PART I

ITEM 1. BUSINESS

The Company

As used herein the terms “we”, “us”, “our,” “NF Energy”, “NFEC”“BIMI” and the “Company” means NF Energy Saving Corporation,BIMI International Medical Inc., a Delaware corporation, formerly known as NF Energy Saving Corporation of America, Diagnostic Corporation of America, Global Broadcast Group, Inc., and Galli Process, Inc. These terms also include ourits subsidiaries, NF Energy Investment Corporation, NF Energy EquipmentLasting Wisdom Holdings Limited Liaoning Nengfa Weiye Energy Technology Company Ltd. (“Nengfa Energy”Lasting”), a corporation organized and existing under the laws of the Peoples’ Republic of ChinaBVI, Pukung Limited (“PRC”Pukung”), a company organized and Liaoning Nengfa Tiefa Import & Exportexisting under the laws of Hong Kong, Beijing Xinrongxin Industrial Development Co., Ltd., (“Import & Export Company”Xinrongxin”), a limited liability corporationcompany organized and existing under the laws of the PRC, Dalian Boyi Technology Co., Ltd. (“Dalian Boyi”), a company organized and existing under the laws of the PRC, Chongqing Guanzan Technology Co., Ltd. (“Guanzan”), a company organized and existing under the laws of the PRC, Chongqing Lijiantang Pharmaceutical Co. Ltd.(“Lijiantang”), a company organized and existing under the laws of the PRC, Chongqing Shude Pharmaceutical Co., Ltd (“Shude”), a company organized and existing under the laws of the PRC. Boyi (Liaoning) Technology Co., Ltd. (“Liaoning Boyi”), a company organized and existing under the laws of the PRC, Bimai Pharmaceutical (Chongqing) Co., Ltd (“Chongqing Bimai”), a company organized and existing under the laws of the PRC. Chongqing Guoyitang Hospital (“Guoyitang”), a company organized and existing under the laws of the PRC. Chongqing Huzhongtang Healthy Technology Co., Ltd (“Huzhongtang”),a company organized and existing under the laws of the PRC. Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”), a company organized and existing under the laws of the PRC. Wuzhou Qiangsheng Hospital (“Qiangsheng”), a company organized and existing under the laws of the PRC. Suzhou Eurasia Hospital(“Eurasia”), a company organized and existing under the laws of the PRC. Yunnan Yuxi MinKang hospital (“Minkang”). a company organized and existing under the laws of the PRC. Chongqing Zhuoda Pharmaceutical Co., Ltd (“Zhuoda”), a company organized and existing under the laws of the PRC. Chongqing Qianmei Medical Devices Co., Ltd (“Qianmei”), a company organized and existing under the laws of the PRC. Pusheng Pharmaceutical Co., Ltd(“Pusheng”) and Bimai Hospital Management (Chongqing) Co. Ltd (“Bimai Hospital”), a company organized and existing under the laws of the PRC.

NF Energy was

We were incorporated under the laws of the State of Delaware under the name ofas Galli Process, Inc. on October31, 2000 for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship.October 31, 2000. On December31,December 31, 2001, Galli Process, Inc. became a majority owned subsidiary of City View TV, Inc., a Florida corporation (“City View”). On February7, 2002, Galli Process, Inc.Inc, changed its name to Global Broadcast Group, Inc. On March1, 2002, City View merged intoNovember 12, 2004, Global Broadcast Group, Inc., which was the surviving entity. On November12, 2004, the Company changed its name to Diagnostic Corporation of America. On March15,March 15, 2007, we changed our name to NF Energy Saving Corporation of America, and on August24,August 24, 2009, the Company furtherwe changed itsour name to NF Energy Saving Corporation, in both instancesCorporation. On December 16, 2019, we changed our name to more accuratelyBOQI International Medical Inc. to reflect our new business.focus on the health care industry and on June 21, 2021, the Company changed its name to BIMI International Medical Inc. Our internet website address is http://www.usbimi.com/index.html. The information on our website is not incorporated by reference into this annual report.

On November26, 2015, we formed

All share and per share information included in this Annual Report has been adjusted to reflect a new company devoting to intelligent products was set up which is named by “Liaoning Nengfa Weiye Smart Valve Technology Co. Ltd”. (“Nengfa Smart Valve”). On March8, 2017, “Liaoning Nengfa Weiye Smart Valve Technology Co. Ltd was named by “Liaoning Nengfa Tiefa Import and Export Co., Ltd.” in order to make further business activities. Nengfa Energy owns approximately 57%five share for one share reverse split effective as of the shares in Import & Export Company.February 3, 2022.

For internal restructuring purposes, we formed a 100% owned subsidiary NF Energy Investment Corporation (“NF Investment”) in British Virgin Islands on June22, 2018, which owns 100% of equity interests of NF Energy Equipment Limited (“NF Equipment”), a company incorporated in Hong Kong on August6, 2018. 100% of equity interests of Nengfa Weiye were subsequently transferred to NF Equipment. Other than its equity interests in NF Equipment, NF Investment does not own any assets or conduct any operations. Other than its equity interests in Nengfa Weiye, NF Equipment does not own any assets or conduct any operations.

Recent History

In January 2019, Mr.YongquanMr. Yongquan Bi, an existinga director and a substantial stockholder of the Company, together with a group of additional investors whose combined holdings together constituted a majority of the Company’s voting rights in our company, delivered a written consent (the “Written Consent”) to the Company’s registered office in a process which is consistent with the Company’s governing documents.office. The Written Consentwritten consent modified the composition of the Board of Directors. Mr.YongquanDirectors and Mr. Yongquan Bi was subsequently appointed as the Company’s Chairman of the Board, Chief Executive Officer and President. In October 2019, Mr. Yongquan Bi resigned from the office of the Chief Executive Officer and President and Mr. Tiewei Song succeeded him as Chief Executive Officer and President. On December 14, 2021, Mr. Yongquan Bi resigned as a director and Chairman of the Board of Directors of the Company.

1

The structureNF Group disposition

In late 2019, we committed to a plan to dispose of our corporate organization is as follows:

legacy energy business, NF Energy Saving Corporation (BIMI)

In February 2019, we announced that the Company’s NASDAQ ticker symbol will be changed from “NFEC”Investment and its subsidiaries (the “NF Group”), in order to “BIMI” and also announcedfocus on our intention, subject to shareholder and regulatory approvals, to change the corporate name of the Company to BOQI International Medical Inc.

healthcare business. On April11, 2019,March 31, 2020, we entered into a stock purchasean agreement (the “Agreement”) with LASTING WISDOM HOLDINGS LIMITED, a company organized underto sell the laws ofNF Group for $10 million to be paid in cash at the British Virgin Islands, PUKUNG LIMITED, a company organized under the laws of Hong Kong, BEIJING XIN RONG XIN INDUSTRIAL DEVELOPMENT CO., LTD., a company organized under the laws of the PRC,closing. The transaction closed on June 23, 2020, at which time we received $10 million.

The Boqi Zhengji Pharmacy Chain Co., Ltd. (“Boqi Pharmacy”), a company organized underAcquisition and Subsequent Disposition

On October 14, 2019, as the laws of the PRC, and several additional individual sellers. The rationale of the Agreement is forinitial step in our company to purchase the pharmacy business of Boqi Pharmacy, as part of our expansion and shift of focus from the energy sector to the healthcare business, we acquired Boqi Zhengji, the operator of a pharmacy business.chain business in the PRC, by purchasing 100% of the equity interests of Lasting, Boqi Zhengji’ s parent company. Lasting, through its wholly owned subsidiaries Pukung, and Xinrongxin, owned all the ownership interests in Boqi Zhengji. Lasting, Pukung, Xinrongxin and Boqi Zhengji are hereinafter referenced as the “Boqi Zhengji Group”. The aggregate purchase price for the Boqi Zhengji consisted of RMB 40 million (approximately $5,655,709) and 300,000 shares of Common Stock. The 300,000 shares of Common Stock were issued to the sellers in October 2019. The cash consideration, which was subject to post-closing adjustments based on the performance of Boqi Pharmacy’s parent consistsZhengji, measured by its pharmacy club member headcount and gross profit in 2020, was not payable until 2021.

Shortly after the acquisition, the business of Boqi Zhengji was severely impacted by the spread of coronavirus, or COVID-19, and its revenues plummeted. On December 11, 2020, we entered into a Termination and Release Agreement (the “Release Agreement”) with the four individuals who sold Boqi Zhengji to us. We and the sellers confirmed that Boqi Zhengji’s performance targets as stipulated in the Stock Purchase Agreement dated April 11, 2019 (as amended on February 6, 2020, the “Boqi SPA”) would not be met, and therefore the sellers would not be eligible to receive the contingent RMB 40 million cash consideration or any other additional payment.

On December 11, 2020, we entered into an agreement to sell all the issued and outstanding equity interests in Boqi Zhengji to a third-party in consideration of $1,700,000 to be paid in cash at the closing. While the cash consideration was received on December 18, 2020, the official recognition of the closing was not received until February 2, 2021.

Strategy

Our strategy is to build a comprehensive healthcare ecosystem, centering on online and offline healthcare products and services, including retail and wholesale sales of medical devices and pharmaceuticals, and hospital services. We intend to expand through both organic growth and acquisitions.

The Guanzan Acquisition

On February 1, 2020, we entered into a stock purchase agreement to acquire Guanzan, a company engaged in the distribution of medical devices and pharmaceuticals, based in Chongqing, the largest city in Southwest region of the PRC. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Guanzan and its subsidiary, Shude, (together the “Guanzan Group”), for RMB 100,000,000 (approximately $14,285,714) to be paid by the issuance of 190,000 shares of Common Stock and the cash payment of RMB 80,000,000 (approximately $11,428,571). On March 18, 2020, we closed the Guanzan acquisition by delivering 190,000 shares of Common Stock. The cash consideration, was subject to post-closing adjustments based on the performance of Guanzan in 2020 and 2021.

The rationale for the Guanzan Acquisition was to further expand into the healthcare field by acquiring a medical devices and pharmaceuticals distribution business, in line with our expansion strategy which focuses on deeper penetration of the healthcare market in the Southwest region of China and achieving a wider footprint in the PRC. At the time of the acquisition, Guanzan had strong sales capabilities in Chongqing, the largest city in the Southwest region of the PRC.

On November 20, 2020, the parties to the Guanzan acquisition agreement entered into a Prepayment and Amendment Agreement (the “Prepayment Agreement”) in light of Guanzan’s performance during the period from March 18, 2020 to September 30, 2020, providing for the prepayment of RMB 20,000,000 of the contingent cash consideration in the form of shares of Common Stock. On November 30, 2020, we issued 200,000 shares of Common Stock valued at $3 million as the prepayment. On August 27, 2021, we issued 920,000 shares of Common Stock in full payment of the balance of the post-closing consideration for the acquisition of Guanzan.

The Guoyitang Acquisition

On December 9, 2020, we entered into an agreement to acquire Chongqing Guoyitang Hospital (“Guoyitang”), the owner and operator of a private general hospital in Chongqing City, a city in Southwest China, with 50 hospital beds and 98 employees, including 14 doctors, 28 nurses, 43 other medical staff and 13 non-medical staff. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Guoyitang for RMB 100,000,000 (approximately $15,325,905) to be paid by the issuance of 400,000 shares of Common Stock and the payment of RMB 60,000,000 (approximately $9,195,543) in cash. The acquisition closed on February 2, 2021, at which time 4000,000 shares of Common Stock were delivered to the sellers. The cash consideration of RMB 60,000,000 (approximately $9,195,543) was paid in December 2020. The balance of the purchase price of RMB 40,000,000 (approximately $6,097,560) was subject to post-closing adjustments based on the performance of Guoyitang in 2021 and 2022. For the year ended December 31, 2021,there was a performance failure of Guoyitang, accordingly the sellers are not eligible to receive any contingent payments.

The Zhongshan Acquisition

On December 15, 2020, we entered into a stock purchase agreement to acquire Chaohu Zhongshan Minimally Invasive Hospital (“Zhongshan”), a private hospital in the Southeast region of China with 160 hospital beds and 95 employees, including 20 doctors, 48 nurses, 10 other medical staff and 17 non-medical staff. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Zhongshan for RMB 120,000,000 (approximately $18,348,623), to be paid by the issuance of 400,000 shares of Common Stock and the payment of RMB 80,000,000 in cash. The transaction closed on February 5, 2021 when 100% ownership of Zhongshan was transferred to our company. The cash consideration of RMB 40,000,000 and up(approximately $6,116,207) was paid to 1,500,000sharesthe seller in December 2020. On February 12, 2021, we issued 400,000 shares of our common stock.Common Stock then valued at RMB 40,000,000 (approximately $6,116,207) to the seller as part of the consideration. The balance of the purchase price in the amount of RMB 40,000,000 (approximately $6,116,207) was subject to post-closing adjustments based on the performance of Zhongshan in 2021 and 2022.

On February 1, 2022, we entered into an amendment to the agreement providing for the reduction of the purchase price, including a retroactive 50% decrease in the closing cash payment, a 50% retroactive decrease in the deferred closing stock payment and a 50% reduction of the 2021 and 2022 performance targets. As a result of such amendment, the Seller agreed to return RMB 40,000,000 in cash to us and 200,000 shares of Common Stock, which were previously delivered to the seller as part of the closing consideration for Zhongshan.

The Qiangsheng, Eurasia And Minkang Hospitals Acquisition

On April 9, 2021, we entered into a stock purchase agreement to acquire Wuzhou Qiangsheng Hospital (“Qiangsheng”),Suzhou Eurasia Hospital(“Eurasia”) and Yunnan Yuxi MinKang hospital (“Minkang”). Qiangsheng, Eurasia and Minkang are private hospitals in the Southern, Northern and Southwest region of China, respectively. Qiangsheng has 20 hospital beds and 63 employees, including 18 doctors, 17 nurses, 8 other medical staff and 20 non-medical staff. Eurasia has 12 hospital beds and 52 employees, including 12 doctors, 15 nurses, 7 other medical staff and 18 non-medical staff. Minkang has 126 hospital beds and 116 employees, including 24 doctors, 58 nurses, 12 other medical staff and 22 non-medical staff. Pursuant to the agreement, we agreed to purchase all the issued and outstanding equity interests in Qiangsheng, Eurasia and Minkang Hospitals for RMB 162,000,000 (approximately $24,827,927), to be paid by the issuance of 800,000 shares of Common Stock and the payment of RMB 84,000,000 in cash. The first payment of the cash consideration was RMB 20,000,000 (approximately $3,097,317). The second and third payments of the Cash Consideration of RMB 64,000,000 (approximately $9,911,416) are subject to post-closing adjustments based on the performance of Qiangsheng, Eurasia and Minkang in 2021 and 2022. The sellers can choose to receive the second and third payments in the form of shares of Common Stock valued at $15.00 per share or in cash. The transaction closed on May 6, 2021, at which time the 800,000 shares of Common Stock were issued. Cash consideration of RMB 20,000,000 was paid on December 1, 2021.

