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</div><!-- Field: Rule-Page --><div style="width: 100%"><div style="font-size: 1pt; border-top: Black 2pt solid; border-bottom: Black 1pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>UNITED
STATES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SECURITIES AND EXCHANGE COMMISSION</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>WASHINGTON, D.C. 20549</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>FORM
<ix:nonNumeric contextRef="c0" name="dei:DocumentType">20-F</ix:nonNumeric></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentRegistrationStatement">&#9744;</ix:nonNumeric>
<b>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>OR</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonNumeric contextRef="c0" format="ixt:fixed-true" name="dei:DocumentAnnualReport">&#9746;</ix:nonNumeric>
<b>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>For
the fiscal year ended <ix:nonNumeric contextRef="c0" format="ixt:date-monthname-day-year-en" name="dei:DocumentPeriodEndDate"><ix:nonNumeric contextRef="c0" format="ixt:date-monthname-day-en" name="dei:CurrentFiscalYearEndDate">December 31</ix:nonNumeric>, <ix:nonNumeric contextRef="c0" name="dei:DocumentFiscalYearFocus">2022</ix:nonNumeric></ix:nonNumeric></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>OR</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentTransitionReport">&#9744;</ix:nonNumeric>
<b>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>OR</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentShellCompanyReport">&#9744;</ix:nonNumeric>
<b>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Date
of event requiring this shell company report for the transition period from ____________to ____________</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Commission
file number: <ix:nonNumeric contextRef="c0" name="dei:EntityFileNumber">001-39229</ix:nonNumeric></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><span style="-sec-ix-hidden: hidden-fact-0">ZHONGCHAO
INC.</span></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>(Exact
Name of Registrant as Specified in its Charter)</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>N/A</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Translation
of Registrant&#8217;s Name into English)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt-sec:edgarprovcountryen" name="dei:EntityIncorporationStateCountryCode"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Cayman
Islands</b></span></ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Jurisdiction
of Incorporation or Organization)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine1">Nanxi
Creative Center</ix:nonNumeric>, <ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine2">Suite 218</ix:nonNumeric><br/>
<ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine3">841 Yan&#8217;an Middle Road</ix:nonNumeric><br/>
<ix:nonNumeric contextRef="c0" name="dei:EntityAddressCityOrTown">Jing&#8217;An District</ix:nonNumeric>, Shanghai, <ix:nonNumeric contextRef="c0" format="ixt-sec:countrynameen" name="dei:EntityAddressCountry">China</ix:nonNumeric> <ix:nonNumeric contextRef="c0" name="dei:EntityAddressPostalZipCode">200040</ix:nonNumeric><br/>
Tel: 021-32205987</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Address
of principal executive offices)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><ix:nonNumeric contextRef="c1" name="dei:ContactPersonnelName">Weiguang
Yang</ix:nonNumeric>, Chief Executive Officer<br/>
<ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine1">Nanxi Creative Center</ix:nonNumeric>, <ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine2">Suite 218</ix:nonNumeric><br/>
<ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine3">841 Yan&#8217;an Middle Road</ix:nonNumeric><br/>
<ix:nonNumeric contextRef="c1" name="dei:EntityAddressCityOrTown">Jing&#8217;An District</ix:nonNumeric>, Shanghai, <ix:nonNumeric contextRef="c1" format="ixt-sec:countrynameen" name="dei:EntityAddressCountry">China</ix:nonNumeric> <ix:nonNumeric contextRef="c1" name="dei:EntityAddressPostalZipCode">200040</ix:nonNumeric><br/>
Tel: <ix:nonNumeric contextRef="c1" name="dei:CityAreaCode">021</ix:nonNumeric>-<ix:nonNumeric contextRef="c1" name="dei:LocalPhoneNumber">32205987</ix:nonNumeric></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Securities
registered or to be registered pursuant to Section 12(b) of the Act:</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"> <td style="border-bottom: black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; width: 49%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Title of Each Class</b></span></td> <td style="font: 10pt Times New Roman, Times, Serif; width: 2%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td> <td style="border-bottom: black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; width: 49%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Name of Each Exchange on Which Registered</b></span></td></tr> <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:Security12bTitle"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Class A Ordinary shares, par value $0.0001</b></span></ix:nonNumeric></td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><ix:nonNumeric contextRef="c0" name="dei:SecurityExchangeName">NASDAQ</ix:nonNumeric> Capital Market</b></span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Securities
registered or to be registered pursuant to Section 12(g) of the Act:</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>None<br/>
(Title of Class)</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>None<br/>
(Title of Class)</b></span></p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
the number of outstanding shares of each of the issuer&#8217;s classes of capital or common stock as of the close of the period covered
by the annual report:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of December 31, 2022, the issuer had <ix:nonFraction contextRef="c2" decimals="INF" format="ixt:num-dot-decimal" name="dei:EntityCommonStockSharesOutstanding" scale="0" unitRef="shares">20,531,423</ix:nonFraction> Class A Ordinary Shares (including 1,350,068 Class A Ordinary Shares to be issued upon
exercise of the HF Warrant the Company issued to HF Capital. For more details of the HF Warrant, please see &#8220;Our Corporate History
and Structure&#8221; on page 53) and <ix:nonFraction contextRef="c3" decimals="INF" format="ixt:num-dot-decimal" name="dei:EntityCommonStockSharesOutstanding" scale="0" unitRef="shares">5,497,715</ix:nonFraction> Class B Class A Ordinary Shares.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes &#9744; <ix:nonNumeric contextRef="c0" name="dei:EntityWellKnownSeasonedIssuer">No</ix:nonNumeric> &#9746;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes &#9744; <ix:nonNumeric contextRef="c0" name="dei:EntityVoluntaryFilers">No</ix:nonNumeric> &#9746;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. <ix:nonNumeric contextRef="c0" name="dei:EntityCurrentReportingStatus">Yes</ix:nonNumeric> &#9746; No &#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). <ix:nonNumeric contextRef="c0" name="dei:EntityInteractiveDataCurrent">Yes</ix:nonNumeric> &#9746; No &#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of &#8220;large accelerated filer,&#8221; accelerated filer,&#8221; and &#8220;emerging growth company&#8221;
in Rule 12b-2 of the Exchange Act.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top"> <td style="font: 10pt Times New Roman, Times, Serif; width: 25%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Large accelerated filer </span></td> <td style="font: 10pt Times New Roman, Times, Serif; width: 35%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9744;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; width: 30%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Accelerated filer</span></td> <td style="font: 10pt Times New Roman, Times, Serif; width: 10%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9744;</span></td></tr> <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top"> <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><ix:nonNumeric contextRef="c0" format="ixt-sec:entityfilercategoryen" name="dei:EntityFilerCategory"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Non-accelerated filer</span></ix:nonNumeric></td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9746;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Emerging growth company </span></td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><ix:nonNumeric contextRef="c0" format="ixt:fixed-true" name="dei:EntityEmergingGrowthCompany"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9746;</span></ix:nonNumeric></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. <ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:EntityExTransitionPeriod">&#9744;</ix:nonNumeric></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">&#8224;</td><td style="text-align: justify">The term &#8220;new or revised financial accounting standard&#8221;
refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">If securities are registered pursuant to Section 12(b)
of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. &#9744;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant&#8217;s
executive officers during the relevant recovery period pursuant to &#167;240.10D-1(b). &#9744;</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="font: 10pt Times New Roman, Times, Serif"> <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top; width: 14%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="-sec-ix-hidden: hidden-fact-1">U.S. GAAP</span> &#9746;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; width: 1%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; width: 72%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">International Financial Reporting Standards as issued by the International Accounting Standards Board &#9744;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; width: 1%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td> <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top; width: 12%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Other &#9744;</span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">*</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
    &#8220;Other&#8221; has been checked in response to the previous question, indicate by check mark which financial statement item
    the registrant has elected to follow. Item 17 &#9744; Item 18 &#9744;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes &#9744; No <ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:EntityShellCompany">&#9746;</ix:nonNumeric></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant has filed a report on and attestation to its management&#8217;s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. Yes &#9744; No <ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:IcfrAuditorAttestationFlag">&#9746;</ix:nonNumeric></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><!-- Field: Rule-Page --><div style="width: 100%"><div style="font-size: 1pt; border-top: Black 1pt solid; border-bottom: Black 2pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="width: 100%">&#160;</td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>&#160;</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>TABLE
OF CONTENTS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif; vertical-align: top"><a href="#m_001"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">INTRODUCTION</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ii</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif; vertical-align: top"><a href="#m_002"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PART I</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 10%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; width: 82%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; width: 8%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    1.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_003"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    2.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_004"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">OFFER STATISTICS AND EXPECTED TIMETABLE</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    3.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_005"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">KEY INFORMATION</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    4.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_006"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">INFORMATION ON THE COMPANY</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">53</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    4A.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_007"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">UNRESOLVED STAFF COMMENTS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">126</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    5.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_008"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">OPERATING AND FINANCIAL REVIEW AND PROSPECTS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">126</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    6.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_009"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">140</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    7.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_010"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">151</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    8.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_011"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FINANCIAL INFORMATION</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">154</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    9.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_012"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">THE OFFER AND LISTING</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">155</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    10.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_013"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ADDITIONAL INFORMATION</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">155</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    11.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_014"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">163</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    12.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_015"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">163</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif; vertical-align: top"><a href="#m_016"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PART II</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">164</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    13.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_017"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">164</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    14.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_018"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">164</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    15.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_019"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">CONTROLS AND PROCEDURES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">164</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top">&#160;</td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom">&#160;</td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">&#160;</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_020">RESERVED</a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">166</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16A.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_021"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">AUDIT COMMITTEE FINANCIAL EXPERT</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">166</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16B.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_022"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">CODE OF ETHICS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">166</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16C.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_023"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PRINCIPAL ACCOUNTANT FEES AND SERVICES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">166</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16D.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_024"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16E.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_025"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16F.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_026"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">CHANGE IN REGISTRANT&#8217;S CERTIFYING ACCOUNTANT</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16G.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_027"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">CORPORATE GOVERNANCE</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16H.&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_028"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">MINE SAFETY DISCLOSURE</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    16I.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: justify"><a href="#m_029"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM 16J. </span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><a href="#m_030"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">INSIDER TRADING POLICIES</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">167</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif; vertical-align: top"><a href="#m_031"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PART III</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">169</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    17.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_032"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FINANCIAL STATEMENTS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">169</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    18.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_033"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FINANCIAL STATEMENTS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">169</td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; ">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ITEM
    19.</span></td>
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom"><a href="#m_034"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">EXHIBITS</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; text-align: center">169</td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 2; Options: NewSection; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: LowerRoman; Name: PageNo -->i<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="m_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INTRODUCTION</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Unless
otherwise indicated, numerical figures included in this Annual Report on Form 20-F (the &#8220;Annual Report&#8221;) have been subject
to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures
that precede them.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
the sake of clarity, this Annual Report follows the English naming convention of first name followed by last name, regardless of whether
an individual&#8217;s name is Chinese or English. Numerical figures included in this Annual Report have been subject to rounding adjustments.
Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
Certain market data and other statistical information contained in this Annual Report are based on information from independent industry
organizations, publications, surveys and forecasts. Some market data and statistical information contained in this Annual Report are
also based on management&#8217;s estimates and calculations, which are derived from our review and interpretation of the independent
sources listed above, our internal research and our knowledge of the PRC information technology industry. While we believe such information
is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent
source.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">All
    references to &#8220;RMB,&#8221; &#8220;yuan&#8221; and &#8220;Renminbi&#8221; are to the legal currency of China, all references
    to &#8220;HKD&#8221; is to the legal currency of Hong Kong, and all references to &#8220;USD,&#8221; and &#8220;U.S. dollars&#8221;
    are to the legal currency of the United States.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;China&#8221;
    and &#8220;PRC&#8221; refer to the People&#8217;s Republic of China, excluding, for the purposes of this Annual Report only, Macau,
    Taiwan and Hong Kong; </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Class
    A Ordinary Shares&#8221; refers to our Class A ordinary shares, $0.0001 par value per share;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Class
    B Ordinary Shares&#8221; refers to our Class B ordinary shares, $0.0001 par value per share;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Controlling
    Shareholder&#8221; refers to Mr. Weiguang Yang, the CEO of the Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Unless
    specifically described otherwise, as used in this prospectus and in the context of describing our consolidated financial information
    the terms &#8220;we,&#8221; &#8220;us,&#8221; &#8220;our company,&#8221; &#8220;our&#8221;, &#8220;Zhongchao&#8221; and &#8220;Zhongchao
    Cayman&#8221; refer to Zhongchao Inc., a Cayman Islands company, and its subsidiaries, consolidated affiliated companies and the
    PRC operating entities, as the context required;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Hainan
    Muxin&#8221; refers to Hainan Muxin Medical Technology Co., Ltd., a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Horgos
    Zhongchao Medical&#8221; refers to Horgos Zhongchao Medical Technology Co., Ltd., a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Horgos
    Zhongchao Zhongxing&#8221; refers to Horgos Zhongchao Zhongxing Medical Technology Co., Ltd., a PRC company.</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Hainan
    Zhongteng&#8221; refers to Hainan Zhongteng Medical Technology Co., Ltd., a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;mobile
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    mobile app or Sunshine Health Forums from mobile end at least once during a month. The numbers of the PRC operating entities&#8217;
    mobile MAUs are calculated using internal company data that has not been independently verified, and the PRC operating entities treat
    each distinguishable device IP address as a separate user for purposes of calculating mobile MAUs, although inaccuracy may result
    from the possibility that one mobile device may have more than one IP addresses;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;monthly
    UVs&#8221; of MDMOOC website, MDMOOC.org, or the website of PRC operating entities&#8217; Sunshine Health Forums, ygjkclass.com,
    are to the number of unique IP address that various internet browsers apply to access our websites, from either PC end or mobile
    end, at least once during a month. The numbers of PRC operating entities&#8217; monthly UVs of PRC operating entities&#8217; websites&#160;are
    calculated using internal company data that has not been independently verified, and the PRC operating entities treat each distinguishable
    IP address as a separate user for purposes of calculating monthly UVs, although inaccuracy may result from the possibility that some
    individuals may have more than one IP address and/or share the same IP address with other individuals to access PRC operating entities&#8217;
    platform.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 3; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: LowerRoman; Name: PageNo -->ii<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Shanghai
    Jingyi&#8221; or &#8220;Shanghai Zhongxin&#8221; refers to Shanghai Zhongxin Medical Technology Co., Ltd., a PRC company, which was
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    as Shanghai Zhongxin on November19, 2020.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Shanghai
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Shanghai
    Xingban&#8221; refers to Shanghai Xingban Enterprise Management Partnership (Limited Partnership), a PRC limited partnership.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Shanghai
    Xingzhong&#8221; refers to Shanghai Xingzhong Investment Management LP, a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Shanghai
    Zhongxun&#8221; refers to Shanghai Zhongxun Medical Technology Co., Ltd., a PRC company.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Xinjiang
    Pharmaceutical&#8221; refers to Chongqing Xinjiang Pharmaceutical Co., Ltd., a PRC company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Zhongchao
    BVI&#8221; refers to Zhongchao Group Inc., a British Virgin Island company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Zhongchao
    HK&#8221; refers to Zhongchao Group Limited, a Hong Kong company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Zhongchao
    Shanghai&#8221; refers to Zhongchao Medical Technology (Shanghai) Co., Ltd., a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Zhongchao
    WFOE&#8221; refers to Beijing Zhongchao Zhongxing Technology Limited, a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Beijing
    Boya&#8221; refers to Beijing Zhongchao Boya Medical Technology Co., Ltd., a PRC company.</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Beijing
    Yisuizhen&#8221; refers to Beijing Yisuizhen Technology Co., Ltd., a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;Liaoning
    Zhixun&#8221; refers to Zhixun Internet Hospital (Liaoning) Co., Ltd., a PRC company.</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#8220;West
    Angel&#8221; refers to West Angel (Beijing) Health Technology Co., Ltd., a PRC company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Discrepancies
in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">This
Annual Report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2022 and 2021.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Unless otherwise noted,
all currency figures in this filing are in U.S. dollars. Any discrepancies in any table between the amounts identified as total
amounts and the sum of the amounts listed therein are due to rounding. Our reporting currency is U.S. dollar and the&#160; <span style="font-family: Times New Roman, Times, Serif">functional
currencies for the subsidiaries, the VIE and the VIE&#8217;s subsidiaries are</span>&#160;<span style="font-family: Times New Roman, Times, Serif">Renminbi,
Japanese yen and U.S. dollar. This Annual Report contains translations of certain foreign currency amounts into U.S. dollars for the
convenience of the reader. Other than in accordance with relevant accounting rules and as otherwise stated, all translations of
Renminbi into U.S. dollars, and of Japan yen into U.S. dollar in this Annual Report were made at the rate of RMB 6.8972 to USD1.00
and JPY 115.1700 to USD1.00, respectively, the noon mid rates on December 30, 2022, as set forth in the H.10 statistical release of
the U.S. Federal Reserve Board. Where we make period-on-period comparisons of operational metrics, such calculations are based on
the Renminbi amount or Japan yen, and not the translated U.S. dollar equivalent. We make no representation that the Renminbi, Japan
yen or U.S. dollar amounts referred to in this Annual Report could have been or could be converted into U.S. dollars or Renminbi or
Japan yen, as the case may be, at any particular rate or at all.</span>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


</div><!-- Field: Page; Sequence: 4; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: LowerRoman; Name: PageNo -->iii<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>&#160;</b></span></p><div>

</div><div><a id="m_002"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Part
I</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="m_003"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Item
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
Applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="m_004"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Item
2. OFFER STATISTICS AND EXPECTED TIMETABLE</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
Applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="m_005"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Item
3. KEY INFORMATION</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Contractual
Arrangements between the Zhongchao WFOE and Zhongchao Shanghai</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Zhongchao
Inc. (the &#8220;Company&#8221; or &#8220;Zhongchao Cayman&#8221;) is an offshore holding company incorporated in the Cayman Islands.
As a holding company with no material operations of our own, we, through the contractual arrangements (the &#8220;Contractual Arrangements&#8221;),
between Beijing Zhongchao Zhongxing Technology Limited (&#8220;Zhongchao WFOE&#8221;), a wholly subsidiary of Zhongchao Cayman incorporated
in the PRC, and a variable interest entity (the &#8220;VIE&#8221;), Zhongchao Medical Technology (Shanghai) Co., Ltd. (&#8220;Zhongchao
Shanghai&#8221;) and its subsidiaries or collectively &#8220;the PRC operating entities&#8221;, consolidate the financial results of
the PRC operating entities. Due to the restrictions imposed by PRC laws and regulations on foreign ownership of companies engaged in
value-added telecommunication services and certain other businesses, we operate our businesses in which foreign investment is restricted
or prohibited in the PRC through certain PRC domestic companies. Accordingly, the Contractual Arrangements are designed to allow Zhongchao
Cayman to consolidate Zhongchao Shanghai&#8217;s operations and financial results in Zhongchao Cayman&#8217;s financial statements in
accordance with U.S.&#160;GAAP as the primary beneficiary. Neither we nor our subsidiaries own any equity interests in the PRC operating
entities. See &#8220;Item 3. Key Information &#8212; A. History and Development of the Company &#8212; VIE Arrangements&#8221; for more
information.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
we chose such VIE structure, we are subject to certain unique risks and uncertainties that may not otherwise exist if we had direct equity
ownership in the PRC operating entities. Because we do not directly hold equity interests in the VIE and its subsidiaries, our Contractual
Arrangements may not be effective in providing control over Zhongchao Shanghai. Further, we are subject to risks due to uncertainty of
the interpretation and the application of the PRC laws and regulations, including but not limited to limitations on foreign ownership
and regulatory review of overseas listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the
Contractual Arrangements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard
that could disallow the VIE structure, which would likely result in a material change in our operations and cause the value of our Class
A Ordinary Shares to decrease significantly or become worthless. However, as of the date of this Annual Report, the agreements under
the Contractual Arrangements have not been tested in any courts of law. For a description of the VIE contractual arrangements, see &#8220;Item
3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Our Corporate Structure&#8212; <i>We conduct our business through Zhongchao
Shanghai and its subsidiaries by means of VIE Arrangements. If the PRC courts or administrative authorities determine that these VIE
Arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected.
In addition, changes in such PRC laws and regulations may materially and adversely affect our business</i>&#8221; and &#8220;Item 3.
Key Information&#8212;D. Risk Factors&#8212;Risks Related to Related to Doing Business in China &#8212; <i>The Chinese government exerts
substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval
from Chinese authorities to list on U.S. exchanges nor for the execution of VIE agreements, however, if the VIE or the holding company
were required to obtain approval and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to
continue listing on U.S. exchange or continue to offer securities to investors, which could materially affect the interest of the investors
and cause the value of our Class A Ordinary Shares to significantly decline or be worthless</i>.&#8221;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Permission
Required from the PRC Authorities to Issue Our Securities to Foreign Investors</b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PRC
laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks may result
in a material change in our operations, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance
of our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline
or be worthless. The Chinese government may intervene or influence the operations of the PRC operating entities at any time and may exert
more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change
in the operations of the PRC operating entities and/or the value of our Class A Ordinary Shares. Further, any actions by the Chinese
government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers
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 be 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 the use of variable interest entities for overseas listing, adopting new measures to extend
the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. On February 17, 2023, the China Securities
Regulatory Commission (the &#8220;CSRC&#8221;) promulgated the Trial Administrative Measures of the Overseas Securities Offering and
Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which became effective on March 31, 2023. According
to the Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly
and indirectly, should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure or conceals
any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties;
(2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas
offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities
of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer&#8217;s audited
consolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places
of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens
or are domiciled in China; (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer
shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted
to the CSRC within three business days after the submission of the overseas offering and listing application; and (4) if the issuer issues
securities in the same overseas market after the initial issuance and listing, it shall submit filings with the CSRC within three business
days after the completion of the issuance. Further, at the press conference held for the Trial Measures on February 17, 2023, officials
from the CSRC clarified that the PRC domestic companies that have already been listed overseas on or before the effective date of the
Trial Measures, March 31, 2023, shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete
the filing procedures immediately but shall carry out filing procedures as required if they conduct refinancing or are involved in other
circumstances that require filing with the CSRC. The officials from the CSRC have also confirmed that for the PRC domestic companies
that seek to list overseas with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the filing
of the overseas listing of companies with VIE structure which meet the compliance requirements. As the Trial Measures were newly published,
there are substantial uncertainties as to the implementation and interpretation, and how they will affect our current listing, and future
offering or financing. If we are required by the Trial Measures for any future offering or any other financing activities to file with
the CSRC, we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure of us to
fully comply with new regulatory requirements may significantly limit or completely hinder our ability to continue to offer our Class
A Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and adversely
affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become
worthless. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212; Risks Related to Doing Business in China&#8212;<i>We face
risks associated with uncertainties surrounding the PRC laws and regulations governing the education industry in general, and the online
for-profit private training in particular</i>&#8221; &#8220;&#8212; <i>We may be liable for improper use or appropriation of personal
information provided by our customers</i>&#8221; &#8220;<i>&#8212; New rules for China-based companies seeking for securities offerings
in foreign stock markets was released by the CSRC recently. The Chinese government may exert more oversight and control over overseas
public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to offer or continue
to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares to significantly decline or
become worthless.&#8221;</i> for more information.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Permission
Required from the PRC Authorities for Our and PRC Operating Entities&#8217; Operation in China.</b>&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of the date of this Annual Report, except as disclosed in this Annual Report, we, or the PRC operating entities are not required to obtain
any other permission or approval from the PRC authorities for our operation in China, nor have we, or the PRC operating entities, received
any denial for our operation in China. Given the uncertainties of interpretation and implementation of relevant laws and regulations
and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or
approvals in the future. If any of the PRC operating entities is found to be in violation of any existing or future PRC laws or regulations,
or fail to obtain or maintain any of the requisite licenses and permits, the relevant PRC regulatory authorities would have broad discretion
to take action in dealing with such violations or failures. In addition, if any of the PRC operating entities had inadvertently concluded
that such licenses, permits, registrations or filings were not required, or if applicable laws, regulations or interpretations change
in a way that requires any of the PRC operating entities to obtain such licenses, permits, registrations or filings in the future, the
relevant PRC operating entities may be unable to obtain such necessary licenses, permits, registrations or filings in a timely manner,
or at all, and such licenses, permits, registrations or filings may be rescinded even if obtained. Any such circumstance may subject
the relevant PRC operating entities to fines and other regulatory, civil or criminal liabilities, and the relevant PRC operating entities
may be ordered by the competent government authorities to suspend relevant operations, which will materially and adversely affect our
business operations. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212; Risks Related to Doing Business in China&#8212;<i>The
PRC operating entities&#8217; failure to obtain, maintain or renew other licenses, approvals, permits, registrations or filings necessary
to conduct their operations in China could have a material adverse impact on our business, financial conditions and results of operations.</i>&#8221;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have been advised by our PRC legal counsel, Han Kun Law Offices, based on their understanding of the current PRC laws, rules and regulations,
that (i) the structure for operating our business in China (including our corporate structure and VIE Arrangements with Zhongchao Shanghai,
Zhongchao Shanghai and their shareholders), as of the date of this Annual Report, do not result in any violation of PRC laws or regulations
currently in effect; and (ii) the Contractual Arrangements among Zhongchao WFOE and Zhongchao Shanghai and their shareholders governed
by PRC law are valid, binding and enforceable in accordance with the terms of each of the VIE Arrangements, and do not result in any
violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and
application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect
on the legality, binding effect and enforceability of the Contractual Arrangements. In particular, we cannot rule out the possibility
that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take
a view that is inconsistent with the opinion of our PRC legal counsel.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Dividend
Distributions or Transfers of Cash among the Holding Company, Its Subsidiaries, and the Consolidated VIE</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
the year ended December 31, 2022, Zhongchao Cayman made cash transfer of $1.5 million to Zhongchao USA. For the year ended December 31,
2021, Zhongchao Cayman made cash transfer of $3.4 million to Zhongchao USA. Except as otherwise disclosed above, for the years ended
December 31, 2022 and 2021, no other cash transfer or transfer of other assets have occurred between Zhongchao Cayman, its subsidiaries,
the consolidated VIE and the subsidiaries of the VIE. &#160;&#160;For the years ended December 31, 2022 and 2021, none of our subsidiaries,
the consolidated VIE, or the subsidiaries of the VIE have made any dividends or distributions to Zhongchao Cayman. For the years ended
December 31, 2022 and 2021, no dividends or distributions have been made to any U.S. investors.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
intend to keep any future earnings to re-invest in and finance the expansion of the business of the PRC operating entities, and we do
not anticipate that any cash dividends will be paid in the foreseeable future. Under Cayman Islands law, a Cayman Islands company may
pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if
this would result in the Company being unable to pay its debts due in the ordinary course of business. If we determine to pay dividends
on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong
subsidiary, Zhongchao Group Limited (&#8220;Zhongchao HK&#8221;), unless we receive proceeds from future offerings.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Zhongchao
WFOE&#8217;s ability to distribute dividends is based upon its distributable earnings. Current PRC regulations permit our indirect PRC
subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits
each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China
may also set aside a portion of its after-tax profits to fund an optional employee welfare fund, although the amount to be set aside,
if any, is determined at the discretion of its board of shareholders. Although the statutory reserves can be used, among other ways,
to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve
funds are not distributable as cash dividends except in the event of liquidation.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC.
Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency
for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future,
the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are
unable to receive all of the revenues from our operations through the current Contractual Arrangements, we may be unable to pay dividends
on our Class A Ordinary Shares.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Cash
dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for
tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject
to PRC withholding tax at a rate of up to 10.0%.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
order for us to pay dividends to our shareholders, we will rely on payments made from Zhongchao Shanghai to Zhongchao WFOE, pursuant
to the Contractual Arrangements between them, and the distribution of such payments to Zhongchao HK as dividends from Zhongchao WFOE.
Certain payments from the VIE, Zhongchao Shanghai, to Zhongchao WFOE are subject to PRC taxes, including business taxes and value added
tax.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Pursuant
to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax
Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident
enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements
must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends;
and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months
preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong
Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident
certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant
Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends
to be paid by our PRC subsidiary to its immediate holding company, Zhongchao HK. As of the date of this Annual Report, we have not applied
and have no plan to apply for the tax resident certificate from the relevant Hong Kong tax authority. See &#8220;Item 3. Key Information&#8212;D.
Risk Factors&#8212; Risks Related to Doing Business in China&#8212;<i>Governmental control of currency conversion may limit our ability
to use our revenues effectively and the ability of our PRC subsidiaries to obtain financing</i>.&#8221;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Further,
any transfer of funds by us to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject
to PRC regulations. Capital contributions to our PRC subsidiaries are subject to the approval of or filing with the Ministry of Commerce
of the People&#8217;s Republic of China, or the MOFCOM, in its local branches and registration with a local bank authorized by the China&#8217;s
State Administration of Foreign Exchange, or the SAFE. Any foreign loan procured by our PRC subsidiaries is required to be registered
or filed with the SAFE or its local branches or satisfy relevant requirements as provided by the SAFE. Any medium- or long-term loan
to be provided by us to the VIEs must be registered with the National Development and Reform Commission, or the NDRC, and the SAFE or
its local branches. We may not be able to obtain these government approvals or complete such registrations on a timely basis, if at all,
with respect to future capital contributions or foreign loans by us to our PRC subsidiaries. If we fail to receive such approvals or
complete such registration or filing, our ability to use the proceeds of our financing activities and to capitalize our PRC operations
may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. See &#8220;Item
3. Key Information&#8212;D. Risk Factors&#8212; Risks Related to Doing Business in China&#8212;<i>PRC regulation of loans and direct
investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the initial public offering
or any subsequent offerings to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely
affect our liquidity and our ability to fund and expand our business</i>.&#8221;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Financial
Information Related to the VIE</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following tables present selected condensed consolidated statements of income and comprehensive income, and cash flows for the years
ended December 31, 2022 and 2021, and the selected condensed consolidated balance sheets as of December 31, 2022 and 2021, which showing
financial information for parent company, Zhongchao Cayman, its subsidiaries (Zhongchao Group Inc. (&#8220;Zhongchao BVI&#8221;), Zhongchao
HK, Zhongchao USA, Zhongchao Japan and Zhongchao WFOE), the VIE and its subsidiaries, eliminating entries and consolidated information.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Selected
Condensed Consolidated Balance Sheets Data</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="18" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">December 31, 2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Parent</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">6,772,988</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">16,906,213</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(16,906,213</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">5,595,080</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(1,978,357</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">21,930,542</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">33,019,265</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="18" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">December 31, 2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">9,218,883</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">9,218,883</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">3,758,618</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">5,128,653</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">21,022,642</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(21,022,642</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">754,645</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">3,168,441</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">3,923,086</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">21,022,642</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">1,207,046</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">7,806,698</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">9,013,744</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left; padding-bottom: 1.5pt">Amount due from the Company and its subsidiaries</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font-weight: bold; text-align: left; padding-bottom: 4pt">Total Assets</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">3,700,998</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">32,566,422</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">32,566,422</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">36,267,420</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 9; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->5<!-- Field: /Sequence --></td></tr></table></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Selected
Condensed Consolidated Statements of Operations Data</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">14,151,516</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Share of loss of subsidiaries, VIE and VIE&#8217;s subsidiaries</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(2,919,423</td><td style="text-align: left">)</td><td>&#160;</td>
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    <td style="text-align: left">$</td><td style="text-align: right">2,919,423</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">$</td><td style="text-align: right">(2,940,891</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(1,373,555</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(1,427,296</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">2,919,423</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="18" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the year ended December 31, 2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">VIE and its <br/> Subsidiaries</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; width: 40%">Revenues</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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    <td style="text-align: left">$</td><td style="text-align: right">266,775</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">$</td><td style="text-align: right">238,665</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(572,063</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">838,838</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(266,775</td><td style="text-align: left">)</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom">
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    the year ended December 31, 2020</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>VIE
    and its <br/>
    Subsidiaries</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td colspan="2" style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif; width: 40%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Revenues</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">17,989,788</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">17,989,788</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Share
    of income of subsidiaries, VIE and VIE&#8217;s subsidiaries</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">4,470,613</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(4,470,613</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Net
    income (loss)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">4,458,380</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(13,416</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(4,470,613</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">4,458,380</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Selected
Condensed Consolidated Cash Flows Data</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="18" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the year ended December 31, 2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Subsidiaries</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Elimination</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Total</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 40%; text-align: left; text-indent: -9pt; padding-left: 9pt">Net cash provided by (used in) operating activities</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">139,309</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">(1,198,586</td><td style="width: 1%; text-align: left">)</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">397,537</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">(661,740</td><td style="width: 1%; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Net cash used in investing activities</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(1,638,455</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(509,185</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(2,837,473</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">1,638,455</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(3,346,658</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Net cash provided by financing activities</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">1,850,744</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">1,638,455</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">(1,638,455</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right">1,850,744</td><td style="text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 10; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->6<!-- Field: /Sequence --></td></tr></table></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: left">$</td><td style="text-align: right">(820,982</td><td style="text-align: left">)</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">$</td><td style="text-align: right">11,497,654</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">$</td><td style="text-align: right">11,497,654</td><td style="text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A.
<span style="text-decoration:underline">[Reserved]</span></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">B.
<span style="text-decoration:underline">Capitalization and Indebtedness</span></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">C.
<span style="text-decoration:underline">Reasons for the Offer and Use of Proceeds</span></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">D.
