GD Culture Group Ltd: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with our unaudited condensed financial statements, and the notes to those unaudited condensed financial statements that are included elsewhere in this Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the SEC.

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Overview

GD Culture Group Limited, formerly known as Code Chain New Continent Limited, is a Nevada corporation and a holding company. The Company currently conducts its operations on virtual content production (the “Virtual Content Production”) through the Company and two subsidiaries, AI Catalysis and Shanghai Xianzhui. The Company focuses its business mainly on 1) AI-driven digital human creation and customization; and 2) Live streaming and e-commerce. The company has relentlessly been focusing on serving its customers and creating value for them through the continual innovation and optimization of its products and services. The Company’s current subsidiaries, Citi Profit, Highlight HK, Highlight WFOE are holding companies with no material operations.

SyncWaveX is an AI-powered web-based video generation tool, engineered to enable users to synthesize virtual human videos with precise lip synchronization. Utilization involves text input and selection from a library of integrated character models and auditory profiles. The core technological foundation is comprised of speech synthesis, facial expression emulation, and lip-synchronization algorithms. This solution is primarily directed towards content creators, facilitating the rapid production of spoken-word videos; educational and corporate entities, for the transformation of curricular materials into illustrative video content; e-commerce vendors, for the provision of 24-hour digital broadcast capabilities; and individual users, for the creation of engaging social media content. Foundational functionalities are accessible at no cost, subject to daily generative output constraints. The principal revenue model is predicated upon personalized customization services, wherein users may upload photographic and vocal data to cultivate proprietary digital replicas. Upon depletion of complimentary allocation, a tiered fee structure, contingent on temporal duration or generative frequency, is instituted. The platform also accommodates horizontal and vertical aspect ratios, ensuring cross-platform compatibility, thereby fostering the pervasive integration of AI-driven digital human technology across creative and commercial landscapes.

The Company aims to generate revenue from customization services subscriptions.

The Company is also working on the development of a mobile and web platform for interactive fiction—story experiences where readers make choices that branch the plot and lead to multiple endings.

Recent Development

Offering

On March 26, 2024, the Company issued 810,277 shares of common stock in a registered direct offering. See Note 12 of the notes to the unaudited interim condensed consolidated financial statements.

On February 10, 2025, the Company entered into an At-The-Market Issuance Sales Agreement (the “ATM Agreement”) with Univest as the sales agent (the “February 2025 Offering”). Pursuant to the ATM Agreement, the Company may issue and sell from time to time, shares of its common stock having an aggregate offering price of not more than $10,000,000 through the sales agent or any of its sub-agent(s) or other designees, acting as sales agent. Up to the date the unaudited interim condensed consolidated financial statements were issued, the Company has not issued or sold any shares under the ATM Agreement.

On March 4, 2025, the Company entered into a securities purchase agreement (the “March 2025 Securities Purchase Agreement”) with certain investor for the sale of 1,115,600 shares of common stock at $0.896379 per share (the “March 2025 Offering”), generating gross proceeds in the amount of $1,000,000, before deducting underwriter’s fees and accountable expenses and other estimated expenses. The Company used the proceeds from the offering for working capital purposes. Upon closing of the March 2025 Offering, the Company paid $90,000 cash for underwriting, which consists of a total cash fee of $70,000, equal to seven percent (7%) of the aggregate gross proceeds raised in the March 2025 Offering and reimbursement of reasonable fees and expenses of $20,000 for the underwriter’s legal counsel and due diligence analysis expenses.

On May 2, 2025, the Company entered into a securities purchase agreement (the “May 2025 Securities Purchase Agreement”) with certain investors for the sale of 1,115,600 shares of common stock at approximately $0.524 per share and 9,380,582 pre-funded warrants (the “May 2025 Pre-Funded Warrants”) at approximately $0.523 per warrant (the “May 2025 Offering”). Up to the date of the unaudited condensed interim financial statements were issued, The Company received $4,478,000 in proceeds for subscription of 1,115,600 shares of its common stock and 7,468,536 pre-funded warrants. The offering remains ongoing and has not yet been fully completed. Transaction costs incurred through the reporting date included underwriter’s fees of $313,460 and a $20,000 reimbursement for the underwriter’s legal counsel and due diligence expenses. Net proceeds from the offering, after deducting these expenses, will be $5,095,000. As of September 30, 2025, the Company used the proceeds from the offering for working capital purposes.

Pursuant to the May 2025 Securities Purchase Agreement, the Company has agreed to use commercially reasonable efforts to, within sixty (60) calendar days after the date of the May 2025 Securities Purchase Agreement, file a registration statement on the appropriate form providing for the resale by the investors of the May 2025 Offering.

