JRSS 10-K & 10-Q changes, risk factors and insider trading

The Company (i.e. JRSIS and its subsidiaries and VIE on a consolidated financial basis) has a single source of revenue: Yongzhou Jumi, a limited company organized and operating in the PRC. This arrangement imposes specific risks on investors in JRSIS:

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations. The PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or, in extreme cases, become worthless.

All of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic, and social conditions in China. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating the development of industry by imposing industrial policies.

The PRC government has significant authority to exert influence on the ability of a China-based company, such as Yongzhou Jumi, to conduct its business and accept foreign investments. Through exercise of its control over the China-based affiliate, the PRC government can also exercise significant control over the decision of an offshore holding company, such as JRSIS, to list its securities on an U.S. or other foreign exchanges. For example, JRSIS faces risks associated with regulatory approvals of securities offerings outside of China as well as oversight on cybersecurity and data privacy. Such risks or any actions by the PRC government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could result in a material change in our operations and/or the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer our common stock and/or other securities to investors and cause the value of such securities to significantly decline or be worthless.

The PRC government has significant authority, oversight and discretion over the conduct of our business and may intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.

Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Currently, we believe that these statements and regulatory actions have had no impact on Yongzhou Jumi’s daily business operations, the ability of Yongzhou Jumi to accept foreign investments or the ability of JRSIS to list its securities on an U.S. or other foreign exchange. Nevertheless, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact of such modified or new laws and regulations.

Because all of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The Chinese government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in Yongzhou Jumi’s operations and/or the value of JRSIS’ common stock.

As a business operating in China, Yongzhou Jumi is subject to the laws and regulations of the PRC, which can be complex and which evolve rapidly. The PRC government has the power to exercise significant oversight and discretion over the conduct of Yongzhou Jumi’s business, and the regulations to which Laidian and Yongzhou Jumi are subject may change rapidly and with little notice to JRSIS or its shareholders. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the PRC are often uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or authorities, and inconsistently with Yongzhou Jumi’s current policies and practices. New laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may:

The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, that restrict or otherwise unfavorably impact the ability or manner in which Yongzhou Jumi conducts its business could require Yongzhou Jumi to change certain aspects of its business to ensure compliance, could decrease demand for Yongzhou Jumi’s products, reduce revenues, increase costs, require Yongzhou Jumi to obtain more licenses, permits, approvals or certificates, or subject Yongzhou Jumi to additional liabilities. To the extent any new or more stringent measures are required to be implemented, Yongzhou Jumi’s business, financial condition and results of operations could be adversely affected, which could materially decrease the value of JRSIS common stock.

We will require the approval of the CSRS before our common stock may become listed on the OTCQB, Nasdaq or any U.S. securities exchange. If we are unable to obtain CSRC’s approval, our ability to raise capital will be limited, which would likely limit the growth of our company.

We intend to fund the growth of our business in large part by raising capital in JRSIS through its sale of securities outside of the PRC. The capital markets in the U.S. that we might access for financing will depend in large part on our ability to secure a listing on Nasdaq, OTCQX or one of the registered securities exchanges. The Trial Administrative Measures adopted on March 31, 2023 require that at the time we apply to an exchange (which for this purpose will include Nasdaq, OTCQB or OTCQX), we must file an extensive application with the CSRC and await approval by CSRC of the listing. The CSRC has indicated an intent to use these applications in order to protect the PRC from foreign control of (or significant influence over) important Chinese businesses. We cannot determine what criteria the CSRC will apply for this purpose. The regulations, therefore, create for our investors a risk that our efforts to finance Yongzhou Jumi by selling JRSIS securities abroad will be restricted, delayed or eliminated by CSRC’s implementation of the listing requirements in the Trial Administrative Measures. That risk, if realized, could prevent us from expanding Yonzhou Jumi’s business, which could reduce or eliminate the value of JRSIS common stock purchased in this or subsequent offerings.

If JRSIS common stock becomes listed on the OTCQB or an exchange, we will be required to obtain the approval of the PRC government for a business combination, the issuance of our common stock, or maintaining our status as a publicly listed company outside China.