<span style="text-decoration:underline">Risk Factors</span></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 11; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY
OF RISK FACTORS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>You
should carefully consider the following risk factors, together with all of the other information included in this Annual Report. Investment
in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other
information included in this Annual Report before making an investment decision. The risks and uncertainties described below represent
our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results
of operations could suffer. In that case, you may lose all or part of your investment.</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Risks
Related to the Business and Industry of the PRC Operating Entities</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Risks
and uncertainties related to the business and industry of the PRC operating entities include, but are not limited to, the following:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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    PRC operating entities may not be able to prevent others from unauthorized use of the PRC operating entities&#8217; intellectual
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Risks
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
are also subject to risks and uncertainties related to our corporate structure, including, but not limited to, the following:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

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    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    dual class structure of our ordinary shares has the effect of concentrating voting control with our CEO, directors and their affiliates.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
    depend upon the VIE Arrangements in consolidating the financial results of the PRC operating entities, which may not be as effective
    as direct ownership.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
    conduct our business through Zhongchao Shanghai and its subsidiaries by means of VIE Arrangements. If the PRC courts or administrative
    authorities determine that these VIE Arrangements do not comply with applicable regulations, we could be subject to severe penalties
    and our business could be adversely affected. In addition, changes in such PRC laws and regulations may materially and adversely
    affect our business.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    shareholders of the VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our
    business and financial condition.</span></td></tr>
  </table><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Risks
Related to Doing Business in China</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
WFOE and the PRC operating entities are based in China, and the PRC operating entities have all of their operations in China, and therefore,
we face risks and uncertainties related to doing business in China in general, including, but not limited to, the following:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    majority of the PRC operating entities&#8217; business operations are conducted in China. Accordingly, the PRC operating entities&#8217;
    business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments
    in China. See &#8220;Risk Factor &#8212; <i>Adverse changes in political, economic and other policies of the Chinese government could
    have a material adverse effect on the overall economic growth of China, which could materially and adversely affect the growth of
    the PRC operating entities&#8217; business and their competitive position</i>.&#8221; on page 19 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy
    through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including
    those relating to taxation, environmental regulations, land use rights, property and other matters. See &#8220;Risk Factor &#8212;
    <i>The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently
    not required to obtain approval from Chinese authorities to list on U.S. exchanges nor for the execution of VIE agreements, however,
    if the VIE or the holding company were required to obtain approval and were denied permission from Chinese authorities to list on
    U.S. exchanges, we will not be able to continue listing on U.S. exchange or continue to offer securities to investors, which could
    materially affect the interest of the investors and cause the value of our Class A Ordinary Shares to significantly decline or be
    worthless</i>.&#8221; on page 35 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
    the PRC operating entities fail to comply with any regulatory requirements, including obtaining any required licenses, approvals,
    permits or filings in a timely manner or at all, the PRC operating entities&#8217; continued business operations may be disrupted
    and the PRC operating entities may be subject to various penalties or be unable to continue their operations, all of which will materially
    and adversely affect our business, financial condition and results of operations. See &#8220;Risk Factor &#8212; <i>We face risks
    associated with uncertainties surrounding the PRC laws and regulations governing the education industry in general, and the online
    for-profit private training in particular</i>.&#8221; on page 34 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">There
    are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited
    to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain
    circumstances. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
    See &#8220;Risk Factor&#160;&#8212; <i>PRC laws and regulations governing our current business operations are sometimes vague and
    uncertain and any changes in such laws and regulations may impair our ability to operate profitably</i>.&#8221; on page 36 of this
    Annual Report.</span></td></tr>
  </table><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Circular
    on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents&#8217; Offshore Investment and Financing and Roundtrip
    Investment Through Special Purpose Vehicles, or SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate
    entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register
    with SAFE or its local branches in connection with their direct or indirect offshore investment activities. See &#8220;Risk Factor&#160;&#8212;
    <i>PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident
    shareholders to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit
    our PRC subsidiary ability to distribute profits to us, or otherwise materially and adversely affect us</i>.&#8221; on page 47 of
    this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    PRC government imposes control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of
    currency out of China. We receive a majority of our revenues in Renminbi, which currently is not a freely convertible currency. See
    &#8220;Risk Factor &#8212; <i>Governmental control of currency conversion may limit our ability to use our revenues effectively and
    the ability of our PRC subsidiaries to obtain financing</i>.&#8221; on page 49 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
    December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public
    accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However,
    whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered
    in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor&#8217;s,
    control. The Consolidated Appropriations Act contained, among other things, an identical provision to the AHFCAA, which reduces the
    number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two. See
    &#8220;Risk Factor &#8212; <i>The recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and
    the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market
    companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
    These developments could add uncertainties to our offering</i>.&#8221; on page 38 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    business of the PRC operating entities involves collecting and retaining certain internal and customer data. We also maintain information
    about various aspects of our operations as well as regarding our employees. We may be deemed as a data processor under the Data Security
    Management Regulations Draft and may be subject to the cybersecurity review in connection with our continuing listing abroad because,
    as of the date of this Annual Report, the MDMOOC online platform has more than 219,825 registered users and a database of approximately
    109,721 healthcare experts.&#160; See &#8220;Risk Factor&#160;&#8212; <i>We may be liable for improper use or appropriation of personal
    information provided by our customers</i>.&#8221; on page 42 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
    majority of the operations of the PRC operating entities conducted outside of the U.S. In addition, our management consists of five
    officers who are all located in China and three independent directors, among which two are located in the United States and one is
    located in China. As a result, it may not be possible for the U.S. regulators to conduct investigations or inspections, or to effect
    service of process within the U.S. or elsewhere outside the U.S. See &#8220;Risk Factor &#8212; <i>U.S. regulators&#8217; ability
    to conduct investigations or enforce rules in China is limited.</i>&#8221; on page 45 of this Annual Report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>RISKS
RELATED TO THE BUSINESS AND INDUSTRY OF THE PRC OPERATING ENTITIES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>The
PRC operating entities may be unable to effectively manage their rapid growth, which could place significant strain on their management
personnel, systems and resources. The PRC operating entities may not be able to achieve anticipated growth, which could materially and
adversely affect their business and prospects.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
PRC operating entities significantly expanded their business recently. In September 2022, Zhongchao announced its new strategic extension
of the business model from &#8220;Medical-Pharmaceutical&#8221; to &#8220;Medical-Pharmaceutical-Patient&#8221; for patients with oncology
and other major diseases to meet patients&#8217; different medical health needs. In 2021, the PRC operating entities&#8217; business
and operation was impacted by the COVID-19 pandemic and local governmental restrictions in response to the pandemic and to the medical
related products, so the revenues and net income decreased. For the fiscal years ended December 31, 2022 and 2021 and 2020, our revenues
were $14,151,516, $16,296,770, and $17,989,788, respectively, and our net (loss) income were $(2,822,319), $238,665, and $4,457,097,
respectively. As of the date of this Annual Report, Zhongchao Shanghai maintains 12 subsidiaries&#160;and 4 branches, of which are located
in China (Beijing, Shanghai, Hainan, Liaoning and Chongqing) to serve different customers in various geographic locations. On March 26,
2020, the board of Horgos Zhongchao Medical, one of the wholly-owned subsidiaries of Zhongchao Shanghai, approved its dissolution. The
application for cancellation registration was approved by the registration authority on May 11, 2020. Horgos Zhongchao Zhongxing Medical
Technology Co., Ltd., or Horgos Zhongchao Zhongxing, one of the wholly-owned subsidiaries of Zhongchao Shanghai, applied for its cancellation
registration, which was approved on September 16, 2020.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition, on April 27, 2020, Beijing Zhongchao Boya Medical Technology Co., Ltd., or Beijing Boya was incorporated under the PRC
laws, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its equity was entrusted to Zhongchao Shanghai by the
other shareholder Shanghai Lingzhong Enterprise Management Partnership, LLP (&#8220;Shanghai Lingzhong&#8221;) through a share
entrustment agreement on December 1, 2021. Beijing Boya is primarily engaged in technology development, transfer, and service, and
consultation in the fields of medical technology and computer technology, market information consulting and investigating, and
organization of culture and art activities. On October 12, 2020, two shareholders of Shanghai Jingyi Medical Technology Co., Ltd.,
or Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr. Weiguang Yang holds 49% of
Shanghai Jingyi&#8217;s equity and Zhongchao Shanghai holds 51% of its equity. On November 19, 2020, Shanghai Jingyi changed its
name to Shanghai Zhongxin Medical Technology Co., Ltd., or Shanghai Zhongxin. Shanghai Zhongxun Medical Technology Co., Ltd., or
Shanghai Zhongxun holds 51% of the equity interest of Shanghai Zhongxin, and, through certain entrustment agreements, Mr. Weiguang
Yang, Beijing Zhongchao Yixin Management Consulting Partnership, LLP (&#8220;Zhongchao Yixin&#8221;), and Beijing Zhongren Yixin
Management Consulting Partnership, LLP (&#8220;Zhongren Yixin&#8221;), hold 19%, 20% and 10% of the equity interest of Shanghai
Zhongxin on behalf of Shanghai Zhongxun, respectively. On August 2, 2022, Mr. Weiguang Yang transferred certain parts of his shares
of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of the equity interest of Shanghai
Zhongxin, and Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin&#8217;s equity interest. On July 6, 2020, Zhixun Internet Hospital
(Liaoning) Co., Ltd., or Liaoning Zhixun was incorporated under the PRC laws and wholly owned by Shanghai Zhongxun. Liaoning Zhixun
primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services,
healthcare consultation in services, sales of medical appliances and other medical products. On January 11, 2021, Shanghai Zhongxun
transferred its whole equity ownership of Liaoning Zhixun to Shanghai Zhonxin, and as a result, Shanghai Zhongxin becomes the sole
shareholder of Liaoning Zhixun.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
January 13, 2021, Shanghai Xinyuan Human Resources Co., Ltd., or Shanghai Xinyuan, was incorporated under the PRC laws, as the wholly
owned subsidiary of Shanghai Zhongxin. Shanghai Xinyuan is primarily engaged in human resources services and information consulting services.
On May 18, 2021, Ningxia Zhongxin Internet Hospital Co., Ltd., or Ningxia Zhongxin, was incorporated under the PRC laws, whose sole shareholder
is Shanghai Zhongxin. Ningxia Zhongxin will be engaged in operating an online hospital to provide online medical service, including online
consultation, prescription information services, and medication retails. On July 16, 2021, Hainan Zhongteng Medical Technology Co., Ltd.,
or Hainan Zhongteng, was incorporated under the PRC laws, as the wholly owned subsidiary of Beijing Boya. Hainan Zhongteng is primarily
engaged in healthcare consulting services. On July 21, 2021, Hainan Muxin Medical Technology Co., Ltd., or Hainan Muxin, was incorporated
under the PRC laws, as the wholly owned subsidiary of Shanghai Zhongxin. Hainan Muxin is primarily engaged in healthcare consulting services.
On August 19, 2021 pursuant to an equity transfer agreement, Shanghai Zhongxin agrees to transfer all of its equity interest of Liaoning
Zhixun to Beijing Boya. As a result, Liaoning Zhixun is wholly owned by Beijing Boya. On October 9, 2022, Ningxia Zhongxin submitted
the application for cancellation registration to local administration for market regulation, and the application was approved on the
same day.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of the date of this Annual Report, the PRC entities have 109 full-time employees and a few contractors from the third party. In September
2020, the PRC operating entities established an office in Tianjin as the offices for medical service staff and technic staff. In October
2020, the PRC operating entities established an office in Japan and will pursue potential market opportunities there. In 2021, as the
PRC operating entities had been seeking business expansion countrywide, in consideration of cost, uncertainty of the COVID-19 development,
and governmental restriction in response to COVID-19, the PRC operating entities established additional offices at shared workspace in
7 cities (Chongqing, Tianjin, Wuhan, Shenyang, Chengdu, Shijiazhuang and Changde) accommodating a total of 27 employees as of the date
of this Annual Report. The rent for these offices at shared workspace is payable monthly or semi-annually, and the leases thereunder
could be terminated with advanced notice. &#160;Zhongchao Shanghai and its subsidiaries are actively looking for additional locations
to establish new offices and expand their current offices and sales and delivery centers. The PRC operating entities intend to continue
their expansion in the foreseeable future to pursue existing and potential market opportunities. The PRC operating entities&#8217; growth
has placed and will continue to place significant demands on their management and administrative, operational and financial infrastructure.
Continued expansion increases the challenges the PRC operating entities face in:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">recruiting,
    training, developing and retaining sufficient IT talents and management personnel;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">creating
    and capitalizing upon economies of scale;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">managing
    a larger number of customers in a greater number locations;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">maintaining
    effective oversight of personnel and offices;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">coordinating
    work among offices and project teams and maintaining high resource utilization rates;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">integrating
    new management personnel and expanded operations while preserving the PRC operating entities&#8217; culture and core values;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">developing
    and improving the PRC operating entities&#8217; internal administrative infrastructure, particularly its financial, operational,
    human resources, communications and other internal systems, procedures and controls; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">adhering
    to and further improving the PRC operating entities&#8217; high quality and process execution standards and maintaining high levels
    of client satisfaction.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Moreover,
as the PRC operating entities introduce new services or enter into new markets, the PRC operating entities may face new market, technological
and operational risks and challenges with which they are unfamiliar, and it may require substantial management efforts and skills to
mitigate these risks and challenges. As a result of any of these problems associated with expansion, the PRC operating entities&#8217;
business, results of operations and financial condition could be materially and adversely affected. Furthermore, the PRC operating entities
may not be able to achieve anticipated growth, which could materially and adversely affect their business and prospects.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>We
depend on the healthcare industry for a significant portion of our revenues.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our revenues could seriously
decrease if there were adverse developments in the healthcare industry. Our near-term and long-term prospects depend upon selling the
PRC operating entities&#8217; services to the healthcare industry. In 2022, 33.1% of our revenues were derived from services provided
to pharmaceutical enterprises. Accordingly, our success is highly dependent on the sales and marketing expenditures of pharmaceutical
enterprises and The PRC operating entities&#8217; ability to attract these expenditures. Some of the adverse developments in the healthcare
industry that could affect our revenues would be:</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">a
    reduction in sales and marketing expenditures of pharmaceutical enterprises;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">public
    or private market initiatives or reforms designed to regulate the manner in which pharmaceutical enterprises promote their products;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">regulatory
    or legislative developments that discourage or prohibit pharmaceutical enterprises&#8217; promotional activities;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">a
    decrease in the number of new drugs being developed; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the
    adoption of current legislative and regulatory proposals to control drug costs for patients.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>The
PRC operating entities face intense competition from onshore and offshore healthcare information, education, and training services companies,
and, if the PRC operating entities are unable to compete effectively, the PRC operating entities may lose customers and our revenues
may decline.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
market for healthcare information, education, and training services is highly competitive and the PRC operating entities expect competition
to persist and intensify. We believe that the principal competitive factors in the PRC operating entities&#8217; markets are industry
expertise, breadth and depth of service offerings, quality of the services offered, reputation and track record, marketing and selling
skills, scalability of infrastructure and price. In addition, the trend towards offshore outsourcing, international expansion by foreign
and domestic competitors and continuing technological changes will result in new and different competitors entering our markets. the
PRC operating entities&#8217; ability to compete also depends in part on a number of factors beyond the PRC operating entities&#8217;
control, including the ability of the PRC operating entities&#8217; competitors to recruit, train, develop and retain highly skilled
professionals, the price at which the PRC operating entities&#8217; competitors offer comparable services and the PRC operating entities&#8217;
competitors&#8217; responsiveness to client needs. Therefore, we cannot assure you that the PRC operating entities will be able to retain
their customers while competing against such competitors. Increased competition, the PRC operating entities&#8217; inability to compete
successfully against competitors, pricing pressures or loss of market share could harm the PRC operating entities&#8217; business, financial
condition and results of operations.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Our
success depends substantially on the continuing efforts of the PRC operating entities&#8217; senior executives and other key personnel,
and the PRC operating entities&#8217; business may be severely disrupted if they lose their services.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
future success heavily depends upon the continued services of the PRC operating entities&#8217; senior executives and other key employees.
If one or more of the PRC operating entities&#8217; senior executives or key employees are unable or unwilling to continue in their present
positions, it could disrupt the PRC operating entities&#8217; business operations, and the PRC operating entities may not be able to
replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and the PRC
operating entities may be unable to retain their senior executives and key personnel or attract and retain new senior executive and key
personnel in the future, in which case the PRC operating entities&#8217; business may be severely disrupted, and our financial condition
and results of operations may be materially and adversely affected. If any of the PRC operating entities&#8217; senior executives or
key personnel joins a competitor or forms a competing company, the PRC operating entities may lose customers, suppliers, know-how and
key professionals and staff members to them. Also, if any of the PRC operating entities&#8217; business development managers, who generally
keep a close relationship with the PRC operating entities&#8217; customers, joins a competitor or forms a competing company, the PRC
operating entities may lose customers, and our revenues may be materially and adversely affected. Additionally, there could be unauthorized
disclosure or use of the PRC operating entities&#8217; technical knowledge, practices or procedures by such personnel. Most of the PRC
operating entities&#8217; executives and key personnel have entered into employment agreements with us that contain non-competition provisions,
non-solicitation and nondisclosure covenants. However, if any dispute arises between the PRC operating entities&#8217; executive officers
and key personnel and us, such non-competition, non-solicitation and non-disclosure provisions might not provide effective protection
to us, especially in China, where most of these executive officers and key employees reside, in light of the uncertainties with China&#8217;s
legal system.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>The
PRC operating entities may be unable to maintain their existing relationships with their content providers or to build new relationships
with other content providers.</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
success depends significantly on the PRC operating entities&#8217; ability to maintain the PRC operating entities&#8217; existing relationships
with the third parties who provide healthcare information, education, and training content for the PRC operating entities&#8217; library
and courses and the PRC operating entities&#8217; ability to build new relationships with other content partners. Most of the PRC operating
entities&#8217; agreements with content providers are on a case-by-case basis. The PRC operating entities generate their resource library
of content providers, most of whom are healthcare experts working in leading Chinese hospital or well-known universities. Every time
the PRC operating entities have a need for content production, they will search in their resource library and reach out to the relevant
experts for content production. Upon the completion of the content production, they will send over a standard form of service order to
the experts evidencing such completion and ask for their best ways for the service payment. The PRC operating entities&#8217; content
partners usually receive their service payment within one week after the PRC operating entities receive the signed copies of the service
orders. If a significant number of the PRC operating entities&#8217; content providers refuse to cooperate with us, it could result in
a reduction in the number of courses the PRC operating entities are able to produce and decreased revenues. Most of the PRC operating
entities&#8217; agreements with the PRC operating entities&#8217; content partners are also non-exclusive, and the PRC operating entities&#8217;
competitors offer, or could offer, healthcare information, education, and training content that is similar to or the same as the PRC
operating entities. If the PRC operating entities&#8217; current content partners offer information to users or the PRC operating entities&#8217;
competitors on more favorable terms than those offered to us or increase the PRC operating entities&#8217; service fees, the PRC operating
entities&#8217; competitive position and our profit margins and prospects could be harmed. In addition, the failure by The PRC operating
entities&#8217; content partners to deliver high-quality content and to continuously upgrade their content in response to user demand
and evolving healthcare advances and trends could result in user dissatisfaction and inhibit the PRC operating entities&#8217; ability
to attract users.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>If
the PRC operating entities fail to provide high-quality and reliable content in a cost-effective manner, they may not be able to attract
and retain users to remain competitive.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
success depends on the PRC operating entities&#8217; ability to maintain and grow user engagement on the PRC operating entities&#8217;
platform. To attract and retain users and compete against the PRC operating entities&#8217; competitors, the PRC operating entities must
continue to offer high-quality and reliable content to provide the PRC operating entities&#8217; users with a superior healthcare information,
education, and training service experience. To this end, the PRC operating entities must continue to produce original content and source
new professional and user-generated content in a cost effective manner. Given that they operate in a rapidly evolving industry, the PRC
operating entities need to anticipate industry changes and respond to such changes timely and effectively. If the PRC operating entities
fail to continue to offer high-quality and reliable content to their users, we may suffer from reduced user traffic and engagement, and
their business, financial condition and results of operations may be materially and adversely affected.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition to content generated by the PRC operating entities&#8217; users and content partners, the PRC operating entities rely on their&#160;in-house&#160;team
to create original content and to edit, manage, and supervise the original content origination and production process, and the PRC operating
entities intend to continue to invest resources in content production. The PRC operating entities face competition for qualified personnel
in a limited pool of high-quality creative talent. If the PRC operating entities are not able to compete effectively for talents or attract
and retain top talents at reasonable costs, their original content production capabilities would be negatively impacted. Any deterioration
in the PRC operating entities&#8217;&#160;in-house&#160;content production capability, inability to attract creative talents at reasonable
costs or losses in personnel may materially and adversely affect the PRC operating entities&#8217; business and operating results.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>We
generate a significant portion of our revenues from a relatively small number of major customers and loss of business from these customers
could reduce our revenues and significantly harm the PRC operating entities&#8217; business.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
believe that in the foreseeable future we will continue to derive a significant portion of our revenues from a small number of major
customers.&#160;For the year ended December 31, 2022, one customer accounted for approximately 15.9% of the total revenue. For the year
ended December 31, 2021, three customers accounted for approximately 23.4%, 21.9%, and 10.7% of the total revenue, respectively. For
the year ended December 31, 2020, two customers accounted for approximately 26.9% and 19.7% of the total revenue, respectively. The PRC
operating entities&#8217; ability to maintain close relationships with these and other major customers is essential to the growth and
profitability of the PRC operating entities&#8217; business. However, the volume of work performed for a specific client is likely to
vary from year to year, especially when the PRC operating entities are not their customers&#8217; exclusive healthcare information, education,
and training services provider and the PRC operating entities do not have long-term commitments from any of their customers to purchase
the PRC operating entities&#8217; services. A major client in one year may not provide the same level of revenues for the PRC operating
entities in any subsequent year. The healthcare information, education, and training services the PRC operating entities provide to their
customers, and the revenues and income from those services, may decline or vary as the type and quantity of healthcare information, education,
and training services the PRC operating entities provide changes over time. In addition, The PRC operating entities&#8217; reliance on
any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us
when negotiating contracts and terms of service. In addition, a number of factors other than The PRC operating entities&#8217; performance
could cause the loss of or reduction in business or revenues from a client, and these factors are not predictable. These factors may
include corporate restructuring, pricing pressure, changes to its outsourcing strategy, switching to another services provider or returning
work in-house. In the future, a small number of customers may continue to represent a significant portion of our total revenues in any
given period. The loss of any of The PRC operating entities&#8217; major customers could adversely affect our financial condition and
results of operations.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>We
expect competition to increase significantly in the future which could reduce the PRC operating entities&#8217; revenues, potential profits
and overall market share.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
market for traditional and online healthcare information, education, and training services is competitive. Barriers to entry on the Internet
are relatively low, and we expect competition to increase significantly in the future. The PRC operating entities face competitive pressures
from certain actual and potential competitors, both online and onsite, many of which have longer operating histories, greater brand name
recognition, larger user bases and significantly greater financial, technical and marketing resources than the PRC operating entities
do. We cannot assure you that healthcare information, education, and training education services maintained by the PRC operating entities&#8217;
existing and potential competitors will not be perceived by the healthcare community as being superior to the PRC operating entities&#8217;.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>The
PRC operating entities may be unable to adequately develop their systems, processes and support in a manner that will enable them to
meet the demand for the PRC operating entities&#8217; services.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
PRC operating entities have initiated their online operations in the recent 10 years and are developing its ability to provide its courses
and education systems on a transactional basis over the Internet. The PRC operating entities&#8217; future success will depend on their
ability to develop the infrastructure effectively, including additional hardware and software, and implement the services, including
customer support, necessary to meet the demand for the PRC operating entities&#8217; services. In the event the PRC operating entities
are not successful in developing the necessary systems and implementing the necessary services on a timely basis, our revenues could
be adversely affected, which would have a material adverse effect on our financial condition.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>The
PRC operating entities may lose business if they are unable to keep up with rapid technological or other changes.</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
the PRC operating entities are unable to keep up with changing technology and other factors related to their market, they may be unable
to attract and retain users and advertisers, which would reduce our revenues. The markets in which the PRC operating entities compete
are characterized by rapidly changing technology, evolving technological standards in the industry, frequent new service and product
announcements and changing consumer demands. the PRC operating entities&#8217; future success will depend on the PRC operating entities&#8217;
ability to adapt to these changes and to continuously improve the performance, features and reliability of the PRC operating entities&#8217;
service in response to competitive services and product offerings and the evolving demands of the marketplace. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to incur substantial
expenditures to modify or adapt the PRC operating entities&#8217; services or infrastructure, which might impact the PRC operating entities&#8217;
ability to become or remain profitable.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><b><i>If the PRC operating
entities are unable to collect their receivables from their customers, our results of operations and cash flows could be adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">The
PRC operating entities&#8217; business depends on their ability to successfully obtain payment from their customers of the amounts they
owe us for work performed. As of December 31, 2022 and 2021, our accounts receivable balance amounted to approximately $6,772,988 and
$9,218,883, respectively. As of December 31, 2022 and 2021, we had doubtful allowance of $207,269 and $nil against accounts receivable.
For the years ended December 31, 2022, 2021 and 2020, we wrote off $543,315, $1,449,827 and $336,367,
respectively, against accounts receivable. Since the PRC operating entities generally do not require collateral or other security from
their customers, they establish an allowance for doubtful accounts based upon estimates, historical experience and other factors surrounding
the credit risk of specific customers. However, actual losses on client receivables balance could differ from those that we anticipate
and as a result we might need to adjust their allowance. There is no guarantee that we will accurately assess the creditworthiness of
the PRC operating entities&#8217; customers. Macroeconomic conditions, including related turmoil in the global financial system, could
also result in financial difficulties for the PRC operating entities&#8217; customers, including limited access to the credit markets,
insolvency or bankruptcy, and as a result could cause customers to delay payments to us, request modifications to their payment arrangements
that could increase our receivables balance, or default on their payment obligations to us. As a result, an extended delay or default
in payment relating to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts
receivable. If the PRC operating entities are unable to collect their receivables from their customers in accordance with the contracts
with the PRC operating entities&#8217; customers, our results of operations and cash flows could be adversely affected.</span></p><div>



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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The growth and success of the PRC operating
entities&#8217; business depends on their ability to anticipate and develop new services and enhance existing services in order to keep
pace with rapid changes in technology and in the industries they focus on</i></b><i>.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The market for the PRC operating
entities&#8217; services is characterized by rapid technological change, evolving industry standards, changing client preferences and
new product and service introductions. The PRC operating entities&#8217; future growth and success depend significantly on their ability
to anticipate developments in healthcare information, education, and training services, and develop and offer new product and service
lines to meet their customers&#8217; and end-users&#8217; evolving needs. The PRC operating entities may not be successful in anticipating
or responding to these developments in a timely manner, or if they do respond, the services or technologies they develop may not be successful
in the marketplace. The development of some of the services and technologies may involve significant upfront investments and the failure
of these services and technologies may result in the PRC operating entities&#8217; being unable to recover these investments, in part
or in full. Further, services or technologies that are developed by the PRC operating entities&#8217; competitors may render the PRC operating
entities&#8217; services uncompetitive or obsolete. In addition, new technologies may be developed that allow the PRC operating entities&#8217;
customers to more cost-effectively perform the services that they provide, thereby reducing demand for the PRC operating entities&#8217;
services. Should the PRC operating entities fail to adapt to the rapidly changing healthcare information, education, and training services
market or if they fail to develop suitable services to meet the evolving and increasingly sophisticated requirements of the PRC operating
entities&#8217; customers in a timely manner, the PRC operating entities&#8217; business and results of operations could be materially
and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If the PRC operating entities do not succeed
in attracting new customers for their services or growing revenues from existing customers, they may not achieve our revenue growth goals.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
plan to significantly expand the number of customers they serve to diversify their client base and grow our revenues. Revenues from a
new client often rise quickly over the first several years following the PRC operating entities&#8217; initial engagement as they expand
the services that they provide to that client. Therefore, obtaining new customers is important for them to achieve rapid revenue growth.
The PRC operating entities also plan to grow revenues from their existing customers by identifying and selling additional services to
them. The PRC operating entities&#8217; ability to attract new customers, as well as their ability to grow revenues from existing customers,
depends on a number of factors, including the PRC operating entities&#8217; ability to offer high quality services at competitive prices,
the strength of the PRC operating entities&#8217; competitors and the capabilities of the PRC operating entities&#8217; sales and marketing
teams. If the PRC operating entities are not able to continue to attract new customers or to grow revenues from their existing customers
in the future, we may not be able to grow our revenues as quickly as we anticipate or at all.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>As a result of the PRC operating entities&#8217;
significant recent growth, evaluating their business and prospects may be difficult and the PRC operating entities&#8217; past results
may not be indicative of its future performance.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our future success depends
on the PRC operating entities&#8217; ability to significantly increase revenue and maintain profitability from the PRC operating entities&#8217;
operations. The PRC operating entities&#8217; business has grown and evolved significantly in recent years. The PRC operating entities&#8217;
growth in recent years makes it difficult to evaluate their historical performance and make a period-to-period comparison of the PRC operating
entities&#8217; historical operating results less meaningful. The PRC operating entities may not be able to achieve a similar growth rate
or maintain profitability in future periods. Therefore, you should not rely on our past results or our historic rate of growth as an indication
of The PRC operating entities&#8217; future performance. You should consider our future prospects in light of the risks and challenges
encountered by a company seeking to grow and expand in a competitive industry that is characterized by rapid technological change, evolving
industry standards, changing client preferences and new product and service introductions. These risks and challenges include, among others:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; font-size: 10pt">&#160;</td>
    <td style="width: 0.25in; text-align: justify; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the uncertainties associated with the PRC operating entities&#8217; ability to continue their growth and maintain profitability;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">responding in a timely manner to technological or other changes in the healthcare information, education, and training services industry;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">managing risks associated with intellectual property; and</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">If the PRC operating entities
are unsuccessful in addressing any of these risks or challenges, their business may be materially and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; profitability
will suffer if they are not able to maintain their resource utilization levels or continue to improve their productivity levels.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our gross margin and profitability
are significantly impacted by the PRC operating entities&#8217; utilization of human resources as well as other resources, such as computers,
IT infrastructure and office space, and the PRC operating entities&#8217; ability to increase their productivity levels. The PRC operating
entities have expanded their operations significantly in recent years through organic growth, which has resulted in a significant increase
in the PRC operating entities&#8217; headcount and fixed overhead costs. The PRC operating entities may face difficulties maintaining
high levels of utilization, especially for their newly established businesses and resources. The framework agreements with some of the
PRC operating entities&#8217; customers typically do not impose a minimum or maximum purchase amount and allow the PRC operating entities&#8217;
customers to place service orders from time to time at their discretion. Customers demand is varied and it may fall to zero or surge to
a level that the PRC operating entities cannot cost-effectively satisfy. Although the PRC operating entities try to use all commercially
reasonable efforts to accurately estimate service orders and resource requirements from their customers, we may overestimate or underestimate,
which may result in unexpected cost and strain or redundancy of their human capital and adversely effects on their utilization ability.
The PRC operating entities&#8217; ability to continually increase their productivity levels depends significantly on their ability to
recruit, train, develop and retain high-performing professionals, staff projects appropriately and optimize their mix of services and
delivery methods. If the PRC operating entities experience a slowdown or stoppage of work for any client or on any project for which they
have dedicated professionals or facilities, they may not be able to efficiently reallocate these professionals and facilities to other
customers and projects to keep their high utilization and productivity levels. If the PRC operating entities are not able to maintain
high resource utilization levels without corresponding cost reductions or price increases, their profitability will suffer.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Increases in wages for professionals in
China could prevent the PRC operating entities from sustaining their competitive advantage and could reduce our profit margins.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Part of the PRC operating entities&#8217;
most significant costs are the salaries and other compensation expenses for their medical professionals and other employees. Wage costs
for professionals in China are lower than those in more developed countries and India. However, because of rapid economic growth, increased
productivity levels, and increased competition for skilled employees and consultants in China, wages for highly skilled employees in China,
in particular middle- and senior-level managers, are increasing at a faster rate than in the past. The PRC operating entities may need
to increase the levels of employee and consultant compensation more rapidly than in the past to remain competitive in retaining the quality
and attracting number of employees that the PRC operating entities&#8217; business requires. Increases in the wages and other compensation
the PRC operating entities pay their employees and consultants in China could reduce their competitive advantage unless they are able
to increase the efficiency and productivity of their professionals as well as the prices the PRC operating entities can charge for their
services. In addition, any appreciation in the value of the Renminbi relative to U.S. dollar and other foreign currencies will cause an
increase in the relative wage levels in China, which could further reduce the PRC operating entities&#8217; competitive advantage and
adversely impact their profit margin.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities must continue
to upgrade their technology infrastructure, or they will be unable to effectively meet demand for their services.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
must continue to add hardware and enhance software to accommodate the increasing content in their library and increasing use of their
websites, mobile apps, and WeChat accounts. In order to make timely decisions about hardware and software enhancements, the PRC operating
entities must be able to accurately forecast the growth in demand for their services. This growth in demand for their services could be
difficult to forecast and the potential audience of their services is large. If the PRC operating entities are unable to increase the
data storage and processing capacity of their systems at least as fast as the growth in demand, the PRC operating entities&#8217; systems
may become unstable and may fail to operate for unknown periods of time. Unscheduled downtime could harm the PRC operating entities&#8217;
business and also could discourage current and potential end users and reduce future revenues.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; data and
web server systems may stop working or work improperly due to natural disasters, failure of third-party services and other unexpected
problems.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">An unexpected event like a
power or telecommunications outage, fire, flood or earthquake at the PRC operating entities&#8217; on-site data facility or at their Internet
service providers&#8217; facilities could cause the loss of critical data and prevent us from offering their services. Currently the PRC
operating entities don&#8217;t have any business interruption insurance to compensate us for losses that may occur. In addition, the PRC
operating entities rely on third parties to securely store their archived data, house their Web server and network systems and connect
them to the Internet. The failure by any of these third parties to provide these services satisfactorily and the PRC operating entities&#8217;
inability to find suitable replacements would impair the PRC operating entities&#8217; ability to access archives and operate their systems.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; computer
networks may be vulnerable to security risks that could disrupt their services and adversely affect their results of operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities&#8217;
computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems caused by unauthorized
access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate
proprietary information or cause interruptions or malfunctions in the PRC operating entities&#8217; operations. Although the PRC operating
entities intend to continue to implement security measures, computer attacks or disruptions may jeopardize the security of information
stored in and transmitted through the PRC operating entities&#8217; computer systems. Actual or perceived concerns that the PRC operating
entities&#8217; systems may be vulnerable to such attacks or disruptions may deter their customers from using their platforms or services.
As a result, the PRC operating entities may be required to expend significant resources to protect against the threat of these security
breaches or to alleviate problems caused by these breaches.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Data networks are also vulnerable
to attacks, unauthorized access and disruptions. For example, in a number of public networks, hackers have bypassed firewalls and misappropriated
confidential information. It is possible that, despite existing safeguards, an employee could misappropriate the PRC operating entities&#8217;
customers&#8217; proprietary information or data, exposing us to a risk of loss or litigation and possible liability. Losses or liabilities
that are incurred as a result of any of the foregoing could have a material adverse effect on the PRC operating entities&#8217; business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities may lose users
and lose revenues if their cyber security measures fail.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">If the security measures that
the PRC operating entities use to protect personal information are ineffective, the PRC operating entities may lose users of their services,
which could reduce our revenues. The PRC operating entities rely on security and authentication technology licensed from third parties.