On May 11, 2025, the Company entered into a Common Stock Purchase Agreement with an investor, pursuant to which the Company shall have the right to require the investor to purchase, from time to time, up to a cumulative total of $300,000,000 worth of the Company’s common stock. The Company plans to use the proceeds from the offering, if any, to invest in Bitcoin and OFFICIAL TRUMP and for general corporate purposes. The common stock will be issued and sold by the Company to the investor pursuant to a registration statement effective under the Securities Act of 1933, as amended (the “Securities Act”) or, if there is no effective registration statement registering, or no current prospectus available for the issuance of the common stock issuable pursuant to the Agreement, in reliance upon the exemptions from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. On September 29, 2025, the Company issued 39,189,344 shares of common stock for acquisition of Bitcoin, as disclosed below, in section “Acquisition of Pallas”.

On October 24, 2025, the Company entered into securities purchase agreements (the “October 2025 Securities Purchase Agreement”) with certain accredited investor, pursuant to which the Company agreed to issue and sell, in a private placement (the “October 2025 Private Placement”), an aggregate of 1,333,334 shares of the Company’s common stock at a purchase price of $2.10 per share, for gross proceeds in the amount of $2,800,000. The Company plans to use the process for working capital and general corporate purposes.

Pursuant to the October 2025 Securities Purchase Agreement, the Company has agreed to use commercially reasonable efforts to, within sixty (60) calendar days after the date of the October 2025 Securities Purchase Agreement, file a registration statement on the appropriate form providing for the resale by the Investor of the Shares.

In connection with the October 2025 Private Placement, on October 24, 2025, the Company entered into a placement agency agreement (the “October 2025 Placement Agency Agreement”) with Univest (the “Placement Agent”). The Company agreed to pay the Placement Agent a total cash fee equal to seven percent (7%) of the aggregate gross proceeds raised in the October 2025 Private Placement. The Company has also agreed to reimburse the Placement Agent for all reasonable and out-of-pocket expenses incurred in connection with the Private Placement, including reasonable fees and expenses of the Placement Agent’s legal counsel and due diligence analysis up to $20,000. The Company also paid $40,000 legal fee to third party upon closing of the October 2025 Private Placement.

Nasdaq Compliance

On May 13, 2024, the Company received a written notice from the Listing Qualifications Department of the Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, based on the closing bid price of the Company’s common stock was below $1.00 for the last 30 consecutive trading days, the Company no longer complies with the minimum bid price requirement (the “Minimum Bid Price Requirement”) for continued listing on the Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5450(a)(1). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has an initial compliance period of 180 calendar days, or until November 11, 2024, to regain compliance with the Minimum Bid Price Requirement. Between June 11, 2025 to June 25, 2025, the Company has maintained a market value of $35 million or greater for ten (10) consecutive business days. On June 26, 2025, the Staff confirmed that the Company meets the $35 million market value standard as required by the Nasdaq Capital Market set forth in Listing Rule 5550(b)(2). Accordingly, this matter is now closed.

On June 18, 2024, the Company received a letter from Nasdaq stating that because the Company’s common stock had a closing bid price at or above $1.00 per share for 10 consecutive business days, the Company had regained compliance with the Minimum Bid Price Requirement on June 18, 2024, and that the matter is now closed.

Software Purchase Agreement

On April 28, 2025, the Company entered into a software purchase agreement (the “Agreement”) with Gongzheng Xu and Qing Wang (the “GXQW”), who are unaffiliated with the Company. Pursuant to the Agreement, the Company agreed to purchase and the GXQW agreed to sell all of GXQW’s right, title, and interest in and to the certain software (the “Chat Box”). The purchase price of the software shall be payable in the form of an issuance of 2,444,295 shares of the Company’s common stock. On April 28, 2025, the Company issued 2,444,295 shares of its common stock to GXQW and the transaction was completed. The Company plans to use the software to develop its AI business.

