; and |
| (b) | a Treasury Share shall not be voted, directly or indirectly, at any meeting of the Company and shall not be counted in determining the total number of issued shares at any given time, whether for the purposes of these Articles or the Act. |
| 2.17 | Nothing in Article 2.16 prevents an allotment of Shares as Fully Paid Up bonus shares in respect of a Treasury Share and Shares allotted as Fully Paid Up bonus shares in respect of a Treasury Share shall be treated as Treasury Shares. |
| 2.18 | Treasury Shares may be disposed of by the Company in accordance with the Act and otherwise on such terms and conditions as the Directors determine. |
Register of Members
| 2.19 | The Directors shall keep or cause to be kept a register of Members as required by the Act and may cause the Company to maintain one or more branch registers as contemplated by the Act, provided that where the Company is maintaining one or more branch registers, the Directors shall ensure that a duplicate of each branch register is kept with the Company’s principal register of Members and updated within such number of days of any amendment having been made to such branch register as may be required by the Act. |
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| 2.20 | The title to Shares listed on a Designated Stock Exchange may be evidenced and transferred in accordance with the laws applicable to the rules and regulations of the Designated Stock Exchange and, for these purposes, the register of Members may be maintained in accordance with Section 40B of the Act. |
Annual Return
| 2.21 | The Directors in each calendar year shall prepare or cause to be prepared an annual return and declaration setting forth the particulars required by the Act and shall deliver a copy thereof to the registrar of companies for the Cayman Islands. |
| 3 | Share certificates |
Issue of share certificates
| 3.1 | A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. If the Directors resolve that share certificates shall be issued, upon being entered in the register of Members as the holder of a Share, the Directors may issue to any Member: |
| (a) | without payment, one certificate for all the Shares of each class held by that Member (and, upon transferring a part of the Member’s holding of Shares of any class, to a certificate for the balance of that holding); and |
| (b) | upon payment of such reasonable sum as the Directors may determine for every certificate after the first, several certificates each for one or more of that Member’s Shares. |
| 3.2 | Every certificate shall specify the number, class and distinguishing numbers (if any) of the Shares to which it relates and whether they are Fully Paid Up or Partly Paid Up. A certificate may be executed under seal or executed in such other manner as the Directors determine. |
| 3.3 | Every certificate shall bear legends required under the applicable laws, including the U.S. Securities Act (to the extent applicable). |
| 3.4 | The Company shall not be bound to issue more than one certificate for Shares held jointly by several persons and delivery of a certificate for a Share to one joint holder shall be a sufficient delivery to all of them. |
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Renewal of lost or damaged share certificates
| 3.5 | If a share certificate is defaced, worn-out, lost or destroyed, it may be renewed on such terms (if any) as to: |
| (a) | evidence; |
| (b) | indemnity; |
| (c) | payment of the expenses reasonably incurred by the Company in investigating the evidence; and |
| (d) | payment of a reasonable fee, if any for issuing a replacement share certificate, |
as the Directors may determine, and (in the case of defacement or wearing-out) on delivery to the Company of the old certificate.
| 4 | Lien on Shares |
Nature and scope of lien
| 4.1 | The Company has a first and paramount lien on all Shares (whether Fully Paid Up or not) registered in the name of a Member (whether solely or jointly with others). The lien is for all monies payable to the Company by the Member or the Member’s estate: |
| (a) | either alone or jointly with any other person, whether or not that other person is a Member; and |
| (b) | whether or not those monies are presently payable. |
| 4.2 | At any time the Board may declare any Share to be wholly or partly exempt from the provisions of this Article. |
Company may sell Shares to satisfy lien
| 4.3 | The Company may sell any Shares over which it has a lien if all of the following conditions are met: |
| (a) | the sum in respect of which the lien exists is presently payable; |
| (b) | the Company gives notice to the Member holding the Share (or to the person entitled to it in consequence of the death or bankruptcy of that Member) demanding payment and stating that if the notice is not complied with the Shares may be sold; and |
| (c) | that sum is not paid within fourteen Clear Days after that notice is deemed to be given under these Articles, |
and Shares to which this Article 4.3 applies shall be referred to as Lien Default Shares.
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| 4.4 | The Lien Default Shares may be sold in such manner as the Board determines. |
| 4.5 | To the maximum extent permitted by law, the Directors shall incur no personal liability to the Member concerned in respect of the sale. |
Authority to execute instrument of transfer
| 4.6 | To give effect to a sale, the Directors may authorise any person to execute an instrument of transfer of the Lien Default Shares sold to, or in accordance with the directions of, the purchaser. |
| 4.7 | The title of the transferee of the Lien Default Shares shall not be affected by any irregularity or invalidity in the proceedings in respect of the sale. |
Consequences of sale of Shares to satisfy lien
| 4.8 | On a sale pursuant to the preceding Articles: |
| (a) | the name of the Member concerned shall be removed from the register of Members as the holder of those Lien Default Shares; and |
| (b) | that person shall deliver to the Company for cancellation the certificate (if any) for those Lien Default Shares. |
| 4.9 | Notwithstanding the provisions of Article 4.8, such person shall remain liable to the Company for all monies which, at the date of sale, were presently payable by him to the Company in respect of those Lien Default Shares. That person shall also be liable to pay interest on those monies from the date of sale until payment at the rate at which interest was payable before that sale or, failing that, at the Default Rate. The Board may waive payment wholly or in part or enforce payment without any allowance for the value of the Lien Default Shares at the time of sale or for any consideration received on their disposal. |
Application of proceeds of sale
| 4.10 | The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable. Any residue shall be paid to the person whose Lien Default Shares have been sold: |
| (a) | if no certificate for the Lien Default Shares was issued, at the date of the sale; or |
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| (b) | if a certificate for the Lien Default Shares was issued, upon surrender to the Company of that certificate for cancellation |
but, in either case, subject to the Company retaining a like lien for all sums not presently payable as existed on the Lien Default Shares before the sale.
| 5 | Calls on Shares and forfeiture |
Power to make calls and effect of calls
| 5.1 | Subject to the terms of allotment, the Board may make calls on the Members in respect of any monies unpaid on their Shares including any premium. The call may provide for payment to be by instalments. Subject to receiving at least 14 Clear Days’ notice specifying when and where payment is to be made, each Member shall pay to the Company the amount called on his Shares as required by the notice. |
| 5.2 | Before receipt by the Company of any sum due under a call, that call may be revoked in whole or in part and payment of a call may be postponed in whole or in part. Where a call is to be paid in instalments, the Company may revoke the call in respect of all or any remaining instalments in whole or in part and may postpone payment of all or any of the remaining instalments in whole or in part. |
| 5.3 | A Member on whom a call is made shall remain liable for that call notwithstanding the subsequent transfer of the Shares in respect of which the call was made. He shall not be liable for calls made after he is no longer registered as Member in respect of those Shares. |
Time when call made
| 5.4 | A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. |
Liability of joint holders
| 5.5 | Members registered as the joint holders of a Share shall be jointly and severally liable to pay all calls in respect of the Share. |
Interest on unpaid calls
| 5.6 | If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid: |
| (a) | at the rate fixed by the terms of allotment of the Share or in the notice of the call; or |
| (b) | if no rate is fixed, at the Default Rate. |
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The Directors may waive payment of the interest wholly or in part.
Deemed calls
| 5.7 | Any amount payable in respect of a Share, whether on allotment or on a fixed date or otherwise, shall be deemed to be payable as a call. If the amount is not paid when due the provisions of these Articles shall apply as if the amount had become due and payable by virtue of a call. |
Power to accept early payment
| 5.8 | The Company may accept from a Member the whole or a part of the amount remaining unpaid on Shares held by him although no part of that amount has been called up. |
Power to make different arrangements at time of issue of Shares
| 5.9 | Subject to the terms of allotment, the Directors may make arrangements on the issue of Shares to distinguish between Members in the amounts and times of payment of calls on their Shares. |
Notice of default
| 5.10 | If a call remains unpaid after it has become due and payable the Directors may give to the person from whom it is due not less than 14 Clear Days’ notice requiring payment of: |
| (a) | the amount unpaid; |
| (b) | any interest which may have accrued; |
| (c) | any expenses which have been incurred by the Company due to that person’s default. |
| 5.11 | The notice shall state the following: |
| (a) | the place where payment is to be made; and |
| (b) | a warning that if the notice is not complied with the Shares in respect of which the call is made will be liable to be forfeited. |
Forfeiture or surrender of Shares
| 5.12 | If the notice given pursuant to Article 5.10 is not complied with, the Directors may, before the payment required by the notice has been received, resolve that any Share the subject of that notice be forfeited. The forfeiture shall include all dividends or other monies payable in respect of the forfeited Share and not paid before the forfeiture. Despite the foregoing, the Board may determine that any Share the subject of that notice be accepted by the Company as surrendered by the Member holding that Share in lieu of forfeiture. |
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Disposal of forfeited or surrendered Share and power to cancel forfeiture or surrender
| 5.13 | A forfeited or surrendered Share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Board determine either to the former Member who held that Share or to any other person. The forfeiture or surrender may be cancelled on such terms as the Directors think fit at any time before a sale, re-allotment or other disposition. Where, for the purposes of its disposal, a forfeited or surrendered Share is to be transferred to any person, the Directors may authorise some person to execute an instrument of transfer of the Share to the transferee. |
Effect of forfeiture or surrender on former Member
| 5.14 | On forfeiture or surrender: |
| (a) | the name of the Member concerned shall be removed from the register of Members as the holder of those Shares and that person shall cease to be a Member in respect of those Shares; and |
| (b) | that person shall surrender to the Company for cancellation the certificate (if any) for the forfeited or surrendered Shares. |
| 5.15 | Despite the forfeiture or surrender of his Shares, that person shall remain liable to the Company for all monies which at the date of forfeiture or surrender were presently payable by him to the Company in respect of those Shares together with: |
| (a) | all expenses; and |
| (b) | interest from the date of forfeiture or surrender until payment: |
| (i) | at the rate of which interest was payable on those monies before forfeiture; or |
| (ii) | if no interest was so payable, at the Default Rate. |
The Directors, however, may waive payment wholly or in part.
Evidence of forfeiture or surrender
| 5.16 | A declaration, whether statutory or under oath, made by a Director or the Secretary shall be conclusive evidence of the following matters stated in it as against all persons claiming to be entitled to forfeited Shares: |
| (a) | that the person making the declaration is a Director or Secretary of the Company, and |
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| (b) | that the particular Shares have been forfeited or surrendered on a particular date. |
Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the Shares.
Sale of forfeited or surrendered Shares
| 5.17 | Any person to whom the forfeited or surrendered Shares are disposed of shall not be bound to see to the application of the consideration, if any, of those Shares nor shall his title to the Shares be affected by any irregularity in, or invalidity of the proceedings in respect of, the forfeiture, surrender or disposal of those Shares. |
| 6 | Transfer of Shares |
Form of Transfer
| 6.1 | Subject to the following Articles about the transfer of Shares, and provided that such transfer complies with applicable rules of the Designated Stock Exchange, a Member may freely transfer Shares to another person by completing an instrument of transfer in a common form or in a form prescribed by the Designated Stock Exchange or in any other form approved by the directors, executed: |
| (a) | where the Shares are Fully Paid, by or on behalf of that Member; and |
| (b) | where the Shares are partly paid, by or on behalf of that Member and the transferee. |
| 6.2 | The transferor shall be deemed to remain the holder of a Share until the name of the transferee is entered into the Register of Members. |
Power to refuse registration for Shares not listed on a Designated Stock Exchange
| 6.3 | Where the Shares in question are not listed on or subject to the rules of any Designated Stock Exchange, registration of any transfer of shares must be approved by the Board, and the Directors may in their absolute discretion decline to register any transfer of such Shares which are not Fully Paid Up or on which the Company has a lien. The Directors may also, but are not required to, decline to register any transfer of any such Share unless: |
| (a) | the instrument of transfer is lodged with the Company, accompanied by the certificate (if any) for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; |
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| (b) | the instrument of transfer is in respect of only one class of Shares; |
| (c) | the instrument of transfer is properly stamped, if required; |
| (d) | in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; |
| (e) | the Shares transferred are Fully Paid Up and free of any lien in favour of the Company; and |
| (f) | any applicable fee of such maximum sum as the Designated Stock Exchanges may determine to be payable, or such lesser sum as the Board may from time to time require, related to the transfer is paid to the Company. |
Suspension of transfers
| 6.4 | The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register of Members closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the register of Members closed for more than 30 days in any year. |
Company may retain instrument of transfer
| 6.5 | All instruments of transfer that are registered shall be retained by the Company. |
Notice of refusal to register
| 6.6 | If the Directors refuse to register a transfer of any Shares not listed on a Designated Stock Exchange, they shall within three months after the date on which the instrument of transfer was lodged with the Company send to each of the transferor and the transferee notice of the refusal. |
| 7 | Transmission of Shares |
Persons entitled on death of a Member
| 7.1 | If a Member dies, the only persons recognised by the Company as having any title to the deceased Members’ interest are the following: |
| (a) | where the deceased Member was a joint holder, the survivor or survivors; and |
| (b) | where the deceased Member was a sole holder, that Member’s personal representative or representatives. |
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| 7.2 | Nothing in these Articles shall release the deceased Member’s estate from any liability in respect of any Share, whether the deceased was a sole holder or a joint holder. |
Registration of transfer of a Share following death or bankruptcy
| 7.3 | A person becoming entitled to a Share in consequence of the death or bankruptcy of a Member may elect to do either of the following: |
| (a) | to become the holder of the Share; or |
| (b) | to transfer the Share to another person. |
| 7.4 | That person must produce such evidence of his entitlement as the Directors may properly require. |
| 7.5 | If the person elects to become the holder of the Share, he must give notice to the Company to that effect. For the purposes of these Articles, that notice shall be treated as though it were an executed instrument of transfer. |
| 7.6 | If the person elects to transfer the Share to another person then: |
| (a) | if the Share is Fully Paid Up, the transferor must execute an instrument of transfer; and |
| (b) | if the Share is nil or Partly Paid Up, the transferor and the transferee must execute an instrument of transfer. |
| 7.7 | All the Articles relating to the transfer of Shares shall apply to the notice or, as appropriate, the instrument of transfer. |
Indemnity
| 7.8 | A person registered as a Member by reason of the death or bankruptcy of another Member shall indemnify the Company and the Directors against any loss or damage suffered by the Company or the Directors as a result of that registration. |
Rights of person entitled to a Share following death or bankruptcy
| 7.9 | A person becoming entitled to a Share by reason of the death or bankruptcy of a Member shall have the rights to which he would be entitled if he were registered as the holder of the Share. But, until he is registered as Member in respect of the Share, he shall not be entitled to attend or vote at any meeting of the Company or at any separate meeting of the holders of that class of Shares. |
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| 8 | Alteration of capital |
Increasing, consolidating, converting, dividing and cancelling share capital
| 8.1 | To the fullest extent permitted by the Act, the Company may by Ordinary Resolution do any of the following and amend its Memorandum for that purpose: |
| (a) | increase its share capital by new Shares of the amount fixed by that Ordinary Resolution and with the attached rights, priorities and privileges set out in that Ordinary Resolution; |
| (b) | consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares; |
| (c) | convert all or any of its Paid Up Shares into stock, and reconvert that stock into Paid Up Shares of any denomination; |
| (d) | sub-divide its Shares or any of them into Shares of an amount smaller than that fixed by the Memorandum, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and |
| (e) | cancel Shares which, at the date of the passing of that Ordinary Resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the Shares so cancelled or, in the case of Shares without nominal par value, diminish the number of Shares into which its capital is divided. |
Dealing with fractions resulting from consolidation of Shares
| 8.2 | Whenever, as a result of a consolidation of Shares, any Members would become entitled to fractions of a Share the Directors may on behalf of those Members deal with the fractions as it thinks fit, including (without limitation): |
| (a) | sell the Shares representing the fractions for the best price reasonably obtainable to any person (including, subject to the provisions of the Act, the Company); and |
| (b) | distribute the net proceeds in due proportion among those Members. |
| 8.3 | For the purposes of Article 8.2, the Directors may authorise some person to execute an instrument of transfer of the Shares to, in accordance with the directions of, the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall the transferee’s title to the Shares be affected by any irregularity in, or invalidity of, the proceedings in respect of the sale. |
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Reducing share capital
| 8.4 | Subject to the Act and to any rights for the time being conferred on the Members holding a particular class of Shares, the Company may, by Special Resolution, reduce its share capital in any way. |
| 9 | Redemption and purchase of own Shares |
Power to issue redeemable Shares and to purchase own Shares
| 9.1 | Subject to the Act and to any rights for the time being conferred on the Members holding a particular class of Shares, the Company may by its Directors: |
| (a) | issue Shares that are to be redeemed or liable to be redeemed, at the option of the Company or the Member holding those redeemable Shares, on the terms and in the manner its Directors determine before the issue of those Shares; |
| (b) | with the consent by Special Resolution of the Members holding Shares of a particular class, vary the rights attaching to that class of Shares so as to provide that those Shares are to be redeemed or are liable to be redeemed at the option of the Company on the terms and in the manner which the Directors determine at the time of such variation; and |
| (c) | purchase all or any of its own Shares of any class including any redeemable Shares on the terms and in the manner which the Directors determine at the time of such purchase. |
The Company may make a payment in respect of the redemption or purchase of its own Shares in any manner authorised by the Act, including out of any combination of the following: capital, its profits and the proceeds of a fresh issue of Shares.
Power to pay for redemption or purchase in cash or in specie
| 9.2 | When making a payment in respect of the redemption or purchase of Shares, the Directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorised by the terms of the allotment of those Shares or by the terms applying to those Shares in accordance with Article 9.1, or otherwise by agreement with the Member holding those Shares. |
Effect of redemption or purchase of a Share
| 9.3 | Upon the date of redemption or purchase of a Share: |
| (a) | the Member holding that Share shall cease to be entitled to any rights in respect of the Share other than the right to receive: |
| (i) | the price for the Share; and |
| (ii) | any dividend declared in respect of the Share prior to the date of redemption or purchase; |
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| (b) | the Member’s name shall be removed from the register of Members with respect to the Share; and |
| (c) | the Share shall be cancelled or held as a Treasury Share, as the Directors may determine. |
| 9.4 | For the purpose of Article 9.3, the date of redemption or purchase is the date when the Member's name is removed from the register of Members with respect to the Shares the subject of the redemption or purchase. |
| 10 | Meetings of Members |
Annual and extraordinary general meetings
| 10.1 | The Company may, but shall not (unless required by the Designated Stock Exchange Rules) be obligated to, in each year hold a general meeting as an annual general meeting, which, if held, shall be convened by the Board, in accordance with these Articles. |
| 10.2 | All general meetings other than annual general meetings shall be called extraordinary general meetings. |
Power to call meetings
| 10.3 | The Directors may call a general meeting at any time. |
| 10.4 | If there are insufficient Directors to constitute a quorum and the remaining Directors are unable to agree on the appointment of additional Directors, the Directors must call a general meeting for the purpose of appointing additional Directors. |
| 10.5 | The Directors must also call a general meeting if requisitioned in the manner set out in the next two Articles. |
| 10.6 | The requisition must be in writing and given by one or more Members who together hold at least ten (10) per cent of the rights to vote at such general meeting. |
| 10.7 | The requisition must also: |
| (a) | specify the purpose of the meeting. |
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| (b) | be signed by or on behalf of each requisitioner (and for this purpose each joint holder shall be obliged to sign). The requisition may consist of several documents in like form signed by one or more of the requisitioners; and |
| (c) | be delivered in accordance with the notice provisions. |
| 10.8 | Should the Directors fail to call a general meeting within 21 Clear Days’ from the date of receipt of a requisition, the requisitioners or any of them may call a general meeting within three months after the end of that period. |
| 10.9 | Without limitation to the foregoing, if there are insufficient Directors to constitute a quorum and the remaining Directors are unable to agree on the appointment of additional Directors, any one or more Members who together hold at least five per cent of the rights to vote at a general meeting may call a general meeting for the purpose of considering the business specified in the notice of meeting which shall include as an item of business the appointment of additional Directors. |
| 10.10 | If the Members call a meeting under the above provisions, the Company shall reimburse their reasonable expenses. |
Content of notice
| 10.11 | Notice of a general meeting shall specify each of the following: |
| (a) | the place, the date and the hour of the meeting; |
| (b) | whether the meeting will be held virtually, at a physical place or both; |
| (c) | if the meeting is to be held in two or more places (including in any part virtually), the Electronic Communication Facilities that will be used to facilitate the meeting; |
| (d) | subject to paragraph (e) and (to the extent applicable) the requirements of the Designated Stock Exchange Rules, the general nature of the business to be transacted; and |
| (e) | if a resolution is proposed as a Special Resolution, the text of that resolution. |
| 10.12 | In each notice there shall appear with reasonable prominence the following statements: |
| (a) | that a Member who is entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of that Member; and |
| (b) | that a proxyholder need not be a Member. |
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Period of notice
| 10.13 | At least five (5) Clear Days' notice of a general meeting must be given to Members. |
| 10.14 | Subject to the Act, a meeting may be convened on shorter notice, subject to the Act with the consent of the Member or Members who, individually or collectively, hold at least ninety per cent of the voting rights of all those who have a right to vote at that meeting. |
Persons entitled to receive notice
| 10.15 | Subject to the provisions of these Articles and to any restrictions imposed on any Shares, the notice shall be given to the following people: |
| (a) | the Members; |
| (b) | persons entitled to a Share in consequence of the death or bankruptcy of a Member; |
| (c) | the Directors; and |
| (d) | the Auditors (if appointed). |
| 10.16 | The Board may determine that the Members entitled to receive notice of a meeting are those persons entered on the register of Members at the close of business on a day determined by the Board. |
Accidental omission to give notice or non-receipt of notice
| 10.17 | Proceedings at a meeting shall not be invalidated by the following: |
| (a) | an accidental failure to give notice of the meeting to any person entitled to notice; or |
| (b) | non-receipt of notice of the meeting by any person entitled to notice. |
| 10.18 | In addition, where a notice of meeting is published on a website proceedings at the meeting shall not be invalidated merely because it is accidentally published: |
| (a) | in a different place on the website; or |
| (b) | for part only of the period from the date of the notification until the conclusion of the meeting to which the notice relates. |
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| 11 | Proceedings at meetings of Members |
Quorum
| 11.1 | Save as provided in the following Article, no business shall be transacted at any meeting unless a quorum is present in person or by proxy. A quorum is as follows: |
| (a) | if the Company has only one Member: that Member; |
| (b) | if the Company has more than one Member: |
| (i) | subject to Article 11.1(b)(ii) below, two or more Members holding Class B Shares carrying the right to vote at such general meeting; or |
| (ii) | for so long as any Shares are listed on a Designated Stock Exchange, one or more Members holding Shares that represent not less than one-third of the outstanding Shares carrying the right to vote at such general meeting. |
Lack of quorum
| 11.2 | If a quorum is not present within fifteen minutes of the time appointed for the meeting, or if at any time during the meeting it becomes inquorate, then the following provisions apply: |
| (a) | If the meeting was requisitioned by Members, it shall be cancelled. |
| (b) | In any other case, the meeting shall stand adjourned to the same time and place seven days hence, or to such other time or place as is determined by the Directors. If a quorum is not present within fifteen minutes of the time appointed for the adjourned meeting, then the Members present in person or by proxy shall constitute a quorum. |
Chairman
| 11.3 | The chairman of a general meeting (including any Virtual Meeting) shall be the chairman of the Board or such other Director as the Directors have nominated to chair Board meetings in the absence of the chairman of the Board. Absent any such person being present within fifteen minutes of the time appointed for the meeting, the Directors present shall elect one of their number to chair the meeting. The chairman of the meeting shall be entitled to attend and participate at any such general meeting by means of Electronic Communication Facilities, and to act as the chairman of such general meeting, in which event the chairman of the meeting shall be deemed to be present at the meeting. |
| 11.4 | If no Director is present within fifteen minutes of the time appointed for the meeting, or if no Director is willing to act as chairman, the Members present in person or by proxy and entitled to vote shall choose one of their number to chair the meeting. |
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Right of a Director to attend and speak
| 11.5 | Even if a Director is not a Member, he shall be entitled to attend and speak at any general meeting and at any separate meeting of Members holding a particular class of Shares. |
Accommodation of Members at meeting
| 11.6 | A Member entitled to receive notice and attend a meeting will be deemed to be in attendance at such meeting despite their attendance being virtual if adequate facilities are available to ensure that the Member is able to: |
| (a) | to participate in the business for which the meeting has been convened; and |
| (b) | to hear all that happens at the meeting (whether by use of microphones, audio visual communications equipment or otherwise); and |
| (c) | to be heard by all persons present in the same way. |
| (d) | Without limiting the generality of the foregoing, the Directors may determine that any general meeting may be held as a Virtual Meeting. |
Security
| 11.7 | In addition to any measures which the Board may be required to take due to the location or venue of the meeting, the Board may make any arrangement and impose any restriction it considers appropriate and reasonable in the circumstances to ensure the security of a meeting including, without limitation, the searching of any person attending the meeting and the imposing of restrictions on the items of personal property that may be taken into the meeting place. The Board may refuse entry to, or eject from, a meeting a person who refuses to comply with any such arrangements or restrictions. |
Adjournment
| 11.8 | A meeting may be: |
| (a) | postponed or cancelled prior to the meeting at the discretion of the Directors by written notice provided to all persons entitled to attend the meeting, unless the meeting was requisitioned by Member(s) or otherwise called by Member(s) pursuant to Article 10; or |
| (b) | adjourned, with or without an appointed date for resumption, at any time during the meeting at the discretion of the chairman with the consent of the Member(s) constituting a quorum. |
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The chairman must adjourn the meeting if so directed by the Member(s) constituting a quorum at the meeting. No business, however, can be transacted at an adjourned or postponed meeting other than business which might properly have been transacted at the original meeting.
| 11.9 | Should a meeting be adjourned for more than seven (7) Clear Days, whether because of a lack of quorum or otherwise, Members shall be given at least seven (7) Clear Days' notice of the date, time and place of the adjourned meeting and the general nature of the business to be transacted. Otherwise it shall not be necessary to give any notice of the adjournment. |
Method of voting
| 11.10 | A resolution put to the vote of the meeting shall be decided on a poll. |
Taking of a poll
| 11.11 | A poll shall be taken in such manner as the chairman directs. He may appoint scrutineers (who need not be Members) and fix a place and time for declaring the result of the poll. If, through the aid of technology, the meeting is held as a Virtual Meeting or in more than one place, the chairman may appoint scrutineers virtually and in more than one place; but if he considers that the poll cannot be effectively monitored at that meeting, the chairman shall adjourn the holding of the poll to a date, place and time when that can occur. |
Chairman’s casting vote
| 11.12 | In the case of an equality of votes, the Chairman of the meeting shall be entitled to a second or casting vote. |
Written resolutions
| 11.13 | Without limitation to section 60(1) of the Act, Members may pass a Special Resolution in writing without holding a meeting if the following conditions are met: |
| (a) | all Members entitled to vote on the resolution are given notice of the resolution as if the same were being proposed at a meeting of Members; |
| (b) | all Members entitled so to vote: |
| (i) | sign a document; or |
| (ii) | sign several documents in the like form each signed by one or more of those Members; and |
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| (c) | the signed document or documents is or are delivered to the Company, including, if the Company so nominates, by delivery of an Electronic Record by Electronic means to the address specified for that purpose. |
Such written resolution, which shall be as effective as if it had been passed at a meeting of the Members entitled to vote duly convened and held, is passed when all such Members have so signified their agreement to the resolution.
| 11.14 | Members may pass an Ordinary Resolution in writing without holding a meeting if the following conditions are met: |
| (a) | all Members entitled to vote on the resolution are: |
| (i) | given notice of the resolution as if the same were being proposed at a meeting of Members; and |
| (ii) | notified in the same or an accompanying notice of the date by which the resolution must be passed if it is not to lapse, being a period of seven (7) days beginning with the date that the notice is first given; |
| (b) | the required majority of the Members entitled so to vote: |
| (i) | sign a document; or |
| (ii) | sign several documents in the like form each signed by one or more of those Members; and |
| (c) | the signed document or documents is or are delivered to the Company, including, if the Company so nominates, by delivery of an Electronic Record by Electronic means to the address specified for that purpose. |
Such written resolution, which shall be as effective as if it had been passed at a meeting of the Members entitled to vote duly convened and held, is passed upon the later of these dates: (i) subject to the following Article, the date next immediately following the end of the period of three (3) days beginning with the date that notice of the resolution is first given and (ii) the date when the required majority have so signified their agreement to the resolution. However, the proposed written resolution lapses if it is not passed before the end of the period of seven (7) days beginning with the date that notice of it is first given.
| 11.15 | If all Members entitled to be given notice of the Ordinary Resolution consent, a written resolution may be passed as soon as the required majority have signified their agreement to the resolution, without any minimum period of time having first elapsed. Save that the consent of the majority may be incorporated in the written resolution, each consent shall be in writing or given by Electronic Record and shall otherwise be given to the Company in accordance with Article 28 (Notices) prior to the written resolution taking effect. |
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| 11.16 | The Directors may determine the manner in which written resolutions shall be put to Members. In particular, they may provide, in the form of any written resolution, for each Member to indicate, out of the number of votes the Member would have been entitled to cast at a meeting to consider the resolution, how many votes he wishes to cast in favour of the resolution and how many against the resolution or to be treated as abstentions. The result of any such written resolution shall be determined on the same basis as on a poll. |
| 11.17 | If a written resolution is described as a Special Resolution or as an Ordinary Resolution, it has effect accordingly. |
Sole-Member Company
| 11.18 | If the Company has only one Member, and the Member records in writing his decision on a question, that record shall constitute both the passing of a resolution and the minute of it. |
| 12 | Voting rights of Members |
Right to vote
| 12.1 | Unless their Shares carry no right to vote, or unless a call or other amount presently payable has not been paid, all Members are entitled to vote at a general meeting, and all Members holding Shares of a particular class of Shares are entitled to vote at a meeting of the holders of that class of Shares. Each Class A Share shall be entitled to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B Share shall be entitled to twenty (20) votes on all matters subject to vote at general meetings of the Company. Unless otherwise required under the Act or by these Articles, holders of Class A Shares and Class B Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. |
| 12.2 | Members may vote in person or by proxy. |
| 12.3 | On a poll, each Class A Share shall be entitled to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B Share shall be entitled to twenty (20) votes on all matters subject to vote at general meetings of the Company. A fraction of a Class A Share shall entitle its holder to an equivalent fraction of one (1) vote, and a fraction of a Class B Share shall entitle its holder to an equivalent fraction of twenty (20) votes. |
| 12.4 | No Member is bound to vote on his Shares or any of them; nor is he bound to vote each of his Shares in the same way. |
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Rights of joint holders
| 12.5 | If Shares are held jointly, only one of the joint holders may vote. If more than one of the joint holders tenders a vote, the vote of the holder whose name in respect of those Shares appears first in the register of Members shall be accepted to the exclusion of the votes of the other joint holder. |
Representation of corporate Members
| 12.6 | Save where otherwise provided, a corporate Member must act by a duly authorised representative. |
| 12.7 | A corporate Member wishing to act by a duly authorised representative must identify that person to the Company by notice in writing. |
| 12.8 | The authorisation may be for any period of time, and must be delivered to the Company before the commencement of the meeting at which it is first used. |
| 12.9 | The Directors of the Company may require the production of any evidence which they consider necessary to determine the validity of the notice. |
| 12.10 | Where a duly authorised representative is present at a meeting that Member is deemed to be present in person; and the acts of the duly authorised representative are personal acts of that Member. |
| 12.11 | A corporate Member may revoke the appointment of a duly authorised representative at any time by notice to the Company; but such revocation will not affect the validity of any acts carried out by the duly authorised representative before the Directors of the Company had actual notice of the revocation. |
Member with mental disorder
| 12.12 | A Member in respect of whom an order has been made by any court having jurisdiction (whether in the Cayman Islands or elsewhere) in matters concerning mental disorder may vote, whether on a show of hands or on a poll, by that Member’s receiver, curator bonis or other person authorised in that behalf appointed by that court. |
| 12.13 | For the purpose of the preceding Article, evidence to the satisfaction of the Directors of the authority of the person claiming to exercise the right to vote must be received not less than 24 hours before holding the relevant meeting or the adjourned meeting in any manner specified for the delivery of forms of appointment of a proxy, whether in writing or by Electronic means. In default, the right to vote shall not be exercisable. |
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Objections to admissibility of votes
| 12.14 | An objection to the validity of a person’s vote may only be raised at the meeting or at the adjourned meeting at which the vote is sought to be tendered. Any objection duly made shall be referred to the chairman whose decision shall be final and conclusive. |
Form of proxy
| 12.15 | An instrument appointing a proxy shall be in any common form or in any other form approved by the Directors. |
| 12.16 | The instrument must be in writing and signed in one of the following ways: |
| (a) | by the Member; or |
| (b) | by the Member’s authorised attorney; or |
| (c) | if the Member is a corporation or other body corporate, under seal or signed by an authorised officer, secretary or attorney. |
If the Directors so resolve, the Company may accept an Electronic Record of that instrument delivered in the manner specified below and otherwise satisfying the Articles about authentication of Electronic Records.