The PRC operating entities cannot predict whether these security measures could be circumvented by new technological developments. In
addition, the PRC operating entities&#8217; software, databases and servers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. The PRC operating entities may need to spend significant resources to protect against security breaches
or to alleviate problems caused by any breaches. We cannot assure you that the PRC operating entities can prevent all cyber security breaches.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We depend significantly on the strength
of the PRC operating entities&#8217; brand and reputation. Any failure to maintain and enhance, or any damage to, the PRC operating entities&#8217;
brand image or reputation could materially and adversely affect the PRC operating entities&#8217; business, results of operations, financial
condition and prospects.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities&#8217;
reputation and brand recognition, which depend on cultivating awareness, trust and confidence among their current or potential users,
is critical to the success of the PRC operating entities&#8217; business. We believe a well-recognized brand is crucial to increasing
the PRC operating entities&#8217; user base and, in turn, facilitating the PRC operating entities&#8217; effort to monetize their services
and enhancing their attractiveness to their users and service providers. The PRC operating entities&#8217; reputation and brand are vulnerable
to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations,
lawsuits and other claims in the ordinary course of the PRC operating entities&#8217; business, perceptions of conflicts of interest and
rumors, including complaints made by the PRC operating entities&#8217; competitors, among other things, could substantially damage the
PRC operating entities&#8217; reputation, even if they are baseless or satisfactorily addressed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In addition, any perception
that the quality of the PRC operating entities&#8217; healthcare information, education, and training services may not be the same as
or better than that of other healthcare information, education, and training service platforms can damage the PRC operating entities&#8217;
reputation. Any negative media publicity about any of the services available on the PRC operating entities&#8217; platform or product
or service quality problems at other healthcare training service platforms, including at the PRC operating entities&#8217; competitors,
may also negatively impact the PRC operating entities&#8217; reputation and brand. Negative perceptions of healthcare information, education,
and training solutions and services, or the industry in general, may reduce the number of users coming to the PRC operating entities&#8217;
platform and the number of transactions conducted through the PRC operating entities&#8217; platform, which would adversely impact our
revenues and liquidity position.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities may not be able
to prevent others from unauthorized use of the PRC operating entities&#8217; intellectual property, which could cause a loss of customers,
reduce the PRC operating entities&#8217; revenues and harm their competitive position.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
rely on a combination of copyright, trademark, software registration, anti-unfair competition and trade secret laws, as well as confidentiality
agreements and other methods to protect their intellectual property rights. To protect the PRC operating entities&#8217; trade secrets
and other proprietary information, employees, customers, subcontractors, consultants, advisors and collaborators are required to enter
into confidentiality agreements. These agreements might not provide effective protection for the trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary
information. Implementation of intellectual property-related laws in China has historically been lacking, primarily because of ambiguities
in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may
not be as effective as those in the United States or other developed countries, and infringement of intellectual property rights continues
to pose a serious risk of doing business in China. Policing unauthorized use of proprietary technology is difficult and expensive. The
steps the PRC operating entities have taken may be inadequate to prevent the misappropriation of their proprietary technology. Unauthorized
copying, other misappropriation, or negligent or accidental leakage of the PRC operating entities&#8217; proprietary technologies could
enable third parties to benefit from the PRC operating entities&#8217; technologies without obtaining their consent or paying them for
doing so, which could harm the PRC operating entities&#8217; business and competitive position. Though the PRC operating entities are
not currently involved in any litigation with respect to intellectual property, they may need to enforce their intellectual property rights
through litigation. Litigation relating to the PRC operating entities&#8217; intellectual property may not prove successful and might
result in substantial costs and diversion of resources and management attention.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities may face intellectual
property infringement claims that could be time-consuming and costly to defend. If the PRC operating entities fail to defend themselves
against such claims, they may lose significant intellectual property rights and may be unable to continue providing their existing services.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities&#8217;
success largely depends on their ability to use and develop their technology and services without infringing the intellectual property
rights of third parties, including copyrights, trade secrets and trademarks. The PRC operating entities may be subject to risk related
to potential infringement claims of the copyrights, as the copyrights of the PRC operating entities&#8217; some medical education courses
developed by us belong to their customers or share with their customers based on agreements. For example, pursuant to the Copyright Law
of the PRC, providing the public with works by wired or wireless means, so as to make the public able to respectively obtain the works
at the individually selected time and place, without permission from the owner of the copyrights therein shall constitute infringements
of copyrights. The infringer shall, according to the circumstances of the case, undertake to cease the infringement, take remedial action,
and offer an apology, pay damages, etc. The PRC operating entities may be subject to litigation involving claims of violation of other
intellectual property rights of third parties. The PRC operating entities may be unaware of intellectual property registrations or applications
relating to their services that may give rise to potential infringement claims against us. There may also be technologies licensed to
and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties which may damage the
PRC operating entities&#8217; ability to rely on such technologies. The PRC operating entities are subject to additional risks as a result
of their hiring of new employees who may misappropriate intellectual property from their former employers. Parties making infringement
claims may be able to obtain an injunction to prevent us from delivering their services or using technology involving the allegedly infringing
intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management&#8217;s attention
from the PRC operating entities&#8217; business. A successful infringement claim against us, whether with or without merit, could, among
others things, require us to pay substantial damages, develop non-infringing technology, or re-brand the PRC operating entities&#8217;
name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing
or using products that have infringed a third party&#8217;s intellectual property rights. Protracted litigation could also result in existing
or potential customers deferring or limiting their purchase or use of the PRC operating entities&#8217; products until resolution of such
litigation, or could require us to indemnify their customers against infringement claims in certain instances. Any intellectual property
claim or litigation in this area, whether they ultimately win or lose, could damage their reputation and have a material adverse effect
on our business, results of operations or financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Disruptions in telecommunications or significant
failure in the PRC operating entities&#8217; IT systems could harm their service model, which could result in a reduction of our revenue.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">A significant element of the
PRC operating entities&#8217; business strategy is to continue to leverage and expand their branches strategically located in China. We
believe that the use of a strategically located network of branches will provide us with cost advantages, the ability to attract highly
skilled personnel in various regions of the country and the world, and the ability to serve customers on a regional and global basis.
Part of the PRC operating entities&#8217; service model is to maintain active voice and data communications, financial control, accounting,
customer service and other data processing systems between the PRC operating entities&#8217; main offices in Shanghai, locations of the
PRC operating entities&#8217; customers, and other branches and support facilities of the PRC operating entities. The PRC operating entities&#8217;
business activities may be materially disrupted in the event of a partial or complete failure of any of these IT or communication systems,
which could be caused by, among other things, software malfunction, computer virus attacks, conversion errors due to system upgrading,
damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry or other events beyond their control. Loss of
all or part of the systems for a period of time could hinder the PRC operating entities&#8217; performance or their ability to complete
client projects on time which, in turn, could lead to a reduction of our revenue or otherwise have a material adverse effect on the PRC
operating entities&#8217; business and business reputation. The PRC operating entities may also be liable to their customers for breach
of contract for interruptions in service.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities may be liable
to third parties for content that is available from their online library.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
may be liable to third parties for the content in the PRC operating entities&#8217; online library if the text, graphics, software or
other content in their library violates copyright, trademark, or other intellectual property rights, the PRC operating entities&#8217;
content partners violate their contractual obligations to others by providing content to the PRC operating entities&#8217; library or
the content does not conform to accepted standards of care in the healthcare profession. The PRC operating entities may also be liable
for anything that is accessible from their Website through links to other Websites. The PRC operating entities attempt to minimize these
types of liabilities by requiring representations and warranties relating to their content partners&#8217; ownership of, the rights to
distribute as well as the accuracy of their content. The PRC operating entities also take necessary measures to review this content themselves.
Although the PRC operating entities&#8217; agreements with their content partners contain provisions providing for indemnification by
the content providers in the event of inaccurate content, we cannot assure you that the PRC operating entities&#8217; content partners
will have the financial resources to meet this obligation. Alleged liability could harm the PRC operating entities&#8217; business by
damaging their reputation, requiring them to incur legal costs in defense, exposing them to awards of damages and costs and diverting
management&#8217;s attention away from the PRC operating entities&#8217; business. See &#8220;Business -- Intellectual Property Rights&#8221;
for a more complete discussion of the potential effects of this liability on the PRC operating entities&#8217; business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Any reduction in the regulation of continuing
education and training in the healthcare industry may adversely affect the PRC operating entities&#8217; business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities&#8217;
business model is dependent in part on required training and continuing education for healthcare professionals and other healthcare workers
resulting from regulations of Chinese Health Department. Any change in these regulations which reduce the demands for continuing education
and training for the healthcare industry could harm the PRC operating entities&#8217; business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may need additional capital and any failure
by us to raise additional capital on terms favorable to us, or at all, could limit the PRC operating entities&#8217; ability to grow their
business and develop or enhance their service offerings to respond to market demand or competitive challenges.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">We believe that our current
cash, cash flow from operations and the proceeds from our initial public offering should be sufficient to meet our anticipated cash needs
for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash
requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities
could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could
require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital
on acceptable terms is subject to a variety of uncertainties, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">our future results of operations and financial condition;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PRC government regulation of foreign investment in China;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">economic, political and other conditions in China; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PRC government policies relating to the borrowing and remittance outside China of foreign currency.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Financing may not be available
in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could
limit the PRC operating entities&#8217; ability to grow their business and develop or enhance their product and service offerings to respond
to market demand or competitive challenges.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The impact of the continued outbreak of
COVID-19 on the Company&#8217;s business operations is currently uncertain.&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The business operations of
the PRC operating entities have been be adversely affected by the effects of a widespread outbreak of contagious disease, including the
recent outbreak of respiratory illness caused by a novel&#160;coronavirus&#160;known as&#160;COVID-19&#160;which was first reported in
the City of Wuhan, Hubei, China. The PRC operating entities offices are located in Shanghai and Beijing, China, where any outbreak of
contagious diseases and other adverse public health developments could be adverse on the PRC operating entities&#8217; business operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The ongoing outbreak of the&#160;COVID-19
was first reported on December 31, 2019 in City of Wuhan, Hubei, China and was recognized as a pandemic by the World Health Organization
(WHO) on March 11, 2020. In late January 2020, the local governments of Beijing and Shanghai released a stop order on all activities that
involved public gatherings. In response to the COVID-19 outbreak, the PRC operating entities advised all employees to work from home from
mid-January to early April 2020, as such PRC operating entities were able to continue servicing its customers with minimum interruption.
All of the PRC operating entities&#8217; employees are well equipped and prepared for the remote work situations even before the outbreak.
Although the PRC operating entities were unable to adhere to original delivery timeliness of certain projects due to the strict movement
restrictions imposed by the government, the PRC operating entities have managed to convert certain onsite training and education programs
to online programs and timely deliver the updated training information to their customers and users.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In the wake of the COVID-19
sweeping across the world, the PRC operating entities have also been closely monitoring the fluid and rapidly evolving situation. Since
mid-January 2021, the Company, through its MDMOOC platform (www.MDMOOC.org), has successfully developed and launched coronavirus curriculum
(the &#8220;Curriculum&#8221;) with over 60 courses covering a wide range of medical specialties. The Curriculum includes 1) free online
courses developed independently by the Company and 2) customized courses developed through partnership/sponsorship with leading pharmaceutical
companies and not-for-profit organizations (the &#8220;Partners and Sponsors&#8221;). The curriculum has been successively distributed
through the PRC operating entities&#8217; web portals, mobile APP, WeChat subscription accounts, as well as social media channels, providing
much-needed help to the medical workers who are at the forefront of the fight against the coronavirus.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">With prevention and control
measures and vaccination, the COVID-19 was gradually controlled. In the struggle to prevent and control the pandemic, the vast number
of medical workers have taken on the responsibility of treating diseases, relieving pain and maintaining the health of the patients, all
of these strengthened their demand for new knowledge and skills. Under the pandemic situation, people&#8217;s life and work are greatly
affected, and the desire for health knowledge is increasing day by day, which will stimulate the demand for medical education. Marketing
activities of pharmaceutical companies have also gradually resumed and increased investment in medical education.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Zhongchao generates a vast
majority of its revenues from medical and education training courses delivered through online portals. For the fiscal years ended December
31, 2022, 2021, and 2020, , we generated net revenues of $14,151,516, $16,296,770, and $17,989,788, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">As it continues to spread globally,
the impact of COVID-19, including the effects of a subvariant of the Omicron variant of COVID-19, which may spread faster than the original
Omicron variant, as well as the effects of any new variants and subvariants which may develop, including any actions taken by governments,&#160;on
the economy environment, market condition, the financial position of the PRC operating entities&#8217; customers as well as Company&#8217;s
operations, business and financial results is currently uncertain and could be adverse. In March 2022, due to the spread of new variants
and subvariants&#160;of COVID-19, which may spread faster than the original COVID-19 variant in Shanghai and some other cities in China,
some local government in China has imposed strict movement restrictions. In the mid-March 2022, the Shanghai authorities issued strict
lock-downs and shut-down orders in response to the pandemic. As a result, the employees of the PRC operating entities located in Shanghai
started to work from home. From March through June 2022, Shanghai was subject to a two-month lockdown policy, where retail stores were
closed, and people were required to stay at home. Starting on May 6, 2022, due to the new order from the Beijing authorities in response
to the COVID-19, the office of the PRC operating entities in Beijing started to limit the number of the employees at office to 10 people,
and the other employees started to work from home. As a result, businesses, including our customers were not able to conduct normal business
operations during the lock-down period. We witnessed a decrease of revenues during April through June 2022, and a delay of collection
of receivables from the PRC operating entities&#8217; NFP customers. In addition, in 2022, because of the COVID related restriction, the
PRC operating entities&#8217; customers were impacted to reduced their patient-aid projects, so the PRC operating entities&#8217; revenues
generated from patient management services decreased approximately $1,054,741 accordingly. As of the date of this Annual Report, the PRC
government lifted its restrictive measures and policies in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif">China
began to modify its zero-COVID policy in late 2022, and most of the travel restrictions and quarantine requirements were lifted in December
2022. As a result, there were significant surges of COVID-19 cases in many cities in China during this time from December
2022 to March 2023. </span>&#160;<span style="font-family: Times New Roman, Times, Serif">Further, there is also uncertainty if
the new variants and subvariants of COVID-19 will spread to other cities in China where the PRC operating entities&#8217; offices located
or what restrictive measures that local authorities may impose. However, based on the current situation, the Company does not expect a
significant impact on the Company&#8217;s operations and financial results in the long run.&#160;&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Fluctuation in the value of the Renminbi
and other currencies may have a material adverse effect on the value of your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our financial statements are
expressed in U.S. dollars. However, a majority of our revenues and expenses are denominated in Renminbi (RMB). Our exposure to foreign
exchange risk primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity. We
do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign
currencies or any other derivative financial instruments. However, the value of your investment in our Class A Ordinary Shares will be
affected by the foreign exchange rate between U.S. dollars and RMB because the primary value of the PRC operating entities&#8217; business
is effectively denominated in RMB, while the Class A Ordinary Shares will be traded in U.S. dollars.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The value of the RMB against
the U.S. dollar and other currencies is affected by, among other things, changes in China&#8217;s political and economic conditions and
China&#8217;s foreign exchange policies. The People&#8217;s Bank of China regularly intervenes in the foreign exchange market to limit
fluctuations in RMB exchange rate and achieve certain exchange rate targets, and through such intervention kept the U.S. dollar-RMB exchange
rate relatively stable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">As we may rely on dividends
paid to us by our PRC subsidiaries and branches, any significant revaluation of the RMB may have a material adverse effect on our revenues
and financial condition, and the value of any dividends payable on our Class A Ordinary Shares in foreign currency terms. For example,
to the extent that we need to convert U.S. dollars we receive from our initial public offering into for our operations, appreciation of
the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide
to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our Class A Ordinary Share or for other business
purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Furthermore,
appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar
terms without giving effect to any underlying change in our business or results of operations. We cannot predict the impact of future
exchange rate fluctuations on our results of operations and may incur net foreign exchange losses in the future. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert into foreign currencies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Fluctuations in exchange rates could adversely
affect our business and the value of our securities.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Changes in the value of the
RMB against the U.S. dollar, euro and other foreign currencies are affected by, among other things, changes in China political and economic
conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the
value of, and any dividends payable on our shares in the U.S. dollar terms. For example, to the extent that we need to convert U.S. dollar
we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an
adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollar for
the purpose of paying dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB
would have a negative effect on the U.S. dollar amount available to us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Since July 2005, the RMB is
no longer pegged to the U.S. dollar, although the People&#8217;s Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against
the U.S. dollar in the medium to long term. Moreover, it is possible that in future, PRC authorities may lift restrictions on fluctuations
in the RMB exchange rate and lessen intervention in the foreign exchange market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Very limited hedging transactions
are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions.
While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and
we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC
exchange control regulations that restrict our ability to convert RMB into foreign currencies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We have identified material weaknesses in
our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial
reporting, we may be unable to accurately report our financial results or prevent fraud.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">In
connection with audits of our financial statements for the fiscal years ended December 31, 2022 and 2021,
our management identified below material weaknesses in the design and operation of our internal controls:</span></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">As defined under standards
established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company&#8217;s
annual or interim consolidated financial statements will not be prevented or detected on a timely basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In addition, in order to address
the material weakness in internal control over financial reporting of the Company, we have: (a) hired an experienced outside consultant
with adequate experience with US GAAP and the SEC reporting and compliance requirements; (b) continued our efforts to provide ongoing
training courses in US GAAP to existing personnel, including our Chief Financial Officer; (c) continued our efforts to setup the internal
audit department, and enhance the effectiveness of the internal control system; and (d) continued our efforts to implement necessary review
and controls at related levels and the submission of all important documents and contracts to the office of our Chief Executive Officer
for retention.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">All internal control systems,
no matter how well designed, have inherent limitations including the possibility of human error and the circumvention or overriding of
controls. Further, because of changes in conditions, the effectiveness of internal controls may vary over time. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">We cannot be certain that these
measures will successfully remediate the material weakness or that other material weaknesses will not be discovered in the future. If
our efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our
financial results accurately on a timely basis or help prevent fraud, which could cause our reported financial results to be materially
misstated and result in the loss of investor confidence or delisting and cause the market price of our ordinary shares to decline. In
addition, it could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price
of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse
of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil
or criminal sanctions. We may also be required to restate our financial statements from prior periods. Because of our status as an emerging
growth company, you will not be able to depend on any attestation from our independent registered public accountants as to our internal
control over financial reporting for the foreseeable future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If major mobile application distribution
channels change their standard terms and conditions in a manner that is detrimental to us, or suspend or terminate their existing relationship
with us, the PRC operating entities&#8217; business, financial condition and results of operations may be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
currently cooperate with Apple&#8217;s app store and major&#160;PRC-based&#160;Android app stores to distribute their&#160;MDMOOC and
Sunshine Health Forum&#160;mobile application to users. As such, the promotion, distribution and operation of the PRC operating entities&#8217;
application are subject to such distribution platforms&#8217; standard terms and policies for application developers, which are subject
to the interpretation of, and frequent changes by, these distribution channels. If these third-party distribution platforms change their
terms and conditions in a manner that is detrimental to us, or refuse to distribute the PRC operating entities&#8217; application, or
if any other major distribution channel with which they would like to seek collaboration refuses to collaborate with us in the future
on commercially favorable terms, the PRC operating entities&#8217; business, financial condition and results of operations may be materially
and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; activities
may expose them to malpractice liability and other liability inherent in healthcare delivery.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
may be exposed to malpractice or other liability against which they may not be adequately insured, resulting in a decline in our financial
results. A court or government agency may take the position that the PRC operating entities&#8217; delivery of health information directly,
including through licensed physicians, or information delivered by a third-party site that a consumer accesses through the PRC operating
entities&#8217; Website, exposes us to malpractice or other personal injury liability for wrongful delivery of healthcare services or
erroneous health information. The amount of insurance the PRC operating entities maintain with insurance carriers may not be sufficient
to cover all of the losses they might incur from these claims and legal actions. In addition, insurance for some risks is difficult, impossible
or too costly to obtain, and as a result, the PRC operating entities may not be able to purchase insurance for some types of risks.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Healthcare reforms and the cost of regulatory
compliance could negatively affect the PRC operating entities&#8217; business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The healthcare industry is
heavily regulated in China. Various laws, regulations and guidelines promulgated by government, industry and professional associations
affect, among other matters, the provision, licensing, labeling, marketing, promotion and reimbursement of healthcare services and products,
including pharmaceutical products. The PRC operating entities&#8217; failure or their customers&#8217; failure to comply with any applicable
regulatory requirements or industry guidelines could:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Some of PRC laws have been
applied to the marketing and promotional practices of pharmaceutical manufacturers, to payments to physicians for services and to other
benefits to physicians, and could constrain the PRC operating entities&#8217; relationships, including financial, marketing and continuing
medical education relationships, with the PRC operating entities&#8217; sponsors and advertisers and with physicians, including any physicians
who perform services for us. It is possible that additional or changed laws, regulations or guidelines could be adopted in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In addition, implementation
of government healthcare reform may adversely affect promotional and marketing expenditures by pharmaceutical enterprises, which could
decrease the business opportunities available to us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Internet is subject to many legal uncertainties
and potential government regulations that may decrease demand for the PRC operating entities&#8217; services, increase the PRC operating
entities&#8217; cost of doing business or otherwise have a material adverse effect on our financial results or prospects.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Any new law or regulation pertaining
to the Internet or online publication, or the application or interpretation of existing laws, could decrease demand for the PRC operating
entities&#8217; services, increase the PRC operating entities&#8217; cost of doing business or otherwise have a material adverse effect
on our financial results and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">New laws and regulations or
the application or interpretation of existing laws and regulations pertaining to the Internet or online publication may be adopted by
PRC regulatory authorities in the future that address Internet-related issues, including online content, user privacy, pricing and quality
of products and services. For example, due to the ambiguity of the definition of &#8220;online publishing service,&#8221; the online distribution
of content, including the PRC operating entities&#8217; online services, the courseware or audio-visual contents uploaded by the users
in MDMOOC platforms, through the PRC operating entities&#8217; website or mobile apps, may be regarded as &#8220;online publishing service&#8221;
and therefore the PRC operating entities may be required to obtain an Online Publishing License in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The United States or foreign
nations may adopt legislation aimed at protecting Internet users&#8217; privacy. This legislation could increase the PRC operating entities&#8217;
cost of doing business and negatively affect our financial results. Moreover, it may take years to determine the extent to which existing
laws governing issues like property ownership, libel, negligence and personal privacy are applicable to the Internet. Currently, U.S.
privacy law consists of disparate state and federal statutes regulating specific industries that collect personal data. Most of them predate
and therefore do not specifically address online activities. In addition, a number of comprehensive legislative and regulatory privacy
proposals are now under consideration by federal, state and local governments in the United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; future
growth depends on the further acceptance of the Internet and particularly the mobile Internet as an effective platform for assessing healthcare
training services and content.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">While the Internet and the
mobile Internet have gained increased popularity in China as platforms for online healthcare training and information sharing in recent
years, many users have limited experience in accessing healthcare training services or healthcare information online. For example, users
may not consider online content to be reliable sources of healthcare information. If the PRC operating entities fail to educate users
about the value of the PRC operating entities&#8217; content, platform and services, the PRC operating entities&#8217; growth may be limited
and their business, financial performance and prospects may be materially and adversely affected. The further acceptance of the internet
and the mobile internet as an effective and efficient platform for healthcare information sharing and training content is also affected
by factors beyond the PRC operating entities&#8217; control, including negative publicity around online healthcare training or information
sharing services and potential restrictive regulatory measures taken by the PRC government. If online and mobile networks do not achieve
adequate acceptance in the market, the PRC operating entities&#8217; growth prospects, results of operations and financial condition could
be harmed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>PRC laws that protect individual information
may limit our plans to collect, use and disclose that information.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">If the PRC operating entities
fail to comply with current or future laws or regulations governing the collection, dissemination, use and confidentiality of users&#8217;
health information, this failure could have a material adverse effect on the PRC operating entities&#8217; business, operating results
and financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">End users sometimes enter private
health information about themselves or their family members when using the PRC operating entities&#8217; services. Also, the PRC operating
entities&#8217; systems record use patterns when end users access the PRC operating entities&#8217; databases that may reveal health-related
information or other private information about the users. Certain PRC laws and regulations govern collection, dissemination, use and confidentiality
of users&#8217; private information. For example, General Provisions of the Civil Law of the PRC which stipulates that the personal information
of a natural person shall be protected by laws, any organization or individual that needs to obtain the personal information of others
shall obtain such information pursuant to the law and ensure information security, and may neither illegally collect, use, transmit the
personal information of others, nor illegally trade, provide or disclose the personal information of others.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC government has been
considering proposed legislation that would establish a new standard for protection and use of health information. In addition, the laws
of other countries also govern the use of and disclosure of health information. The PRC operating entities&#8217; systems for safeguarding
users&#8217; health information from unauthorized disclosure or use may not preclude successful claims against us for violation of applicable
law. Other third-party sites that users access through the PRC operating entities&#8217; site also may not maintain systems to safeguard
this health information. In some cases, the PRC operating entities may place their content on computers that are under the physical control
of others, which may increase the risk of an inappropriate disclosure of health information. For example, the PRC operating entities may
contract out the hosting of their Website to a third party. In addition, future laws or changes in current laws may necessitate costly
adaptations to the PRC operating entities&#8217; systems.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
intend to develop medical information systems and market research services that they will use to collect, analyze and report aggregate
medical care, medical research, outcomes and financial data pertaining to items such as prescribing patterns and usage habits. Because
this area of the law is rapidly changing, the PRC operating entities&#8217; collection, analysis and reporting of aggregate healthcare
data maintained in the PRC operating entities&#8217; database may not at all times and in all respects comply with laws or regulations
governing the ownership, collection and use of this data. Future laws or changes in current laws governing the ownership, collection and
use of aggregate healthcare data may necessitate costly adaptations to the PRC operating entities&#8217; systems or limit their ability
to use this data.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If we are deemed to be an investment company
under the United States Investment Company Act, we may be required to institute burdensome compliance requirements and our activities
may be restricted, which may make it difficult for us to complete a business transaction.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">If we are deemed to be an investment
company under the Investment Company Act of 1940, as amended, our activities may be restricted, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In addition, we may have imposed
upon us burdensome requirements, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In order not to be regulated
as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged
primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting,
owning, holding or trading &#8220;investment securities&#8221; constituting more than 40% of our assets (exclusive of U.S. government
securities and cash items) on an unconsolidated basis. We are a holding company no material operations of our own. All of our business
is conducted through Zhongchao Shanghai, whose principle business is to provide healthcare information, education, and training services
to healthcare professionals and the public in China. We do not plan to buy businesses or assets with a view to resale or profit from their
resale. We do not plan to buy unrelated businesses or assets or to be a passive investor. We do not believe that the PRC operating entities&#8217;
anticipated principal activities will subject us to the Investment Company Act. To this end, the investment by the VIE&#8217;s subsidiary
Shanghai Jingyi is only in a private equity fund particularly investing in a certain biotech company in China with a limited capital subscription
and a limited investment period. By restricting the investment to such a certain instrument, we intend to avoid being deemed an &#8220;investment
company&#8221; within the meaning of the Investment Compact Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">An investment in our securities
is not intended for persons who are seeking a return on investments in government securities or investment securities. Shanghai Jingyi
is primarily engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology,
market information consulting and investigating. If we continue to invest in other investment securities, we may be deemed to be subject
to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory
burdens would require additional expense for which we have not accounted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>RISKS RELATED TO OUR CORPORATE STRUCTURE</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We will likely not pay dividends in the
foreseeable future.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Dividend policy is subject
to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements
and other factors. There is no assurance that our Board of Directors will declare dividends even if we are profitable. The payment of
dividends by entities organized in China is subject to limitations as described herein. Under Cayman Islands law, we may only pay dividends
from profits of the Company, or credits standing in the Company&#8217;s share premium account, and we must be solvent before and after
the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business;
and the realizable value of assets of our Company will not be less than the sum of our total liabilities, other than deferred taxes as
shown on our books of account, and our capital. Pursuant to the Chinese enterprise income tax law, dividends payable by a foreign investment
entity to its foreign investors are subject to a withholding tax of 10%. Similarly, dividends payable by a foreign investment entity to
its Hong Kong investor who owns 25% or more of the equity of the foreign investment entity is subject to a withholding tax of 5%. The
payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in China currently
permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The transfer to this reserve must be made before distribution of any dividend to shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The dual class structure of our ordinary
shares has the effect of concentrating voting control with our CEO, directors and their affiliates.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="text-align: justify; margin: 0pt 0; font: 10pt Times New Roman, Times, Serif">Our Class B Ordinary Share has 15 votes per share, and our Class&#160;A
Ordinary Share has 1 vote per share. The shareholder who holds shares of Class&#160;B Ordinary Shares holds approximately 80.07%
of the voting power of our outstanding ordinary shares, assuming the exercise of the HF Warrant. Because of the fifteen-to-one voting
ratio between our Class&#160;B and Class&#160;A Ordinary Shares, the holder of our Class&#160;B Ordinary Shares will continue to control
a majority of the combined voting power of our ordinary share and therefore be able to control all matters submitted to our shareholders
for approval so long as the shares of Class&#160;B Ordinary Shares represent more than 6.25% of all outstanding shares of our Class&#160;A
and Class&#160;B Ordinary Shares, assuming the exercise of the HF Warrant. This concentrated control will limit your ability to influence
corporate matters for the foreseeable future.</p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Future transfers by the holder
of Class&#160;B Ordinary Shares will generally result in those shares converting to Class&#160;A Ordinary Shares, subject to limited exceptions,
such as certain transfers effected for estate planning purposes. The conversion of Class&#160;B Ordinary Shares to Class&#160;A Ordinary
Shares will have the effect, over time, of increasing the relative voting power of those holders of Class&#160;B Ordinary Shares who retain
their shares in the long term. If, for example, Mr.&#160;Weiguang Yang retains a significant portion of his holdings of Class&#160;B Ordinary
Share for an extended period of time, he could, in the future, continue to control a majority of the combined voting power of our Class&#160;A
Ordinary Shares and Class&#160;B Ordinary Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our CEO has control over key decision making
as a result of his control of a majority of our voting shares.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our Founder, CEO, and our Chairman
of the Board, Mr. Weiguang Yang, and his affiliates which he deemed to have control and/or have substantial influence is able to exercise
full voting rights with respect to an aggregate of 5,497,715 Class B Ordinary Shares, representing a majority of the voting power of our
outstanding ordinary shares. As a result, Mr. Yang has the ability to control the outcome of matters submitted to our shareholders for
approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition,
Mr. Yang has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to
control the election of our directors. Additionally, in the event that Mr. Yang controls our company at the time of his death, control
may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr. Yang owes a fiduciary
duty to our shareholders and must act in good faith in a manner he reasonably believes to be in the best interests of our shareholders.
As a shareholder, even a controlling shareholder, Mr. Yang is entitled to vote his shares, and shares over which he has voting control
as a result of voting agreements, in his own interests, which may not always be in the interests of our shareholders generally.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>As a &#8220;controlled company&#8221; under
the rules of the NASDAQ Capital Market, we may choose to exempt our company from certain corporate governance requirements that could
have an adverse effect on our public shareholders.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our directors and officers
beneficially own a majority of the voting power of our outstanding Class A Ordinary Shares. Under the Rule 4350(c) of the NASDAQ Capital
Market, a company of which more than 50% of the voting power is held by an individual, group or another company is a &#8220;controlled
company&#8221; and may elect&#160;<b><i>not</i></b>&#160;to comply with certain corporate governance requirements, including the requirement
that a majority of our directors be independent, as defined in the NASDAQ Capital Market Rules, and the requirement that our compensation
and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely on the
&#8220;controlled company&#8221; exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. If
we elect to rely on the &#8220;controlled company&#8221; exemption, a majority of the members of our board of directors might not be independent
directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors.
Accordingly, during any time while we remain a&#160;controlled company&#160;relying on the exemption and during any transition period
following a time when we are no longer a&#160;controlled company, you would not have the same protections afforded to shareholders of
companies that are subject to all of the NASDAQ Capital Market corporate governance requirements. Our status as a controlled company could
cause our Class&#160;A Ordinary Share to look less attractive to certain investors or otherwise harm our trading price.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We depend upon the VIE Arrangements in consolidating
the financial results of the PRC operating entities, which may not be as effective as direct ownership.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Our affiliation with Zhongchao
Shanghai is managed through the VIE Arrangements, which agreements may not be as effective in providing us with control over Zhongchao
Shanghai as direct ownership. The VIE Arrangements are governed by and would be interpreted in accordance with the laws of the PRC. If
Zhongchao Shanghai fails to perform the obligations under the VIE Arrangements, we may have to rely on legal remedies under the laws of
the PRC, including seeking specific performance or injunctive relief, and claiming damages. There is a risk that we may be unable to obtain
any of these remedies. The legal environment in the PRC is not as developed as in other jurisdictions. As a result, uncertainties in the
PRC legal system could limit our ability to enforce the VIE Arrangements, or could affect the validity of the VIE Arrangements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may not be able to consolidate the financial
results of the PRC operating entities or such consolidation could materially adversely affect our operating results and financial condition.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">We are not a Chinese operating
company, but a holding company incorporated in Cayman Islands. As a holding company with no material operations of our own, all of our
business is conducted through Zhongchao Shanghai, which is considered a VIE for accounting purposes, and we, through Zhongchao WFOE, are
considered the primary beneficiary, thus enabling us to consolidate the financial results of Zhongchao Shanghai and its subsidiaries in
our consolidated financial statements. In the event that in the future a company we hold as a VIE no longer meets the definition of a
VIE under applicable accounting rules, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by
line that entity&#8217;s financial results in our consolidated financial statements for reporting purposes. Also, if in the future an
affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity&#8217;s financial
results in our consolidated financial statements for accounting purposes. If such entity&#8217;s financial results were negative, this
would have a corresponding negative impact on our operating results for reporting purposes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Because we rely on the VIE Arrangements
for our revenue, the termination of these agreements would severely and detrimentally affect our continuing business viability under our
current corporate structure.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">We are a holding company, and
all of our business operations are conducted through the VIE Arrangements. Zhongchao Shanghai may terminate the VIE Arrangements for any
or no reason at all. Because neither we, nor our subsidiaries, own equity interests of Zhongchao Shanghai, the termination of the VIE
Arrangements would sever our ability to receive payments from Zhongchao Shanghai under our current holding company structure. While we
are currently not aware of any event or reason that may cause the VIE Arrangements to terminate, we cannot assure you that such an event
or reason will not occur in the future. In the event that the VIE Arrangements are terminated, this would have a severe and detrimental
effect on our continuing business viability under our current corporate structure, which, in turn, may affect the value of your investment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>VIE Arrangements in relation to the PRC
operating entities may be subject to scrutiny by the PRC tax authorities and they may determine that we, the VIE, or its subsidiaries
owe additional taxes, which could negatively affect our financial condition and the value of your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Under applicable PRC laws and
regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within
ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC tax
authorities determine that the VIE Arrangements were not entered into on an arm&#8217;s-length basis in such a way as to result in an
impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of the VIE and its subsidiaries
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 the VIE and its subsidiaries for PRC tax purposes, which could in turn increase its tax liabilities without reducing
our subsidiary&#8217;s tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIE
and its subsidiaries for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially
and adversely affected if the VIE&#8217;s or its subsidiaries&#8217; tax liabilities increase or if it is required to pay late payment
fees and other penalties.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We conduct our business through Zhongchao
Shanghai and its subsidiaries by means of VIE Arrangements. If the PRC courts or administrative authorities determine that these VIE Arrangements
do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition,
changes in such PRC laws and regulations may materially and adversely affect our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">There are uncertainties regarding
the interpretation and application of PRC laws, rules and regulations, including the laws, rules and regulations governing the validity
and enforcement of the VIE Arrangements between Zhongchao WFOE and Zhongchao Shanghai. We have been advised by our PRC legal counsel,
Han Kun Law Offices, based on their understanding of the current PRC laws, rules and regulations, that (i) as of the date of this Annual
Report, the structure for operating our business in China (including our corporate structure and VIE Arrangements with Zhongchao Shanghai,
Zhongchao Shanghai and their shareholders) do not result in any violation of PRC laws or regulations currently in effect; and (ii) the
VIE Arrangements among Zhongchao WFOE and Zhongchao Shanghai and their shareholders governed by PRC law are valid, binding and enforceable
in accordance with the terms of each of the VIE Arrangements, and do not result in any violation of PRC laws or regulations currently
in effect. However, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and
regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability
of the VIE Arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals
may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">If any of our PRC entities
or the PRC operating entities or their ownership structure or the VIE Arrangements are determined to be in violation of any existing or
future PRC laws, rules or regulations, or any of our PRC entities or the PRC operating entities fail to obtain or maintain any of the
required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations,
including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">discontinuing or restricting the operations;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">imposing conditions or requirements with which the PRC entities may not be able to comply;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">requiring us and the PRC operating entities to restructure the relevant ownership structure or operations;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">imposing fines.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The imposition of any of these
penalties would severely disrupt the PRC operating entities&#8217; ability to conduct business and have a material adverse effect on our
financial condition, results of operations and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The shareholders of the VIE may have actual
or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The shareholders of the VIE
may have actual or potential conflicts of interest with us. These shareholders may refuse to sign or breach, or cause the VIE to breach,
or refuse to renew, the existing VIE Arrangements we have with them and the VIE, which would have a material and adverse effect on our
ability to consolidate the financial results of the VIE and its subsidiaries. For example, the shareholders may be able to cause our agreements
with the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the VIE Arrangements
to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best
interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential
conflicts of interest between these shareholders and our company. If we cannot resolve any conflict of interest or dispute between us
and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to
substantial uncertainty as to the outcome of any such legal proceedings.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our current corporate structure and business
operations may be affected by the Foreign Investment Law.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">On March 15, 2019, the National
People&#8217;s Congress approved the Foreign Investment Law, which became effect on January 1, 2020. Since it is relatively new, uncertainties
exist in relation to its interpretation and its implementation rules that are yet to be issued. The Foreign Investment Law does not explicitly
classify whether variable interest entities whose financial results are consolidated through VIE Arrangements would be deemed as foreign-invested
enterprises if they are ultimately &#8220;controlled&#8221; by foreign investors. However, it has a catch-all provision under definition
of &#8220;foreign investment&#8221; that includes investments made by foreign investors in China through other means as provided by laws,
administrative regulations or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions
of the State Council to provide for VIE Arrangements as a form of foreign investment. Therefore, there can be no assurance that our ability
to consolidate the financial results of the VIE and its subsidiaries through VIE Arrangements will not be deemed as foreign investment
in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The Foreign Investment Law
grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified
as either &#8220;restricted&#8221; or &#8220;prohibited&#8221; from foreign investment in a &#8220;negative list&#8221; that is yet to
be published. It is unclear whether the &#8220;negative list&#8221; to be published will differ from the current Special Administrative
Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that foreign-invested entities operating
in &#8220;restricted&#8221; or &#8220;prohibited&#8221; industries will require market entry clearance and other approvals from relevant
PRC government authorities. If our ability to consolidate the financial results of the VIE and its subsidiaries through VIE Arrangements
are deemed as foreign investment in the future, and any business of the VIE and its subsidiaries is &#8220;restricted&#8221; or &#8220;prohibited&#8221;
from foreign investment under the &#8220;negative list&#8221; effective at the time, we may be deemed to be in violation of the Foreign
Investment Law, the VIE Arrangements that allow us to consolidate the financial results of the VIE and its subsidiaries may be deemed
as invalid and illegal, and we may be required to unwind such VIE Arrangements and/or restructure our business operations, any of which
may have a material adverse effect on our business operation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Furthermore, if future laws,
administrative regulations or provisions mandate further actions to be taken by companies with respect to existing VIE Arrangements, we
may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current
corporate structure and business operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If any of our affiliated entities becomes
the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy assets held by such entity, which could
materially and adversely affect our business, financial condition and results of operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">We currently conduct our operations
in China through our VIE Arrangements. As part of these arrangements, substantially all of our assets that are significant to the operation
of our business are held by our affiliated entities. If any of these entities becomes bankrupt and all or part of their assets become
subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could
materially and adversely affect our business, financial condition and results of operations. In addition, if any of our affiliated entities
undergoes a voluntary or involuntary liquidation proceeding, its equity owner or unrelated third-party creditors may claim rights relating
to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business,
our ability to generate revenue and the market price of our ordinary shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If the PRC operating entities fail to maintain
continuing compliance with the PRC state regulatory rules, policies and procedures applicable to their industry, the PRC operating entities
may risk losing certain preferential tax and other treatments which may adversely affect the viability of our current corporate structure,
corporate governance and business operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The State Council has promulgated
several notices since 2000 to launch favorable policies for IT services, such as preferential tax treatments and credit support. Under
rules and regulations promulgated by various Chinese government agencies, enterprises that have met specified criteria and are recognized
as software enterprises by the relevant government authorities in China are entitled to preferential treatment, including financing support,
preferential tax rates, export incentives, discretion and flexibility in determining employees&#8217; welfare benefits and remuneration.