The Zhuoda Acquisition

On September 10, 2021, we entered into a stock purchase agreement to acquire Chongqing Zhuoda Pharmaceutical Co., Ltd. (“Zhuoda”), a company engaged in the distribution of medical devices and pharmaceuticals, based in Chongqing, the largest city in Southwest region of the PRC. Pursuant to the agreement, we agreed to purchase all of the issued and outstanding equity interests in Zhuoda in consideration of $11,617,500 (RMB 75,000,000). Pursuant to the acquisition agreement the entire purchase consideration is payable in shares of Common Stock. At the closing, 440,000 shares of Common Stock valued by the parties at RMB 43,560,000, or $15.00 per share (approximately $6,600,000) were issued as partial consideration for the purchase and the remainder of the purchase price of approximately $5,017,500 (RMB 31,440,000), is subject to post-closingpost-closing adjustments (contingentbased on fair market valuethe performance of Zhuoda in 2022 and 2023.

We may pay the acquired companies). This transaction is anticipatedoutstanding consideration for the Zhuoda acquisitions to close during the third or fourth quarter of 2019. The Company plansextent payable: (i) in cash from funds to raise RMB 40,000,000 in equity to fund the acquisition cost.

Business Description

In the last few years, NFEC was dedicated to energy efficiency enhancement in two fields: (1) manufacturing large diameter energy efficient intelligent flow control systems for thermal and nuclear power generation plants, major national and regional water supply projects and municipal water, gas and heat supply pipeline networks; and (2) energy saving technology consulting, optimization design services, energy saving reconstruction of pipeline networks and contractual energy management services for China’s electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure industries.

NFEC has received many awards and honorsbe raised from China’s regulators, professional associations and international organizations, including the ISO 9001:2008 certification from Det Norske Veritas Management System, the Liaoning Provincial Government’s Award of Innovative Enterprise with Best Investment Return Potentials, the Special Industrial Contribution Award of the ESCO Committee of China Energy Conservation Association, and the “Contract-abiding and credit enterprise” Award by the Liaoning State Local administrative bureau for industry and commerce. NFEC was awarded of “Hi-tech enterprise” by Liaoning Technology bureau in 2013.

In 2019, we decided to shift our focus so that our business will be mainly engaged in the sale of medicines and other health-related commoditiesequity (to the extent possible) or (ii) through the developmentissuance of shares of Common Stock. If we elect to issue shares of Common Stock in consideration for the balance of the purchase for Zhuoda, we may be required to seek stockholder approval of such issuances prior to issuing such shares.

The Mali Hospital Acquisition

On December 20, 2021, we entered into a stock purchase agreement to acquire Bengbu Mali OB-GYN Hospital Co., Ltd. (“Mali Hospital”), a private OB-GYN specialty hospital with 199 beds located in Bengbu city in the southeast region of the People’s Republic of China. We agreed to purchase all the issued and outstanding equity interests in Mali Hospital in consideration of $16,750,000. At the closing, $2,800,000 in cash and 600,000 shares of Common Stock valued at $ 9,000,000, or $15.00 per share will be delivered as partial consideration for the purchase of Mali Hospital. The remainder of the purchase price of 330,000 shares of Common Stock valued at $4,950,000, or $15.00 per share, is subject to post-closing adjustments based on the performance of Mali Hospital in 2022 and 2023, which under certain circumstances may be paid on an earlier date if the 2022 net profit target is met or exceeded In the event an accelerated payment is made, the sellers will not be eligible to receive any additional payments.

The closing of the Mali Hospital acquisition is expected to take place in April 2022, subject to necessary regulatory approvals.

Segments

In 2021 we were engaged in four business segments, wholesale pharmaceuticals, wholesale medical devices, medical services and retail pharmacies. In 2020, we were engaged in three business segments, wholesale pharmaceuticals, wholesale medical devices and retail pharmacies.

Holding Foreign Company Accountable Act

In December 2020, the Holding Foreign Companies Accountable Act, or the HFCAA, was signed into law. The HFCAA amended the Sarbanes Oxley Act to prohibit trading on U.S. exchanges of public reporting companies audited by audit firms located in foreign jurisdictions that the PCAOB has been unable to inspect for three sequential years. Trading in our securities may be prohibited under the HFCAA, if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) determines that it cannot inspect or investigate completely our auditor.

Pursuant to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in (i) the PRC because of a marketing network. position taken by one or more authorities in the PRC and (ii) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations.

The PCAOB is currently unable to conduct inspections in China without the approval of Chinese government authorities. If it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, investors may be deprived of the benefits of such inspection. Any audit reports not issued by auditors that are completely inspected by the PCAOB, or a lack of PCAOB inspections of audit work undertaken the PRC that prevents the PCAOB from regularly evaluating our auditors’ audits and their quality control procedures, could result in a lack of assurance that our financial statements and disclosures are adequate and accurate.

Our auditor, Audit Alliance LLP, is an independent registered public accounting firm with the PCAOB, and as an auditor of publicly traded companies in the U.S., is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. On December 16, 2021, the PCAOB issued its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions, and the PCAOB included in the report of its determination a list of the accounting firms that are headquartered in the PRC or Hong Kong. Audit Alliance LLP is based in Singapore and this list does not include our auditor. Should the PCAOB be unable to fully conduct inspections of our auditor’s work papers in China, it will make it difficult to evaluate the effectiveness of our auditor’s audit procedures or equity control procedures. Investors may consequently lose confidence in our reported financial information and procedures or quality of the financial statements, which would adversely affect us and our securities.

Moreover, if trading in our securities is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, our securities will likely be delisted.

Corporate Organization

The structure of our corporate organization is as follows:

Wholesale Sales of Medical Devices

We intendacquired Guanzan on March 18, 2020 in an effort to focusfurther expand our healthcare operations by acquiring a medical devices and pharmaceuticals distribution business. The acquisition was in line with our expansion strategy, which focuses on salesdeeper penetration of prescriptionthe healthcare market in the Southwest region of the PRC and gaining a wider footprint in the region. On September 22, 2021, we completed the acquisition of Zhuoda. The acquisition was in line with our expansion strategy, which focuses on deeper penetration of the healthcare market in the Southwest region of China and gaining a wider footprint in the PRC.

Our wholesale medical devices and pharmaceuticals business are operated by the Guanzan Group and Zhuoda in Chongqing, the largest city in Southwestern PRC. to drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest region of China.

Guanzan distribute both domestic and imported advanced medical devices, such as Stryker spinal products, Olympus endoscopes, imported imaging products and diagnostic imaging equipment. Guanzan and to a lesser degree Zhuoda distribute medical devices to drug stores, private clinics, pharmaceutical dealers and hospitals in the Southwest region of the PRC. The majority of our medical device customers are private enterprises in China. Revenues from medical devices for the years ended December 31, 2021 and 2020 was $3,445,107 and $3,059,462 respectively. For the year ended December 31, 2021, our top ten wholesale medical device customers accounted for 72.68% of our wholesale medical devices revenues and two customers accounted for more than 10% of our wholesale medical devices revenues.

We use third party logistics services to transport our medical device products.

Wholesale Sales of Pharmaceuticals

Shude primarily distributes pharmaceuticals. Shude currently distributes approximately 300 varieties of products, including raw ingredients for pharmaceutical products, antibiotics, cardiovascular drugs explore new retail opportunities (in additionand anti-obesity medicines. The majority of Shude’s customers are private pharmaceutical manufacturers and pharmaceutical wholesale companies in the PRC.

Zhuoda primarily distributes pharmaceuticals. Zhuoda currently distributes approximately 100 products, including antibiotics and their preparations, proprietary Chinese herbal medicine, biochemical drugs and Chinese medicine, etc. The majority of its customers are private pharmaceutical manufacturers and pharmaceutical wholesale companies in the PRC.

On April 21, 2021, we incorporated Pusheng Pharmaceutical Co., Ltd. (“Pusheng”) in the PRC to manage our wholesale distribution of generic drugs.

For the year ended December 31, 2021, our top ten wholesale pharmaceutical customers accounted for 80.82 % of our wholesale pharmaceutical revenues and three customers accounted for more than 10% of our wholesale pharmaceutical revenues.

We use third party logistics services to transport our wholesale pharmaceutical products.

Medical Services

Beginning in 2021, we began to acquire hospitals in an effort to establish a nationwide chain of hospitals specializing in obstetrics and gynecology.

In February 2021, we acquired Guoyitang, the owner and operator of a private general hospital in Chongqing City, a city in Southwest China, with 50 hospital beds and 98 employees, including 14 doctors, 28 nurses, 43 other medical staff and 13 non-medical staff.

In February 2021, we also acquired Zhongshan; a private hospital in the Southeast region of China with 160 hospital beds and 95 employees, including 20 doctors, 48 nurses, 10 other medical staff and 17 non-medical staff.

In May 2021, we acquired the Qiangsheng, Eurasia and Minkang private hospitals in the Southern, Northern and Southwest regions of China, respectively. Qiangsheng has 20 hospital beds and 63 employees, including 18 doctors, 17 nurses, 8 other medical staff and 20 non-medical staff. Eurasia has 12 hospital beds and 52 employees, including 12 doctors, 15 nurses, 7 other medical staff and 18 non-medical staff. Minkang has 126 hospital beds and 116 employees, including 24 doctors, 58 nurses, 12 other medical staff and 22 non-medical staff.

On December 20, 2021, we entered into a stock purchase agreement to acquire Mali Hospital, a private OB-GYN specialty hospital with 199 beds located in Bengbu City in the southeast region of China. Mali Hospital has 148 employees, including 26 doctors, 52 nurses, 11 other medical staff members and 59 non-medical staff members. The closing of the Mali Hospital acquisition is expected to take place in April 2022, subject to necessary regulatory approvals.

Retail Pharmacies

We started to operate in the pharmacy market upon completion of the acquisition of Boqi Pharmacy), and enter new rural areas. Through the expansion of pharmacy stores, acquisitions of businessesZhengji in the medical industry and franchise development, we intend to continue to build core competencies such as specialized services. We are committed to the pharmaceutical retail industry and to transforming the company into a technology-driven health service platform. We also intend to continue to actively explore domestic and international financing opportunities.

Products and Services

At present, our products and services include:

•        Providing large-diameter smart flow control devices for China’s electric power generation, water supply, heating supply and gas supply industries.

•        Providing the equipment related to desulfurization, denitration and dust removal for China’s electric power generation, metallurgy, petrochemical, steel, cement and heating supply industries.

•        Providing consulting services, such as energy efficiency optimization design, energy consuming equipment retrofit and engineering, equipment maintenance and services, energy management based on Energy Performance Contracts for China’s industrial enterprises.

In 2019, we plan to expand our products and services into the healthcare industry, providing both Chinese and Western medicines, as well as Chinese herbal medicines, health equipment, health foods, general foods, personal care products and daily necessities.

Production and Sales of Energy Saving Flow Control Equipment

Our current principal business is the production and sales of energy-saving flow control equipment and intelligent flow control equipment. This business accounts for the majority of the Company’s current revenues.

The transportation of water, gas, oil, and heat to end users is dependent on various kinds of pipelines and pipe networks. In the case of water pipelines, such systems are also used for public health and safety, and waste and flood control.

We believe that he key to conserve energy and provide for an efficient pipeline transportation process is the valve and the flow control equipment. Having unique technology in this field, the Company has obtained four patents and holds fourteen utilization model patents in China for flow control devices, especially in the area of the bidirectional seal zero revelation installation system with its special characteristics. Using valves of this type can result in a 20% reduction in energy consumption for customers compared to traditional valves. The reduced energy consumption thereby increases the efficiency of the pipeline system. It is widely used in the fields of electric power, hydro power, petroleum, and natural gas. The Company’s super intelligent flow-control device was awarded “Number One Energy Saving Valve of China” by the Chinese Energy Conservation Association. Our products are exported to the United States, Russia, Turkey, Italy, Bulgaria, South Korea, Vietnam, India, Thailand, South Africa, Iraq, and Afghanistan.

Another main business is the energy saving technology engineering and service, the Company intends to continue to develop comprehensive energy conservation and energy reduction equipment and services, and to pursue research development and improved manufacturing of flow control and clean energy related equipment.

Healthcare Products

We plan to expand our operations and focus on becoming a provider of healthcare products. We intend to build up a professional team to take advantage of the market and investment opportunities in China. In April 2019, we entered into a definitive agreement to acquire Boqi Pharmacy. Our plans, subject to obtaining additional financing, also include increasing our investment in medical services and scaling up our recently acquired medical business. At the same time, we intend to follow the group company operation mode and seek new medical service acquisition opportunities with respect to general hospitals, specialist hospitals, specialist chain stores and third-party medical centers in areas such as the Bohai Bay Economic Zone and the Yangtze River Delta in China.

Patents and Technology

Nengfa Energy currently has been issued four invention patents and has applied for fourteen utility model patents in the PRC. In addition to patent protection, we also rely on the confidentiality of our operations, proprietary know-how and business secrets. Although we do not have formal agreements with our employees, we do consider our employees’ work to be proprietary and owned by the Company. Where necessary, we will take steps to protect our intellectual property interests under the laws of the PRC. There can be no assurance that we will be able to enforce our rights if they are improperly taken by our employees or adopted by our competitors outside of sanctioned use and royalty agreements with the Company.

Certain of our service offerings will not be patentable or otherwise be capable of being registered as intellectual property. Therefore, the Company will rely solely on such services being proprietary. As such the Company will have to rely on the services being more advanced or better than its competitors’ offerings or rely on trade secret laws and protections. Such protections in the PRC are considered rather weak and are difficult if not impossible to enforce. Consequently, it may be possible for our competitors to obtain our information and to copy, adopt or adapt our methods, services and technical aspects to their own business with no assurance that we will be able to prevent them from using the intellectual property in competition with us.

We do not have any significant trademarks in use at this time. As our business develops, we will consider the advantage of developing specific trademarks for our products and services and may register those marks with the PRC government authorities for trademark protection.

Markets and Customers

The transport of water and fluid energy, such as oil, gas, steam and hot water depends on pipelines. The intelligent flow control devices supplied by NF Energy are an important part in the fluid energy transportation systems. According to “one belt and road initiative”, China plans to invest 4 trillion yuan in the next 5 to 10 years into water conservancy projects, the average annual investment is 400billion yuan, and the investment relating to valves is approximately 40billion yuan per year. Since it was founded in 2006, the Company has supplied its products to many projects of this national water works, including the middle and northern Guangxi Xijiang River Water Diversion Project, Shenzhen Water Supply Project, Shanghai Water Diversion Project, and the 7 urban water supply projects in Liaoning Province, three curved water diversion projects in Dandong, and other major domestic water diversion projects. We believe that we have the best industry performance in water supply projects so as to be awarded as “king of butterfly valve” in water diversion industry. At the same time, we also provide flow control devices and equipment for supercritical thermal power plants and ultra-supercritical coal-fired power plants as well as domestic hydro power generation market which are dominated by China’s state-owned five big power groups. More than 80% of the Company’s annual revenues come from these markets and customers.