On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”), which took effect on March 31, 2023. On the same date, the CSRC published on CSRC’s official website Supporting Guidance Rules No. 1 through No. 5, Notes on the Trial Administrative Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions or, collectively, the “Guidance Rules and Notice.” The Trial Administrative Measures, together with the Guidance Rules and Notice, mandate that issuers whose principal business activities occur in the PRC must, within three business days after filing with the offshore regulator an application for an offshore offering or listing of securities on an exchange, submit to CSRC an application for review. The Trial Administrative Measures apply to overseas securities offerings and/or listings conducted by companies incorporated in the PRC, PRC domestic companies, and companies incorporated overseas with operations primarily in the PRC, indirect offerings. The Trial Administrative Measures require (1) the filing of the overseas offering and listing plan by the PRC domestic companies with the CSRC under certain conditions, (2) the filing by the underwriter with the CSRC under certain conditions and (3) the submission of an annual report to the CSRC within the required timeline. The Trial Administrative Measures include: (1) criteria to determine whether an issuer will be required to go through the filing procedures under the Trial Administrative Measures; (2) exemptions from immediate filing requirements for issuers that have already been listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Administrative Measures; (3) a negative list of types of issuers banned from listing or offering overseas, such as issuers whose affiliates have been recently convicted of bribery and corruption; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation after offering or listing overseas to file with the CSRC after it completes subsequent offerings and to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their relevant shareholders for failure to comply with the Trial Administrative Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. Fines of up to 10 million RMB (approximately US$1.4 million) for non-compliance are authorized.

We plan to apply for listing on the OTCQB as soon as we are eligible; if accepted, we would then be subject to the requirements of the Trial Administrative Measures with respect to any future securities offerings made outside of China. As the Trial Administrative Measures are newly issued, there remain uncertainties regarding its interpretation and implementation. Therefore, we cannot assure you that we will be able to complete the filings for our future offerings and fully comply with the relevant new rules on a timely basis, if at all. In addition, we face uncertainty regarding the criteria that CSRS will apply when reviewing filings for approval, and cannot assure that the process will not cause a substantial reduction in our ability to raise capital in the U.S.

Regulations proposed by the Cyberspace Administration of China may require Laidian to apply for cybersecurity approval before JRSIS can list its securities on a U.S. exchange.

On July 10, 2021, the Cyberspace Administration of China (“CAC”) issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that, under the proposed rules, companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and the quotation of our securities on the OTC Markets. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, quotation of our securities on the OTC Markets may be prohibited and we may be subject to fines and penalties.

We believe that we will not be subject to the cybersecurity review by the CAC for this offering, given that: (i) we are not an “operator of critical information infrastructure” or a “data processor” carrying out data processing activities that affect or may affect national security; (ii) we do not possess a large amount of personal information in our business operations; and (iii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. However, there remains uncertainty as to how the 2021 Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the 2021 Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us.

Although the audit report included in this Report was issued by U.S. auditors who are currently inspected by the PCAOB, if it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, investors would be deprived of the benefits of such inspection and our common stock may be delisted or prohibited from trading.

The audit report included in this Report was issued by HHC, a U.S.-based accounting firm that is registered with the PCAOB and can be inspected by the PCAOB. We have no present intention of dismissing HHC in the future or of engaging any auditor not based in the U.S. and not subject to regular inspection by the PCAOB. As an auditor of companies that are registered with the SEC and publicly traded in the United States and a firm registered with the PCAOB, our auditor is required under the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.