Software enterprise qualifications are subject to annual examination. Enterprises that fail to meet the annual examination standards will
lose the favorable enterprise income tax treatment. Enterprises exporting software or producing software products that are registered
with the relevant government authorities are also entitled to preferential treatment including governmental financial support, preferential
import, export policies and preferential tax rates. Companies in China engaging in systems integration are required to obtain qualification
certificates from the Ministry of Industry and Information Technology. Companies planning to set up computer information systems may only
retain systems integration companies with appropriate qualification certificates. Currently the PRC operating entities do not engage in
information system integration business, therefore the PRC operating entities are not required to have such qualification certificates.
The qualification certificate is subject to review every two years and is renewable every four years. In 2003, the Ministry of Industry
and Information Technology promulgated the Amended Appraisal Condition for Qualification Grade of Systems Integration of Computer Information
to elaborate the conditions for appraising each of the four qualification grades of systems integration companies. Companies applying
for qualification are graded depending on the scale of the work they undertake. The grades range from Grade 1 (highest) to Grade 4 (lowest)
in the scale of the work the respective companies can undertake. Companies with Grade 3 qualification can independently undertake projects
at the medium-scale and small-scale enterprise level and undertake projects at the large-scale enterprise level in cooperation with other
entities. If and to the extent we fail to maintain compliance with such applicable rules and regulations, our operations and financial
results may be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>RISKS RELATED TO DOING BUSINESS IN CHINA</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Uncertainties regarding the enforcement
of laws, and changes in policies, laws and regulations could materially and adversely affect us.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In 1979, the PRC began to promulgate
a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past
three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. In particular, the
PRC legal system is a civil law system based on written statutes. Unlike some other law systems, prior court decisions under the civil
law system may be cited for reference but have limited precedential value. Our PRC subsidiaries, the PRC operating entities and their
subsidiaries are subject to laws and regulations applicable to foreign-invested enterprises as well as various Chinese laws and regulations
generally applicable to companies incorporated in China. Since these laws and regulations are relatively new and the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules and the enforcement of these laws, regulations and
rules involve uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce
our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited by third parties through unmerited or
frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, any administrative and court proceedings
in China may be protracted, resulting in substantial costs and diversion of resources and management attention.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The regulatory authorities
have significant oversight over the business of the PRC operating entities and may influence our operations as the regulatory authorities
deem appropriate to further regulatory, political and societal goals. The regulatory authorities have recently published new policies
that affected our industry and our business, and we cannot rule out the possibility that it will in the future further release regulations
or policies regarding our industry that could further adversely affect our business, financial condition and results of operations. Furthermore,
the regulatory authorities have also recently published new regulations and guidance to exert more oversight and control over securities
offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any
such action, once taken by the regulatory authorities, 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.
We cannot assure you that we or the PRC operating entities will be able to comply with these new laws and regulations in all respects,
and we may be ordered to rectify, suspend or terminate any actions or services that are deemed illegal by the regulatory authorities and
become subject to material penalties, which may materially harm our business, financial condition, results of operations and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities may face risks
and uncertainties with respect to the licensing requirement for internet audio-visual programs. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">On December 20, 2007, the State
Administration of Radio, Film and Television (&#8220;SARFT&#8221;) (currently known as the National Radio and Television Administration
of China, or the NRTA), and the Ministry of Industry and Information Technology (&#8220;MIIT&#8221;), jointly promulgated the Administrative
Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program Provisions, which became effective on January 31, 2008
and was last amended on August 28, 2015. Among other things, the Audio-Visual Program Provisions stipulated that no entities or individuals
may provide internet audio-visual program services without a License for Online Transmission of Audio-Visual Programs issued by SARFT
or its local bureaus or completing the relevant registration procedures with SARFT or its local bureaus, and only state-owned or state-controlled
entities are eligible to apply for a License for Online Transmission of Audio-Visual Programs. On March 17, 2010, SARFT promulgated the
Tentative Categories of Internet Audio-Visual Program Services, or the Categories, clarifying the scope of internet audio-visual programs
services, which was amended on March 10, 2017. The making and editing of certain specialized audio-visual programs concerning, among other
things, educational content, and broadcasting such content to the general public online is covered in the Categories. However, there are
still significant uncertainties relating to the interpretation and implementation of the Audio-Visual Program Provisions, in particular,
the scope of &#8220;internet audio-visual programs.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
offer short audio clips and the live course on their mobile apps or website for users to listen and learn, which can be repeatedly played
by the users. We believe the audio clips we offer and the live courses we transmit distinguish us from general providers of internet audio-visual
program services. However, we cannot assure you that the competent PRC government authorities will not take a view contrary to our opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The Categories describe &#8220;internet
audio-visual program services&#8221; in a very broad, vague manner and are unclear as to whether the contents the PRC operating entities
offer or are available on their platforms fall into the definition of &#8220;internet audio-visual programs.&#8221; The PRC government
may find that the PRC operating entities&#8217; activities mentioned above or any other content offered on their mobile apps or website
fall within the definition of &#8220;internet audio-visual programs&#8221; and thus are subject to the licensing requirement for internet
audio-visual programs. The PRC operating entities currently do not hold a License for Online Transmission of Audio-Visual Programs. If
the PRC government determines that the PRC operating entities&#8217; content should be considered as &#8220;internet audio-visual programs&#8221;
for the purpose of the Audio-Visual Program Provisions, the PRC operating entities may be required to obtain a License for Online Transmission
of Audio-Visual Programs. The PRC operating entities are, however, not eligible to apply for such license since they are not a state-owned
or state-controlled entity. If this were to occur, the PRC operating entities may be subject to penalties, fines, legal sanctions or an
order to suspend the provision of their relevant content.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We face risks associated with uncertainties
surrounding the PRC laws and regulations governing the education industry in general, and the online for-profit private training in particular.
</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The principal regulations governing
private education in China primarily consist of the PRC Education Law, the Law for Promoting Private Education, or Private Education Law,
the Implementation Rules for Private Education Law and the Implementation Rules on the Supervision and Administration of For-profit Private
Schools, or the Implementation Rules, as amended from time to time. These PRC laws and regulations on private education generally apply
to the establishment and operation of all private schools, including schools and other education institutions, and provide that, among
others, (i) the establishment of a for-profit private school shall be approved by the education authorities or the authorities in charge
of labor and social welfare, (ii) such for-profit private schools should be registered with the competent branch of the State Administration
for Industry and Commerce (&#8220;SAIC&#8221;, currently known as the State Administration for Market Regulation), and (iii) a duly approved
private school will be granted a private school operating permit. The Implementation Rules further provide that the provisions contained
therein should be applicable to &#8220;for-profit private training institutions&#8221; in an analogous manner. Shanghai, has accordingly
promulgated specific local regulations to clarify the requirements and procedures for establishing and operating private schools in December
2017, however, it expressly provided that management measures and regulations applicable to private training institutions that only provide
online courses would be promulgated separately. As of the date of this Annual Report, no explicit local rules or guideline on regulation
of online private training institutions related to our operation have been promulgated in Shanghai, where the operating entity of the
online platform and the VIE, Zhongchao Shanghai, was incorporated.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The PRC operating entities
operate online platform that provides online training programs through the internet, and the PRC operating entities of the online platform
are registered with local counterparts of the competent PRC government authorities as for-profit enterprises. As there lacks clear and
consistent statutory interpretation regarding the implementation of the above laws and regulations, it is unclear how these regulatory
requirements shall be applied to us. During the PRC operating entities&#8217; previous consultation with relevant governmental authorities,
they were informed that they are not required to obtain a private school operating permit or other approval from education authorities
or the authorities in charge of labor and social welfare for their operation of online education platform. However, we cannot assure you
that the government authorities will not take a different view in the future. The PRC operating entities may be required to obtain the
above-mentioned, or any other approvals, licenses, permits or filings, or otherwise comply with additional regulatory requirements in
the future, due to clarification or change in interpretation or implementation of laws and regulations in education industry, or promulgation
of new regulations or guidelines regulating online education institutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Pursuant to the amended
Law for Promoting Private Education of the PRC (the &#8220;Amended Private Education Law&#8221;), private schools are required to obtain
a private school operating permit. On April 7, 2021, the State Council officially promulgated the revised Regulations on the Implementation
of the Law for Promoting Private Education of the PRC (the &#8220;2021 Revised Regulations&#8221;), which became effective on September
1, 2021. According to the 2021 Revised Regulations, private schools to carry out training and educational activities online using internet
technology shall obtain the corresponding private school operating permits. The 2021 Revised Regulations further stipulates that, private
schools that carry out training and educational activities online using internet technology shall establish and implement internet security
management systems and technical measures for security protection as required by law, and shall, upon discovery of the release or transmission
of any information prohibited by laws or administrative regulations from release or transmission, immediately have the transmission stopped
and remove or otherwise dispose of the information to prevent its dissemination, retain related records, and report the case to relevant
authorities. However, it remains unclear under the 2021 Revised Regulations as to whether and how a non-formal VET service provider like
the PRC operating entities, especially in relation to the PRC operating entities&#8217; online tutoring services, needs to comply with
the operating permit requirement. Moreover, as the 2021 Revised Regulations were recently promulgated and became effective, there are
still substantial uncertainties as to how it will be interpreted and enforced, and whether and how local governments would promulgate
rules related to the filing or licensing requirement applicable to non-formal VET service providers like the PRC operating entities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">If the PRC operating entities
fail to comply with any regulatory requirements, including obtaining any required licenses, approvals, permits or filings in a timely
manner or at all, the PRC operating entities&#8217; continued business operations may be disrupted and the PRC operating entities may
be subject to various penalties or be unable to continue their operations, all of which will materially and adversely affect our business,
financial condition and results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Chinese government exerts substantial
influence over the manner in which the PRC operating entities must conduct their </i></b>&#160;<b><i>business activities. We are currently
not required to obtain approval from Chinese authorities to list or continue to list on U.S. exchanges nor for the execution of VIE agreements,
however, if the VIE or the holding company were required to obtain approval and were denied permission from Chinese authorities to list
or continue to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange or continue to offer securities to investors,
which could materially affect the interest of the investors and cause the value of our Class A Ordinary Shares to significantly decline
or be worthless.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The Chinese government exerts
substantial influence over the manner in which the PRC operating entities must conduct their business activities. China&#8217;s business
operations are comprehensively regulated. The PRC operating entities could be subject to regulation by various political and regulatory
entities, including various local and municipal agencies and government sub-divisions. The PRC operating entities may incur increased
costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In the event that
the PRC operating entities are not able to substantially comply with any existing or newly adopted laws and regulations, the business
operations of the PRC operating entities may be materially adversely affected and the value of our Ordinary Shares may significantly decrease
or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">On February 17, 2023, the CSRC
promulgated the Trial Measures, and five supporting guidelines, together with five supporting guidelines, which took effect on March 31,
2023. As the Trial Measures were newly published, there are substantial uncertainties as to the implementation and interpretation, and
how they will affect our current listing, and future offering or financing. If we are required by the Trial Measures for any future offering
or any other financing activities to file with the CSRC, we cannot assure you that we will be able to complete such filings in a timely
manner, or even at all. Any failure of us or the PRC operating entities to fully comply with new regulatory requirements may significantly
limit or completely hinder our ability to continue to offer our Class A Ordinary Shares, cause significant disruption to our business
operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations and cause
our Class A Ordinary Shares to significantly decline in value or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">Additionally, the PRC government
authorities may strengthen oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers
like us. Such actions taken by the PRC government authorities may intervene or influence the operations of the PRC operating entities
at any time, which are beyond our control. Therefore, any such action may adversely affect the operations of the PRC operating entities
and significantly limit or hinder our ability to offer or continue to offer securities to you and cause the value of such securities to
significantly decline or be worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The Chinese government may
intervene or influence our operations at any time, which actions may impact our operations materially and adversely, significantly limit
or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our Class A Ordinary Shares
to significantly decline or be worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">The Chinese government has
exercised, and continues to exercise, substantial control over virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to online transmission
of audio-visual program, internet live streaming services, online publishing, private education, internet information security, privacy
protection and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations
of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations
or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms
and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have
a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest
we then hold in Chinese properties.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
business is subject to various government and regulatory interference. The PRC operating entities could be subject to regulation by various
political and regulatory entities, including various local and municipal agencies and government sub-divisions. The PRC Operation entities
may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.
Our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business
or industry, which could result in further material changes in our operations and could adversely impact the value of our Class A Ordinary
Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, given recent
statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas,
including but not limited to the newly promulgated Trial Measures, although we are currently not required to obtain permission from any
of the PRC federal or local government, if we are required by the Trial Measures for any future offering or any other financing activities
to file with the CSRC we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure
of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to continue to offer
our Class A Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and
adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in
value or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>PRC laws and regulations governing our
current business operations are sometimes vague and uncertain and any changes in such laws and regulations may be quick with little impair
our ability to operate profitably.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.
The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may
be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner
different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses
may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have
on our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC legal system is a
civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited
for reference but have limited precedential value. Since these laws and regulations are relatively new and the PRC legal system continues
to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws,
regulations and rules involves uncertainties.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 1979, the PRC government
began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation
over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However,
China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects
of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may
be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties
may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition,
the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments
or benefits from us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, the PRC legal
system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may
have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the
violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion
of resources and management attention.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time, we may
have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore,
the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or
at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime
after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely
affect our business and impede our ability to continue our operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Recently, the General Office
of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the &#8220;Opinions
on Severely Cracking Down on Illegal Securities Activities According to Law,&#8221; or the Opinions, which was made available to the
public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the
need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction
of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity
and data privacy protection requirements and similar matters. The Opinions and any related implementing rules to be enacted may subject
us to compliance requirement in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>New rules for China-based companies seeking
for securities offerings in foreign stock markets was released by the CSRC recently. The Chinese government may exert more oversight
and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our
ability to offer or continue to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares
to significantly decline or become worthless. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 17, 2023, the
CSRC promulgated the Trial Measures and five supporting guidelines, which became effective on March 31, 2023. According to the Trial
Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly,
should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure or conceals any material
fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties; (2) if
the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering
and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of
the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer&#8217;s audited consolidated
financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business
are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled
in China; (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate
a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC
within three business days after the submission of the overseas offering and listing application; and (4) if the issuer issues securities
in the same overseas market after the initial issuance and listing, it shall submit filings with the CSRC within three business days
after the completion of the issuance. Further, at the press conference held for the Trial Measures on February 17, 2023, officials from
the CSRC clarified that the PRC domestic companies that have already been listed overseas on or before the effective date of the Trial
Measures (i.e., March 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures
immediately but shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that
require filing with the CSRC. The officials from the CSRC have also confirmed that for the PRC domestic companies that seek to list overseas
with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing
of companies with VIE structure which meet the compliance requirements..</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 24, 2023, the
CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China
promulgated the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering
and Listing by Domestic Enterprises, or the Archives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic
companies that seek for overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and the Archives
Rules, enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality
and archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such
domestic companies shall not leak any state secret and working secret of government agencies, or harm national security and public interest.
Furthermore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to
relevant individuals or entities including securities companies, securities service providers and overseas regulators, any document and
materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities
according to law, and file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to,
either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities
companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental
to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The
Archives Rules also stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities
including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in
compliance with applicable national regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As we have completed our
public offering before the effective date of the Trial Measures (i.e., March 31, 2023), we believe we are not required to complete the
filing procedures with the CSRC for our current listing. However, we may be required to file with the CSRC in connection with any future
offering and financing. As the Trial Measures and the Archives Rules were newly published, there are substantial uncertainties as to
the implementation and interpretation, and how they will affect our current listing, and future offering or financing. Especially, if
we are required by the Trial Measures for any future offering or financing to file with the CSRC, we cannot assure you that we will be
able to complete such filings in a timely manner, or even at all. Any failure of us to fully comply with new regulatory requirements
may significantly limit or completely hinder our ability to offer or continue to offer the Class A Ordinary Shares, cause significant
disruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results
of operations, and cause the Ordinary Shares to significantly decline in value or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The recent joint statement by the SEC and
the PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more
stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S.
auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">U.S. public companies that
have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors,
financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered
on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 21, 2020, the former
SEC Chairman Jay Clayton and Public Company Accounting Oversight Board (the &#8220;PCAOB&#8221;) Chairman William D. Duhnke III, along
with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have
substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for
the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 18, 2020, Nasdaq filed
three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in &#8220;Restrictive Market&#8221;,
(ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii)
apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company&#8217;s auditors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 20, 2020, the U.S.
Senate passed The Holding Foreign Companies Accountable Act, or the HFCA Act requiring a foreign company to certify it is not owned or
controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject
to PCAOB inspection. If the PCAOB is unable to inspect the company&#8217;s auditors for three consecutive years, the issuer&#8217;s securities
are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December
18, 2020, the HFCA Act was signed into law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 24, 2021, the SEC
announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of
the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K,
20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and
that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction.
The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation
to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require
disclosure in the registrant&#8217;s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, the HFCA Act,
which requires that the PCAOB be permitted to inspect the issuer&#8217;s public accounting firm within three years, may result in the
delisting of our Company in the future if the PCAOB is unable to inspect our accounting firm at such future time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, on June 22,
2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the &#8220;AHFCAA&#8221;), which, if signed
into law, would amend the HFCA Act and require the SEC to prohibit an issuer&#8217;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 consecutive years. As a result, the time
period before our Class A Ordinary Shares may be prohibited from trading or delisted will be reduced.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 5, 2021, the
SEC approved the PCAOB&#8217;s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 provides
a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it 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, and (2) Hong Kong.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The lack of access to the
PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China.
As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections
of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms&#8217; audit procedures or quality
control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and
potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our
financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">Our
current independent accounting firm, Prager Metis CPAs, LLC (&#8220;Prager Metis&#8221;), and our former independent accounting firm
Marcum Asia CPAs LLP (&#8220;MarcumAsia&#8221; formerly known as &#8220;Marcum Bernstein &amp; Pinchuk LLP&#8221;), both of whose audit
report is included in this Annual Report on Form 20-F, are headquartered in New York, New York. Neither of them was included in the
list of PCAOB Identified Firms in the PCAOB December Release. However, given that all PCAOB-registered firms in China were included on
that list, our ability to retain an auditor subject to PCAOB inspection and investigation may depend on the relevant U.S. and PRC regulators
reaching an agreement to permit these inspections and investigations. Recent developments with respect to audits of China-based companies
create uncertainty about the ability of Prager Metis to fully cooperate with a PCAOB request for audit working papers without the approval
of the Chinese authorities. Prager Metis&#8217;s audit working papers related to us are located in China. </span>&#160;<span style="font-family: Times New Roman, Times, Serif">More
broadly, the PCAOB entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance,
which established a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations
undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of Finance in the United States. The PCAOB continues to be in discussions
with the CSRC and the PRC Ministry of Finance to permit joint inspections of the PCAOB-registered audit firms that audit Chinese companies
that trade on U.S. exchanges. However, in the PCAOB December 2021 Release, the PCAOB identified problems in implementing these agreements
and a lack of cooperation. Accordingly, we can offer no assurance that we will be able to retain an auditor that would allow us to avoid
a trading prohibition for our securities under the HFCA Act.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to the issues
under the HFCA Act discussed above, the PCAOB&#8217;s inability to conduct inspections in China and Hong Kong prevented it from fully
evaluating the audits and quality control procedures of the independent registered public accounting firm. However, as noted above, recent
developments create uncertainty as to the PCAOB&#8217;s continued ability to conduct inspections of our independent accounting firm.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 15, 2022, the
PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered
in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, whether the PCAOB will continue
to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong
Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor&#8217;s, control. The PCAOB is continuing
to demand complete access in mainland China and Hong Kong moving forward and is already making plans to resume regular inspections in
early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has
indicated that it will act immediately to consider the need to issue new determinations with the HFCA Act if needed and does not have
to wait another year to reassess its determinations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our securities may be delisted
under the HFCA Act if the PCAOB is unable to inspect auditors with presence in China for three consecutive years. The delisting of our
securities, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the
inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The above recent developments
may have added uncertainties to our ability to continue to list on Nasdaq or to offer our securities and we cannot assure you whether
Nasdaq or regulatory authorities would apply additional and more stringent criteria to us since we are an emerging growth company and
substantial all of our operations are conducting in China.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The SEC may propose additional
rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President&#8217;s
Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese
Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies
from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these
recommendations were implemented with the enactment of the HFCA Act. However, some of the recommendations were more stringent than the
HFCA Act. For example, if a company&#8217;s auditor was not subject to PCAOB inspection, the report recommended that the transition period
before a company would be delisted would end on January 1, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The SEC has announced that
the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA Act and to address the recommendations
in the PWG report. It is unclear when the SEC will complete its rulemaking and when such rules will become effective and what, if any,
of the PWG recommendations will be adopted. The implications of this possible regulation in addition to the requirements of the HFCA
Act are uncertain. Such uncertainty could cause the market price of our ordinary shares to be materially and adversely affected, and
our securities could be delisted or prohibited from being traded on the national securities exchange earlier than would be required by
the HFCA Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Moreover, on December 29,
2022, legislation entitled &#8220;Consolidated Appropriations Act, 2023&#8221; (the &#8220;Consolidated Appropriations Act&#8221;) was
signed into law by President Biden. The Consolidated Appropriations Act contained, among other things, an identical provision to the
AHFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from
three years to two.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If our Ordinary Shares are
unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase
our Ordinary Shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative
impact on the price of our Ordinary Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>In light of recent events indicating greater
oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange,
though such oversight is not applicable to us, we may be subject to a variety of PRC laws and other obligations regarding data protection
and any other rules, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business,
our listing on the Nasdaq Capital Market, financial condition, results of operations, and the offering.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Even though, currently, we
are not subject to PRC laws relating to the collection, use, sharing, retention, security, and transfer of confidential and private information,
such as personal information and other data, these laws continue to develop, and the PRC government may adopt other rules and restrictions
in the future. Non-compliance could result in penalties or other significant legal liabilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Cybersecurity Law, which
was adopted by the National People&#8217;s Congress on November 7, 2016 and came into force on June 1, 2017, and the Cybersecurity Review
Measures, or the &#8220;Review Measures,&#8221; which were promulgated on April 13, 2020, provide that personal information and important
data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored
in China, and if a critical information infrastructure operator purchases internet products and services that affect or may affect national
security, it should be subject to cybersecurity review by the CAC. In addition, a cybersecurity review is required where critical information
infrastructure operators, or the &#8220;CIIOs,&#8221; purchase network-related products and services, which products and services affect
or may affect national security. Due to the lack of further interpretations, the exact scope of what constitute a &#8220;CIIO&#8221;
remains unclear. Further, the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 10, 2021, the Standing
Committee of the National People&#8217;s Congress promulgated the Data Security Law which took effect on September 1, 2021. The Data
Security Law requires that data shall not be collected by theft or other illegal means, and it also provides that a data classification
and hierarchical protection system. The data classification and hierarchical protection system protects data according to its importance
in economic and social development, and the damages it may cause to national security, public interests, or the legitimate rights and
interests of individuals and organizations if the data is falsified, damaged, disclosed, illegally obtained or illegally used, which
protection system is expected to be built by the state for data security in the near future. In addition, the Office of the Central Cyberspace
Affairs Commission and the Office of Cybersecurity Review under the CAC, published the Cybersecurity Review Measures (Revised Draft for
Comments), or the &#8220;Review Measures Draft,&#8221; on July 10, 2021, which provides that, aside from CIIOs that intend to purchase
internet products and services, data processing operators engaging in data processing activities that affect or may affect national security
must be subject to the cybersecurity review by the Cybersecurity Review Office. According to the Review Measures Draft, a cybersecurity
review is conducted by the CAC, to assess potential national security risks that may be brought about by any procurement, data processing,
or overseas listing. The Review Measures Draft further requires that critical information infrastructure operators and services and data
processing operators that possess personal data of at least one (1) million users must apply for a review by the Cybersecurity Review
Office of PRC, if they plan to conduct listings in foreign countries. The deadline for public comments to the Review Measures Draft was
July 25, 2021. While the Review Measures Draft has been released for consultation purpose, there is uncertainty about its final content,
its adoption timeline or effective date, its final interpretation and implementation, and various other implications. It also remains
uncertain whether any future regulatory changes would impose additional restrictions on companies like us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As the PRC operating entities&#8217;
business do not involve the collection of personal data of at least 1,000,000 users, or implicate cybersecurity, as advised by our PRC
legal counsel, we believe that we, our subsidiaries, or the VIE are not subject to the cybersecurity review of the CAC, if the Review
Measures Draft becomes effective as they are currently published. As of the date of this prospectus, we have not received any notice
from any authorities identifying us as a CIIO or requiring us to undertake a cybersecurity review by the CAC. Further, we have not been
subject to any penalties, fines, suspensions, investigations from any competent authorities for violation of the regulations or policies
that have been issued by the CAC to date. If the Review Measures Draft is enacted as proposed, we believe we are not subject to the cybersecurity
review by the CAC for this offering, given that we are a CRF profile manufacturer and not engaged in any operation of information infrastructure.
However, there remains uncertainty as to how the Review Measures Draft 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 Review
Measures Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all
reasonable measures and actions to comply. We cannot assure you that PRC regulatory agencies, including the CAC, would take the same
view as we do, and there is no assurance that we can fully or timely comply with such laws should they be deemed applicable to our operations.
There is no certainty as to how such review or prescribed actions would impact our operations and we cannot guarantee that any clearance
can be obtained or any actions that may be required for our listing on the Nasdaq capital market and the offering as well can be taken
in a timely manner, or at all.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may be liable for improper use or appropriation
of personal information provided by our customers.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The business of the PRC operating
entities involves collecting and retaining certain internal and customer data. We also maintain information about various aspects of
our operations as well as regarding our employees. The integrity and protection of the customer, employee and company data is critical
to our business. The customers and employees of the PRC operating entities expect that the PRC operating entities will adequately protect
their personal information. The PRC operating entities are required by applicable laws to keep strictly confidential the personal information
that they collect, and to take adequate security measures to safeguard such information.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC Criminal Law, as
amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions,
companies and their employees from selling or otherwise illegally disclosing a citizen&#8217;s personal information obtained in performing
duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the SCNPC issued
the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017. Pursuant to the Cyber Security Law,
network operators must not, without users&#8217; consent, collect their personal information, and may only collect users&#8217; personal
information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services
and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Civil Code of the PRC
(issued by the PRC National People&#8217;s Congress on May 28, 2020 and effective from January 1, 2021) provides legal basis for privacy
and personal information infringement claims under the Chinese civil laws. PRC regulators, including the CAC, the Ministry of Industry
and Information Technology, or MIIT, and the Ministry of Public Security, have been increasingly focused on regulation in data security
and data protection.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC regulatory requirements
regarding cybersecurity are evolving. For instance, various regulatory bodies in China, including the CAC, the Ministry of Public Security
and the State Administration for Market Regulation, or the SAMR (formerly known as State Administration for Industry and Commerce, or
the SAIC), have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In
April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the
Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network
products and services which do or may affect national security.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the latest amended
Cybersecurity Review Measures, which was promulgated on December 28, 2021 and became effective on February 15, 2022, and replaced the
Cybersecurity Review Measures promulgated on April 13, 2020, online platform operator holding more than one million users/users&#8217;
individual information shall be subject to cybersecurity review before listing abroad. Cybersecurity Review Measures does not provide
a definition of &#8220;online platform operator&#8221;, therefore, we cannot assure you that any PRC operating entities will not be deemed
as an &#8220;online platform operator.&#8221; On November 14, 2021, the CAC released the Regulations on the Network Data Security Management
(Draft for Comments), or the Data Security Management Regulations Draft, to solicit public opinion and comments. Pursuant to the Data
Security Management Regulations Draft, data processor holding more than one million users/users&#8217; individual information shall be
subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the collection, retention,
use, processing, transmission, provision, disclosure, or deletion of data. As of the date of this Annual Report, the MDMOOC online platform
has more than 219,825 registered users and a database of more than 109,712 healthcare experts, and we currently do not hold more than
one million users/users&#8217; individual information. However, we may be deemed as a data processor under the Data Security Management
Regulations Draft.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Cybersecurity Review
Measures also provide that if a critical information infrastructure operator, or a CIIO, purchases internet products and services that
affect or may affect national security, it should be subject to cybersecurity review by the CAC. We do not expect to be a CIIO, since
(i) we do not hold a large amount of individual information, and (ii) data processed in our business is less likely to have a bearing
on national security, thus it may not be classified as core or important data by the authorities. However, due to the lack of further
interpretations, the exact scope of what constitutes a &#8220;CIIO&#8221; remains unclear. As of the date of this prospectus, we have
not received any notice from any authorities identifying us as a CIIO or requiring us to undertake a cybersecurity review by the CAC.
Further, as of the date of this prospectus, we have not been subject to any penalties, fines, suspensions, or investigations from any
competent authorities for violation of the regulations or policies that have been issued by the CAC.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this prospectus,
we have not been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. However, if we
are deemed to be a critical information infrastructure operator or a company that is engaged in data processing and holds personal information
of more than one million users, we could be subject to PRC cybersecurity review.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date hereof, as
advised by our PRC legal counsel, we are of the view that we are in compliance with the applicable PRC laws and regulations governing
the data privacy and personal information in all material respects, including the data privacy and personal information requirements
of the Cyberspace Administration of China, and we have not received any complaints from any third party, or been investigated or punished
by any PRC competent authority in relation to data privacy and personal information protection. However, as there remains significant
uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could be subject to cybersecurity
review, and if so, we may not be able to pass such review in relation to this offering. In addition, we could become subject to enhanced
cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity
review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including
suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as
well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial
condition or results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 10, 2021, the SCNPC
promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy
obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection
system based on the importance of data in economic and social development, and the degree of harm it will cause to national security,
public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked,
illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that
may affect national security and imposes export restrictions on certain data an information.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As uncertainties remain regarding
the interpretation and implementation of these laws and regulations, we cannot assure you that we will comply with such regulations in
all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also
become subject to fines and/or other sanctions which may have material adverse effect on our business, operations and financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">While we take various measures
to comply with all applicable data privacy and protection laws and regulations, our current security measures and those of our third-party
service providers may not always be adequate for the protection of our customer, employee or company data. We may be a target for computer
hackers, foreign governments or cyber terrorists in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Unauthorized access to our
proprietary internal and customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party,
computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of our third party
service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage
our proprietary internal and customer data change frequently and may not be recognized until launched against a target, we may be unable
to anticipate these techniques.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Unauthorized access to our
proprietary internal and customer data may also be obtained through inadequate use of security controls. Any of such incidents may harm
our reputation and adversely affect our business and results of operations. In addition, we may be subject to negative publicity about
our security and privacy policies, systems, or measurements. Any failure to prevent or mitigate security breaches, cyber-attacks or other
unauthorized access to our systems or disclosure of our customers&#8217; data, including their personal information, could result in
loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust,
impairment of our technology infrastructure, and harm our reputation and business, resulting in significant legal and financial exposure
and potential lawsuits.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; failure
to obtain, maintain or renew other licenses, approvals, permits, registrations or filings necessary to conduct their operations in China
could have a material adverse impact on our business, financial conditions and results of operations. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A number of PRC regulatory
authorities oversee different aspects of the PRC operating entities&#8217; business operations, and the PRC operating entities are required
to obtain a wide range of licenses, approvals, permits, registrations and filings required for conducting their business in China, which
we cannot assure you that the PRC operating entities have obtained all of them or will continue to maintain or renew all of them.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">The
PRC operating entities may be deemed as providing certain restricted services or conduct certain restricted activities and thus be subject
to certain licenses, approvals, permits, registrations and filings due to lack official interpretations on certain terms under internet
related PRC regulations and laws. For example, (i) certain business operated on the PRC operating entities&#8217; websites and mobile
apps, including providing platform for users to release, collect and process medial information, may be deemed as the internet information
services, thus they may be required to obtain a License for Value-added Telecommunications Services for provision of such services. Whoever
engages in the internet information services without obtaining such license may be ordered to make a rectification, be confiscated of
illegal gains, and be imposed a fine. If the circumstances are serious, it shall be ordered to suspend business for rectification; (ii)
certain content posted on the PRC operating entities&#8217; website or mobile apps, including the course materials, the courseware or
audio-visual content uploaded by the PRC operating entities </span>&#160;<span style="font-family: Times New Roman, Times, Serif">in
MDMOOC online platform, may be deemed as &#8220;internet cultural products,&#8221; and the PRC operating entities&#8217; use of those
contents may be regarded as &#8220;internet cultural activities,&#8221; thus they may be required to obtain an Internet Culture Business
Operating License for provision of those contents. If any entity engages in the activities without obtaining such licenses, the competent
administrative department shall order it to cease the operational internet cultural activities, give it a warning, and impose upon it
a fine of less than RMB 30,000; if it refuses to cease the operational activities, it shall be blacklisted in the cultural market, and
imposed upon it as a credit punishment; (iii) due to the ambiguity of the definition of &#8220;online publishing service,&#8221; the
online distribution of content, including the PRC operating entities&#8217; course materials, the courseware or audio-visual contents
uploaded by the PRC operating entities </span>&#160;<span style="font-family: Times New Roman, Times, Serif">of MDMOOC online platform
may be regarded as &#8220;online publishing service&#8221; and therefore they may be required to obtain an Online Publishing License.