In connection with its work on the water diversion project and some of the power plant projects, the Company has a preferred provider agreement with Nengfa Weiye Tieling Valve Joint Stock Co., Ltd. (“Tieling Valve”) under which Nengfa Energy is the preferred provider of the valves and other related flow control equipment that Tieling Valve requires in its own work on the water diversion project. The agreement is in the manner of a right of first refusal whereby Tieling Valve is obliged to offer supply opportunities to Nengfa Energy within its scope of product offerings and expertise, but Tieling Valve is not prohibited from developing other supply arrangements. Tieling Valve and Nengfa Energy have agreed to cooperate to develop and market their respective technologies, equipment, products and services for their respective and mutual benefit, and will work together to examine and expand their respective businesses. Under the agreement, each party retains full right to their respective intellectual property. The agreement terminates in 2021, but by its terms will automatically extend for additional one year terms unless notice of termination is given by one party to the other at least six months prior to the then termination date.

We intend to operate in the pharmaceutical market upon our acquisition of Boqi Pharmacy.October 2019. According to the ChinesePRC National Bureau of Statistics, in 2018,2020, the per capita consumption expenditure of the national residentsfor pharmaceuticals was RMB 19,853 yuan.1,843 (approximately $283). After deducting the priceinflation factor, the actual increase was 6.2%, an increase of 0.8 percentage points overin consumption expenditure doubled the same period of the previous year. From the perspective of the service consumption structure of residents, the per capita medical expenditure on healthcare was RMB1,685 yuan, an increase of 16.1%.growth rate since 2013. In terms of population structure, the aging population continues to deepen.grow. The proportion of people aged 65 and over has increased by 0.56.45 percentage points.points since 2019. Affected by factors such as expansion and population migration, the proportion ofurbanization rate in China is over 60%. We believe such urban population in China

expansion means increased by 1.06 percentage points from the end of 2017, an increase of RMB 17.9million. Benefiting fromdemand for healthcare products. We believe that the increasing demand for medical consumption of residents,pharmaceutical products, the aging of the population, the effect of the “two-child”new “three-child” policy which should promote an increased demand for pediatric medications, and the steady improvement of urbanization, will cause the demand for consumer medicine is stillpharmaceutical products to be stable, layingproviding a solid foundation for continued growth of the pharmaceutical industry.growth.

With the gradual advancement of medicines, prescription outflows will become another major driver of the development of the

Our retail pharmacy industry.business sells pharmaceuticals and other healthcare products to customers through directly-owned retail stores. The “Notice on Printingretail stores offer a wide range of products, including prescription and Distributingover-the-counter (“OTC”) drugs, nutritional supplements, traditional Chinese medicines, personal and family care products and medical devices, as well as miscellaneous items. In 2020, we sold the 13th Five-Year PlanBoqi Pharmacy Group and established a chain of retail pharmacies under the brand name “Lijiantang Pharmacy” in the city of Chongqing, PRC. In September 2021,we closed a pharmacy because of poor performance due to road renovations around the pharmacy. By year-end 2021, we had four pharmacies in Chongqing. Each of our pharmacies employs at least one pharmacist, a store manager and several salespersons. Revenues from retail pharmacy for Deepening the Reform of the Medicalyears ended December 31, 2021 and Health System” (Guo Fa [2016] No. 78) states: “To promote the separation of medical treatment2020 was $316,647 and medicines, medical institutions should prescribe according to the generic name of the drug$84,087 respectively.

The pharmaceutical manufacturers and take the initiativewholesalers from whom we source our products tend to provide deeper product discounts to companies with both wholesale and retail businesses.

We favor retail locations in well-established residential communities with relatively concentrated consumer purchasing power or are located in close proximity to local hospitals, and evaluate potential store sites to assess consumer traffic, visibility and convenience. Each drugstore has at least one pharmacist on staff, all of whom are properly licensed. The average area of our pharmacy stores is 200 square meters. We only accept prescriptions from licensed health care providers, and verify the patients, dovalidity, accuracy, and completeness of all prescriptions. Most pharmacies also maintain a TCM counter staffed by licensed herbalists. After opening, a location may take up to one year to achieve our projected revenue goals for that particular location Various factors influence individual store revenue including, but not limitlimited to, location, nearby competition, local population demographics, square footage, and government insurance coverage. The first store achieved the outflowexpected revenue goal.

At present, we sell prescription drugs, OTC drugs, nutritional supplements, health foods, sundry products and medical devices through our retail pharmacy business. We also distribute medical devices and pharmaceuticals through our wholesale business.

Our retail pharmacy business procures its products from national wholesalers, small regional wholesalers and various pharmaceuticals trading platforms. Our wholesale business primarily sources its products from large state-owned pharmaceutical manufacturers and wholesalers and mid-sized or small private pharmaceutical manufacturers and wholesalers.

Marketing and Promotion

Our current marketing and promotion efforts are focused on our wholesale medical devices, wholesale pharmaceuticals and retail pharmacy operations, and our strategy is to build brand recognition, build strong customer loyalty, and develop incremental revenue opportunities.

For our wholesale business, we promote our products and brand through participation in trade shows and academic seminars and engaging third party professionals in advertisement efforts. We actively pursue direct sales to hospitals, clinics and pharmacies as well government centralized procurement and bidding projects.

In our retail stores, the store managers and staff are encouraged to propose their own advertising and promotional plans, including holiday promotions, posters and billboards. In addition, we periodically offer special discounts and gift promotions for selected merchandise in conjunction with our suppliers’ marketing programs. We intend to invest in advertising in 2022.We also provide ancillary services such as providing free blood pressure readings in our stores.

Many of prescriptions. Exploring the multi-channel drug purchasing mode of outpatientsour promotional programs are designed to encourage manufacturers to invest resources to market their brands within our stores. We charge manufacturers promotional fees in hospitals, patients can purchase drugs from retail pharmacies by prescription.

We believe that adjusting the market structure will make retail pharmacies an important channel for drug sales and pharmaceutical services to patients. In the entire pharmaceutical industry chain, retail pharmacies connect the upstream pharmaceutical preparation production department and downstream patients. We further believe that the growth opportunities expected from increased prescriptions will become a driving forceexchange for the development of the retail pharmacy industry.

Currently, the top 100 pharmaceutical retailers in China accounts for 30.8% of the total retail market. This is far below the target set in the Chinese government’s “13th Five-Year Plan”, which forecasts “the annual sales of top100 pharmaceutical retail operators will account for more than 40% of the total retail sales market”. The top ten retail companies accounted for only 16.8% of the market share, far below the development level of the pharmaceutical market in the USright to promote their products during promotional periods. Since manufacturers provide purchasing incentives and Japan. In 2017, the number of chain pharmacy companies decreased by 200 compared with 2016. The growth rate of chain enterprises has been negative in the past three years. In 2015-2017, the number of stores in the top 100 and top 10 chain pharmacies accounted for more than gradually climbing. Drawing on the development process of foreign retail pharmacies, the increase in concentration generally occurs after the separation of medicines. China’s pharmaceutical separation reform has been fully launched since 2015, the concentration of retail pharmacy industry has increased rapidly, the speed of mergers and acquisitions of listed companies has accelerated, and the regional integration effect has gradually been reflected, showing a trend of relying on strong and leading enterprisesinformation to be strong.

Boqi Pharmacy’s marketing and sales strategy also relies on the use of exclusive agents throughout China who act as marketing agents and after sale service providers. Boqi Pharmacy currently has 23 exclusive distributing agents national wide. At certain times each year, Boqi Pharmacy provides and organizes training sessions for these agents and their personnel. These sessions provide Boqi Pharmacy with a valuable opportunity to gather feedback and to foster an exchange of technical ideas.

Raw Materials

The major raw materials for our production of our flow control devices are stainless steel, steel, copper and rubber parts. We source our materials locally in China. Nengfa Energy is located in Liaoning Province which is China’s largest production base for iron and steel. We have stable long term supply arrangements for our principal raw material suppliers based on long standing business relationships. Since we are located close to the suppliers of many of our essential raw materials,help customers make informed purchase decisions, we believe that we enjoy price and transportation cost advantages over our competitors and competing users. Through our advanced technology and our management of raw materials, we believe that we are able to manage andmanufacturer led promotions improve our consumption rates of the raw materials we use in production, which results in lower operating expensecustomers’ shopping experience.

Raw Materials and extension of our inventories.Suppliers

Boqi Pharmacy’s pharmaceutical

The Company’s medical devices and medical devicepharmaceuticals suppliers mainly include national large-scaleand regional large-scale pharmaceutical and medical device manufacturing companies and wholesale pharmaceutical companies. Among

We believe that competitive sources are readily available for substantially all of the national large-scaleproducts we require for our retail and wholesale businesses. As such, we believe that we can change suppliers without any material interruption to our business. To date, we have not experienced any significant difficulty in sourcing our suppliers.

In the year ended December 31, 2021, two vendor accounted for more than 10% of our wholesale medical devices purchases and four vendors accounted for more than 10% of our wholesale pharmaceutical purchases.

Quality Control

We strongly emphasize quality control, which starts with procurement. In addition to their market acceptance and medical device manufacturing supplierscosts, we select products based on Good Manufacturing Practice and Good Supply Practices (“GSP”) compliance by our suppliers. We also assess product quality based on the manufacturer’s facilities and capabilities, including technology, packaging and logistics. We conduct random quality inspections of each batch of products we procure and replace any supplier who fails to pass such inspections.

In addition to general quality control measures described above, we also enforce strict quality control measures at our storage and distribution center. All products for our wholesale and retail businesses are Shanghai Pharmaceutical (Group) Co., Ltd., China Pharmaceutical Group Corporation, Guangzhou Pharmaceutical Group Co., Ltd., Tianjin Pharmaceutical Group Co., Ltd., Shandong Dong’e Ejiao Group Co., Ltd., Harbin Pharmaceutical Group Co., Ltd.screened upon their arrival, and those with evidence of defects or damages are immediately rejected. Products that pass the screening process are recorded and stored strictly according to each manufacturer’s temperature and other requirements. Products (for both our pharmacies and wholesale customers) are verified against the appropriate delivery orders prior to leaving the facility. We use vehicles with cold-temperature storage to make deliveries as necessary.

Competition

Guanzan, Shude, Zhuoda and Pusheng, our medical devices and pharmaceuticals distributors, have established distribution channels in the city of Chongqing, China. The wholesale medical devices and pharmaceutical distribution industries in China are competitive and highly fragmented. We compete with regional distributors as well as national operators. These competitors have substantially greater logistics capacities and more financial resources, as well as more industry relevant experience, than us.

The pharmacy industry in China is likewise intensely competitive, rapidly evolving and highly fragmented. We compete on the basis of store location, merchandise selection, prices and brand recognition. Many of our competitors include large, pharmaceutical companies. Among the wholesale pharmaceutical companies are China National Pharmaceutical Group Corporation, China Resources Pharmaceutical Group Co., Ltd., Shanghai pharmaceutical Group Co., Ltd., Jointown Pharmaceutical Group Co., Ltd., Guangzhou Pharmaceutical Co., Ltd.national drugstore chains that may have more financial resources, stronger brand strength, and Nanjing Pharmaceutical Co., Ltdmanagement expertise than us. Other competitors include local and independent drugstores and government operated pharmacies, as well as discount stores, convenience stores, and supermarkets with respect to sundry and other mega wholesalersnon-medicinal products that we carry.

We plan to focus on on-line initiated sales in the future based on the use of drugapps and expect to compete against established state-owned pharmacies and internet giants. No assurance can be given that we will succeed in this initiative.

The medical devices.services market in China is highly competitive and fragmented with numerous market participants. Our competitors include major privately-owned multi-site operators in China. We believe the principal competitive factors in this market are price and quality of service, variety of services rendered, convenience and proximity of treatment center location to place of business or residence, brand recognition and reputation, targeted marketing and customized services. We also face intense competition in our general healthcare service business. We compete primarily with other treatment centers in our areas of operation. Key competitive factors include healthcare service quality, reputation, convenience and price. We expect new competitors in the general healthcare service industry will continue to emerge given the state of China healthcare reform and the central and local governments’ supportive policies towards public healthcare reform and private capital investment in the healthcare services industry.

Research and Development

Currently our research and development efforts by our 10-person research and development group are focused on developing mobile APPs (computer programs or software applications designed to run on a mobile device such as a phone, tablet or watch) for our healthcare service platform. We plan to expand the functionality of the current mobile APP used by our customers. In the future, we plan to devote more resources to research and development and plan to acquire businesses with research and development capabilities.

5

Regulatory Compliance

The Company’s products

General Regulations

Our operations are subject to regulatory standardsregulations imposed by both the PRC and enforcement codes which typically requirelocal governments. These include:

Regulations on Annual Inspection. In accordance with relevant PRC laws, all types of enterprises incorporated under PRC laws are required to conduct annual inspections with the State Administration for Industry and Commerce of the PRC or its local branches. In addition, foreign invested enterprises are subject to annual inspections conducted by other applicable PRC governmental authorities. In order to reduce enterprises’ burden of submitting inspection documentation to different governmental authorities, the Measures on Implementing Joint Annual Inspection on Foreign-invested Enterprises issued in 1998 by State Administration of Foreign Exchange (“SAFE”), together with six other ministries, stipulated that these products meet stringent performance criteria. Standards are establishedforeign-invested enterprises must participate in an annual inspection jointly conducted by industry testingall relevant PRC governmental authorities.

Regulations on Foreign Currency Exchange. Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and certification organizations such asamended in 2008 and various regulations issued by the MinistryState Administration of Industry and Information TechnologyCommerce (“SAIC”) and the SAFE and other relevant PRC governmental authorities, Renminbi are freely convertible only to the extent of current account items, such as trade related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require prior approval from SAFE or its local counterpart for conversion of Renminbi into a foreign currency, such as US dollars, and remittance of the foreign currency outside the PRC.

Payments for transactions that take place within the PRC must be made in Renminbi. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local counterpart. Unless otherwise approved, domestic enterprises must convert all of their foreign currency receipts into Renminbi. On August 29, 2008, SAFE promulgated a circular regulating the conversion by a foreign-invested company of its registered capital in foreign currency into Renminbi by restricting how the converted Renminbi may be used. This circular stipulates that the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within China. Violations of this circular can result in severe penalties, including monetary fines.

In addition, any foreign loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its approved total investment amount and its approved “registered capital amount”.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions. In October 2005, SAFE issued Circular 75, which regulates foreign exchange matters in relation to the use of a “special purpose vehicle” by PRC residents to seek offshore equity financing and conduct “return investment” in China. Under Circular 75, a “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC citizens or PRC entities (collectively, as PRC residents) for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents or PRC entities in onshore companies, while “round trip investment” refers to the direct investment in China by PRC residents through the use of “special purpose vehicles,” including without limitation, establishing foreign invested enterprises and using such foreign invested enterprises to purchase or control (by way of contractual arrangements) onshore assets. Circular 75 requires that, before establishing or controlling a “special purpose vehicle,” PRC residents are required to complete foreign exchange registration with the competent local counterparts of SAFE for their overseas investments. In addition, such PRC resident is required to amend his or her SAFE registration or to file with SAFE or its competent local branch, with respect to that offshore special purpose vehicle in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China by the offshore special purpose vehicle. To further clarify the implementation of such amendment or filing procedure, SAFE requires domestic enterprises under Circular 75 to coordinate and supervise such amendment or filings with SAFE or its local counterparts by such PRC residents. If PRC residents fail to comply, the domestic enterprises are required to report to the local SAFE authorities.