| 12.17 | The Directors may require the production of any evidence which they consider necessary to determine the validity of any appointment of a proxy. |
| 12.18 | A Member may revoke the appointment of a proxy at any time by notice to the Company duly signed in accordance with Article 12.16. |
| 12.19 | No revocation by a Member of the appointment of a proxy made in accordance with Article 12.18 will affect the validity of any acts carried out by the relevant proxy before the Directors of the Company had actual notice of the revocation. |
How and when proxy is to be delivered
| 12.20 | Subject to the following Articles, the Directors may, in the notice convening any meeting or adjourned meeting, or in an instrument of proxy sent out by the Company, specify the manner by which the instrument appointing a proxy shall be deposited and the place and the time (being not later than the time appointed for the commencement of the meeting or adjourned meeting to which the proxy relates) at which the instrument appointing a proxy shall be deposited. In the absence of any such direction from the Directors in the notice convening any meeting or adjourned meeting or in an instrument of proxy sent out by the Company, the form of appointment of a proxy and any authority under which it is signed (or a copy of the authority certified notarially or in any other way approved by the Directors) must be delivered so that it is received by the Company before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote. They must be delivered in either of the following ways: |
| (a) | In the case of an instrument in writing, it must be left at or sent by post: |
| (i) | to the registered office of the Company; or |
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| (ii) | to such other place specified in the notice convening the meeting or in any form of appointment of proxy sent out by the Company in relation to the meeting. |
| (b) | If, pursuant to the notice provisions, a notice may be given to the Company in an Electronic Record, an Electronic Record of an appointment of a proxy must be sent to the address specified pursuant to those provisions unless another address for that purpose is specified: |
| (i) | in the notice convening the meeting; or |
| (ii) | in any form of appointment of a proxy sent out by the Company in relation to the meeting; or |
| (iii) | in any invitation to appoint a proxy issued by the Company in relation to the meeting. |
| (c) | Notwithstanding Article 12.20(a) and Article 12.20(b), the chairman of the Company may, in any event at his discretion, direct that an instrument of proxy shall be deemed to have been duly deposited. |
| 12.21 | If the form of appointment of proxy is not delivered on time, it is invalid. |
| 12.22 | When two or more valid but differing appointments of proxy are delivered or received in respect of the same Share for use at the same meeting and in respect of the same matter, the one which is last validly delivered or received (regardless of its date or of the date of its execution) shall be treated as replacing and revoking the other or others as regards that Share. lf the Company is unable to determine which appointment was last validly delivered or received, none of them shall be treated as valid in respect of that Share. |
| 12.23 | The Board may at the expense of the Company send forms of appointment of proxy to the Members by post (that is to say, pre-paying and posting a letter), or by Electronic communication or otherwise (with or without provision for their return by pre-paid post) for use at any general meeting or at any separate meeting of the holders of any class of Shares, either blank or nominating as proxy in the alternative any one or more of the Directors or any other person. lf for the purpose of any meeting invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the Company’s expense, they shall be issued to all (and not to some only) of the Members entitled to be sent notice of the meeting and to vote at it. The accidental omission to send such a form of appointment or to give such an invitation to, or the non-receipt of such form of appointment by, any Member entitled to attend and vote at a meeting shall not invalidate the proceedings at that meeting |
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Voting by proxy
| 12.24 | A proxy shall have the same voting rights at a meeting or adjourned meeting as the Member would have had except to the extent that the instrument appointing him limits those rights. Notwithstanding the appointment of a proxy, a Member may attend and vote at a meeting or adjourned meeting. If a Member votes on any resolution a vote by his proxy on the same resolution, unless in respect of different Shares, shall be invalid. |
| 12.25 | The instrument appointing a proxy to vote at a meeting shall not confer any further right to speak at the meeting, except with the permission of the chairman of the meeting. |
| 13 | Number of Directors |
| 13.1 | There shall be a Board consisting of not less than one person provided however that the Company may by Ordinary Resolution increase or reduce the limits in the number of Directors. Unless fixed by Ordinary Resolution, the maximum number of Directors shall be unlimited. |
| 14 | Appointment, disqualification and removal of Directors |
First Directors
| 14.1 | The first Directors shall be appointed in writing by the subscriber or subscribers to the Memorandum, or a majority of them. |
No age limit
| 14.2 | There is no age limit for Directors save that they must be at least eighteen years of age. |
Corporate Directors
| 14.3 | Unless prohibited by law, a body corporate may be a Director. If a body corporate is a Director, the Articles about representation of corporate Members at general meetings apply, mutatis mutandis, to the Articles about Directors’ meetings. |
No shareholding qualification
| 14.4 | Unless a shareholding qualification for Directors is fixed by Ordinary Resolution, no Director shall be required to own Shares as a condition of his appointment. |
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Appointment of Directors
| 14.5 | A Director may be appointed by Ordinary Resolution or by the Directors. Any appointment may be to fill a vacancy or as an additional Director. |
| 14.6 | A remaining Director may appoint a Director even though there is not a quorum of Directors. |
| 14.7 | No appointment can cause the number of Directors to exceed the maximum (if one is set); and any such appointment shall be invalid. |
| 14.8 | For so long as any class of the Shares are listed on a Designated Stock Exchange, the Directors shall include at least such number of Independent Directors as applicable law, rules or regulations or the Designated Stock Exchange Rules require as determined by the Board. |
Board’s power to appoint Directors
| 14.9 | Without prejudice to the Company’s power to appoint a person to be a Director pursuant to these Articles, the Board shall have power at any time to appoint any person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board, subject to the total number of Directors not exceeding any maximum number fixed by or in accordance with these Articles. |
| 14.10 | An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision. Each Director whose term of office expires shall be eligible for re-election at a meeting of the Members or re-appointment by the Board. |
Removal of Directors
| 14.11 | A Director may be removed by Ordinary Resolution. |
Resignation of Directors
| 14.12 | A Director may at any time resign office by giving to the Company notice in writing or, if permitted pursuant to the notice provisions, in an Electronic Record delivered in either case in accordance with those provisions. |
| 14.13 | Unless the notice specifies a different date, the Director shall be deemed to have resigned on the date that the notice is delivered to the Company. |
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Termination of the office of Director
| 14.14 | A Director may retire from office as a Director by giving notice in writing to that effect to the Company at the registered office, which notice shall be effective upon such date as may be specified in the notice, failing which upon delivery to the registered office. |
| 14.15 | Without prejudice to the provisions in these Articles for retirement (by rotation or otherwise), a Director’s office shall be terminated forthwith if: |
| (a) | he is prohibited by the law of the Cayman Islands from acting as a Director; or |
| (b) | he is made bankrupt or makes an arrangement or composition with his creditors generally; or |
| (c) | he resigns his office by notice to the Company; or |
| (d) | he only held office as a Director for a fixed term and such term expires; or |
| (e) | in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a Director; or |
| (f) | he is given notice by the majority of the other Directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such Director); or |
| (g) | he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or |
| (h) | without the consent of the other Directors, he is absent from meetings of Directors for a continuous period of six months. |
| 15 | Alternate Directors |
Appointment and removal
| 15.1 | Any Director may appoint any other person, including another Director, to act in his place as an alternate Director. No appointment shall take effect until the Director has given notice of the appointment to the Board. |
| 15.2 | A Director may revoke his appointment of an alternate at any time. No revocation shall take effect until the Director has given notice of the revocation to the Board. |
| 15.3 | A notice of appointment or removal of an alternate Director shall be effective only if given to the Company by one or more of the following methods: |
| (a) | by notice in writing in accordance with the notice provisions contained in these Articles; |
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| (b) | if the Company has a facsimile address for the time being, by sending by facsimile transmission to that facsimile address a facsimile copy or, otherwise, by sending by facsimile transmission to the facsimile address of the Company's registered office a facsimile copy (in either case, the facsimile copy being deemed to be the notice unless Article 29.7 applies), in which event notice shall be taken to be given on the date of an error-free transmission report from the sender’s fax machine; |
| (c) | if the Company has an email address for the time being, by emailing to that email address a scanned copy of the notice as a PDF attachment or, otherwise, by emailing to the email address provided by the Company's registered office a scanned copy of the notice as a PDF attachment (in either case, the PDF version being deemed to be the notice unless Article 29.7 applies), in which event notice shall be taken to be given on the date of receipt by the Company or the Company's registered office (as appropriate) in readable form; or |
| (d) | if permitted pursuant to the notice provisions, in some other form of approved Electronic Record delivered in accordance with those provisions in writing. |
Notices
| 15.4 | All notices of meetings of Directors shall continue to be given to the appointing Director and not to the alternate. |
Rights of alternate Director
| 15.5 | An alternate Director shall be entitled to attend and vote at any Board meeting or meeting of a committee of the Directors at which the appointing Director is not personally present, and generally to perform all the functions of the appointing Director in his absence. An alternate Director, however, is not entitled to receive any remuneration from the Company for services rendered as an alternate Director. |
Appointment ceases when the appointor ceases to be a Director
| 15.6 | An alternate Director shall cease to be an alternate Director if: |
| (a) | the Director who appointed him ceases to be a Director; or |
| (b) | the Director who appointed him revokes his appointment by notice delivered to the Board or to the registered office of the Company or in any other manner approved by the Board; or |
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| (c) | in any event happens in relation to him which, if he were a Director of the Company, would cause his office as Director to be vacated. |
Status of alternate Director
| 15.7 | An alternate Director shall carry out all functions of the Director who made the appointment. |
| 15.8 | Save where otherwise expressed, an alternate Director shall be treated as a Director under these Articles. |
| 15.9 | An alternate Director is not the agent of the Director appointing him. |
| 15.10 | An alternate Director is not entitled to any remuneration for acting as alternate Director. |
Status of the Director making the appointment
| 15.11 | A Director who has appointed an alternate is not thereby relieved from the duties which he owes the Company. |
| 16 | Powers of Directors |
Powers of Directors
| 16.1 | Subject to the provisions of the Act, the Memorandum and these Articles the business of the Company shall be managed by the Directors who may for that purpose exercise all the powers of the Company. |
| 16.2 | No prior act of the Directors shall be invalidated by any subsequent alteration of the Memorandum or these Articles. However, to the extent allowed by the Act, Members may, by Special Resolution, validate any prior or future act of the Directors which would otherwise be in breach of their duties. |
Directors below the minimum number
| 16.3 | lf the number of Directors is less than the minimum prescribed in accordance with these Articles, the remaining Director or Directors shall act only for the purposes of appointing an additional Director or Directors to make up such minimum or of convening a general meeting of the Company for the purpose of making such appointment. lf there are no Director or Directors able or willing to act, any two Members may summon a general meeting for the purpose of appointing Directors. Any additional Director so appointed shall hold office (subject to these Articles) only until the dissolution of the annual general meeting next following such appointment unless he is re-elected during such meeting. |
Appointments to office
| 16.4 | The Directors may appoint a Director: |
| (a) | as chairman of the Board; |
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| (b) | as managing Director; |
| (c) | to any other executive office, |
for such period, and on such terms, including as to remuneration as they think fit.
| 16.5 | The appointee must consent in writing to holding that office. |
| 16.6 | Where a chairman is appointed he shall, unless unable to do so, preside at every meeting of Directors. |
| 16.7 | If there is no chairman, or if the chairman is unable to preside at a meeting, that meeting may select its own chairman; or the Directors may nominate one of their number to act in place of the chairman should he ever not be available. |
| 16.8 | Subject to the provisions of the Act, the Directors may also appoint and remove any person, who need not be a Director: |
| (a) | as Secretary; and |
| (b) | to any office that may be required |
for such period and on such terms, including as to remuneration, as they think fit. In the case of an Officer, that Officer may be given any title the Directors decide.
| 16.9 | The Secretary or Officer must consent in writing to holding that office. |
| 16.10 | A Director, Secretary or other Officer of the Company may not the hold the office, or perform the services, of auditor. |
Provisions for employees
| 16.11 | The Board may make provision for the benefit of any persons employed or formerly employed by the Company or any of its subsidiary undertakings (or any member of his family or any person who is dependent on him) in connection with the cessation or the transfer to any person of the whole or part of the undertaking of the Company or any of its subsidiary undertakings. |
Exercise of voting rights
| 16.12 | The Board may exercise the voting power conferred by the Shares in any body corporate held or owned by the Company in such manner in all respects as it thinks fit (including, without limitation, the exercise of that power in favour of any resolution appointing any Director as a Director of such body corporate, or voting or providing for the payment of remuneration to the Directors of such body corporate). |
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Remuneration
| 16.13 | Every Director may be remunerated by the Company for the services he provides for the benefit of the Company, whether as Director, employee or otherwise, and shall be entitled to be paid for the expenses incurred in the Company’s business including attendance at Directors’ meetings. |
| 16.14 | Until otherwise determined by the Company by Ordinary Resolution, the Directors (other than alternate Directors) shall be entitled to such remuneration by way of fees for their services in the office of Director as the Directors may determine. |
| 16.15 | Remuneration may take any form and may include arrangements to pay pensions, health insurance, death or sickness benefits, whether to the Director or to any other person connected to or related to him. |
| 16.16 | Unless his fellow Directors determine otherwise, a Director is not accountable to the Company for remuneration or other benefits received from any other company which is in the same group as the Company or which has common shareholdings. |
Disclosure of information
| 16.17 | The Directors may release or disclose to a third party any information regarding the affairs of the Company, including any information contained in the register of Members relating to a Member, (and they may authorise any Director, Officer or other authorised agent of the Company to release or disclose to a third party any such information in his possession) if: |
| (a) | the Company or that person, as the case may be, is lawfully required to do so under the laws of any jurisdiction to which the Company is subject; or |
| (b) | such disclosure is in compliance with the Designated Stock Exchange Rules (to the extent applicable); or |
| (c) | such disclosure is in accordance with any contract entered into by the Company; or |
| (d) | the Directors are of the opinion such disclosure would assist or facilitate the Company’s operations. |
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| 17 | Delegation of powers |
Power to delegate any of the Directors’ powers to a committee
| 17.1 | The Directors may delegate any of their powers to any committee consisting of one or more persons who need not be Members. Persons on the committee may include non-Directors so long as the majority of those persons are Directors. For so long as any class of the Shares are listed on a Designated Stock Exchange, any such committee shall be made up of such number of Independent Directors as required from time to time by the Designated Stock Exchange Rules or otherwise required by applicable law. |
| 17.2 | The delegation may be collateral with, or to the exclusion of, the Directors’ own powers. |
| 17.3 | The delegation may be on such terms as the Directors think fit, including provision for the committee itself to delegate to a sub-committee; save that any delegation must be capable of being revoked or altered by the Directors at will. |
| 17.4 | Unless otherwise permitted by the Directors, a committee must follow the procedures prescribed for the taking of decisions by Directors. |
| 17.5 | For so long as any class of the Shares are listed on a Designated Stock Exchange, the Board shall, if required by the Designated Stock Exchange Rules, establish an audit committee, a compensation committee and a nominating and corporate governance committee. Each of these committees shall be empowered to do all things necessary to exercise the rights of such committee set forth in these Articles. Each of the audit committee, compensation committee and nominating and corporate governance committee (if so established) shall consist of at least such number of Directors as may be required from time to time by the Designated Stock Exchange Rules. The majority of the committee members on each of the compensation committee and nominating and corporate governance committee shall be Independent Directors. The audit committee (if so established) shall be made up of such number of Independent Directors as required from time to time by the Designated Stock Exchange Rules or otherwise required by applicable law, subject to any exemptions permitted under the Designated Stock Exchange Rules and other applicable laws. |
Local boards
| 17.6 | The Board may establish any local or divisional board or agency for managing any of the affairs of the Company whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional Board, or to be managers or agents, and may fix their remuneration. |
| 17.7 | The Board may delegate to any local or divisional board, manager or agent any of its powers and authorities (with power to sub-delegate) and may authorise the members of any local or divisional board or any of them to fill any vacancies and to act notwithstanding vacancies. |
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| 17.8 | Any appointment or delegation under this Article 17.8 may be made on such terms and subject to such conditions as the Board thinks fit and the Board may remove any person so appointed, and may revoke or vary any delegation. |
Power to appoint an agent of the Company
| 17.9 | The Directors may appoint any person, either generally or in respect of any specific matter, to be the agent of the Company with or without authority for that person to delegate all or any of that person’s powers. The Directors may make that appointment: |
| (a) | by causing the Company to enter into a power of attorney or agreement; or |
| (b) | in any other manner they determine. |
Power to appoint an attorney or authorised signatory of the Company
| 17.10 | The Directors may appoint any person, whether nominated directly or indirectly by the Directors, to be the attorney or the authorised signatory of the Company. The appointment may be: |
| (a) | for any purpose; |
| (b) | with the powers, authorities and discretions; |
| (c) | for the period; and |
| (d) | subject to such conditions |
as they think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by the Directors under these Articles. The Directors may do so by power of attorney or any other manner they think fit.
| 17.11 | Any power of attorney or other appointment may contain such provision for the protection and convenience for persons dealing with the attorney or authorised signatory as the Directors think fit. Any power of attorney or other appointment may also authorise the attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in that person. |
| 17.12 | The Board may remove any person appointed under Article 17.10 and may revoke or vary the delegation. |
Borrowing Powers
| 17.13 | The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and assets both present and future and uncalled capital, or any part thereof, and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or its parent undertaking (if any) or any subsidiary undertaking of the Company or of any third party. |
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Corporate Governance
| 17.14 | The Board may, from time to time, and except as required by applicable law or (to the extent applicable) the Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company, which shall be intended to set forth the guiding principles and policies of the Company and the Board on various corporate governance related matters as the Board shall determine by resolution from time to time. |
| 18 | Meetings of Directors |
Regulation of Directors’ meetings
| 18.1 | Subject to the provisions of these Articles, the Directors may regulate their proceedings as they think fit. |
Calling meetings
| 18.2 | Any Director may call a meeting of Directors at any time. The Secretary must call a meeting of the Directors if requested to do so by a Director. |
Notice of meetings
| 18.3 | Notice of a Board meeting may be given to a Director personally or by word of mouth or given in writing or by Electronic communications at such address as he may from time to time specify for this purpose (or, if he does not specify an address, at his last known address). A Director may waive his right to receive notice of any meeting either prospectively or retrospectively. |
Use of technology
| 18.4 | A Director may participate in a meeting of Directors through the medium of conference telephone, video or any other form of communications equipment providing all persons participating in the meeting are able to hear and speak to each other throughout the meeting. |
| 18.5 | A Director participating in this way is deemed to be present in person at the meeting. |
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Quorum
| 18.6 | The quorum for the transaction of business at a meeting of Directors shall be two (except that if the Board is comprised of a single Director only, then the quorum shall be one) unless the Directors fix some other number. |
Chairman or deputy to preside
| 18.7 | The Board may appoint a chairman and one or more deputy chairman or chairmen and may at any time revoke any such appointment. |
| 18.8 | The chairman, or failing him any deputy chairman (the longest in office taking precedence if more than one is present), shall preside at all Board meetings. If no chairman or deputy chairman has been appointed, or if he is not present within five minutes after the time fixed for holding the meeting, or is unwilling to act as chairman of the meeting, the Directors present shall choose one of their number to act as chairman of the meeting. |
Voting
| 18.9 | A question which arises at a Board meeting shall be decided by a majority of votes. If votes are equal the chairman may, if he wishes, exercise a casting vote. |
Recording of dissent
| 18.10 | A Director present at a meeting of Directors shall be presumed to have assented to any action taken at that meeting unless: |
| (a) | his dissent is entered in the minutes of the meeting; or |
| (b) | he has filed with the meeting before it is concluded signed dissent from that action; or |
| (c) | he has forwarded to the Company as soon as practical following the conclusion of that meeting signed dissent. |
A Director who votes in favour of an action is not entitled to record his dissent to it.
Written resolutions
| 18.11 | The Directors may pass a resolution in writing without holding a meeting if all Directors sign a document or sign several documents in the like form each signed by one or more of those Directors. |
| 18.12 | A written resolution signed by a validly appointed alternate Director need not also be signed by the appointing Director. |
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| 18.13 | A written resolution signed personally by the appointing Director need not also be signed by his alternate. |
| 18.14 | A resolution in writing passed pursuant to Article 18.11, Article 18.12 and/or Article 18.13 shall be as effective as if it had been passed at a meeting of the Directors duly convened and held; and it shall be treated as having been passed on the day and at the time that the last Director signs (and for the avoidance of doubt, such day may or may not be a Business Day). |
Validity of acts of Directors in spite of formal defect
| 18.15 | All acts done by a meeting of the Board, or of a committee of the Board, or by any person acting as a Director or an alternate Director, shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director or member of the committee, or that any of them were disqualified or had vacated office or were not entitled to vote, be as valid as if every such person had been duly appointed and qualified and had continued to be a Director or alternate Director and had been entitled to vote. |
| 19 | Permissible Directors' interests and disclosure |
| 19.1 | Subject to Article 19.4, a Director may vote at a meeting of Directors on any resolution concerning a matter in which that Director has an interest or duty, whether directly or indirectly, so long as that Director discloses any material interest pursuant to these Articles. The Director shall be counted towards a quorum of those present at the meeting. If the director votes on the resolution, his vote shall be counted. |
| 19.2 | For the purposes of the preceding Article: |
| (a) | a general notice that a Director gives to the other Directors that he is to be regarded as having an interest of the nature and extent specified in the notice in any transaction or arrangement in which a specified person or class of persons is interested shall be deemed to be a disclosure that he has an interest in or duty in relation to any such transaction of the nature and extent so specified; and |
| (b) | an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his. |
| 19.3 | A Director shall not be treated as having an interest in a transaction or arrangement if he has no knowledge of that interest and it is unreasonable to expect the director to have that knowledge. |
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| 19.4 | For so long as Shares are listed on a Designated Stock Exchange, a Director shall not, as a Director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise then by virtue of his interests, direct or indirect, in Shares or debentures or other securities of, or otherwise in or through, the Company) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to: |
| (a) | the giving of any security, guarantee or indemnity in respect of: |
| (i) | money lent or obligations incurred by him or by any other person for the benefit of the Company or any of its subsidiaries; or |
| (ii) | a debt or obligation of the Company or any of its subsidiaries for which the Director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; |
| (b) | where the Company or any of its subsidiaries is offering securities in which offer the Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the Director is to or may participate; |
| (c) | any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one per cent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to members of the relevant body corporate (any such interest being deemed for the purposes of this Article 19.4 to be a material interest in all circumstances); |
| (d) | any act or thing done or to be done in respect of any arrangement for the benefit of the employees of the Company or any of its subsidiaries under which he is not accorded as a Director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or |
| (e) | any matter connected with the purchase or maintenance for any Director of insurance against any liability or (to the extent permitted by the Act) indemnities in favour of Directors, the funding of expenditure by one or more Directors in defending proceedings against him or them or the doing of any thing to enable such Director or Directors to avoid incurring such expenditure. |
| 19.5 | A Director may, as a Director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or which falls within Article 19.4. |
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| 20 | Minutes |
| 20.1 | The Company shall cause minutes to be made in books of: |
| (a) | all appointments of Officers and committees made by the Board and of any such Officer’s remuneration; and |
| (b) | the names of Directors present at every meeting of the Directors, a committee of the Board, the Company or the holders of any class of shares or debentures, and all orders, resolutions and proceedings of such meetings. |
| 20.2 | Any such minutes, if purporting to be signed by the chairman of the meeting at which the proceedings were held or by the chairman of the next succeeding meeting or the Secretary, shall be prima facie evidence of the matters stated in them. |
| 21 | Accounts and audit |
| 21.1 | The Directors must ensure that proper accounting and other records are kept, and that accounts and associated reports are distributed in accordance with the requirements of the Act. |
| 21.2 | The books of account shall be kept at the registered office of the Company and shall always be open to inspection by the Directors. No Member (other than a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by the Act or as authorised by the Directors or by Ordinary Resolution. |
| 21.3 | Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31 December in each year and begin on 1 January in each year. |
Auditors
| 21.4 | The Directors may appoint or remove an Auditor of the Company who shall hold office on such terms as the Directors determine, provided that for so long as any class of the Shares are listed on a Designated Stock Exchange, such appointment or removal shall be made in accordance with the applicable Designated Stock Exchange Rules. |
| 21.5 | At any general meeting convened and held at any time in accordance with these Articles, the Members may, by Ordinary Resolution, remove the Auditor before the expiration of his term of office. If they do so, the Members shall, by Ordinary Resolution, at that meeting appoint another Auditor in his stead for the remainder of his term. |
| 21.6 | The Auditors shall examine such books, accounts and vouchers; as may be necessary for the performance of their duties. |
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| 21.7 | The Auditors shall, if so requested by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Company. |
| 22 | Record dates |
| 22.1 | Except to the extent of any conflicting rights attached to Shares, the resolution declaring a dividend on Shares of any class, whether it be an Ordinary Resolution of the Members or a Director’s resolution, may specify that the dividend is payable or distributable to the persons registered as the holders of those Shares at the close of business on a particular date, notwithstanding that the date may be a date prior to that on which the resolution is passed. |
| 22.2 | If the resolution does so specify, the dividend shall be payable or distributable to the persons registered as the holders of those Shares at the close of business on the specified date in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of the dividend of transferors and transferees of any of those Shares. |
| 22.3 | The provisions of this Article apply, mutatis mutandis, to bonuses, capitalisation issues, distributions of realised capital profits or offers or grants made by the Company to the Members. |
| 23 | Dividends |
Source of dividends
| 23.1 | Dividends may be declared and paid out of any funds of the Company lawfully available for distribution. |
| 23.2 | Subject to the requirements of the Act regarding the application of a company’s Share premium account and with the sanction of an Ordinary Resolution, dividends may also be declared and paid out of any share premium account. |
Declaration of dividends by Members
| 23.3 | Subject to the provisions of the Act, the Company may by Ordinary Resolution declare dividends in accordance with the respective rights of the Members but no dividend shall exceed the amount recommended by the Directors. |
Payment of interim dividends and declaration of final dividends by Directors
| 23.4 | The Directors may declare and pay interim dividends or recommend final dividends in accordance with the respective rights of the Members if it appears to them that they are justified by the financial position of the Company and that such dividends may lawfully be paid. |
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| 23.5 | Subject to the provisions of the Act, in relation to the distinction between interim dividends and final dividends, the following applies: |
| (a) | Upon determination to pay a dividend or dividends described as interim by the Directors in the dividend resolution, no debt shall be created by the declaration until such time as payment is made. |
| (b) | Upon declaration of a dividend or dividends described as final by the Directors in the dividend resolution, a debt shall be created immediately following the declaration, the due date to be the date the dividend is stated to be payable in the resolution. |
If the resolution fails to specify whether a dividend is final or interim, it shall be assumed to be interim.
| 23.6 | In relation to Shares carrying differing rights to dividends or rights to dividends at a fixed rate, the following applies: |
| (a) | If the share capital is divided into different classes, the Directors may pay dividends on Shares which confer deferred or non-preferred rights with regard to dividends as well as on Shares which confer preferential rights with regard to dividends but no dividend shall be paid on Shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. |
| (b) | The Directors may also pay, at intervals settled by them, any dividend payable at a fixed rate if it appears to them that there are sufficient funds of the Company lawfully available for distribution to justify the payment. |
| (c) | If the Directors act in good faith, they shall not incur any liability to the Members holding Shares conferring preferred rights for any loss those Members may suffer by the lawful payment of the dividend on any Shares having deferred or non- preferred rights. |
Apportionment of dividends
| 23.7 | Except as otherwise provided by the rights attached to Shares all dividends shall be declared and paid according to the amounts Paid Up on the Shares on which the dividend is paid. All dividends shall be apportioned and paid proportionately to the amount Paid Up on the Shares during the time or part of the time in respect of which the dividend is paid. But if a Share is issued on terms providing that it shall rank for dividend as from a particular date, that Share shall rank for dividend accordingly. |
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Right of set off
| 23.8 | The Directors may deduct from a dividend or any other amount payable to a person in respect of a Share any amount due by that person to the Company on a call or otherwise in relation to a Share. |
Power to pay other than in cash
| 23.9 | If the Directors so determine, any resolution declaring a dividend may direct that it shall be satisfied wholly or partly by the distribution of assets. If a difficulty arises in relation to the distribution, the Directors may settle that difficulty in any way they consider appropriate. For example, they may do any one or more of the following: |
| (a) | issue fractional Shares; |
| (b) | fix the value of assets for distribution and make cash payments to some Members on the footing of the value so fixed in order to adjust the rights of Members; and |
| (c) | vest some assets in trustees. |
How payments may be made
| 23.10 | A dividend or other monies payable on or in respect of a Share may be paid in any of the following ways: |
| (a) | if the Member holding that Share or other person entitled to that Share nominates a bank account for that purpose - by wire transfer to that bank account; or |
| (b) | by cheque or warrant sent by post to the registered address of the Member holding that Share or other person entitled to that Share. |
| 23.11 | For the purposes of Article 23.10(a), the nomination may be in writing or in an Electronic Record and the bank account nominated may be the bank account of another person. For the purposes of Article 23.10(b), subject to any applicable law or regulation, the cheque or warrant shall be made to the order of the Member holding that Share or other person entitled to the Share or to his nominee, whether nominated in writing or in an Electronic Record, and payment of the cheque or warrant shall be a good discharge to the Company. |
| 23.12 | If two or more persons are registered as the holders of the Share or are jointly entitled to it by reason of the death or bankruptcy of the registered holder (Joint Holders), a dividend (or other amount) payable on or in respect of that Share may be paid as follows: |
| (a) | to the registered address of the Joint Holder of the Share who is named first on the register of Members or to the registered address of the deceased or bankrupt holder, as the case may be; or |
| (b) | to the address or bank account of another person nominated by the Joint Holders, whether that nomination is in writing or in an Electronic Record. |
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| 23.13 | Any Joint Holder of a Share may give a valid receipt for a dividend (or other amount) payable in respect of that Share. |
Dividends or other monies not to bear interest in absence of special rights
| 23.14 | Unless provided for by the rights attached to a Share, no dividend or other monies payable by the Company in respect of a Share shall bear interest. |
Dividends unable to be paid or unclaimed
| 23.15 | If a dividend cannot be paid to a Member or remains unclaimed within six weeks after it was declared or both, the Directors may pay it into a separate account in the Company’s name. If a dividend is paid into a separate account, the Company shall not be constituted trustee in respect of that account and the dividend shall remain a debt due to the Member. |
| 23.16 | A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the Company. |
| 24 | Capitalisation of profits |
Capitalisation of profits or of any share premium account or capital redemption reserve;
| 24.1 | The Directors may resolve to capitalise: |
| (a) | any part of the Company’s profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or |
| (b) | any sum standing to the credit of the Company's share premium account or capital redemption reserve, if any. |
| 24.2 | The amount resolved to be capitalised must be appropriated to the Members who would have been entitled to it had it been distributed by way of dividend and in the same proportions. The benefit to each Member so entitled must be given in either or both of the following ways:: |
| (a) | by paying up the amounts unpaid on that Member's Shares; |
| (b) | by issuing Fully Paid Up Shares, debentures or other securities of the Company to that Member or as that Member directs. The Directors may resolve that any Shares issued to the Member in respect of Partly Paid Up Shares (Original Shares) rank for dividend only to the extent that the Original Shares rank for dividend while those Original Shares remain Partly Paid Up. |
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Applying an amount for the benefit of Members
| 24.3 | The amount capitalised must be applied to the benefit of Members in the proportions to which the Members would have been entitled to dividends if the amount capitalised had been distributed as a dividend. |
| 24.4 | Subject to the Act, if a fraction of a Share, a debenture or other security is allocated to a Member, the Directors may issue a fractional certificate to that Member or pay him the cash equivalent of the fraction. |
| 25 | Share Premium Account |
Directors to maintain share premium account
| 25.1 | The Directors shall establish a share premium account in accordance with the Act. They shall carry to the credit of that account from time to time an amount equal to the amount or value of the premium paid on the issue of any Share or capital contributed or such other amounts required by the Act. |
Debits to share premium account
| 25.2 | The following amounts shall be debited to any share premium account: |
| (a) | on the redemption or purchase of a Share, the difference between the nominal value of that Share and the redemption or purchase price; and |
| (b) | any other amount paid out of a share premium account as permitted by the Act. |
| 25.3 | Notwithstanding the preceding Article, on the redemption or purchase of a Share, the Directors may pay the difference between the nominal value of that Share and the redemption purchase price out of the profits of the Company or, as permitted by the Act, out of capital. |
| 26 | Seal |
Company seal
| 26.1 | The Company may have a seal if the Directors so determine. |
Duplicate seal
| 26.2 | Subject to the provisions of the Act, the Company may also have a duplicate seal or seals for use in any place or places outside the Cayman Islands. Each duplicate seal shall be a facsimile of the original seal of the Company. However, if the Directors so determine, a duplicate seal shall have added on its face the name of the place where it is to be used. |
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When and how seal is to be used
| 26.3 | A seal may only be used by the authority of the Directors. Unless the Directors otherwise determine, a document to which a seal is affixed must be signed in one of the following ways: |
| (a) | by a Director (or his alternate) and the Secretary; or |
| (b) | by a single Director (or his alternate). |
If no seal is adopted or used
| 26.4 | If the Directors do not adopt a seal, or a seal is not used, a document may be executed in the following manner: |
| (a) | by a Director (or his alternate) and the Secretary; or |
| (b) | by a single Director (or his alternate); or |
| (c) | in any other manner permitted by the Act. |
Power to allow non-manual signatures and facsimile printing of seal
| 26.5 | The Directors may determine that either or both of the following applies: |
| (a) | that the seal or a duplicate seal need not be affixed manually but may be affixed by some other method or system of reproduction; |
| (b) | that a signature required by these Articles need not be manual but may be a mechanical or Electronic Signature. |
Validity of execution
| 26.6 | If a document is duly executed and delivered by or on behalf of the Company, it shall not be regarded as invalid merely because, at the date of the delivery, the Secretary, or the Director, or other Officer or person who signed the document or affixed the seal for and on behalf of the Company ceased to be the Secretary or hold that office and authority on behalf of the Company. |
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| 27 | Indemnity |
| 27.1 | To the extent permitted by law, the Company shall indemnify each existing or former Director (including alternate Director), Secretary and other Officer of the Company (including an investment adviser or an administrator or liquidator) and their personal representatives against: |
| (a) | all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former Director (including alternate Director), Secretary or Officer in or about the conduct of the Company's business or affairs or in the execution or discharge of the existing or former Director's (including alternate Director's), Secretary’s or Officer’s duties, powers, authorities or discretions; and |
| (b) | without limitation to paragraph (a), all costs, expenses, losses or liabilities incurred by the existing or former Director (including alternate Director), Secretary or Officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning the Company or its affairs in any court or tribunal, whether in the Cayman Islands or elsewhere. |
No such existing or former Director (including alternate Director), Secretary or Officer, however, shall be indemnified in respect of any matter arising out of his own dishonesty.