There have been recent deliberations within the U.S. government regarding limiting or restricting China-based companies from accessing U.S. capital markets. On December 18, 2020, the Holding Foreign Companies Accountable Act (the “HFCAA”) was signed into law. The HFCAA includes requirements for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. Additionally, in July 2020, the U.S. President’s Working Group on Financial Markets issued recommendations for actions that can be taken by the executive branch, the SEC, the PCAOB or other federal agencies and department with respect to Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the United States. In response, on November 23, 2020, the SEC issued guidance highlighting certain risks (and their implications to U.S. investors) associated with investments in China-based issuers and summarizing enhanced disclosures the SEC recommends China-based issuers make regarding such risks. On December 2, 2021, the SEC adopted final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. The SEC is assessing how to implement the requirements of the HFCAA, including the listing and trading prohibition requirements described above. Under the HFCAA, our securities may be prohibited from trading on Nasdaq or U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our common stock being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which amends the HFCAA and requires the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.

Should the PCAOB be unable to conduct an inspection 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. In addition, by reason of the regulations described above, our common stock could be delisted or excluded from trading on any U.S. platform.

Risks Related to the VIE Structure

We rely on contractual arrangements with Yongzhou Jumi and Guangzhou Jumi to exercise control over the operations of Yongzhou Jumi, which may not be as effective as direct ownership in providing operational control.

We have relied and expect to continue to rely on contractual arrangements with Yongzhou Jumi and Guangzhou Jumi to conduct operations through the VIE in China. These contractual arrangements, however, may not be as effective as direct ownership in providing us with control over Yongzhou Jumi. For example, Yongzhou Jumi and Guangzhou Jumi could breach their contractual arrangements with us by, among other things, failing to conduct the operations of Yongzhou Jumi in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of Yongzhou Jumi, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Yongzhou Jumi, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by Yongzhou Jumi and Guangzhou Jumi of their obligations under the contracts to exercise control over Yongzhou Jumi. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system.

Neither the Government of the PRC nor the Chinese legal system has ever formally acknowledged the legality of using a VIE-type contractual arrangement where direct ownership of a Chinese entity is forbidden. If the government determines that the VIE contracts are illegal or unenforceable, our Common stock may become worthless.

Foreign ownership of value-added telecommunications services, such as those provided by Yongzhou Jumi, is restricted by the laws of the PRC. Primarily for this reason, our Company does not directly engage in the business of providing SaaS services for pharmacies, but instead has entered into a series of contracts with Yongzhou Jumi that are intended to provide our Company with control over the operations of Yongzhou Jumi and the right to receive the net profits realized by Yongzhou Jumi. These contracts are customarily identified as “VIE Agreements”, as they are designed to cause the operating company to be treated under U.S. generally accepted accounting principles as a “variable interest entity”, whose profits and losses can be consolidated with those of its contractual counterpart.

One significant risk of this structure is that the Chinese government has never expressly acknowledged it as a way to legally navigate the country’s investment restrictions. The Chinese government could determine at any time and without notice that the underlying contractual arrangements on which our control of Yongzhou Jumi is based do not comply with PRC regulations, or PRC regulations could change or be interpreted differently in the future so as to render the VIE agreements unenforceable. Any such determination from the Chinese government would cancel our legal entitlement to control the operations of Yongzhou Jumi. Because our right to consolidate the financial results of Yongzhou Jumi in our financial reports depends on our contractual control over Yongzhou Jumi, the elimination of that control would force us to deconsolidate, leaving JRSIS with no reportable operating results and limited equity. In that event, it would be likely that all or most of the value of your investment in JRSIS would be eliminated.

All or most of the value of an investment in JRSIS depends on the enforceability of the VIE Agreements between Laidian and Yongzhou Jumi. A breach of any of the VIE Agreements between Laidian and Yongzhou Jumi (or its officers, directors, or Chinese equity owners) will be subject to Chinese law and jurisdiction. We cannot assume that the Chinese legal system would enforce the VIE Agreements. If judicial or regulatory determinations are made in China that contractual relationships such as ours with the VIE are unenforceable under Chinese law, we would be unable to assert contractual control over Yongzhou Jumi and/or, perhaps, Laidian, the entities that carry on all of the operations described in this Report. In that event, it will be likely that the value of any Common stock of JRSIS that you may own will significantly diminish or be eliminated.