Where any entity or individual engages in online publishing services without approval, the competent departments shall ban such entity
or individual according to their statutory functions and powers, and the competent departments shall order them to close their websites
and delete all the relevant online publications, confiscate their illegal income and major equipment and tools used for engaging in the
activities, and impose fines; (iv) certain medial and drug-related contents posted on the PRC operating entities&#8217; website or mobile
apps may be deemed as internet drug information service, and the PRC operating entities&#8217; use of those contents may be required
to obtain a Qualification Certificate for Internet Drug Information Services for provision of those contents. In the case of any engagement
in the services without obtaining or making use of the License for Internet-based Drug Information Services beyond the period of validity
thereof, the authority shall issue a warning and order the parties concerned to suspend from engaging in internet -based drug information
services; if the circumstances are serious, punishments shall be given in accordance with relevant laws and regulations by the competent
authority; and (v) certain PRC operating entities producing and posting videos on their website or mobile apps may be required to obtain
a License for Production and Operation of Radio and TV Programs from the SARFT or its counterparts at the provincial level under the
Regulations on the Administration of Production and Operation of Radio and Television Programs. Some of the applicable PRC operating
entities have not obtained the above licenses or made such filings, and certain licenses that were obtained by the PRC operating entities
have expired and have not been successfully renewed yet, and such PRC operating entities may be punished accordingly. </span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, under current
PRC laws and regulations, an information service provider that reposts news for internet publication shall first obtain license from
Cyberspace Administration of China (&#8220;CAC&#8221;) or its local counterpart. Certain learning materials the PRC operating entities
provide on their platform are partly from foreign media. Due to the ambiguity of the definition of &#8220;news&#8221; under the current
PRC laws and regulations, we cannot assure you that the PRC operating entities&#8217; provision of such materials will not be deemed
by the relevant PRC government authorities as reposting &#8220;news&#8221; without proper license, which will subject us to various penalties,
including fines and suspension of such provision. Although we do not think the PRC operating entities are subject to any of these licenses
or filing requirements, and as of the date of this Annual Report, the PRC operating entities have not been subject to any fines or other
form of regulatory or administrative penalties or sanctions due to the lack of any the licenses, approvals, permits, registrations and
filings, we cannot assure you that the PRC government authorities will not take a different view or will not require us to obtain any
additional licenses, approvals, permits, registrations and filings in the future. If the PRC operating entities fail to do so, they may
be subject to various penalties, such as confiscation of illegal revenues, fines and discontinuation or restriction of business operations,
which may materially and adversely affect the PRC operating entities&#8217; business, financial condition and results of operations.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, there can be
no assurance that the PRC operating entities will be able to maintain their existing licenses, approvals, registrations or permits necessary
to provide their current online services in China, renew any of them when their current term expires, or update existing licenses or
obtain additional licenses, approvals, permits, registrations or filings necessary for their business expansion from time to time. If
the PRC operating entities fail to do so, the PRC operating entities&#8217; business, financial conditions and operational results may
be materially and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Failure to comply with PRC regulations
in relation to lease property may subject us to penalty</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Certain PRC operating entities&#8217;
actual operating addresses are different from their registered addresses. In accordance with applicable PRC laws and regulations, a market
entity may only register one domicile or principal place of business, otherwise it shall establish a branch at another address actually
used by it and apply to the registration authority for registration. Failure to comply with the aforesaid provisions may cause the registration
authorities to order a correction and confiscate the illegal income; if such PRC operating entities refuse to make correction, a fine
ranging from RMB10,000 to RMB100,000 shall be imposed; in serious cases, the PRC operating entities may be ordered to close down pursuant
to the law and a fine ranging from RMB100,000 to RMB500,000 shall be imposed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, the PRC operating
entities have not registered all of their lease agreements with the relevant regulatory authorities. The failure to register the lease
agreements for their leased properties will not affect the validity of these lease agreements, but the competent housing authorities
may order the PRC operating entities to register the lease agreements in a prescribed period of time and impose a fine ranging from RMB1,000
to RMB10,000 for each nonregistered lease agreement if such PRC operating entities fail to complete the registration within the prescribed
timeframe.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If the PRC operating entities fail to submit
their annual reports to SAMR in a timely manner or at all, the PRC operating entities may be recorded in the list of abnormal business
operation, which have adverse impact on our business operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">PRC laws and regulations
require the PRC operating entities to submit their annual reports of the preceding year through the enterprise information disclosure
system to SAMR during 1 January to 30 June every year, and disclose to the public. If the PRC operating entities fail to submit their
annual reports to SAMR in a timely manner or at all, the PRC operating entities may be recorded in the list of abnormal business operation
and will be publicized through the enterprise credit information publicity system to remind them to perform the publicity obligations.
If the case is serious, the relevant competent department may impose an administrative penalty in accordance with the relevant laws and
administrative regulations; if any loss is caused, the PRC operating entities shall bear the liability for compensation according to
law; and if a crime is constituted, the PRC operating entities shall be subject to criminal liabilities according to law, which may have
adverse impact on our business operations. As of the date of this Annual Report, West Angel is on the list of abnormal business operation
for failure to submit their annual reports to SAMR, and it intends to apply for removal from such list after the change of registered
address is completed. Except as disclosed in this Annual Report the applicable PRC operating entities have timely submitted their annual
reports and are not listed in the list of abnormal business operation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>U.S. regulators&#8217; ability to conduct
investigations or enforce rules in China is limited. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The majority of the operations
of the PRC operating entities conducted outside of the U.S. In addition, our management consists of five officers who are all located
in China and three independent directors, among which two are located in the United States and one is located in China. As a result,
it may not be possible for the U.S. regulators to conduct investigations or inspections, or to effect service of process within the U.S.
or elsewhere outside the U.S. on us, our subsidiaries, the PRC operating entities, officers, directors (except two independent directors)
and shareholders, and others, including with respect to matters arising under U.S. federal or state securities laws. China does not have
treaties providing for reciprocal recognition and enforcement of judgments of courts with the U.S. and many other countries. As a result,
recognition and enforcement in China of these judgments in relation to any matter, including U.S. securities laws and the laws of the
Cayman Islands, may be difficult.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We face uncertainty regarding the PRC tax
reporting obligations and consequences for certain indirect transfers of the stock of the operating company.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Notice on
Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration
of Taxation on December&#160;10, 2009, or Circular 698, where a foreign investor transfers the equity interests of a PRC resident enterprise
indirectly by way of the sale of equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding
company is located in a tax jurisdiction that: (i)&#160;has an effective tax rate less than 12.5% or (ii)&#160;does not tax foreign income
of its residents, the foreign investor should report such Indirect Transfer to the competent tax authority of the PRC resident enterprise.
The PRC tax authority will examine the true nature of the Indirect Transfer, and if the tax authority considers that the foreign investor
has adopted an abusive arrangement in order to avoid PRC tax, they will disregard the existence of the overseas holding company and re-characterize
the Indirect Transfer and as a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at the rate of
up to 10%. In addition, the PRC resident enterprise is supposed to provide necessary assistance to support the enforcement of Circular
698. At present, the PRC tax authorities will neither confirm nor deny&#160;that they&#160;would enforce Circular 698, in conjunction
with other tax collection and tax withholding rules, to make claims against our PRC subsidiary or the PRC operating entities as being&#160;indirectly
liable&#160;for&#160;unpaid taxes, if any,&#160;arising from Indirect Transfers by shareholders who did not obtain their shares in the
public offering of our shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may be subject to any enforcement actions
brought by Chinese tax authorities if we fail to pay certain valued-added tax and income taxes in a timely manner.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2008, the PRC
Enterprise Income Tax Law (&#8220;EIT Law&#8221;) took effect, which was last amended by the Standing Committee of the National People&#8217;s
Congress on December 29, 2018. The PRC Enterprise Income Tax Law applies a uniform 25 percent enterprise income tax rate to both FIEs
and domestic enterprises, except where tax incentives are granted to special industries and projects. The PRC Enterprise Income Tax Law
defines &#8220;resident enterprise&#8221; as an enterprise established outside of the territory of China but with its &#8220;de facto
management body&#8221; within China, which will also be subject to the 25% enterprise income tax rate. The implementation rules define
the term &#8220;de facto management body&#8221; as the body that exercises full and substantial control and overall management over the
business, productions, personnel, accounts, and properties of an enterprise. Enterprises qualified as &#8220;High and New Technology
Enterprises&#8221; are entitled to a 15% enterprises income tax rate rather than the 25% uniform statutory tax rate. The preferential
tax treatment continues as long as an enterprise can retain its &#8220;High and New Technology Enterprise&#8221; status. Under the PRC
Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January
1, 2008, and payable to its foreign investor may be subject to a withholding tax rate of 10 percent if the PRC tax authorities determine
that the foreign investor is a Non-resident Enterprise, unless there is a tax treaty with China that provides for a preferential withholding
tax rate. Distributions of earnings generated before January 1, 2008, are exempt from PRC withholding tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The State Administration
of Taxation (&#8220;SAT&#8221;) has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent
years, including the Interim Measures for the Administration of Remittance of Income Tax for Non-Resident Enterprise Withheld at Source
(the &#8220;Interim Measures&#8221;) which became effective on January 1, 2009, the Notice of the SAT on Strengthening the Administration
of Enterprise Income Tax on Gain Derived from Equity Transfer Made by Non-Resident Enterprise (the &#8220;Notice&#8221;) which became
effective on January 1, 2008 and was amended on July 19, 2015, the Announcement of the SAT on Issues Concerning the Withholding of Non-resident
Enterprise Income Tax at Source (the &#8220;SAT Circular 37&#8221;) which was promulgated on October 17, 2017, became effective on December
1, 2017 and was amended on June 15, 2018, and the Public Notice of the SAT Regarding Certain Enterprise Income Tax Matters on Indirect
Transfer of Properties by Non-Resident Enterprises (the &#8220;Public Notice 7&#8221;) which became effective on February 3, 2015 and
was amended on December 1, 2017 and December 29, 2017.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The SAT Circular 37 amended
some provisions in Public Notice 7, repealed the Interim Measures and the Notice and simplifies procedures of withholding and payment
of income tax levied on non-resident enterprises. Pursuant to these rules and notices, where a non-resident enterprise investor transfers
equity interests or other taxable assets in a PRC resident enterprise indirectly by way of disposing of equity interests in an overseas
holding company, the non-resident enterprise investor, being the transferor, may be subject to PRC enterprise income tax if the indirect
transfer is considered to be an abusive use of company structure without reasonable commercial purposes. In addition, Public Notice 7
provides clear criteria on how to assess reasonable commercial purposes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Temporary
Regulations on Value-added Tax, which was most recently amended on November 19, 2017, and the Detailed Implementing Rules of the Temporary
Regulations on Value-added Tax, which was amended on October 28, 2011, and became effective on November 1, 2011, all taxpayers selling
goods, providing processing, repair or replacement services or importing goods within the PRC shall pay Value-Added Tax. The rate of
VAT is 17%, 11% or 6% in certain limited circumstances depending on the product type.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 4, 2018, the Ministry
of Finance and the SAT jointly issued the Notice of Adjustment of Value-added Tax Rates which declared that the VAT tax rate in regard
to the sale of goods, provision of processing, repairs and replacement services and importation of goods into China shall be reduced
from the previous 17% and 11% to 16% and 10% respectively from May 1, 2018.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Announcement
of the MOF, the SAT and the General Administration of Customs on Relevant Policies for Deepening Value-added Tax Reform promulgated on
March 20, 2019 and became effective on April 1, 2019 (the &#8220;Announcement&#8221;), for the VAT taxable sales or imports by a general
taxpayer of VAT, the applicable tax rate shall be adjusted to 13% from the original 16% and to 9% from original 10%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, according to
the Trial Scheme for the Conversion of Business Tax to Value-added Tax, which was promulgated by the MOF and the SAT, the PRC began to
launch taxation reforms in a gradual manner in January 1, 2012, whereby the collection of value-added tax in lieu of business tax items
was implemented on a trial basis in regions showing significant radiating effects in economic development and providing outstanding reform
examples, beginning with production service industries such as transportation and certain modern service industries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In accordance with Notice
of the Ministry of Finance and the State Administration of Taxation on Full Launch of the Pilot Scheme on Levying Value-added Tax in
Place of Business Tax, a SAT circular that took effect on May 1, 2016, amended on July 11, 2017 and April 1, 2019, upon approval of the
State Council, the pilot program of the collection of value-added tax in lieu of business tax shall be promoted nationwide in a comprehensive
manner starting May 1, 2016, and all taxpayers of business tax engaged in the building industry, the real estate industry, the financial
industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax
instead of business tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we fail to timely pay
any value-added tax and income taxes in full as required by the applicable laws and regulations and the competent tax authorities in
China, the competent tax authorities may take any enforcement actions against us, which may adversely affect our business and results
of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>PRC regulations relating to the establishment
of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our
ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiary ability to distribute profits
to us, or otherwise materially and adversely affect us.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In July 2014, SAFE has promulgated
the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents&#8217; Offshore Investment and Financing and
Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign
Exchange Administration for Domestic Residents&#8217; Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or
SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including
PRC individuals and PRC corporate entities) to register with local branches of SAFE in connection with their direct or indirect offshore
investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore
acquisitions that we make in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under SAFE Circular 37, PRC
residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special
purpose vehicles, or SPVs, will be required to register such investments with the SAFE or its local branches. In addition, any PRC resident
who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect
to that SPV, to reflect any material change. Moreover, any subsidiaries of such SPV in China is required to urge the PRC resident shareholders
to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration
or to update the previously filed registration, the subsidiaries of such SPV in China may be prohibited from distributing its profits
or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making
additional capital contribution into its subsidiary in China. On February 28, 2015, the SAFE promulgated a Notice on Further Simplifying
and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015.
Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investment and outbound overseas direct
investment, including those required under the SAFE Circular 37, will be filed with qualified banks instead of the SAFE. The qualified
banks will directly examine the applications and accept registrations under the supervision of the SAFE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have requested our shareholders
that we know are PRC residents and hold direct or indirect interests in us to make the necessary applications, filings and amendments
as required under SAFE Circular 37 and other related rules. To our knowledge, as the date hereof, all our current PRC resident beneficial
owners who has more than 5% of our voting power, including our founder Weiguang Yang, have filed the foreign exchange registration in
connection with their respective overseas shareholding in our company in accordance with the Circular 37. However, we may not at all
times be fully aware or informed of the identities of all our beneficial owners who are PRC residents, and we may not always be able
to compel our beneficial owners to comply with the SAFE Circular 37 requirements. As a result, we cannot assure you that all of our shareholders
or beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable registrations
or approvals required by, SAFE Circular 37 or other related regulations. Failure by any such shareholders or beneficial owners to comply
with SAFE Circular 37 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit
our PRC subsidiary&#8217;s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect
our business and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, as the interpretation
and implementation of foreign exchange regulations has been constantly evolving, it is unclear how these regulations, and any future
regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant governmental
authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities,
such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results
of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company,
as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the
foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business
and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>PRC regulation of loans and direct investment
by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the initial public offering or any subsequent
offerings to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity
and our ability to fund and expand our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any transfer of funds by
us to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to PRC regulations. Capital
contributions to our PRC subsidiaries are subject to the approval of or filing with the MOFCOM in its local branches and registration
with a local bank authorized by the SAFE. Any foreign loan procured by our PRC subsidiaries is required to be registered or filed with
the SAFE or its local branches or satisfy relevant requirements as provided by SAFE. Any medium- or long-term loan to be provided by
us to the VIEs must be registered with the NDRC and the SAFE or its local branches. We may not be able to obtain these government approvals
or complete such registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our
PRC subsidiaries. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds of our
financing activities and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and
our ability to fund and expand our business. There is, in effect, no statutory limit on the amount of capital contribution that we can
make to our PRC subsidiaries, provided that the PRC subsidiaries complete the relevant filing and registration procedures. With respect
to loans to the PRC subsidiaries by us, (i) if the relevant PRC subsidiaries adopt the traditional foreign exchange administration mechanism,
or the Current Foreign Debt Mechanism, the outstanding amount of the loans shall not exceed the difference between the total investment
and the registered capital of the PRC subsidiaries; and (ii) if the relevant PRC subsidiaries adopt the mechanism as provided in the
PBOC Notice No. 9, or the Notice No. 9 Foreign Debt Mechanism, the outstanding amount of the loans shall not exceed 200% of the net asset
of the relevant PRC subsidiary.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, on October 23,
2019, the SAFE promulgated the Circular on Further Promoting the Facilitation of Cross-Border Trade and Investment, or SAFE Circular
28, pursuant to which, our PRC subsidiaries established in the pilot regions, which refers to the Guangdong-Hong Kong-Macao Greater Bay
Area and Hainan province, are not required to register each of their foreign debts with the SAFE or its local branches but to complete
foreign debts registration with the SAFE or its local branches in the amount of 200% of the net asset of the relevant PRC subsidiary.
Upon such registrations, our relevant PRC subsidiaries will be allowed to procure foreign loans within the registered amount and complete
the formalities for inward and outward remittance of funds, purchase and settlement of foreign currency directly with a bank, and are
required to make declaration of international balance of payments pursuant to applicable regulations. However, since it is relatively
new, uncertainties still exist in relation to its interpretation and implementation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Notice of
the PBOC on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or PBOC Notice No. 9, after a
transition period of one year since the promulgation of PBOC Notice No. 9, the PBOC and the SAFE will determine the cross-border financing
administration mechanism for the foreign-invested enterprises after evaluating the overall implementation of PBOC Notice No. 9. As of
the date of this Annual Report, neither the PBOC nor the SAFE has promulgated and made public any further rules, regulations, notices
or circulars in this regard. It is uncertain which mechanism will be adopted by the PBOC and the SAFE in the future and what statutory
limits will be imposed on us when providing loans to our PRC subsidiaries. Currently, our PRC subsidiaries have the flexibility to choose
between the Current Foreign Debt Mechanism and the Notice No. 9 Foreign Debt Mechanism. However, if a more stringent foreign debt mechanism
becomes mandatory, our ability to provide loans to our PRC subsidiaries or the VIEs may be significantly limited, which may adversely
affect our business, financial condition and results of operations. Despite neither the Foreign Investment Law nor its Implementing Regulation
prescribes whether the certain concept &#8220;total investment amount&#8221; with respect to foreign-invested enterprises will still
be applicable, no PRC laws and regulations have been officially promulgated to abolish the Current Foreign Debt Mechanism.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Circular on Reforming
the Administration of Foreign Exchange Settlement of Capital of Foreign- Invested Enterprises, or SAFE Circular 19, effective as of June
1, 2015, as amended by Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over
Foreign Exchange Settlement under the Capital Account, or SAFE Circular 16, effective on June 9, 2016, allows FIEs to settle their foreign
exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange
capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans to persons
other than affiliates unless otherwise permitted under its business scope. As a result, we are required to apply Renminbi funds converted
from the net proceeds we received from our financing activities within the business scopes of our PRC subsidiaries. SAFE Circular 19
and SAFE Circular 16 may significantly limit our ability to use Renminbi converted from the net proceeds of our financing activities
to fund the establishment of new entities in China by the VIEs or their respective subsidiaries, to invest in or acquire any other PRC
companies through our PRC subsidiaries, or to establish new consolidated VIEs in China, which may adversely affect our business, financial
condition and results of operations. Even though SAFE Circular 28 allows all FIEs (including those without an investment business scope)
to utilize and convert their foreign exchange capital for making equity investment in China if certain requirements prescribed therein
are satisfied, uncertainties still exist in relation to its interpretation and implementation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Governmental control of currency conversion
may limit our ability to use our revenues effectively and the ability of our PRC subsidiaries to obtain financing.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC government imposes
control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive
a majority of our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion imposed
by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies
or our business activities outside China. Under China&#8217;s existing foreign exchange regulations, Renminbi may be freely converted
into foreign currency for payments relating to current account transactions, which include among other things dividend payments and payments
for the import of goods and services, by complying with certain procedural requirements. Our PRC subsidiaries are able to pay dividends
in foreign currencies to us without prior approval from SAFE, by complying with certain procedural requirements. Our PRC subsidiaries
may also retain foreign currency in their respective current account bank accounts for use in payment of international current account
transactions. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign
currencies for current account transactions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Conversion of Renminbi into
foreign currencies, and of foreign currencies into Renminbi, for payments relating to capital account transactions, which principally
includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions
on the convertibility of the Renminbi for capital account transactions could affect the ability of our PRC subsidiaries to make investments
overseas or to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from us.
We cannot assure you that the registration process will not delay or prevent our conversion of Renminbi for use outside of China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may be classified as a &#8220;resident
enterprise&#8221; for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and
our non-PRC shareholders.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Enterprise Income Tax
Law provides that enterprises established outside of China whose &#8220;de facto management bodies&#8221; are located in China are considered
PRC tax resident enterprises and will generally be subject to the uniform 25% PRC enterprise income tax rate on their global income.
In addition, a tax circular issued by the State Administration of Taxation on April&#160;22, 2009 regarding the standards used to classify
certain Chinese-invested enterprises established outside of China as resident enterprises clarified that dividends and other income paid
by such resident enterprises will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%,
when recognized by non-PRC enterprise shareholders. This circular also subjects such resident enterprises to various reporting requirements
with the PRC tax authorities. Under the implementation rules to the Enterprise Income Tax Law, a de facto management body is defined
as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources,
finances and other assets of an enterprise. In addition, the tax circular mentioned above details that certain Chinese-invested enterprises
will be classified as resident enterprises if the following are located or resident in China: senior management personnel and departments
that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties,
accounting books, company seal, and minutes of board meetings and shareholders&#8217; meetings; and half or more of the senior management
or directors having voting rights.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Currently, there are no detailed
rules or precedents governing the procedures and specific criteria for determining de facto management bodies which are applicable to
our company or our overseas subsidiaries. We do not believe that Zhongchao meets all of the conditions required for PRC resident enterprise.
The Company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries,
and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders)
are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises
either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain
with respect to the interpretation of the term &#8220;de facto management body.&#8221; There can be no assurance that the PRC government
will ultimately take a view that is consistent with ours.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">However, if the PRC tax authorities
determine that Zhongchao is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding
tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be reduced by applicable tax
treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the
benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In
addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of
ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders
would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined
to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless
a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would
be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is
treated as a PRC resident enterprise.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Provided that our Cayman
Islands holding company, Zhongchao, is not deemed to be a PRC resident enterprise, our shareholders who are not PRC residents will not
be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However,
under the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Circular 7,
where a non-resident enterprise conducts an &#8220;indirect transfer&#8221; by transferring taxable assets, including, in particular,
equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident
enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant
tax authority such indirect transfer. Using a &#8220;substance over form&#8221; principle, the PRC tax authority may disregard the existence
of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding
or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee
would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident
enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7,
and we may be required to expend valuable resources to comply with the Circular on Issues of Enterprise Income Tax on Indirect Transfers
of Assets by Non-PRC Resident Enterprises, or Bulletin 37, or to establish that we should not be taxed under Circular 7 and Bulletin
37.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to the uncertainty
in how the new resident enterprise classification could apply, it is also possible that the rules may change in the future, possibly
with retroactive effect. If we are required under the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to
our foreign shareholders, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned
above, the value of your investment in our shares may be materially and adversely affected. These rates may be reduced by an applicable
tax treaty, but it is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would be able to claim the
benefit of income tax treaties or agreements entered into between China and other countries or areas. Any such tax may reduce the returns
on your investment in our shares.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The M&amp;A Rules and certain other PRC
regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult
for us to pursue growth through acquisitions in China.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&amp;A Rules, adopted by six PRC regulatory agencies in August&#160;2006
and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies
and controlled by PRC companies or individuals to obtain the approval of the CSRC, prior to the listing and trading of such special purpose
vehicle&#8217;s securities on an overseas stock exchange. In September&#160;2006, the CSRC published a notice on its official website
specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas
listings. The application of the M&amp;A Rules remains unclear. These M&amp;A Rules and some other regulations and rules concerning mergers
and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors
more time consuming and complex, including requirements in some instances that the Ministry of Commerce (&#8220;MOC&#8221;) be notified
in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the
Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered.
In addition, the security review rules issued by the MOC that became effective in September&#160;2011 specify that mergers and acquisitions
by foreign investors that raise &#8220;national defense and security&#8221; concerns and mergers and acquisitions through which foreign
investors may acquire de facto control over domestic enterprises that raise &#8220;national security&#8221; concerns are subject to strict
review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction
through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying
with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming,
and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability
to complete such transactions, which could affect our ability to expand our business or maintain our market share.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other
legal or administrative sanctions.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In February&#160;2012, SAFE
promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive
Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March&#160;2007. Pursuant to these rules, PRC citizens
and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan
of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified
agent, which could be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas
entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or
sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for
a continuous period of not less than one year and who are granted options or other awards under the equity incentive plan are subject
to these regulations as our company is an overseas listed company. Failure to complete the SAFE registrations may subject them to fines
and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary&#8217;
ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive
plans for our directors, executive officers and employees under PRC law.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Failure to make adequate contributions
to various mandatory social security plans as required by PRC regulations may subject the PRC operating entities to penalties.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">PRC laws and regulations
require us to pay several statutory social welfare benefits for our employees, including pensions, medical insurance, work-related injury
insurance, unemployment insurance, maternity insurance and housing provident fund contributions. Local governments usually implement
localized requirements as to mandatory social security plans considering differences in economic development in different regions. The
PRC operating entities failure in making contributions to various mandatory social security plans and in complying with applicable PRC
labor-related laws may subject us to late payment penalties. The PRC operating entities may be required to make up the contributions
for these plans as well as to pay late fees and fines. If the PRC operating entities are subject to late fees or fines in relation to
the underpaid employee benefits, our financial condition and results of operations may be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Failure to register with the competent
authorities with respect to social insurance and housing provident fund as required by PRC regulations may subject the PRC operating
entities to penalties.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">PRC laws and regulations
require newly established employers to apply for social security registration with the local social security agency and housing provident
fund registration with housing provident fund management center within 30 days from the date of incorporation. As of the date of this
Annual Report, the PRC operating entities without any employees haven&#8217;t made social security or housing provident fund registration with
the competent authorities, which may subject them to make correction within a stipulated period or a fine. If the PRC operating entities
are subject to fines, our financial condition and results of operations may be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If the number of dispatched workers of
the PRC operating entities exceeds statutory limit, the PRC operating entities may be subject to penalties.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">The
PRC Labor Contract Law and the Interim Provisions on Labor Dispatch stipulate that an employer shall strictly control the number of dispatched
workers it employed, which shall not exceed 10% of the total number of employees. As of the date of this Annual Report, the number of
dispatched workers of certain PRC operating entities exceeds 10% of their total number of employees, which may subject them to make correction
within a stipulated period or a fine ranging from RMB5,000 to RMB10,000 per person. If the PRC operating entities are subject to fines,
our financial condition and results of operations may be adversely affected. The services agreements with certain dispatched workers
will terminate upon the completion of the projects they are working on, and the PRC operating entities plan to enter to full-time employment
agreements with all the staff in the future.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The PRC operating entities&#8217; current
employment practices may be restricted under the PRC Labor Contract Law and their labor costs may increase as a result.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC Labor Contract Law
and its implementing rules impose requirements concerning contracts entered into between an employer and its employees and establish
time limits for probationary periods and for how long an employee can be placed in a fixed-term labor contract. Because the Labor Contract
Law and its implementing rules have not been in effect very long and because there is lack of clarity with respect to their implementation
and potential penalties and fines, it is uncertain how it will impact the PRC operating entities&#8217; current employment policies and
practices. We cannot assure you that the PRC operating entities&#8217; employment policies and practices do not, or will not, violate
the Labor Contract Law or its implementing rules and that the PRC operating entities will not be subject to related penalties, fines
or legal fees. If the PRC operating entities are subject to large penalties or fees related to the Labor Contract Law or its implementing
rules, our business, financial condition and results of operations may be materially and adversely affected. In addition, according to
the Labor Contract Law and its implementing rules, if the PRC operating entities intend to enforce the non-compete provision with an
employee in a labor contract or non-competition agreement, they have to compensate the employee on a monthly basis during the term of
the restriction period after the termination or ending of the labor contract, which may cause extra expenses to us. Furthermore, the
Labor Contract Law and its implementation rules require certain terminations to be based upon seniority rather than merit, which significantly
affects the cost of reducing workforce for employers. In the event the PRC operating entities decide to significantly change or decrease
the PRC operating entities&#8217; workforce in the PRC, the Labor Contract Law could adversely affect the PRC operating entities&#8217;
ability to enact such changes in a manner that is most advantageous to their circumstances or in a timely and cost effective manner,
thus our results of operations could be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If the chops of the PRC operating entities
and branches are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance
of these entities could be severely and adversely compromised.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In China, a company chop
or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally
registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In
addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of
the PRC operating entities are generally held securely by personnel designated or approved by us in accordance with their internal control
procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes,
the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide
by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to
do so. In addition, if the chops are misused by unauthorized persons, the PRC operating entities could experience disruption to their
normal business operations. The PRC operating entities may have to take corporate or legal action, which could involve significant time
and resources to resolve while distracting management from our operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_006"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 4. INFORMATION ON THE COMPANY</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">A. <span style="text-decoration:underline">History and Development of the Company</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Our Corporate History and Structure</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are a holding company
incorporated on April 16, 2019, under the laws of the Cayman Islands, or Zhongchao Cayman. We have no substantive operations other than
holding all of the issued and outstanding shares of Zhongchao Group Inc., or Zhongchao BVI, established under the laws of the British
Virgin Islands on April 23, 2019.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao BVI is also a holding
company holding all of the outstanding equity of Zhongchao Group Limited, or Zhongchao HK, which was established in Hong Kong on May
14, 2019. Zhongchao HK is also a holding company holding all of the outstanding equity of Beijing Zhongchao Zhongxing Technology Limited,
or Zhongchao WFOE, which was established on May 29, 2019 under the laws of the PRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We conduct our business through
the VIE, Zhongchao Medical Technology (Shanghai) Corp., or Zhongchao Shanghai, a PRC company, and through 12 subsidiaries of Zhongchao
Shanghai, including Shanghai Maidemu, Shanghai Zhongxun, Shanghai Zhongxin, Beijing Boya, Shanghai Xinyuan, Hainan Zhongteng, Hainan
Muxin, Shanghai Huijing, Xinjiang Pharmaceutical, Beijing Yisuizhen, West Angel and Liaoning Zhixun, each a PRC company. They commenced
their operations under the name Zhongchao Medical Consulting (Shanghai) Limited, or Shanghai Zhongchao Limited, a limited liability company
established under the laws of the PRC, to provide medical online and offline training services. Zhongchao Shanghai was incorporated on
August 17, 2012 by Juru Guo and Baorong Xue, who held 60% and 40% equity interests in Zhongchao Shanghai respectively. On May 25, 2015,
the two shareholders transferred all equity interests to Weiguang Yang who held 100% equity interests in Zhongchao Shanghai after the
transfer. On January 15, 2016, the name was changed to Zhongchao Medical Technology (Shanghai) Co., Ltd. On February 5, 2016, the management
completed its registration with the State Administration for Industry and Commerce, or SAIC, to convert Shanghai Zhongchao Limited into
a company limited by shares, or Zhongchao Shanghai. Through direct ownership, Zhongchao Shanghai has established subsidiaries and branch
offices in various cities in PRC, including Beijing, Shanghai, Hainan, Liaoning and Chongqing.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 27, 2016, Zhongchao
Shanghai was listed on the National Equities Exchange and Quotations Co., Ltd., or the NEEQ. At the time of listing, Weiguang Yang directly
held 54.60% equity interests in Zhongchao Shanghai and Shanghai Xingzhong Investment Management LP. Ltd., a limited partnership incorporated
under the PRC laws (&#8220;Shanghai Xingzhong&#8221;), directly held 17.90% equity interests in Zhongchao Shanghai. Shanghai Xingzhong
was incorporated on September 22, 2015 by management of Zhongchao Shanghai as a platform for certain officers and employees holding founder
shares. Pursuant to its partner agreement, Weiguan Yang is the general partner of Shanghai Xingzhong; and manages and operates Shanghai
Xingzhong. He has the right, among others, to possess, manage, maintain and dispose the assets of Shanghai Xingzhong including its equity
interest in Zhongchao Shanghai. As a result, Weiguang Yang controlled 72.50% equity interests in Zhongchao Shanghai upon listing on NEEQ.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To facilitate our initial
public offering in the United States, Zhongchao Shanghai was delisted from NEEQ in February 2019. At the time of delisting, Weiguang
Yang controlled 57.29% equity interests in Zhongchao Shanghai (43.41% of which was directly held and 13.88% of which was controlled through
Shanghai Xingzhong). After the delisting, a minority shareholder of Zhongchao Shanghai transferred his shares to Mr. Yang. At the time
of our restructure in August 2019, Mr. Yang controlled 58.78% equity interests in Zhongchao Shanghai (44.90% of which was directly held
and 13.88% of which was controlled through Shanghai Xingzhong). To conclude, Zhongchao Shanghai has been under the control of Weiguan
Yang since its initial listing on NEEQ in June 2016.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 24, 2019, Zhongchao
Shanghai changed its name to Zhongchao Medical Technology (Shanghai) Limited. Zhongchao Shanghai engages in technology development, technology
transfer, and technical services in the field of medical technology, technical consulting in the field of network technology, and medical
information consulting.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 12, 2015, Zhongchao
Shanghai established its wholly owned subsidiary, Shanghai Maidemu. Shanghai Maidemu engages in planning for cultural and artistic exchanges,
designing, producing, acting for and publishing various kinds of advertisements, and medical consultation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 27, 2017, Zhongchao
Shanghai established its wholly owned subsidiary, Shanghai Zhongxun. Shanghai Zhongxun engages in technology development, transfer, service
and consulting in the fields of medical technology and computer technology.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 12, 2017, Zhongchao
Shanghai established its wholly owned subsidiary, Horgos Zhongchao Medical Technology Limited Company (&#8220;Horgos Zhongchao Medical&#8221;).