Acquisition of Pallas

On September 8 2025, the Company (the “Acquirer”), Pallas Capital Holding Ltd, a British Virgin Islands company incorporated on June 30, 2025 ( “Pallas” or the “Target”), and the shareholders of the Target (each a “Seller” and collectively, the “Sellers”) executed an agreement and plan of securities exchange (the “Share Exchange Agreement”, and the transactions contemplated thereby, collectively, the “Transaction”), pursuant to which, the Sellers wish to sell to the Acquirer, and the Acquirer wishes to purchase from the Sellers, 100% interest in and to the ordinary shares of the Target (the “Target Shares”). In exchange for the Target Shares, the Acquirer shall issue an aggregate of 39,189,344 shares of the Company’s common stock (the “GDC Shares”), of the Acquirer in book entry form in such amount and to such Sellers. On September 29, 2025, the Sellers transferred to Acquirer 10,000 shares of Target Shares, being all of the issued and outstanding ordinary shares of the Target, and received in exchange certificates representing the 39,189,344 GDC Shares. Thereafter, Pallas became a wholly-owned subsidiary of the Company.

Pallas was established for the primary purpose of holding digital assets as a long-term reserve, with the objective of achieving potential appreciation in value. As of September 30, 2025, Pallas held 7,500 units of Bitcoin.

The Transaction is accounted for as an asset acquisition, as the Target’s assets primarily consist of digital assets (Bitcoin). The purchase consideration is measured based on the fair value of the Company’s common stock issued as consideration.

Two shareholders of the Company, who beneficially own 11.4%, in the aggregate, of the outstanding shares of common stock of the Company, immediately before the execution of the Transaction, are the directors and share voting and dispositive power over the shares issued by the Target. Accordingly, the Transaction constitutes a related party transaction for the Company pursuant to Item 404 of Regulation S-K. Given the related party nature of the Transaction and the fact that the acquired digital assets are highly liquid and have observable market prices, management concluded that the fair value of the assets acquired is more reliably measurable than the fair value of the common stock issued as consideration.

As a result, management determined that the Transaction lacks commercial substance and, in substance, represents a capital contribution from the related shareholders. Accordingly, the excess of the fair value of the digital assets acquired over the fair value of the common stock issued is recorded as an increase in investment with a corresponding credit to additional paid-in capital.

Key Factors that Affect Operating Results

Competition

E-commerce and live streaming are a competitive industry. Our competition varies and includes content creators on TikTok and other social media platforms. Each of these competitors competes with us based on quality of content, activeness and responsiveness on the social placement, product selection, product quality, customer service, price, store format, location, or a combination of these factors. Some of these competitors may have been in business longer, may have more experience, or may have greater financial or marketing resources than us. As competition intensifies, our results of operations may be negatively impacted through a loss of sales and decrease in market share.

Retention of Key Management Team Members

Our management team comprises executives with extensive experience in technology and content creation. The management team has led us to take leaps in deploying AI technology in live-steaming, e-commerce, gaming and other sectors. The loss of any of our key executive team members might affect our business and our result of operation.

Our Ability to Grow Market Presence and Penetrate New Markets

We are still in an early development stage. We intend to expand our presence on social media to increase the market presence. If we cannot grow our market presence and penetrate new markets in an effective and cost-efficient way, our results of operation will be negatively impacted.

Results of Operations

Three Months Ended September 30, 2025 vs. September 30, 2024

Operating Expenses

The Company’s operating expenses include selling and marketing (“S&M”) expenses, general and administrative (“G&A”) expenses, research and development (“R&D”) expenses. S&M expenses decreased to nil for the three months ended September 30, 2025, as compared to $2,909 for the three months ended September 30, 2024. The decrease was mainly due to the Company’s decreased inputs on brand marketing expenses. G&A expenses increased by $356,759 from $873,067 for the three months ended September 30, 2024 to $1,229,826 for the three months ended September 30, 2025, primarily due to the increase in short-term rental expenses, amortization of intangible assets and travel expenses. R&D expenses increased by $1,018,833, from $217,500 for the three months ended September 30, 2024 to $1,236,333 for the three months ended September 30, 2025. The increase was mainly attributable to research and development support activities for the newly purchased software, Chat Box and expenses incurred for development of AI immersive reading platform. This increase was partially offset by decreased inputs in research and development related to the Company’s artificial intelligence-based digital human application.

Other Income

The Company’s other income increased by $16,222,229, from $10,381 for the three months ended September 30, 2024, to $16,232,610, during the three months ended September 30, 2025. The increase was mainly due to the unrealized gain of $16,230,431 arising from fair value changes of digital assets, partially offset by the absence of interest income for the three months ended September 30, 2025, which had been earned from a loan to a third party in 2024.

Net Income (Loss)

The Company achieved profitability during the three months ended September 30, 2025, generating net income of $12,088,469, compared to a net loss of $3,839,333 for the three months ended September 30, 2024. The improvement in results was primarily attributable to an unrealized gain of $16,230,431 arising from fair value changes of digital assets and the absence of other-than-temporary impairment losses on intangible assets for the three months ended September 30, 2025, as compared to the same period in 2024.