Although we cannot predict with certainty the results that would occur if the Chinese government or its judiciary determined that VIE relationships such as ours are illegal, it does appear likely that the relationship between JRSIS and Yongzhou Jumi would end. Because foreign ownership of companies providing value-added telecommunications services in China is barred by Chinese regulations, we would not be able to replace the VIE relationship with direct ownership of Yongzhou Jumi by JRSIS. JRSIS would, therefore, be left with the choice of entering into a different business activity or terminating its business operations and dissolving. Dissolution under those circumstances would likely cause investors in JRSIS to lose most or all of their investment.

Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and operations.

The value-added telecommunications services that the VIE conducts are subject to foreign investment restrictions set forth in the Special Management Measures (Negative List) for the Access of Foreign Investment issued by the MOFCOM, and the National Development and Reform Commission, or the NDRC, effective July 2020.

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, or the Foreign Investment Law (2019), which became effective on January 1, 2020 and replaced the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Owned Enterprise Law to become the legal foundation for foreign investment in the PRC. Since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For instance, under the Foreign Investment Law (2019), “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangements would not be interpreted as a type of indirect foreign investment activity in the future. In addition, the definition of foreign investment contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws, administrative regulations or provisions of the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. If further actions must be taken under future laws, administrative regulations or provisions of the State Council, we may face substantial uncertainties as to whether we can complete such actions. Failure to do so could materially and adversely affect our current corporate structure, corporate governance and operations.

The contractual arrangements we have entered into with Yongzhou Jumi may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could negatively affect our financial condition and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements in relation to Yongzhou Jumi were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and therefore adjust the income of Yongzhou Jumi in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Yongzhou Jumi for PRC tax purposes, which could in turn increase its tax liabilities without reducing the PRC tax expenses of Laidian. In addition, the PRC tax authorities may impose late payment fees and other administrative sanctions on Yongzhou Jumi for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if Yongzhou Jumi’s tax liabilities increase or if they are required to pay late payment fees and other penalties.

At the present time, we have only two individuals responsible for management of our public company. Our ability to grow as a public company will be largely dependent on our ability to recruit highly skilled individuals. Future success depends on our continuing ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization. Competition for such qualified employees is intense. If we do not succeed in attracting excellent personnel or in retaining or motivating them, we may be unable to grow effectively. In addition, all future success depends largely on our ability to retain key consultants and advisors. We cannot assure that any skilled individuals will agree to become an employee or consultant for Laidian or Yongzhou Jumi. Our inability to retain their services could negatively impact our business and our ability to execute our business strategy.

Our ability to expand the market for our smart dispensers depends upon our ability to obtain financing through equity financing, debt financing (including credit facilities) or the sale or syndication of some or all of our interests in certain projects or other assets. If our access to existing credit facilities is not available, and if other funding does not become available, there could be a material adverse effect on our business.

Our success depends to a significant extent on the performance of our management personnel. In particular, we will depend on the services of Linhai Zhu, Chairman of the Board, Chief Executive Officer and Chief Financial Officer. The loss of the services of Linhai Zhu could have a material adverse effect on the Company’s business, operating results and financial condition.

As of the date on which this Report is being filed, Jumi Group Company, Ltd., which is controlled by our Chairman, Linhai Zhu, owns 92.9% of JRSIS’s outstanding common stock. As a result, Mr. Zhu will have the power to:

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report on Form 10-K.

In addition to historical information, the discussion in this section of this Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, those discussed in “Risk Factors” and those discussed elsewhere in this Report on Form 10-K.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Company Structure

JRSIS Health Care Corporation (the “Company” or “JRSIS”) was incorporated on November 20, 2013 under the laws of the State of Florida. Through its 100% held subsidiary JRSIS Health Care Limited (“JRSIS-BVI”), a limited liability company registered in British Virgin Island (“BVI”), it holds 100% shares of Runteng Medical Group Co., Ltd (“Runteng”), a limited liability company registered in Hong Kong. On April 12, 2022, Runteng organized and owned 100% of the equity in Laidian Technology (Zhongshan) Co., Ltd (“Laidian”), a wholly foreign-owned enterprise (“WFOE”) subsidiary registered under the law of the People’s Republic of China (“the PRC”) in Zhongshan City, Guangdong Province.