| 27.2 | To the extent permitted by Act, the Company may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former Director (including alternate Director), Secretary or Officer of the Company in respect of any matter identified in Article 27.1 on condition that the Director (including alternate Director), Secretary or Officer must repay the amount paid by the Company to the extent that it is ultimately found not liable to indemnify the Director (including alternate Director), Secretary or that Officer for those legal costs. |
Release
| 27.3 | To the extent permitted by Act, the Company may by Special Resolution release any existing or former Director (including alternate Director), Secretary or other Officer of the Company from liability for any loss or damage or right to compensation which may arise out of or in connection with the execution or discharge of the duties, powers, authorities or discretions of his office; but there may be no release from liability arising out of or in connection with that person’s own dishonesty. |
Insurance
| 27.4 | To the extent permitted by Act, the Company may pay, or agree to pay, a premium in respect of a contract insuring each of the following persons against risks determined by the Directors, other than liability arising out of that person’s own dishonesty: |
| (a) | an existing or former Director (including alternate Director), Secretary or Officer or auditor of: |
| (i) | the Company; |
| (ii) | a company which is or was a subsidiary of the Company; |
| (iii) | a company in which the Company has or had an interest (whether direct or indirect); and |
| (b) | a trustee of an employee or retirement benefits scheme or other trust in which any of the persons referred to in paragraph (a) is or was interested. |
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| 28 | Notices |
Form of notices
| 28.1 | Save where these Articles provide otherwise, and subject to the Designated Stock Exchange Rules (to the extent applicable), any notice to be given to or by any person pursuant to these Articles shall be: |
| (a) | in writing signed by or on behalf of the giver in the manner set out below for written notices; or |
| (b) | subject to the next Article, in an Electronic Record signed by or on behalf of the giver by Electronic Signature and authenticated in accordance with Articles about authentication of Electronic Records; or |
| (c) | where these Articles expressly permit, by the Company by means of a website. |
Electronic communications
| 28.2 | A notice may only be given to the Company in an Electronic Record if: |
| (a) | the Directors so resolve or otherwise accept the notice; |
| (b) | any Director or Officer provides the giver of the notice an electronic address to which the notice may be sent and a notice is sent to that address within a reasonable period of time. |
| 28.3 | A notice may not be given by Electronic Record to a person other than the Company unless the recipient has notified the giver of an Electronic address to which notice may be sent. |
| 28.4 | Subject to the Act, (to the extent applicable) the Designated Stock Exchange Rules and to any other rules which the Company is bound to follow, the Company may also send any notice or other document pursuant to these Articles to a Member by publishing that notice or other document on a website. |
Persons entitled to notices
| 28.5 | For so long as the Shares are listed on a Designated Stock Exchange, any notice or other document to be given to a Member may be given by reference to the register of Members as it stands at any time within the period of twenty-one days before the day that the notice is given or (where and as applicable) within any other period permitted by, or in accordance with the requirements of, (to the extent applicable) the Designated Stock Exchange Rules and/or the Designated Stock Exchanges. No change in the register of Members after that time shall invalidate the giving of such notice or document or require the Company to give such item to any other person. |
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Persons authorised to give notices
| 28.6 | A notice by either the Company or a Member pursuant to these Articles may be given on behalf of the Company or a Member by a Director or company secretary of the Company or a Member. |
Delivery of written notices
| 28.7 | Save where these Articles provide otherwise, a notice in writing may be given personally to the recipient, or left at (as appropriate) the Member’s or Director’s registered address or the Company’s registered office, or posted to that registered address or registered office. |
Joint holders
| 28.8 | Where Members are joint holders of a Share, all notices shall be given to the Member whose name first appears in the register of Members. |
Signatures
| 28.9 | A written notice shall be signed when it is autographed by or on behalf of the giver, or is marked in such a way as to indicate its execution or adoption by the giver. |
| 28.10 | An Electronic Record may be signed by an Electronic Signature. |
Evidence of transmission
| 28.11 | A notice given by Electronic Record shall be deemed sent if an Electronic Record is kept demonstrating the time, date and content of the transmission, and if no notification of failure to transmit is received by the giver. |
| 28.12 | A notice given in writing shall be deemed sent if the giver can provide proof that the envelope containing the notice was properly addressed, pre-paid and posted, or that the written notice was otherwise properly transmitted to the recipient. |
| 28.13 | A Member present, either in person or by proxy, at any meeting of the Company or of the holders of any class of Shares shall be deemed to have received due notice of the meeting and, where requisite, of the purposes for which it was called. |
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Giving notice to a deceased or bankrupt Member
| 28.14 | A notice may be given by the Company to the persons entitled to a Share in consequence of the death or bankruptcy of a Member by sending or delivering it, in any manner authorised by these Articles for the giving of notice to a Member, addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt or by any like description, at the address, if any, supplied for that purpose by the persons claiming to be so entitled. |
| 28.15 | Until such an address has been supplied, a notice may be given in any manner in which it might have been given if the death or bankruptcy had not occurred. |
Date of giving notices
| 28.16 | A notice is given on the date identified in the following table |
| Method for giving notices | When taken to be given |
| (A) Personally | At the time and date of delivery |
| (B) By leaving it at the Member's registered address | At the time and date it was left |
| (C) By posting it by prepaid post to the street or postal address of that recipient | 48 hours after the date it was posted |
| (D) By Electronic Record (other than publication on a website), to recipient's Electronic address | On the day on which it is transmitted from the server of the Company or its agent |
| (E) By publication on a website | On the day the notice or document is published on the website |
Saving provision
| 28.17 | None of the preceding notice provisions shall derogate from the Articles about the delivery of written resolutions of Directors and written resolutions of Members. |
| 29 | Authentication of Electronic Records |
Application of Articles
| 29.1 | Without limitation to any other provision of these Articles, any notice, written resolution or other document under these Articles that is sent by Electronic means by a Member, or by the Secretary, or by a Director or other Officer of the Company, shall be deemed to be authentic if either Article 29.2 or Article 29.4 applies. |
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Authentication of documents sent by Members by Electronic means
| 29.2 | An Electronic Record of a notice, written resolution or other document sent by Electronic means by or on behalf of one or more Members shall be deemed to be authentic if the following conditions are satisfied: |
| (a) | the Member or each Member, as the case may be, signed the original document, and for this purpose Original Document includes several documents in like form signed by one or more of those Members; and |
| (b) | the Electronic Record of the Original Document was sent by Electronic means by, or at the direction of, that Member to an address specified in accordance with these Articles for the purpose for which it was sent; and |
| (c) | Article 29.7 does not apply. |
| 29.3 | For example, where a sole Member signs a resolution and sends the Electronic Record of the original resolution, or causes it to be sent, by facsimile transmission to the address in these Articles specified for that purpose, the facsimile copy shall be deemed to be the written resolution of that Member unless Article 29.7 applies. |
Authentication of document sent by the Secretary or Officers of the Company by Electronic means
| 29.4 | An Electronic Record of a notice, written resolution or other document sent by or on behalf of the Secretary or an Officer or Officers of the Company shall be deemed to be authentic if the following conditions are satisfied: |
| (a) | the Secretary or the Officer or each Officer, as the case may be, signed the original document, and for this purpose Original Document includes several documents in like form signed by the Secretary or one or more of those Officers; and |
| (b) | the Electronic Record of the Original Document was sent by Electronic means by, or at the direction of, the Secretary or that Officer to an address specified in accordance with these Articles for the purpose for which it was sent; and |
| (c) | Article 29.7 does not apply. |
This Article 29.4 applies whether the document is sent by or on behalf of the Secretary or Officer in his own right or as a representative of the Company.
| 29.5 | For example, where a sole Director signs a resolution and scans the resolution, or causes it to be scanned, as a PDF version which is attached to an email sent to the address in these Articles specified for that purpose, the PDF version shall be deemed to be the written resolution of that Director unless Article 29.7 applies. |
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Manner of signing
| 29.6 | For the purposes of these Articles about the authentication of Electronic Records, a document will be taken to be signed if it is signed manually or in any other manner permitted by these Articles. |
Saving provision
| 29.7 | A notice, written resolution or other document under these Articles will not be deemed to be authentic if the recipient, acting reasonably: |
| (a) | believes that the signature of the signatory has been altered after the signatory had signed the original document; or |
| (b) | believes that the original document, or the Electronic Record of it, was altered, without the approval of the signatory, after the signatory signed the original document; or |
| (c) | otherwise doubts the authenticity of the Electronic Record of the document |
and the recipient promptly gives notice to the sender setting the grounds of its objection. If the recipient invokes this Article, the sender may seek to establish the authenticity of the Electronic Record in any way the sender thinks fit.
| 30 | Transfer by way of continuation |
| 30.1 | The Company may, by Special Resolution, resolve to be registered by way of continuation in a jurisdiction outside: |
| (a) | the Cayman Islands; or |
| (b) | such other jurisdiction in which it is, for the time being, incorporated, registered or existing. |
| 30.2 | To give effect to any resolution made pursuant to the preceding Article, the Directors may cause the following: |
| (a) | an application be made to the Registrar of Companies of the Cayman Islands to deregister the Company in the Cayman Islands or in the other jurisdiction in which it is for the time being incorporated, registered or existing; and |
| (b) | all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
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| 31 | Winding up |
Distribution of assets in specie
| 31.1 | If the Company is wound up the Members may, subject to these Articles and any other sanction required by the Act, pass a Special Resolution allowing the liquidator to do either or both of the following: |
| (a) | to divide in specie among the Members the whole or any part of the assets of the Company and, for that purpose, to value any assets and to determine how the division shall be carried out as between the Members or different classes of Members; and/or |
| (b) | to vest the whole or any part of the assets in trustees for the benefit of Members and those liable to contribute to the winding up. |
No obligation to accept liability
| 31.2 | No Member shall be compelled to accept any assets if an obligation attaches to them. |
| 31.3 | The Directors are authorised to present a winding up petition |
| 31.4 | The Directors have the authority to present a petition for the winding up of the Company to the Grand Court of the Cayman Islands on behalf of the Company without the sanction of a resolution passed at a general meeting. |
| 32 | Amendment of Memorandum and Articles |
Power to change name or amend Memorandum
| 32.1 | Subject to the Act, the Company may, by Special Resolution: |
| (a) | change its name; or |
| (b) | change the provisions of its Memorandum with respect to its objects, powers or any other matter specified in the Memorandum. |
Power to amend these Articles
| 32.2 | Subject to the Act and as provided in these Articles, the Company may, by Special Resolution, amend these Articles in whole or in part. |
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Exhibit 2.2
Description of Rights of Each Class of Securities
Registered under Section 12 of the Securities Exchange Act of 1934, as Amended (the “Exchange Act”)
Class A ordinary shares, par value US$0.0001 per share (“Class A Ordinary Shares”) of Pheton Holdings Ltd. (“we,” “our,” “our company,” or “us”) are listed and traded on the Nasdaq Capital Market, and in connection with this listing (but not for trading), its Class A Ordinary Shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of the holders of Class A Ordinary Shares.
Description of Class A Ordinary Shares
The following is a summary of material provisions of our third amended and restated memorandum and articles of association (the “Memorandum and Articles of Association”) as well as the Companies Act (Revised) of the Cayman Islands (the “Companies Act”) insofar as they relate to the material terms of our Class A Ordinary Shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entirety of our Memorandum and Articles of Association, which have been filed herein as Exhibit 1.1.
Type and Class of Securities (Item 9.A.5 of Form 20-F)
Each Class A Ordinary Share has a par value of US$0.0001 per share. The number of Class A Ordinary Shares that have been issued as of the last day of the financial year ended December 31, 2025 is provided on the cover of the annual report on Form 20-F (the “2024 Form 20-F”).
Preemptive Rights (Item 9.A.3 of Form 20-F)
The holders of our Class A Ordinary Shares do not have pre-emptive rights under the Companies Act or pursuant to our Memorandum and Articles of Association.
Limitations or Qualifications (Item 9.A.6 of Form 20-F)
We have a multi-class voting structure such that our ordinary shares consist of Class A Ordinary Shares and Class B ordinary shares of par value US$0.0001 each (“Class B Ordinary Shares”). In respect of matters requiring a shareholder vote, each holder of Class A Ordinary Shares will be entitled to one vote per one Class A Ordinary Share and each holder of Class B Ordinary Shares will be entitled to twenty votes per one Class B Ordinary Share. The Class B Ordinary Share is convertible into Class A Ordinary Share at any time after issuance at the option of the holder on a one-to-one basis. The Class A Ordinary Shares are not convertible into the Class B Ordinary Shares under any circumstances. Due to the super voting power of holders of Class B Ordinary Shares, the voting power of the Class A Ordinary Shares may be materially limited.
Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)
Not applicable.
Rights of Class A Ordinary Shares (Item 10.B.3 of Form 20-F)
Ordinary Shares
Our authorized share capital is $50,000 divided into 400,000,000 Class A Ordinary Shares, par value $0.0001 per share and 100,000,000 Class B Ordinary Shares, par value $0.0001 per share. Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for voting, conversion, and transfer rights.
Dividends
Subject to the provisions of the Companies Act and any rights attaching to any class or classes of shares under and in accordance with the Memorandum and Articles of Association: (a) the directors may declare dividends or distributions out of our funds which are lawfully available for that purpose; and (b) our shareholders may, by ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors.
Subject to the requirements of the Companies Act regarding the application of a company’s share premium account and with the sanction of an ordinary resolution, dividends may also be declared and paid out of any share premium account. The directors when paying dividends to shareholders may make such payment either in cash or in specie.
Unless provided by the rights attached to a share, no dividend shall bear interest.
Unclaimed Dividend
A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, our company.
Voting Rights
On a poll, every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote for each Class A Ordinary Share and twenty (20) votes for each Class B Ordinary Share of which he or the person represented by proxy is the holder. Unless otherwise required under the Companies Act or by these articles, holders of Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the shareholders.
Conversion Rights
Class A Ordinary Shares are not convertible. Class B Ordinary Shares are convertible, at the option of the holder thereof, into Class A Ordinary Shares on a one-to-one basis.
General Meetings of Shareholders
As a Cayman Islands exempted company, we are not obligated by the Companies Act to call shareholders’ annual general meetings; accordingly, we may, but shall not be obliged to, in each year hold a general meeting as an annual general meeting. Any annual general meeting held shall be held at such time and place as may be determined by our board of directors. All general meetings other than annual general meetings shall be called extraordinary general meetings.
The directors may convene general meetings whenever they think fit. General meetings shall also be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than ten percent of the rights to vote at such general meeting in accordance with the notice provisions in the Memorandum and Articles of Association, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than 21 clear days’ after the date of receipt of the requisition, those shareholders who requested the meeting may convene the general meeting themselves within three months after the end of such period of 21 clear days in which case reasonable expenses incurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us.
At least five clear days’ notice of a general meeting shall be given to shareholders entitled to attend and vote at such meeting. The notice shall specify the place, the day and the hour of the meeting and the general nature of that business. In addition, if a resolution is proposed as a special resolution, the text of that resolution shall be given to all shareholders. Notice of every general meeting shall also be given to the directors and our auditors.
Subject to the Companies Act and with the consent of the shareholders who, individually or collectively, hold at least 90 percent of the voting rights of all those who have a right to vote at a general meeting, a general meeting may be convened on shorter notice.
A quorum shall consist of the presence (whether in person or represented by proxy) of one or more shareholders holding shares that represent not less than one-third of the outstanding shares carrying the right to vote at such general meeting.
If, within 15 minutes from the time appointed for the general meeting, or at any time during the meeting, a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be canceled. In any other case it shall stand adjourned to the same time and place seven days hence, or to such other time or place as is determined by the directors.
The chairman may, with the consent of a meeting at which a quorum is present, adjourn the meeting. When a meeting is adjourned for more than seven clear days, notice of the adjourned meeting shall be given in accordance with the Memorandum and Articles of Association.
At any general meeting a resolution put to the vote of the meeting shall be decided on a poll.
A poll shall be taken in such manner as the chairman directs.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting shall be entitled to a second or casting vote.
Transfer of Shares
Provided that a transfer of Class A Ordinary Shares complies with applicable rules of the Nasdaq Capital Market, a shareholder may transfer Class A Ordinary Shares or Class B Ordinary Shares to another person by completing an instrument of transfer in a common form or, with respect to Class A Ordinary Shares, in a form prescribed by Nasdaq, or in any other form approved by the directors, executed:
(a) where the Class A Ordinary Shares or Class B Ordinary Shares are fully paid, by or on behalf of that shareholder; and
(b) where the Class A Ordinary Shares or Class B Ordinary Shares are partly paid, by or on behalf of that shareholder and the transferee.
The transferor shall be deemed to remain the holder of a Class A Ordinary Share or Class B Ordinary Share until the name of the transferee is entered into the register of members of our company.
The instrument of transfer of any ordinary share shall be in writing and in any usual or common form or such other form as the directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up share, or if so required by the directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the ordinary shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a shareholder until the name of the transferee is entered in the register of members in respect of the relevant shares.
The directors may in their absolute discretion decline to register any transfer of shares which is not fully paid up or on which our company has a lien. The directors may also, but are not required to, decline to register any transfer of any share unless:
(a) the instrument of transfer is lodged with our company, accompanied by the certificate for the Class A Ordinary Shares or Class B Ordinary Shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
(b) the instrument of transfer is in respect of only one class of shares;
(c) the instrument of transfer is properly stamped, if required;
(d) the Class A Ordinary Share or Class B Ordinary Share transferred is fully paid and free of any lien in favor of us; (e) any fee related to the transfer has been paid to us; and
(f) the transfer is not to more than four joint holders.
If our directors refuse to register a transfer, they are required, within three months after the date on which the instrument of transfer was lodged, to send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, on 14 calendar days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and our register of members closed at such times and for such periods as our board of directors may from time to time determine. The registration of transfers, however, may not be suspended, and the register may not be closed, for more than 30 days in any year.
In addition, upon any sale, transfer, assignment, or disposition of Class B Ordinary Shares by a holder to a non-affiliate, the Class B Ordinary Shares shall be immediately and automatically converted into such number of Class A Ordinary Shares based on a one-to-one basis. It is clarified that the sale, transfer, assignment, or disposition shall be deemed effective only upon the registration of such transaction in our company’s register of members. The creation of a pledge, charge, encumbrance, or other third-party right on any Class B Ordinary Shares shall not be considered as a sale, transfer, assignment, or disposition unless and until it is enforced and the third party holds fee simple ownership interest in the Class B Ordinary Shares. In such a case, the Class B Ordinary Shares shall be converted automatically into Class A Ordinary Shares upon the registration of the third party or its designee as a shareholder holding an equal number of Class A Ordinary Shares in the register of members.
Liquidation
If we are wound up, the shareholders may, subject to the Memorandum and Articles of Association and any other sanction required by the Companies Act, pass a special resolution allowing the liquidator to do either or both of the following:
(a) to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and
(b) to vest the whole or any part of the assets in trustees for the benefit of shareholders and those liable to contribute to the winding up.
The directors have the authority to present a petition for our winding up to the Grand Court of the Cayman Islands on our behalf without the sanction of a resolution passed at a general meeting.
Forfeiture or Surrender of Shares
If a shareholder fails to pay any call, the directors may give to such shareholder not less than 14 clear days’ notice requiring payment and specifying the amount unpaid including any interest which may have accrued, any expenses which have been incurred by us due to that person’s default and the place where payment is to be made. The notice shall also contain a warning that if the notice is not complied with, the shares in respect of which the call is made will be liable to be forfeited.
If such notice is not complied with, the directors may, before the payment required by the notice has been received, resolve that any share the subject of that notice be forfeited (which forfeiture shall include all dividends or other monies payable in respect of the forfeited share and not paid before such forfeiture).
A forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the directors determine and at any time before a sale, re-allotment or disposition the forfeiture may be canceled on such terms as the directors think fit.
A person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, notwithstanding such forfeiture, remain liable to pay to us all monies which at the date of forfeiture were payable by him to us in respect of the shares, together with all expenses and interest from the date of forfeiture or surrender until payment, but his liability shall cease if and when we receive payment in full of the unpaid amount.
A declaration, whether statutory or under oath, made by a director or the secretary shall be conclusive evidence that the person making the declaration is a director or secretary and that the particular shares have been forfeited or surrendered on a particular date.
Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the shares.
Redemption, Repurchase and Surrender of Shares
Subject to the Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, we may by action of our directors:
(a) issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner our directors determine before the issue of those shares;
(b) with the consent by special resolution of the shareholders holding shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and
(c) purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase.
We may make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Act, including out of any combination of capital, our profits and the proceeds of a fresh issue of shares.
When making a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares, or otherwise by agreement with the shareholder holding those shares.
Inspection of Books and Records
Holders of our Class A Ordinary Shares and Class B Ordinary Shares will have no general right under the Companies Act to inspect or obtain copies of our register of members or our corporate records (except for the memorandum and articles of association of our company, any special resolutions passed by our company and the register of mortgages and charges of our company).
Requirements to Change the Rights of Holders of Ordinary Shares (Item 10.B.4 of Form 20-F)
Variations of Rights of Shares
Whenever our capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of not less than two-thirds of the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two-thirds of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
Unless the terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any class shall not be deemed to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that class.
Limitations on the Rights to Own Ordinary Shares (Item 10.B.6 of Form 20-F)
There are no limitations under the Companies Act or imposed by Memorandum and Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares.
Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)
Anti-Takeover Provisions
Some provisions of Memorandum and Articles of Association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
| · | each Class B Ordinary Share is entitled to twenty votes on all matters subject to vote at general meetings of our company; and |
| · | limit the ability of shareholders to requisition and convene general meetings of shareholders. |
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles of Association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Ownership Threshold (Item 10.B.8 of Form 20-F)
There are no provisions in our Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.
Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)
Cayman Islands companies are governed by the Companies Act. The Companies Act is modeled on English Law but does not follow recent English Law statutory enactments, and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the material differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company.
In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by a special resolution of the shareholders of each constituent company, and such other authorization, if any, as may be specified in such constituent company’s articles of association. A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman Islands subsidiary if a copy of the plan of merger is given to every member of that Cayman Islands subsidiary to be merged unless that member agrees otherwise. For this purpose, a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.
The written plan of merger or consolidation must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by a Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is affected in compliance with these statutory procedures.
In addition, the Companies Act contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement in question is approved by (i) 75% in value of the members or class of members or (ii) a majority in number representing 75% in value of the creditors or class of creditors, in each case depending on the circumstances, as are present and voting either in person or by proxy at a meeting or meetings convened for that purpose, and thereafter sanctioned by the Grand Court of the Cayman Islands. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
| ● | the statutory provisions as to the required majority vote have been met; |
| ● | the shareholders have been fairly represented at the meeting in question; |
| ● | the arrangement is such as an intelligent and honest man of that class acting in respect of his interest would reasonably approve; and |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act. |
Squeeze-out Provisions. When a takeover offer is made and accepted by holders of not less than 90% in value of the shares for which the offer has been made, the offeror may, at any time within a two-month period after the approval by the said holders, give notice to require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands by a dissenting shareholder within one month from the date on which the notice was given but this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a takeover offer is made and accepted in accordance with the foregoing statutory procedures, the dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
| ● | a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders; |
| ● | the act complained of, although not ultra vires, could only be affected duly if authorized by more than a simple majority vote that has not been obtained; and |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
Indemnification of Directors and Executive Officers and Limitation of Liability. The Companies Act does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
Our Memorandum and Articles of Association permit, in the absence of fraud or willful default, indemnification of officers and directors for costs, losses, damages and expenses, which such director or officers in any way in or about the execution of his duties incurred in connection with legal, administrative or investigative proceedings incurred in their capacities as such.
This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, our offer letters to our independent directors and our employment agreements with our executive officers provide such persons with additional indemnification beyond that provided in our Memorandum and Articles of Association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware General Corporation Law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he or she owes the following duties to the company: a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so), and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent in its certificate of incorporation. Cayman Islands law and our Memorandum and Articles of Association provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual general meeting, provided it complies with the notice provisions in the governing documents. An extraordinary general meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders any right to put proposals before a general meeting or requisition a general meeting. However, these rights may be provided in articles of association. Our Memorandum and Articles of Association allows our shareholders holding not less than 10% of all voting power of our share capital in issue to requisition a general meeting. Other than this right to requisition a general meeting, our Memorandum and Articles of Association does not provide our shareholders other rights to put a proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to call annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our Memorandum and Articles of Association does not provide for cumulative voting. As a result, our shareholders are not afforded any fewer protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Memorandum and Articles of Association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute in its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
The Cayman Islands has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under the Companies Act, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Companies Act and our Memorandum and Articles of Association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by the Companies Act, our Memorandum and Articles of Association may only be amended with a special resolution of our shareholders.
Changes in Capital (Item 10.B.10 of Form 20-F)
Subject to the Companies Act, we may, by ordinary resolution:
(a) increase our share capital by new shares of the amount fixed by that ordinary resolution and with the attached rights, priorities and privileges set out in that ordinary resolution; (b) consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;
(c) convert all or any of our paid up shares into stock, and reconvert that stock into paid up shares of any denomination;
(d) sub-divide our shares or any of them into shares of an amount smaller than that fixed, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and
(e) cancel shares which, at the date of the passing of that ordinary resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so canceled or, in the case of shares without nominal par value, diminish the number of shares into which our capital is divided.
Subject to the Companies Act and to any rights for the time being conferred on the shareholders holding a particular class of shares, we may, by special resolution, reduce our share capital in any way.
Debt Securities (Item 12.A of Form 20-F)
Not applicable.
Warrants and Rights (Item 12.B of Form 20-F)
Not applicable.
Other Securities (Item 12.C of Form 20-F)
Not applicable.
Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)
Not applicable.
Exhibit 4.5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this “Agreement”) made effective as of August 27th, 2025 (the “Effective Date”), by and among iTonic Corporation, a Delaware corporation (the “Target”), the current shareholder listed members (the “Selling Shareholders”), each being a shareholder of the Target, and Pheton Holdings Ltd, a company whose Class A ordinary shares are listed on the Nasdaq Capital Market under the symbol “PTHL” (“Buyer”), each of the Target, Selling Shareholder, and the Buyer shall be referred to herein as a “Party” and collectively, the “Parties.”
WHEREAS, the Buyer desires to acquire from the Selling Shareholders the number of shares of the Target set forth opposite their respective names in Exhibit A (the “Sold Shares”), pursuant to the terms and conditions set forth in this Agreement; and
WHEREAS, as consideration for the sale and transfer of such shares of the Target to the Buyer, the Buyer shall issue to the Selling Shareholders an aggregate of 4,000,000 newly issued Class A ordinary shares of the Buyer (the “Buyer Shares”) and up to 3,000,000 warrants to purchase Class A ordinary shares of the Buyer (the “Warrants”), all on the terms set forth herein; and
WHEREAS, the Parties have agreed that as result of the transaction contemplated herein, Buyer shall receive at Closing 5,100 shares of common stock, representing 51.00% of the issued and outstanding share capital of the Target as of the Closing Date on a Fully Diluted Basis.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Parties hereby agree as follows:
| 1. | Definitions |
| 1.1. | For purposes hereof: |
“Accounts Date” means December 31, 2024.
“Affiliate” means with respect to any person or entity, any person or entity directly or indirectly, through one or more intermediaries, Controlling such person, Controlled by or under common control with such person or entity. For this purpose: “Control” shall mean : (i) the ability to direct, or cause the direction of, the management and policies of the relevant person, whether through the ownership of voting securities, by contract or otherwise, and whether directly or indirectly, or (ii) the beneficial ownership (directly or indirectly, including through one or more intermediaries) of 50% or more of the ownership interests in such person, including the issued and outstanding share capital, voting rights or other ownership interests or the right to appoint the majority of the directors (or the equivalent thereof) in such person.
“Applicable Laws” means all laws, regulations, directives, statutes, subordinate legislation, all judgments, orders, notices, instructions, decisions and awards of any court or competent authority or tribunal exercising statutory or delegated powers issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity and all statutory guidance and policy notes having a force of law, in each case to the extent applicable to the parties or any of them or as the context requires.
“Business Day” means a day other than: (i) any Friday, Saturday or Sunday, or (ii) any other day on which commercial banks in People’s Republic of China or United Stated of America are generally closed for business.
“Closing Date” means August 27th, 2025.
“Closing Failure” means the failure of the Closing to occur on or before the Closing Date (or such other date as the Parties may agree in writing), due to any reason not caused by or agreed to in writing by both the Buyer and the Seller. For the avoidance of doubt, a Closing Failure shall be deemed to have occurred in any of the following circumstances: (i) unfulfillment of any of the conditions set forth in Sections 3.2 to 3.4; (ii) breach of representations and warranties as set forth in Sections 6, 7, and/or 8;
“Common Stock” means shares of common stock of the Target;
“DGCL” means the Delaware General Corporation Law;
“Disclosed” means fully, fairly and specifically disclosed in the Disclosure Schedule.
“Encumbrances” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, option, right of first refusal, right of first negotiation, right of first notice, preemptive right, title reversion agreement, easement, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement except for any encumbrance or other restriction imposed directly pursuant to this Agreement or under any applicable law.
“FDA” means U.S. Food & Drug Administration.
“CFIUS” means the Committee on Foreign Investment in the United States (CFIUS).
“DPA” means the Defense Production Act of 1950, as amended, including all implementing regulations thereof.
“DPA Triggering Rights” means (i) “control” (as defined in the DPA); (ii) access to any “material non-public technical information” (as defined in the DPA) in the possession of the Target; (iii) membership or observer rights on the board of directors or equivalent governing body of the Target or the right to nominate an individual to a position on the board of directors or equivalent governing body of the Target; (iv) any involvement, other than through the voting of shares, in substantive decision-making of the Target regarding (x) the use, development, acquisition or release of any Target “critical technology” (as defined in the DPA); (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the Target, or (z) the management, operation, manufacture, or supply of“covered investment critical infrastructure” (as defined in the DPA).
“FCPA” U.S. Foreign Corrupt Practices Act of 1977, as amended.
“Financial Statements” means the annual financial statements (including balance sheet, income statement and statement of cash flows) of the Target prepared in accordance with U.S. GAAP and audited by a Reputable International Accounting Firm.
“Fully Diluted Basis” means with respect to any person, all issued and outstanding share capital of any class, warrants, options, convertible loans, rights and convertible securities of such person, all on an as-if exercised and as-converted basis (including all rights and promises of any kind that could directly or indirectly result in any right to receive or purchase any of the foregoing).
“GAAP” means generally accepted accounting principles in the United States, applied on a consistent basis throughout the periods indicated.
“Governmental Entity” means any government or governmental or regulatory body thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any competent court or arbitral body, exercising executive, legislative, judicial, regulatory or administrative functions, including but not limited to the SEC, the FDA and any applicable tax authority.
