| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis
of Presentation The
consolidated financial statements include all accounts of Meihua and its subsidiaries (collectively, the “Company”)
and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
All inter-company transactions have been eliminated. Use
of Estimates The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions
that affect the amounts reported and disclosed in the consolidated financial statements and related notes. The
most significant estimates and judgments include allowance for bad debts, the valuation of inventory, useful life of property, plant
and equipment and income taxes related to realization of deferred tax assets and uncertain tax position. Actual amounts could differ
from those estimates. Non-controlling
interests Non-controlling
interest represents the portion of the net assets of subsidiaries attributable to interests that are not owned or controlled by the Company.
The non-controlling interest is presented in the consolidated balance sheets, separately from equity attributable to the shareholders
of the Company. Non-controlling interest’s operating results are presented on the face of the consolidated statements of income
and comprehensive income as an allocation of the total income for the year between non-controlling shareholders and the shareholders
of the Company. As of December 31, 2022, non-controlling interests represent one non-controlling shareholders’ proportionate share
of equity interests in Hainan Guoxie. Functional
Currency and Foreign Currency Translation The
Company’s reporting currency is the United States dollar (“US$”). The Company’s operations are principally conducted
through the PRC subsidiaries where the local currency is the functional currency. Therefore, the functional currency of Kang Fu is the
Hong Kong dollar and the functional currency of Huada, Yada, Huadong and Guanghui is the Renminbi (“RMB”). Transactions
denominated in currencies other than the functional currencies are translated into the functional currency of the entity at the exchange
rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional
currency are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange
differences are reported in the consolidated statements of income and comprehensive income. The
assets and liabilities of the Company are translated at the exchange spot rate at the balance sheet date, stockholders’ equity
is translated at the historical rates and the revenues and expenses are translated at the average exchange rates for the periods. The
resulting translation adjustments are reported under other comprehensive income in the consolidated statements of income and comprehensive
income in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
220, Comprehensive Income
For
the Years Ended December 31
2022 2021 2020
Period
Ended spot US$1=RMB 6.8972 US$1=RMB 6.3726 US$1=RMB 6.5250
Period
Average US$1=RMB 6.7290 US$1=RMB 6.4508 US$1=RMB 6.9042 The
exchanges rates used for translation from Hong Kong dollar to US$ was 7.8000, a pegged rate determined by the linked exchange rate system
in Hong Kong. This pegged rate was used to translate Kang Fu’s balance sheets, income statement items and cash flow items for both
the years ended December 31, 2022, 2021 and 2020. Certain
Risks and Concentration The
Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily
of cash and receivables. As of December 31, 2022 and 2021 substantially all the Company’s cash were held in major financial institutions
located in Hong Kong and the PRC, which management considers to be of high credit quality. As
of December 31, 2022, two customers accounted for approximately 27.63% and 10.97% of the Company’s total revenues. As of December
31, 2021, two customers accounted for approximately 21.91% and 11.26% of the Company’s total revenues. As
of December 31, 2022, two customers accounted for approximately 27.73% and 13.14% of the Company’s accounts receivable. As of December
31, 2021, three customers accounted for approximately 25.88%, 11.41% and 10.25%, respectively, of the Company’s accounts receivable. For the year ended December 31, 2022, one
supplier accounted for approximately 11.93% of the Company’s total purchases There were no suppliers that individually represented
greater than 10% of the total purchase of the Group for the years ended December 31, 2021 and 2020. Fair
Value Measurement Fair
value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to
be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers
assumptions that market participants would use when pricing the asset or liability. The
Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies
the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs
used in measuring fair value as follows:
Level 1: Inputs
are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2: Inputs
are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated
by observable market data.