On November 30, 2023, the Company, through its subsidiary Laidian, completed an acquisition transaction that resulted the Company obtained 85.53% variable interest in Yongzhou Jumi Intelligent Technology Co., Ltd. (“Yongzhou JIT”). For a detail description of our corporate structure and contractual arrangements and its related risks, see “ITEM 1 Business” in PART I elsewhere in this annual report. The transaction represents a “Reverse Acquisition” rather than a business combination that Yongzhou JIT is deemed to be the accounting acquirer in the transaction and is being accounted for as a reverse acquisition and recapitalization.

Management’s discussion and analysis in this section was based on the historic financial information of Yongzhou JIT as accounting acquirer. Those financial statements represent that the assets and liabilities and the operations that reflected the historical financial statements for periods prior to the Reverse Acquisition of Yongzhou JIT and will be recorded at the carrying amount basis of Yongzhou JIT, and the consolidated financial statements after the Reverse Acquisition included the assets and liabilities of the Company and Yongzhou JIT, and the historical operations of Yongzhou JIT and operations of the Combined Company from the date of Reverse Acquisition.

Technology and Innovation

We, through Yongzhou JIT, commitment to technological advancement and delivering cutting-edge intelligent machine and system solutions, especially for One-stop smart medicine distribution program and new retail intelligent terminal solution to meet the evolving needs of its customers. Yongzhou JIT masters intelligent algorithms and techniques, intelligent terminal technologies and moving communication related technology.

As of the date of this report, Yongzhou JIT owns 2 patents for invention, 16 patents for utility models, 6 design patents and 21 software copyrights in the PRC. In addition, there several invention patents under the processing of substantive examination stage of authorities. All the core patented technologies and models of patents and copyright have been applied into the Company’s products and services. The Company had established a research and development team of experts consisting of about 10 more persons, which accounted for about 25% total employee of Yongzhou JIT. After years of efforts, the Company holds an outstanding position in the field of intelligent medicine products areas around PRC. In addition, to promote research and innovation in intelligent medicine areas, the Company actively collaborates with several prominent research institutions and universities, such as Hunan Institute Technology, to keep our intelligent techniques being updated in advanced.

Products and Services, Customers

Based on techniques we owned and our plants and equipment we operated in China, we can provide our customers with services to customize cloud-based hardware and the relevant system/software, open platform of software as a service, cloud-based vending equipment, one-stop cloud-based medicine equipment (including automated drug sales, remote consultations, unmanned pharmacies) and a series of remote intelligent terminal products. We, currently, are engaging in the business of developing intelligent technology related to medical and producing and sales equipment based on its technology. We also provide services to design, develop, install, and maintain the cloud-based systems for our customers.

Currently, all our operations are conducted in the People’s Republic of China (“the PRC”). Our customers of our products and service included: a) governmental projects: such as local government’s healthcare project to up-grate its smart medical insurance, intelligent epidemic prevention measures, intelligent service on remote physical examination, health testing, remote consultation, prescription, payments and medicine delivery etc.; b) Hospital projects: such as a smart application system in hospital for collecting the drug information from each out-patient and direct the pharmacies in the hospital to prepare the dug for the out-patient and guide the put-patient to the right window to take his/her medicine; c) pharmacies outside the hospital and e) entities in health industry, such as the internet service platform; f) other intelligent service providers. Our products and services might be applied in more and more areas along with the development of technology and manufacturing.

GOING CONCERN UNCERTAINTIES

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As reflected in the accompanying consolidated financial statements, for the years ended December 31, 2023 and 2022, the Company incurred a significant net loss of $94,588 and $673,260, the recurring operating loss result in an accumulated deficit of $3,442,898 as of December 31, 2023. The Company generated cash inflows form its operation for the year ended December 31, 2023 of $516,724 and had a working capital deficit of $446,337. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months.