“Intellectual Property” means patents, utility models, trademarks, service marks, trade and business names, registered designs, design rights, copyright rights, trade secrets, confidential information of all kinds and other similar proprietary rights which may subsist in any part of the world and whether registered or not, including, where such rights are obtained or enhanced by registration, any registration of such rights and rights to apply for such registrations;
“Material Adverse Effect” means an effect, event, circumstance, development or change that is materially adverse to the business, assets (including intangible assets), liabilities, condition (financial or otherwise) property or results of operation of the Target (calculated on the basis of consolidating the financial results of the Target), except that any effect to the extent resulting or arising from any of the following shall not be considered when determining whether a Material Adverse Effect has occurred: (a) any changes to global or local economic, political, financial or securities market conditions; (b) any changes or developments in conditions in the industries or markets in which the Target operates, (c) any act of war (whether or not declared), armed hostilities or terrorism, or any escalation or worsening of any such act of war, armed hostilities or terrorism threatened or underway as of the date of this Agreement; (d) any changes in applicable laws or regulations or GAAP or other accounting standards or the interpretation thereof which are applicable to the Target); (e) any effect, event, circumstance, development or change resulting from the announcement of the Transaction or the identity of the Buyer; or (f) any material international or national calamity or earthquake, hurricane, pandemic or other natural disaster or act of God; provided, that in each case of the preceding clauses, such condition or change does not have a disproportionate effect on the Target relative to similarly situated businesses in the industries and jurisdictions in which the Target operates.
“Milestone” and “Milestones” means any of Milestone I through Milestone XII as set forth in the Progress Schedule as Exhibit B.
“Permits” means any approvals, authorizations, consents, licenses or permits of a Governmental Entity.
“Person” or “person” means (i) any individual, firm, company, limited liability company, joint stock corporation or other company, governmental body, joint venture, association, trust or partnership, works council, or any other entity of any kind (whether or not having a separate legal personality), and (ii) a reference to that person’s legal personal representatives and successors;
“Post-Closing Tax Period” means any Tax period beginning after the Closing Date.
“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date.
“Progress Schedule” means the schedule set forth in Exhibit B describing the operational performance requirements of the Target that will govern (i) the release of the lock-up restrictions on the Buyer Shares issued at Closing, which shall be subject to the Target’s prior written consent, and (ii) the exercisability of the Warrants issued at Closing, in each case notwithstanding that all such Buyer Shares and Warrants will be issued in full at the Closing.
“Reputable International Accounting Firm” means a firm of independent certified public accountants of internationally recognized standing, with a proven professional reputation, substantial experience, and demonstrated competence in accounting and audit matters, as mutually agreed in writing by the Parties.
“SEC” means the U.S. Securities and Exchange Commission.
“Settlement” means any settlement, compromise, or consent to the entry of judgment.
“Tax” means (i) any federal, state, local or municipal, or non-U.S. Income Tax, gross receipts, capital gains, capital stock, transfer, sales, use, goods and services, harmonized, occupation, property, escheat, abandoned or unclaimed property, excise, estimated, severance, windfall profits, stamp, duty, license, payroll, withholding, ad valorem, value added, alternative minimum, environmental, customs, social security (or similar), unemployment, disability, registration or any other taxes, assessments, charges, duties, fees, levies, imposts or other similar governmental charges of any kind whatsoever, whether disputed or not, together with all estimated taxes, fines, deficiency assessments, additions to tax, penalties and interest; (ii) any Liability for the payment of any amounts of the type described in clause (i) arising as a result of being (or having been) a member of any affiliated group (or being included (or required to be included) in any Tax Return relating thereto); and (iii) any Liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the Liability of any other Person, including as a transferee or successor, by contract or otherwise.
“Tax Return” means any report, return, document, statement, declaration, information return or other filing supplied, or required to be supplied, to any Taxing Authority in connection with the determination, assessment, or collection of Taxes, including any attachment, schedule or supplement thereto or amendment thereof.
“Taxing Authority” means any Governmental Entity having jurisdiction over the assessment, determination, collection or imposition of any Tax.
“TID U.S. Business” means any U.S. business that: (i) produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies; (ii) owns, operates, manufactures, supplies, or services covered investment critical infrastructure; or (iii) maintains or collects, directly or indirectly, sensitive personal data of U.S. citizens.
“Transaction Documents” means this Agreement, Lock-up Agreement, Warrant Agreement, and all other documents and contractual obligations to be executed and delivered in connection herewith and therewith.
| 1.2. | Terms not defined in Section 1.1, shall have the meaning ascribed to them anywhere else in this Agreement. |
| 1.3. | Words and defined terms denoting the singular number include the plural and vice versa and the use of any gender shall be applicable to all genders. |
| 1.4. | The paragraph headings are for the sake of convenience only and shall not affect the interpretation of this Agreement. The word “includes” and “including” and their syntactical variants mean “includes, but is not limited to” and “including, without limitation,” and corresponding syntactical variant expressions. |
| 1.5. | The recitals, schedules, appendices, annexes and exhibits hereto form an integral part of this Agreement. |
| 2. | The Transaction; The Closing. |
| 2.1. | Issuance of Shares and Warrants; Transfer of Sold Shares. At the Closing, (i) the Buyer shall issue and allot to the Selling Shareholders an aggregate of 4,000,000 newly issued Class A ordinary shares of the Buyer, or the “Buyer Shares,” and warrants to purchase up to 3,000,000 Class A ordinary shares of the Buyer, or the “Warrants,” in each case subject to the terms and conditions of the lock-up agreement and the warrant agreement attached hereto as Exhibit C and Exhibit D, respectively; and (ii) the Selling Shareholders shall sell, assign, transfer, and deliver to the Buyer their respective Sold Shares in the Target, free and clear of any Liens, as listed in Exhibit A, against receipt of the Buyer Shares and Warrants. |
| 2.2. | Closing. The closing of the transactions contemplated hereby (the “Closing”) shall take place remotely via the exchange of documents and signatures on the seventh (7th) Business Day after the date on which all of the conditions to the Closing set forth in Sections 3.2, 3.3, and 3.4 shall have been satisfied or waived by the Party entitled to waive the same (other than those conditions which, by their terms, are to be satisfied or waived at the Closing), or at such other time and place as the Buyer and the Selling Shareholders may jointly designate. The date on which the Closing actually occurs is referred to herein as the “Closing Date.” |
| 3. | Actions at Closing and Conditions Precedent. |
| 3.1. | Actions at Closing. At the Closing, the following actions shall occur, all of which shall be deemed to take place simultaneously and no action shall be deemed to have been completed or any document shall be deemed to have been delivered until all such actions have been completed and all such documents have been delivered (unless waived in writing by the relevant Party for whose benefit such action should have been completed or such document or certificate should have been delivered): |
| 3.1.1. | Resolutions. Each of the Parties shall deliver to the other Parties copies of the resolutions and consents of its requisite organs approving the execution, delivery and performance by such Party of this Agreement and any other Transaction Documents it is a party to, including all of the transactions contemplated hereunder and thereunder and all exhibits and appendices attached hereto and thereto; |
| 3.1.2. | Deliverables by the Selling Shareholders and the Target. The Selling Shareholders and the Target shall deliver to the Buyer at Closing: |
| 3.1.2.1. | Shareholders’ Waivers. Waivers by all Selling Shareholders of any unexercised rights of first refusal, preemptive rights, co-sale rights, anti-dilution rights, or any other rights they may have in connection with the transfer of the Sold Shares to the Buyer; |
| 3.1.2.2. | Share Transfer Instruments. Validly executed instruments of transfer (and any necessary stock powers) transferring all Sold Shares from the Selling Shareholders to the Buyer, free and clear of all Liens; |
| 3.1.2.3. | Share Certificates and Register. (i) The share certificates representing the Sold Shares being transferred, duly endorsed for transfer to the Buyer, and (ii) an updated share register of the Target reflecting the Buyer as the sole holder of all issued shares; |
| 3.1.2.4. | Lock-Up and Warrant Agreements. The lock-up agreements and warrant agreements, duly executed by the applicable Selling Shareholders, in the forms attached hereto as Exhibit C and Exhibit D; |
| 3.1.2.5. | Indemnification Agreements. Indemnification Agreements validly executed by the Selling Shareholders/Target. |
| 3.1.2.6. | Other Closing Documents. Such other documents, certificates, and instruments as may be reasonably required by the Buyer to consummate the transactions contemplated hereby. |
| 3.2. | Conditions to Closing of all Parties. The Parties’ obligation to consummate the Closing is subject to the satisfaction and fulfillment, on or before the Closing, of each of the following conditions (any or all of which may be waived, in whole or in part, by the written consent of all Parties hereto, at their sole discretion): |
| 3.2.1. | Consents of Governmental Entities. All consents, approvals, and authorizations of Governmental Entities listed in Disclosure Schedule shall have been obtained and be effective as of the Closing; |
| 3.2.2. | No Injunction. No injunction, order, decree, or law of any Governmental Entity shall be in effect that restrains, prohibits, or makes illegal the consummation of the transactions contemplated hereby; and |
| 3.2.3. | No Proceedings. No legal proceeding shall be pending before any court or Governmental Entity seeking to restrain, prohibit, or materially delay the transactions contemplated hereby. |
| 3.3. | Conditions to Closing by Selling Shareholders. The obligation of the Selling Shareholders to consummate the Closing is subject to the satisfaction or waiver (by the Selling Shareholders, in their sole discretion) on or before the Closing of each of the following conditions: |
| 3.3.1. | Accurate Representations and Warranties. The representations and warranties of the Target and the Buyer contained in Section 6 and 8, respectively, shall have been true and correct when made and shall be true and correct in all material respects as of the Closing (except to the extent expressly made as of an earlier date). |
| 3.3.2. | Performance. The Buyer shall have performed and complied in all material respects with all covenants and obligations contained in this Agreement that are required to be performed or complied with by it on or prior to the Closing. |
| 3.3.3. | No Legal Restraint. No law, order, injunction or decree of any Governmental Entity shall be in effect that restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated by this Agreement. |
| 3.3.4. | Consents; Waivers; Approvals. All consents, approvals, notices and waivers required in connection with the sale and transfer of the Sold Shares (including any rights of first refusal, co-sale, preemptive rights or transfer restrictions under the Target’s organizational documents, shareholder agreements or other contracts) and any required filings with or approvals of Governmental Entities, shall have been obtained or made (or duly waived) and remain in full force and effect. |
| 3.3.5. | Buyer Deliveries; Consideration. The Buyer shall have delivered (a) the Buyer Shares and Warrants to the Selling Shareholders (or escrow agent, as applicable), and (b) all other Buyer closing deliverables required, and duly executed. If any Buyer equity or warrants are to be issued at Closing to the Target or into escrow pursuant to this Agreement, evidence reasonably satisfactory to the Selling Shareholders of such issuance or deposit shall have been provided. |
| 3.3.6. | Buyer Certificates; Authority. The Buyer shall have delivered customary certificates and evidence of corporate/organizational approvals authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. |
| 3.4. | Conditions to Closing by the Buyer. The Buyer’s obligation to consummate the Closing is subject to the satisfaction and fulfillment, on or before the Closing, of each of the following conditions (any or all of which may be waived, in whole or in part, by the Target, at its sole discretion): |
| 3.4.1. | Accurate Representations and Warranties. The representations and warranties of the Selling Shareholders set forth in Section 7 and of the Target set forth in Section 6 were true and correct when made and shall be true and correct in all material respects as of the Closing (except to the extent expressly made as of an earlier date). |
| 3.4.2. | Performance. The Selling Shareholders and the Target shall have performed and complied in all material respects with all covenants and obligations in this Agreement required to be performed or complied with by them on or prior to the Closing. |
| 3.4.3. | Consents; Waivers; Approvals. All consents, approvals, notices and waivers required in connection with the sale and transfer of the Sold Shares (including any rights of first refusal, co-sale rights, preemptive rights or transfer restrictions under the Target’s organizational documents, shareholder agreements or other contracts), and any required filings with or approvals of Governmental Entities, shall have been obtained or made (or duly waived) and remain in full force and effect. |
| 3.4.4. | Deliveries; Transfer of Title. The Selling Shareholders shall have delivered (a) certificates representing the Sold Shares (or evidence of book-entry positions) duly endorsed for transfer or accompanied by duly executed stock powers (with medallion guarantee if applicable), free and clear of Encumbrances (other than restrictions under applicable securities laws), and (b) all other closing deliverables required. The Selling Shareholders shall have delivered evidence reasonably satisfactory to the Buyer that the Target’s share register (or equivalent records/transfer ledger) has been, or at Closing will be, updated to reflect the Buyer as the record holder of the Sold Shares. |
| 3.4.5. | No Legal Restraint. No law, order, injunction or decree of any Governmental Entity shall be in effect that restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby. |
| 3.4.6. | No Material Adverse Effect. Since the date of this Agreement, no Material Adverse Effect with respect to the Target shall have occurred and be continuing as of the Closing. |
| 3.4.7. | Financial Statements. The Target shall have delivered to the Buyer the Financial Statements for the fiscal year ended December 31, 2024. |
| 4. | Post Closing Actions |
| 4.1. | Executive Officers. The individual serving as the chief executive officer of the Target immediately after the Closing will be the same individual (in the same office) as that of the Target immediately prior to the Closing. |
| 4.2. | Post Closing Financial Reporting. Following the Closing, and on quarterly, mid-year and annual basis thereafter, the Selling Shareholders and the Target shall prepare and deliver to the Buyer, within reasonably timelines as follows: |
| 4.2.1. | Reviewed quarterly and half-year financial statements (including balance sheet, income statement, and cash flows) as of each March 31, June 30, and September 30, and for the respective period then ended, for each calendar year until December 31, 2028, prepared in accordance with U.S. GAAP. |
| 4.2.2. | Audited financial statements (including balance sheet, income statement, and cash flow statement) as of, and for the year ended December 31 of each fiscal year until December 31, 2028, prepared in accordance with U.S. GAAP and audited by a reputable international accounting firm. |
| 4.3. | Foreign person Limitations. |
| 4.3.1. | For so long as Buyer holds any shares of capital stock of Target (directly or indirectly), if and for so long as the Target is determined to constitute a “TID U.S. business,” and the Buyer is determined to be a “foreign person” or a “foreign entity,” as defined in Section 721 of the DPA or pursuant to the regulations of CFIUS, the Buyer will immediately cease accessing, and cease permitting any foreign person affiliated with the Buyer, whether affiliated as a limited partner or otherwise, to obtain through the Buyer any Restricted Information, and will forfeit, cancel, terminate, and remove all such access for itself and all other foreign persons to the fullest extent possible. |
| 4.3.2. | If Buyer is determined to be a “foreign person” or a “foreign entity,” as defined in Section 721 of the DPA or pursuant to the regulations of CFIUS, and for so long as the Target is determined to constitute a “TID U.S. business,” the Target will not provide, and Buyer will immediately forfeit, cancel, terminate, and remove from itself and all other foreign persons to the fullest extent possible, to any DPA Triggering Rights. |
| 4.3.3. | If any governmental authority of competent jurisdiction determines that Buyer’s ownership or rights in the Target must be limited, forfeited, cancelled, or divested to avoid, mitigate, or remedy any violation of applicable Law, then Buyer will return, forfeit, and relinquish any number of shares of capital stock it holds in the Target, and any rights or privileges associated with any such shares, in each case as legally required in order for the Target to avoid, mitigate, or remedy any violation or non-compliance with Law that relates in any way to Buyer being determined to be a “foreign person” or a “foreign entity,” as defined in Section 721 of the DPA or pursuant to the regulations of CFIUS. Correspondingly, the Selling Shareholders shall, on a pro rata basis, surrender and return to Buyer a portion of the Buyer Shares and Warrants received as consideration, in proportion to the Sold Shares forfeited by Target; provided, that Selling Shareholders’ return obligation shall be limited to eighty percent (80%) of the calculated amount, with the remaining twenty percent (20%) deemed finally earned and non-returnable. |
| 4.4. | FCPA. For so long as the Buyer holds any shares of capital stock of Target (directly or indirectly), Buyer covenants that that it shall not (and shall not permit any of its subsidiaries or Affiliates or any of its or their respective designees, directors, officers, managers, employees, independent contractors, representatives or agents to) cause the Target to, or act on behalf of the Target to, promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any Non-U.S. Official (as such term is defined in the FCPA), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Buyer further covenants that it shall (and shall cause each of its subsidiaries and Affiliates to) cease all of its or their respective known activities, as well as remediate any known actions taken by the Buyer, its subsidiaries or Affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Buyer further covenants that it shall (and shall cause each of its subsidiaries and Affiliates to) maintain commercially reasonable systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to provide reasonable assurances regarding compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. Upon request by any Selling Shareholder, the Buyer agrees to provide responsive information and/or certifications to Selling Shareholders concerning its compliance with applicable anti-corruption laws. The Buyer shall promptly notify all Selling Shareholders if the Buyer becomes aware of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA or any other anti-corruption law. The Buyer shall, and shall cause any direct or indirect subsidiary or entity controlled by it, whether now in existence or formed in the future to make commercially reasonable efforts to comply with the FCPA. The Buyer shall use its commercially reasonable efforts to cause any direct or indirect subsidiary, whether now in existence or formed in the future, to comply in all material respects with all applicable laws. |
| 4.5. | Governmental Approvals and Other Third-Party Consents. |
| 4.5.1. | Each of Buyer and the Target shall, as promptly as possible, use its reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders, and approvals from all Governmental Entities that may be or become necessary for its execution and delivery of this Agreement and the Transaction Documents and the performance of its obligations pursuant to this Agreement and the Transaction Documents. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders, and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing, or impeding the receipt of any required consents, authorizations, orders, and approvals. |
| 4.5.2. | Without limiting the generality of Buyer’s undertaking pursuant to this Section 4.5, Buyer agrees to use its reasonable best efforts and to take any and all steps necessary to avoid or eliminate each and every impediment under any antitrust, competition or trade regulation Law that may be asserted by any Governmental Entity or any other Person so as to enable the parties hereto to close the transactions contemplated by this Agreement and the Transaction Documents as promptly as possible, including proposing, negotiating, committing to, and effecting, by consent decree, hold separate orders or otherwise, the sale, divestiture, or disposition of any of its assets, properties, or businesses or of the assets, properties, or businesses to be acquired by it pursuant to this Agreement and the Transaction Documents as are required to be divested in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order, or other order in any suit or proceeding, which would otherwise have the effect of materially delaying or preventing the consummation of the transactions contemplated by this Agreement and the Transaction Documents. In addition, Buyer shall use its reasonable best efforts to defend through litigation on the merits any claim asserted in court by any Person in order to avoid entry of, or to have vacated or terminated, any Governmental Order (whether temporary, preliminary or permanent) that would prevent the consummation of the Closing. |
| 4.5.3. | All analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on behalf of any party before any Governmental Entity or the staff or regulators of any Governmental Entity, in connection with the transactions contemplated hereunder (but, for the avoidance of doubt, not including any interactions between Buyer, a Selling Shareholder or the Target with Governmental Entities in the ordinary course of business, any disclosure which is not permitted by Applicable Law or any disclosure containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission, or attendance, it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals. Each party shall give notice to the other parties with respect to any meeting, discussion, appearance or contact with any Governmental Entity or the staff or regulators of any Governmental Entity, with such notice being sufficient to provide the other parties with the opportunity to attend and participate in such meeting, discussion, appearance, or contact. |
| 5. | Anti-Dilution |
| 5.1. | From the Closing until December 31, 2028, if the Target issues or sells any equity securities, or any securities convertible into or exercisable for equity securities (other than (i) issuances under employee equity plans approved prior to the date of this Agreement up to an aggregate cap of 5% of the Target’s issued and outstanding share capital, (ii) issuances upon conversion or exercise of securities outstanding as of the date of this Agreement and disclosed to the Buyer, (iii) bona fide merger or acquisition consideration approved by the Buyer (not to be unreasonably withheld, conditioned or delayed), or (iv) any issuance consented to in writing by the Buyer), and as a result the Buyer’s percentage ownership of the Target’s issued and outstanding share capital falls below the percentage it held immediately after the Closing, then the Selling Shareholders shall, severally and not jointly, and pro rata in accordance with the number of shares each sold at the Closing: |
(a) within 10 Business Days after notice from the Buyer, either (1) transfer to the Buyer, from their remaining holdings, such number of fully paid Target shares as are necessary so that, after giving effect to such transfer(s), the Buyer again holds the same percentage of the Target’s issued and outstanding share capital that it held immediately after the Closing, or (2) pay to the Buyer cash equal to the value of such number of shares, determined on a per-share basis as follows:
| i. | if the dilutive issuance is for cash, the cash price per share paid by the purchasers in that issuance; |
| ii. | if the dilutive issuance involves non-cash or mixed consideration, the per-share price implied by that issuance using the good-faith cash value of the consideration as agreed by the parties; |
| iii. | if a per-share price cannot be reasonably determined under (i) or (ii), the per-share price from the most recent bona fide third-party cash sale of the same class of shares within the prior 12 months; and |
| iv. | if none of (i)–(iii) applies, the per-share fair market value determined by an independent valuation firm of national standing jointly selected by the parties (failing agreement within 5 Business Days, each party selects a firm and those firms select a third; the third firm’s determination shall be final and binding). The parties share the appraiser’s fees 50/50. |
| v. | For different classes or series, the per-share price shall be adjusted using the then-applicable conversion or exchange ratio. At the Buyer’s election, the Buyer may receive shares under Section 6.1(a)(1) in lieu of cash while any valuation under this clause is pending. |
(b) if any Selling Shareholder lacks sufficient shares to transfer under clause (a)(1) or is legally restricted from transferring such shares, that Selling Shareholder shall satisfy its obligation in cash under clause (a)(2);
(c) the aggregate liability of each Selling Shareholder under this section shall not exceed the purchase price actually received by such Selling Shareholder for the shares sold to the Buyer at the Closing;
(d) the Target (or, if the Target does not provide such notice, the Selling Shareholders) shall provide the Buyer with written notice of any such issuance no later than 5 Business Days prior to the expected closing thereof (or, if earlier notice is not practicable, promptly thereafter), including the type of security, price, amount and expected closing date; the Buyer shall notify the Selling Shareholders within 10 Business Days after receipt of such notice whether it elects shares or cash under clause (a), and settlement shall occur within 10 Business Days thereafter;
(e) nothing in this section obligates the Target to issue any securities to the Buyer; this section establishes a make- whole obligation of the Selling Shareholders in favor of the Buyer; and
(f) the parties acknowledge that monetary damages may be inadequate for a breach of this section; the Buyer shall be entitled to specific performance and injunctive relief to enforce this section, in addition to any other remedies available at law or in equity, subject to the limitations stated above.
| 6. | Representations & Warranties of the Target |
The Target hereby represents and warrants to the Buyer as follows, as of the date hereof and as of the Closing Date (except, to the extent that a representation is expressly made as of a specific date, in which case such representation is, and shall at Closing be, made as at such specified date), and acknowledge that the Buyer is entering into this Agreement in reliance thereon, subject to the disclosures set forth in the Disclosure Schedule attached hereto as Exhibit E (the “Disclosure Schedule”), if any, which disclosures shall be deemed to be part of the representations and warranties made hereunder:
| 6.1. | Organization, Good Standing. The Target is duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct its business as currently conducted. The Target is qualified to do business in each jurisdiction where such qualification is required, except where the failure to qualify would not reasonably be expected to result in a Material Adverse Effect. The Target has the requisite corporate power and authority to execute and deliver the Transaction Documents and to consummate the transactions contemplated thereby. The Target is not in violation of any reporting or payment obligations under applicable Delaware law. |
| 6.2. | Authorization; Approvals. The execution, delivery, and performance of this Agreement and the other Transaction Documents by the Target have been duly authorized by all necessary corporate action. Such documents constitute valid and binding obligations of the Target, enforceable against it in accordance with their terms, subject to applicable bankruptcy, insolvency, and equitable principles. Subject to the conditions to Closing set forth herein, such execution and performance will not (i) conflict with the Target’s organizational documents, (ii) violate any applicable law or order, (iii) result in a material default under any material agreement, or (iv) result in the termination or impairment of any material license or authorization. |
| 6.3. | Corporate Records. True and complete copies of the Target’s organizational documents have been provided to the Buyer. The statutory books and records of the Target have been properly maintained and contain accurate details of all matters required by applicable law. |
| 6.4. | Insolvency. The Target is not insolvent, has not ceased to pay its debts, and no proceedings have been commenced or threatened relating to its winding up, liquidation, administration, or analogous process. |
| 6.5. | Governmental Entities Consents and Filings. No Permits with any Governmental Entity is required on the part of the Target for the consummation of the transactions contemplated by this Agreement, except for those set out in the Disclosure Schedule. |
| 6.6. | Litigation. There are no claims, actions, suits, proceedings, or investigations pending or, to the Target’s knowledge, threatened against the Target that would reasonably be expected to have a Material Adverse Effect or that challenge the validity of the Transaction Documents or the Target’s ability to consummate the transactions contemplated thereby. |
| 6.7. | Intellectual Property. The Target owns or have a right to use all Intellectual Property that is necessary for the conduct of the Target’s business as currently conducted without any conflict with, violation or infringement (or in the case of third-party patents, patent applications, trademarks, trademark applications, service marks, or service mark applications, without any violation or infringement to the knowledge of the Target) of the rights of others, including prior employees or consultants, or academic institutions with which any of them are currently affiliated or have been affiliated in the past. To the Target’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by the Target violates or will violate any license or infringes or will infringe any rights to any patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, trade secrets, licenses, domain names, mask works, information and proprietary rights, and processes of any other party. There is no outstanding option, license, agreement, claim, encumbrance, or shared ownership interest of any kind relating to the Target Intellectual Property, nor is the Target bound by or a party to any options, licenses, or agreements of any kind with respect to the Intellectual Property of any other person. The Target has not received any written communications alleging that the Target has violated or, by conducting their business, violates any of the Intellectual Property of any other person. The Target has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with the Target’s business. |
| 6.8. | No Breach. The Target is not in material violation of its organizational documents, any applicable law, or any material contract, judgment, or order. The execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby will not result in such a violation or require the consent of any third party, except as set forth in the Disclosure Schedule. |
| 6.9. | Government Incentives and Grants. The Target has not received or has applied for any grants, incentives, benefits (including tax benefits) and subsidies from any Governmental Entity. |
| 6.10. | Employees and Consultants. The Target is in material compliance with applicable employment and labor laws, has made all required contributions to employee benefit and severance arrangements, and is not a party to any collective bargaining or similar agreements. All contractors are properly classified as independent contractors and may be terminated on short notice. No change of control, transaction, or termination will give rise to any payment, acceleration, or increased benefits to any employee or contractor. |
| 6.11. | Taxes. The Target has duly and timely filed all tax returns and reports (including information returns and reports) as required by applicable law. Each such return or report was true and complete in all material respects when filed. None of such returns or reports has been audited by any taxing authority and the Target has not been advised that any of such returns or reports will be audited. There is no pending (or threatened by written notice delivered to the Target prior to the date hereof) dispute, examination, audit, claim or other action concerning any tax or tax return of the Target claimed or raised by any tax authority. Any and all taxes and other charges due by the Target to any local or foreign tax authorities (including, without limitation, those due in respect of the properties, income, franchises, licenses, sales or payrolls) have been timely paid. The Target has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. The Target has not incurred any taxes, assessments or governmental charges other than in the ordinary course of business. The Target has made adequate provisions on the Financial Statements and its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for the applicable period thereof. The Target is not and has never been subject to tax in any country other than its jurisdiction of incorporation by virtue of being treated as a resident of or having a permanent establishment or other place of business in that country, and no claim has ever been made by a tax authority in a jurisdiction where the Target does not file tax returns that it is or may be subject to taxation by that jurisdiction. The Target has withheld or collected from each payment made to employees, creditors, independent contractors, shareholders, or other third party the amount of all taxes required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. The Target is not a party to or bound by any tax sharing, tax indemnity, or tax allocation agreement and the Target does not have any liability or potential liability to another party under any such agreement. The Target has not made any elections pursuant Applicable Laws. The Target is not subject to any tax ruling nor has it ever applied to receive any tax determination or ruling. No related party transactions or agreements to which the Target is a party (including, intercompany agreements) is subject to any transfer pricing rules and regulations under applicable law. |
| 6.12. | No Other Representations. The Target acknowledges that it makes the representations and warranties under this Section 6 with the intention of inducing the Buyer to enter into this Agreement and each of the other Transaction Documents and the Buyer enters into this Agreement and the other Transaction Documents on the basis of, and in full reliance on, each of those representations and warranties. |
| 7. | Representations & Warranties of the Selling Shareholders |
The Selling Shareholders hereby represents and warrants to the Buyer as follows, as of the date hereof and as of the Closing Date (except, to the extent that a representation is expressly made as of a specific date, in which case such representation is, and shall at Closing be, made as at such specified date), and acknowledge that the Buyer is entering into this Agreement in reliance thereon, subject to the disclosures set forth in the Disclosure Schedule attached hereto as Exhibit E, if any, which disclosures shall be deemed to be part of the representations and warranties made hereunder:
| 7.1. | Ownership. The outstanding securities of the Target, on a Fully-Diluted Basis, are owned by and registered in the names of such security holders, and in such numbers as specified in the Table in Exhibit A. |
| 7.2. | Authorization; Enforceability. Each Selling Shareholder has full power and authority (and, if an entity, is duly organized, validly existing and in good standing) to execute and deliver this Agreement and the other Transaction Documents to which such Selling Shareholder is a party and to consummate the transactions contemplated hereby and thereby. This Agreement and such other Transaction Documents constitute the valid and legally binding obligations of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity. |
| 7.3. | Title to and Ownership of Sold Shares; No Encumbrances. Such Selling Shareholder is the sole legal and beneficial owner of the number of shares ofthe Target set forth opposite such Selling Shareholder’s name in Exhibit A, free and clear of any Encumbrance, preemptive right, right of first refusal, co-sale right, voting agreement, proxy, restriction on transfer (other than restrictions under applicable securities laws and the Target’s organizational documents) or adverse claim. Upon delivery of the certificates (or book-entry transfer) for the Sold Shares at Closing and payment therefor as provided herein, good and valid title to the Sold Shares will pass to Buyer, free and clear of any Encumbrance other than those created by Buyer. |
| 7.4. | No Other Rights; No Options. There are no outstanding options, warrants, purchase rights, conversion rights or other contracts or agreements of any kind to which such Selling Shareholder is a party (or by which it is bound) that obligate such Selling Shareholder to sell, transfer or otherwise dispose of any equity securities of the Target other than the Sold Shares, and no person has any right to acquire from such Selling Shareholder any of the Sold Shares, except as disclosed in Section 7.5 of the Disclosure Schedule. Any required waivers of preemptive, co-sale, first refusal or similar rights applicable to the sale of the Sold Shares have been or will be obtained prior to Closing. |
| 7.5. | Non-Contravention. The execution, delivery and performance by such Selling Shareholder of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby do not and will not (a) violate, conflict with or result in a breach of any provision of such Selling Shareholder’s organizational documents (if an entity), (b) violate any applicable law, judgment, order or decree binding on such Selling Shareholder, or (c) result in a breach of or constitute a default under any material agreement to which such Selling Shareholder is a party or by which such Selling Shareholder or the Sold Shares is bound, or give rise to any Encumbrance on the Sold Shares (other than as created by Buyer), except in the case of clauses (b) and (c) as set forth in Section 7.6 of the Disclosure Schedule. |
| 7.6. | Consents and Filings. No consent, approval, waiver, notice, filing or authorization of or with any Governmental Entity or other person is required to be obtained or made by such Selling Shareholder in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents or the sale and transfer of the Sold Shares, other than as set forth in Section 7.7 of the Disclosure Schedule. |
| 7.7. | Litigation. There is no claim, action, suit, arbitration, investigation or proceeding pending or threatened in writing against such Selling Shareholder that challenges or seeks to prevent, enjoin or otherwise delay the sale and transfer of the Sold Shares or the performance by such Selling Shareholder of this Agreement and the other Transaction Documents, except as set forth in Section 7.8 of the Disclosure Schedule. |
| 7.8. | Brokers and Finders. No broker, finder or similar intermediary has been engaged by or is entitled to any brokerage commission, finder’s fee or similar compensation in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of such Selling Shareholder, except as set forth in Section 7.9 of the Disclosure Schedule (and any such fees shall be solely for the account of the disclosing party). |
| 7.9. | Investment Representations Not Applicable to Seller. The parties acknowledge that this is a secondary transfer by the Selling Shareholders and that no representation regarding the issuance, authorization or valid issuance of any new Target securities is being made by the Selling Shareholders. |
| 7.10. | No Other Representations. Except for the representations and warranties expressly set forth in this Section 7 (as qualified by the Disclosure Schedule), the Selling Shareholders make no other express or implied representation or warranty, and Buyer acknowledges that it has relied solely on the representations and warranties set forth herein, its own investigation and the representations and warranties of the Target contained in Section 6 (Representations and Warranties of the Target). |
| 7.11. | Survival; Several Liability. The representations and warranties of each Selling Shareholder are made severally and not jointly and survive the Closing for a period of three years starting the Closing Date. |
| 8. | Representations & Warranties of Buyer |
The Buyer hereby represents and warrants to the other Parties hereto as follows, as of the date hereof and as of the Closing Date (except, to the extent that a representation is expressly made as of a specific date, in which case such representation is, and shall at Closing be, made as at such specified date), and acknowledge that the other Parties are entering into this Agreement in reliance thereon:
| 8.1. | Authorization. The Buyer has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Buyer has full power and authority to enter into and perform this Agreement and the other Transaction Documents to which it is a party and all other documents which are to be executed and delivered by the Buyer at Closing. All corporate action on the part of the Buyer, its directors and its shareholders, to the extent required under its organizational documents or under any applicable law, for the authorization, execution and delivery of the Transaction Documents and the performance of all obligations of the Buyer have been taken, and the Transaction Documents, when executed and delivered by Buyer, shall constitute valid and legally binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms except to the extent that such enforceability is subject to, and limited by, (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors ’ rights generally; or (b) laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. Subject to the fulfillment of all conditions to Closing set out in Section 3.2, and 3.3 of this Agreement, the execution, delivery and performance by the Buyer of the Transaction Documents will not constitute a breach of any applicable laws or regulations in any relevant jurisdiction or result in a breach of or constitute a default under (i) any provision of the certificate of incorporation or any other organizational documents of the Target; (ii) any order, judgment or decree of any court or governmental authority by which the Buyer is bound; or (iii) any material agreement or instrument to which the Buyer is a party or by which it is bound. |
| 8.2. | Valid Issuance. The Buyer Shares and Warrants to be issued and delivered by the Buyer at the Closing have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be free and clear of any liens, charges, pledges, or other encumbrances (other than those arising under applicable securities laws, this Agreement, the Lock-Up Agreements, or the Warrant Agreements). |
| 8.3. | Listing Compliance. The Buyer is, as of the date hereof, in compliance in all material respects with the continued listing standards of the Nasdaq Capital Market. The Buyer has taken, or will take prior to the Closing, all necessary actions to (i) cause the Buyer Shares and Warrants to be issued at Closing; (ii) ensure that such issuance is exempt from registration under the U.S. Securities Act of 1933, as amended, pursuant to Regulation S or Regulation D thereunder, as applicable; and (iii) rely on the “home country practice” exemption available to Foreign Private Issuers under Nasdaq Listing Rule 5615(a)(3) in order to dispense with the requirement for shareholder approval under Nasdaq Listing Rule 5635, to the extent applicable to the transactions contemplated herein. |
| 8.4. | Brokers and Finders. The Buyer has not employed or made any agreement with any broker, finder or similar agent or any person or firm, which will result in the obligation of any of the Target, to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby. |
| 8.5. | Foreign Person Status. For so long as the Target is determined to constitute a “TID U.S. business” and Buyer is determined to be a “foreign person” or “foreign entity,” the Buyer does not permit any foreign person affiliated with the Buyer, whether affiliated as a limited partner or otherwise, to obtain through the Buyer any of the following with respect to the Target (the “Restricted Information”): (i) access to any “material nonpublic technical information” (as defined in the DPA) in the possession of the Target; (ii) membership or observer rights on the board of directors or equivalent governing body of the Target or the right to nominate an individual to a position on the board of directors or equivalent governing body of the Target; (iii) any involvement, other than through the voting of shares, in the substantive decision-making of the Target regarding (x) the use, development, acquisition, or release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the Target, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (iv) “control” of the Target (as defined in the DPA). |
| 9. | Indemnification |
| 9.1. | Effectiveness; Survival. |
| 9.1.1. | Subject to Section 10 relating to Taxes, the representations and warranties of the Selling Shareholders contained Section 7 in this Agreement and all covenants and agreements ofthe Selling Shareholders that are to be performed prior to the Closing will survive the Closing for a period of one year after the Closing Date; provided, that, the Fundamental Matters will survive until the date that is the three (3) year anniversary of the Closing Date. For the purpose of this section, “Fundamental Matters” means representations and warranties set forth in Section 7.3 (Authorization; Enforceability), Section 7.4 (Title to and Ownership of Sold Shares; No Encumbrances), Section 7.5 (No Other Rights; No Options), Section 7.6 (Non-Contravention), Section 7.7 (Consents and Filings) and Section 7.9 (Brokers and Finders). Subject to Section 10 relating to Taxes, all of the covenants contained in this Agreement will survive the Closing until fully performed and remain in full force and effect in accordance with their terms, unless and only to the extent that non-compliance with such covenants or agreements is waived in writing by the Buyer. Notwithstanding the preceding sentences, any breach of any covenant, agreement, representation or warranty in respect of which indemnification may be sought under this Agreement that by their nature are required to be performed after the Closing will survive the time at which it would otherwise terminate pursuant to the preceding sentences, if notice of such breach giving rise to such right of indemnification will have been given to the Selling Shareholder against whom such indemnification may be sought prior to such time. The Buyer and the Selling Shareholders acknowledge and agree that with respect to any claim that the Buyer may have against any Selling Shareholder that is permitted pursuant to the terms of this Agreement, the survival periods set forth and agreed to in this section will govern when any such claim may be brought and will replace and supersede any statute of limitations that may otherwise be applicable. The Selling Shareholders further agree that no investigation or knowledge of the subject matter of any representation or warranty by the Buyer, whether before or after the Closing, will affect the Buyer’s right to indemnification under this section. |
| 9.2. | Indemnification. |
(a) Subject to Section 10 (Taxes) and the provisions of this section, including the limitations set forth in Section 9.4, each Selling Shareholder agrees, severally and not jointly, to indemnify the Buyer and its Affiliates, directors, managers, officers, employees, successors, permitted assigns, agents, and representatives (collectively, the “Buyer Indemnitees”) and hold them harmless from any and all Damages incurred or suffered by any Buyer Indemnitee to the extent arising out of or relating to:
| (i) | any breach of any representation or warranty of such Selling Shareholder in this Agreement or any failure of any such representation or warranty to be true and correct (except for those that by their terms address a specified date, which need only be true and correct as of that date); |
| (ii) | any breach of any covenant or agreement made or to be performed by such Selling Shareholder pursuant to this Agreement; or |
| (iii) | any Liability arising directly from: (A) any Action filed with or by any Governmental Authority prior to the Closing Date; (B) an Action set forth in the Disclosure Schedule; (C) any other Action filed prior to the Closing Date; (D) any breach of any covenant or agreement made or to be performed by such Selling Shareholder under this Agreement; and (E) any event, circumstance, or potential Action occurring or existing on or before the Closing Date, even if such claim, demand, or cause of action is asserted or becomes known after the Closing Date. |
(b) Subject to Section 10 relating to Taxes and the provisions of this section, including the limitations set forth in Section 9.4 effective at and after the Closing, Buyer agrees to indemnify the Selling Shareholders and their Affiliates, directors, officers, employees, successors, permitted assigns, agents and representatives (collectively, the “Selling Shareholder Indemnitees”) against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any Selling Shareholder Indemnitee to the extent arising out of or relating to:
| (i) | any breach of any representation or warranty of Buyer in Section 8 of this Agreement or any failure of any representation or warranty of Buyer in Section 10 of this Agreement to be true and correct (except in the case of any representation or warranty that by its terms addresses matters only as of another specified date, which need be so true and correct only as of such specified date); or |
| (ii) | any breach of covenant or agreement made or to be performed by Buyer pursuant to this Agreement. |
(c) For all purposes hereunder, the determination of (i) the amount of Damages subject to indemnification pursuant to this section, and (ii) whether the representations and warranties giving rise to such right to indemnification have been breached, will be made without regard to any qualification or exception contained in such representation or warranty relating to materiality, Material Adverse Effect or other similar qualifications or exceptions contained in or otherwise applicable to such representation or warranty.