Failure to comply with the registration procedures set forth in Circular 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including being prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to its offshore parent or affiliate, and restrictions on the ability to contribute additional capital from the offshore entity to the PRC entities, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

Regulation of Overseas Listings. On August 8, 2006, The Ministry of Commerce of the People’s Republic of China the American Society of Mechanical Engineers (A.S.M.E.(“MOFCOM”), China Securities Regulatory Commission (the “CSRC”), the Canadian Standards Association (C.S.A.State-owned Assets Supervision and Administration Commission, State Administration of Taxation (the “SAT”), the Japanese Standards Association (J.S.A.),SAIC and SAFE jointly promulgated the International Association“Rules on the Mergers and Acquisition of PlumbingDomestic Enterprises by Foreign Investors,” which became effective on September 8, 2006, and Mechanical Officials (I.A.P.M.O.), Factory Mutual (F.M.),was further amended on June 22, 2009, or the M&A Rules. Among other things, the M&A Rules include provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and Underwriters Laboratory (U.L.). These standards are incorporated into state and municipal plumbing and heating, building and fire protection codes in China.

We maintain stringent quality control and testing procedures at our manufacturing facility in order to manufacture products in compliance with code requirements. Our production management is certified to conformcontrolled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the ISO 9001listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement to various types of transactions, including those which involve the use of variable interest entity agreements.

Regulations of Dividend Distribution. Under current applicable laws and regulations, each of our consolidated PRC entities may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our consolidated PRC entities is required to deposit at least ten percent (10%) of its after-tax profit based on PRC accounting standards each year into its statutory surplus reserve fund until the accumulative amount of such reserve reaches fifty percent (50%) of its registered capital. These reserves are not distributable as cash dividends.

Regulations Relating to Taxation. The PRC Enterprise Income Tax Law applies a 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except to the extent tax incentives are granted to special industries and projects. Under the PRC Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that the foreign investor is a non-resident enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

Under the PRC Enterprise Income Tax Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. A circular issued by the Det Norske Veritas Management System.State Administration of Taxation in April 2009 regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese enterprise groups and established outside of China as “resident enterprises” clarified that dividends and other income paid by such PRC “resident enterprises” will be considered PRC-source income and subject to PRC withholding tax, currently at a rate of 10%, when paid to non-PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises” to various reporting requirements with the PRC tax authorities.

Under the implementation regulations to the PRC Enterprise Income Tax Law, 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, the tax circular mentioned above specifies that certain PRC invested overseas enterprises controlled by a Chinese enterprise or a Chinese enterprise group in the PRC will be classified as PRC resident enterprises if the following are located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, the company seal, and minutes of board meetings and shareholders’ meetings; and 50% or more of the senior management or directors having voting rights.

Pharmaceutical and Ancillary Regulation

According to the “Administrative Measures for Pharmaceutical Business Licenses” and other relevant regulations in China, we will need to obtain qualification certificates for the Operationsoperations of the company, itsour Company, including all of our subsidiaries and the pharmacy stores.stores in China. The qualification certificates mainly include the “Quality Management Certificate for Pharmaceutical Administration” (GSP Certificate), and the “Pharmaceutical Business License”,. “Food Business License”, “Medical Device Business License”, “Medical Agency Practice License”, etc.

The pharmacy stores directly operated by Boqi Pharmacy

All of our pharmacies have all obtained the “PharmaceuticalPharmaceutical Business License”Licenses and the “PharmaceuticalPharmaceutical Management Quality Management Certificate”. At the same time, 30 storesCertificates In addition, all of our pharmacies have obtained the “InternetInternet Drug Information Service Qualification Certificate”Certificates and 25 stores have obtained the “MedicalMedical Device Network Sales Record”.Records These business qualifications, which are necessary for operating pharmacies in China, are subject to annual renewal.

A distributor of pharmaceutical products must obtain a distribution permit from the relevant provincial or designated municipal or county level Food and Drug Administration. The grant of such permit is subject to an inspection of the distributor’s facilities, warehouses, hygienic environment, quality control systems, personnel, and equipment. The distribution permit is valid for five (5) years, and the holder must apply for renewal of the permit within six (6) months prior to its expiration. In addition, a pharmaceutical product distributor needs to obtain a business license from the relevant administration for industry and commerce prior to commencing its business. All of our retail pharmacies s have obtained necessary pharmaceutical distribution permits, and we do not expect to face any difficulties in renewing these permits and/or certifications.

In addition, under the Supervision and Administration Rules on Pharmaceutical Product Distribution, promulgated by the SFDA, a pharmaceutical product distributor is responsible for its procurement and sales activities and is liable for the actions of its employees or agents in connection with their conduct of distribution on behalf of the distributor. A retail distributor of pharmaceutical products is not allowed to sell prescription pharmaceutical products or Tier A OTC pharmaceutical products listed in the national or provincial medical insurance catalogs without a valid prescription or the presence of a certified in-store pharmacist. See “Reimbursement under the National Medical Insurance Program.”

A distributor of nutritional supplements and other food products must obtain a food circulation permit from its local Administration of Industry and Commerce. The grant of such permit is subject to an inspection of the distributor’s facilities, warehouses, hygienic environment, quality control systems, personnel, and equipment. The food circulation permit is valid for three (3) years, and the holder must apply for renewal of the certificate within thirty (30) days prior to its expiration. The Guanzan Group has received this permit for its operation.

GSP standards regulate wholesale and retail pharmaceutical product distributors to ensure the quality of distribution of pharmaceutical products in China. All wholesale and retail pharmaceutical product distributors are required to apply for GSP certification within thirty (30) days after obtaining drug distribution permits. The current applicable GSP standards require pharmaceutical product distributors to implement strict controls on the distribution of pharmaceutical products, including standards regarding staff qualifications, distribution premises, warehouses, inspection equipment and facilities, management, and quality control. Specifically, the warehouse must be able to store the pharmaceutical products at various required temperatures and humidity, and handle transport, warehouse entries, delivery, and billing by computerized logistics management systems. The GSP certificate is usually valid for five (5) years. Currently, Guanzan Group is a GSP certified company.

Under the Rules on Administration of Prescriptions promulgated by the SFDA, doctors are required to include the chemical ingredients of the medicine they prescribe in their prescription and are not allowed to include brand names in their prescription. This regulation is designed to provide consumers with choices among different pharmaceutical products that contain the same chemical ingredients.

Eligible participants in the national medical insurance program, consisting primarily of urban residents, are entitled to purchase medicine when presenting their medical insurance cards in an authorized pharmacy, provided that the medicine they purchase has been included in the national or provincial medical insurance catalogs. Depending on relevant local regulations, authorized pharmacies can either (i) sell medicine on credit and obtain reimbursement from relevant government social security bureaus on a monthly basis, or (ii) receive payments from the participants at the time of their purchases, and the participants in turn obtain reimbursement from relevant government social security bureaus.

Medications included in the national and provincial medical insurance catalogs are divided into two (2) tiers. Purchases of Tier A pharmaceutical products are generally fully reimbursable. Purchasers of Tier B pharmaceutical products, which are generally more expensive than those in Tier A, are required to make a certain percentage of co-payments, with the remaining amount being reimbursable. The percentage of reimbursement for Tier B OTC products varies in different regions in the PRC. Factors that affect the inclusion of medicine in the medical insurance catalogs include whether the medicine is consumed in large volumes and commonly prescribed for clinical use in China and whether it is considered to be important in meeting the basic healthcare needs of the general public.

China’s Ministry of Labor and Social Security, together with other government authorities, have the power to determine which medicines are included in the national medical insurance catalog every two (2) years, under which of the two (2) tiers the included medicine falls, and whether an included medicine should be removed from the catalog.

Under the Advertising Law of the PRC, the contents of an advertisement must be true, lawful, without falsehood, and must neither deceive nor mislead consumers. Accordingly, advertisements must be examined by the competent authority prior to its publication or broadcast through any form of media. In addition, advertisements of pharmaceutical products may only be based on a drug’s approved indication of use statement, and may not contain any assurance of a product’s efficiency, treatment efficiency, curative rate, or any other information prohibited by law. Advertisement for certain drugs should include an admonishment to seek a doctor’s advice before purchasing and application. Advertising is prohibited for certain drugs such as anesthetics and psychotropic drugs.

To further prevent misleading advertising of pharmaceutical products, the SAIC and the SFDA jointly promulgated the Standards for Examination and Publication of Advertisements of Pharmaceutical Products and Measures for Examination of Advertisement of Pharmaceutical Products in March 2007. Under these regulations, an approval must be obtained from the provincial level of food and drug administration before a pharmaceutical product may be advertised. In addition, once approved, an advertisement’s content may not be altered without further approval. Such approval, once obtained, is valid for one (1) year.

Regulation of Medical Institutions

We started to operate in and have been renewedsubject to regulations relating to the management of medical institutions upon completion of the acquisition of Guoyitang in January 2021.

The Administrative Measures on Medical Institutions, as amended, provides that the establishment of a medical institution by any entity or renewedindividual must be reviewed and approved by health administrative departments at or above the county level and obtain a Medical Institution Practicing Certificate.

The Administrative Measures for Verification of Medical Institutions (For Trial Implementation) provides that the Medical Institution Practicing Certificate is subject to periodic examinations and verifications by registration authorities. The verification period is 3 years for general hospitals, hospitals of traditional Chinese medicine, hospitals of western medicine, hospitals of ethnic minority medicine and specialized hospitals, as well as sanitariums, rehabilitation hospitals, maternity and children’s health care centers, emergency centers, clinical laboratories and specialized disease prevention institutions equipped with more than 100 beds, while the verification period is 1 year for other medical institutions. In the event that a medical institution fails to apply for verification as required and post re-verification procedures or unsuccessful in its re-verification application, the registration authorities may cancel its Medical Institution Practicing Certificate.

According to the Interim Provisions of Management of Physical Examination, the registration authority is required to examine and assess the medical institutions.

According to the Regulations on the Control of Narcotic Drugs and Psychotropic Drugs, as amended, any medical institution that uses narcotic drugs and certain psychotropic drugs is subject to the approval of the relevant authority, and must obtain authority to purchase such drugs.

According to the Administrative Regulations on Sanitation of Public Places and its implementing rules hospitals equipped with waiting rooms must apply to the sanitary administrative authorities for a sanitary license in a timely manner accordingmanner.

According to the relevant lawsDrug Administration Law of PRC, as amended, the Regulations for the Implementation of the Drug Administration Law and regulations.the Measures for Supervision and Administration of Drugs of Medical Institutions (For Trial Implementation), medical institutions must purchase drugs from enterprises qualified to produce and deal in drugs. Drugs used by medical institutions must be purchased uniformly by special departments in accordance with the provisions, and other departments and medical staff members of medical institutions are forbidden to purchase drugs on their own.

Seasonality

Our management believes that our operations are not currently subject to seasonal influences.

Competition

Employees

We consider our employees the most valuable asset of our company. We offer competitive compensation and comprehensive benefits to attract and retain our employees. We believe that an engaged workforce is key to maintaining our ability to innovate. We invest in our employees’ career growth and development is an important focus for us. We are committed to providing a leading positionsafe work environment for our employees in compliance with applicable regulations. We have taken necessary precautions in response to the recent COVID-19 outbreak, including offering employees flexibility to work from home and mandatory social distancing requirements in the super diameter energy efficient flow control system market in China. The Company has an extensive competitive advantage over Chinese domestic manufactures in this field. Other manufactures that are focusing on the developmentworkplace.

As of different and smaller valve products may enter this field. Our major potential competitor in this field is China Valve Technology.

In the other areasDecember 31, 2021, we had a total of the Company’s business, there are many different competitors with differing focuses and strengths. To some extent, boilers and furnaces are specialized to particular industries and output requirements. This specialization engenders specialization524 full-time employees working in the design, manufacturePRC, including 216 employees working in hospitals, of which 62 are engaged in information technology, 16 employees working in retail pharmacies and installation50 employees are engaged in distribution of new equipmentmedical devices and retrofit solutions. Therefore, there are many engineering and manufacturing companies that focus on certain types of boilers and furnaces resulting in a relatively fragmented market for these services. The same is true for the retrofit and reconstruction of other industrial systems for improved energy efficiency, as well as for the localized projects for energy conservation and biomass utilization, and similar projects. Therefore, the competition that the Company faces tends to be localized companies with no dominant players at this time.

Boqi Pharmacy is one of the pharmaceutical retailers with a wide distribution network in China.pharmaceuticals. As of December31, 2018, its marketing network covered 9 provincial markets and nearly 20 prefecture-level cities (urban areas). In 65% of the region, Boqi Pharmacy has established a well-developed online and offline distribution network and a more efficient logistics system in the relevant regions. At the same time, it has strengthened its market share in the terminal market through the combination of endogenous growth and outreach mergers and acquisitions. In recent years,December 31, 2021 the number of company stores has maintained an annual growth rate of nearly 30%.

We plan to compete based on our ability to address a wide spectrum of solutions in our various market areas. We believe our competitive advantages result from our patented technologies, our strategic relationships with engineering companies, our marketing and our business relationships. We plan to continue to expand these aspects of our business to further grow our core businesses and provide solutions for the energy savings and green energy projects. We intend to participate activelyemployees employed in the government sponsored projectsretail pharmacy, wholesale medical devices wholesale pharmaceuticals. medical service and government contracting.

Researchother were 30, 49, 72, 360 and Development

Our historical research and development activities have been focused on the development of new flow control devices or new production technologies. Our research and development expenses include the materials and labor costs, application fees for patents and significant improvements to existing products. We incurred $56,189 and $73,238 of research and development expenses in 2018 and 2017,13, respectively. In future, we plan devote more resources to research and development and plans to acquire businesses with research and development capabilities.

Employees

As of December31, 2018, we had 81 employees including 52 technical staff working in our subsidiaries located in China. We believe we have a good relationship with our employees.

Others

ITEM 1A. RISK FACTORS

Investors

Investing in our shares of Common Stock involves a high degree of risk and uncertainty. You should carefully consider the following risk factors, in additionrisks and uncertainties described below before investing. Our business, prospects, financial condition and results of operations could be adversely affected due to other information included in this annual report, in evaluating NF Energy Saving Corporation and our business. If any of the following risks occur,risks. In that case, the value of our business, financial conditionordinary shares could decline, and operating resultsyou could be materially adversely affected.lose all or part of your investment. These risk factors include, but are not limited to:

Risks Related to Our Business

Our losses in 2018 and need to refinance

There are doubts about our outstanding debt raise doubt as to whether we can continue as a going concern.

As of December31, 2018, we had an accumulated deficit of $6.4million and a working capital deficit of $10.5million. These factors among others indicate that we may be unablecompany’s ability to continue as a going concern, particularly in the event that we cannot generate revenues, obtain additional financing and/or obtain profitable operations. As such, there is substantial doubt as toconcern.