The continuation of the Company as a going concern through the next twelve months is dependent upon (1) the continued financial support from its external financing, including bank loans and issuance of its shares to potential shareholders. Management believes that it can obtain additional bank loans and the issuance of common shares of the Company is available if the Company effort to do so, and (2) further implement management’s business plan to extend its operations and generate sufficient revenues and cash flows to meet its obligations. The Company’s operation is on the upward trend, and management believes that the Company’s operation can generate enough revenues and cash to meet its obligation in the normal course of business. While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be neither any assurances to that effect, nor any assurance that the Company will be successful in securing sufficient funds to sustain the operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. The Company is working to devote more efforts to improve its operation and generate more profits and cash flow.

Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provide the opportunity for the Company to continue as a going concern.

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, receivable, inventory, leases, and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are recorded in the period in which they become known.

Please refer to our significant accounting policies in Note 3 to our consolidated financial statements included elsewhere in this report. We believe those accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Comparison of the years ended December 31, 2023 and 2022

Revenues

Total revenues for the year ended December 31, 2023 were $3,461,933, increased $1,742,803, or approximately 101%, as compared to total revenues for the year ended December 31, 2022 of $1,719,130. The increase of revenues due to the increase volumes of goods sold and services provided. In addition to our marketing and promotion efforts, the termination of prevention and control measures of epidemic of COVID-19 all over the PRC since the beginning of 2023 also result in the increase of the revenues in year of 2023. The demand for intelligent products and services in the market is expected to rapid growth. We commit to iterate and update continuously our products and services with our developing intelligent technology and we expected that our revenues will continue to grow along with our marketing effort and upgrading of our product in the foreseeable future.

Currently, the Company’s revenues generate from two sources, including 1) sales of intelligent terminal, such as medicine vending machine, that the Company self-manufactured and assembled in its plant, and 2) services rendered, such as installment and maintenance terminal system, designing and development of intelligent system to its customers. Goods and services that the Company transferred to its customers deriving its revenues are all based on the Company’s intelligent technology.

The Company derived its revenues from both third-party customers and related party. Guangzhou JIE, the legal parent of Yongzhou JIT in the PRC and both under the common control of Linhai Zhu, the CEO of the Company, generally purchases certain machine from Yongzhou JIT and resales to its customers, and also had Yongzhou JIT to provided instalment and maintenance service for its customers from time to time and pays case by case under a negotiated range of charge rate to Yongzhou JIT. Ending customers of the Company’s goods and services mainly includes medicine service organization, business entities and local government.

Cost of revenues

Cost of revenues for the year ended December 31, 2023 was $2,978,882, increased $1,285,963, approximately 76%, as comparable to the same period of 2022 of $1,692,919. The increase of the cost of revenues mainly due to the increase volume of products sold and services rendered. Cost of revenues consists primarily of the cost of the machine sold and incremental cost to fulfil the contracts with customers.

Gross profit

Gross profit for the year ended December 31, 2023 was $483,051, increased $456,840, approximately 1743%, as comparable to the same period as of December 31, 2022 of $26,211. The gross margin was 14% for the year ended December 31, 2023 increased from 2% for the year ended December 31, 2022. The implement of prevention and control measures of epidemic of COVID-19 all over the PRC since it was break out in the ended of 2019 until the beginning of 2023 lead to strict shot down of the Company’s operation, the Company has to sales products in discount during that time. This situation made the gross margin extremely low during the fiscal year of 2022.

Operating expenses

Operation expenses consist mainly of research and development, marketing and advertising, logistics, auditing and legal service, other professional service and listing support fees, employee salary, depreciation and amortization, office rental fee and utilities of underlying not associated with production that otherwise recorded as cost of inventories.