| 9.3. | Procedures. |
Except with respect to Tax Claims, which are addressed in Section 10, claims for indemnification under this Agreement will be asserted and resolved as follows:
(a) Any Buyer Indemnitee or Selling Shareholder Indemnitee seeking indemnification under this Agreement (an “Indemnified Party”) with respect to any claim asserted against the Indemnified Party by a third party (“Third Party Claim”) in respect of any matter that is subject to indemnification under Section 9.2 will promptly notify in writing (a “Claim Notice”) the other Party (the “Indemnifying Party”) of the Third Party Claim (and in any event within 20 Business Days after receipt by such Indemnified Party of written notice of the Third Party Claim), which Claim Notice will describe in reasonable detail the nature of the Third Party Claim, including the basis of the Indemnified Party’s request for indemnification under this Agreement and a reasonable estimate of any Damages suffered or expected to be suffered with respect thereto; provided, that, failure to promptly provide such Claim Notice will not relieve the Indemnifying Party of its indemnification obligations provided under this Agreement except to the extent the Indemnifying Party will have been prejudiced as a result of such failure or delay. The Indemnified Party will promptly provide the Indemnifying Party with a copy of all papers served with respect to such claim (if any) promptly upon receipt thereof by the Indemnified Party.
| 9.3.1.1. | (b) The Indemnifying Party will have the right to participate in the defense of any Third Party Claim at any time and, subject to the limitations contained in this Section 9.3(b), assume and control the defense thereof. The Indemnifying Party will promptly notify the Indemnified Party (and in any event within 15 Business Days after having received any Claim Notice) with respect to whether or not it is exercising its right to assume and control the defense of any such Third Party Claim. If the Indemnifying Party notifies the Indemnified Party that the Indemnifying Party elects to assume and control the defense of the Third Party Claim (such election to be without prejudice to the right of the Indemnifying Party to dispute whether such claim is an indemnifiable Damage under this section, then the Indemnifying Party will have the right to defend such Third Party Claim with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party, in all appropriate proceedings, to a final conclusion or Settlement at the discretion of the Indemnifying Party in accordance with this Section 9.3(b); provided, that, an Indemnifying Party will not be entitled to assume the defense of such Third Party Claim if (A) such Third Party Claim could result in criminal liability of, or equitable remedies against, the Indemnified Party, or (B) such Third Party Claim does not solely seek and continue to solely seek monetary damages. The Indemnifying Party will have full control of such defense and proceedings, including any Settlement thereof; provided, that, the Indemnifying Party will not enter into any Settlement without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, such consent will not be required if (i) the Settlement (x) for any civil litigation contains a complete and unconditional general release by the third party asserting the Third Party Claim to all Indemnified Parties affected by the Third Party Claim and (y) for any Action that provides a full resolution of the matters investigated based on the facts known at the time, (ii) the Settlement does not contain any sanction or material restriction upon the conduct or operation of any business conducted by the Indemnified Party or its Affiliates, (iii) the Settlement involves only monetary payments and, subject to the Cap and the other terms and conditions of this section, the Indemnifying Party pays, or agrees to pay or cause to be paid, all such monetary payments arising out of such Settlement promptly and in no more than 10 Business Days following the effectiveness of such Settlement and (iv) exclusively with respect to any of the matters for which Selling Shareholders have agreed to provide indemnification pursuant to Section 9.2(a)(iii), the Settlement would not reasonably be expected to have a materially negative effect on any pending litigation involving the same or similar facts or allegations for which the Indemnified Party may have a Liability or result in the imposition of restrictions upon the conduct or operation of any business conducted by the Indemnified Party. The Indemnified Party may participate in, but not control, any defense or resolution of such Third Party Claim controlled by the Indemnifying Party pursuant to this Section 9.3(b), and the Indemnified Party will bear its own costs and expenses with respect to such participation unless the employment of separate legal counsel is reasonably necessary to protect the Indemnified Party’s interests, in which case such costs and expenses shall be borne by the Indemnifying Party. |
| 9.3.1.2. | (c) If the Indemnifying Party does not notify the Indemnified Party that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 9.3(b) within 15 Business Days after receipt of any Claim Notice, then the Indemnified Party will defend itself against the applicable Third Party Claim, and be reimbursed for its reasonable cost and expense (but only if the Indemnified Party is actually entitled to indemnification hereunder) in regard to the Third Party Claim with counsel selected by the Indemnified Party, in all appropriate proceedings and in good faith, which proceedings will be prosecuted diligently by the Indemnified Party. In such circumstances, the Indemnified Party will defend any such Third Party Claim in good faith and have full control of such defense and proceedings; provided, that, the Indemnified Party may not enter into any Settlement of such Third Party Claim if indemnification is to be sought hereunder, without the Indemnifying Party’s consent (which consent will not be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, the Indemnified Party will not have the authority to make any admission of fact or liability as part of a Settlement that would reasonably be excepted to have a materially negative effect on any Liability for which Selling Shareholders have agreed to provide indemnification pursuant to Section 9.2(a)(iii) or any pending litigation involving the same or similar facts or allegations for which the Indemnifying Party may have any Liability, without the prior written consent of Indemnifying Party. The Indemnifying Party may participate in, but not control, any defense or Settlement controlled by the Indemnified Party pursuant to this Section 9.3(c), and the Indemnifying Party will bear its own costs and expenses with respect to such participation. For the avoidance of doubt, if the Indemnifying Party does not notify the Indemnified Party that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 9.3(b) within 15 Business Days after receipt of any Claim Notice, the Indemnifying Party will be liable for the reasonable fees and expenses of counsel employed by the Indemnified Party for any period from and after such 15 Business Day period until the Indemnifying Party has assumed the defense thereof (but only if the Indemnified Party is actually entitled to indemnification hereunder). |
(d) If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party (but only if the Indemnified Party is actually entitled to indemnification hereunder), to reasonably cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the Indemnifying Party elects to contest, including providing reasonable access to documents, records and information. In addition, the Indemnified Party will make its personnel reasonably available at no cost to the Indemnifying Party for conferences, discovery, proceedings, hearings, trials or appeals as may be reasonably requested by the Indemnifying Party. The Indemnified Party also agrees to reasonably cooperate with the Indemnifying Party and its counsel, in the making of any related counterclaim against the Person asserting the Third Party Claim or any cross complaint against any Person and executing powers of attorney to the extent necessary.
(e) A claim for indemnification for any matter not involving a Third Party Claim will be asserted by notice to the Indemnifying Party as promptly as practicable (the failure to give prompt notice will not, however, relieve the Indemnifying Party of its indemnification obligations unless the Indemnifying Party is prejudiced by such delay), which notice will describe in reasonable detail the nature of the claim and the basis of the Indemnified Party’s request for indemnification under this Agreement.
| 9.4. | Limitations on Liability. |
Notwithstanding anything to the contrary in this Agreement:
| 9.4.1. | Deductible. Each Indemnifying Party is only liable for Damages if the total of such Damages exceeds $7,500 (the “Deductible”). If the Deductible is met, the Selling Shareholders are only liable for the amount of Damages that exceeds the Deductible. |
| 9.4.2. | The total liability of any Indemnifying Party for a breach of representations and warranties is limited to US$4,000,000 (the “Cap”). This Cap does not apply to breaches related to Taxes, Fundamental Matters, or to willful and knowing fraud. |
| 9.4.3. | Each Indemnified Party will have a duty to use commercially reasonable efforts to mitigate any Damages arising out of or relating to this Agreement or the transactions contemplated hereby, including incurring the minimum costs necessary to remedy any breach that gives rise to such Damages. The amount of any Damages for which an Indemnified Party claims indemnification under this Agreement will be reduced by the amount of (i) any insurance proceeds actually received from third party insurers with respect to such Damages; (ii) any Tax benefit actually realized by the Indemnified Party arising from the incurrence or payment of such Damages in the Tax period in which the indemnification payment is made or in a prior Tax period (provided that any such Tax benefit is actually realized in the same year as the incurrence or payment of such Damages), and (iii) any indemnification, contribution, offset or reimbursement payments actually received from third parties with respect to such Damages, in each case of clauses (i) through (iii) above, net of any reasonable costs associated with recovery of such amounts; provided, that, such Indemnified Party will use commercially reasonable efforts to obtain recoveries from insurers, including title insurers, and other third parties in respect of this section. If an Indemnified Party (A) actually receives insurance proceeds from third party insurers with respect to such Damages, (B) actually realizes any Tax benefit in a later year, or (C) actually receives indemnification, contribution, offset or reimbursement payments from third parties with respect to such Damages, in each case, at any time subsequent to any indemnification payment pursuant to this section, then such Indemnified Party will promptly reimburse the applicable Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount actually received (or, in the case ofa Tax benefit, actually realized) by such Indemnified Party. |
| 9.4.4. | Notwithstanding anything to the contrary herein, no Indemnified Party shall recover more than once for the same Liability. |
| 9.4.5. | THE RIGHTS OF INDEMNIFICATION SET FORTH IN THIS SECTION 9 WILL BE ENFORCEABLE REGARDLESS OF WHETHER ANY PERSON (INCLUDING ANY INDEMNIFYING PARTY) ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PARTY OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED ON THE INDEMNIFIED PARTY. |
| 10. | Tax Matters |
| 10.1. | Transfer Taxes. All transfer, sales, use, excise, and similar taxes arising from the transfer of the Sold Shares will be borne equally by the Selling Shareholders and the Buyer on a 50-50 basis. Each party will be responsible for filing any required Tax Returns or documents related to these Transfer Taxes as required by law. |
| 10.2. | Tax Sharing Agreements. All tax sharing agreements and arrangements between the Target and each Selling Shareholder or its Affiliates will be terminated effective as of the close of business on the Closing Date and will have no further effect. |
| 10.3. | Tax Indemnification. |
| 10.3.1. | The Selling Shareholders, severally and not jointly, will indemnify the Buyer for and hold it harmless against any and all Damages arising out of or relating to: (i) all Taxes imposed on or with respect to the Target for any Pre-Closing Tax Period; (ii) any incurred Taxes of any affiliated, consolidated, combined, or unitary group of which the Target was a member on or prior to the Closing Date; (iii) any Transfer Taxes for which the Selling Shareholders are responsible; and (iv) any Taxes resulting from a breach of any tax-related covenant by the Selling Shareholders. |
| 10.3.2. | The Buyer will indemnify the Selling Shareholders and hold them harmless against any and all Damages arising out of or relating to: (i) any Taxes imposed on the Target for any Post-Closing Tax Period, excluding any Taxes attributable to the Pre-Closing Tax Period; (ii) any Transfer Taxes for which the Buyer is responsible; and (iii) any Taxes resulting from a breach of any tax-related covenant by the Buyer. |
| 10.3.3. | The indemnification obligations in this section will survive the Closing for 30 days after the expiration of the applicable statute of limitations (including extensions) for the relevant Tax period. |
| 10.4. | Procedures Relating to Indemnification of Tax Claims. |
| 10.4.1. | If a claim for Taxes, including notice of a pending audit, deficiency, proposed adjustment, assessment, examination, suit, dispute or other claim with respect to Taxes will be made by any Taxing Authority, for periods ending on or after the Closing Date which, if successful, might result in a claim for indemnity pursuant to this section (any such claim, a “Tax Claim”), the Party which receives such Tax Claim will notify the other Party in writing within ten (10) days of receipt thereof; provided, that, the failure of an Indemnified Party to give such notice to an Indemnifying Party will not affect the indemnification provided hereunder except to the extent that the Indemnifying Party has actually and materially been prejudiced by such failure. |
| 10.4.2. | With respect to any Tax Claim relating to the Pre-Closing Tax Period, Selling Shareholders will control, at Selling Shareholders’ expense, the conduct of such Tax Claim unless Selling Shareholders provide Buyer with written notice of their refusal to control such Tax Claim; provided, that, (i) Selling Shareholders will keep Buyer reasonably informed as to the status of any Tax Claim that Selling Shareholders control pursuant to this section if the resolution of such Tax Claim would reasonably be expected to have a material effect on the Liability of Buyer or any of its Affiliates for Taxes for any Post-Closing Tax Period, Selling Shareholders will not settle or otherwise compromise such Tax Claim without Buyer’s written consent, which will not be unreasonably withheld, conditioned or delayed. If Selling Shareholders refuse to control a Tax Claim pursuant to this section, Buyer will control such Tax Claim; provided, that, (A) Buyer will keep Selling Shareholders reasonably informed as to the status of such Tax Claim and (B) Buyer will not settle or otherwise compromise such Tax Claim without Selling Shareholders’ written consent, which will not be unreasonably withheld, conditioned or delayed. |
| 10.4.3. | Coordination with Section 9. Except to the extent specifically set forth in this Agreement, the recourse of any Buyer Indemnitee for any and all Damages relating to or arising from Tax matters, will be controlled by this section rather than Section 9. |
| 11. | Miscellaneous |
| 11.1. | Further Assurances. Each of the Parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intentions of the parties as reflected thereby. |
| 11.2. | Confidentiality; Public Announcements. |
| 11.2.1. | Each Party hereby undertakes that, until the Closing, it shall maintain, and shall cause all of its respective directors, officers, and employees, its Affiliates and its shareholders and anyone on their behalf, to maintain, in strict confidence, all Confidential Information, and not to allow any third party to have access to any Confidential Information. Each Party hereby undertakes that it shall, and shall cause all of its respective directors, officers, and employees, its Affiliates and shareholders and anyone on their behalf, to disclose any Confidential Information to its consultants and other representatives (“Authorized Representatives”) only on a “need to know” basis, provided that such Authorized Representatives are bound by confidentiality undertakings which are at least as strict as the undertakings set out herein, and provided further, that it shall remain liable to any unauthorized disclosure of Confidential Information by its and its Affiliates’ Authorized Representatives. For the purpose of this Section 11.2.1, “Confidential Information” shall mean all documents and information in connection with the Parties, their Subsidiaries, if applicable, and other entities which they hold (or will hold from time to time) and/or their shareholders, including, without limitation, information concerning their activities, operations, results, financial reports and other financial information, proprietary rights, business plans, research and development, services, products, customers, and suppliers, and in connection with this Agreement and any other of the Transaction Agreements. Notwithstanding the foregoing, documents and information shall not be deemed Confidential for the purpose of this Section 11.2.1 if (i) such information is in the public domain at the time of disclosure; (ii) the disclosing Party can demonstrate that such information (a) became publicly available not due to a breach of this Section 11.2.1 by such Party, or (b) was obtained from a third party without breach of any confidentiality obligations; (iii) such information is otherwise required to be disclosed by (a) any applicable law or regulations; (b) a competent court; or (c) a governmental (or quasi-governmental), administrative or regulatory authority, provided, however, that subject to a applicable law a Party will use all reasonable efforts to notify the disclosing Party of the obligation to make such disclosure in advance of the disclosure so that the disclosing Party will have a reasonable opportunity to object to such disclosure. |
| 11.2.2. | As of the Closing, the provisions of Section 11.2.1 shall terminate and be of no further force and effect. If this Agreement is terminated in accordance with its terms prior to the Closing, the Parties, their respective Affiliates and anyone on their behalf will continue to maintain the confidentiality of all information and materials obtained from the other side (or from the other side’s authorized representatives), in accordance with the terms and provisions of Section 11.2.1. |
| 11.2.3. | Notwithstanding anything to the contrary contained herein, Target specifically acknowledges and understands that Buyer is a public company traded on NASDAQ, therefore it is required to make certain disclosures and publications under applicable laws which may include this Agreement and/or the Parties’ engagement. |
| 11.3. | Entire Agreement. This Agreement constitutes the full and entire understandings and agreements between the Parties hereto regarding the subject matters hereof and supersedes all prior agreements, proposals, understandings and arrangements, oral or written, if any between the Parties hereto with respect to the subject matter hereof. |
| 11.4. | Amendment and Waiver. Any current or further term of this Agreement may be amended with the written consent of all Parties hereto. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. |
| 11.5. | Assignment. Neither Party may assign, delegate or otherwise transfer this Agreement or any ofits rights or obligations hereunder. |
| 11.6. | Delays or Omissions. No failure, delay or omission to exercise any right, power, or remedy accruing to any Party hereto upon any breach or default hereunder shall be deemed a waiver thereof or of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. |
| 11.7. | Cumulative Remedies. Subject to the terms of this Agreement, all remedies, either under this Agreement or by law or otherwise, afforded to any party hereto shall be cumulative and not alternative. |
| 11.8. | Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement, and such unenforceability shall not affect any other provision of this Agreement. Upon such determination, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. |
| 11.9. | Expenses. Each Party hereto shall bear its respective costs and expenses (including legal fees) incurred by it in connection with this Agreement and the transactions contemplated herein. |
| 11.10. | Road Show Expenses. Buyer covenants and agrees that, for so long as Buyer holds, directly or indirectly, the Target’s outstanding shares, Buyer shall be responsible for, and shall reimburse the Target for, all reasonable fees, costs, and expenses associated with roadshows, traveling presentations, and other similar investor-relations activities in which the Target may engage from time to time with the intent of developing, maintaining, and growing relationships with investors and prospective investors; provided, however, that any such expenses shall be subject to Buyer’s prior review and approval of a budget to be submitted by the Target in advance. Buyer shall respond to any such budget submission within three (3) Business Days, failing which such budget shall be deemed not approved. |
| 11.11. | Further Assurances. Without derogating from the generality of Section 11.1, each of the Parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the Transactions. |
| 11.12. | Governing Law. Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to any conflicts-of-law principles that would result in the application of the laws of any other jurisdiction. Any dispute, claim or controversy arising out of or relating to this Agreement or the transactions contemplated hereby shall be brought exclusively in (i) the state courts located in New York County, New York, or (ii) the United States District Court for the Southern District of New York, and each Party hereby irrevocably submits to the exclusive jurisdiction of such courts. Each Party (a) waives any objection based on forum non conveniens, improper venue, or lack of personal jurisdiction, (b) agrees not to bring any action relating to this Agreement in any court other than the foregoing courts, and (c) consents to service of process in the manner provided in Section Notices (or as otherwise permitted by applicable law). |
| 11.13. | Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original enforceable against the Party signing such counterpart, and all of which together shall constitute one and the same instrument. A signed copy of this Agreement delivered by e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement. This Agreement may be signed by electronic means. |
| 11.14. | Schedules and Annexes. As soon as practical following the date of this Agreement, and in any event prior to the Closing Date, the Parties shall agree in good faith the form and content of all schedules, annexes, appendices and exhibits which are referenced herein but are not attached hereto as ofthe date hereof. |
| 11.15. | Notices. All notices and other communications required or permitted hereunder to be given to a Party to this Agreement shall be in writing and shall be given in person (including by courier service), by registered mail, or by email (provided that written confirmation of receipt is provided), addressed to such Party’s address as set forth below or at such other address as the Party shall have furnished to each other Party in writing in accordance with this provision: |
| If to the Selling Shareholders: | Attention: Fahim Hashim |
| Address: 4415 Harrison Street, Suite 247, Hillside, IL 60162, USA | |
| E-mail: Fahim@itonic.health | |
| With a copy (which shall not constitute notice) to: Saul Ewing LLP | |
| Chicago, IL 60601 | |
| E-mail: casey.grabenstein@saul.com | |
| Attention: Casey Grabenstein |
| If to the Buyer: | Attention: Jianfei Zhang |
| Address: Room 306, NET Building, Hong Jun Ying South Road, Chaoyang District, Beijing, China |
|
| E-mail: zhangjianfei@ftzy.com.cn | |
| With a copy (which shall not constitute notice) to: Sunsea Law Group P.C. | |
| Attention: Yao Zhang, Esq.; Shuang Li, Esq. | |
| Adress: 18300 Karman Ave Suite 970, Irvine, CA 92612 | |
| E-mail: ayzhang@sunsealaw.com;lee@sunsealaw.com |
Or such other address with respect to a Party as such Party shall notify each other Party in writing as above provided. All communications delivered in person (including by courier service) shall be deemed to have been given upon delivery, those given by email shall be deemed given on the Business Day following transmission with confirmed answer back, and all notices and other communications sent by registered mail shall be deemed given five (5) days after posting.
[Signature Pages to Follow]
IN WITNESS WHEREOF, the Parties hereto have executed this Share Purchase Agreement on the date first above written.
| The Selling Shareholders: | The Buyer: | |||
| Signature: | /s/ Fahim Hashim | Pheton Holdings Ltd | ||
| Name: | Fahim Hashim | |||
| By: | ||||
| Signature: | /s/ Xinyang Wang | Name: | Jianfei Zhang | |
| Name: | Xinyang Wang | Title: | Chief Executive Officer and Chairman of the Board of Directors | |
| Signature: | The Target | |||
| Name: | Zheng James Chen | |||
| iTONIC CORPORATION | ||||
| Signature: | By: | /s/ Fahim Hashim | ||
| Name: | Yujun He | Name: | Fahim Hashim | |
| Title: | CEO | |||
| Signature: | ||||
| Name: | Jianbao Liang | |||
| Signature: | ||||
| Name: | Xiaoyue Li | |||
| Signature: | ||||
| Name: | Ailiang Nie | |||
| Signature: | ||||
| Name: | Fanfu He | |||
| Signature: | ||||
| Chow-Tong Investment Limited | ||||
Exhibit A
List of Selling Shareholders and Sold Shares
The following persons (each, a “Selling Shareholder”) agree to sell to Buyer the number of shares of iTonic Corporation set forth opposite their respective names (the “Sold Shares”).