Horgos Zhongchao Medical engages in technology development, transfer, service and consulting in the fields of medical technology and
computer technology. On March 26, 2020, due to business adjustment, Horgos Zhongchao Medical started its dissolution and intends to apply
to the registration authority for cancellation registration. The application for cancellation registration was approved by the registration
authority on May 11, 2020.Horgos Zhongchao Zhongxing took over the business of Horgos Zhongchao Medical after it completes its dissolution
registration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 28, 2016, Shanghai
Maidemu formed a joint venture with Ms. Hongxia Zhang and Ms. Shuhua Gao, contributing a 55% equity interest in Shanghai Huijing Information
Technology Co., Ltd., or Shanghai Huijing, a PRC company. On January 21, 2019, Shanghai Huijing was 100% owned by Shanghai Maidemu. Shanghai
Huijing engages in technology development, transfer, service and consulting in the fields of computer technology, graphic designing,
website page designing, planning cultural and artistic exchanges.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 16, 2019, Zhongchao
Cayman was incorporated in the Cayman Islands and issued 5,497,715 Class B Ordinary Shares at 0.0001 par value as founder shares to More
Healthy Holding Limited, representing 80.94% of total voting power of the Company, on converted basis, given that each Class B Ordinary
Share is entitled to 15 votes and each Class A Ordinary Share is entitled to 1 vote and assuming the exercise of the HF Warrant. More
Healthy Holding Limited is a BVI company 100% owned by Weiguang Yang (&#8220;More Healthy&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July 29, 2019, Zhongchao
Shanghai established its wholly owned subsidiary, Horgos Zhongchao Zhongxing. Horgos Zhongchao Zhongxing engages in technology development,
transfer, service and consulting in the fields of medical technology and computer technology.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 14, 2019, Zhongchao
Cayman completed a reorganization of entities under common control of Weiguang Yang, who owned a majority of the voting power of Zhongchao
Cayman prior to the reorganization. Zhongchao Cayman, Zhongchao BVI, and Zhongchao HK were established as the holding companies of Zhongchao
WFOE. Zhongchao WFOE is the primary beneficiary of Zhongchao Shanghai and its subsidiaries, and all of these entities included in Zhongchao
Cayman are under common control which results in the consolidation of Zhongchao Shanghai and subsidiaries which have been accounted for
as a reorganization of entities under common control at carrying value. The consolidated financial statements are prepared on the basis
as if the reorganization became effective as of the beginning of the first period presented in the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As part of the Company&#8217;s
organization for the purpose of the initial public offering and listing on Nasdaq, on August 1, 2019, the Company and HF Capital Management
Delta, Inc., a company incorporated under the laws of the Cayman Islands (&#8220;HF Capital&#8221;) entered into a certain warrant agreement
to purchase Class A Ordinary Shares of the Company (the &#8220;HF Warrant&#8221;). At the issuance of the HF Warrant, Yantai Hanfujingfei
Investment Centre (LP), a limited partnership incorporated under PRC laws (&#8220;Yantai HF&#8221;, whose managing partner, Hanfor Capital
Management Co., Ltd., is the sole member of HF Capital, and together with &#8220;HF Capital&#8221; hereinafter collectively referred
to as &#8220;HF&#8221;) was a 6.25% shareholder of Zhongchao Shanghai (which represented 1,350,068 shares in Zhongchao Shanghai, among
which 675,068 shares were issued by Zhongchao Shanghai and the remaining 675,000 shares were purchased from two pre-existing shareholders)
and planned to withdraw its capital contribution in Zhongchao Shanghai but to contribute the same amount of capital to Zhongchao Cayman
directly via HF Capital. As HF Capital needs to complete necessary administrative registration required under Chinese regulations of
outbound direct investments (ODI) to hold equity interest in Zhongchao Cayman, the HF Warrant entitles HF Capital to purchase 1,350,068
Class A Ordinary Shares, representing 1.34% of the voting ownership interest of the Company as of the date of this Annual Report, from
the Company, if the following conditions are met:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; font-size: 10pt">&#160;</td>
    <td style="width: 0.25in; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1)</span></td>
    <td style="text-align: justify; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">All PRC
    governmental consent and approval required for HF Capital to exercise the warrant and payment of the capital contribution have been
    obtained, including without limitation, any approval or filing with respect to HF Capital&#8217;s investment into the Company, and
    payment by HF Capital of the capital contribution to the Company, and reasonable evidence thereof shall have been provided to the
    Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">HF Capital has fully paid
    the capital contribution to Zhongchao Cayman; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">3)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The Company released the
    paid-in capital of Yantai HF from Zhongchao Shanghai.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The HF Warrant was issued
in connection with a framework agreement among Zhongchao Shanghai, Mr. Weiguang Yang, and Yantai HF dated August 1, 2019 (the &#8220;Framework
Agreement&#8221;), pursuant to which Zhongchao Shanghai has agreed to complete Yantai HF&#8217;s withdrawal of capital contribution in
Zhongchao Shanghai no later than one month following the completion of HF Capital&#8217;s ODI and HF has agreed to invest the same amount
of fund in U.S. dollars in Zhongchao Cayman upon the completion of its ODI registration. In addition, the parties have agreed to, once
the ODI registration of HF Capital is completed, deposit Yantai HF&#8217;s capital contribution into a bank account mutually controlled
by Zhongchao Shanghai and Yantai HF, to be used as HF Capital&#8217;s capital contribution in Zhongchao Cayman. The foregoing is a brief
description of the material terms and conditions of the Framework Agreement, a copy of which is attached as Exhibit 10.18 to this Annual
Report and incorporated herein by reference.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, the registration of Yantai HF&#8217;s withdrawal of its capital contribution in Zhongchao Shanghai has been completed with local
State Administration for Industry and Commerce. The paid-in capital of Yantai HF in an amount of RMB20 million (approximately US$2.9 million)
is currently being held in the corporate bank account of Zhongchao Shanghai and is to be deposited in a designated bank account mutually
controlled by Zhongchao Shanghai and Yantai HF after the completion of HF Capital&#8217;s ODI procedures and to be released as HF Capital&#8217;s
capital contribution in Zhongchao Cayman as provided in the Framework Agreement. According to the Administrative Measures for the Outbound
Investment by Enterprises promulgated by the NDRC on December 26, 2017 which became effective on March 1, 2018, the Administrative Measures
on Outbound Investments promulgated by the MOFCOM on September 6, 2014 which became effective on October 6, 2014, and the Notice of the
SAFE on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment promulgated by the SAFE on 13
February 2015 which became effective on June 1, 2015, the procedures of ODI include obtaining the Filing Notice of Outbound Direct Investment
Projects issued by the competent branch of the NDRC, the Certificate of Outbound Direct Investment of Enterprises issued by the competent
branch of the MOFCOM, and completing the foreign exchange registration of outbound direct investments. HF Capital is currently in the
process of completing its ODI procedures. HF has further committed that in any event if it cannot complete its ODI procedures, HF shall
make such capital contribution to Zhongchao Shanghai in an amount of RMB20 million (approximately US$2.9 million) or to Zhongchao Cayman
in the same amount of fund in U.S. dollars, subject to certain condition.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 26, 2020, the board
of Horgos Zhongchao Medical, one of the wholly-owned subsidiaries of Zhongchao Shanghai, approved its dissolution. The application for
cancellation registration was approved by the registration authority on May 11, 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November19, 2020, Shanghai
Jingyi, a subsidiary of Zhongchao Shanghai changed its name to Shanghai Zhongxin Medical Technology Co., Ltd. (&#8220;Shanghai Zhongxin&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 16, 2020, Horgos
Zhongchao Zhongxing, one of the wholly-owned subsidiaries of Zhongchao Shanghai, cancelled its registration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, on April 27,
2020, Beijing Boya was incorporated under the PRC laws, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its equity
was entrusted to Zhongchao Shanghai by the other shareholder Shanghai Lingzhong through a certain share entrustment agreement on December
1, 2021. Beijing Boya is primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare
management services, healthcare consultation services, sales of medical appliances and other medical products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 12, 2020, two shareholders
of Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr. Weiguang Yang holds 49% of Shanghai
Jingyi&#8217;s equity and Zhongchao Shanghai holds 51% of its equity. Through a certain entrustment agreement on November 1, 2020, Mr.
Weiguang Yang agreed to hold his equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 30, 2020, Zhongchao
Japan was incorporated under the laws of Japan as a wholly owned subsidiary of Zhongchao USA.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 23, 2020, Shanghai
Jingyi changed its name to Shanghai Zhongxin Medical Technology Co., Ltd., or Shanghai Zhongxin.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 16, 2020, Mr.
Weiguang Yang transferred certain parts of his shares to Zhongchao Yixin and Zhongren Yixin. As a result, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin holds 19%, 20% and 10% of the equity interest of Shanghai Zhongxin, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Through a certain entrustment
agreement on December 25, 2020, Mr. Weiguang Yang, Zhongchao Yixin, and Zhongren Yixin agreed to hold their equity interest of Shanghai
Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai Zhongxun owns 100% of Shanghai Zhongxin&#8217;s equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July 6, 2020, Zhixun Internet
Hospital (Liaoning) Co., Ltd., or Liaoning Zhixun was incorporated under the PRC laws and wholly owned by Shanghai Zhongxun. Liaoning
Zhixun primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services,
healthcare consultation services, sales of medical appliances and other medical products. On January 11, 2021, Shanghai Zhongxun transferred
its whole equity ownership of Liaoning Zhixun to Shanghai Zhonxin, and as a result, Shanghai Zhongxin becomes the sole shareholder of
Liaoning Zhixun.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On January 13, 2021, Shanghai
Xinyuan Human Resources Co., Ltd., or Shanghai Xinyuan, was incorporated under the PRC laws, as the wholly owned subsidiary of Shanghai
Zhongxin. Shanghai Xinyuan is primarily engaged in human resources services and information consulting services. On May 18, 2021, Ningxia
Zhongxin Internet Hospital Co., Ltd., or Ningxia Zhongxin, was incorporated under the PRC laws, whose sole shareholder is Shanghai Zhongxin.
Ningxia Zhongxin will be engaged in operating an online hospital to provide online medical service, including online consultation, prescription
information services, and medication retails. On July 16, 2021, Hainan Zhongteng Medical Technology Co., Ltd., or Hainan Zhongteng, was
incorporated under the PRC laws, as the wholly owned subsidiary of Beijing Boya. Hainan Zhongteng is primarily engaged in healthcare consulting
services. On July 21, 2021, Hainan Muxin Medical Technology Co., Ltd., or Hainan Muxin, was incorporated under the PRC laws, as the wholly
owned subsidiary of Shanghai Zhongxin. Hainan Muxin is primarily engaged in healthcare consulting services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 19, 2021 pursuant
to an equity transfer agreement, Shanghai Zhongxin agrees to transfer all of its equity interest of Liaoning Zhixun to Beijing Boya. As
a result, Liaoning Zhixun is wholly owned by Beijing Boya.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 31, 2021, Shanghai
Xingzhong transferred all of its equity interest, equal to 23.6% of the total equity interest of Zhongchao Shanghai, to Shanghai Xingban
Enterprise Management Partnership (Limited Partnership), a PRC limited partnership, or Shanghai Xingban. The general partner of Shanghai
Xingban is Weiguang Yang, and its limited partner is Pei Xu. As a result, Mr. Yang is the 76.4% shareholder of Zhongchao Shanghai with
the remaining equity interests held by Shanghai Xingban.&#160; As a result, &#160;Zhongchao WFOE, Zhongchao Shanghai, Mr. Weiguang Yang
and Shanghai Xingban entered in to a series of VIE agreement. See &#8220;Our Corporate History and Structure&#8212;2021 VIE Agreements&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 8, 2021, Hainan
Muxin Medical Technology Co., Ltd., or Hainan Muxin, a wholly owned subsidiary of Shanghai Zhongxin, together with another two shareholders,
established Beijing Yisuizhen Technology Co., Ltd., or Beijing Yisuizhen,&#160;where Hainan Muxin hold 47% of the equity interest. Beijing
Yisuizhen is primarily engaged in technology development, consulting, communication, transfer, and promotion, software services, and health
consulting services. &#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2022, Chongqing
Xinjiang Pharmaceutical Co., Ltd. (&#8220;Xinjiang Pharmaceutical&#8221;) was established was incorporated under the PRC laws, as a wholly
owned subsidiary of Shanghai Zhongxin. In August 2022, Shanghai Zhongxun and Shanghai Zhongxin entered into a share transfer agreement,
pursuant to which, Shanghai Zhongxin agreed to transfer all the share equity in Xinjiang Pharmaceutical to Shanghai Zhongxun with no consideration.
As a result, Xinjiang Pharmaceutical is wholly owned by Shanghai Zhongxun. Xinjiang Pharmaceutical was established aiming at realizing
medications accessibility and affordability for those patients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="text-underline-style: double">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel (Beijing) Health Technology Co., Ltd, or West Angel, a PRC company, and
nine shareholders of West Angel transferred all of their equity interest, equal to 49.44% of the total equity interest of West Angel to
Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity interest of West Angel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 2, 2022, Mr. Weiguang Yang transferred certain parts of his
shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of the equity interest of Shanghai Zhongxin.
Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao Yixin, and Zhongren Yixin agreed to hold their
equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin&#8217;s
equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 16, 2022, two shareholders
of Beijing Yisuizhen transferred all of their equity interest, equal to 53% of the total equity interest of Beijing Yisuizhen to Hainan
Muxin. As a result, Hainan Muxin holds 100% of the equity interest of Beijing Yisuizhen.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 9, 2022, Ningxia
Zhongxin submitted the application for cancellation registration to SAMR and the application was approved on the same day.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following charts summarize
our corporate legal structure and identify our subsidiaries, the VIE and its subsidiaries as of the date hereto. For more details on
our corporate history, please refer to &#8220;<i>Our Corporate History and Structure</i>&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_001.jpg" style="width: 850px; height: 1001px"/></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Notes: All percentages reflect the voting ownership
interests instead of the equity interests held by each one of the shareholder of the Company given that each Class B Ordinary Share will
be entitled to 15 votes as compared to Class A Ordinary Share, each one of which will be entitled to 1 vote.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 62; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->58<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Represents
(i) 5,497,715 Class B Ordinary Shares held by Mr. Weiguang Yang (&#8220;Yang&#8221;), the 100% owner of More Healthy Holding Limited
(&#8220;More Healthy&#8221;).</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(2)</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Represents
an aggregate of 3,973,605 Class A Ordinary Shares including 2,623,537 Class A Ordinary Shares held by 4 shareholders of Company, each
one of which holds less than 5% voting ownership interests of the Company, as of the date of this Annual Report and 1,350,068 Class A
Ordinary Shares to be issued upon exercise of the HF Warrant. See footnote 3 below.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(3)</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
order to directly hold equity interest in the Company, HF Capital Management Delta, Inc. (&#8220;HF Capital&#8221;) has to complete certain
registration and obtain approval with local governmental authority in PRC. As a part of reorganization and due to the aforementioned
factor, HF Capital was granted a warrant to purchase 1,350,068 Class A Ordinary Shares of the Company at a price $0.0001 per share or
such other amount agreed by the Company and HF Capital at a grant price of RMB 20,000,000 (approximately USD$2.9 million) conditioned
upon (i) HF Capital completes necessary registration and obtains approval with local governmental authority in PRC for its direct investment
in the Company and (ii) Zhongchao Shanghai shall have paid HF Capital RMB 20,000,000 as returned capital contribution in Zhongchao Shanghai.
The above chart assumes that HF Capital has not exercised such warrant.</span> &#160; &#160; <span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(4)
Represents RMB 9.70 million (approximately USD$1.4 million) subscribed capital contribution to Zhongchao Shanghai, as of the date of
this Annual Report.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(5)</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Represents
RMB 3.00 million (approximately USD$0.4 million) subscribed capital contribution to Zhongchao Shanghai, as of the date of this Annual
Report. Shanghai Xingban Enterprise Management Partnership, a limited partnership incorporated under the PRC laws (&#8220;Shanghai Xingban&#8221;),
of which the general partner is Weiguang Yang and the limited partner is Pei Xu, the CFO of Zhongchao Cayman. As the general partner
of Shanghai Xingban, Weiguang Yang exercises the voting rights with respect to the shares held by Shanghai Xingban.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(6)</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Beijing
Boya was incorporated under the PRC laws on April 27, 2020, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its
equity was entrusted to Zhongchao Shanghai by the other shareholder Shanghai Lingzhong through a certain share entrustment agreement
on December 1, 2021.   </span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(7)</td><td style="text-align: justify">Shanghai Zhongxin, a PRC company, which was formerly known as Shanghai Jingyi, or Shanghai Jingyi
                                                    Medical Technology Co., Ltd., a PRC company and changed to its current name as Shanghai Zhongxin on November 19, 2020. On October
                                                    12, 2020, two shareholders of Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr.
                                                    Weiguang Yang holds 49% of Shanghai Jingyi&#8217;s equity and Zhongchao Shanghai holds 51% of its equity. On December 16, 2020, Mr.
                                                    Weiguang Yang transferred certain parts of his shares to Zhongchao Yixin and Zhongren Yixin. As a result, Mr. Weiguang Yang,
                                                    Zhongchao Yixin, and Zhongren Yixin hold 19%, 20% and 10% of the equity interest of Shanghai Zhongxin, respectively. August 2, 2022,
                                                    Mr. Weiguang Yang transferred certain parts of his shares to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of
                                                    the equity interest of Shanghai Zhongxin. Through certain entrustment agreements, Mr. Weiguang Yang, Zhongchao Yixin and Zhongren
                                                    Yixin hold 12.33%, 20% and 10% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. &#160;As a
                                                    result, Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin&#8217;s equity interest.</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>VIE Arrangements</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Due to the restrictions imposed
by PRC laws and regulations on foreign ownership of companies engaged in value-added telecommunication services and certain other businesses,
we operate our businesses in which foreign investment is restricted or prohibited in the PRC through certain PRC domestic companies. As
such, we consolidate the financial results of Zhongchao Shanghai through VIE Arrangements as the primary beneficiary in lieu of direct
equity ownership by us or any of our subsidiaries. Such VIE Arrangements consist of a series of six agreements&#160;(collectively,&#160;the
&#8220;VIE Arrangements&#8221;), which were signed on August 14, 2019. For more details and risks related to the VIE structure, please
see &#8220;Our Corporate History and Structure&#8212;VIE Arrangements&#8221; and &#8220;Risk Factors&#8212;Risks Related to Our Corporate
Structure&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The significant terms of the
VIE Arrangements by and among our wholly-owned subsidiary, Zhongchao WFOE, the consolidated VIE, Zhongchao Shanghai, and the shareholders
of Zhongchao Shanghai are as follows:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Agreements that Allowed Us to Consolidate
the Financial Results of Zhongchao Shanghai</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our PRC Wholly Foreign Owned
Entity, Zhongchao WFOE, has entered into the following agreements with Zhongchao Shanghai and its shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Equity Interest Pledge
Agreement.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the equity interest
pledge agreement dated August 14, 2019, each shareholder of Zhongchao Shanghai has pledged all of its equity interest in Zhongchao Shanghai
to guarantee the shareholder&#8217;s and the PRC operating entities&#8217; performance of their obligations under the master exclusive
service agreement, business cooperation agreement, exclusive option agreement and proxy agreement and power of attorney. If Zhongchao
Shanghai or any of its shareholders breaches their contractual obligations under these agreements, Zhongchao WFOE, as pledgee, will be
entitled to dispose the pledged equity interest entirely or partially. Each of the shareholders of Zhongchao Shanghai agrees that, during
the term of the equity interest pledge agreement, it will not dispose of the pledged equity interests or create or allow any encumbrance
on the pledged equity interests without the prior written consent of Zhongchao WFOE. In addition, Zhongchao WFOE has the right to collect
dividends generated by the pledged equity interest during the term of the pledge. The term of the initial equity interest pledge agreement
is 20 years. After the expiration of the term of initial pledge registration, Zhongchao WFOE may at its sole discretion require the Shareholders
to extend the term of the equity interest registration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Proxy Agreement and Power
of Attorney.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the proxy agreement
and power of attorney dated August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably appointed Zhongchao WFOE to act as
such shareholder&#8217;s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters
of Zhongchao Shanghai requiring shareholder approval, disposing of all or part of the shareholder&#8217;s equity interest in Zhongchao
Shanghai, oversee and review the PRC operating entities&#8217; operation and financial information. Zhongchao WFOE is entitled to designate
any person to act as such shareholder&#8217;s exclusive attorney-in-fact without notifying or the approval of such shareholder, and if
required by PRC law, Zhongchao WFOE shall designate a PRC citizen to exercise such right. Each proxy agreement power of attorney will
remain in force for so long as the Zhongchao Shanghai exists. The shareholders of Zhongchao Shanghai do not have the right to terminate
this agreement or revoke the appointment of the Attorney-in-Fact without the prior written consent of Zhongchao WFOE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Spouse Consent&#160;Letters.&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the&#160;Spouse
Consent&#160;Letters dated August 14, 2019, the spouse of each married shareholder of Zhongchao Shanghai, unconditionally and irrevocably
agreed not to assert any rights over the equity interest in Zhongchao Shanghai held by and registered in the name of their spouse. In
addition, each of them agreed to be bound by the VIE Arrangements described here if the spouse obtains any equity interest in Zhongchao
Shanghai for any reason.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Agreement that allows us to Receive Economic
Benefits from Zhongchao Shanghai</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Master Exclusive Service
Agreement.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the master exclusive
service agreement between Zhongchao WFOE and Zhongchao Shanghai dated August 14, 2019, Zhongchao WFOE has the exclusive right to provide
Zhongchao Shanghai with technical support, consulting services and other services. Zhongchao WFOE has the right to designate and appoint,
at its sole discretion, any entities affiliated with the Zhongchao WFOE to provide any and all services. The service fees are calculated
and paid on a yearly basis and at the amount that equals to 100% of the consolidated net profits of Zhongchao Shanghai. Zhongchao WFOE
may adjust the service fee at its discretion after taking into account multiple factors, such as the difficulty of the services provided,
the time consumed, the content and commercial value of services provided and the market price of comparable services. Zhongchao WFOE owns
the intellectual property rights arising out of the performance of this agreements. Zhongchao Shanghai shall seek approval from Zhongchao
WFOE prior to entering into any contracts obtaining the same or similar services as provided under the Master Exclusive Service Agreement.
This agreement will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written notice to Zhongchao Shanghai
and its shareholders or upon the transfer of all the equity interest held by the PRC operating entities&#8217; shareholders to Zhongchao
WFOE and/or a third party designated by Zhongchao WFOE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Business Cooperation Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the business cooperation
agreement dated August 14, 2019, without Zhongchao WFOE&#8217;s prior written consent, Zhongchao Shanghai agrees not to engage in any
transaction which may materially affect its asset, obligation, right or operation, including but not limited to: any activities not within
its normal business scope, merger and acquisition, offering any loan to any third party and incurring any debt from any third party. Zhongchao
Shanghai shall seek approval from Zhongchao WFOE prior to entering into any material contract, except the contracts executed in the ordinary
course of business. Zhongchao Shanghai shall cause the persons designated by Zhongchao WFOE to be the directors and executive officers
of Zhongchao Shanghai. This agreement will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written
notice to Zhongchao Shanghai and its shareholders or upon the transfer of all the equity interest held by the PRC operating entities&#8217;
shareholders to Zhongchao WFOE and/or a third party designated by Zhongchao WFOE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Agreements that Provide Us with the Option
to Purchase the Equity Interest in Zhongchao Shanghai</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Exclusive Option Agreement.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the exclusive
option agreement dated August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably granted Zhongchao WFOE an exclusive option
to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part
of the shareholder&#8217;s equity interests in Zhongchao Shanghai. The purchase price is equal to the lowest price allowable under PRC
laws and regulations at the time of the transfer. Zhongchao Shanghai has agreed that without Zhongchao WFOE&#8217;s prior written consent,
Zhongchao Shanghai shall cause the persons designated by Zhongchao WFOE to be the directors and executive officers of Zhongchao Shanghai,
not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial
interest, create or allow any encumbrance on its assets or other beneficial interests, provide any loans to any third parties, enter into
any material contract, except the contracts executed in the ordinary course of business, merge with or acquire any other persons or make
any investments, or distribute dividends to the shareholders. The shareholders of Zhongchao Shanghai have agreed that, without Zhongchao
WFOE&#8217;s prior written consent, they will not dispose of their equity interests in Zhongchao Shanghai or create or allow any encumbrance
on their equity interests. Moreover, without Zhongchao WFOE&#8217;s prior written consent, no dividend will be distributed to the PRC
operating entities&#8217; shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transfer
or liquidation, the shareholder must give such profit, interest, dividend and proceeds to Zhongchao WFOE. These agreements will remain
effective as long as Zhongchao Shanghai exists unless Zhongchao WFOE advance written notice to Zhongchao Shanghai and the shareholders
or upon the transfer of all the equity interest held by the shareholders to Zhongchao WFOE and/or its designee.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>2020 VIE Agreements</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 1, 2020, all shareholders
of Zhongchao Shanghai, except Mr. Yang and Shanghai Xingzhong, decided to withdraw their capital contribution from Zhongchao Shanghai
(the &#8220;Capital Reduction&#8221;). Given the effect of the Capital Reduction, Mr. Yang became the 76.4% shareholder of Zhongchao Shanghai
with the remaining equity interests held by Shanghai Xingzhong. On September 10, 2020, Zhongchao WFOE, and Zhongchao Shanghai, and its
shareholders signed a confirmation agreement to confirm that the original VIE Agreements entered on August 14, 2019 (the &#8220;Original
VIE Agreements&#8221;) have been terminated because of the Capital Reduction.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Accordingly, on September
10, 2020, to clarify the legal effect of the Capital Reduction and to sustain our ability to consolidate the financial results of Zhongchao
Shanghai, Mr. Yang and Shanghai Xingzhong, as the shareholders of Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao
WFOE, the terms of which are substantially the same as those of the Original VIE Agreements except the number of shareholders of Zhongchao
Shanghai reduced to two (the &#8220;2020 VIE Agreements&#8221;). Upon entry into the 2020 VIE Agreements, the Original VIE Agreements,
except for the Master Exclusive Service Agreement dated August 14, 2020, were expired.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board of directors approved
and ratified the 2020 VIE Agreements. We did not expect any negative impact of these 2020 VIE Agreements on its operation. The 2020 VIE
Agreements enable Zhongchao Cayman to consolidate the financial results of Zhongchao Shanghai as primary beneficiary.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>2021 VIE Agreements</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 31, 2021, Shanghai
Xingzhong, one shareholder of Zhongchao Shanghai transferred all of its equity interest, equal to 23.6% of the total equity interest &#160;&#160;of
Zhongchao Shanghai, to Shanghai Xingban Enterprise Management Partnership (Limited Partnership), a limited partnership incorporated in
China, or Shanghai Xingban. The general partner of Shanghai Xingban is Weiguang Yang, our CEO and Chairman, and its limited partner is
Pei Xu, our CFO. As a result, Mr. Yang is the 76.4% shareholder of Zhongchao Shanghai with the remaining equity interests held by Shanghai
Xingban.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Accordingly, on September
10, 2021, to clarify the legal effect of such share transfer and to sustain our ability to consolidate the financial results of Zhongchao
Shanghai, Mr. Yang and Shanghai Xingban, as all the shareholders of Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao
WFOE, the terms of which are substantially the same as those of the 2020 VIE Agreements except the one shareholder of Zhongchao Shanghai
was changed (the &#8220;2021 VIE Agreements&#8221;). Upon entry into the 2021 VIE Agreements, the 2020 VIE Agreements, except for the
Master Exclusive Service Agreement dated August 14, 2020, were expired.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board of directors approved
and ratified the 2021 VIE Agreements. We do not expect any negative impact of these 2021 VIE Agreements on its operation. The 2021 VIE
Agreements enable Zhongchao Cayman to consolidate the financial results of Zhongchao Shanghai as primary beneficiary.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Controlled Company</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our outstanding shares consist
of Class A Ordinary Shares and Class B Ordinary Shares, and we are be a &#8220;controlled company&#8221; as defined under the Nasdaq Stock
Market Rules because Mr. Weiguang Yang, our founder, chairman of the board of directors and chief executive officer, is beneficially own
all of our then issued Class B ordinary shares and is able to exercise 80.07% of the total voting power of our issued and outstanding
shares, assuming the exercise of the HF Warrant. Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except
for voting and conversion rights. Each Class A Ordinary Share is entitled to one vote, and each Class B Ordinary Share is entitled to
15 votes and is convertible into one Class A Ordinary Share at any time by the holders thereof. Class A Ordinary Shares are not convertible
into Class B Ordinary Shares under any circumstances.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our directors, executive officers
and principal shareholders have substantial control over our company. Our affiliates are able to exercise 81.98% of the total voting power
of our issued and outstanding shares, assuming the exercise of the HF Warrant.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As long as our officers and
directors, either individually or in the aggregate, own at least 50% of the voting power of our Company, we are a &#8220;controlled company&#8221;
as defined under NASDAQ Marketplace Rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For so as we are a controlled
company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules,
including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result, you will not
have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we do not intend
to rely on the &#8220;controlled company&#8221; exemption under the NASDAQ listing rules, we could elect to rely on this exemption in
the future. If we elect to rely on the &#8220;controlled company&#8221; exemption, a majority of the members of our board of directors
might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely
of independent directors. (See &#8211; Risk Factor &#8220;As a &#8220;controlled company&#8221; under the rules of the NASDAQ Capital
Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public
shareholders.&#8221;)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Compliance with Foreign Investment </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All limited liability companies
formed and operating in the PRC are governed by the Company Law of the People&#8217;s Republic of China, or the Company Law, which was
amended and promulgated by the Standing Committee of the National People&#8217;s Congress on October 26, 2018 and came into effect on
the same day. Foreign invested enterprises must also comply with the Company Law, with exceptions as specified in the relevant foreign
investment laws. Under our corporate structure as of the date of this Annual Report, 100% of the equity interests of Zhongchao Shanghai
are entirely and indirectly held by our company through Beijing Zhongchao Zhongxing Technology Limited. Therefore, Beijing Zhongchao Zhongxing
Technology Limited, a wholly foreign-owned enterprise (&#8220;Zhongchao WFOE&#8221;) of Zhongchao BVI which is a wholly-owned subsidiary
of Zhongchao Cayman, should be regarded as a foreign-invested enterprise and comply with both the Company Law and other applicable foreign
investment laws.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to the establishment
and operation of Zhongchao WFOE, the Ministry of Commerce of the People&#8217;s Republic of China (the &#8220;MOFCOM&#8221;), and the
National Development and Reform Commission (the &#8220;NDRC&#8221;) promulgated the Catalogue of Industries for Guiding Foreign Investment,
or the Catalogue (2017 Version), as amended on June 28, 2017, which came into effect on August 28, 2017. The Catalogue divides industries
for foreign investment into three categories: encouraged, restricted and prohibited. Those industries not set out in the Catalogue shall
be classified as industries permitted for foreign investment. The Catalogue serves as the main basis for management and guidance for the
MOFCOM to manage and supervise foreign investments to PRC. In addition, in June 30, 2019, MOFCOM and NDRC promulgated the Special Management
Measures (Negative List) for the Access of Foreign Investment, or the Negative List, effective July 30, 2019. The currently effective
version of Negative List (&#8220;2021 Negative List&#8221;) was promulgated on December 27, 2021 and became effective on January 1, 2022,
and the currently effective version of Encourage Catalog was promulgated on December 27, 2020 and became effective on January 27, 2021.The
Negative List expands the scope of permitted industries by foreign investment by reducing the number of industries that fall within the
Negative List where restrictions on the shareholding percentage or requirements on the composition of board or senior management still
exists. According to the Catalogue and the Negative List, the permitted foreign investment in value-added telecommunications service providers
may not be more than 50%, except for electronic commerce, domestic multi-party communication, storage and forwarding and call centers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Emerging Growth Company Status </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a company with less than
$1.235 billion in revenue during our last fiscal year, we qualify as an &#8220;emerging growth company&#8221; as defined in the Jumpstart
Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise
applicable to public companies. These provisions include, but are not limited to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may take advantage of these
provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities
pursuant to an effective registration statement under the Securities Act of 1933, as amended. However, if certain events occur before
the end of such five-year period, including if we become a &#8220;large accelerated filer,&#8221; our annual gross revenues exceed $1.235
billion or we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company
before the end of such five-year period.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, Section 107 of
the JOBS Act provides that an &#8220;emerging growth company&#8221; can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended
transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section
107 of the JOBS Act.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Foreign Private Issuer Status </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are incorporated in the
Cayman Islands, and more than 50 percent of our outstanding voting securities are not directly or indirectly held by residents of the
United States. Therefore, we are a &#8220;foreign private issuer,&#8221; as defined in Rule 405 under the Securities Act and Rule 3b-4(c)
under the Exchange Act. As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we
will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting
companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed
individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity
holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>The Initial Public Offering</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 26, 2020, the
Company completed its initial public offering of 3,000,000 Class A Ordinary Shares, $0.0001 par value per share (the &#8220;IPO&#8221;).
The Class A Ordinary Shares were sold at an offering price of $4.00 per share, generating gross proceeds of approximately $12.0 million,
and net proceeds of approximately $9.97 million. The registration statement relating to the IPO also covered the underwriters&#8217; Class
A Ordinary Shares purchase warrants and the Class A Ordinary Shares issuable upon the exercise thereof in the total amount of 450,000
Class A Ordinary Shares. Each three-year warrant entitles the warrant holder to purchase the Company&#8217;s shares at the exercise price
of $5.0 per share and is not be exercisable for a period of 180 days from February 21, 2020. Our Class A Ordinary Shares began trading
on the NASDAQ Capital Market on February 24, 2020 under the ticker symbol &#8220;ZCMD&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 28, 2020, the
Company closed on the partial exercise in the over-allotment option to purchase an additional 315,000&#160;Class A Ordinary Shares of
the Company by Network 1 Financial Securities Inc., the lead underwriter in connection with the Company&#8217;s U.S. firm commitment underwritten
IPO, at the IPO price of $4.00 per share. As a result, the Company has raised gross proceeds of approximately $1.26 million, in addition
to the IPO gross proceeds of $12.0 million, or combined gross proceeds in this IPO of approximately $13.26 million, before underwriting
discounts and commissions and offering expenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>The &#8220;Shelf&#8221; Offering </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 17, 2021, the
Company, entered into a Sales Agreement (the &#8220;Sales Agreement&#8221;) with U.S. Tiger Securities, acting as the Company&#8217;s
sales agent (the &#8220;Sales Agent&#8221;), pursuant to which the Company may offer and sell, from time to time, through the Sales Agent,
its Class A Ordinary Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company is not obligated
to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, the Sales Agent will use commercially
reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and
the rules of Nasdaq to sell shares from time to time based upon the Company&#8217;s instructions, including any price, time or size limits
specified by the Company. Upon delivery of a placement notice, and subject to the Company&#8217;s instructions in that notice, and the
terms and conditions of the Sales Agreement generally, the Sales Agent may sell the Class A Ordinary Shares by any method permitted by
law deemed to be an &#8220;at the market offering&#8221; as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as
amended. The Company will pay the Sales Agent, in connection with the sale of the Class A Ordinary Shares through the Sales Agent in accordance
with the tiered fee schedule as set forth in the Sales Agreement, and has agreed to provide the Sales Agent with customary indemnification.