Our company’s independent auditors have raised doubts about our ability to continue as a going concern. The accompanying financial statements doThere can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources, such as securities, debt or equity financing or other potential sources. We intend to overcome the circumstances that impact our ability to remain a going concern through a combination of new sources of revenues, with interim cash flow deficiencies being addressed through additional financing. We anticipate raising additional funds through public or private financing, securities financing and/or strategic relationships or other arrangements in the near future to support our business operations; however, we may not includehave commitments from third parties for a sufficient amount of additional capital. We cannot be certain that any adjustments that might result from the outcome of this uncertaintysuch financing will be available to us on acceptable terms, or at all, and our failure to raise capital when needed could limit our ability to continue our operations. Our ability to obtain additional funding will determine if we cannotcan continue as a going concern, your investmentconcern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on our financial performance, results of operations and share price and require us to curtail or cease operations, sell off assets, seek protection from creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of our shares, and debt financing, if available, may have onerous terms. including restrictive covenants. Any additional financing could become devalued or worthless.have a negative effect on our shareholders.

We have had a history of losses and our future levels ofability to grow sales and ability to achieve profitability are unpredictable.

As of December31, 2018,December 31, 2021, we had an accumulated deficit of $6.4million$47.90 million and incurred net losslosses of approximately $17million for$34,921,745 and $1,877,925, in the yearyears ended December31, 2018. For the comparable periods, we had a net loss of $1,578,000 in 2017, $1,818,000 in 2016, $969,400 in 2015,December 31, 2021 and $617,300 in 2014.2020, respectively. Our ability to maintain and improve future levels of sales and profitability depends on many factors, which include:

•        delivering products in a timely manner;

•        successfully implementing our business strategy;

•        increased demand for existing products; and

•        controlling costs.

There can be no assurance that we will be able to successfully implement our business plan, meet our challenges and continue to bebecome profitable in the future or that the level of historic sales will continue in the future.

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We are undertaking a large number of business initiatives at the same time, including exploring opportunities to expand into the healthcare industry in China. If these initiatives are not successful, they may have a negative impact onsubstantial amount of existing debt, which may restrict our results of operations.

We are undertaking a large number of new business initiatives at the same time in order to support our future growth. For example, we expect that our acquisition of Boqi Pharmacy will close later in 2019. Boqi Pharmacy is engaged in retailing medical products through its pharmacy chain stores which is different from our traditional operations and such operations may expose us to operational risks. There can be no assurance that we will successfully scale Boqi Pharmacy, or that our offerings will be attractive to consumers in our market.

Furthermore, we can provide no assurances that we will be successful in our new business initiatives. In addition, developing and testing new and multiple business opportunities and strategies often requires knowledge in areas of expertise that may be new to our organization and may require significant time of our management and resources. For example, Boqi Pharmacy extends our business into an area where we have had limited historical operating and management experience and where low margins and high customer expectations can put pressure on results and performance.

Expanding our business will also require that we develop management expertise in new markets and regulatory regimes, and an inability to adapt our business quickly and efficiently to support our international expansion could materially adversely affect our financial condition and results of operations. We can provide no assurances that we will be successful in expanding our operations into any new businesses and product lines.

Any new businesses we enter may also expose us to additional laws, regulations and risks, including the risk that we may incur ongoing operating expenses in such businesses in excess of revenues, which could harm our financial condition and results of operations. The financial profile of any such new businesses may be different than our current financial profile, which could affect our financial performance and the market price for our common stock.

We may incur significant costs for any new initiative before we realize any corresponding revenue with respect to such initiative. In addition, we may incur costs as we revise, restructure or discontinue existing product categories or business offerings in favor of pursuing new initiatives or retail concepts. The introduction of excellent and new assets requires significant investments by us and outside investors, and we anticipate that will experience some painful period. To the extent that these new business opportunities do not generate sufficient revenue to recoup the cost of developingfinancing and operating such new concepts, our results of operations could be materially adversely affected.

In addition, we are continuing a number of new initiatives to improve the operations of our business, including ongoing refinements to our management structureflexibility and organizational design. Some of the improvements we are pursuing include simplifying the management structure and optimizing the organizational design will affect our financial results from quarter to quarter.

Given the large number of organizational initiatives we are pursuing, as well as the complexity and untested nature of many of these efforts, there can be no certainty that we will be successful in executing on these initiatives including changes to our organizational design and management structure. We may not experience the operational or financial benefits we expect these improvements to generate and we may face unanticipated costs related to pursuing these initiatives such as personnel turnover, management distraction, or compliance and quality control risks, any of whichhave other adverse consequences; defaults could have a material adverse effect on our business, financial condition, or results of operations.

All of the foregoing risks may be compounded due to various factors including the economic downturn in China. If we fail to achieve the intended results of our current business initiatives, or if the implementation of these initiatives is delayed or abandoned, diverts management’s attention or resources from other aspects of our business or costs more than anticipated (including, as a result of personnel turnover or compliance and control risks), we may experience inadequate return on investment for some or all such business initiatives, which could have a material adverse effect on our financial condition or results of operations.

We have experienced significant fluctuations in our business during the last several years, and high levels of growth may not be achieved in future periods and may not generate a corresponding improvement in our results of operations.

We have experienced significant fluctuations in the growth rate of our business during the last several years. We may continue to experience wide fluctuations in quarter-to-quarter performance, not only because the rate of sales growth

in some quarters may be slower than in prior periods but also because we may experience some quarters that have growth rates that are higher than prior periods. We are currently engaged in a number of initiatives to support the growth and expansion of our business.

While we anticipate that these initiatives will support the growth of our business, costs and timing issues associated with pursuing these initiatives can negatively affect our gross margins in the short term and may amplify fluctuations in our growth rate from quarter to quarter depending on the timing and extent of our realization of the costs and benefits of such initiatives.

There can be no assurance that these efforts will be successful or that we will not encounter other operational difficulties that may have a material negative impact on growth and profitability. In addition, these initiatives may have near-term material negative impacts on growth and profitability as we incur costs or pursue strategies that may not contribute to our profits and margins until future periods, if at all.

Some factors affecting our business, including macroeconomic conditions and policies and changes in legislation, are not within our control. In prior periods, our results of operations and cash flows.

In order to fund our operations and recent acquisitions we have been adversely affected by weakness in the overall economic environment in China.

In addition, our ratesincurred a substantial amount of revenue growth and comparable brand revenue growth have sharply fluctuated from quarter to quarter over the last three years and we expect volatility in the ratesindebtedness. Our significant level of our growth to continue in future quarterly periods. Unique factors in any given quarter may affect period-to-period comparisons in our revenue and comparable brand revenue growth, including;

•        the overall economic and general retail sales environment, including the effects of uncertainty or stock market volatility on consumer spending;

•        our ability to collect our accounts receivable;

•        consumer preferences and demand;

•        our ability to efficiently source and distribute products;

•        changes in our product offerings and the introduction, and timing thereof, of introduction of new products and new product categories; and

•        our competitors introducing similar products.

Due to these factors, our results for any quarter are not necessarily indicative of the results that we may achieve for a full fiscal year. Our results of operations may also vary relative to corresponding periods in prior years. We may take certain pricing, merchandising or marketing actions thatdebt could have a disproportionate effect on our business, financial condition and results of operations in a particular quarter or selling season, and as a resultimportant consequences, including, but not limited to, the following:

Although we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and cannot be relied upon as indicators of future performance.

Other future developments in our business could also result in material changes in our operating costs. We cannot assure you that we will succeed in offsetting any such expenses with increased efficiency or that cost increases associated with our business will not have an adverse effect on our financial results.

We require a significant amount of cash to satisfy our debt obligations. If we fail to generate sufficient cash flow from operations, we may need to renegotiate or refinance our debt, obtain additional financing, postpone capital expenditures or sell assets.

We depend mainly on cash generated by continuing operating activities to make payments on our debt. We cannot assure you that we will generate sufficient cash flow from operations to make the scheduled payments on our debt. Our ability to meet our debt obligations will depend on whether we can successfully implement our business strategy, as well as on economic, financial, competitive and technical factors.

Some of the factors are beyond our control, such as economic conditions in the markets where we operate or intend to operate, changes in our customers’ demand for products that we sell, and pressure from existing and new competitors. Also, because certain of our loans bear interest at floating rates, we are susceptible to an increase in interest rates.

If we cannot generate sufficient cash flow from operations to make scheduled payments on our debt obligations, we may need to renegotiate the terms of our debt, refinance our debt, obtain additional financing, delay planned capital expenditures or sell assets.

If our lenders decline to renegotiate the terms of our debt in these circumstances, the lenders could declare all amounts borrowed and all amounts due to them under the agreements due and payable.

Our debt obligations may hinder our growth and put us at a competitive disadvantage.

Our debt obligations require us to use a substantial portion of our operating cash flow to repay the principal and interest on our loans. This reduces funds available to grow and expand our business, limits our ability to pursue business opportunities and makes us more vulnerable to economic and industry downturns. The existence of debt obligations and covenants also limits our ability to obtain additional financing on favorable terms.

Due to restrictions in our loan agreements, we may not be able to operatecontinue to service and repay our business as we desire.

Our loan agreements contain a number of conditions and limitations on the way in which we can operate our business, including limitations on our ability to raise debt, sell or acquire assets.

The restrictions in our loan agreements may force us to pursue less than optimal business strategies or forgo business arrangements, which could have been financially advantageous to our shareholders and us. Our failure to comply with the restrictions contained in our loan agreements could lead to a default under the terms of these agreements.

We may expand our business through acquisitions that could result in diversion of resources and extra expenses. This could disrupt our business and adversely affect our financial condition.

In April 2019, we entered into an agreement to acquire Boqi Pharmacy. We may expand our services through additional acquisitions. The negotiation of acquisitions, investments or joint ventures, as well as the integration of acquired or jointly developed businesses, could divert our management’s time and resources. There can bethere is no assurance that we will be able to consume thisdo so. If our plans for future operations do not generate sufficient cash flows and earnings, our ability to make required payments on our debt would be impaired. If we fail to pay our indebtedness when due, it could have a material adverse effect on us and may require us to curtail or cease operations, sell off assets, seek protection from creditors through bankruptcy proceedings, or otherwise.

We failed to realize any financial benefits from our recent acquisition or successfully integrate and manage future acquisitions, if they occur.

Furthermore, once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity which existed prior to the acquisitions or otherwise perform as expected. The occurrence of any of these events could harm our business, financial condition or results of operations.

We may not be successful in achieving the potential benefits of the acquisition of the business operations of Boqi Pharmacy.

In April 2019, the Company entered into an agreement to acquire Boqi Pharmacy. The transaction is expected to close later in 2019. This acquisition is subject to a variety of risks that could seriously harm our business, financial condition, results of operations, and share price. These risks include, among others:

•        incurrence of unexpected expenses associated with acquisition and integration of the acquired business into our Company;

•        difficulties in the assimilation and integration of the acquired operations, personnel, technologies, products, and information systems;

•        diversion of management’s attention from other business concerns;

•        contractual disputes;

•        potential loss of key employees;

•        incompatible business cultures;

•        difficulties in implementing and maintaining uniform standards, controls and policies;

•        the impairment of relationships with employees and customers as a result of integration of new personnel; and

•        potential inability to retain, integrate and motivate key management, marketing, technical sales and customer support personnel.

We may be unable to generate sufficient cash flowrealize any benefits from operations or obtain financingany other future transactions.

Mergers and acquisitions of companies are inherently risky and subject to many factors outside of our control and no assurance can be given that acquisition of companies in the future to support our operationswill be successful and expansion.

Having access to sufficient operating funds and capital funds for expansion will not adversely affect our abilitybusiness, operating results, or financial condition. In 2021 we recorded impairment losses totaling approximately $26.13 million with respect to executethe goodwill relating to our acquisitions of the Guanzan Group, Guoyitang, Zhongshan, Minkang, Qiangsheng, Eurasia and Zhuoda.

If we acquire other businesses, we may face difficulties, including:

The impairment of intangible assets and goodwill arising from our acquisitions could continue to negatively impact affect our net income and shareholders’ equity

When we acquire a business, plan. We finance our business mainly through internally generated funds, short-term bank loansa substantial portion of the purchase price of the acquisition may be allocated to goodwill and from timeother identifiable intangible assets. The amount of the purchase price which is allocated to time, selling equity securitiesgoodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. The current accounting standards require that goodwill and intangible assets should be deemed to raise additional capital. There is no guarantee thathave indefinite lives, which should be tested for impairment at least annually (or more frequently if impairment indicators arise). Other intangible assets are amortized over their useful lives. For the year ended December 31, 2021, we will always have internal funds available for our future development or that we will be able to raise capital from investor financing and loans granted by investors and financial institutionsrecorded impairment losses on goodwill of $26.13 million.

Future declines in the future. In addition, there may be delaysresults of our acquisitions and other factors could cause us to record an impairment of all or a portion of the relevant goodwill in the process of selling our securities, which may require us to cut back on our operations or expansion activities. Our access to debt or equity financing depends on the investors’ and banks’ willingness to lend to and invest in us, our financial condition and on general conditions in the capital markets.future. We may not be able to secure additional sources of financing on commercially acceptable terms, if at all. Any shortfallachieve our business targets for businesses we previously acquired or will acquire in our cash flow and capital needs maythe future, which could result in our having to curtailincurring additional goodwill and other intangible assets impairment charges. Further declines in our business plans or have an adverse effect on our financial condition.

We believemarket capitalization increase the risk that we needmay be required to raiseperform another goodwill impairment analysis, which could result in an impairment of up to the entire balance of our goodwill based on the quantitative assessment performed.

Raising additional capital will be difficult and may cause dilution to our shareholders and restrict our operations.

We expect to finance our cash needs for our working capital and the expansionary elementspayment of the cash portion of our business plan, which financing may not be available or available on terms favorablerecent acquisitions. Although we have been able to us.

We will need to raise additional capitalobtain funding from outside sources forin the purchase of Boqi Pharmacy and other anticipated acquisitions. Welast year, we cannot be certain that we will be able to continue to do so or to obtain additional financing on favorable terms, if at all.terms. One possible impediment to raising capital is the tightening credit policies of the Chinese banks and the continued effectsprospects of tightening in the global credit markets. If we cannot raise additional capital on acceptable terms, we may not be able to develop or enhanceoperate our products or services,business, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. We cannot be sure that we will be able to secure all the financing we will require, or that it will be available on favorable terms. If we are unable to obtain any necessary additional financing, we will be required to substantially curtail our approach to implementing our business objectives. Additional financing may be debt,

To the extent that we raise additional capital through the sale of equity or convertible debt, our shareholders’ ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect shareholder rights. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures.

We are in the early stages of development of our healthcare business and have limited operating history on which you can base an investment decision.

We were formed in 2006, but recently changed our business focus. We are now focused on growing our healthcare business. As a combination of debtresult, we may encounter many expenses, delays, problems, and equity. If equity is used, it could result in significant dilution to our shareholders.

difficulties that we have not anticipated and for which we have not planned. There can be no assurance that at this time we will notsuccessfully develop or acquire a significant customer base, operate profitably, or that we will have adequate working capital to fund our operations or meet our obligations as they become due.