| No. | Selling Shareholder (legal name) |
Share Class / Series | Number of Shares to be Sold |
%
of Issued & Outstanding as of the Closing Date |
||||||||||
| 1 | Fahim Hashim | common stock | 2,650.00 | 26.50 | % | |||||||||
| 2 | Xinyang Wang | common stock | 1,135.00 | 11.35 | % | |||||||||
| 3 | Zheng James Chen | common stock | 230.00 | 2.30 | % | |||||||||
| 4 | Yujun He | common stock | 164.00 | 1.64 | % | |||||||||
| 5 | Jianbao Liang | common stock | 65.00 | 0.65 | % | |||||||||
| 6 | Xiaoyue Li | common stock | 65.00 | 0.65 | % | |||||||||
| 7 | Ailiang Nie | common stock | 107.00 | 1.07 | % | |||||||||
| 8 | Fanfu He | common stock | 174.00 | 1.74 | % | |||||||||
| 9 | Chow-Tong Investment Limited | common stock | 510.00 | 5.10 | % | |||||||||
| Total | 5,100.00 | 51.00 | % | |||||||||||
A-
Exhibit B
Progress Schedule
| B1. | Overview |
| B1.1. | Instruments issued at Closing. At Closing, the Buyer will issue to the Target (or its designees): |
| i. | 4,000,000 shares (the “Buyer Shares”), all subject to lock-up under Exhibit C of the Agreement. |
| ii. | warrants to purchase up to 3,000,000 Class A ordinary shares ofthe Buyer (the “Warrants”), none of which is exercisable until released under this Progress Schedule. |
| B1.2. | Quarterly tranches. The instruments are divided into 12 quarterly tranches over three years: |
| i. | 12 tranches of 333,333 Class A ordinary shares each, with the final quarter trued-up so the aggregate equals 4,000,000 Class A ordinary shares. |
| ii. | 12 tranches of warrants to purchase 250,000 Class A ordinary share each (up to 3,000,000). |
| B2. | Performance Periods and Targets |
Except as set forth in Section B3.6 and B3.7, performance shall be measured on a quarterly basis, with an annual catch-up permitted within the same fiscal year only. The Milestones shall be tied to both Sales Volume (Units) and Sales Revenue (USD), as follows:
| Milestone | Period | Respective Time Range | Quarterly/Annual
Sales Volume Target (Units) |
Quarterly/Annual
Sales Revenue Target (USD) |
| I | Q1 2026 | Jan 1, 2026 – Mar 31, 2026 | 150 | 224,000 |
| II | Q2 2026 | Apr 1, 2026 – Jun 30, 2026 | 200 | 458,000 |
| III | Q3 2026 | Jul 1, 2026 – Sep 30, 2026 | 350 | 1,035,800 |
| IV | Q4 2026 | Oct 1, 2026 – Dec 31, 2026 | 300 | 1,282,200 |
| Year 1 Catch-Up | FY 2026 | Jan 1 - Dec 31, 2026 | 1,000 (aggregate) | 3,000,000 (aggregate) |
| V | Q1 2027 | Jan 1, 2027 – Mar 31, 2027 | 350 | 1,050,000 |
| VI | Q2 2027 | Apr 1, 2027 – Jun 30, 2027 | 350 | 1,050,000 |
| VII | Q3 2027 | Jul 1, 2027 – Sep 30, 2027 | 350 | 1,050,000 |
| VIII | Q4 2027 | Oct 1, 2027 – Dec 31, 2027 | 350 | 1,050,000 |
| Year 2 Catch-Up | FY 2027 | Jan 1 - Dec 31, 2027 | 1,400 (aggregate) | 4,200,000 (aggregate) |
| IX | Q1 2028 | Jan 1, 2028 – Mar 31, 2028 | 490 | 1,470,000 |
| X | Q2 2028 | Apr 1, 2028 – Jun 30, 2028 | 490 | 1,470,000 |
| XI | Q3 2028 | Jul 1, 2028 – Sep 30, 2028 | 490 | 1,470,000 |
| XII | Q4 2028 | Oct 1, 2028 – Dec 31, 2028 | 490 | 1,470,000 |
| Year 3 Catch-Up | FY 2028 | Jan 1 - Dec 31, 2028 | 1,960 (aggregate) | 5,880,000 (aggregate) |
| B3. | Release / Exercisability Mechanics |
| B3.1. | Quarterly Release. For each Quarter, if both (i) the Quarterly Sales Volume target and (ii) the Quarterly Sales Revenue target for that Quarter are achieved, then: (a) the Buyer Shares tranche for that Quarter is released from lock- up, and (b) the Warrants tranche for that Quarter becomes exercisable, in each case within five (5) Business Days after delivery of the Quarterly Certificate (see Section B4.1). |
| B3.2. | Annual Catch-Up. If a Quarter in a given fiscal year does not meet the respective one or both quarterly targets, the related tranches remain locked/not exercisable. If, at the end of that same fiscal year, the Target achieves both the Annual Sales Volume target and the Annual Sales Revenue target, then all withheld tranches for that year are released/exercisable within five (5) Business Days after delivery of the Annual Certificate (See Section B4.2). |
B-
| B3.3. | No cross-year carryover. Catch-up is strictly confined to the fiscal year to which the tranches relate. |
| B3.4. | Forfeiture. If, for any fiscal year, the Target fails to achieve either the Annual Sales Volume target or the Annual Sales Revenue target: |
| i. | the Buyer Shares tranches for that year are permanently forfeited, and the Target shall repurchase such year’s Buyer Shares at par value within 10 Business Days; and |
| ii. | the Warrants tranches for that year are automatically terminated and cancelled (or, if already delivered into escrow, promptly returned for cancellation). |
| B3.5. | No partial credit. Within a Quarter (and at Year-end), both volume and revenue tests must be satisfied to trigger release/exercisability. Exceeding one metric does not compensate for failing the other. |
| B3.6. | Total delivery. Notwithstanding anything to the contrary herein, the Target shall be entitled to early release of all remaining Buyer Shares and full exercisability of all remaining Buyer Warrants in Year 3 (January 1, 2028 through December 31, 2028), and upon achievement of all outstanding Milestones in the aggregate. For purposes of this Section, achievement of “all outstanding Milestones” shall require (i) aggregate sales volume of not less than three thousand three hundred sixty (3,360) units (being the sum of 1,000 units for Year 1, 1,400 units for Year 2, and 1,960 units for Year 3), and (ii) aggregate sales revenue of not less than USD 13,080,000 (being USD 3.0 million for Year 1, USD 4.2 million for Year 2, and USD 5.88 million for Year 3). Upon satisfaction of the foregoing conditions at any time prior to 11:59 p.m. Pacific Time on December 31, 2028, all remaining Buyer Shares then subject to the Lockup Agreement shall be released, and all remaining Buyer Warrants shall become fully exercisable, in each case within five (5) Business Days of Buyer’s receipt of the applicable quarterly or annual milestone certificate. |
| B3.7. | Bonus Warrants. If, for any fiscal year during the performance period, the Target’s aggregate annual sales volume reflects an increase of not less than two hundred percent (200%) as compared to the immediately preceding fiscal year, and if the Target has achieved no fewer than one (1) Milestone applicable to such immediately preceding fiscal year, then the Selling Shareholders shall be entitled to receive, as a performance bonus, additional warrants (the “Bonus Warrants”). The Bonus Warrants shall entitle the holders thereof, pro rata in accordance with their respective ownership interests, to purchase in the aggregate up to a number of Buyer Class A ordinary shares equal to one percent (1%) of the then-issued and outstanding Buyer Class A ordinary shares, at an exercise price per share equal to the Recent Market Price, defined as the average bid price over the last five (5) trading days of such immediately preceding fiscal year. |
| B4. | Measurement, Certification, and Verification |
| B4.1. | Quarterly Certificate. Within 10 Business Days after each Quarter, the Target shall deliver a certificate signed by its CEO/CFO specifying Quarterly Sales Volume and Quarterly Sales Revenue, with reasonable supporting data. |
| B4.2. | Annual Certificate. Within 15 Business Days after each fiscal year, the Target shall deliver an annual certificate confirming Annual Sales Volume and Annual Sales Revenue and identifying any same-year catch-up tranches to be released. |
| B4.3. | Definitions. |
| i. | Sales Volume = units delivered to customers, net of returns/cancellations. |
| ii. | Sales Revenue = gross revenue recognized under GAAP/IFRS for the period. Currency and accounting policies must be consistent with the Target’s audited financial statements. |
| B4.4. | Audit/verification. Buyer may, on reasonable notice, audit source data no more than two times per year. Disputes are resolved per the Agreement’s dispute mechanism; tranches under dispute remain locked until final resolution. |
| B5. | Administrative Provisions |
| B5.1. | True-Up of Buyer Shares. The final Quarter’s share tranche is adjusted so the total released equals 4,000,000 Class A ordinary shares. |
| B5.2. | No waiver by past release. A release in any Quarter does not waive the requirement to meet the annual targets for same-year catch-up. |
| B5.3. | Company class change by the Buyer. After the closing, the Buyer needs to complete the transfer of the company registration from F to S within two years after closing. |
| B5.4. | Interpretation. Capitalized terms not defined here have the meanings in the Agreement. In case of conflict, this Exhibit controls for release/exercisability mechanics. |
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Exhibit C
FORM OF
LOCK-UP AGREEMENT
[DATE]
Pheton Holdings Ltd
Room 306, NET Building,
Hong Jun Ying South Road, Chaoyang District,
Beijing, China
Ladies and Gentlemen:
This letter agreement (this “Lock-up Agreement”) relates to that certain Stock Purchase Agreement entered into as of [●], 2025 (as amended, restated, supplemented or modified from time to time, the “Transaction Agreement”), by and among Pheton Holdings Ltd, a holding company incorporated in the Cayman Islands (the “Company”), and [●] Selling Shareholders, each being a stockholder of Itonic Corporation, a company organized and acting under the laws of the state of Delaware. Unless otherwise defined herein, capitalized terms used in this Lock-up Agreement shall have the meanings ascribed to them in the Transaction Agreement.
1. In order to induce all parties to consummate the transactions contemplated by the Transaction Agreement, the undersigned hereby agrees that, from the Closing Date until December 31, 2028 (subject to early release as set forth in Paragraph 2, the “Lock-Up Period”), the undersigned will not, directly or indirectly: (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder (the “Exchange Act”), with respect to Buyer Shares issued to the undersigned pursuant to the Transaction Agreement (the “Lock-up Shares”), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii).
2. Notwithstanding the foregoing, the Lock-Up Shares may be released from the restrictions herein on a rolling basis in accordance with the Progress Schedule set forth in the Transaction Agreement, provided that (a) the applicable Milestone under the Progress Schedule has been met, and (b) such release has been confirmed in writing and approved by the Company in its sole discretion, acting reasonably and in good faith. For the avoidance of doubt, no release of Lock-Up Shares shall be deemed to occur automatically upon Milestone achievement without such written Company approval. Any determination by the Company that a Milestone has been met shall be final and binding absent manifest error. Subject to the requirements set forth in Section 3, the restrictions shall also be removed for the relevant portion of the Lock-Up Shares at the time of any automatic buy-back.
3. Subject to the requirements of the Progress Schedule, if, as of each of the first, second, and third anniversaries of the Closing Date, any portion of the Lock-Up Shares within the respective one-third (1/3) annual tranche of the total Lock-Up Shares has not been released in accordance with the Progress Schedule and Company approval as described in paragraph 2, then such unreleased portion shall become subject to automatic buy-back by the Company at a price equal to the nominal par value at US$0.0001 per class A ordinary share. The Company shall be entitled to effect such buy-back within ten (10) Business Days following the applicable anniversary date, and the undersigned agrees to take all necessary steps and execute all documents reasonably requested by the Company to effectuate such buy-back promptly.
4. For the avoidance of doubt, none of the restrictions set forth in this Lock-up Agreement shall apply to any of the Company’s class A ordinary shares purchased by the undersigned in the open market or in any public or private capital raising transaction of the Company or otherwise, including, without limitation, any of the Company’s class A ordinary shares issued pursuant to any share subscription agreements or otherwise to any of the Company’s class A ordinary shares (or other securities of the Company) other than the Lock-Up Shares. For the avoidance of any doubt, the parties hereto acknowledge and agree that the undersigned shall retain all of its rights as a shareholder of the Company during the Lock-up Period, including, without limitation, the right to vote, and to receive any dividends and distributions in respect of, the Lock-Up Shares.
5. The undersigned hereby authorizes the Company during the Lock-Up Period to cause its transfer agent for the Lock-up Shares to decline to transfer, and to note stop transfer restrictions on the share register and other records relating to, the Lock-up Shares for which the undersigned is the record holder and, in the case of Lock-up Shares for which the undersigned is the beneficial holder but not the record holder, agrees during the Lock-Up Period to cause the record holder to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the share register and other records relating to, such Lock-up Shares, if such transfer would constitute a violation or breach of this Lock-up Agreement.
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6. The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-up Agreement and that this Lock-up Agreement constitutes the legal, valid and binding obligation of the undersigned, enforceable in accordance with its terms. Any obligations of the undersigned shall be binding upon the successors and assigns of the undersigned from and after the Closing Date.
7. This Lock-up Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof. This Lock-up Agreement may not be changed, amended, modified or waived (other than to correct a typographical error) as to any particular provision, except by a written instrument executed by all parties hereto.
8. The Company hereby represents, warrants, covenants, and agrees that: (i) if any Lock-Up Agreement executed in connection with the transactions contemplated by the Transaction Agreement is amended, modified, or waived in a manner favorable to any other shareholder, including, without limitation, shortening the lock-up period or providing additional exceptions to the transfer restrictions, then this Lock-Up Agreement shall be deemed contemporaneously amended in the same manner, and the Company shall promptly notify the undersigned of such amendment, modification, or waiver; (ii) if any such shareholder is released, in whole or in part, from its lock-up restrictions, the undersigned shall be similarly and contemporaneously released from the lock-up restrictions under this Lock-Up Agreement, including a release of the same proportion of Lock-Up Shares as released for such other shareholder; and (iii) the Company shall promptly notify the undersigned of any such release or waiver granted to any other shareholder subject to a Lock-Up Agreement. For the avoidance of doubt, this provision is intended to ensure that the undersigned receives equal treatment with any other party subject to a Lock-Up Agreement in connection with any favorable modifications, waivers, or releases.
9. No party hereto may assign either this Lock-up Agreement or any of its rights, interests, or obligations hereunder without the prior written consent of the other party. Any purported assignment in violation of this paragraph shall be void and ineffectual and shall not operate to transfer or assign any interest or title to the purported assignee. This Lock-up Agreement shall be binding on the undersigned and its successors and assigns.
10. This Lock-up Agreement is to be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to its rules of conflict of laws.
11. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HEREBY WAIVES, AND AGREES TO CAUSE EACH OF HIS, HER OR ITS AFFILIATES TO WAIVE, AND COVENANTS THAT NEITHER IT NOR ANY OF HIS, HER OR ITS AFFILIATES WILL ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ACTION ARISING OUT OF OR BASED UPON THIS LOCK-UP AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH PARTY ACKNOWLEDGES THAT SUCH PARTY HAS BEEN INFORMED BY THE OTHER PARTIES THAT THIS PARAGRAPH 11 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THE PARTIES ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER AGREEMENTS RELATING HERETO OR CONTEMPLATED HEREBY. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH 11 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF THE RIGHT TO TRIAL BY JURY.
12. Any term or provision of this Lock-up Agreement that is found to be invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Lock-up Agreement or affecting the validity or enforceability of any of the terms or provisions of this Lock-up Agreement in any other jurisdiction. If any provision of this Lock-up Agreement is found to be so broad as to be unenforceable, the provision will be interpreted to be only so broad as is enforceable.
13. This Lock-up Agreement may be executed in two or more counterparts, each of which will be deemed an original but all of which will constitute but one instrument. This Lock-up Agreement is effective upon delivery of one executed counterpart from each party to the other party. The signatures of all of the parties need not appear on the same counterpart. The delivery of signed counterparts by email which includes a copy of the sending party’s signature(s) (including by “.pdf” format) or by electronic transmission is as effective as signing and delivering the counterpart in person.
14. Any notice, consent, waiver, demand or other communication under this Lock-Up Agreement must be in writing and shall be deemed to have been duly given and effective: (i) when delivered in person or by courier service; (ii) three (3) business days after being sent by registered or certified mail, return receipt requested; (iii) one (1) business day after being sent by a nationally recognized overnight delivery service; or (iv) when sent by email, upon transmission if no delivery failure notice is received by the sender. All such communications shall be sent to the address or email address of the recipient as set forth below the signature of such party (or to such other address or email address as may be designated by a party by written notice to the other parties in accordance with this paragraph 14). Each party agrees to update its notice information promptly upon any change.
15. This Lock-up Agreement shall become effective on the Closing Date. This Lock-up Agreement and the obligations of each party hereunder shall automatically terminate upon any termination of the Transaction Agreement.
[Signature on the following page]
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| Very truly yours, | ||
| By: | ||
| Name: | ||
| Title: | ||
| Address: | ||
| Email: |
Accepted and Agreed:
| Pheton Holdings Ltd | ||
| By: | ||
| Name: | ||
| Title: | ||
| Address: | Room 306, NET Building, Hong Jun Ying South Road, Chaoyang District, Beijing, China |
|
| Email: |
[Signature Page to Lock-Up Agreement]
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Exhibit D
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM.
EARNOUT WARRANT
PHETON HOLDINGS LTD
| Warrant Number: [______] | |
| Warrant Shares: [_______] | Issue Date: [______] |
THIS EARNOUT WARRANT (the “Warrant”) certifies that, for value received, [•] (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, to subscribe for and purchase from Pheton Holdings Ltd, an exempted company incorporated in the Cayman Islands (the “Company”), up to [3,000,000] (as subject to adjustment hereunder, the “Warrant Shares”) of Class A ordinary shares, $0.0001 par value per share, of the Company (“Ordinary Shares,” and each an “Ordinary Share”). The exercisability of this Warrant shall be subject to the achievement of the twelve (12) release Milestones set forth in Progress Schedule of the Stock Purchase Agreement, dated [•], by and among the Company, the Selling Shareholders, and the Target (as amended, supplemented or otherwise modified from time to time, the “SPA”). Upon the Company’s written confirmation that a Milestone has been satisfied in accordance with the SPA, the portion of the Warrant attributable to such Milestone shall become exercisable. The Holder must exercise any portion of the Warrant that becomes exercisable pursuant to the SPA within [ninety (90) days] following receipt of the Company’s confirmation of Milestone satisfaction (the “Exercise Period”); provided, however, that in no event shall this Warrant remain exercisable after 5:00 p.m., New York City time, on the [fifth anniversary] of the date hereof (the “Expiration Date”). Any portion of the Warrant not exercised within the applicable Exercise Period shall automatically lapse and be of no further force or effect. The purchase price of one Ordinary Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the SPA.
“Lock-up Agreement” means the Lock-up Agreement, dated [__], 2025, by and between the Company and the Holder.
“Person” means any individual, sole proprietorship, partnership, limited liability company, corporation, joint venture, trust, incorporated organization or government or department or agency thereof.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Share is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or the OTCQX (or any successors to any of the foregoing).
“Trading Price” means, with respect to any security, for any date, the price determined by the first of the following clauses that applies: (i) if the security is then listed or quoted on a Trading Market, the closing price of the security for such date on the Trading Market on which the security is then listed or quoted as reported by Bloomberg L.P., (ii) the closing price of the security for such date on the OTC Bulletin Board, (iii) if the security is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the security are then reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share or unit of the security so reported, or (iv) in all other cases, the fair market value of a share or unit of the security as determined by the Company’s board of directors in reliance on the advice of a nationally recognized independent investment banking firm retained and paid by the Company for this purpose.
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Section 2. Exercise.
(a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, during the Exercise Period by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by email (or email attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within three (3) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer of immediately available funds or cashier’s check drawn on a United States bank. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the date that Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Holder, by acceptance of this Warrant, acknowledges and agrees that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
(b) Exercise Price. The exercise price per Ordinary Share under this Warrant shall be the closing price of the Company’s Class A Ordinary Shares on the last trading day of the fiscal quarter in which the applicable performance milestone is achieved, subject to adjustment as provided herein (the “Exercise Price”).
(c) Mechanics of Exercise.
(i) Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted, at the Company’s option, by (a) the transfer agent of the Company to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company or its designee is then a participant in such system, (b) by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise or (c) issuing such Warrant Shares in the name of the Holder in restricted book-entry form in the Company’s share register, by the date that is the earliest of (i) three (3) Trading Days after the delivery to the Company of the Notice of Exercise, and (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise to the Company, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares; provided that payment of the aggregate Exercise Price is received within three (3) Trading Days following delivery of the Notice of Exercise to the Company.
(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
(iii) Rescission Rights. If the Company fails to cause the transfer agent to transmit to the Holder the Warrant Shares pursuant to Section 2(c)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
(iv) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder. The Company shall pay all transfer agent fees required for processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for electronic delivery of the Warrant Shares.
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(v) Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
(v) Forfeiture of Unvested Tranches. To the extent any Milestone is not achieved in accordance with the terms of the SPA, the portion of this Warrant corresponding to such Milestone (including the right to acquire the Warrant Shares subject thereto) shall automatically be forfeited, cancelled, and of no further force or effect, without any action required by the Company. The Holder shall have no further rights with respect to any forfeited portion of this Warrant. Any portion of this Warrant that is forfeited in accordance with this Section shall be deemed automatically cancelled and void without any requirement for the Holder to surrender this Warrant. The Company’s records shall be conclusive as to the number of Warrant Shares remaining subject to this Warrant after giving effect to such forfeiture.
Section 3. Certain Adjustments.
(a) Share Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Ordinary Shares or any other equity or equity equivalent securities payable in Ordinary Shares (which, for avoidance of doubt, shall not include any Ordinary Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Ordinary Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Ordinary Shares into a smaller number of shares, or (iv) issues by reclassification of shares of the Ordinary Share any shares of capital stock of the Company, then in each case the Warrant Shares shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares (excluding treasury shares, if any) outstanding immediately after such event and of which the denominator shall be the number of Ordinary Shares outstanding immediately before such event, and the Exercise Price shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
(b) Consolidation or Merger. In the event of any consolidation or merger of the Company into another Person or other similar transaction, in each case which entitles the holders of Ordinary Shares to receive (either directly or upon subsequent liquidation) shares, securities, or assets with respect to or in exchange for Ordinary Shares, the Warrant shall, immediately after such consolidation, merger, or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Holder would have been entitled upon such consolidation, merger, sale, or similar transaction if the Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale, or similar transaction and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of this Warrant); and, in such case, appropriate adjustment shall be made with respect to the Holder’s rights under this Warrant to insure that the provisions of this Section 3(b) hereof shall thereafter be applicable, as nearly as possible, to this Warrant in relation to any shares, securities, or assets thereafter acquirable upon exercise of this Warrant. The provisions of this Section 3(b) shall similarly apply to successive consolidations, mergers, or similar transactions.
(c) Notice to Holder. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
Section 4. Transferability. This Warrant is not transferable.
Section 5. Prohibition on Hedging. The Holder may not, directly or indirectly, sell, hedge, transfer, pledge, mortgage, charge or otherwise dispose of or encumber, or grant any option over or right to, this Warrant or the Holder’s economic or legal rights or interests in this Warrant or in the Ordinary Share issuable pursuant to this Warrant.
Section 6. Miscellaneous.
(a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(c)(i), except as expressly set forth in Section 3.
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(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any share certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or share certificate, if mutilated, the Company will make and deliver a new Warrant or share certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or share certificate.
(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.
(d) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Ordinary Shares a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.
(e) Governing Law and Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Business Combination Agreement.
(f) Representations of the Holder. In connection with the issuance of this Warrant, the Holder specifically represents, as of the date hereof, to the Company by acceptance of this Warrant as follows:
(i) The Holder is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act. The Holder is acquiring this Warrant and the Warrant Shares to be issued upon exercise hereof for investment for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act.
(ii) The Holder understands and acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, the Holder represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
(iii) The Holder acknowledges that it can bear the economic and financial risk of its investment for an indefinite period, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Warrant and the Warrant Shares. The Holder has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and the business, properties, prospects, and financial condition of the Company.
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(g) Notices. Any notices, consents, waivers or other document or communications required or permitted to be given or delivered under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by email (provided that such sent email is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s email server that such email could not be delivered to such recipient); and (iv) if sent by overnight courier service, one (1) Trading Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. If notice is given by facsimile or email, a copy of such notice shall be dispatched no later than the next business day by first class mail, postage prepaid. The addresses, facsimile numbers and email addresses for such communications shall be:
If to the Company:
Name: Pheton Holdings Ltd
Address: Room 306, NET Building,
Hong Jun Ying South Road, Chaoyang District,
Beijing, China
Attn: Jianfei Zhang
If to the Holder:
Name: [●]
Address: [●]
Attn: [●]
Or, in each of the above instances, to such other address, facsimile number or email address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party at least five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date and recipient facsimile number or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iv) above, respectively. A copy of the email transmission containing the time, date and recipient e- mail address shall be rebuttable evidence of receipt by email in accordance with clause (iii) above.
(h) Entire Agreement. This Warrant, together with the SPA, and the Lock-up Agreement, constitutes the sole and entire agreement of the parties to this Warrant with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.
(i) Successor and Assigns. This Warrant and the rights evidenced hereby shall be binding upon and shall inure to the benefit of the parties hereto and the successors of the Company and the successors and permitted assigns of the Holder. Such successors and/or permitted assigns of the Holder shall be deemed to be a Holder for all purposes hereunder.
(j) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
(k) Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS WARRANT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(l) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(m) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
D-
IN WITNESS WHEREOF, the undersigned have caused this Warrant to be executed by its respective officer thereunto duly authorized as of the date first above indicated.
| Pheton Holdings Ltd | |||
| By: | |||
| Name: | [______] | ||
| Title: | [______] | ||
| [●] | |||
| By: | |||
| Name: | [______] | ||
| Title: | [______] | ||
D-
NOTICE OF EXERCISE
TO: Pheton Holdings Ltd (the “Company”)
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of lawful money in the United States.
(3) Please issue said Warrant Shares in the name of the undersigned:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(4) Accredited Investors. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
| Name of Investing Entity: |
| Signature of Authorized Signatory of Investing Entity: |
| Name of Authorized Signatory: |
| Title of Authorized Signatory: |
| Date: |
(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)
D-
Exhibit E
Disclosure Schedule
E-
Exhibit 4.6
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (this “Amendment”) is entered into as of September 28th, 2025, (the “Effective Date” ), by and among (i) Pheton Holdings Ltd., a Cayman Islands corporation, (ii) iTonic Corporation, a Delaware corporation, and (iii) the parties identified as Selling Shareholders on the signature page hereto.
WHEREAS, the parties hereto have previously entered into that certain Stock Purchase Agreement dated August 27, 2025 (the “SPA”);
WHEREAS, the SPA provides that no amendment to the SPA will be effective unless approved in writing by all parties to the SPA; and
WHEREAS, the parties hereto are all of the parties to the SPA and desire to amend the SPA to modify certain provisions thereof.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Amendment and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
AGREEMENT
| 1. | Defined Terms. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings set forth in the SPA. |
| 2. | Amendments. |
| a. | The definition of“Closing Date” set forth in Section 1.1 of the SPA is hereby deleted in its entirety. |
| b. | Section 2.1 of the Agreement is hereby amended and restated in its entirety as follows: |
“Warrants at Closing; Transfer of Sold Shares. At the Closing, (i) the Buyer shall issue to the Selling Shareholders warrants to purchase up to 3,000,000 Class A ordinary shares ofthe Buyer (the “Warrants” ), subject to the terms and conditions of the warrant agreement attached hereto as Exhibit D, respectively; and (ii) the Selling Shareholders shall sell, assign, transfer, and deliver to the Buyer their respective Sold Shares in the Target, free and clear of any Liens, as listed in Exhibit A, against receipt of the Warrants.”
| c. | A new Section 2.2 is hereby inserted immediately following Section 2.1 and shall read in its entirety as follows: |
“Milestone-Based Issuance of Buyer Shares. Following the Closing, up to an aggregate of 4,000,000 newly issued Class A ordinary shares of the Buyer (the “Buyer Shares”) shall be issued from time to time to the Selling Shareholders as, when and to the extent that Milestones I through XII set forth in the Progress Schedule (Exhibit B) are achieved. Upon the Buyer ’s receipt of any Quarterly Certificate or Annual Certificate that (i) is delivered in accordance with the requirements of this Agreement and Exhibit B, (ii) demonstrates satisfaction of one or more applicable Milestones, and (iii) is not reasonably rejected by the Buyer based on non-compliance with such requirements or insufficient supporting data, the Buyer shall issue to the Selling Shareholders, within ten (10) Business Days, the number of Buyer Shares then earned in respect of the period covered by such certificate (including any same-year catch-up tranches identified in an Annual Certificate), all as determined in accordance with Exhibit B. Notwithstanding the foregoing, the Buyer may, upon mutual written agreement with the Selling Shareholders, issue a portion of the Buyer Shares prior to the achievement of the applicable Milestone(s) (such shares, the “Early Shares” ); provided, however, that (a) such early issuance shall not be deemed a waiver of any Milestone or condition set forth in Exhibit B; (b) all Early Shares shall remain subject to the lock-up agreement in Exhibit C; and (c) if the applicable Milestone(s) are ultimately not achieved, the Buyer shall have the right to repurchase such unearned Early Shares at nominal value.”
| d. | The section of the SPA previously numbered Section 2.2 (titled “Closing” ) is hereby renumbered as Section 2.3 and, as so renumbered, remains in full force and effect without modification. All references in the SPA to Section 2.2 referring to the “Closing” shall be deemed to refer to Section 2.3, as renumbered herein. |
| e. | Section 3.1.2.4 of the SPA is hereby amended and restated in its entirety as follows: |
“3.1.2.4. Lock-Up and Warrant Agreements. To the extent applicable, the warrant agreements and any lock- up agreements (if executed prior to or at Closing), duly executed by the relevant Selling Shareholders, in the forms attached hereto as Exhibit D and Exhibit C, respectively.”
| f. | Section 3.1.2.5 of the SPA is hereby deleted in its entirety. Section 3.1.2.6 is hereby renumbered as Section 3.1.2.5, and all references to Section 3.1.2.6 in the SPA (if any) shall be deemed to refer to Section 3.1.2.5. |
| g. | Section 3.3.5 of the SPA is hereby amended and restated in its entirety as follows: |
“Buyer Deliveries; Consideration. The Buyer shall have delivered (a) Warrants to the Selling Shareholders (or escrow agent, as applicable), and (b) all other Buyer closing deliverables required, and duly executed. If any Buyer equity or warrants are to be issued at Closing to the Target or into escrow pursuant to this Agreement, evidence reasonably satisfactory to the Selling Shareholders of such issuance or deposit shall have been provided. The Buyer Shares are not required to be issued at the Closing. Instead, such shares shall be issued to the Selling Shareholders from time to time following the Closing, subject to and in accordance with the achievement of the applicable Milestones set forth in Exhibit B and the terms of this Agreement. The Buyer shall provide evidence of such issuance reasonably satisfactory to the Selling Shareholders at the time of each such issuance.”
| h. | The SPA is hereby amended by inserting, immediately following Section 4.5, a new Section 4.6 which shall read in its entirety as follows: |
“Post-Closing Corporate Governance Measures. Following the Closing:
(a) U.S. Data Localization. All sensitive personal data of U.S. persons, including any Protected Health Information (“PHI”), collected, maintained, or processed by the Target is expected to be stored and retained exclusively within the United States.
(b) Access Control. Access to PHI and other sensitive personal data is expected to be subject to robust access control policies, under which such access will be restricted to U.S. persons physically located in the United States and authorized based on role-based criteria. The Buyer shall not interfere with the implementation or maintenance of such controls.
(c) Appointment of U. S. -Based Data Officers. The Target may appoint a senior U. S. -based employee to serve as its Chief Privacy Officer or Chief Information Security Officer to oversee compliance with applicable privacy and security obligations. The Buyer shall not interfere with such appointment(s).
| i. | The SPA is hereby amended by inserting, immediately following Section 6.11, a new Section 6.12 which shall read in its entirety as follows: |
(d) Limited Strategic Oversight. Subject to Section 4.3, any oversight or board appointment rights held by the Buyer or its Affiliates shall not include access to PHI or operational participation involving sensitive personal data. “ “Not a TID U.S. Business; No Export Control Triggers. To the best knowledge of the Target, (a) neither it nor any of its subsidiaries, if any, is, or has been in the past three (3) years, engaged in any activities that would cause it to constitute a TID U.S. Business; (b) it does not currently expect to commence any business activities, develop any technologies, or otherwise change the scope of its operations in a manner that would result in it becoming a TID U.S. Business within the next three (3) years following the date of this Agreement; and (c) none of its products, services, or technology (i) constitutes a “critical technology” for which a U.S. regulatory authorization would be required to export, re-export, transfer (in-country), or retransfer to any foreign person that would be a party to this transaction (including the Buyer or its affiliates), or ( ii) is subject to control under the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), or any other U. S. export control regime that would give rise to a mandatory CFIUS filing obligation.”
| j. | The section of the SPA previously numbered Section 6.12 is hereby renumbered as Section 6.13 and, as so renumbered, remains in full force and effect without modification. All references in the SPA (including the schedules and exhibits) to Section 6. 12 (other than the newly added Section 6. 12) are hereby deemed to be references to Section 6.13. |
| k. | The SPA is hereby amended by inserting, immediately following Section 7.9, a new Section 7.10 which shall read in its entirety as follows: |
“Not a TID U.S. Business; No Covered Investment or Control Transaction. To the best knowledge of each of the Selling Shareholders, (a) neither the Target nor any of its subsidiaries, if any, is, or has been in the past three (3) years, engaged in any activities that would cause it to constitute a TID U.S. Business; (b) the Target does not expect to commence any business activities, develop any technologies, or otherwise change the scope of its operations in a manner that would result in it becoming a TID U.S. Business within the next three (3) years following the date of this Agreement; and (c) the transactions contemplated by this Agreement do not constitute, and will not constitute upon Closing, a “covered investment” or a “covered control transaction” involving a TID U.S. Business that would require the parties to submit a mandatory declaration to CFIUS.”
| l. | The section of the SPA previously numbered Sections 7.10 and 7.11 are hereby renumbered as Sections 7.11 and 7.12 and, as so renumbered, remains in full force and effect without modification. All references in the SPA ( including the schedules and exhibits) to Sections 7.10 and 7.11 ( other than the newly added Section 7. 10) are hereby deemed to be references to Sections 7.11 and 7. 12. |
| m. | Exhibit B to the SPA is hereby amended and restated in its entirety as set forth in the Exhibit B attached hereto, which shall replace and supersede in its entirety the original Exhibit B. |
| n. | Section 1 of Exhibit C of the SPA is hereby amended and restated in its entirety as follows, and the Lock-Up Agreements to be entered into in connection with the Closing shall be modified and drafted to reflect such amendment prior to the execution thereof: |
“In order to induce the parties to consummate the transactions contemplated by the Transaction Agreement, the Selling Shareholder hereby agrees that, with respect to _______________ Buyer Shares to be issued to the Selling Shareholder pursuant to the Transaction Agreement (the “Lock-up Shares”), during the period from the date of issuance of such Lock-up Shares until December 31, 2028 (subject to early release as set forth in Paragraph 2, the “Lock-Up Period”), the undersigned will not, directly or indirectly: (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder (the “Exchange Act”), with respect to Lock-up Shares issued to the undersigned pursuant to the Transaction Agreement, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii).”
| o. | Section 3 of Exhibit C of the SPA is hereby amended and restated in its entirety as follows, and the Lock-Up Agreements to be entered into in connection with the Closing shall be modified and drafted to reflect such amendment prior to the execution thereof: |
“Subject to the requirements of the Progress Schedule, if, as of each of the first, second, and third anniversaries of the Closing Date, any portion of the Lock-Up Shares within the respective one-third (1/3) annual tranche of the total Lock-Up Shares has not been released in accordance with the Progress Schedule and Company approval as described in paragraph 2, then such unreleased portion shall be permanently forfeited by the undersigned. The undersigned agrees to take all necessary steps and execute all documents reasonably requested by the Company to effectuate or evidence any such forfeiture promptly, including, without limitation, executing share cancellation instructions, delivering stock certificates (if any) for cancellation, or providing written confirmation to the Company and its transfer agent authorizing the removal and cancellation of the unreleased Lock-Up Shares from the undersigned’s ownership records.”
| p. | Section 4 of Exhibit C of the SPA is hereby amended and restated in its entirety as follows, and the Lock-Up Agreements to be entered into in connection with the Closing shall be modified and drafted to reflect such amendment prior to the execution thereof: |
“For the avoidance of doubt, none of the restrictions set forth in this Lock-up Agreement shall apply to any of the Company’s class A ordinary shares purchased by the undersigned in the open market or in any public or private capital raising transaction of the Company or otherwise, including, without limitation, any of the Company’s class A ordinary shares issued pursuant to any share subscription agreements or otherwise to any of the Company’s class A ordinary shares (or other securities of the Company) other than the Lock-Up Shares. For the avoidance of any doubt, the parties hereto acknowledge and agree that, with respect to any Lock-up Shares that are not released from the restrictions set forth in Paragraph 1, the undersigned shall not (i) sell, transfer, pledge, assign, or otherwise dispose of such Lock-Up Shares; or (ii) receive or be entitled to receive any dividends, distributions, or other rights arising in respect of such Lock-Up Shares (other than rights that accrue and remain subject to release upon the expiration of the Lock-Up Period).”
| q. | Section 2(b) of Exhibit D to the Stock Purchase Agreement is hereby amended and restated in its entirety to read as follows: |
“Exercise Price. The exercise price per Ordinary Share under this Warrant shall be $3.10, subject to adjustment as provided herein (the “Exercise Price”).”
| 3. | Effect of Amendment. Upon execution and delivery of this Amendment by each of the parties hereto, this Amendment shall be effective as of the Effective Date. Except as expressly modified by this Amendment, the SPA remains in full force and effect in accordance with its express written terms. In the event of any conflict between the terms of this Amendment and the terms of the SPA, the terms of this Amendment shall supersede and prevail. |
| 4. | Governing Law. This Amendment and all disputes or controversies arising out of or relating to this Amendment, shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether in the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. |
| 5. | Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. Electronic transmission of a counterpart hereto shall constitute an original hereof. |
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first set forth above.