The Company has also agreed to reimburse the Sales Agent for certain specified expenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Class A Ordinary Shares will
be offered and sold pursuant to the prospectus supplement, dated December 17, 2021, to the Registration Statement on F-3 (File No. 333-256190)
(the &#8220;Form F-3&#8221;) that forms a part of such Form F-3, for an aggregate offering price of up to $10,400,000.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Subsequent to December 31,
2021, the Sales Agent has sold an aggregate of 1,060,000 Class A Ordinary Shares at an offering price of $1.8 per share for a total of
$1,908,000 gross proceeds, out of which the Company has paid the Sales Agent $57,240 as the commission fee and other expenses and received
$1,850,743.77.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">B. <span style="text-decoration:underline">Business Overview</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Overview </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Our Company</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are not a Chinese operating
company, but an offshore holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own,
we consolidate the financial results, through a series of the Contractual Arrangements, with Zhongchao Shanghai and its subsidiaries,
or collectively, &#8220;the PRC operating entities.&#8221; Neither we nor our subsidiaries own any equity interests in the PRC operating
entities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Class A Ordinary Shares
currently trading on Nasdaq are the shares of the offshore holding company, Zhongchao Cayman. You are not investing in the PRC operating
entities. &#160;&#160;Instead, we consolidate financial results of Zhongchao Shanghai as primary beneficiary through the Contractual Arrangements.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao Shanghai, together
with its subsidiaries, is a platform-based internet technology company offering services to patients with oncology and other major diseases
in China. The PRC operating entities address the needs along the patient journey of symptoms occurrence, medical consultations, medication
prescriptions, medication management, and treatment consultations. The PRC operating entities provide online healthcare information, professional
training and educational services to healthcare professionals, patient management services in the professional field of tumor and rare
diseases, internet healthcare services, and pharmaceutical services and operate an online information platform to general public. The
services, programs, and products that the PRC operating entities provide:</p><div>

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    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">make it easier for healthcare professionals to access healthcare reference sources, stay abreast of the latest medical information, learn about new treatment options, earn continuing medical education credits and communicate with peers; and</span></td></tr>
  </table><div>
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    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">enable the public to obtain health information on a particular disease or condition, offer content on topics of individual interest, improve public health consciousness, and promote people&#8217;s lifestyle.</span></td></tr>
  </table><div>
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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">support patients with oncology or other major diseases with all-in-one patient management, including medication management and disease consultations.</span></td></tr>
  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
provide the healthcare information, education, and training services to the healthcare professionals under their &#8220;MDMOOC&#8221;
brand, which we believe is one of the leading consumer brands in China&#8217;s healthcare training and education sector, as evidenced
by the Securities Research Report on online medical care industry by Essence Securities Co., Ltd., a company provides securities services
throughout China, where the PRC operating entities are considered as one of the main and typical public company proving medical training
with doctor interactive and online training platform and leading the Internet medical education industry. The PRC operating entities provide
their healthcare educational content to the public via their &#8220;Sunshine Health Forums&#8221;, which, based on the amount of the registered
users and daily review volume, we believe is one of the largest platform in China, for general healthcare knowledge and information to
the public. The PRC operating entities provide focused patient management services, via their &#8220;Zhongxun&#8221; IT system and WeChat
mini program and Zhongxin Health WeChat mini program, to their pharmaceutical enterprises and NFP customers..</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
commenced the operation, through Zhongchao Shanghai, in August 2012 with a vision to offer a wide range of accessible and immediate healthcare
information and continuous learning and training opportunities for Chinese healthcare professionals. Since inception, the PRC operating
entities have focused on developing their information, education, and training programs to address the needs in the healthcare industry
in China; and developing online platforms and onsite activities to deliver the PRC operating entities&#8217; information services, education
programs and training products.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>MDMOOC-Healthcare Information, Education, and Training for Professionals</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Online Platforms</b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
launched their first online platform in a form of website, www.mdmooc.org, under their &#8220;MDMOOC&#8221; brand in 2013 to provide information,
education, and training services to physicians and allied healthcare professionals, such as pharmacists and nurses primarily located in
China, via Internet-Plus solutions. Internet Plus refers to the applications of the internet and other information technology in conventional
industries, such as manufacturing, education and healthcare. It is an incomplete equation where various internet (mobile, cloud computing,
big data or Internet of Things) can be added to other traditional fields. The PRC operating entities further launched their MDMOOC WeChat
subscription account and MDMOOC mobile App in 2015 and 2016, respectively (together with the website, the &#8220;MDMOOC online platform&#8221;).
Healthcare professionals in China can apply for registration with their healthcare qualification to get access to their MDMOOC online
platform.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The programs available on
the PRC operating entities&#8217; MDMOOC online platform enable their users to timely obtain extension knowledge of precedents, treatments,
and first-hand experiences of various disease and other healthcare related matters. In addition, the PRC operating entities&#8217; MDMOOC
online platform offers these professional users what we believe is one of the largest online libraries of continuing medical education
programs in China that are produced in association with entities accredited by the National Health Commission of the PRC, such as Chinese
Medical Association and Chinese Journal of Continuing Medical Education. From the convenience of their home or office computer and mobile
App, the PRC operating entities&#8217; professional users can access a variety of accredited editorial resources and programs including
online journal articles, medical conferences, and open classes and obtain continuing medical education credits which are required for
the healthcare qualification of doctors, nurses, and pharmacists.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
believe MDMOOC online platform helps healthcare professionals improve their clinical knowledge and practice of medicine. Since launching
in 2013, the PRC operating entities have been continuously developing their MDMOOC online platform with new forms of Internet-based education
solutions. There are currently approximately 2,976 education and training programs available on the MDMOOC online platform and free to
their registered users. About 95% of all the PRC operating entities&#8217; programs are self-developed by their research and development
team. The original content of these programs, including daily medical thesis, commentary, conference coverage, expert columns, and activities
are written by the PRC operating entities&#8217; research and development team and authors from widely respected academic institutions,
and edited and managed by the PRC operating entities&#8217; in-house editorial staff. The remaining 5% of programs are created under the
purchase orders of the PRC operating entities&#8217; corporate or institution customers, where the PRC operating entities develop customized
programs with designated healthcare topics. Such 5% of programs are only available to certain registered users with program passcodes
provided by the PRC operating entities&#8217; corporate or institution customers. Our revenues are mainly sourced from these 5% of programs.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
currently provide their proprietary interactive programs via Practice Improvement (PI), a problem-based and case-based form of healthcare
course, which integrates state-of-the-art treatment information and clinical cases for particular diseases into interactive practice modules;
Community of Practice Share (COPS), an online and live clinical experience sharing platform that creates the most effective discussion
in a particular healthcare domain or medical area due to the common interests of the users; Continuing Professional Development (CPD),
a section of the platform that provides discussions and articles focusing on the future development and the differences between Continuing
Medical Education (CME) and Continuing Professional Development (CPD), and other general information of physician competency framework
and Meta-analysis. The PRC operating entities&#8217; original, exclusive and proprietary content includes innovative features such as
after-class quiz, key point summary and highlight during the courses, and peer-review and comments.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that the PRC operating
entities&#8217; ability to create, source, edit and organize online healthcare-related content, interactive education services, and training
programs has made MDMOOC online platform one of the leading health destinations and most recognized information platform in healthcare
sector in China. As of the date of this Annual Report, the MDMOOC online platform has more than 219,825 registered users and a database
of approximately 109,721 healthcare experts including around 1,152 physicians, and 108,569 allied healthcare professionals in medical
academics, associations, and leading hospitals who constantly collaborate with the PRC operating entities to develop training programs
on needed basis.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Onsite Education Activities</b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to healthcare
information, education, and training via Internet-Plus, the PRC operating entities organize onsite healthcare and medical training sessions
and academic conferences from time to time under the &#8220;MDMOOC&#8221; brand. For instance, in January 2019, the PRC operating entities
launched EWMA-certified (defined as below) wound-management collaboration training programs, covering the topics including but not limited
to basic concepts of acute and chronic wounds, management of different levels of surgical and non-surgical wounds, the construction of
different levels of wound centers, and medical staff collaboration in the process of wound management.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
cooperate with Beijing Chronic Disease Prevention and Health Education Research Association and Professor Yixin Zhang from the Ninth People&#8217;s
Hospital of Shanghai Jiao Tong University School of Medicine to create courses titled &#8220;Essential Course for Wound Care Management&#8221;
and &#8220;Advanced Course for Surgical Wound Treatment&#8221;. These courses have been certified and authorized by the European Wound
Management Association (EWMA), a European not-for-profit umbrella organization, linking national wound management organizations, individuals
and groups with interest in wound care. The PRC operating entities have successfully held four (4) training programs for Essential Course
for Wound Care Management and two (2) training programs for Advanced Course for Surgical Wound Treatment. Each program accepted no more
than twenty (20) applicants who shall hold academic credential above undergraduate. The PRC operating entities also required all applicants
to have more than six-year working experience in the field of wound repair. The PRC operating entities have issued a certificate to each
of the applicant upon completion of the training as their proof of achievement and ability in the wound management and treatment.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
believe the combination of online and onsite services would provide their end-users the greatest convenience. With more choices of the
forms of healthcare education, the PRC operating entities enrich the learning experience of their end-users.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>New Plug-in to Certain
Programs- Assistance in Patient-Aid Projects</b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through the platforms, the PRC operating entities have been engaged
by certain customers on a project basis to establish individual columns on the MDMOOC online platform to provide training and knowledge
of certain drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare disease-related.
The PRC operating entities establish online columns to facilitate qualified patients to obtain free drug treatment from not-for-profit
organizations (&#8220;NFPs&#8221;) till the earlier of the expiration of contract period or the free drugs are completely delivered. For
each column, the PRC operating entities plug in features to manage the drug treatment including reviewing patients&#8217; applications,
tracking their usage of drugs, and collecting related information (such programs with new plug-in features are hereinafter referred as
the &#8220;patient-aid projects&#8221;). Those customers are existing customers of us. They provide those drugs sponsored by pharmaceutical
companies without charge to qualified patients and the PRC operating entities charge those customers on the services in connection with
the online columns and related training and management. In this way, the PRC operating entities believe not only can they facilitate the
clinical application of those drugs, but also benefit patients.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, we have established nearly 22 columns for cancer-related drug treatment, including drug treatment for lung cancer, liver cancer,
and extended blood cancer, and 4 columns for drug treatment of rare diseases, including drug treatment for pulmonary fibrosis, multiple
sclerosis, and systemic lupus erythematosus. The total number of patients covered under these patient-aid projects has reached nearly
108,514 by the end of 2022. We expect the numbers of columns for both cancer-related treatment and treatment of rare diseases to increase
by the end of 2023, covering an aggregate of nearly 120,000 patients.&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Sunshine Health Forums-Healthcare Information
and Education for the Public</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
goal is not only provide continuing education and training to healthcare professionals but to promote healthy lifestyle and provide healthcare
knowledge to the public. In order to achieve that, the PRC operating entities develop and operate the Sunshine Health Forums, online education-for-all
platforms that disseminate articles and features related to healthcare and wellness education, medical behavior intervention, and newly
developed health technology and application. The PRC operating entities launched the Sunshine Health Forums in a form of website, www.ygjkclass.com,
in May 2016 followed by WeChat subscription account in August 2016, and mobile App in 2017. The PRC operating entities establish one forum
for each category of diseases for the convenience of the public. The PRC operating entities cooperate with certain well-known we-media
platforms in China, including but not limited Toutiao.com, Yidianzixun.com, Douyin.com, CN-Healthcare.com, iQiyi, Youku, and Huoshan.com
to streamline the PRC operating entities&#8217; articles co-produced by healthcare professionals and us.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Recent Developments</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In mid-January 2020, the PRC
operating entities launched a COVID-19 (&#8220;coronavirus&#8221;) curriculum (the &#8220;Curriculum&#8221;) on its MDMOOC platform (www.MDMOOC.org).
The Curriculum provides over 60 courses covering a wide range of medical specialties including anesthesiology, surgery, oncology, obstetrics
and gynecology, pediatrics, infectious disease, respirology, critical medicine and psychiatry. The Curriculum includes both free online
courses developed independently by the PRC operating entities and customized courses developed through partnership/sponsorship with leading
pharmaceutical companies and not-for-profit organizations (the &#8220;Partners and Sponsors&#8221;). The Curriculum has been successively
distributed through the PRC operating entities web portals, mobile APP, WeChat subscription accounts, as well as social media channels,
providing much-needed help to the medical workers who are at the forefront of the fight against the coronavirus.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 24, 2020, the PRC
operating entities launched the virtual seminar series (the &#8220;Virtual Seminar Series&#8221;) aiming to connect global healthcare
professionals through knowledge and experience sharing in their fight against the coronavirus pandemic which has swept the world, infecting
more than 2.6 million people in 210 countries and territories. The Virtual Seminar Series are jointly hosted by the Beijing Medical and
Health Foundation and sponsored by Chiesi Pharmaceutical (Shanghai) Co., Ltd. The first panel session on neonatology (the &#8220;Session&#8221;)
was scheduled on Friday, April 24, 2020 and was jointly moderated by Dr. Lizhong Du, a renowned neonatologist and professor at Zhejiang
University of China, and Dr. Anna Lavizzari, professor of Neonatal and Perinatology at University of Milan of Italy, with panelists from
7 countries including Brazil, China, Italy, Norway, Poland, Spain and Turkey. Live streaming of the Session was available free for global
neonatologists at www.mdmooc.org.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">In
July 2020, the PRC operating entities joined hands with China Health Promotion Association (&#8220;CHPA&#8221;), the Liver Cancer Committee
of Chinese Anti-Cancer Association (&#8220;CACA&#8221;), and 9 leading pharmaceutical companies, including Roche (China) Co., Ltd., Bayer
(China) Limited, Eisai China Inc., Merck (China) Ltd., Jiangsu Hengrui Medicine Co., Ltd., Innovent Biologics, Inc., Junshi Biosciences,
Gilead Sciences Shanghai Pharmaceutical Technology Co., Ltd., and BeiGene, Ltd., to carry out a multi-year online education project on
the diagnosis and treatment of primary liver cancer (the &#8220;Project&#8221;). The Project aims to promote and implement &#8220;the
Specifications for the Diagnosis and Treatment of Primary Liver Cancer in China (2019 Edition)&#8221; (the &#8220;Specifications&#8221;),
a national guideline promulgated by the National Health Commission (the &#8220;NHC&#8221;), and is available on the MDMOOC platform at
www.MDMOOC.org. The Project will be carried out in multi-year, multi-phase. Since the Project&#8217;s launch in March 2020, a total of
over 145,000 liver surgeons, oncologists, hepatologists, interventional radiologists, and diagnostic radiologists have participated in
the 12 sessions that have been completed as of the date of this Annual Report.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In July 2020, the PRC operating
entities launched patient management services as their third major line of business,&#160;in addition to MDMOOC, its online professional
training and education platform for healthcare professionals, and Sunshine Health Forums, the online information platform catering to
the general public. The patient management services is branded as &#8220;Zhongxun&#8221; (&#20247;&#23547;) and carried out through the
wholly-owned subsidiary of Zhongchao Shanghai, Shanghai Zhongxun.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2021, Zhongchao Shanghai
launched patient management services focusing on the professional field of tumor and rare disease operated through its subsidiary Shanghai
Zhongxin, together with Shanghai Zhongxun, provide patient management services, branded as &#8220;Zhongxin Health&#8221; (&#20247;&#33455;&#20581;&#24247;).
As of now, as Zhongxin Health provides comprehensive disease education and management services for tumor patients receiving treatment,
in September 2022, Zhongchao announced its new strategic extension of the business model from &#8220;Medical-Pharmaceutical&#8221; to
&#8220;Medical-Pharmaceutical-Patient.&#8221; The establishment of Shanghai Zhongxin was the important first step of Zhongchao&#8217;s
transformation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel and nine shareholders of West Angel transferred all of their equity interest,
equal to 49.44% of the total equity interest of West Angel to Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity
interest of West Angel. It has well established healthcare CRM (HCRM), a system specially designated to track patient data to provide insight
for understanding patient behaviors and habits for patient care, relationship management and experience, hospital marketing and services<span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">,
which may contribute in expanding our source of hospital customers and developing HCRM for hospitals. In addition, West Angel&#8217;s
customers include high ranking hospitals and reputable medical professionals. Having those customers would provide competitive advantage
for us in attracting pharmaceutical enterprise customers and NFP for training and services provided by us. </span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 2, 2022, Mr. Weiguang Yang transferred certain parts of his
shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of the equity interest of Shanghai Zhongxin.
Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao Yixin and Zhongren Yixin hold 12.33%, 20% and
10% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. As a result, Shanghai Zhongxun owns 93.33%
of Shanghai Zhongxin&#8217;s equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 2022, <span>Liaoning
Zhixun</span> launched Zhixun Internet Hospital to provide standardized Internet healthcare services for patients with oncology or other
major diseases. The establishment of Zhixun Internet Hospital will enable Zhongchao to form an all-in-one patient management service (the
&#8220;All-in-One Service&#8221;) from patient education, online follow-up consultation, treatment compliance management, to living quality
improvement , creating comprehensive services for both out-of-hospital and in-hospital patients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Followed by the launch of
Zhixun Internet Hospital to provide standardized internet healthcare services for patients with oncology or other major diseases, Zhongchao
established Xinjiang Pharmaceutical, aiming at realizing medications accessibility and affordability for those patients. In January 2022,
Xinjiang Pharmaceutical was incorporated under the PRC laws, as a wholly owned subsidiary of Shanghai Zhongxin. In August 2022, Shanghai
Zhongxun and Shanghai Zhongxin entered into a share transfer agreement, pursuant to which, Shanghai Zhongxin agreed to transfer all the
share equity in Xinjiang Pharmaceutical to Shanghai Zhongxun with no consideration. As a result, Xinjiang Pharmaceutical is wholly owned
by Shanghai Zhongxun. Xinjiang Pharmaceutical plans to cooperate with Zhixun Internet Hospital and other internet hospitals to build a
2B2C (to business and to customer) pharmaceutical procurement platform, aiming to streamline the delivery of medicines from pharmaceutical
factories to retail ends. Xinjiang Pharmaceutical has obtained Pharmaceutical Trade License, Medical Device Trade License, Qualification
Certificate for Drug Information Service over the Internet and other related licenses. Xinjiang Pharmaceutical plans to engage in pharmaceutical
import and export trade, OME (original equipment manufacturer) production, medical consumables operation, and pharmaceutical internet
services, aiming to continuously expand the industry chain and supply chain of the pharmaceutical market in China. Meanwhile, it remains
committed to becoming a competitive technology-based pharmaceutical service enterprise.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2022, MDMOOC online
platform established a &#8220;Surgical-Interventional-Drug&#8221; (&#8220;SID&#8221;) platform for liver cancer comprehensive-disciplinary
physician education (&#8220;SID Platform&#8221;), providing physicians with knowledge and techniques in comprehensive-disciplinary comprehensive
management of patients with liver cancer. As of the date of this report, Zhongchao VIE has established nearly 22 columns for cancer-related
drug treatment, including drug treatment for lung cancer, liver cancer, and extended blood cancer, and 4 columns for drug treatment of
rare diseases, including drug treatment for pulmonary fibrosis, multiple sclerosis, and systemic lupus erythematosus.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2023, Xinjiang
Pharmaceutical entered into certain agreements with Natco Pharma Limited (&#8220;NPL&#8221;), a vertically integrated and R&amp;D focused
pharmaceutical company in India, pursuant to which Xinjiang Pharmaceutical will act as the drug distribution agent of certain drugs produced
by within mainland China. Xinjiang Pharmaceutical will introduce different products from NPL based on the needs of patients in China,
for example, anti-influenza drugs during the flu season, and high demand anti-tumor and anti-rare diseases products. Both parties will
work together to apply registration certificate of imported drugs and submit filings of sales agent, and will fully leverage their advantages
and resources to effectively shorten the clinical trial approval and other processes and accelerate the progress of introducing quality
drugs to the patients in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Private Equity Fund Arrangements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2020, Shanghai
Jingyi formed private equity fund arrangements (the &#8220;Private Equity Fund Arrangements&#8221;) among another twelve individuals (each,
a &#8220;Limited Partner&#8221;, collective, the &#8220;Limited Partners&#8221;) and Shenzhen Suizi Wealth Management Co., Ltd. or Shenzhen
Suizi, and such Private Equity Fund Arrangement consist of a series of three agreements. For more details and risks related to Shanghai
Jingyi&#8217;s private equity fund investment, please see &#8220;Risk Factors&#8212;Risks Related to the Business and Industry of the
PRC Operating Entities&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The significant terms of the
Private Equity Fund Arrangements are as follows:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Limited Partnership Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Limited Partnership
Agreement, Shenzhen Suizi, as the general partner (the &#8220;General Partner&#8221;) among thirteen Limited Partners, inclusive of Shanghai
Jingyi, formed Ningbao Meishan Bonded Port Xinaishan Investment Partnership (Limited Partnership) (the &#8220;Xinaishan Investment Partnership&#8221;).
The business scope of Xinaishan Investment Partnership is to conduct equity investment, capital investment, and management of equity investment.
(the &#8220;Private Equity Fund&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Private Equity Fund will
remain effective of 5 years (the &#8220;Term&#8221;) since November 2020, consisting of a four-year investment period (the &#8220;Lock-Up
Period&#8221;) and the last year as the investment withdrawal period (the &#8220;Exit Period&#8221;). If there is any failure to exist
prior to the expiration of the Term due to force majuere, the Fund Manager (as defined below) has to submit a written request for any
extension to Limited Partners and the Term will be extended upon the consent of more than two thirds of the Limited Partners that has
voting power. If no such consent is obtained, the Funder Manager should start the liquidation procedure and carry out the liquation as
the liquidator of the Xinaishan Investment Partnership.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Limited Partnership
Agreement, the paid-up capital should be no less than RMB10,000,000 (the &#8220;Paid-Up Capital&#8221;). Shanghai Jingyi subscribed and
paid RMB 8,400,000 and The General Partner subscribed RMB 8,100,000. Under the Limited Partnership Agreement, the management fee is paid
annually to a Fund Manager and equals 2% of the cumulative Paid-Up Capital of each year (the &#8220;Management Fee&#8221;) when the Private
Equity Fund is established, the Management Fee is withdrawn for the first two year, which is 4% of the cumulative Paid-Up Capital and
is paid as 2% of the cumulative Paid-Up Capital annual from the third year. Each Limited Partner pays the Management Fee pro rata of
its Paid-Up Capital. If the Paid-Up Capital is less than the prepaid Management Fee of a certain year, the remaining Management Fee,
deducting the amount already paid from the paid-up capital, will be paid additionally by each Limited Partner pays pro rata, or be paid
by the investment revenues of Private Equity Fund.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Limited Partnership
Agreement, all the partners, Limited Partners and General Partner (each, a &#8220;Partner&#8221;, together, the &#8220;Partners&#8221;),
hold partner meetings (the &#8220;Partner Meeting&#8221;), whereas no less than 50% of Partners constitute a quorum at a Partner Meeting
and each Partner has voting powers equals to the percentage of their paid-up capital interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All the capital in Private
Equity Fund will be invested in Heyuan Biotech (Tianjin) Com., Ltd., or Heyuan Biotech in a way of increasing Heyuan Biotech&#8217;s capital.
Heyuan Biotech&#8217;s primary product is immune cell treatments, which at the beginning to blood tumor, in the mid-term to solid tumor,
and in the later period to general treatment. The idle fund will be invested low risk financial product with a certain term and/or a certain
liquidity, including but not limited to, cash, currency fund, monetary fund, bank deposit, bank wealth management product and another
other cash management product under the management of the financial institutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The entrusted management agency
has the right to determine the exit plan, including exit method, exit time, exit price, and other matters. A project management team determined
by the entrusted management agency will submit a project exit application report to the investment committee for review. Once the project
exist application report is approved by the investment committee, the entrusted management agency is responsible for the implementation
of such exit plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The General Partner has the
right to accept new partner join in until the paid-up capital reaches to the maximum. No Partner can withdraw from the Xinaishan Investment
Partnership during the Term without the consent of the Partner Meeting. General Partner and Limited Partner cannot convert into each other
during the Term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Subscription Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2020, Shanghai
Jingyi and the General Partner entered into a subscription agreement (the &#8220;Subscription Agreement&#8221;). Pursuant to the Subscription
Agreement, the General Partner subscribes RMB8.1 million of the Private Equity Fund and Shanghai Jingyi, as a Limited Partner, subscribes
and paid RMB8.4 million of the Private Equity Fund. &#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Entrusted Management Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2020, Xinaishan
Investment Partnership, Shanghai Jingyi, and the General Partner entered into an entrusted management agreement. Pursuant to the entrusted
management agreement, the General Partner is entrusted as the manager of Private Equity Fund (the &#8220;Fund Manager&#8221;) to manage
the investment to Heyuan Biotech and to provide consultation service to Xinaishan Investment Partnership. The Funder Manager cannot transfer
its obligations under the agreement hereof without the prior written consent of Xinaishan Investment Partnership.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the entrusted
management agreement, the Fund Manager shall not invest the Private Equity Fund in securities, future transactions, real estate, or any
other high risk areas; further, shall not use the capital in the Private Equity Fund or the equity of the invested company held by Xinaishan
Investment Partnership to provide guarantee or financing, except of the following: i) the bank instruments necessary for the cash management
of the Private Equity Fund; ii) investment in bonds products or insurance products, with investment cycle no more than 6 months since
the determination date of such investment, and invest the amount no more than 10% of the subscribed capital of Xinaishan Investment Partnership.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the entrusted management
agreement, Xinaishan Investment Partnership will pay the Management Fee to the Fund Manager annually and, additionally, commission fee
for the amount of 20% of Xinaishan Investment Partnership&#8217;s investment income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The entrusted management agreement
will remain effective till the expiration of Xinaishan Investment Partnership&#8217;s Term or till the termination of Xinaishan Investment
Partnership in case of any other dissolution situations. The entrusted management agreement may be terminated by Xinaishan Investment
Partnership pursuant to the agreement hereof or upon the unanimous consent of Shanghai Jingyi together with other Partners.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Change of Corporate Structure </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 26, 2020, the board
of Horgos Zhongchao Medical, one of the wholly-owned subsidiaries of Zhongchao Shanghai, approved its dissolution. The application for
cancellation registration was approved by the registration authority on May 11, 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 16, 2020, Horgos
Zhongchao Zhongxing, one of the wholly-owned subsidiaries of Zhongchao Shanghai, cancelled its registration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, on April 27,
2020, Beijing Boya was incorporated under the PRC laws, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its equity
was entrusted to Zhongchao Shanghai by the other shareholder Shanghai Lingzhong through a certain share entrustment agreement on December
1, 2021. Beijing Boya is primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare
management services, healthcare consulting services, sales of medical appliances and other medical products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 12, 2020, two shareholders
of Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr. Weiguang Yang holds 49% of Shanghai
Jingyi&#8217;s equity and Zhongchao Shanghai holds 51% of its equity. Through a certain entrustment agreement on November 1, 2020, Mr.
Weiguang Yang agreed to hold his equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 23, 2020, Shanghai
Jingyi changed its name to Shanghai Zhongxin Medical Technology Co., Ltd., or Shanghai Zhongxin.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 16, 2020, Mr.
Weiguang Yang transferred certain parts of his shares to Zhongchao Yixin and Zhongren Yixin. As a result, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin holds 19%, 20% and 10% of the equity interest of Shanghai Zhongxin, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Through a certain entrustment
agreement on December 25, 2020, Mr. Weiguang Yang, Zhongchao Yixin and Zhongren Yixin hold 19%, 20% and 10% of the equity interest of
Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. As a result, Shanghai Zhongxun owns 100% of Shanghai Zhongxin&#8217;s
equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July 6, 2020, Zhixun Internet
Hospital (Liaoning) Co., Ltd., or Liaoning Zhixun was incorporated under the PRC laws and wholly owned by Shanghai Zhongxun. Liaoning
Zhixun primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services,
healthcare consultation services, sales of medical appliances and other medical products. On January 11, 2021, Shanghai Zhongxun transferred
its whole equity ownership of Liaoning Zhixun to Shanghai Zhonxin, and as a result, Shanghai Zhongxin becomes the sole shareholder of
Liaoning Zhixun.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 30, 2020, Zhongchao
Japan was incorporated under the laws of Japan as a wholly owned subsidiary of Zhongchao USA. Zhongchao Japan was acquired from the Zhongchao
Cayman&#8217;s controlling shareholder in December 2021, and such acquisition was accounted for as acquisition under common control, and
historical financial statement of Zhongchao Japan was included in the consolidated financial statement as if the acquisition was since
its incorporation.&#160;&#160; On January 13, 2021, Shanghai Xinyuan, was incorporated under the PRC laws, as the wholly owned subsidiary
of Shanghai Zhongxin. Shanghai Xinyuan is primarily engaged in human resources services and information consulting services. On May 18,
2021, Ningxia Zhongxin, was incorporated under the PRC laws, whose sole shareholder is Shanghai Zhongxin. Ningxia Zhongxin was engaged
in operating an online hospital to provide online medical service, including online consultation, prescription information services, and
medication retails. On July 16, 2021, Hainan Zhongteng, was incorporated under the PRC laws, as the wholly owned subsidiary of Beijing
Boya. Hainan Zhongteng is primarily engaged in healthcare consulting services. On July 21, 2021, Hainan Muxin, was incorporated under
the PRC laws, as the wholly owned subsidiary of Shanghai Zhongxin. Hainan Muxin is primarily engaged in healthcare consulting services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 19, 2021 pursuant
to an equity transfer agreement, Shanghai Zhongxin agrees to transfer all of its equity interest of Liaoning Zhixun to Beijing Boya. As
a result, Liaoning Zhixun is wholly owned by Beijing Boya.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 31, 2021, Shanghai
Xingzhong transferred all of its equity interest, equal to 23.6% of the total equity interest of Zhongchao Shanghai, to Shanghai Xingban
Enterprise Management Partnership (Limited Partnership), a PRC limited partnership, or Shanghai Xingban. The general partner of Shanghai
Xingban is Weiguang Yang, and its limited partner is Pei Xu. As a result, Mr. Yang is the 76.4% shareholder of Zhongchao Shanghai with
the remaining equity interests held by Shanghai Xingban.&#160; As a result, &#160;Zhongchao WFOE, Zhongchao Shanghai, Mr. Weiguang Yang
and Shanghai Xingban entered in to a series of VIE agreement. See &#8220;Our Corporate History and Structure&#8212;2021 VIE Agreements&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 8, 2021, Hainan
Muxin Medical Technology Co., Ltd., or Hainan Muxin, a wholly owned subsidiary of Shanghai Zhongxin, together with another two shareholders,
established Beijing Yisuizhen Technology Co., Ltd., or Beijing Yisuizhen, where Hainan Muxin hold 47% of the equity interest. Beijing
Yisuizhen is primarily engaged in technology development, consulting, communication, transfer, and promotion, software services, and health
consulting services. &#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 24, 2021, Mr.
Weiguang Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds
12.33% of the equity interest of Shanghai Zhongxin.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2022, Xinjiang
Pharmaceutical was established was incorporated under the PRC laws, as a wholly owned subsidiary of Shanghai Zhongxin. In August 2022,
Shanghai Zhongxun and Shanghai Zhongxin entered into a share transfer agreement, pursuant to which, Shanghai Zhongxin agreed to transfer
all the share equity in Chongqing Pharmaceutical to Shanghai Zhongxun with no consideration. As a result, Xinjiang Pharmaceutical is wholly
owned by Shanghai Zhongxun.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel and nine shareholders of West Angel transferred all of their equity interest,
equal to 49.44% of the total equity interest of West Angel to Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity
interest of West Angel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 2, 2022, Mr. Weiguang
Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33%
of the equity interest of Shanghai Zhongxin. Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao Yixin
and Zhongren Yixin hold 12.33%, 20% and 10% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively.
As a result, Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin&#8217;s equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="margin: 0pt 0; font: 10pt Times New Roman, Times, Serif">On August 16, 2022, two shareholders of Beijing Yisuizhen transferred
all of their equity interest, equal to 53% of the total equity interest of Beijing Yisuizhen to Hainan Muxin. As a result, Hainan Muxin
holds 100% of the equity interest of Beijing Yisuizhen.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 9, 2022, Ningxia
Zhongxin submitted the application for cancellation registration to SAMR and the application was approved on the same day.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Customers and End Users of the PRC operating
entities</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>MDMOOC&#8217;s Customers
and End Users</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
customers are enterprises, NFP, and medical journals, primarily located in China. The PRC operating entities&#8217; terminal customers
and end-users are healthcare professionals, nurses, doctors and other healthcare workers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
enterprise customers are pharmaceutical enterprises, healthcare enterprises engaged in researches and develops pharmaceuticals, vaccines,
and consumer healthcare products, pharmaceutical enterprises that engages in drug innovation, manufacturing, and marketing, and medical
journals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
NFP customers, most of whom are sponsored by pharmaceutical enterprises to produce training courses for specific healthcare topics, are
charity organizations, national public foundations, and nonprofit non-governmental association, that are governed by provincial and regional
government agencies and commissions. Government agencies include the National Health and Family Planning Commission (NHFPC) and Ministry
of Civil Affairs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
maintain good relationship with their customers and some of them have long term relationship with us. The PRC operating entities generate
the revenue on a case-by-case or project-by-project basis and by providing their customers with healthcare information, education, and
training services, including the production of online medical training materials, the arrangement of onsite training programs or academic
conferences, and the development of medical education software to their targeted end users.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">For
the fiscal year ended December 31, 2022, we generated revenue of MDMOOC business from a total of 76 customers, of which 34 customers
were NFP and 42 customers were pharmaceutical enterprises. </span>&#160;<span style="font-family: Times New Roman, Times, Serif">For
the fiscal year ended December 31, 2021, we generated revenue from a total of 78 customers, of which 30 customers were NFP and 35
customers were pharmaceutical enterprises. For the fiscal year ended December 31, 2020, we generated revenue from a total of 77
customers, of which 28 customers were NFP and 49 customers were pharmaceutical enterprises. </span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">We
generate the revenues from a relatively small number of customers. For the fiscal years ended December 31, 2022, 2021, and 2020, the
PRC operating entities&#8217; pharmaceutical enterprise customers accounted for 33.1%, 11.7%, and 10.5% of our total revenues,
respectively. For the fiscal years ended December 31, 2022, 2021, and 2020, the PRC operating entities&#8217; NFP customers
accounted for 58.0%,  86.2%, and 87.2%, of our total revenues, respectively. &#160;</span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Sunshine Health Forums&#8217;
Users</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Unlike MDMOOC online platform
which require the users to register with their healthcare qualification and some of the PRC operating entities&#8217; programs are limited
to certain registered users of the platform, the Sunshine Health Forums is accessible to the public without limitation. &#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Zhongxin Health&#8217;s
Customers and Users</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongxin Health&#8217;s customers
are primarily pharmaceutical enterprises and NFPs including charity organizations, national public foundations, and nonprofit non-governmental
association.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongxin Health provides
patient management services through its Zhongxun IT system and WeChat mini program and its Zhongxin Health WeChat mini program. The users
are patients with cancer, rare disease or other major diseases. Users need to register on Zhongxun IT system and WeChat mini program
or log in their WeChat before accessing their portals for tailored patient management services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Source of Revenues</i></b>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
currently derive our revenues from 3 sources: (1) revenue generated from the information, education, and training programs,
services, and products under the PRC operating entities&#8217; &#8220;MDMOOC&#8221; brand, including but not limited to (a) revenue
from designing and producing healthcare training products as requested by the PRC operating entities&#8217; customers; (b) revenue
from the PRC operating entities&#8217; onsite education, including organizing medical training sessions and academic conferences;
and (c) revenue from the healthcare consulting services the PRC operating entities provide to their customers; (2) revenues
generated from providing patient management services by Zhongxin Health; and (3) sales of patented drugs by Xinjiang Pharmaceutical.