Our recently acquired operations are subject to all of the risks inherent in the initial expenses, challenges, complications, and delays frequently encountered in connection with the formation of any new business. Investors should evaluate an investment in our company in light of the problems and uncertainties frequently encountered by companies attempting to develop new markets. Despite best efforts, we may never overcome these obstacles to achieve financial success. Our business is speculative and dependent upon the implementation of our business plan, as well as our ability to successfully acquire businesses on terms that will be classified as a passive foreign investment company (a “PFIC”).

Based upon our current and projected income, assets and activities, therecommercially viable for us. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that our investors will not lose their entire investment.

The recent COVID-19 pandemic had a material adverse effect on our business operations, results of operations, cash flows and financial position during 2021.

During late 2019, a virus now known as the novel coronavirus or “COVID-19” appeared in Wuhan, the Peoples Republic of China (“PRC” or “China”). By March 11, 2020, the World Health Organization (“WHO”) labeled COVID-19 as a pandemic and many countries around the world began closing borders and making efforts to either shelter-in-place or quarantine its population. During the first quarter of 2020, China placed a mandatory quarantine on certain areas, specifically in Wuhan located in Hubei Province, which lasted for more than two months.

Our company and all of its operations are located in China. Since the pandemic broke out, our operations have been materially impacted. At the beginning of February 2020, the PRC government issued a quarantine order, which lasted for more than two months in many parts of the country, where everyone had to stay at home. During February and March, all of our administrative functions had to be performed remotely. Not until the beginning of April did we start to have a small skeleton crew working in our office and were able to perform those functions that could not be handled remotely. 

We have incurred additional costs to ensure we meet the needs of our customers, including providing additional cleaning materials for our stores and other facilities. COVID-19 has also caused supply chain disruption which has resulted in higher supply chain costs to replenish inventory in our stores and distribution centers. Furthermore, we have experienced restricted stock availability in a number of key categories which negatively impacted us. Certain popular and high profit margin products could not be sold due to governmental restrictive orders, which also resulted in the expiration of a large quantify of our medicines that are otherwise in high demand in the winter season. The customer traffic in our retail pharmacy stores in Dalian dropped greatly due to the pandemic. Because of the lockdown order that lasted for more than two months, we suffered reduced sales and an operating loss in the first three quarters in 2020. Although some of the businesses in China have resumed their daily activities while the pandemic is under control, there have been relapses in certain regions of the country which caused temporary lockdowns. If similar lockdown orders or sales restrictions are implemented by the government, they may have greater impact on our business.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which will adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position. In addition to volatility in consumer demand and buying habits, we may restrict the operations of our stores or distribution facilities if we deem it necessary or if recommended or mandated by governmental authorities which would have a further adverse impact on us.

The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity of the virus; the duration of the outbreak; governmental, business and other actions (which could include limitations on our operations or mandates to provide products or services); the promotion of social distancing and the adoption of shelter-in-place orders affecting foot traffic in stores; the impacts on our supply chain; the impact of the pandemic on economic activity; the extent and duration of the effect on consumer confidence and spending, customer demand and buying patterns including spend on discretionary categories; the health of and the effect on our workforce and our ability to meet staffing needs in our stores, hospitals, wholesale operations and other critical functions, particularly if members of our work force are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our team members and business partners, among others. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted. We cannot make any assurances that COVID-19 will not reappear with new infections and to the extent that COVID-19, or another virus appears, we may encounter prolonged operational lockdown measures which would disrupt our business operations.

The markets in which we now operate are very competitive and further increases in competition could adversely affect us.

In the Chinese pharmaceutical wholesale sector, wholesalers without affiliated manufacturers have inherent risks which include lack of control over product availability. We are at a significant disadvantage in comparison to other wholesalers that are also manufacturers. Also, this sector is heavily regulated industry where government exercises strong controls. Any comparative advantages we may have could be lost because of changes in laws or government policies.

We face intense competition with local, regional and national companies, including other drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, dollar stores and internet pharmacies. Competition from on-line retailers has significantly increased during the past few years. The ability of our stores to achieve profitability depends on their ability to achieve a critical mass of loyal, repeat customers.

Some of our competitors have or may merge with or acquire pharmaceutical services companies, and health insurance companies, which may further increase competition. We may not be able to effectively compete against some of our competitors in the retail pharmacy sector because they have financial and other resources that are superior to ours. Further, we may be at a competitive disadvantage because we are more highly leveraged than our competitors. We cannot assure you that we will be able to effectively compete in our markets or increase our sales volume in response to further increased competition, or that any of our competitors are not in a better position to absorb the impact of COVID-19.

Our recently acquired hospitals compete for larger and more established state-owned and private hospitals. We may not be able to effectively compete against these hospitals because they have financial and other resources that are superior to ours and may be able to attract new patients more easily.

Consolidation in the healthcare industry could adversely affect our business, financial condition and resultsof operations.

Many organizations in the healthcare industry have consolidated to create larger healthcare enterprises with greater market power, which has contributed to continued pricing pressures. If this consolidation trend continues, it could give the resulting enterprises even greater bargaining power, which may lead to further pressure on the prices for our products and services and/or reduce our access to customers. If these pressures result in reductions in our prices and/or reduce our access to customers, our business will become less profitable unless we are able to achieve corresponding reductions in costs or develop profitable new revenue streams. We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements, and societal pressures will continue to cause the healthcare industry to evolve, potentially resulting in further business consolidations and alliances among the industry participants we engage with, which may adversely impact our business, financial condition and results of operations. In addition, our new strategy also includes selective acquisition opportunities and we cannot assure you that we will be able to consummate any such transactions on commercially reasonable terms, if at all.

Breaches of network or information technology security could have an adverse effect on our business.

Cyber security risks, such as a significant breach of customer, employee, or company data, could attract a substantial amount of media attention, damage our customer relationships and reputation and result in lost sales, fines or lawsuits. Throughout our operations, we receive, retain and transmit certain personal information that our customers provide to purchase products or services, fill prescriptions, enroll in promotional programs, participate in our customer loyalty programs, register on our websites, or otherwise communicate and interact with us. In addition, aspects of our operations depend upon the secure transmission of confidential information over public networks. Although we deploy a layered approach to address information security threats and vulnerabilities designed to protect confidential information against data security breaches, a compromise of our data security systems or of those of businesses with whom we interact, which results in confidential information being accessed, obtained, damaged or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from customers, financial institutions, payment card associations and other persons, any of which could materially and adversely affect our business operations, financial position and results of operations. In addition, a security breach could require that we expend substantial additional resources related to the security of information systems and disrupt our businesses. While no actual or attempted attacks have had a material impact on our operations or financial condition, we cannot provide any assurance that our operations will not be classified asnegatively materially affected by such attacks in the future. Such classification

We rely on computer software and hardware systems in managing our operations, the capacity of which may have materially adverse tax consequences forrestrict our U.S. shareholders. One methodgrowth and the failure of avoiding such tax consequences is by making a “qualified electing fund” electionwhich could adversely affect our business, financial condition and results of operations.

We are dependent upon our information management system to monitor daily operations of our retail, wholesale and hospital businesses, and to maintain accurate and up-to-date operating and financial data for the first taxable yearcompilation of management information. If our computer software and hardware systems fail to meet the increasing needs of our expanding operations, our ability to grow may be constrained. Furthermore, any system failure which causes interruptions to the input, retrieval and transmission of data or causes lags in whichservice time could disrupt our normal operations. Although we believe that our computer software and hardware systems are up to date and that our disaster recovery plan is adequate in handling potential failures, we cannot provide assurance that we can effectively carry out this disaster recovery plan and that we will be able to restore our operation within a sufficiently short time frame to avoid our business being disrupted. Furthermore, our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, natural disasters, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities. If any of our computer software and/or hardware systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss or corruption of critical data and interruptions or delays in our ability to perform critical functions. Due to the Companylimited coverage of business interruption insurance policies offered in China, we do not carry business interruption insurance and, as a result, any business disruption or natural disaster could severely disrupt our business and operations and, in turn, significantly decrease our revenue and profitability.

If we fail to implement effective internal controls required by the Sarbanes-Oxley Act of 2002, or remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our Common Stock.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. A material weakness is a PFIC. However,deficiency or a combination of deficiencies, in internal control over financial reporting such an electionthat there is conditioned upona reasonable possibility that a material misstatement of our furnishing our U.S. shareholders annually with certain tax information. Weannual interim financial statement will not be prevented or detected on a timely basis. Due to the Company’s limited resources, we currently do not presently preparehave accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in our financial transactions in accordance with US GAAP.

Any failure to complete our assessment of our internal controls over financial reporting, to remediate any material weaknesses that we may identify, including the one identified above, or provide suchto implement new or improved controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Inadequate disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in our public disclosures and reported financial information, which could have a negative effect on the trading price of our Common Stock.

Violations of anti-bribery, anti-corruption and/or international trade laws to which we are subject could have a material adverse effect on our business operations, financial position, and such informationresults of operations.

We are subject to laws concerning our business operations and marketing activities in foreign countries where we conduct business. For example, we are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), U.S. export control and trade sanction laws, and similar anti-corruption and international trade laws, any violation of which could create substantial liability for us and also harm our reputation. The FCPA generally prohibits U.S. companies and their officers, directors, employees, and intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business abroad or otherwise obtaining favorable treatment. The FCPA also requires that U.S. public companies maintain books and records that fairly and accurately reflect transactions and maintain an adequate system of internal accounting controls. If we are found to have violated the FCPA, or any other anti-bribery, anti-corruption or international trade laws, we may not be availableface sanctions including civil and criminal fines, disgorgement of profits, and suspension or debarment of our ability to contract with governmental agencies or receive export licenses. From time to time, we may face audits or investigations by one or more domestic or foreign governmental agencies relating to our U.S. shareholders if weinternational business activities, compliance with which could be costly and time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit could subject us to fines or other penalties, which could adversely affect our business operations, financial position, and results of operations.

Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may impose additional costs on us or expose us to additional risks.

Companies across all industries and around the globe are subsequently determinedfacing increasing scrutiny relating to be a PFIC. Youtheir ESG policies. Investors, lenders and other market participants are advised to consult with your own tax advisor regardingincreasingly focused on ESG practices and in recent years have placed increasing importance on the particular tax consequencesimplications and social cost of their investments. The increased focus and activism related to the ownershipESG may hinder our access to capital, as investors and dispositionlenders may reconsider their capital investment allocation as a result of their assessment of our Ordinary Shares under your own particular factual circumstances.ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition and price our company’s shares could be materially and adversely affected.

We are

Our business is subject to the risks of any growing enterprise, any oneearthquakes, fire, power outages, floods, health epidemics and other catastrophic events and to interruption by manmade problems such as terrorism.

Our operations, as well as our customers, are located in areas exposed to risks of natural disasters such as earthquakes and tsunamis. A significant natural disaster, such as an earthquake, tsunami, fire or a flood, or other catastrophic event, such as a new pandemic, could have a material adverse effect on our or their business, which could limitin turn materially affect our growthfinancial condition, results of operations and our productprospects.

Our business could be subject to environmental liabilities.

Our failure to comply with past, present and market development.

Our operating history makes it difficult to predict how our businesses will develop and where the Company will find success. This is especially truefuture environmental laws could result in respect of our expansion into areas other than flow valve technology and their design, sales and installation. Accordingly, we face all of the risks and uncertainties encountered by companies in similar stages of development, such as: (i) uncertain and continued market acceptance for our product extensions and our services; (ii) the evolving nature of the wind energy equipment industry in the PRC, where significant consolidation may occur, leading to the formation of companies which may be better able to compete with us than is currently the case; (iii) the fragmented nature of the boiler and furnace business which may limit our ability to

penetrate the market and provide comprehensive solutions on a sufficiently wide basis to make the business profitable; (iv) changing competitive conditions, technological advances or customer preferences could adversely affect thefines, penalties, third-party claims, reduced sales of our products, or services; (v) maintaining our competitive position in the PRCsubstantial product inventory write-offs and competing with Chinese and international companies, manyreputational damage, any of which could harm our business, financial condition, results of operations and prospects. We also expect that our business will be affected by new environmental laws and regulations on an ongoing basis applicable to us, including our newly acquired hospitals. To date, our expenditures for environmental compliance have longer operating historiesnot been material. Although we cannot predict the future effect of such laws or regulations, they will likely result in additional costs or require us to change the way we operate, which could have a material adverse effect on our business, financial condition, results of operations and greater financial resources than us; (vi) continuingprospects.

Failure to offer commercially successful productstimely identify or effectively respond to attract and retain a larger base of directchanging consumer preferences negatively affect our relationship with our customers and ultimate users; (vii) maintaining effective controlthe demand for our products and services.

The success of our costsbusinesses depends in part on customer loyalty and expenses;superior customer service. Failure to timely identify or effectively respond to changing consumer preferences could negatively affect our relationship with our customers and (viii) retainingthe demand for our managementproducts and skilled technical staffservices.

Moreover, customer expectations and recruiting additional key employees.new technology advances from our competitors have required that our business evolve so that we are able to interface with our customers not only face-to-face but also online and via mobile and social media. If we fail to keep pace with dynamic customer expectations and new technology developments, our ability to compete and maintain customer loyalty could be adversely affected.

Our success depends on our ability to establish effective advertising, marketing and promotional programs.

Our success depends on our ability to establish effective advertising, marketing and promotional programs. Our pricing strategies and value propositions must be appropriate for our target customers. If we are not able to meetmaintain and increase the challengesawareness of building our businesses and managing our growth, the likely result will be slower growth, lower margins, additional operational costs and lower income.

Efforts to protect our intellectual property rights and to defend against claims against us can increase our costs and will not always succeed. Any failures could adversely affect our sales and results of operations or restrict our ability to conduct our business.

Intellectual property rights are important to many aspects of our business. We actively pursue patent protection in our flow valve business, andservices we expect to pursue intellectual property rights in our other business endeavors as we develop unique solutions to business demands. We, however, may be unable to obtain protection for our intellectual property. Even if protection is obtained, competitors may raise legal challenges to our rights or illegally infringe on our rights, including through means that may be difficult to prevent, detect or defend. In addition, because of the rapid pace of technological change and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to us prior to issuance. The patents of others could reduce the value of our commercial or pipeline of products or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses at a financial cost to us or cease using the technology, no matter how valuable the patents may be to our business. We cannot assure you we would be able to obtain such licenses on acceptable terms. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of our and the proprietary rights of others. There is a risk that the outcome of such litigation will not be in our favor. Such litigation may be costly and may divert management attention as well as expend other resources which could otherwise have been devoted to our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover such costs from other parties. The occurrence of any of the foregoing may harm our business, results of operations and financial condition.