SELLING SHAREHOLDERS:
| Signature: | /s/ Fahim Hashim |  |
|
| Print Name: | Fahim Hashim | ||
| Signature: | /s/ Xinyang Wang | ||
| Print Name: | Xinyang Wang |
| Signature: | /s/ Ailiang Nie | ||
| Print Name: | Ailiang Nie | ||
| Signature: | /s/ Zheng James Chen | ||
| Print Name: | Zheng James Chen | ||
| Signature: | |||
| Print Name: | Yujun He | ||
| Signature: | |||
| Print Name: | JianBao Liang | ||
| Signature: | |||
| Print Name: | Xiaoyue Li | ||
| Signature: | |||
| Print Name: | Fanfu He | ||
| Signature: | |||
| Print Name: | Chow-Tong Investment Limited |
| BUYER: | TARGET: | |||
| PHETON HOLDINGS, LTD. | ITONIC CORPORATION | |||
| By: | By: | /s/ Fahim Hashim | ||
| Name: | Name: | Fahim Hashim | ||
| Title: | Title: | CEO | ||
Signature Page to Amendment No. 1 to Stock Purchase Agreement [SIGNATURE PAGE TO AMENDMENT TO ASSET PURCHASE AGREEMENT]
Exhibit B
Progress Schedule
Exhibit 4.7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this “Agreement”) made effective as of August 29, 2025 (the “Effective Date”), by and among Geri-Safe, Ltd., a company organized and acting under the laws of the state of New York (the “Target”), certain shareholders of the Target as specified in Exhibit A (the “Selling Shareholders”), and Pheton Holdings Ltd, a company whose Class A ordinary shares are listed on the Nasdaq Capital Market under the symbol “PTHL” (“Buyer”), each of the Target, and the Buyer shall be referred to herein as a “Party” and collectively, the “Parties.”
WHEREAS, the Buyer desires to acquire from the Selling Shareholders the number of shares of the Target set forth opposite their respective names in Exhibit A (the “Sold Shares”), pursuant to the terms and conditions set forth in this Agreement; and
WHEREAS, as consideration for the sale and transfer of such shares of the Target to the Buyer, the Buyer currently has 17,050,000 Class A ordinary shares issued and outstanding, the Buyer shall issue to the Selling Shareholders an aggregate of 4,000,000 newly issued Class A ordinary shares of the Buyer (the “Buyer Shares”), all on the terms set forth herein; and
WHEREAS, the Parties have agreed that as result of the transaction contemplated herein, Buyer shall receive at Closing 60 Common Stocks, representing 30.00% of the issued and outstanding share capital of the Target as of the Closing Date on a Fully Diluted Basis.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Parties hereby agree as follows:
| 1. | Definitions |
| 1.1. | For purposes hereof: |
“Accounts Date” means December 31, 2024.
“Affiliate” means with respect to any person or entity, any person or entity directly or indirectly, through one or more intermediaries, Controlling such person, Controlled by or under common control with such person or entity. For this purpose: “Control” shall mean : (i) the ability to direct, or cause the direction of, the management and policies of the relevant person, whether through the ownership of voting securities, by contract or otherwise, and whether directly or indirectly, or (ii) the beneficial ownership (directly or indirectly, including through one or more intermediaries) of 50% or more of the ownership interests in such person, including the issued and outstanding share capital, voting rights or other ownership interests or the right to appoint the majority of the directors (or the equivalent thereof) in such person.
“Applicable Laws” means all laws, regulations, directives, statutes, subordinate legislation, all judgments, orders, notices, instructions, decisions and awards of any court or competent authority or tribunal exercising statutory or delegated powers issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity and all statutory guidance and policy notes having a force of law, in each case to the extent applicable to the parties or any of them or as the context requires.
“Business Day” means a day other than: (i) any Friday, Saturday or Sunday, or (ii) any other day on which commercial banks in People’s Republic of China or United Stated of America are generally closed for business.
“Closing Failure” means the failure of the Closing to occur on or before the Closing Date (or such other date as the Parties may agree in writing), due to any reason not caused by or agreed to in writing by both the Buyer and the Selling Shareholders. For the avoidance of doubt, a Closing Failure shall be deemed to have occurred in any of the following circumstances: (i) unfulfillment of any of the conditions set forth in Sections 3.2 to 3.4; (ii) breach of representations and warranties as set forth in Sections 7 and/or 8.
“Common Stock” means shares of common stock of the Target.
“Damages” means any losses, damages, Liabilities, interests, fines, amounts or costs paid or incurred, or claims of any kind (including Taxes) that are actually suffered or sustained, including those resulting from a Settlement or an award, including the Taxes, costs and expenses (including reasonable fees and expenses of counsel, consultants, experts, and other professional fees) associated therewith.
“Disclosed” means fully, fairly and specifically disclosed in the Disclosure Schedule.
“Disclosure Schedules” means the disclosure schedules delivered by Selling Shareholders to Buyer concurrently with the execution and delivery of this Agreement or any other Transaction Document.
“Encumbrances” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, option, right of first refusal, right of first negotiation, right of first notice, preemptive right, title reversion agreement, easement, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement except for any encumbrance or other restriction imposed directly pursuant to this Agreement or under any applicable law.
“FDA” means U.S. Food & Drug Administration.
“Financial Statements” means the annual financial statements (including balance sheet, income statement and statement of cash flows) of the Target for the most recent fiscal year ended December 31, 2025, prepared in accordance with U.S. GAAP (or other agreed-upon accounting principles in written).
“Fully Diluted Basis” means with respect to any person, all issued and outstanding share capital of any class, warrants, options, convertible loans, rights and convertible securities of such person, all on an as-if exercised and as-converted basis (including all rights and promises of any kind that could directly or indirectly result in any right to receive or purchase any of the foregoing).
“GAAP” means generally accepted accounting principles in the United States, applied on a consistent basis throughout the periods indicated.
“Governmental Entity” or “Governmental Entities” means any government or governmental or regulatory body thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any competent court or arbitral body, exercising executive, legislative, judicial, regulatory or administrative functions, including but not limited to the SEC, the FDA and any applicable tax authority.
“Intellectual Property” means patents, utility models, trademarks, service marks, trade and business names, registered designs, design rights, copyright rights, trade secrets, confidential information of all kinds and other similar proprietary rights which may subsist in any part of the world and whether registered or not, including, where such rights are obtained or enhanced by registration, any registration of such rights and rights to apply for such registrations;
“IRS” means the U.S. Internal Revenue Service.
“Liability” means any liability, cost, expense, debt or obligation of any kind, character, or description, and whether known or unknown, accrued, absolute, contingent or otherwise, and regardless of when asserted or by whom.
“Lien” means, with respect to any property, equity interest or asset, any mortgage, deed of trust, hypothecation, lien, encumbrance, pledge, charge, security interest, license, right of first refusal, right of first offer, adverse claim, restriction on use or transfer, encroachment, easement, right-of-way, title defect, levy, covenant, exercise of any other attribute of ownership or option in respect of such property, equity interest or asset.
“Material Adverse Effect” means an effect, event, circumstance, development or change that is materially adverse to the business, assets (including intangible assets), liabilities, condition (financial or otherwise) property or results of operation of the Target (calculated on the basis of consolidating the financial results of the Target), except that any effect to the extent resulting or arising from any of the following shall not be considered when determining whether a Material Adverse Effect has occurred: (a) any changes to global or local economic, political, financial or securities market conditions; (b) any changes or developments in conditions in the industries or markets in which the Target operates, (c) any act of war (whether or not declared), armed hostilities or terrorism, or any escalation or worsening of any such act of war, armed hostilities or terrorism threatened or underway as of the date of this Agreement; (d) any changes in applicable laws or regulations or GAAP or other accounting standards or the interpretation thereof which are applicable to the Target); (e) any effect, event, circumstance, development or change resulting from the announcement of the Transaction or the identity of the Buyer; or (f) any material international or national calamity or earthquake, hurricane, pandemic or other natural disaster or act of God; provided, that in each case of the preceding clauses, such condition or change does not have a disproportionate effect on the Target relative to similarly situated businesses in the industries and jurisdictions in which the Target operates.
“Permits” means any approvals, authorizations, consents, licenses or permits of a Governmental Entity.
“Person” or “person” means (i) any individual, firm, company, limited liability company, joint stock corporation or other company, governmental body, joint venture, association, trust or partnership, works council, or any other entity of any kind (whether or not having a separate legal personality), and (ii) a reference to that person’s legal personal representatives and successors;
“Post-Closing Tax Period” means any Tax period beginning after the Closing Date.
“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date.
“SEC” means the U.S. Securities and Exchange Commission.
“Settlement” means any settlement, compromise, or consent to the entry of judgment.
“Tax” means (i) any federal, state, local or municipal, or non-U.S. Income Tax, gross receipts, capital gains, capital stock, transfer, sales, use, goods and services, harmonized, occupation, property, escheat, abandoned or unclaimed property, excise, estimated, severance, windfall profits, stamp, duty, license, payroll, withholding, ad valorem, value added, alternative minimum, environmental, customs, social security (or similar), unemployment, disability, registration or any other taxes, assessments, charges, duties, fees, levies, imposts or other similar governmental charges of any kind whatsoever, whether disputed or not, together with all estimated taxes, fines, deficiency assessments, additions to tax, penalties and interest; (ii) any Liability for the payment of any amounts of the type described in clause (i) arising as a result of being (or having been) a member of any affiliated group (or being included (or required to be included) in any Tax Return relating thereto); and (iii) any Liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the Liability of any other Person, including as a transferee or successor, by contract or otherwise.
“Tax Return” means any report, return, document, statement, declaration, information return or other filing supplied, or required to be supplied, to any Taxing Authority in connection with the determination, assessment, or collection of Taxes, including any attachment, schedule or supplement thereto or amendment thereof.
“Taxing Authority” means any Governmental Entity having jurisdiction over the assessment, determination, collection or imposition of any Tax.
“Transaction Documents” means this Agreement and all other documents and contractual obligations to be executed and delivered in connection herewith and therewith.
| 1.2. | Terms not defined in Section 1.1, shall have the meaning ascribed to them anywhere else in this Agreement. |
| 1.3. | Words and defined terms denoting the singular number include the plural and vice versa and the use of any gender shall be applicable to all genders. |
| 1.4. | The paragraph headings are for the sake of convenience only and shall not affect the interpretation of this Agreement. The word “includes” and “including” and their syntactical variants mean “includes, but is not limited to” and “including, without limitation,” and corresponding syntactical variant expressions. |
| 1.5. | The recitals, schedules, appendices, annexes and exhibits hereto form an integral part of this Agreement. |
| 2. | The Transaction; The Closing. |
| 2.1. | Issuance of Shares; Transfer of Sold Shares. At the Closing, (i) the Buyer shall issue and allot to the Selling Shareholders an aggregate of 4,000,000 newly issued Class A ordinary shares of the Buyer, or the “Buyer Shares”; and (ii) the Selling Shareholders shall sell, assign, transfer, and deliver to the Buyer their respective Sold Shares in the Target, free and clear of any Liens, as listed in Exhibit A, against receipt of the Buyer Shares. |
| 2.2. | Closing. The closing of the transactions contemplated hereby (the “Closing”) shall take place remotely via the exchange of documents and signatures on the seventh (7th) Business Day after the date on which all of the conditions to the Closing set forth in Sections 3 shall have been satisfied or waived by the Party entitled to waive the same (other than those conditions which, by their terms, are to be satisfied or waived at the Closing), or at such other time and place as the Buyer and the Selling Shareholders may jointly designate. The date on which the Closing actually occurs is referred to herein as the “Closing Date.” |
| 3. | Actions at Closing and Conditions Precedent. |
| 3.1. | Actions at Closing. At the Closing, the following actions shall occur, all of which shall be deemed to take place simultaneously and no action shall be deemed to have been completed or any document shall be deemed to have been delivered until all such actions have been completed and all such documents have been delivered (unless waived in writing by the relevant Party for whose benefit such action should have been completed or such document or certificate should have been delivered): |
| 3.1.1. | Resolutions. Each of the Parties shall deliver to the other Parties copies of the resolutions and consents of its requisite organs approving the execution, delivery and performance by such Party of this Agreement and any other Transaction Documents it is a party to, including all of the transactions contemplated hereunder and thereunder and all exhibits and appendices attached hereto and thereto; |
| 3.1.2. | Deliverables by the Selling Shareholders. The Selling Shareholders shall deliver to the Buyer at Closing: |
| 3.1.2.1. | Shareholders’ Waivers. Waivers by all Selling Shareholders of any unexercised rights of first refusal, preemptive rights, co-sale rights, anti-dilution rights, or any other rights they may have in connection with the transfer of the Sold Shares to the Buyer; |
| 3.1.2.2. | Share Transfer Instruments. Validly executed instruments of transfer (and any necessary stock powers) transferring all Sold Shares from the Selling Shareholders to the Buyer, free and clear of all Liens; |
| 3.1.2.3. | Share Certificates and Register. (i) The share certificates representing the Sold Shares being transferred, duly endorsed for transfer to the Buyer, and (ii) an updated share register of the Target reflecting the Buyer as the sole holder of all issued shares; and |
| 3.1.2.4. | Other Closing Documents. Such other documents, certificates, and instruments as may be reasonably required by the Buyer to consummate the transactions contemplated hereby. |
| 3.2. | Conditions to Closing of all Parties. The Parties’ obligation to consummate the Closing is subject to the satisfaction and fulfillment, on or before the Closing, of each of the following conditions (any or all of which may be waived, in whole or in part, by the written consent of all Parties hereto, at their sole discretion): |
| 3.2.1. | Consents of Governmental Entities. All consents, approvals, and authorizations of Governmental Entities required in connection with this transaction, as set forth in the Disclosure Schedule, shall have been duly obtained and remain in full force and effect as of the Closing; |
| 3.2.2. | No Injunction. No injunction, order, decree, or law of any Governmental Entity shall be in effect that restrains, prohibits, or makes illegal the consummation of the transactions contemplated hereby; and |
| 3.2.3. | No Proceedings. No legal proceeding shall be pending before any court or Governmental Entity seeking to restrain, prohibit, or materially delay the transactions contemplated hereby. |
| 3.2.4. | Target Licenses and Approvals in Effect. All licenses, permits, approvals, registrations, and similar authorizations obtained or held by the Target as of the date of this Agreement and listed in Exhibit B (together with true, correct, and complete copies provided to the Buyer prior to the date hereof) shall remain valid, unrevoked, and in full force and effect as of the Closing. No notice of suspension, revocation, or non-renewal of any such licenses or approvals shall have been received or threatened. |
| 3.3. | Conditions to Closing by Selling Shareholders. The obligation of the Selling Shareholders to consummate the Closing is subject to the satisfaction or waiver (by the Selling Shareholders, in their sole discretion) on or before the Closing of each of the following conditions: |
| 3.3.1. | Accurate Representations and Warranties. The representations and warranties of the Buyer contained in Section 8 shall have been true and correct when made and shall be true and correct in all material respects as of the Closing (except to the extent expressly made as of an earlier date). |
| 3.3.2. | Performance. The Buyer shall have performed and complied in all material respects with all covenants and obligations contained in this Agreement that are required to be performed or complied with by it on or prior to the Closing. |
| 3.3.3. | No Legal Restraint. No law, order, injunction or decree of any Governmental Entity shall be in effect that restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated by this Agreement. |
| 3.3.4. | Consents; Waivers; Approvals. All consents, approvals, notices and waivers required in connection with the sale and transfer of the Sold Shares (including any rights of first refusal, co-sale, preemptive rights or transfer restrictions under the Target’s organizational documents, shareholder agreements or other contracts) and any required filings with or approvals of Governmental Entities, shall have been obtained or made (or duly waived) and remain in full force and effect. |
| 3.3.5. | Buyer Deliveries; Consideration. The Buyer shall have delivered (a) the Buyer Shares to the Selling Shareholders (or escrow agent, as applicable), and (b) all other Buyer closing deliverables required, and duly executed. If any Buyer equities are to be issued at Closing to the Target or into escrow pursuant to this Agreement, evidence reasonably satisfactory to the Selling Shareholders of such issuance or deposit shall have been provided. |
| 3.3.6. | Buyer Certificates; Authority. The Buyer shall have delivered customary certificates and evidence of corporate/organizational approvals authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. |
| 3.4. | Conditions to Closing by the Buyer. The Buyer’s obligation to consummate the Closing is subject to the satisfaction and fulfillment, on or before the Closing, of each of the following conditions (any or all of which may be waived, in whole or in part, by the Target, at its sole discretion): |
| 3.4.1. | Accurate Representations and Warranties. The representations and warranties of the Selling Shareholders set forth in Section 7 were true and correct when made and shall be true and correct in all material respects as of the Closing (except to the extent expressly made as of an earlier date). |
| 3.4.2. | Performance. The Selling Shareholders shall have performed and complied in all material respects with all covenants and obligations in this Agreement required to be performed or complied with by them on or prior to the Closing. |
| 3.4.3. | Consents; Waivers; Approvals. All consents, approvals, notices and waivers required in connection with the sale and transfer of the Sold Shares (including any rights of first refusal, co-sale rights, preemptive rights or transfer restrictions under the Target’s organizational documents, shareholder agreements or other contracts), and any required filings with or approvals of Governmental Entities, shall have been obtained or made (or duly waived) and remain in full force and effect. |
| 3.4.4. | Deliveries; Transfer of Title. The Selling Shareholders shall have delivered (a) certificates representing the Sold Shares (or evidence of book-entry positions) duly endorsed for transfer or accompanied by duly executed stock powers (with medallion guarantee if applicable), free and clear of Encumbrances (other than restrictions under applicable securities laws), and (b) all other closing deliverables required. The Selling Shareholders shall have delivered evidence reasonably satisfactory to the Buyer that the Target’s share register (or equivalent records/transfer ledger) has been, or at Closing will be, updated to reflect the Buyer as the record holder of the Sold Shares. |
| 3.4.5. | No Legal Restraint. No law, order, injunction or decree of any Governmental Entity shall be in effect that restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby. |
| 3.4.6. | No Material Adverse Effect. Since the date of this Agreement, no Material Adverse Effect with respect to the Target shall have occurred and be continuing as of the Closing. |
| 3.4.7. | Financial Statements. The Target shall have delivered to the Buyer the Financial Statements for the Target’s most recent fiscal year ended December 31, 2024. |
| 3.4.8. | Material Contracts. All consents, waivers, or approvals required from third parties to prevent the termination or breach of the Material Contracts listed in Exhibit B of the Target as a result of the consummation of the transactions contemplated by this Agreement shall have been obtained and be in full force and effect. |
| 3.4.9. | Absence of Undisclosed Material Liabilities. The Buyer’s due diligence review shall not have uncovered any material liabilities of the Target, whether accrued, contingent or otherwise, other than those fully and accurately reflected in the Financial Statements or disclosed in Exhibit E. |
| 4. | At Signing Actions |
| 4.1. | Execution of Agreement. Each Party shall duly execute and deliver this Agreement and other Transaction Document required to be executed at signing, if any. |
| 5. | Post-Closing Actions |
| 5.1. | Executive Officers. Subject to the provisions in Section 5.4, the individual serving as the chief executive officer of the Target immediately after the Closing will be the same individual (in the same office) as that of the Target immediately prior to the Closing unless the individual submit a resignation letter post-closing. |
| 5.2. | Post-Closing Financial Reporting. Within 45 days after the Closing, the Selling Shareholders must deliver reviewed interim financial statements for the period starting from the end of the most recent fiscal year ended 2024 and ending on the Closing Date. |
| 5.3. | Post-Closing Shares Distribution. At Closing, the Buyer shall issue 4,000,000 newly issued Class A ordinary shares. Of these: (i) 2,920,000 shares shall be issued to Bin Wu and Yujun He (together, the “Group A Shareholders”), as set forth on Exhibit A, and (ii) 1,080,000 shares shall be issued to the remaining shareholders which are entitled to registration rights pursuant to Section 9. The parties acknowledge and agree as follows: |
(a) If Registered Shares are registered and sold pursuant to Section 9, and the Actual Proceeds from such sale do not equal or exceed USD 3,300,000, a Gap shall be deemed to exist.
(b) The Gap shall be mitigated by requiring the Group A Shareholders, pro rata in accordance with their respective entitlements, to contribute up to an aggregate maximum of 920,000 of the shares received by them in this Transaction (the “Contribution Shares”), such that, when deemed sold at the same net per-share price as the Registered Shares, together with the Actual Proceeds already realized from the sale of the Registered Shares, the aggregate Actual Proceeds equal the Expected Proceeds.
(c) If Registered Shares are registered and sold pursuant to Section 9, and the Actual Proceeds from such sale do exceed USD 3,300,000, no Gap shall be deemed to exist. Any amount of the Actual Proceeds in excess of the USD 3,300,000 shall be distributed to Xinyang Wang (65%) and Robert Karpman (35%), respectively.
(d) Any transfers and sales of Contribution Shares shall be effected in compliance with all applicable securities laws, including reliance on an available exemption from registration under the Securities Act of 1933, as amended.
For purposes of this Agreement, “Expected Proceeds” means an amount equal to US$3,300,000. “Actual Proceeds” means the aggregate net cash proceeds actually received from the sale of shares pursuant to Section 9, after deduction of all underwriter discounts and commissions. “Gap” means the positive difference, if any, between the Expected Proceeds and the Actual Proceeds.
| 5.4. | Post-Closing Team member Exit. Upon completion of the share distribution pursuant to Section 5.3, each of Robert Karpman, David Lipson, Xinyang Wang and Ailiang Nie (collectively, the “Team”) shall resign from all positions, offices, and directorships (if any) held with the Target (unless is specially requested by the Buyer) and its subsidiaries and shall deliver to the Target and the Buyer duly executed written resignations in form and substance reasonably satisfactory to the Buyer. |
Each member of the Team hereby acknowledges and agrees that, effective upon such resignation: (i) he or she shall have no further rights as an officer, director, employee, consultant, or shareholder of the Target (other than in respect of any shares validly distributed to such person pursuant to Section 5.3); (ii) he or she irrevocably waives and releases the Buyer, the Target, and their respective affiliates, officers, directors, employees, and representatives from any and all claims, liabilities, or obligations of any nature whatsoever arising out of or relating to his or her service with, or equity interest in, the Target, whether arising prior to, on, or after the Closing Date, other than rights (if any) under this Agreement; and (iii) no severance, termination, change-in-control, or similar payment shall be due or payable to such person by the Buyer, the Target, or any of their affiliates, except as expressly set forth in this Agreement.
| 6. | Anti-Dilution and Make-Whole Provision |
| 6.1. | Make-Whole for Pre-Closing Dilutive Securities. The Selling Shareholders acknowledge that the Target has outstanding convertible notes, options, warrants, or other securities listed in Exhibit D (the “Pre-Existing Securities”). The parties agree that the purchase price for the Sold Shares is based on the Buyer receiving 30.00% of the equity of the Target on a Fully Diluted Basis. The value of each Buyer Shares is agreed upon as US$50,000 per share (the “Agreed Price”). If any holder of a Pre-Existing Security exercises their right to convert or exercise their security after the Closing and as a result, the Buyer’s percentage ownership of the Target’s issued and outstanding share capital falls below 30.00%, then the Selling Shareholders shall, severally and not jointly, and pro rata in accordance with the number of shares each sold at the Closing, pay to the Buyer, within 10 Business Days of such conversion or exercise, a cash amount (the “Make-Whole Amount”) to compensate for the dilution. The Make-Whole Amount shall be calculated as follows: |
Make-Whole Amount = [(30.00% - Buyer’s shareholding after the exercises of such Pre-Existing Security) / 30.00%] x Buyer Shares x Agreed Price .
| 6.2. | Specific Performance. The parties acknowledge that monetary damages may be inadequate for a breach of this section; the Buyer shall be entitled to specific performance and injunctive relief to enforce this section, in addition to any other remedies available at law or in equity, subject to the limitations stated above. |
| 7. | Representations & Warranties of the Selling Shareholders |
The Selling Shareholders hereby represents and warrants to the Buyer as follows (“Selling Shareholder Representations”), as of the date hereof and as of the Closing Date (except, to the extent that a representation is expressly made as of a specific date, in which case such representation is, and shall at Closing be, made as at such specified date), and acknowledge that the Buyer is entering into this Agreement in reliance thereon, subject to the disclosures set forth in the Disclosure Schedule attached hereto as Exhibit C (the “Disclosure Schedule”), if any, which disclosures shall be deemed to be part of the representations and warranties made hereunder:
| 7.1. | Organization; Good Standing. To the best of their knowledge after cautious due diligence, the Target is duly organized and validly existing under the laws of the State of New York, and has full corporate power and authority to carry on its business as presently conducted. The Target is duly qualified to transact business and is in good standing in each jurisdiction in which it operates and in which the failure to so qualify would have a Material Adverse Effect. The Target is not in violation of reporting and payment obligations under applicable legal requirements of the Secretary of State of the State of New York. |
| 7.2. | Ownership. The outstanding securities of the Target, on a Fully Diluted Basis, are owned by and registered in the names of such security holders, and in such numbers as specified in the Table in Exhibit A. |
| 7.3. | Authorization; Enforceability. Each Selling Shareholder has full power and authority (and, if an entity, is duly organized, validly existing and in good standing) to execute and deliver this Agreement and the other Transaction Documents to which such Selling Shareholder is a party and to consummate the transactions contemplated hereby and thereby. This Agreement and such other Transaction Documents constitute the valid and legally binding obligations of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity. |
| 7.4. | Title to and Ownership of Sold Shares; No Encumbrances. Such Selling Shareholder is the sole legal and beneficial owner of the number of shares of the Target set forth opposite such Selling Shareholder’s name in Exhibit A, free and clear of any Encumbrance, preemptive right, right of first refusal, co-sale right, voting agreement, proxy, restriction on transfer (other than restrictions under applicable securities laws and the Target’s organizational documents) or adverse claim. Upon delivery of the certificates (or book-entry transfer) for the Sold Shares at Closing and payment therefor as provided herein, good and valid title to the Sold Shares will pass to Buyer, free and clear of any Encumbrance other than those created by Buyer. |
| 7.5. | No Other Rights; No Options. There are no outstanding options, warrants, purchase rights, conversion rights or other contracts or agreements of any kind to which such Selling Shareholder is a party (or by which it is bound) that obligate such Selling Shareholder to sell, transfer or otherwise dispose of any equity securities of the Target other than the Sold Shares, and no person has any right to acquire from such Selling Shareholder any of the Sold Shares, except as disclosed in the Disclosure Schedule. Any required waivers of preemptive, co-sale, first refusal or similar rights applicable to the sale of the Sold Shares have been or will be obtained prior to Closing. |
| 7.6. | Non-Contravention. The execution, delivery and performance by such Selling Shareholder of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby do not and will not (a) violate, conflict with or result in a breach of any provision of such Selling Shareholder’s organizational documents (if an entity), (b) violate any applicable law, judgment, order or decree binding on such Selling Shareholder, or (c) result in a breach of or constitute a default under any material agreement to which such Selling Shareholder is a party or by which such Selling Shareholder or the Sold Shares is bound, or give rise to any Encumbrance on the Sold Shares (other than as created by Buyer), except in the case of clauses (b) and (c) as set forth in the Disclosure Schedule. |
| 7.7. | Consents and Filings. No consent, approval, waiver, notice, filing or authorization of or with any Governmental Entity or other person is required to be obtained or made by such Selling Shareholder in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents or the sale and transfer of the Sold Shares, other than as set forth in the Disclosure Schedule. |
| 7.8. | Litigation. There is no claim, action, suit, arbitration, investigation or proceeding pending or threatened in writing against such Selling Shareholder that challenges or seeks to prevent, enjoin or otherwise delay the sale and transfer of the Sold Shares or the performance by such Selling Shareholder of this Agreement and the other Transaction Documents, except as set forth in the Disclosure Schedule. |
| 7.9. | Brokers and Finders. No broker, finder or similar intermediary has been engaged by or is entitled to any brokerage commission, finder’s fee or similar compensation in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of such Selling Shareholder, except as set forth in the Disclosure Schedule (and any such fees shall be solely for the account of the disclosing party). |
| 7.10. | Investment Representations Not Applicable to Selling Shareholders. The parties acknowledge that this is a secondary transfer by the Selling Shareholders and that no representation regarding the issuance, authorization or valid issuance of any new Target securities is being made by the Selling Shareholders. |
| 7.11. | Employee and Labor Matters. To the best of their knowledge after cautious due diligence, the Target is not a party to any collective bargaining agreement or other labor contract. There are no pending or threatened labor disputes, strikes, or work stoppages involving the Target. The Target is in compliance in all material respects with all applicable laws and regulations relating to employment practices, terms and conditions of employment, and wages and hours. |
| 7.12. | Financial Statements. The Selling Shareholders have made available to the Buyer true, correct, and complete copies of the Financial Statements of the Target, including the balance sheets, statements of income, and statements of cash flow for the fiscal year ended December 31, 2025, all of which are included in Exhibit E. These Financial Statements have been prepared in accordance with GAAP (or other agreed-upon accounting principles in written) consistently applied, and fairly and accurately present the financial condition and results of operations of the Target as of the dates and for the periods indicated, subject to normal year-end adjustments and the absence of footnotes. |
| 7.13. | Absence of Undisclosed Liabilities. To the best of their knowledge after cautious due diligence, the Target has no liabilities or obligations of any kind whatsoever (whether accrued, contingent, or otherwise) other than (a) those fully reflected or reserved for in the Financial Statements included in Exhibit E, (b) those incurred in the ordinary course of business since the date of the most recent financial statement, and (c) those set forth in the Disclosure Schedule in Exhibit C. |
| 7.14. | Survival; Several Liability. The representations and warranties of each Selling Shareholder are made severally and not jointly and survive the Closing for a period of three years after the Closing Date, unless set forth in Section 10.1. |
| 8. | Representations & Warranties of Buyer |
The Buyer hereby represents and warrants to the other Parties hereto as follows, as of the date hereof and as of the Closing Date (except, to the extent that a representation is expressly made as of a specific date, in which case such representation is, and shall at Closing be, made as at such specified date), and acknowledge that the other Parties are entering into this Agreement in reliance thereon:
| 8.1. | Authorization. The Buyer has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Buyer has full power and authority to enter into and perform this Agreement and the other Transaction Documents to which it is a party and all other documents which are to be executed and delivered by the Buyer at Closing. All corporate action on the part of the Buyer, its directors and its shareholders, to the extent required under its organizational documents or under any applicable law, for the authorization, execution and delivery of the Transaction Documents and the performance of all obligations of the Buyer have been taken, and the Transaction Documents, when executed and delivered by Buyer, shall constitute valid and legally binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms except to the extent that such enforceability is subject to, and limited by, (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors ’ rights generally; or (b) laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. Subject to the fulfillment of all conditions to Closing set out in Section 3.2, 3.3 and 3.4 of this Agreement, the execution, delivery and performance by the Buyer of the Transaction Documents will not constitute a breach of any applicable laws or regulations in any relevant jurisdiction or result in a breach of or constitute a default under (i) any provision of the certificate of incorporation or any other organizational documents of the Target; (ii) any order, judgment or decree of any court or governmental authority by which the Buyer is bound; or (iii) any material agreement or instrument to which the Buyer is a party or by which it is bound. |
| 8.2. | Valid Issuance. The Buyer Shares to be issued and delivered by the Buyer at the Closing have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be free and clear of any Liens, charges, pledges, or Encumbrances (other than those arising under applicable securities laws and this Agreement). |
| 8.3. | Listing Compliance. The Buyer is, as of the date hereof, in compliance in all material respects with the continued listing standards of the Nasdaq Capital Market. The Buyer has taken, or will take prior to the Closing, all necessary actions to (i) cause the Buyer Shares to be issued at Closing; (ii) ensure that such issuance is exempt from registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), pursuant to Regulation S or Regulation D thereunder, as applicable; and (iii) rely on the “home country practice” exemption available to Foreign Private Issuers under Nasdaq Listing Rule 5615(a)(3) in order to dispense with the requirement for shareholder approval under Nasdaq Listing Rule 5635, to the extent applicable to the transactions contemplated herein. |
| 8.4. | Brokers and Finders. The Buyer has not employed or made any agreement with any broker, finder or similar agent or any person or firm, which will result in the obligation of any of the Target, to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby. |
| 9. | Priority on Demand Registrations |
| 9.1. | Demand Registration Entitlement. Subject to other provisions in this Section 9, of the Buyer Shares issued pursuant to this Agreement, holders of 1,080,000 Class A ordinary shares (the “Demand Shares”) shall be entitled to demand the registration of such Demand Shares for resale under the Securities Act, including but not limited to registrations on Form F-1 or Form F-3 (each, a “Demand Registration”). |
| 9.2. | Priority on Demand Registrations. In the event the Company files a Registration Statement for the offering of securities, the holders of Demand Shares shall have the right to require that all or any portion of their Demand Shares be included in such Registration Statement. The Company may include in any securities which are not Demand Shares in such Registration Statement. If such offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Demand Shares and other securities (if any) requested to be included in such offering exceeds the number of Demand Shares and other securities (if any), which can be sold therein without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, then the Company will include in such offering (prior to the inclusion of any securities which are not Demand Shares) the number of Demand Shares requested to be included by the Selling Shareholders which, in the opinion of such underwriters, can be sold, without any such adverse effect. |
| 9.3. | Cut-Back Provision. If aggregate inclusion exceeds the available underwriting capacity, then each holder of Demand Shares shall be subject to a pro-rata cut-back, such that inclusion of Demand Shares is allocated among holders in proportion to the number of Demand Shares they have submitted for inclusion. |
| 9.4. | Exclusions. The priority described herein shall not apply to: |
(a) Registrations on Forms F-4 or other forms not explicitly permitting such rights; or
(b) Registrations solely for the benefit of employee benefit plans or in connection with mergers, acquisitions, or similar transactions.