Nine Months Ended September 30, 2025 vs. September 30, 2024

Operating Expenses

The Company’s operating expenses include selling and marketing (“S&M”) expenses, general and administrative (“G&A”) expenses, research and development (“R&D”) expenses. S&M expenses decreased to $300,000 for the nine months ended September 30, 2025, compared to $2,402,909 for the nine months ended September 30, 2024. The decrease was mainly due to the Company decreased inputs on digital human and e-commerce live streaming marketing and advertising due to the uncertainty surrounding TikTok’s potential exit from the U.S. G&A expenses decreased by $1,155,005 from $4,345,438 for the nine months ended September 30, 2024 to $3,190,433 for the nine months ended September 30, 2025. The decrease was mainly due to the decrease in the professional service fee, partially offset by the increase in amortization of intangible assets and short-term lease expenses. R&D expenses increased to $1,469,666 for the nine months ended September 30, 2025, compared to $652,500 for the nine months ended September 30, 2024. The increase was mainly due to research and development support activities for the newly purchased software, Chat Box and expenses incurred for development of AI immersive reading platform. This increase was partially offset by the decreased inputs on research and development about our artificial intelligence based digital human application.

Other Income

The Company’s other income increased by $16,191,524 during the nine months ended September 30, 2025, from $45,383 for the nine months ended September 30, 2024, to $16,236,907 for the nine months ended September 30, 2025. The increase was mainly due to the unrealized gain of $16,230,431 arising from fair value changes of digital assets, partially offset by the absence of interest income for the nine months ended September 30, 2025, which had been earned from a loan to a third party in 2024.

Net Income (Loss)

The Company achieved profitability during the nine months ended September 30, 2025, generating net income of $9,611,905, compared to a net loss of $11,589,784 for the three months ended September 30, 2024. The improvement in results was mainly driven by an increase in the unrealized gain arising from fair value changes of digital assets, the absence of other-than-temporary impairment losses on intangible assets and convertible notes for the nine months ended September 30, 2025, as compared to the same period in 2024.

Liquidity and Capital Resources

As of September 30, 2025, the Company had $225,072 in its operating bank accounts and working capital deficit of approximately $2.3 million. From September 2024 to January 2025, Mr. Xiaojian Wang, the Chief Executive Officer of the Company (“CEO”), lent $399,485 to the Company through six loan agreements, for working capital purposes. Pursuant to the loan agreements, these loans are non-interest bearing and will be due from September 2025 to January 2026, respectively. From March 2025 to May 2025, the Company repaid $399,485 in full to the CEO. Up to the date of the unaudited interim condensed consolidated financial statements were issued, there was no outstanding loan from the CEO.

On January 23, 2025, the Green Oasis Limited, a shareholder holding less than a 5% ownership shares in the Company, provided a $100,000 loan to the Company for working capital purposes. Pursuant to the loan agreement, this loan is non-interest bearing and was due on April 23, 2025. On April 25, 2025, Green Oasis Limited and the Company extended the maturity date to July 23, 2025, which was further extended to July 23, 2026 through an amendment agreement signed on July 30, 2025.

On March 4, 2025, the Company sold 1,115,600 shares of common stock at $0.896379 per share, generating gross proceeds of $1,000,000. The Company received net proceeds of $910,000 after deducting underwriter’s fees of $70,000 and a $20,000 reimbursement for the underwriter’s legal counsel and due diligence analysis expenses. The Company used the proceeds from the offering for working capital purposes.

On May 2, 2025, the Company completed a securities offering in which it agreed to sell (i) 1,115,600 shares of its common stock at a purchase price of approximately $0.524 per share and (ii) 9,380,582 pre-funded warrants at a purchase price of approximately $0.523 per warrant. Up to the date of the unaudited condensed interim financial statements were issued, The Company received $4,478,000 in proceeds for subscription of 1,115,600 shares of its common stock and 7,468,536 pre-funded warrants, with $17,390 still outstanding and receivable from the investor. The offering remains ongoing and has not yet been fully completed. Transaction costs incurred through September 30, 2025 included underwriter’s fees of $313,343 and a $20,000 reimbursement for the underwriter’s legal counsel and due diligence expenses. After deducting these expenses, net proceeds from the offering (excluding the receivable of $17,390 from the investor) amounted to $4,143,657. As of September 30, 2025, the Company used the proceeds from the offering for working capital purposes.