Operating expenses for the year ended December 31, 2023 were $671,649, as compared to $710,987 for the year ended December 31, 2022, a decrease of $39,338, or decrease approximately 6%. During the year ended December 31, 2023, research and development expense decreased approximated $93,777 which off-set by an increase of other general and administrative expense approximated $52,756 and an increase of selling expense approximated $1,683. As compared to 2022, the Company reduced its research and development expenditures in the fiscal year of 2023 because the Company re-organized and simplified its research team to save cost without reducing efficiency of research and development. The Company insisted in an on-going reorganization to optimize its expenditures to respond its deficiency of working capital and make profits. The Company expects to invest more capital in its research and development activities as its the financial condition gets better. The increase of the general and administrative expense in 2023 mainly resulted from the increasing of the professional services and related listing fees. Marketing and advertising fee increased in 2023 result in the increase of selling expense for the year ended December 31, 2023.

Other income, net

Other income mainly consists of: 1) non-capitalized interest expense accrued form bank loans used for working capital; 2) gain or loss on disposal of inventories, equipment and other assets; and 3) government subsidy on tax exemption. For the year ended December 31, 2023, the Company reported other income of $102,985, as compared to $11,516 for the year ended December 31, 2022, an increase of $91,469, or approximately 794%. The increase in other income for the year ended December 31, 2023 mainly resulted of: 1) non-capitalized interest expense for bank loan decreased of approximated $8,266 due to the reduction of bank loans; in the meantime, 2) the Company recognized governmental subsidy increase of $80,145 for the year ended December 31, 2023.

Net loss

We reported net loss of $94,588 for the year ended December 31, 2023, as compared to $673,260 for the year ended December 31, 2022, decrease of $578,672, or 86%.

Recent Development

With the popularity of China’s mobile payment, the update and development of cloud computing and the Internet of Things, coupled with the social demand for medical and pharmaceutical services facilitation, personalization, privacy protection, and various convenient services launched by the government and social forces in response to aging, vending and online services have a broad basis for development in most cities in China. Our smart products and services will be widely used in this environment, which is also one of the infrastructures for building a healthy China. However, this will require substantial investment from government and society. With the outbreak of the COVID-19 pandemic, especially since this year, the enthusiasm of the Chinese government and enterprises for such infrastructure investment has fluctuated with the changes in the macro economy, especially the expectations of China’s medium and long-term economic development. This kind of expected fluctuation has a great impact on the market for our smart products. We need to overcome the difficulties brought by this fluctuation and seek greater development while continuously improving the scientific and technological content of our products and services, which requires more effort and patience from us.

The fluctuation in other expenses for the three and nine months ended September 30, 2024 as compared to the same period of 2023 mainly resulted in fluctuation of non-capitalized interest expense due to the reduction of bank loans. YZ JIT repaid more bank loan during the third of 2023 which result in the accrual of interest expense for the three months ended September 30, 2023 is less than that in the same period of 2024. However, before repaying bank loan in third quarter in 2023, total interest expense was accrued and recorded for the nine months ended September 30, 2023, which made other loss for the nine months ended September 30, 2023 greater than the same period of 2024.

We reported a net loss of $219,977 for the three months ended September 30, 2024, as compared to net income of $39,407 for the three months ended September 30, 2023, a decrease of $259,384 at our net income, or approximately 658%. We reported a net loss of $509,680 for the nine months ended September 30, 2024, as compared to net loss of $31,415 for the nine months ended September 30, 2023, an increase of $478,265 at our net loss or approximately 1522%.

Net cash used in our operating activities for the nine months ended September 30, 2024 was $826,061, as compared to net cash provided by operating activities of $420,966 for the nine months ended September 30, 2023. Net cash used in our operating activities for the nine months ended September 30, 2024 was attributable to a net loss of $509,680 for the period and was primarily increased by non-cash items such as a reversal of a $138,497 inventory impairment charge, and by a $578,004 increase in accounts receivable from related parties and amortization of $161,191 in advances from customers as income was recognized from completion of prepaid contracts. Net operating cash inflows for the nine months ended September 30, 2024 resulted primarily from the following factors: 1) accounts receivable decreased by $144,135 in cash collected from third parties; 2) advances to suppliers decreased by $294,389 due to receipt of inventories from venders; and 3) a decrease of inventories by $233,745 due to increase of goods sold and disposal of obsoleted inventories.