| 9.5. | Procedural Requirements. Any holder of Demand Shares desiring a Demand Registration shall deliver written notice to the Company (a “Demand Notice”) specifying the number of Demand Shares to be registered and a proposed price range (net of underwriting discounts and commissions). Upon receipt, the Company shall promptly notify other holders of registrable securities and proceed to include requested shares in accordance with the priority and cut-back provisions set forth herein. |
| 9.6. | Revocation of Demand Notice. The Selling Shareholders may revoke or withdraw a Demand Notice by delivering written notice to the Company not less than two (2) Business Days prior to the anticipated pricing of any offering relating thereto. Any Demand Notice so revoked or withdrawn shall nonetheless be deemed to constitute one (1) Demand Registration, and the securities covered thereby shall not be eligible for inclusion in any subsequent Demand Registration for the longer of (i) six (6) months following such revocation or withdrawal, or (ii) the remainder of such calendar year. |
| 9.7. | Registration Expenses. Except as otherwise expressly provided herein, all reasonable and documented out-of-pocket expenses incurred in connection with the registration of the Demand Shares pursuant to this Agreement (including any Demand Registration, whether or not such registration statement shall ultimately become effective or any offering consummated) shall be borne by the Company. Such expenses shall include, without limitation: (i) all registration, filing and qualification fees payable to the SEC, FINRA, and any securities exchange or market on which the Company’s securities are then listed; (ii) all fees and expenses incurred in connection with compliance with any applicable state securities or “blue sky” laws; (iii) all printing, duplicating, word processing, mailing, messenger, telephone, facsimile, and delivery expenses, including the expense of preparing certificates evidencing Demand Shares in a form eligible for deposit with The Depository Trust Company or any successor depositary; (iv) all fees and disbursements of counsel for the Company; (v) all fees and disbursements of the Company’s independent registered public accounting firm, including the expenses of any special audits or comfort letters required in connection with such registration; (vi) all fees and expenses incurred in connection with the listing or quotation of the Demand Shares on any securities exchange or inter-dealer quotation system; and (vii) all internal expenses of the Company (including all salaries and expenses of its officers and employees performing legal, accounting or other duties related to such registration). All such expenses are herein referred to as “Registration Expenses.” |
Notwithstanding the foregoing, the Company shall not be obligated to pay (and the applicable Selling Shareholders shall bear): (a) any underwriting discounts, selling commissions or stock transfer taxes attributable to the sale of Demand Shares; or (b) any fees and disbursements of legal counsel or other advisors engaged by the Selling Shareholders, except to the extent the Company expressly agrees in writing to assume such expenses.
| 10. | Indemnification |
| 10.1. | Effectiveness; Survival. |
Subject to Section 11 relating to Taxes, the representations and warranties of the Selling Shareholders contained Section 7 in this Agreement and all covenants and agreements of the Selling Shareholders that are to be performed prior to the Closing will survive the Closing for a period of three years after the Closing Date; provided, that, the Fundamental Matters will survive until the date that is the five (5) year anniversary of the Closing Date. For the purpose of this section, “Fundamental Matters” means representations and warranties set forth in Section 7.3 (Authorization; Enforceability), Section 7.4 (Title to and Ownership of Sold Shares; No Encumbrances), Section 7.5 (No Other Rights; No Options), Section 7.6 (Non-Contravention), Section 7.7 (Consents and Filings) and Section 7.9 (Brokers and Finders). Subject to Section 11 relating to Taxes, all of the covenants contained in this Agreement will survive the Closing until fully performed and remain in full force and effect in accordance with their terms, unless and only to the extent that non-compliance with such covenants or agreements is waived in writing by the Buyer. Notwithstanding the preceding sentences, any breach of any covenant, agreement, representation or warranty in respect of which indemnification may be sought under this Agreement that by their nature are required to be performed after the Closing will survive the time at which it would otherwise terminate pursuant to the preceding sentences, if notice of such breach giving rise to such right of indemnification will have been given to the Selling Shareholder against whom such indemnification may be sought prior to such time. The Buyer and the Selling Shareholders acknowledge and agree that with respect to any claim that the Buyer may have against any Selling Shareholder that is permitted pursuant to the terms of this Agreement, the survival periods set forth and agreed to in this section will govern when any such claim may be brought and will replace and supersede any statute of limitations that may otherwise be applicable. The Selling Shareholders further agree that no investigation or knowledge of the subject matter of any representation or warranty by the Buyer, whether before or after the Closing, will affect the Buyer’s right to indemnification under this section.
| 10.2. | Indemnification. |
(a) Subject to Section 11 (Taxes) and the provisions of this section, including the limitations set forth in Section 10.4, each Selling Shareholder agrees, severally and not jointly, to indemnify the Buyer and its Affiliates, directors, managers, officers, employees, successors, permitted assigns, agents, and representatives (collectively, the “Buyer Indemnitees”) and hold them harmless from any and all Damages incurred or suffered by any Buyer Indemnitee to the extent arising out of or relating to:
(i) any breach of any representation or warranty of such Selling Shareholder in this Agreement or any failure of any such representation or warranty to be true and correct (except for those that by their terms address a specified date, which need only be true and correct as of that date);
(ii) any breach of any covenant or agreement made or to be performed by such Selling Shareholder pursuant to this Agreement; or
(iii) any Liability arising directly from: (A) any Action filed with or by any Governmental Authority prior to the Closing Date; (B) an Action set forth in the Disclosure Schedule; (C) any other Action filed prior to the Closing Date; (D) any breach of any covenant or agreement made or to be performed by such Selling Shareholder under this Agreement; and (E) any event, circumstance, or potential Action occurring or existing on or before the Closing Date, even if such claim, demand, or cause of action is asserted or becomes known after the Closing Date.
(b) Subject to Section 11 relating to Taxes and the provisions of this section, including the limitations set forth in Section 10.4 effective at and after the Closing, Buyer agrees to indemnify the Selling Shareholders and their Affiliates, directors, officers, employees, successors, permitted assigns, agents and representatives (collectively, the “Selling Shareholder Indemnitees”) against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any Selling Shareholder Indemnitee to the extent arising out of or relating to:
(i) any breach of any representation or warranty of Buyer in Section 8 of this Agreement or any failure of any representation or warranty of Buyer in Section 11 of this Agreement to be true and correct (except in the case of any representation or warranty that by its terms addresses matters only as of another specified date, which need be so true and correct only as of such specified date); or
(ii) any breach of covenant or agreement made or to be performed by Buyer pursuant to this Agreement.
(c) For all purposes hereunder, the determination of (i) the amount of Damages subject to indemnification pursuant to this section, and (ii) whether the representations and warranties giving rise to such right to indemnification have been breached, will be made without regard to any qualification or exception contained in such representation or warranty relating to materiality, Material Adverse Effect or other similar qualifications or exceptions contained in or otherwise applicable to such representation or warranty.
| 10.3. | Procedures. |
Except with respect to Tax Claims, which are addressed in Section 11, claims for indemnification under this Agreement will be asserted and resolved as follows:
(a) Any Buyer Indemnitee or Selling Shareholder Indemnitee seeking indemnification under this Agreement (an “Indemnified Party”) with respect to any claim asserted against the Indemnified Party by a third party (“Third Party Claim”) in respect of any matter that is subject to indemnification under Section 10.2 will promptly notify in writing (a “Claim Notice”) the other Party (the “Indemnifying Party”) of the Third Party Claim (and in any event within 20 Business Days after receipt by such Indemnified Party of written notice of the Third Party Claim), which Claim Notice will describe in reasonable detail the nature of the Third Party Claim, including the basis of the Indemnified Party’s request for indemnification under this Agreement and a reasonable estimate of any Damages suffered or expected to be suffered with respect thereto; provided, that, failure to promptly provide such Claim Notice will not relieve the Indemnifying Party of its indemnification obligations provided under this Agreement except to the extent the Indemnifying Party will have been prejudiced as a result of such failure or delay. The Indemnified Party will promptly provide the Indemnifying Party with a copy of all papers served with respect to such claim (if any) promptly upon receipt thereof by the Indemnified Party.
(b) The Indemnifying Party will have the right to participate in the defense of any Third Party Claim at any time and, subject to the limitations contained in this Section 10.3(b), assume and control the defense thereof. The Indemnifying Party will promptly notify the Indemnified Party (and in any event within 15 Business Days after having received any Claim Notice) with respect to whether or not it is exercising its right to assume and control the defense of any such Third Party Claim. If the Indemnifying Party notifies the Indemnified Party that the Indemnifying Party elects to assume and control the defense of the Third Party Claim (such election to be without prejudice to the right of the Indemnifying Party to dispute whether such claim is an indemnifiable Damage under this section, then the Indemnifying Party will have the right to defend such Third Party Claim with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party, in all appropriate proceedings, to a final conclusion or Settlement at the discretion of the Indemnifying Party in accordance with this Section 10.3(b); provided, that, an Indemnifying Party will not be entitled to assume the defense of such Third Party Claim if (A) such Third Party Claim could result in criminal liability of, or equitable remedies against, the Indemnified Party, or (B) such Third Party Claim does not solely seek and continue to solely seek monetary damages. The Indemnifying Party will have full control of such defense and proceedings, including any Settlement thereof; provided, that, the Indemnifying Party will not enter into any Settlement without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, such consent will not be required if (i) the Settlement (x) for any civil litigation contains a complete and unconditional general release by the third party asserting the Third Party Claim to all Indemnified Parties affected by the Third Party Claim and (y) for any Action that provides a full resolution of the matters investigated based on the facts known at the time, (ii) the Settlement does not contain any sanction or material restriction upon the conduct or operation of any business conducted by the Indemnified Party or its Affiliates, (iii) the Settlement involves only monetary payments and, subject to the Cap and the other terms and conditions of this section, the Indemnifying Party pays, or agrees to pay or cause to be paid, all such monetary payments arising out of such Settlement promptly and in no more than 10 Business Days following the effectiveness of such Settlement and (iv) exclusively with respect to any of the matters for which Selling Shareholders have agreed to provide indemnification pursuant to Section 10.2(a)(iii), the Settlement would not reasonably be expected to have a materially negative effect on any pending litigation involving the same or similar facts or allegations for which the Indemnified Party may have a Liability or result in the imposition of restrictions upon the conduct or operation of any business conducted by the Indemnified Party. The Indemnified Party may participate in, but not control, any defense or resolution of such Third Party Claim controlled by the Indemnifying Party pursuant to this Section 10.3(b), and the Indemnified Party will bear its own costs and expenses with respect to such participation unless the employment of separate legal counsel is reasonably necessary to protect the Indemnified Party’s interests, in which case such costs and expenses shall be borne by the Indemnifying Party.
(c) If the Indemnifying Party does not notify the Indemnified Party that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 10.3(b) within 15 Business Days after receipt of any Claim Notice, then the Indemnified Party will defend itself against the applicable Third Party Claim, and be reimbursed for its reasonable cost and expense (but only if the Indemnified Party is actually entitled to indemnification hereunder) in regard to the Third Party Claim with counsel selected by the Indemnified Party, in all appropriate proceedings and in good faith, which proceedings will be prosecuted diligently by the Indemnified Party. In such circumstances, the Indemnified Party will defend any such Third Party Claim in good faith and have full control of such defense and proceedings; provided, that, the Indemnified Party may not enter into any Settlement of such Third Party Claim if indemnification is to be sought hereunder, without the Indemnifying Party’s consent (which consent will not be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, the Indemnified Party will not have the authority to make any admission of fact or liability as part of a Settlement that would reasonably be excepted to have a materially negative effect on any Liability for which Selling Shareholders have agreed to provide indemnification pursuant to Section 10.2(a)(iii) or any pending litigation involving the same or similar facts or allegations for which the Indemnifying Party may have any Liability, without the prior written consent of Indemnifying Party. The Indemnifying Party may participate in, but not control, any defense or Settlement controlled by the Indemnified Party pursuant to this Section 10.3(c), and the Indemnifying Party will bear its own costs and expenses with respect to such participation. For the avoidance of doubt, if the Indemnifying Party does not notify the Indemnified Party that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 10.3(b) within 15 Business Days after receipt of any Claim Notice, the Indemnifying Party will be liable for the reasonable fees and expenses of counsel employed by the Indemnified Party for any period from and after such 15 Business Day period until the Indemnifying Party has assumed the defense thereof (but only if the Indemnified Party is actually entitled to indemnification hereunder).
(d) If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party (but only if the Indemnified Party is actually entitled to indemnification hereunder), to reasonably cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the Indemnifying Party elects to contest, including providing reasonable access to documents, records and information. In addition, the Indemnified Party will make its personnel reasonably available at no cost to the Indemnifying Party for conferences, discovery, proceedings, hearings, trials or appeals as may be reasonably requested by the Indemnifying Party. The Indemnified Party also agrees to reasonably cooperate with the Indemnifying Party and its counsel, in the making of any related counterclaim against the Person asserting the Third Party Claim or any cross complaint against any Person and executing powers of attorney to the extent necessary.
(e) A claim for indemnification for any matter not involving a Third Party Claim will be asserted by notice to the Indemnifying Party as promptly as practicable (the failure to give prompt notice will not, however, relieve the Indemnifying Party of its indemnification obligations unless the Indemnifying Party is prejudiced by such delay), which notice will describe in reasonable detail the nature of the claim and the basis of the Indemnified Party’s request for indemnification under this Agreement.
| 10.4. | Limitations on Liability. |
Notwithstanding anything to the contrary in this Agreement:
| 10.4.1. | Deductible. Each Indemnifying Party is only liable for Damages if the total of such Damages exceeds $7,500 (the “Deductible”). If the Deductible is met, the Selling Shareholders are only liable for the amount of Damages that exceeds the Deductible. |
| 10.4.2. | The total liability of any Indemnifying Party for a breach of representations and warranties is limited to US$4,000,000 (the “Cap”). This Cap does not apply to breaches related to Taxes, Fundamental Matters, or to willful and knowing fraud. |
| 10.4.3. | Each Indemnified Party will have a duty to use commercially reasonable efforts to mitigate any Damages arising out of or relating to this Agreement or the transactions contemplated hereby, including incurring the minimum costs necessary to remedy any breach that gives rise to such Damages. The amount of any Damages for which an Indemnified Party claims indemnification under this Agreement will be reduced by the amount of (i) any insurance proceeds actually received from third party insurers with respect to such Damages; (ii) any Tax benefit actually realized by the Indemnified Party arising from the incurrence or payment of such Damages in the Tax period in which the indemnification payment is made or in a prior Tax period (provided that any such Tax benefit is actually realized in the same year as the incurrence or payment of such Damages), and (iii) any indemnification, contribution, offset or reimbursement payments actually received from third parties with respect to such Damages, in each case of clauses (i) through (iii) above, net of any reasonable costs associated with recovery of such amounts; provided, that, such Indemnified Party will use commercially reasonable efforts to obtain recoveries from insurers, including title insurers, and other third parties in respect of this section. If an Indemnified Party (A) actually receives insurance proceeds from third party insurers with respect to such Damages, (B) actually realizes any Tax benefit in a later year, or (C) actually receives indemnification, contribution, offset or reimbursement payments from third parties with respect to such Damages, in each case, at any time subsequent to any indemnification payment pursuant to this section, then such Indemnified Party will promptly reimburse the applicable Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount actually received (or, in the case of a Tax benefit, actually realized) by such Indemnified Party. |
| 10.4.4. | Notwithstanding anything to the contrary herein, no Indemnified Party shall recover more than once for the same Liability. |
| 10.4.5. | THE RIGHTS OF INDEMNIFICATION SET FORTH IN THIS SECTION 10 WILL BE ENFORCEABLE REGARDLESS OF WHETHER ANY PERSON (INCLUDING ANY INDEMNIFYING PARTY) ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PARTY OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED ON THE INDEMNIFIED PARTY. |
| 11. | Tax Matters |
| 11.1. | Tax Returns. |
| 11.1.1. | Selling Shareholders will prepare and timely file, or cause to be prepared and timely filed, at its expense, on a basis consistent with past practice except to the extent otherwise required by applicable laws or otherwise provided in this Agreement, all Tax Returns relating to the sale of the Sold Shares and acquisition of the Buyer Shares. |
| 11.1.2. | The Buyer will prepare and timely file, or cause to be prepared and timely filed, at its expense, on a basis consistent with past practice except to the extent otherwise required by applicable laws or otherwise provided in this Agreement, all Tax Returns relating to the acquisition of the Sold Shares and issuance of the Buyer Shares. |
| 11.1.3. | The Buyer and the Selling Shareholders will cooperate fully with each other in connection with the preparation and filing of Tax Returns and the handling of any Tax Claim in connection with the Target. This cooperation includes providing access to relevant records and information and making employees available to provide explanations. The parties will also retain all relevant tax books and records until the expiration of the statute of limitations. |
| 11.2. | Transfer Taxes. Except as discussed in Section 11.1, all transfer, sales, use, excise, and similar taxes arising from the transfer of the Target will be borne equally by the Selling Shareholders and the Buyer on a 50-50 basis. Each party will be responsible for filing any required Tax Returns or documents related to these Transfer Taxes as required by law. |
| 11.3. | Tax Sharing Agreements. All tax sharing agreements and arrangements between the Target and each Selling Shareholder or its Affiliates will be terminated effective as of the close of business on the Closing Date and will have no further effect. |
| 11.4. | Tax Indemnification. |
| 11.4.1. | The Selling Shareholders, severally and not jointly, will indemnify the Buyer for and hold it harmless against any and all Damages arising out of or relating to: (i) all Taxes imposed on or with respect to the Target for any Pre-Closing Tax Period; (ii) any incurred Taxes of any affiliated, consolidated, combined, or unitary group of which the Target was a member on or prior to the Closing Date; (iii) any Transfer Taxes for which the Selling Shareholders are responsible; and (iv) any Taxes resulting from a breach of any tax-related covenant by the Selling Shareholders. |
| 11.4.2. | The Buyer will indemnify the Selling Shareholders and hold them harmless against any and all Damages arising out of or relating to: (i) any Taxes imposed on the Target for any Post-Closing Tax Period, excluding any Taxes attributable to the Pre-Closing Tax Period; (ii) any Transfer Taxes for which the Buyer is responsible; and (iii) any Taxes resulting from a breach of any tax-related covenant by the Buyer. |
| 11.4.3. | The indemnification obligations in this section will survive the Closing for 30 days after the expiration of the applicable statute of limitations (including extensions) for the relevant Tax period. |
| 11.5. | Procedures Relating to Indemnification of Tax Claims. |
| 11.5.1. | If a claim for Taxes, including notice of a pending audit, deficiency, proposed adjustment, assessment, examination, suit, dispute or other claim with respect to Taxes will be made by any Taxing Authority, for periods ending on or after the Closing Date which, if successful, might result in a claim for indemnity pursuant to this section (any such claim, a “Tax Claim”), the Party which receives such Tax Claim will notify the other Party in writing within ten (10) days of receipt thereof; provided, that, the failure of an Indemnified Party to give such notice to an Indemnifying Party will not affect the indemnification provided hereunder except to the extent that the Indemnifying Party has actually and materially been prejudiced by such failure. |
| 11.5.2. | With respect to any Tax Claim relating to a Tax period ending on or prior to the Closing Date, Selling Shareholders will control, at Selling Shareholders’ expense, the conduct of such Tax Claim unless Selling Shareholders provide Buyer with written notice of their refusal to control such Tax Claim; provided, that, (i) Selling Shareholders will keep Buyer reasonably informed as to the status of any Tax Claim that Selling Shareholders control pursuant to this section if the resolution of such Tax Claim would reasonably be expected to have a material effect on the Liability of Buyer or any of its Affiliates for Taxes for any Post-Closing Tax Period, Selling Shareholders will not settle or otherwise compromise such Tax Claim without Buyer’s written consent, which will not be unreasonably withheld, conditioned or delayed. If Selling Shareholders refuse to control a Tax Claim pursuant to this section, Buyer will control such Tax Claim; provided, that, (A) Buyer will keep Selling Shareholders reasonably informed as to the status of such Tax Claim and (B) Buyer will not settle or otherwise compromise such Tax Claim without Selling Shareholders’ written consent, which will not be unreasonably withheld, conditioned or delayed. |
| 11.6. | Coordination with Section 10. Except to the extent specifically set forth in this Agreement, the recourse of any Buyer Indemnitee for any and all Damages relating to or arising from Tax matters, will be controlled by this section rather than Section 10. |
| 12. | Miscellaneous |
| 12.1. | Further Assurances. Each of the Parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intentions of the parties as reflected thereby. |
| 12.2. | Confidentiality; Public Announcements. |
| 12.2.1. | Each Party hereby undertakes that, until the Closing, it shall maintain, and shall cause all of its respective directors, officers, and employees, its Affiliates and its shareholders and anyone on their behalf, to maintain, in strict confidence, all Confidential Information, and not to allow any third party to have access to any Confidential Information. Each Party hereby undertakes that it shall, and shall cause all of its respective directors, officers, and employees, its Affiliates and shareholders and anyone on their behalf, to disclose any Confidential Information to its consultants and other representatives (“Authorized Representatives”) only on a “need to know” basis, provided that such Authorized Representatives are bound by confidentiality undertakings which are at least as strict as the undertakings set out herein, and provided further, that it shall remain liable to any unauthorized disclosure of Confidential Information by its and its Affiliates’ Authorized Representatives. For the purpose of this Section 12.2.1, “Confidential Information” shall mean all documents and information in connection with the Parties, their Subsidiaries, if applicable, and other entities which they hold (or will hold from time to time) and/or their shareholders, including, without limitation, information concerning their activities, operations, results, financial reports and other financial information, proprietary rights, business plans, research and development, services, products, customers, and suppliers, and in connection with this Agreement and any other of the Transaction Agreements. Notwithstanding the foregoing, documents and information shall not be deemed Confidential for the purpose of this Section 12.2.1 if (i) such information is in the public domain at the time of disclosure; (ii) the disclosing Party can demonstrate that such information (a) became publicly available not due to a breach of this Section 12.2.1 by such Party, or (b) was obtained from a third party without breach of any confidentiality obligations; (iii) such information is otherwise required to be disclosed by (a) any applicable law or regulations; (b) a competent court; or (c) a governmental (or quasi-governmental), administrative or regulatory authority, provided, however, that subject to a applicable law a Party will use all reasonable efforts to notify the disclosing Party of the obligation to make such disclosure in advance of the disclosure so that the disclosing Party will have a reasonable opportunity to object to such disclosure. |
| 12.2.2. | As of the Closing, the provisions of Section 12.2.1 shall terminate and be of no further force and effect. If this Agreement is terminated in accordance with its terms prior to the Closing, the Parties, their respective Affiliates and anyone on their behalf will continue to maintain the confidentiality of all information and materials obtained from the other side (or from the other side’s authorized representatives), in accordance with the terms and provisions of Section 12.2.1. |
| 12.2.3. | Notwithstanding anything to the contrary contained herein, Target specifically acknowledges and understands that Buyer is a public company traded on NASDAQ, therefore it is required to make certain disclosures and publications under applicable laws which may include this Agreement and/or the Parties’ engagement. |
| 12.3. | Entire Agreement. This Agreement constitutes the full and entire understandings and agreements between the Parties hereto regarding the subject matters hereof and supersedes all prior agreements, proposals, understandings and arrangements, oral or written, if any between the Parties hereto with respect to the subject matter hereof. |
| 12.4. | Amendment and Waiver. Any term of this Agreement may be amended only with the written consent of all Parties hereto. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. |
| 12.5. | Assignment. Neither Party may assign, delegate or otherwise transfer this Agreement or any of its rights or obligations hereunder. |
| 12.6. | Delays or Omissions. No failure, delay or omission to exercise any right, power, or remedy accruing to any Party hereto upon any breach or default hereunder shall be deemed a waiver thereof or of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. |
| 12.7. | Cumulative Remedies. Subject to the terms of this Agreement, all remedies, either under this Agreement or by law or otherwise, afforded to any party hereto shall be cumulative and not alternative. |
| 12.8. | Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement, and such unenforceability shall not affect any other provision of this Agreement. Upon such determination, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. |
| 12.9. | Expenses. Each Party hereto shall bear its respective costs and expenses (including legal fees) incurred by it in connection with this Agreement and the transactions contemplated herein. |
| 12.10. | Further Assurances. Without derogating from the generality of Section 12.1, each of the Parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions under this Agreement. |
| 12.11. | Governing Law. Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to any conflicts-of-law principles that would result in the application of the laws of any other jurisdiction. Any dispute, claim or controversy arising out of or relating to this Agreement or the transactions contemplated hereby shall be brought exclusively in (i) the state courts located in New York County, New York, or (ii) the United States District Court for the Southern District of New York, and each Party hereby irrevocably submits to the exclusive jurisdiction of such courts. Each Party (a) waives any objection based on forum non conveniens, improper venue, or lack of personal jurisdiction, (b) agrees not to bring any action relating to this Agreement in any court other than the foregoing courts, and (c) consents to service of process in the manner provided in Section 12.14 (or as otherwise permitted by applicable law). |
| 12.12. | Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original enforceable against the Party signing such counterpart, and all of which together shall constitute one and the same instrument. A signed copy of this Agreement delivered by e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement. This Agreement may be signed by electronic means. |
| 12.13. | Schedules and Exhibits. As soon as practical following the date of this Agreement, and in any event prior to the Closing Date, the Parties shall agree in good faith the form and content of all schedules, annexes, appendices and exhibits which are referenced herein but are not attached hereto as of the date hereof. |
| 12.14. | Notices. All notices and other communications required or permitted hereunder to be given to a Party to this Agreement shall be in writing and shall be given in person (including by courier service), by registered mail, or by email (provided that written confirmation of receipt is provided), addressed to such Party’s address as set forth below or at such other address as the Party shall have furnished to each other Party in writing in accordance with this provision: |
|
If to the Selling Shareholders: |
Attention: Robert R. Karpman
Address: 84 Eastlake Rd, Ithaca, NY, 14850 USA
E-mail: robert.karpman@geri-safe.com |
| If to the Buyer: |
Attention: Jianfei Zhang
Address: Room 306, NET Building, Hong Jun Ying South Road, Chaoyang District, Beijing, China
E-mail: zhangjianfei@ftzy.com.cn
With a copy (which shall not constitute notice) to: Sunsea Law Group P.C.
Attention: Yao Zhang, Esq.; Shuang Li, Esq.
Adress: 18300 Karman Ave Suite 970, Irvine, CA 92612
E-mail: ayzhang@sunsealaw.com; lee@sunsealaw.com |
Or such other address with respect to a Party as such Party shall notify each other Party in writing as above provided. All communications delivered in person (including by courier service) shall be deemed to have been given upon delivery, those given by email shall be deemed given on the Business Day following transmission with confirmed answer back, and all notices and other communications sent by registered mail shall be deemed given five (5) Business Days after posting.
[Signature Pages to Follow]
IN WITNESS WHEREOF, the Parties hereto have executed this Share Purchase Agreement on the date first above written.
| The Target: | The Buyer: | ||
| Geri-Safe, Ltd. | Pheton Holdings Ltd | ||
| By: | By: | ||
| Robert R. Karpman | Name: Jianfei Zhang | ||
| Title: Chief Executive Officer and Founder | Title: Chief Executive Officer and Chairman of the Board of Directors | ||
| The Selling Shareholders: | |||
| Robert R. Karpman | |||
| Signature: | |||
| Xinyang Wang | |||
| Signature: | /s/ Xinyang Wang | ||
| David Lipson | |||
| Signature: | |||
| Ailiang Nie | |||
| Signature: | |||
| Bin Wu | |||
| Signature: | |||
| Yujun He | |||
| Signature: | |||
Exhibit A
List of Selling Shareholders and Sold Shares
The following persons (each, a “Selling Shareholder”) agree to sell to Buyer the number of shares of Geri-Safe, Ltd. set forth opposite their respective names (the “Sold Shares”).
| No. | Selling Shareholder (legal name) |
Share Class / Series | Number
of Shares to be Sold |
%
of Issued & Outstanding as of the Closing Date |
||||||||||
| 1 | Robert Karpman | common stock | 12 | 6.00 | % | |||||||||
| 2 | Xinyang Wang | common stock | 7 | 3.60 | % | |||||||||
| 3 | David Lipson | common stock | 2 | 1.20 | % | |||||||||
| 4 | Ailiang Nie | common stock | 2 | 1.20 | % | |||||||||
| 5 | Yujun He | common stock | 37 | 18.00 | % | |||||||||
| Total | 60 | 30.00 | % | |||||||||||
A-
Exhibit B
Target Licenses and Approvals in Effect & Material Contracts
B-
Exhibit C
Disclosure Schedule
C-
Exhibit D
Most Recent Cap Table
D-
Exhibit E
Financial Statements
E-
Exhibit 8.1
List of subsidiaries of the Registrant
| Name of Subsidiaries | Holding Ratio | |||
| Pheton (BVI) Ltd | 100 | % | ||
| iTonic Corporation | 51 | % | ||
| Pheton (HK) Limited | 100 | % | ||
| 北京锦瑞希医疗科技有限公司 | 100 | % | ||
| 北京飞天兆业科技有限责任公司 | 100 | % | ||
| 米立（江苏）医学技术有限公司 | 60 | % | ||
Exhibit 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jianfei Zhang, certify that:
| 1. | I have reviewed this annual report on Form 20-F of iTonic Holdings Ltd. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: March 30, 2026
| By: | /s/ Jianfei Zhang | ||
| Name: | Jianfei Zhang | ||
| Title: | Chief Executive Officer and Chairman of the Board of Director |
||
Exhibit 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Zhixin Li, certify that:
| 1. | I have reviewed this annual report on Form 20-F of iTonic Holdings Ltd. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: March 30, 2026
| By: | /s/ Zhixin Li | ||
| Name: | Zhixin Li | ||
| Title: | Chief Financial Officer | ||
Exhibit 13.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of iTonic Holdings Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2025, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Jianfei Zhang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: March 30, 2026
| By: | /s/ Jianfei Zhang | ||
| Name: | Jianfei Zhang | ||
| Title: | Chief Executive Officer and Chairman of the Board of Directors |
||
Exhibit 13.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of iTonic Holdings Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2025, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Zhixin Li, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: March 30, 2026
| By: | /s/ Zhixin Li | ||
| Name: | Zhixin Li | ||
| Title: | Chief Financial Officer | ||
Exhibit 15.2
 |
12341 Lewis St Ste 202 Garden Grove, CA 92840 Phone (714)-820-3316 Fax (714)-333-4992 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion by reference in this Registration Statement on Form F-3 (FILE No. 333-293241) and Form S-8 (FILE No. 333-286673) of iTonic Holdings Ltd. (“the Company”) of our report dated March 30, 2026, relating to our audit of the consolidated financial statements of the Company as of and for the year ended December 31, 2025 which is included in the Company’s Annual Report on Form 20-F and incorporated by reference in this Registration Statement. We also consent to the reference to our firm under the heading “Experts” in such Registration Statement.
Fortune CPA Inc.,
Garden Grove, CA
March 30, 2026
Exhibit 15.3
Independent Registered Public Accounting Firm’s Consent
We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-286673) and Form F-3 (No. 333-293241) of our report dated March 20, 2025, with respect to our audits of the consolidated financial statements of iTonic Holdings Ltd (formerly Pheton Holdings Ltd) as of December 31, 2024 and for each of the two years ended December 31, 2024, which is included in this Annual Report on Form 20-F for the year ended December 31, 2025, filed with the Securities and Exchange Commission.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
New York, New York
March 30, 2026
NEW YORK OFFICE ● 7 Penn Plaza ● Suite 830 ● New York, New York ● 10001
Phone 646.442.4845 ● Fax 646.349.5200 ● www.marcumasia.com