Level 3: Inputs
are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would
use in pricing the asset or liability based on the best available information. The
Company’s financial instruments include cash, accounts receivable, bank acceptance receivables, due from related parties, accounts
payable, other liabilities and accrued expenses and short-term bank borrowings. The carrying amounts approximate their fair values due
to their short maturities as of December 31, 2022 and 2021. The
Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured
at fair value on a recurring or non-recurring basis as of December 31, 2022 and 2021. Cash Cash
consists of petty cash on hand and cash held in banks, which are highly liquid and are unrestricted as to withdrawal or use. Bank
Acceptance Receivable Bank acceptance receivables are issued by bank under the request of
the Company’s customers, to pay for the purchased goods. The Company can choose to hold acceptance notes until maturity and receive
the face value payment from the bank, or sell (exchange) the acceptance notes at a discount to another party willing to wait until maturity
to receive the bank’s promised payment. The maturity date of the receivables is all within one year of the original issuance date
and carried at face value. The Company is not lending money, it just sells goods to the customers (customers can pay the purchased goods
by cash, accounts receivable or bank acceptance receivables). The receivables mature within one year, and are non-interest bearing. As
bank acceptance receivables are issued by the banks and payments are guaranteed. The Company has not discounted any bank acceptances and
there was no endorsed bank acceptances that are unmatured as of December 31, 2022. The Company collected approximately $9.6 million as
of March 31, 2023. Accounts
Receivable and Allowance for Doubtful Accounts Accounts
receivable represent trade receivables and are recognized initially at fair value and subsequently adjusted for any allowance for doubtful
accounts or impairment. The
Company records impairment losses for accounts receivable based on assessments of the recoverability of the trade and other receivables
and individual account analysis, including the current creditworthiness and the past collection history of each debtor. Impairments arise
when there is objective evidence indicating that the balances may not be collectible. The identification of bad and doubtful debts, in
particular of a loss event, requires the use of judgment and estimates, which involve the estimates of specific losses on individual
exposures, as well as a provision on historical trends of collections. Based on management of customers’ credit and ongoing relationship,
management makes conclusions whether any balances outstanding at the end of the period will be deemed non-collectible on an individual
basis and on aging analysis basis. The provision is recorded against accounts receivables balances, with a corresponding charge recorded
in the consolidated statements of operations and comprehensive income. Delinquent account balances are written-off against the allowance
for doubtful accounts after management has determined that the likelihood of collection is not probable. The
Company historically has not had material bad debts in accounts receivable. There were no bad debt expenses related to accounts
receivable for the years ended December 31, 2022, 2021 and 2020 and there was no provision for doubtful accounts as of December 31,
2022 and 2021. Inventories Inventories
are valued using the lower of cost or net realizable value. Cost is principally determined using the weighted-average method. Manufactured
inventories included cost of materials, labor and overhead expenses. The Company records adjustments to inventory for excess quantities,
obsolescence, or impairment, when appropriate, to reflect inventory at net realizable value. These adjustments are based upon a combination
of factors including current sales volume, market conditions, lower of cost or market analysis and expected realizable value of the inventory. There
were no write-downs recognized of inventories as of December 31, 2022 and 2021. Prepayment
and other current assets As
of December 31, 2022 and 2021, prepayment and other current assets were $16,428,779 and $1,394,539. Prepayment
and other assets primarily consist of deferred IPO costs, loans to third-parties, refundable tax credits and receivables, security deposits
made to customers, advances to employees and land use right receivable, which are presented net of allowance for doubtful accounts. These
balances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. The Company considers
the balances to be impaired if the utilization or refund of the balances becomes doubtful. The Company uses the aging method to estimate the
allowance for uncollectible balances. The allowance is also based on management’s best estimate of specific losses on individual
exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts received or utilized may differ
from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written off against
allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The allowance for
doubtful accounts amounted to nil Deferred
IPO costs represent the incremental costs incurred for the Company’s initial public offering (“IPO”). These costs has
been charged against the gross proceeds of the IPO in 2022 (see Note 14). Deferred IPO costs primary include specific legal, audit
and professional consulting costs. As of December 31, 2022 and 2021, the deferred IPO costs were $ nil Property,
Plant and Equipment Property,
plant and equipment items are recorded at their historic cost, less accumulated depreciation and impairment losses. The Company calculates
depreciation using the straight-line method, after consideration of the estimated residual values, over the following estimated useful
lives:
Category Useful lives Estimated residual value
Buildings 20 years 10 %
Machinery and Equipment 10 years 10 %
Motor vehicles 5 years 10 %