On October 24, 2025, the Company sold 1,333,334 shares of common stock at $2.1 per share, generating gross proceeds of $2.8 million. The Company received net proceeds of approximately $2.5 million after deducting underwriter’s fees of $196,000 and other offering costs of $60,000. The Company plans to use the proceeds from the offering for working capital purposes.

The Company evaluated its ability to continue as a going concern in accordance with ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess whether there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

Considering the impact of the financing and the Company’s projected operating cash flows as described above, management concluded that the Company will have sufficient liquidity to meet its obligations as they become due for at least the next twelve months from the date the financial statements are issued.

The following summarizes the key components of the Company’s cash flows for the nine months ended September 30, 2025 and 2024.

7

Operating activities

Net cash used in operating activities was approximately $4.6 million for the nine months ended September 30, 2025, as compared to approximately $5.3 million net cash used in operating activities for the nine months ended September 30, 2024. Net income for the nine months ended September 30, 2025 was approximately $9.6 million, as compared to a net loss of approximately $11.6 million for the nine months ended September 30, 2024. Adjustments to reconcile net income (loss) to net cash used in operating activities decreased by approximately $20.5 million for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, mainly due to (i) the unrealized gain arising from fair value changes of digital assets for the nine months ended September 30, 2025 of approximately $16.2 million, (ii) the decreased other-than-temporary impairment losses from convertible note and intangible assets of approximately $4.3 million. Changes in operating assets and liabilities remained relatively flat for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. Specifically, the decrease in prepaid expenses and other current assets was largely offset by the increase in income taxes payable, resulting in minimal net impact on operating cash flows.

Investing activities

Net cash used in investing activities was nil for the nine months ended September 30, 2025, as compared to approximately $0.7 million for the nine months ended September 30, 2024. The decrease in net cash used in investing activities was due to the absence of the loan to a third party for the nine months ended September 30, 2025, as compared to the same period of 2024.

Financing activities

Net cash provided by financing activities was approximately $4.8 million for the nine months ended September 30, 2025, compared to approximately $0.8 million for the nine months ended September 30, 2024. The increase was mainly caused by i) an increase in proceeds from issuance of common stock, which rose by approximately $0.7 million to approximately $1.5 million for the nine months ended September 30, 2025, compared to approximately $0.8 million in the same period of 2024; ii) proceeds from issuance of prefunded warrants, which totaled approximately $3.6 million in the nine months ended September 30, 2025, compared to nil for the nine months ended September 30, 2024. These increase in the cash provided by financing activities were partially offset by a repayment to a related party of $0.4 million.

Critical Accounting Policies and Estimates

The Company prepares its unaudited interim condensed consolidated financial statements in accordance with U.S. GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires the Company to make estimates, assumptions and judgments that can significantly impact the amounts the Company reports as assets, liabilities, revenue, costs and expenses and the related disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable under the circumstances. The Company’s actual results could differ significantly from these estimates under different assumptions and conditions. The Company identified the following critical accounting estimates.

Impairment of long-lived assets

The Company’s determination of whether or not an indication of impairment exists at the cash generating unit level requires significant management judgment pertaining to intangible assets, including a software copyright of AI Box, which is used for online living-stream and a software copyright of Chat Box, which is used for online interactive entertainment scenarios, as well as the operating Right-of-use (“ROU”) assets, including the offices of the Company. Management considers both external and internal sources of information in assessing whether there are any indications that the Company’s intangible assets and ROU assets are impaired. Based on the evaluation, the Company recognized impairment losses in long-lived assets of nil and $2,756,986, respectively, for the nine months ended September 30, 2025 and 2024.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The purpose of the amendment is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. The Company adopted ASU 2023-07 for the year ending December 31, 2024.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses. This new guidance is designed to improve the disclosures about the types of expenses, including employee compensation, depreciation, and amortization, and costs incurred related to inventory and manufacturing activities. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 on a prospective basis with optional retrospective application. Early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated balance sheets, statements of operations and comprehensive income (loss) and statements of cash flows.

Credit Risk

Credit risk is one of the most significant risks for the Company’s business.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. Cash held at major financial institutions located in the PRC are not insured by the government. While we believe that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

Inflation Risk

The Company is also exposed to inflation risk. Inflationary factors, such as increases in raw material and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the selling prices of our products do not increase with such increased costs.

Foreign Currency Risk

A majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

Under the supervision and with the participation of our management, including our Chief Executive Officer, President and Chief Financial Officer (the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Investing in our common stock involves a high degree of risk. You should carefully consider the information included in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 before making an investment in our common stock. Our business, financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.