Finally, implementation of PRC intellectual property-related laws has historically been limited, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries, which increases the risk thatprovide, we may not be able to adequately protectattract and retain customers and our intellectual property.

reputation may also suffer. We derive aexpect to incur substantial part ofexpenses in our revenues from several major customers, therefore ifmarketing and promotional efforts to both attract and retain customers. However, our marketing and promotional activities may be less successful than we lose any of theseanticipate, and may not be effective at building our brand awareness and customer base. In addition, the government may impose restrictions on how marketing and promotional activities can be conducted. Failure to successfully execute our advertising, marketing and promotional programs may result in material decreases in our revenue and profitability.

Risks Relating to our Wholesale Operations

Failure to maintain relationships with our customers or they reduce the amount ofto otherwise expand our distribution network would materially and adversely affect our business they do with us in the future, our revenues may be affected.

During

Our wholesale business sells products to drug stores, private clinics, pharmaceutical distributors and hospitals. For the year ended December31, 2018, we generated 60%December 31, 2021, our top ten wholesale medical devices and wholesale pharmaceuticals customers accounted 79.28% of our wholesale revenues fromand three customers accounted for 17.34%,17.11% and 16.37% of sales. In line with industry practices in the PRC, we enter into written sales agreements with our top 10wholesale customers. TheseHowever, such sales agreements are not in substance equivalent to a typical distribution agreement in the United States. Each sales agreement is more in the form of a sales order and specifies one or several purchases of one or more products without any continuing obligation to make purchases unless it is a long term agreement. Only about 10% of our wholesale customers are subject to purchase arrangements of one-year or longer terms. Their purchases contributed more than 30% of our wholesale revenues in 2021. In the event distribution customers choose not to continue their relationship with us after completing their existing sales agreements, they can do so without breaching any contract or agreement. Our financial results could be adversely affected if we cannot replace these customers. We compete with large wholesalers, many of whom may have higher visibility, greater name recognition, financial resources, and broader product selection than we do. Consequently, maintaining relationships with existing customers may not maintainbe difficult and time-consuming.

Our dependence on a limited number of customers may expose us to the same volumerisk of substantial losses if a single large customer stops purchasing our products, purchases lower quantities of our products or goes out of business with us in the future.and we are unable to attract new customers to recover such lost revenues. If we lose any of theseour significant customers reduces the quantity of the products they purchase from us or they reduce the amount of business they do withstops purchasing from us, our revenues maynet revenue would be materially and adversely affected. AlthoughAny disruption in our distribution network could negatively affect our ability to effectively sell our products and would materially and adversely affect our business, financial condition and results of operations.

Our wholesale pharmaceutical business operates without the support of manufacturing capability and is at a significant disadvantage.

In the Chinese pharmaceutical wholesale sector, wholesalers without affiliated manufacturers have inherent risks which include lack of control over product availability and pricing disadvantages. We are at a significant disadvantage in comparison to other wholesalers that are also manufacturers.

Risks Relating to Our Pharmacy Business

We may be subject to fines and penalties if we fail to comply with the applicable PRC laws and regulations governing sales of medicines under China’s National Medical Insurance Program.

Eligible participants in China’s national medical insurance program, including urban and suburban residents in China, are entitled to buy medicines using their medical insurance cards from an authorized pharmacy, provided that the medicines they purchase have a strategic partnershipbeen included in the national or provincial medical insurance catalogs. The pharmacy, in turn, obtains reimbursement from the relevant government social security bureaus. Moreover, the applicable PRC laws, rules and regulations prohibit pharmacies from selling goods other than pre-approved medicines when purchases are made with medical insurance cards. We have established procedures to prohibit our largest customer and a preferred provider agreementdrugstores from selling unauthorized goods to customers who make purchases with our first largest customer until 2021, there can be nomedical insurance cards. However, we cannot provide assurance that these customersthose procedures will continue to provide the current level of demand or will not seek to modify or terminate their respective agreements.

Our technology may not satisfy the changing needsbe strictly followed by all of our customers.employees in all of our stores.

With any technology, including

Our ability to grow our pharmacy business may be constrained by our inability to find suitable new store locations at acceptable prices or by the technologyexpiration of our current leases.

Our ability to grow our business may be constrained if suitable new store locations cannot be identified with lease terms or purchase prices that are acceptable to us. We compete with other retailers and proposed products, there are risks that the technology may not successfully addressbusinesses for suitable locations for our customers’ needs. Certain of our product offerings in relationstores. Local land use regulations and other regulations applicable to the wind energy equipment will be new forkinds of stores we seek to construct may impact our ability to find suitable locations and influence the Company. Whilecost of constructing our stores. The expiration of leases at existing store locations may adversely affect us if the renewal terms of those leases are unacceptable to us and we have already established successful relationships withare forced to close or relocate stores. Furthermore, changing local demographics at existing store locations could materially and adversely affect revenue and profitability levels at those stores, and overall our customers, their needs may change or vary. This may affect the abilitybusiness, financial condition, results of our present or proposed products to address all of our customers’ ultimate technology needs in an economically feasible manner.operation, and prospects.

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We may not be able to keep pacemaintain proper inventory levels for our pharmacy stores.

To ensure adequate inventory supply, we must forecast inventory needs and place orders with rapid technological changesour suppliers based on our estimates of future demand for particular products. We may not be able to accurately forecast demand for supplies because of the difficulties of estimating the demand for our products. The volatile economic environment and competitionfast-evolving demands and preferences of our customers have made accurate projection of inventory levels increasingly challenging.

Inventory levels in excess of customer demand may result in inventory obsolescence, a decline in inventory values, inventory write-downs or write-offs, or expiration of products, which would cause our industry.

Whilegross margin to suffer and could impair the strength of our brand. High inventory levels may also require us to commit substantial capital resources, preventing us from using them for other important business purposes. Conversely, if we believe thatunderestimate customer demand or if our suppliers fail to provide supplies to us in a timely manner, we may experience inventory shortages. Such inventory shortages might result in unfilled customer needs, damage to our reputation, and have hired or engaged personnela negative impact on customer relationships and outside consultants who have the experience and ability necessary to keep pace with advances in technology, and while we continue to seek out and develop “next generation” technology throughreduce our research and development efforts, there is no guaranteesales. We cannot assure you that we will be able to keep pace with technological developmentsmaintain proper inventory levels for our operations and market demands in this evolving industry and market. In addition, our industry is competitive in various aspects. Although we believe that we have developed strategic relationships to best penetrate the Chinese market, we face competition from other manufacturers of products similar to our products and services. Some of these companies have significant advantages over us with respect to their products, marketing and services, and their financial resources and customer relationships.

We may experience high accounts receivable balances from time to time, whichsuch failure may have an adverse effect on our operating profitability and cash flow and financing needs.

In the past, mostbusiness, financial condition, results of our customers made payments in accordance with the agreed payment terms in a timely manner. However, since late 2018, some of our customers requested extended payment terms and those receivables are now outstanding for over one year. Although some of these customers are large state-owned corporations, in view of current economic situation in China and limited subsequent collections, we determined to accrue significant allowances against those receivables. As of December31, 2018, we reported $14.7million of allowances for doubtful accounts. As a result, we will have to obtain outside financing and our operating expenses will increase. Extension of the accounts receivable period may also result in reduced collections, which will adversely affect our operations and profitability.

To the extent that we depend on government projects, our business is dependent on government policy

Certain risks are inherent in providing pharmacy services and to some extent, government funding and government contracts.

Although we do not characterizemaintain professional liability and errors and omissions liability insurance.

Pharmacies are exposed to risks inherent in the distribution of pharmaceuticals and other healthcare products, such as with respect to improper filling of prescriptions, labeling of prescriptions, adequacy of warnings, unintentional distribution of counterfeit drugs and expiration of drugs. In addition, laws that require our business aspharmacists to offer counseling, without additional charge, to customers about medication, dosage, delivery systems, common side effects and other information the pharmacists deem significant can impact our business. Our pharmacists may also have a government contractor, some aspectsduty to warn customers regarding any potential negative effects of our business are indirectly dependent on government policy, government funding, and government contracts. For example, the South to North Water Diversion Project is largely a government funded project, and our customers are contractors with the government. Similarly, our energy-saving projects and adjustments of our products and services are dependent on the policies issued by the government. As a consequence, it is possible that our requirements based on the products and services to be provided will be diminished resulting in a decrease in our revenue. Much of the pollution control and green industries are dependent on government policy to implement societal improvements. Our business has a number of aspects that are dependent on the government and our products, services and revenues are dependent on policies that can changeprescription drug if the government officials determine to redirect attentionwarning could reduce or negate these effects. We currently do not maintain professional liability and investment to other aspects of societyerrors and industrial development.

Additionally, as a number of our customers are dependent on the government for their revenues through the provision of products and services on government contracts or government funded projects, thereomissions liability insurance. Consequently, we may be delays in our receiving payment for our products and services.

Fluctuation in the availability and costrequired to expend substantial funds to satisfy these types of our raw materials mayclaims, which could have an adverse effect on our business, financial condition, results of operations and results of operations.profitability.

A

Risks Related to Our Newly Acquired Hospitals

Our newly acquired hospitals derive a significant portion of the inventory of raw materials and parts may be affectedrevenue by fluctuations in the availability of the items and the price. Such things may include steel, electronic components, power systems, paints and welding rods. We do not generally have long term supply contractsproviding healthcare services to patients with our suppliers, but rely on long standing relationships. To the extent that we are not able to obtain the required materials and parts necessary to enable us to fabricate our products, or we are required to pay more for such items, then therepublic medical insurance coverage; any delayed payment under China’s public medical insurance programs could be an adverse effect on our operations andaffect our results of operations.

We

Our newly acquired hospitals are China’s Medical Insurance Designated Medical Institutions. Patients who are covered by the public medical insurance programs may choose to rely on public medical insurance programs to pay for some of healthcare services. Any dispute or late or delinquent settlement under the public medical insurance programs may cause the trade receivables of our hospitals to increase or result in write-offs. Depending on the relevant public medical insurance programs’ practice, a Medical Insurance Designated Medical Institution may be unablesubject to effectively managea government-approved annual quota for the medical fees that it is allowed to recover from the relevant public medical insurance bureau.

In addition, we cannot assure you that our planned growth.

As we expand our business into several different areas of energy savings and green industry, wenewly acquired hospitals will need to manage our growth effectively, which may entail devising and effectively implementing business plans, training and managing our growing workforce, managing our costs, and implementing adequate control in our reporting systems in a timely manner. We may not be able to successfully manage our growth. Our failure to do so could affect our success in executing our business plan and adversely affect our revenues, profitability and resultsmaintain their status as Medical Insurance Designated Medical Institutions, the loss of operations.

Our operations are vulnerable to natural disasters or other events.

Our operating income may be reduced by natural disasters, in locations where we own and/or operate significant manufacturing facilities or are working on significant projects. Some types of losses, such as from earthquake, severe winter storms and environmental hazards, may be either uninsurable or too expensive to justify insuring against. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in any particular property, as well as any anticipated future revenue from such property.

Our products may contain defects, which could adversely affect our reputation and cause us to incur significant costs.

Despite numerous testing and quality controls, defects may be found in existing or new products. Any such defects could cause us to incur significant return and exchange costs, re-engineering costs, divert the attention of our engineering personnel from product development efforts, and cause significant customer relations and business reputation problems. Any such defects could force us to undertake a product recall program, which could cause us to incur significant expenses and couldwill not only harm our reputation but may also result in reduced patient visits. Furthermore, the PRC government may alter its reimbursement policies in coverage plans in the future such that: (i) certain healthcare services provided by our hospitals will no longer be covered; or (ii) more stringent thresholds on existing coverage may be imposed. Any reduction in the rates paid or the scope of services covered may reduce patient accessibility to our hospitals and thatmay lead to reduced patient flow and medical fees. Any of our products. If we deliver products with defects, our credibility and the market acceptance and sales of our productsthese events could be harmed.

Our business could be subjectlead to environmental liabilities.

We use certain hazardous substancesa decrease in our operations. Currently we do not anticipate anyrevenue generation and profitability which could have a material adverse effect on our business, revenues or results of operations and prospects.

Our hospitals could become the subject of patient complaints, claims and legal proceedings in the course of their operations, which could result in costs and materially and adversely affect our brand image, reputation and results of operations.

We rely on the physicians and other medical professionals of our hospitals to make proper clinical decisions regarding the diagnoses and treatment of their patients. However, we do not have direct control over the clinical activities of our hospitals or over the decisions and actions taken by the physicians and other medical professionals as their diagnoses and treatments of patients are subject to their professional judgment and in most cases, must be performed on a real time basis. Any incorrect decisions or actions on the part of the physicians and other medical professionals, or any failure by our hospitals to properly manage their clinical activities may result in undesirable or unexpected outcomes, including complications, injuries and even deaths in extreme cases. In addition, there are inherent risks associated with the clinical activities that may result in unavoidable and unfavorable medical outcomes.

In recent years, physicians, hospitals and other healthcare service providers in China have become subject to an increasing number of patient complaints, claims and legal proceedings alleging malpractice or other causes of action. Although rare, incidents have occurred in hospitals and medical institutions in China where dissatisfied patients carried out extreme actions or even violence during the course of the disputes. Any such incident, if occurs, would harm our reputation, impair the ability of our hospitals to recruit and retain medical professionals and staff, discouraging other patients from visiting our hospitals, and cause us to incur substantial costs.

Any negative publicity about us, our hospitals or the healthcare service industry could harm the brand image and reputation and trust in the services provided by our hospitals, which could result in a material and adverse impact on our business and prospects.

If we fail to properly manage the employment of the physicians and other medical professionals of our hospitals, we may be subject to penalties against these hospitals, which could materially and adversely affect our business and results of operations.

The activities of physicians and other medical professionals are strictly regulated under the PRC laws and regulations. Physicians, nurses and medical technicians who practice at medical institutions must hold licenses and may only practice within the scope of their licenses and at the specific medical institutions at which their licenses are registered. In practice, it takes some time for physicians, nurses and medical technicians to transfer their licenses from one medical institution to another or add another medical institution to their permitted practicing institutions. We cannot assure you that the physicians of our hospitals will complete the transfer of their licenses and related government procedures timely or at all. In addition, we cannot assure you that the medical professionals at our hospitals will always strictly follow the requirements and will not practice outside the permitted scope of their respective licenses. Any failure by our hospitals to properly manage the employment of their physicians and other medical professionals may subject us to administrative penalties against our hospitals, which could materially and adversely affect our business.

We have limited or no control over the quality of pharmaceuticals, medical consumables and other medical equipment used in the operations of our hospitals. If such quality does not meet the required standards, we could be exposed to liabilities and our reputation, business, results of operations, financial condition and prospects could be adversely affected.

The provision of healthcare services involves the frequent use of a variety of pharmaceuticals, medical equipment and medical consumables, substantially of which we procure from suppliers we do not have control over. We cannot assure you that all supplies are authentic, free of defects and meet the relevant quality standards. If these supplies are subsequently found to have been defective at the time of the supply, even though we did not know or could not have known about such defect, we may be subject to liability claims, negative publicity, reputational damage or administrative sanction, any of which may adversely affect our results of operations and reputation. We cannot assure you that significant claims of such nature will not be asserted against us in the future, and that adverse verdicts will not be reached or that we will be able to recover losses from our suppliers. In addition, we cannot assure you that we will be able to find suitable replacement suppliers, failing which our business, results of operations, financial condition and prospects will be adversely affected.