Electronic Equipment 5 years 10 %
Office Equipment 3 years 10 %
Inspection Equipment 5 years 10 % Major
improvements are capitalized and expenditures for maintenance and repairs are expensed as incurred. Construction in progress represents
property, plant and equipment under construction or being installed. Costs include original cost, installation, construction and other
direct costs. Interest expenses directly related to construction in progress would be capitalized. Construction in progress is transferred
to the appropriate fixed asset account and depreciation commences when the asset has been substantially completed and placed in service. Intangible
Assets Intangible
assets are non-monetary assets without physical substance. These items are initially measured at cost and subsequently carried at cost
less any accumulated amortization and impairment losses. Intangible assets with finite useful lives are amortized on a straight-line
basis over their estimated useful lives. Amortization of finite-lived intangible assets is computed using the straight-line method over
the estimated useful lives, which is as follows:
Category Useful lives
Land use rights 50 years
Patent 5 years
Trademark 10 years Impairment
of Long-Lived Assets The
Company accounts for impairment of long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, Property,
Plant and Equipment Investment In
accordance with Financial Accounting Standards Board (“FASB”) ASC 321, “Investment-Equity Securities,” the Company
accounts for non-marketable securities on a prospective basis. Equity investments that do not have readily determinable fair values and
do not qualify for the net asset value practical expedient are eligible for the measurement alternative. On
March 3, 2011, Yada invested in Yangzhou Juyuan Guarantee Co., Ltd (“Juyuan”) and obtained 12% equity interest of Juyuan.
For the Company’s passive and without significant influence or control equity investment in private company which do not have readily
determinable fair values, the Company has elected the measurement alternative defined as cost, less impairment, plus or minus adjustments
resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company. The investment
is reviewed periodically to determine if its value has been impaired and adjustments are recorded as necessary in profit or loss for
the period. Investments
in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted
for using the equity method of accounting in accordance with ASC 323, Investments-Equity Method and Joint Ventures (“ASC 323”).
Under the equity method, the Company initially records its investment at cost and the difference between the cost of the equity investee
and the amount of the underlying equity in the net assets of the equity investee is accounted for as if the investee were a consolidated
subsidiary. The share of earnings or losses of the investee are recognized in the consolidated statements of comprehensive loss. Equity
method adjustments include the Company’s proportionate share of investee income or loss, adjustments to recognize certain differences
between the Company’s carrying value and its equity in net assets of the investee at the date of investment, impairments, and other
adjustments required by the equity method. The Company assesses its equity investment for other-than-temporary impairment by considering
factors as well as all relevant and available information including, but not limited to, current economic and market conditions, the
operating performance of the investees including current earnings trends, the general market conditions in the investee’s industry
or geographic area, factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt
ratios, and cash burn rate and other company-specific information. Investments
in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes
in orderly transactions for the identical or a similar investment of the same issuer. These investments are measured at fair value on
a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss
is recognized in the consolidated statements of comprehensive loss equal to the amount by which the carrying value exceeds the fair value
of the investment. Prior to the adoption of ASU 2016-01 on January 1, 2019, these investments were accounted for using the cost method
of accounting, measured at cost less other-than-temporary impairment. On
December 1, 2022, Huadong invested RMB 40 million into Jiangsu Zhongxiangxin
International Science and Technology Innovation Park Co., Ltd. (“Zhongxiangxin”), and obtained 25% ownership interest of
Zhongxiangxin. Zhongxiangxin manufactures and sells medical materials in the PRC. The Company accounted for the investments using equity
method, because the Company has significant influence but does not own a majority equity interest or otherwise control over the equity
investee. Under the equity method, the Company adjusts the carrying amount of the investment and recognizes investment income or loss
for its share of the earnings or loss of the investee after the date of investment. When the Company’s share of losses in the equity
investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has
incurred obligations or made payments or guarantees on behalf of the equity investee. For the year ended December 31, 2022, the investment
gain from Zhongxiangxin was $290. The
Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value
is other-than-temporary. The primary factors the Company considers in its determination include the financial condition, operating performance
and the prospects of the equity investee; other company specific information such as recent financing rounds; the geographic region,
market and industry in which the equity investee operates; and the length of time that the fair value of the investment is below its
carrying value. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written
down to fair value. For
the years ended December 31, 2022, 2021 and 2020, no impairment indicators were identified and no loss related to revaluation of its
investment in the private company was recorded. Value-added
Tax Value-added
taxes (“VAT”) collected from customers relating to product sales and remitted to governmental authorities are presented on
a net basis. VAT collected from customers is excluded from revenue which is recorded in VAT payable. The Company is subject to a VAT
rate of 13%. The VAT payable
may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished
products. Related
Parties Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are
controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related
party transactions. Revenue
Recognition Effective
January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective adoption method. Based on the requirements of ASC
Topic 606, revenue is recognized when control of the promised goods or services is transferred to the customers in an amount that reflects
the consideration the Company expects to be entitled to receive in exchange for those goods or services. The Company primarily sells
its products to hospitals and medical equipment companies. Revenue is recognized when the following 5-step revenue recognition criteria
are met:
1) Identify
the contract with a customer
2) Identify
the performance obligations in the contract
3) Determine
the transaction price
4) Allocate
the transaction price
5) Recognize
revenue when or as the entity satisfies a performance obligation Revenue
from product sales is recognized at the point in time control of the products is transferred, generally upon customer receipt based upon
the standard contract terms. Shipping and handling activities are considered to be fulfillment activities rather than promised services
and are not, therefore, considered to be separate performance obligations. The Company’s sales terms provide no right of return
outside of a standard quality policy and returns are generally not significant. Payment terms for product sales are generally set at
90 to 180 days after the consideration becomes due and payable. Revenue
Disaggregation The
Company’s disaggregated revenues are represented by two categories which are type of goods and type of customers. Type
of Goods
For the year ended December 31,
2022 2021 2020
US$ US$ US$
Self-Manufactured Products 50,514,976 48,059,165 44,473,076
Resales of Sourced Disposable Medical Devices from Third Party Manufacturers 52,831,365 55,978,545 44,587,934
Total Revenue 103,346,341 104,037,710 89,061,010 Type
of Customers
For the year ended December 31,
2022 2021 2020
US$ US$ US$
Direct sales 9,465,644 9,499,748 9,430,082
Distributors 93,880,697 94,537,962 79,630,928
Total Revenue 103,346,341 104,037,710 89,061,010 Earnings
per Ordinary Share Earnings
(loss) per ordinary share is calculated in accordance with ASC 260, Earnings per Share Comprehensive
Income (Loss) ASC
220, Comprehensive Income (“ASC 220”) establishes rules for reporting and display of comprehensive income and its components.
ASC 220 requires that unrealized gains and losses on the Company’s foreign currency translation adjustments be included in comprehensive
income (loss). Advertising
Costs The
Company’s advertising costs are expensed as incurred. Advertising expenses are included in selling expenses in the
accompanying consolidated statements of income and comprehensive income. Advertising expenses were $95,432, $21,498 and $53,770 for
the years ended December 31, 2022, 2021 and 2020, respectively. Research
and Development Costs Research
and development expenses are expensed as incurred. Research and development expenses were $2,962,904, $2,725,014 and $2,492,059 for the
years ended December 31, 2022, 2021 and 2020, respectively. Income
Tax Current
income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which are
not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred
income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled.
The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of comprehensive income in the
period of the enactment of the change. The
Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely
than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses,
forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused,
and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient
future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences
become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income
including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing
temporary differences and carryforwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific
known trend of profits expected to be reflected within the industry. The
Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the
position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition
threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater
than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated with
unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments
and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’s
effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered
appropriate by management. The Company classifies interest and penalties recognized on the liability for unrecognized tax benefits as
income tax expense. Segment
Reporting FASB
280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information of the Company’s business segments, geographical
areas, segments and major customers. The Company uses the “management approach” in determining reportable operating segments.
The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker
for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The chief
operating decision maker is the Company’s president and Chief Executive Officer (“CEO”). Management, including the
chief operating decision maker, reviews operating results of different products at revenue level with no allocation of operating costs.
Consequently, based on management’s assessment, the Company has determined that it has only one operating segment as defined by
FASB ASC 280. The
Company has disclosed the type of revenue by government category as follows.