Our hospitals’ operations are susceptible to fluctuations in the costs of pharmaceuticals and medical consumables, which could adversely affect our profitability and results of operations.

The profitability of our hospitals is influenced by fluctuations in the costs of pharmaceuticals and medical consumables. The availability and prices of the pharmaceuticals and medical consumables can fluctuate from time to time and are subject to factors beyond our control, including supply, demand, general economic conditions and governmental regulations, each of which may affect the procurement costs or cause a disruption in the supply. Consistent with industry practice, we and our hospitals have not entered into any long-term supply agreements with our suppliers and we cannot assure you that our hospitals will be able to anticipate and react to changes in medical supply costs in the future by locating replacement suppliers or adjusting service offerings, or that our hospitals will be able to pass these cost increases onto the patients. Any of these factors may have a material and adverse effect on our profitability and results of operations.

Our performance depends on our ability to recruit and retain skilled physicians.

The success of our hospitals depends in part on the number and quality of the physicians and the medical staffs of our hospitals, the admitting and utilization practices of those physicians, maintaining good relations with those physicians and controlling costs related to the employment of physicians. We may face increased challenges in this area as the physician population reaches retirement age, especially if there is a shortage of physicians willing and able to provide comparable services. If we are unable to provide adequate support personnel or technologically advanced equipment and hospital facilities that meet the needs of those physicians and their patients, admissions may decrease and our operating performance may decline.

As a provider of medical services, we are exposed to inherent risks relating to malpractice claims.

As a provider of medical services, any misdiagnosis or improper treatment may result in negative publicity regarding us or our services, which would harm our reputation. If we are found liable for malpractice, we may be required to pay substantial monetary damages. Furthermore, even if we successfully defend ourselves against a malpractice claim, we could be required to spend significant management, financial and other resources in the process, which could disrupt our business, and our reputation and brand name may also suffer. Since malpractice claims are not common in China, we do not carry malpractice insurance. As a result, any imposition of malpractice liability could materially harm our business, financial condition and results of operations.

Regulatory pricing controls may affect the pricing of our hospitals.

The PRC government issues policies on the pricing of healthcare services, pharmaceuticals and medical consumables. As Medical Insurance Designated Medical Institutions, our hospitals are subject to the pricing guidelines set by the relevant local healthcare administrative authorities. We cannot predict if the PRC government will lower the price ceilings or change the pricing guidelines in the future or if additional healthcare services, pharmaceuticals or medical consumables may become subject to price control, or more stringent insurance reimbursement limits, which may put pressure on the pricing of our hospitals. As a result, our financial condition and results of operations could be materially and adversely affected.

Risks Related to Regulatory Matters

Our retail, wholesale operations, pharmacies and newly acquired hospitals require a number of permits and licenses in order to carry on their business.

We are required to obtain certain permits and licenses from various PRC governmental authorities to operate our businesses. We are subject to a number of regulations pertaining to the licensing of our wholesale business, retail pharmacies, and the licensing, conduct and number of medical professionals. We cannot provide any assurance that we can maintain all required licenses, permits and certifications to carry on our business at all times. Moreover, these licenses, permits and certifications are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities and the standards of such renewal or reassessment may change from time to time. We intend to apply for renewal of these licenses, permits and certifications when required by applicable laws and regulations. Any failure by us to obtain and maintain all licenses, permits and certifications necessary to carry on our business at any time could have a material adverse effect on our business, financial condition and results of operations. In addition, any inability to renew any of these licenses, permits and certifications could severely disrupt our business, and prevent us from continuing to carry on our business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess our business licenses, permits and certifications, as well as any enactment of new regulations that may restrict the conduct of our business, may also decrease our revenue and/or increase our costs, materially reducing our profitability and prospects. Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us to obtain any additional licenses, permits or certifications that were previously not required to operate our existing businesses, we cannot provide assurance that we can successfully obtain such licenses, permits or certifications.

The operations of our hospitals are subject to various laws and regulations at the national and local levels. These laws and regulations mainly relate to the operations of medical institutions and licensing of medical professionals, the use and safety management of pharmaceuticals and medical equipment, the quality and pricing of healthcare services, occupational health and safety as well as environmental protection. In addition, our hospitals are subject to periodic license or permit renewal requirements and inspections by various government agencies and departments at the provincial and municipal level.

If we fail to maintain or renew any major license, permit, certificate or approval for all or any of our acquired hospitals, or if the medical professionals in above hospitals become unlicensed at any time during their practices, or if the hospitals are found to be non-compliant with any applicable laws or regulations, we may face penalties, suspension of operations or even revocation of operating licenses, depending on the nature of the findings, any of which could materially and adversely affect our business, financial condition and results of operations.

If we do not maintain the privacy and security of sensitive patient, customer and business information, we could damage our reputation, incur substantial additional costs and become subject to litigation.

The protection of patient, customer, employee, and company data is critical to our businesses. Our hospitals collect and maintain medical data and treatment records of our patients. PRC laws and regulations generally require medical institutions and their medical personnel to protect the privacy of their customers and prohibit unauthorized disclosure of personal information. Such medical institutions and their medical personnel will be liable for damage caused by divulging the customers’ private or medical records without consent. We have taken measures to maintain the confidentiality of our customers’ medical records, including encrypting such information in our information technology system so that it cannot be viewed without proper authorization and setting internal rules requiring our employees to maintain the confidentiality of our customers’ medical records. However, these measures may not always be effective in protecting our customers’ medical records. Our information technology systems could be breached through hacking. Personal information could be leaked due to any theft or misuse of personal information due to misconduct or negligence. Failure to protect customers’ medical records, or any restriction on or liability as a result of, complianceour use of medical data, could have a material adverse effect on our business.

The regulatory environment surrounding information security and privacy is increasingly demanding, with Chinese environmentalthe frequent imposition of new and changing requirements across businesses. Compliance with changes in privacy and information security laws and regulations. However,standards may result in significant expense due to increased investment in technology and the riskdevelopment of environmental liabilitynew operational processes. If we or those with whom we share information fail to comply with these laws and charges associated with maintaining compliance with environmental laws is inherent inregulations or experience a data security breach, our reputation could be damaged and we could be subject to additional litigation and regulatory risks. Our security measures may be undermined due to the natureactions of our business,outside parties, employee error, malfeasance, or otherwise, and, there is no assurance that material environmental liabilities and compliance charges will not arise in the future.

We have limited business insurance coverage in China

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. Asas a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Because our funds are held in banks in the PRC that do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, wean unauthorized party may not haveobtain access to our funds on deposit. Depending upondata systems and misappropriate business and personal information. Because the amounttechniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors,intrusion, we may be unable to continueanticipate these techniques or to implement adequate preventative measures. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and potentially have an adverse effect on our businesses.

Our business involves collecting and retaining certain internal and external data and information including that of our patients, customers and suppliers. The integrity and protection of such information and data are crucial to us and our business. Owners of such data and information expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.

The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained in performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017. Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.

The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, and the Ministry of Public Security, have been increasingly focused on regulation in data security and data protection.

The PRC regulatory requirements regarding cybersecurity are evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the State Administration for Market Regulation, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.

On December 28, 2021, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on February 15, 2022. According to the Cybersecurity Review Measures, the procurement of any network product or service by an operator of critical information infrastructure or the conducting of data processing activities by a network platform operator, that affects or may affect national security, will be subject to a cybersecurity review under the Measures. A network platform operator that possess personal information of more than one million users must apply to the Cybersecurity Review Office set up under the CAC for a cybersecurity review when it seeks to list overseas.

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, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations. As of the date of this prospectus supplement, we have not been involved in any investigations on cybersecurity review initiated by the Cyber Administration of China or related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect. We believe that we are in compliance with the aforementioned regulations and policies that have been issued by the Cyber Administration of China.

On June 10, 2021, the Standing Committee of the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security Law, which will take effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information.

We do not expect that the current PRC laws on cybersecurity or data security will have a material adverse impact on our business operations. However, as uncertainties remain regarding the interpretation and implementation of these laws and regulations, we cannot assure you that we will comply with such regulations in all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also become subject to fines and/or other sanctions which may have material adverse effect on our business, operations and financial condition.

The impact of China’s regulatory reforms is unpredictable.

The regulatory system of Chinese medical service, especially the changes in the field of healthcare reform may have a material adverse effect on the operation and development of our business in the future. New laws and policies are expected to be promulgated. It is uncertain what impact these new regulations and policies would have on our competitiveness, operations and corporate structure. In recent years, the PRC government launched a new healthcare reform plan to ensure that every citizen has access to affordable basic healthcare services. In pursuit of these policy objectives, the PRC government has implemented extensive regulations and policies to address the affordability, accessibility and quality of healthcare services, medical insurance coverage, distribution of pharmaceutical products and reform of public hospitals. In addition, the PRC government has gradually reduced regulatory hurdles for establishing and investing in private hospitals, in particular by private capital, and encouraged development of hospital management groups.

Our business operations and future expansion are largely driven by the PRC government’s policies, which may change significantly and are beyond our control. There can be no assurance that the PRC government will not impose additional or stricter laws or regulations on healthcare services or foreign investments, or strengthen and tighten supervision and management of medical institutions including hospitals, in particular, private hospitals, or implement stricter or more comprehensive regulations on the distribution of pharmaceuticals, medical equipment and medical consumables.

Depending on the priorities of the PRC government, the political situation and the regulatory regime with respect to foreign investment control at any given time, and the development of the Chinese healthcare system, future regulatory changes may affect public hospital reform, limit private or foreign investments in healthcare service industry, change reimbursement rates for healthcare services provided to publicly insured patients, or implement additional price control on pharmaceuticals or healthcare services. Any of these events could have a material and adverse impact on our business, financial condition, results of operations, prospects and future growth.

Risks Related to Our Human Capital

We may be unable to attract, hire, and retain a highly qualified workforce, including key management.

The talents and efforts of our employees, particularly our key management, are vital to our success. Our management team has significant business experience and would be difficult to replace. In addition, institutional knowledge may be lost in any potential managerial transition. We may be unable to retain them or to attract other highly qualified employees, including our medical staff and workers, particularly if we do not offer employment terms that are competitive with the rest of the labor market. Failure to attract, hire, develop, motivate, and retain highly qualified employee talent, or failure to develop and implement an adequate succession plan for the management team, could disrupt our operations and adversely affect our business and our future success.

We substantially depend on a few key personnel who, if not retained, could cause declines in productivity and operational results and loss of our strategic guidance, all of which would diminish our business prospects and value to investors.

Our success depends to a large extent upon the continued service of a few executive officers and key employees, including, Mr.Yongquan Bi,Mr. Tiewei Song, our Chairman, Chief Executive Officer and President. The loss of the services of one or more of our key employees would have an adverse effect on us and our PRC operating subsidiaries, as these individuals play a significant role in developing and executing our overall business plan and maintaining customer relationships and proprietary technology systems. While none of our key personnel is irreplaceable, the loss of the services of any of these individuals would be disruptive to our business. We believe that our overall future success depends in large part upon our ability to attract and retain highly skilled managerial and marketing personnel. There is no assurance that we will be successful in attracting and retaining such personnel on terms acceptable to the Company or the employee. Inadequate personnel will limit our growth, and will be seen as a detriment to our prospects, leading potentially to a loss in value for investors.

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WeOur labor costs may be adversely affected by competition for staffing, the shortage of experienced nurses and labor union activity.

Our operations are controlled by a small groupdependent on the efforts, abilities and experience of our existing stockholders, whose interests may differ frommanagement and employees. We compete with other stockholders.

Our Chairman, Chief Executive Officerbusinesses and President, Mr.Yongquan Bi, beneficially, together with a grouphealth care providers in recruiting and retaining qualified management and support personnel responsible for the daily operations of investors, owns approximately 51% of the outstanding shareseach of our common stock and isbusinesses including our largest single stockholder. Accordingly these stockholders acting together will have significant influence in determininghospitals. In some markets, the outcomeavailability of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations, the sale of all or substantially all of our assets, election of directorsnurses and other medical support personnel has been a significant corporate actions. They will also have significant influence in preventing or causing a change in control. In addition, without the consent of these stockholders, weoperating issue to health care providers. The COVID-19 pandemic has exacerbated workforce competition and shortages. We may be prevented from entering into certain transactions which may be beneficialrequired to our other stockholders. The interests of these stockholders may differ from the interests of the other stockholders.

Anti-Takeover Effects of proposed Amendedenhance wages and Restated Certificate of Incorporationbenefits to recruit and By-laws

We are contemplating adopting provisionsretain medical and medical support personnel or to our certificate of incorporation and by-laws that may have an anti-takeover effect and may delay, deferhire more expensive temporary or prevent a tender offer or takeover attempt that other shareholders might similarly consider in their best interest, including any attempt that might result in receipt of a premium over the market price for stockholders’ shares of common stock. We intend to seek shareholder approval of such amendments in the near future. These provisions may include:

Classified Board.    Such amendments may provide that our board of directors will be divided into three classes of directors, with the classes as nearly equal in number as possible.contract personnel. As a result, approximately one thirdour labor costs could increase. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. If a significant portion of our boardemployee base unionizes, it is possible our labor costs could increase. Our failure to recruit and retain qualified management, medical and support personnel, pharmacists and other personnel, or to control labor costs, could have a material, adverse effect on our results of directors will be elected each year. operations.

Labor laws in the PRC may adversely affect our operations.

The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board. Our amended and restated certificate of incorporation may also provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed exclusively pursuant to a resolution adopted by our governing body.

Action by Written Consent;    Special Meetings of Stockholders. Such amendments may provide that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. Our amended and restated certificate of incorporation and by-laws may also provide that, except as otherwise required by law, special meetingsLabor Contract Law of the stockholders can onlyPRC imposes liabilities on employers and significantly impacts the cost of an employer’s decision to reduce its workforce. The law requires certain terminations to be called bybased upon seniority and not merit. In the Executive Committee (or, if it does not then-exist, the boardevent we decide to significantly change or decrease our workforce, this law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of directors), the chairman, vice chairman or executive chairman of the board or the chief executive officer, or at the request of holders representing a majority of the total voting power of our issued and outstanding common stock, voting together as a single class. Except as described above, stockholders may not be permitted to call a special meeting or to require the board of directors to call a special meeting.operations.

We are responsible for the indemnification of our officers and directors.

The DGCLDelaware General Corporation law and our Bylawsbylaws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against costs and expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We currently do not have any directors and officers liability insurance. Consequently, we may be required to expend substantial funds to satisfy these indemnity obligations. Any payment in respect of these indemnification rights could have an adverse effect on our cash flow and ourbusiness, financial condition, results of operations.

If we fail to implement effective internal controls required by the Sarbanes-Oxley Act of 2002, or remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial informationoperations and have a negative effect on the trading price of our common stock.profitability.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. A material weakness is 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 our annual interim financial statement will not be prevented or detected on a timely basis. Due to the Company’s limited resources, we currently do not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in the Company’s financial transactions in accordance with US GAAP.

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