December 31, 2022 December 31, 2021 December 31, 2020
US$ US$ US$
Category Produced Purchased Total Produced Purchased Total Produced Purchased Total
Class I 7,463,707 8,572,512 16,036,219 6,151,443 7,331,962 13,483,405 5,181,532 6,155,223 11,336,755
Class II 37,229,199 36,177,490 73,406,689 36,788,116 41,313,745 78,101,861 35,863,806 33,573,351 69,437,157
Class III 1,189,906 1,863,990 3,053,896 1,094,957 2,291,899 3,386,856 758,525 2,355,768 3,114,293
Others 4,632,164 6,217,373 10,849,537 4,024,649 5,040,939 9,065,588 2,669,213 2,503,592 5,172,805
Total 50,514,976 52,831,365 103,346,341 48,059,165 55,978,545 104,037,710 44,473,076 44,587,934 89,061,010 Class
I, II, and III medical devices are defined by the National Medical Products Administration of China according to their risk levels under
the Regulation on the Supervision and Administration of Medical Devices (2021 Revision), Article 6 as follows:
● “Class
I Medical Devices” means medical devices with low risks, whose safety and effectiveness can be ensured through routine administration.
● “Class
II Medical Devices” means medical devices with moderate risks, which shall be strictly controlled and administered to ensure their
safety and effectiveness.
● “Class
III Medical Devices” means medical devices with relatively high risks, which shall be strictly controlled and administered through
special measures to ensure their safety and effectiveness. Furthermore,
the Company has disclosed revenue by major product type included in each government category.
December 31, December 31, December 31,
2022 2021 2020
Category Products US$ US$ US$
Class I Eye drops bottle 2,583,231 2,398,222 2,466,978
Oral medicine bottle 3,965,345 3,263,135 2,200,569
Anal bag 837,328 739,376 554,859
Other Class I 8,650,315 7,082,672 6,114,349
Subtotal-Class I 16,036,219 13,483,405 11,336,755
Class II Masks 410,163 600,534 9,632,150
Identification tape 12,262,269 15,049,686 11,617,668
Disposable medical brush 8,337,650 8,493,760 6,353,649
Gynecological inspection kits 7,571,089 8,752,617 4,924,689
Surgical kit 4,830,930 4,754,769 3,383,215
Medical brush 5,231,299 4,130,703 3,635,190
Medical kit 4,066,663 5,037,054 3,429,371
Other Class II 30,696,626 31,282,738 26,461,225
Subtotal-Class II 73,406,689 78,101,861 69,437,157
Class III Electronic pump 142,828 246,819 292,211
Anesthesia puncture kit 539,615 430,288 438,047
Disposable infusion pump 280,081 278,734 335,632
Infusion pump 367,652 309,746 196,686
Electronic infusion pump 44,812 291,725 185,030
Laparoscopic trocar 139,284 219,901 134,585
Other Class III 1,539,624 1,609,643 1,532,102
Subtotal-Class III 3,053,896 3,386,856 3,114,293
Others 10,849,537 9,065,588 5,172,805
Total 103,346,341 104,037,710 89,061,010 For
the years ended December 31, 2022, 2021 and 2020, revenues and assets within PRC contributed over 99.5% of the Company’s total
revenues and assets. The
Outbreak of COVID-19 On
January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency
of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic.”
COVID-19 has had a severe and negative impact on the Chinese and the global economy and such impact persists as of the date of this annual
report. In
fiscal year 2020, COVID-19 had a significant impact on our business and results of operations as the sales volume of masks rose sharply
while the sales of products other than masks declined due to an overall decrease in market demand. In fiscal year 2021, with the stable
control of the domestic epidemic in China, the market of masks was no longer in urgent shortage compared to the same period in 2020,
and the production of epidemic prevention products resumed more normal production levels. In general, with the precise control of the
epidemic in China, our production and operations have recovered smoothly, and the demand for other products has increased gradually.
After the initial outbreak of COVID-19, from time to time, some instances of COVID-19 infections have emerged in various regions of China,
including the infections caused by the Omicron variants in 2022. For example, a wave of infections caused by the Omicron variants emerged
in Shanghai in 2022, and a series of restrictions and quarantines were implemented to contain the spread. Many
of the restrictive measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have
been revoked or replaced with more flexible measures since December 2022. While the revocation or replacement of the restrictive measures
to contain the COVID-19 pandemic could have a positive impact on our normal o |