The PRC operating entities do not charge user fees for access to the MDMOOC online platform or attend some of the PRC operating
entities&#8217; onsite conferences. The MDMOOC online platform and onsite education activities enable customers to reach, educate
and inform target audiences of healthcare professionals. The PRC operating entities work closely with their customers to develop
programs to reach specific groups of healthcare professionals and give them placement on the most relevant areas on the MDMOOC
online platform.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">For</span>&#160; <span style="font-family: Times New Roman, Times, Serif">the
fiscal years ended December 31, 2022, 2021, and 2020, our revenues were $14,151,516, $16,296,770, and $17,989,788, respectively, and
our net (loss) income were $(2,822,319), $238,665, and $4,457,097, respectively.&#160;&#160;We currently generate most of our revenues from
MDMOOC.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Industry and Market Background</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>The Internet</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Internet has emerged as
a global medium for communications, news, information and commerce. China Internet Network Information Center (CNNIC) released the 51st
&#8220;Statistical Report on China&#8217;s Internet Development Status&#8221; report, indicating that as of December 2022, the number
of Chinese netizens was 1,067 million, an increase of 3.5 million from the end of 2021. In 2022, the average weekly online time spent
by Chinese netizens is 26.7 hours, which is 0.6 hours lower than the same period in 2021. A number of factors drive the Internet&#8217;s
continued growth, including the large and growing installed base of personal computers, a rapidly expanding and improving Internet delivery
infrastructure and an explosion of content and commerce offerings on the Web.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Internet allows content
delivery in a manner not possible through traditional broadcast and print media. These traditional media can have large audiences but
generally are limited to a specific geographic area, can deliver only limited content and are not effective for distributing detailed
information quickly. The Internet is distinct from traditional media in that it offers immediate access to dynamic and interactive content
and enables instantaneous communication among users. As a result, the Internet has become an important alternative to traditional media,
enabling users to seek current information and to communicate with one another. These characteristics, combined with the fast growth of
the Internet, have created a powerful, rapidly expanding direct marketing and sales channel. Advertisers can target very specific demographic
groups, measure the effectiveness of advertising campaigns and quickly revise them in response to the prompt feedback allowed by the Internet&#8217;s
technology.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As users hardly don&#8217;t
rely on the Internet for their information needs, they have sought more detailed content on a wide variety of specific subjects. Utilizing
subject-specific sites, users can find information on selected topics quickly, easily and cost effectively, making these sites a very
attractive resource for users. In addition to offering detailed and comprehensive content, many of these subject-specific sites have developed
online communities that allow users to communicate with each other and to engage in other interactive activities. We believe these community
features are attractive to users who want to express themselves and who seek to interact with other users who have similar interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Relevant Dynamics In The Healthcare Industry</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Healthcare is the largest
sector of the Chinese economy. The 2018 Statistical Communique on the Development of Nationwide Basic Medical Care shows that in 2018,
the total revenue of the national basic medical insurance fund was RMB2.1384 trillion, an increase of 19.3% as compared to that in the
previous year, which accounts for about 2.4% of the GDP in 2018. The total expenditure on national basic medical insurance funds was RMB1782.2
billion, an increase of 23.6% as compared to that in the previous year, which accounts for about 2.0% of the GDP in 2018. The 2018 medical
expenses for in-service employees totaled RMB 423.9 billion, an increase of 10.8% over the previous year. The medical expenditure per
capita was RMB 3,313, an increase of 5.0% over the previous year. In addition, the 2018 medical expenses for residents reached RMB 106.13
billion, an increase of 20.5% over the previous year. The medical expenditure per capita was RMB 1,183, an increase of 17.2% over the
previous year (<i>Resource: http://www.nhsa.gov.cn/art/2019/6/30/art_7_1477.html</i>).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The need of healthcare in
China is still on the rise. According to 2021 Statistical Bulletin on the Development of China&#8217;s Health and Wellness Industry, by
the end of 2021, there are 1,030,935 healthcare institutions in China, with an increase of 8,013 over the previous year. In 2021, the
total number of healthcare services is 8.47 billion with an increase of 730 million over 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The healthcare industry is
continuing to change. According to the China Big Health Industry Development Report 2018, there are three trends in the development of
China&#8217;s healthcare industry: (1) the need for integrated services for the prevention and treatment of chronic diseases and the need
to maintain people&#8217;s health in all aspects and full cycles; (2) the total amount of medical and health resources is insufficient,
the structure of the industry is unreasonable, the basic service capacity is still a prominent weak link, and the technical level needs
to be improved; (3) with the change of disease spectrum of Chinese residents, the number of patients with chronic non-communicable diseases
is increasing year by year, which has become the primary problem that threatens the health of the residents. Healthcare services will
shift from treatment-centered to health-promoting centered mode.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Government is guiding an active
and healthy lifestyle for the public. According to the Healthy China Action (2019-2030), by 2030, the health awareness of the general
public will be greatly improved, healthy lifestyles will be broadly adopted, the main factors having impact on people&#8217;s health will
be effectively controlled, and the average healthy life expectancy will be greatly increased. Also, the level of population&#8217;s main
health indicators will enter the ranks of high-income countries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The healthcare industry in
China will continue to develop. According to a report from Prospective Industry Research Institute, by 2020 the scale of China&#8217;s
healthcare industry will exceed RMB 10 trillion. &#160;&#160;&#160;The annual compound annual growth rate in the next five years (2019-2023)
is about 12.55%, and the scale of china&#8217;s healthcare industry can be expected to reach RMB 14.09 trillion in 2023.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Convergence Of The Internet And The Healthcare
Industry</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">China has the largest group
of healthcare professionals in the whole world, providing a solid foundation for the development of the healthcare education market. According
to the 2018 Statistical Bulletin on the Development of China&#8217;s Health and Wellness Industry, China currently has more than 12 million
healthcare professionals, including more than 3.6 million doctors, reflecting a huge demand on knowledge learning and professional training.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With long working hours and
heavy workloads, it is very difficult for healthcare professionals in China to spare time and energy to participate in offline academic
conferences or training sessions. Continuing changes in the healthcare industry, including the increasing adoption of managed care plans
and the need to keep informed about rapidly emerging medical and pharmaceutical therapies are also placing increasing pressures on healthcare
professionals&#8217; time. Healthcare professionals must keep abreast of the latest developments within their medical specialty to provide
their patients with the best possible care and to meet continuing medical education requirements. There is a vast flow of information
from many sources, including traditional medical journals, medical textbooks, academic conferences and other training literature. The
sheer volume of medical information and the time constraints that physicians face make it extremely difficult for them to stay current
and to quickly and efficiently access the information most relevant to their practice. We believe online healthcare professionals education
services will allow them to easily find and manage the information they are seeking.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Internet Plus training model
emerged with the growth of technologies, internet and the needs for convenient and reliable source of information. Specifically, Internet
plus will optimize the traditional mode of education and training for healthcare professionals with real-time services anytime, anywhere,
based on users&#8217; demands. Through the Internet, the latest medical information and online training courses can be obtained from the
mobile terminal and healthcare professionals can make full use of their spare time to get the information most related to them. Gradually,
the Internet plus education model has been accepted by healthcare professionals. A Chinese Internet Doctors Insights Report (DIR) released
by United States Medical Scientific in November 2018 provides that more than 90% of doctors in China obtained medical information through
professional online platform, 46.7% of doctors in China obtained medical information through offline meetings, and 58.5% of doctors in
China obtained information of pharmaceutical enterprises and drugs through professional websites.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2019, Internet plus healthcare
education has become the education model guided and supported by the Chinese government. The Opinion Concerning the Promotion of the Development
of Internet Plus Medical and Health promulgated and implemented on April 25, 2018 by the General Office of the State Council (the &#8220;Opinion&#8221;),
states its plan to enhance the Internet plus medical education model. The Opinion encourages the establishment of healthcare education
training cloud platform that provides a diverse range of medical online courses and healthcare information. The Opinion also encourages
the establishment of a networked, digital, personalized, and lifelong medical education and training system for the healthcare professionals
to carry out researches and discussions on incurable diseases and major diseases, and eventually improve their healthcare quality. The
Opinion further includes the implementation plan of the &#8220;Continuous Medical Education + Appropriate Technology Promotion&#8221;
policy, focusing on the needs of healthcare and poverty reduction, targeting the grass-root levels and deprived areas of the country,
to popularize practical and appropriate healthcare technologies via distance education. The Opinions further indicates to establish an
Internet-based science platform to provide accurate and up-to-date information on healthcare science knowledge and healthy lifestyles.
The Opinion aims to improve residents&#8217; health management ability and health literacy.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Healthcare education is a
large sector of the Chinese market with outstanding development prospects. According to the report released on December 24, 2018 by TrendForce
(&#8220;TrendForce Report&#8221;), a global provider of market intelligence on the technology industries, driven by the large amount of
new drugs joining the market and the continuous increase in the use of new drug products, the 2018 market size of global pharmaceutical
is approximately USD 1.2 trillion, with a 3.8% annual growth rate. TrendForce Report indicates that the expected global drug market will
reach USD1.55 trillion in 2023 with a compound annual growth rate of 5.1% from 2018 to 2023. According to a 2018 report by The Economic
Observer, sales expenses in Chinese pharmaceutical industry account for more than 40% of the total revenue and the costs of market promotion
is a key part of sales expenses. We believe the need for Internet-based healthcare education will continue to grow, driven by the increasing
demand for healthcare services by Chinese people, the implementation of China&#8217;s grading diagnosis and treatment policy, and the
establishment of doctors&#8217; multi-point practice system.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Policy Support, Huge and Growing Market of
Internet Healthcare in China</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Frost &amp;
Sullivan report, total spending on healthcare in China in 2020 was RMB 7,230.6 billion, ranking the second in the world. It is expected
to reach RMB11,486 billion in 2025 and RMB16,642.5 billion in 2030, respectively. According to the report released by iResearch and Huaan
Securities Research Institute, it is expected that the scale of China&#8217;s internet healthcare market will reach RMB 87.61 billion in 2023,
an increase of 25.1% year-on-year. With the change of residents&#8217; medical habits and the increase of disposable income, the scale of the
internet healthcare market will continue to grow.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Competition</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
face competition from providers of traditional healthcare education programs and training services as well as the increasing competition
from existing competitors and new market entrants in the&#160;online healthcare education&#160;market and patient management service market,
including the following:</p><div>

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    <td style="width: 24px; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chinese online education companies and institutions that also offer continuing healthcare education and other online courses and training programs. Examples of the PRC operating entities&#8217; competitors include 91huayi, a Chinese medical education website dedicated to improving medical service providers professional skills and public&#8217;s healthcare knowledge; bbs.iivi.com, a Chinese medical bulletin board system allowing medical professionals in different specialties to share their views regarding their medical practice, career development and medical examinations; and www.ccmtv.cn, a Chinese website providing surgery education videos to medical professionals in different specialties.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Healthcare education companies or institutions organizing onsite healthcare workshop, academic conference, and other healthcare communication activities. This segment is the most significant competitor to the PRC operating entities&#8217; onsite education programs. Examples of&#160;the PRC operating entities&#8217; competition&#160;in this segment include Medcon, MEDLINK, and Beijing Medical Group 3 AD Ltd., all of which are Chinese company dedicated to promoting medical information and health knowledge via onsite activities.</span></td></tr>
  </table><div>
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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">China-based digital service provider in the healthcare industry that also offer information sharing services and data accumulation and management in China. Examples of the PRC operating entities&#8217; competitors include DXY (&#19969;&#39321;&#22253;), a Chinese medical knowledge sharing website, which is built as an academic article retrieving database. DXY has developed more functions to enrich the services it provides to healthcare professionals and the public, including but not limited to establishing online forum for physicians, launching a series of mobile applications such as Drug Assistant and Dingxiang Doctor, and opening its wholly-owned offline Family Clinics.</span></td></tr>
  </table><div>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Education companies that targets the public and patients. This segment is the most significant competitor to the Sunshine Healthcare Forum. Examples of the PRC operating entities&#8217; competitors include CN-Healthcare, an internet-based healthcare education platform targeting patients. CN- Healthcare organizes content-partners, including healthcare professionals and medical associations to generate health-related news and information. CN-Healthcare currently has 1773 individual content-partners, 751 association partners, and 1.3 million subscribers.</span></td></tr>
  </table><div>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">China-based technology
companies providing medical health management services. Examples of the PRC operating entities&#8217; competitors include Sinohealth
Holdings Ltd. (HKG: 2361), a data insight solutions, data-driven publications and events and software providers. it&#8217;s Zhongkang
Tong platform focuses on providing professional services for the operation of patient care projects.</span></td></tr>
  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>The Growth Strategy of the PRC Operating Entities</b>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
objective is to address the needs along the patient journey of symptoms occurrence, medical consultations, medication prescriptions, medication
management, and treatment consultations. The PRC operating entities operate the premier healthcare destination Websites where physicians,
allied healthcare professionals and consumers can find reliable and comprehensive information that enables them to make better and more
informed medical and health decisions. We believe the PRC operating entities are positioned to become a preferred online advertising medium,
academic communication platform, and e-commerce partner in the PRC healthcare sector. The PRC operating entities intend to achieve this
objective by pursuing the following strategies:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Strengthening the PRC Operating Entities&#8217; Brands</i>. The PRC operating entities intend to build up MDMOOC as the leading single brand for healthcare information, education, and training for professionals and Sunshine Health Forums as the leading brand for online healthcare information forums. We believe that strengthening the PRC operating entities&#8217; brand awareness is critical to attracting and retaining users, advertisers, sponsors and strategic partners. The PRC operating entities plan to pursue a brand development strategy through online and offline advertising, promotions, media coverage and word-of-mouth support. We believe the PRC operating entities&#8217; brand visibility will significantly benefit from promotion on leading we-media and medical associations, such as China Association of Health Promotion and Education, Beijing Medical and Health Foundation, and China Primary Health Care Foundation, as well as the PRC operating entities&#8217; partnership with pharmaceutical enterprises and NFPs in various projects providing patient management services in China.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Improving and Enhancing the PRC Operating Entities&#8217; Products and Services</i>. The PRC operating entities intend to expand the content on both their healthcare programs for professionals and the public by adding new medical specialty areas, enlarging the PRC operating entities&#8217; editorial staff and utilizing the PRC operating entities&#8217; extensive relationships with leading medical experts. The PRC operating entities intend to enhance users&#8217; experience by adding general health and wellness information, community features and interactive programs that take advantage of the PRC operating entities&#8217; credibility with medical professionals and the PRC operating entities&#8217; existing professional medical specialty content and by providing different features and functions on Zhongxin Health to assist PRC operating entities&#8217; customers on patient management and facilitate and assist users&#8217; treatment and medication process.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Further Improving Patient Loop</i>. The PRC operating entities aim at forming a comprehensive &#8220;Medical-Pharmaceutical-Patient&#8221; business model for patients with oncology and other major diseases to meet patients&#8217; different medical health needs. Driven by the increased demands of &#8220;patient-oriented&#8221; healthcare in China, the PRC operating entities intend to provide medical services and disease management tailored to individual patient and allow patient to actively initiate and participate in health management and disease treatment, from patient education, online follow-up consultation, treatment compliance management, to living quality improvement. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Developing Multiple Revenue Sources</i>. We believe the PRC operating entities&#8217; implementation y to extend to the &#8220;Medical-Pharmaceutical-Patient&#8221; model provide us with significant opportunities to develop multiple sources of revenue. In addition to advertising and sponsorships, the PRC operating entities plan to generate e-commerce revenues by building Sunshine Health Forums as a full-service online healthcare platform with functions of book selling and drug selling. The PRC operating entities also plan develop other research products that they expect will complement pharmaceutical enterprises&#8217; product detailing efforts. In addition, the PRC operating entities plan to introduce products and services that appeal directly to their international and allied healthcare users. The PRC operating entities, utilizing its accumulated experiences in medical education and innovation and self-developed patient management system,&#160;&#160;partner with several pharmaceutical enterprises and NFPs to provide patient management services. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>The Competitive Strengths of the PRC Operating Entities</b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that the principal
competitive factors in the PRC operating entities&#8217; markets are industry expertise, breadth and depth of service offerings, quality
of the services offered, reputation and track record, marketing and selling skills, scalability of infrastructure and price.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that there are
several key strengths that prevail the PRC operating entities from their competitors and will continue to contribute to the PRC operating
entities&#8217; growth and success.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe the following factors
drive the PRC operating entities&#8217; success:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acknowledged by leading pharmaceutical enterprises</i>: the PRC operating entities&#8217; customers include leading pharmaceutical enterprises who position the MDMOOC as preeminent branded sources of consumer-oriented health and wellness information on the Internet. Almost all leading pharmaceutical enterprises have their own vendor lists regarding different types of service they request. It is an industry norm that it usually takes three to four years for a service provider to be accepted by the leading pharmaceutical enterprises to be included in the vendor list. The PRC operating entities are one of the prominent service providers in the category of course production services on the vendor lists of a few well-known pharmaceutical enterprises. Pursuant to the consultant agreements the PRC operating entities entered into with the pharmaceutical enterprises regarding the course production services, the PRC operating entities will create online training courses of specific medical topics and then post them on the MDMOOC platforms. The users need to obtain the passwords from the pharmaceutical enterprises or from us to get free access to the series of online courses. The PRC operating entities also entered into framework agreements with certain pharmaceutical enterprises. The terms of the agreements are usually one (1) years. Pursuant to the framework agreements, when the PRC operating entities&#8217; customers have a need for medical course production, they will reach out to the PRC operating entities by sending over formal purchase order. Such close connections with some of the leading pharmaceutical enterprises will also benefit PRC operating entities the development of new business, pharmaceutical services and patient management&#160;&#160;services.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>High-Quality, Timely and Original Medical Information:</i> The PRC operating entities provide high-quality, timely and original content on important healthcare trends and disease topics. Using the real-time publishing capabilities of the Internet, the PRC operating entities can deliver this content to their audience faster and more cost effectively than traditional print media and on-site training session, which is limited by publication schedules and physical distribution. Many of the PRC operating entities&#8217; articles are written by industry-leading medical experts and are peer-reviewed by other physicians to insure they meet the high standards of medical integrity. The PRC operating entities&#8217; experienced editorial staff has strong medical background, most of whom graduated from well-known medical universities and have more than ten-year work experience in relevant areas. The PRC operating entities&#8217; medical specialty areas are carefully designed and their features are regularly updated by the PRC operating entities&#8217; editorial and quality control staff. Such high-quality medical information also contributes to the PRC operating entities&#8217; patient management services on Zhongxin Health by providing tailored medical education information.</span></td></tr>
  </table><div>
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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Well Organized and Easy-To-Use Websites and
    Apps</i>: The PRC operating entities design their websites and mobile Apps to meet the needs of their users in a personalized and easy-to-use
    manner. The PRC operating entities organize their training products on MDMOOC online platform by healthcare specialty area. The PRC operating
    entities create different Sunshine Health Forums for different categories of diseases and healthcare matters. Currently, the PRC operating
    entities have more than 150 forums, covering healthcare topics such as the kidney disease, the liver disease, and diabetes. In addition
    to high-quality medical content, their consumer sites provide community features and interactive programs to encourage academic discussion
    and communication as well as information and experience sharing. The PRC operating entities have self-developed a patient management system
    applied to its Zhongxun IT system and WeChat mini program, Zhongxun, and its Zhongxin Health WeChat mini program. Patients are able to
    manage multiple issues during the medication and treatment processes, by utilizing various functions provided by Zhongxin Health, including
    automatic medication reminder, self-treatment information, adverse reactions treatment information, and self-management illustration and
    video education courses.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Cost-Effective Access to the PRC Operating Entities&#8217; Audience</i>: The PRC operating entities&#8217; users registration profiles give the ability to segment their audience based on their medical specialty or healthcare interest. In addition, the PRC operating entities&#8217; proprietary users&#8217; profile and traffic database enables us to provide advertising and sponsored content. MDMOOC online platform also offers online programs that complement many of the pharmaceutical enterprises&#8217; offline promotional and educational efforts. For example, the PRC operating entities expand the audience of sponsored medical conferences by making next-day summaries of the proceedings available to users who were unable to attend. In addition, we believe Sunshine Health Forums create an attractive e-commerce environment for health-related products, i.e., educational healthcare books, due to the size of the audience and the focus on relevant healthcare topics. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Risks and Challenges</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our prospects should be considered
in light of the risks, uncertainties, expenses and difficulties frequently encountered by similar companies. The PRC operating entities&#8217;
ability to realize their business objectives and execute their strategies is subject to risks and uncertainties, including, among others,
the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the PRC operating entities&#8217; inability to effectively manage their rapid growth, which could place significant strain on their management personnel, systems and resources;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">adverse changes in the economic environment either in China or globally;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">intense competition from onshore and offshore healthcare information, education, and training services companies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the PRC operating entities&#8217; reliance on a relatively small number of major customers, one customers of the PRC operating entities accounted for 15.9% of our total revenue for fiscal year 2022, respectively; the top three customers of the PRC operating entities accounted for 23.4%, 21.9%, and 10.7% of our total revenue for fiscal year 2021, respectively; and two customers accounted for 26.9% and 19.7% of the total revenue for fiscal year 2020, respectively; </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the PRC operating entities&#8217; ability to anticipate and develop new services and enhance existing services to keep pace with rapid changes in technology;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the PRC operating entities&#8217; ability to attract new customers for their services and/or growing revenues from existing customers;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt; text-align: justify; text-indent: 0.5in"></p><div>

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    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">risks associated with having a long selling and implementation cycle for the PRC operating entities&#8217; services that require us to make significant resource commitments prior to realizing revenues for those services;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">increases in wages for professionals in China;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the international nature of the PRC operating entities&#8217; business;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">risks related to unauthorized disclosure of sensitive and confidential information;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">risks related to intellectual property infringement claims;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">risks related to material weakness in our internal control over financial reporting such that if we fail to develop and maintain an effective system of internal control over financial reporting, they may be unable to accurately report our financial results or prevent fraud;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">business interruptions resulting from occurrence of natural disasters, health epidemics and other outbreaks or events;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">fluctuation in the value of the Renminbi and other currencies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">disruptions in disruptive technologies or significant failure in the PRC operating entities&#8217; technology platform that could harm their service;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">vulnerabilities to security risks that could disrupt the PRC operating entities&#8217; services and adversely affect their operations; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">possibilities to expose us to malpractice liability and other liability inherent in healthcare delivery.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, the PRC operating
entities face other risks and uncertainties that may materially affect our business prospect, financial condition, and operations. You
should consider the risks discussed in &#8220;Risk Factors&#8221; and elsewhere in this Annual Report before investing in our Class A
Ordinary Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0"><b>The Business Model of the PRC Operating Entities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao Shanghai, together
with its subsidiaries, is a platform-based internet technology company offering services to patients with oncology and other major diseases
in China. The PRC operating entities have been taking steps to for its strategic extension of its business model of &#8220;Medical-Pharmaceutical&#8221;
to &#8220;Medical-Pharmaceutical-Patient&#8221;, focusing on oncology and other major disease management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
provide healthcare information, education, and training services to the healthcare professionals under their &#8220;MDMOOC&#8221; brand
via MDMOOC website, mobile Apps, and WeChat subscription account (together, the &#8220;MDMOOC online platform&#8221;), and onsite education
activities. The PRC operating entities also offer healthcare educational content to the public via their online &#8220;Sunshine Health
Forums&#8221;. Additionally, the PRC operating entities provide focused patient management services for their pharmaceutical enterprise
customers and NFPs customers via &#8220;Zhongxin Health.&#8221; The PRC operating entities have also been developing its pharmaceutical
business via Xinjiang Pharmaceutical and online healthcare services via Zhixun Internet Hospital.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The business model of the
PRC operating entities has unique value propositions for its constituents. With reliable content and the function of Community of Practice
Share (COPS) on the platform, users seeking medical precedents or information can obtain comprehensive medical information on the medical
area most related to them by interacting among one another through the community functions. Also, once they complete certain online courses
study, the PRC operating entities&#8217; platform will issue them MDMOOC certificates with verified continuing professional credits if
they are taking one of the courses provided by the Continuing Professional Development (CPD) function. In addition, after end-users complete
their online training, the PRC operating entities&#8217; online platform encourages them to share their study experience through the Course
Uploading, rating, and review systems. This further enriches the PRC operating entities&#8217; content and drives more interaction within
their community.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through their platforms, the PRC operating entities have been
engaged by certain customers on a project basis to establish individual columns on their MDMOOC online platform to provide training and
knowledge of certain drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare
disease-related. The PRC operating entities establish online courses to facilitate qualified patients to obtain free drug treatment from
not-for-profit organizations (&#8220;NFPs&#8221;) till the earlier of the expiration of contract period or the free drugs are completely
delivered.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
also plug in supplemental features to manage the drug treatment including reviewing patients&#8217; applications, tracking their usage
of drugs, and collecting related information (such programs with new plug-in features are hereinafter referred as the &#8220;patient-aid
projects&#8221;). With the information collected during the period of treatment, we believe the PRC operating entities&#8217; features
courses generated for the assistance in these patient-aid projects are valuable in both theory and practice, as we aim to not only enhance
the clinical application and medical study of those drugs, but also benefit the patients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
pharmaceutical enterprises customers and NFPs customers with demands of course production and training organization benefit from the PRC
operating entities&#8217; business model when more end-users are drawn to the MDMOOC online platform because of their reliable self-developed
content offered in rich media formats and the PRC operating entities&#8217; reputation among healthcare professionals who are seeking
healthcare service improvements. The original content in the PRC operating entities&#8217; platform, as well as the ratings and reviews
on the content, can effectively and efficiently incentivize their content production to offer high-quality training programs. The PRC
operating entities&#8217; in-house editorial staff and research and development team responsible for content generation and management
can further increase their ability to create better courses in the most suitable forms to the healthcare professionals working in different
fields. The PRC operating entities&#8217; COPS function, in return, provides data insights on current user landscape and learning trends
that allow their customers to get a better understanding to the healthcare industry in the practical aspect.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As corporate and NFP customers,
end-users, and course production teams and providers are inexorably connected through the PRC operating entities&#8217; content, COPS,
and online course uploading function, the PRC operating entities&#8217; business model forms an overall virtuous cycle that fuels its
continued growth and expansion. In essence, end-users are attracted to the PRC operating entities&#8217; platform by the content and services
offered on the platform of the PRC operating entities&#8217;, while corporate customers and NFP customers are attracted to the PRC operating
entities&#8217; platform by the access to the largest online healthcare professionals&#8217; community and the high-quality online programs
and courses. As the number of end-users grows, more corporate customers and NFP customers will want to join and get access to the PRC
operating entities&#8217; platform. More corporate customers and NFP customers will then lead to more tailored content production, as
well as more targeted content, and ultimately attract more end-users.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
provide focused patient management services for their pharmaceutical enterprise customers and NFPs customers via &#8220;Zhongxin Health.&#8221;
The PRC operating entities utilize their accumulated experiences in medical education and innovation, offer self-developed patient management
system for customers and provide easily accessible channels to patients, including IT systemWeChat mini program. The PRC operating entities&#8217;
pharmaceutical enterprises customers and NFPs customers benefit from patient management services provided by the PRC operating entities
to optimize their management, provide patients with handful information of medications and treatment, facilitate their patients&#8217;
treatment and medication process, and improve the duration of treatment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have also been developing its pharmaceutical business via Xinjiang Pharmaceutical and its internet hospital business via Zhixun Internet
Hospital.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 86; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->82<!-- Field: /Sequence --></td></tr></table></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0"><b><i>MDMOOC-Healthcare Information, Education, and Training
for Professionals</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0"><b>The MDMOOC Online Platform of the PRC Operating Entities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The MDMOOC online platform
of the PRC operating entities&#8217; is realized through various products, including MDMOOC mobile App, MOOC Medical WeChat subscription
account, and MDMOOC website, where users can access our rich media content and engaging Community of Practice Share (COPS) on MDMOOC website.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-indent: 0.5in"><b>MOOC Mobile App</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The MOOC Medical mobile app
of the PRC operating entities serves as a one-stop destination where they offer users relevant healthcare knowledge and study insights,
assist them along their journey to obtain the knowledge and information they are searching for in a supportive community, and allow them
to review and test their understanding of courses by participating in the Practice Improvement (PI) system. The PRC operating entities
designed the interface of their platform in simple white and sky blue, signaling health and learning respectively, and creating a soft
and welcoming texture to their platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When users open the MOOC Medical
mobile app, they will immediately see the featured banners that display academic courses, open classes, case library, and practice improvement
courses. As users scroll down, courses that are most popular among the healthcare professionals, courses recommended by the PRC operating
entities&#8217; medical editors, and the latest healthcare news appear. Users can also explore various medical courses by medical specialty
and subject areas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-indent: 0.5in">Below are screenshots of the PRC operating
entities&#8217; mobile app main entrance interface:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><img alt="" src="image_001i.jpg"/></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 87; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->83<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Opening Course is a collection
of video courses of various medical fields and topics. The courses are often presented by medical experts. Most of the courses are free
to users.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The screenshots below illustrate
the content in the Opening Course:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_002.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Live Courses is a platform
providing real time lectures by medical experts for healthcare professionals, and users could watch the replay if they miss the live courses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The screenshots below illustrate
the content in the Live Course:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;<img alt="" src="image_003.jpg"/></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 88; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->84<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through the platforms, the PRC operating entities have been engaged
by certain customers on a project basis to establish individual columns on the MDMOOC online platform to provide training and knowledge
of certain drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare disease-related.
The PRC operating entities also plug in supplemental features, to manage the drug treatment including reviewing patients&#8217; applications,
tracking their usage of drugs, and collecting related information (such programs with new plug-in features are hereinafter referred as
the &#8220;patient-aid projects&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">As of the date of this Annual
Report, we have established nearly 22 courses for cancer-related drug treatment, including drug treatment for lung cancer, liver cancer,
and extended blood cancer, and 4 columns for drug treatment of rare diseases, including drug treatment for pulmonary fibrosis, multiple
sclerosis, and systemic lupus erythematosus.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>MDMOOC WeChat Subscription
Account</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">WeChat Subscription Account
provides a new means to propagate information for the media and individuals, building better communication with readers with a better
management. It also facilitates discovery and consumption of services and products. It is useful for discovery and quick actions, and
complements full-function native apps by increasing their traffic.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
MDMOOC WeChat subscription account features similar interfaces and functions as their mobile app. It serves as additional access points
to the PRC operating entities&#8217; platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-align: justify; text-indent: 0.5in"><b>MDMOOC Website</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Users can access online healthcare
information, education and training content and the services through the PRC operating entities&#8217; website MDMOOC.org. In 2018, MDMOOC
website recorded an aggregate of 2 million users&#8217; visits. As more internet users shift to mobile ends, the PRC operating entities&#8217;
website mainly serves a comprehensive knowledge base targeting users who are in the process of researching for specific medical courses,
articles, or news.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Below are screenshots of MDMOOC.org
website:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_004.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 89; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->85<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
designed their professional website to meet the needs of their users in a personalized and easy-to-use manner. The PRC operating entities
currently organize their professional information by the following medical specialty and subject areas, including but not limited to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Internal Medicine Department: cardiology, respiratory medicine, nephrology, neurology, gastroenterology, hematology, endocrinology</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Surgery Department: general surgical, neurosurgery, breast surgery, urology, hepatobiliary surgery, cardiothoracic surgery, plastic surgery</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Oncology Department: general oncology, surgical radiotherapy, oncology</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Gynaecology Department: Gynecologic endocrine</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Pediatrics Department: respiratory medicine, nephrology, neurology, gastroenterology, hematology, endocrinology</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Oral Cavity Department: oral and maxillofacial surgery, Restorative Dentistry, orthodontics</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Skin Beauty Department: Pharmacology, aesthetic health care</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Mental Psychology Department: depression, sensory disturbance, schizophrenia</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
plan to expand into new medical specialty areas that appeal to their current users base and attract new users. The PRC operating entities&#8217;
objective is to be the category leader in each of their medical specialty areas by delivering the highest quality specialty-based content
and selectively acquiring other high-quality medical specialty Websites. As part of this strategy, the PRC operating entities will (1)
work with more medical associations to produce programs and courses to meet the need of healthcare professionals; (2) expand their R&amp;D
team and provide more support to their self-developed courses; (3) cooperate with international continuing medical education providers
to improve the quality and diversity of their courses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0"><b>The MDMOOC Onsite Activities of the PRC Operating Entities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to their online
presence, the PRC operating entities also hold onsite activities to provide healthcare information and education services from time to
time under their &#8220;MDMOOC&#8221; brand. The PRC operating entities&#8217; onsite activities not only provide their healthcare professionals
with medical knowledge and clinical skills but also another career path which enhance their professional competitiveness. Also, many of
their onsite activities were accompanied with live steaming, which will be uploaded to the MDMOOC online platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For instance, in January 2019,
the PRC operating entities launched EWMA-certified (defined as below) wound-management collaboration training programs, covering the topics
including but not limited to basic concepts of acute and chronic wounds, management of different levels of surgical and non-surgical wounds,
the construction of different levels of wound centers, and medical staff collaboration in the process of wound management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
cooperate with Beijing Chronic Disease Prevention and Health Education Research Association and Professor Yixin Zhang from the Ninth People&#8217;s
Hospital of Shanghai Jiao Tong University School of Medicine to create courses titled &#8220;Essential Course for Wound Care Management&#8221;
and &#8220;Advanced Course for Surgical Wound Treatment&#8221;. These courses have been certified and authorized by the European Wound
Management Association (EWMA), a European not-for-profit umbrella organization, linking national wound management organizations, individuals
and groups with interest in wound care. The PRC operating entities have successfully held four (4) training programs for Essential Course
for Wound Care Management and two (2) training programs for Advanced Course for Surgical Wound Treatment. Each program accepted no more
than twenty (20) applicants who shall hold academic credential above undergraduate. The PRC operating entities also required all applicants
to have more than six-year working experience in the field of wound repair. The PRC operating entities have issued a certificate to each
of the applicant upon completion of the training as their proof of achievement and ability in the wound management and treatment. The
PRC operating entities believe that after attending these programs, the participants would acquire the basic capacity to lead a wound-management
department in a hospital.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 90; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->86<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Sunshine Health Forums-Healthcare Information
and Education for the Public</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
developed Sunshine Health Forum, a WeChat subscription account, Sunshine Health Forum mobile app, and Sunshine Health Forum.org, the official
website providing links to download the mobile app for Android and IOS system and portals to leading we-media the PRC operating entities
have strategic relationships to improve the efficiency and effectiveness of the information acquisition for the PRC operating entities&#8217;
users. The official website and mobile app are organized by different types of medical disease. The PRC operating entities establish one
school for each disease to make it easier for the public to obtain information they would like to know. We have established their partnership
with the following we-media platforms, including but not limited Toutiao.com, WeChat official accounts platforms, Yidianzixun.com, Douyin.com,
CN-Healthcare.com, iQiyi, Youku, and Huoshan.com.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-align: justify"><b>The Content of the PRC Operating
Entities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
strive to provide their users with the broad range of high-quality and engaging original content on different healthcare areas. The PRC
operating entities believe that reliable and well-crafted content provides the necessary information that users seek on the PRC operating
entities&#8217; platform and improve the medical professional community. The PRC operating entities&#8217; content is available in a variety
of rich media formats on their online platform, generated by users of all levels of experience and medical professionals, including short-form
videos, and featured articles.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 1in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0.25in; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0.25in; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 91; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0.25in; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0.25in; text-align: justify; text-indent: 0.25in">MDMOOC offers
two distinct types of high-quality content to users:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0.25in; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Original, exclusive and proprietary content.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
original content is written exclusively for MDMOOC by medical experts, many of whom are nationally renowned in their specialties. This
content includes:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2.</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">High-quality case library</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">MDMOOC provides its users
access to a clinical case-share library via Internet and mobile application. As of the date of this Annual Report, the PRC operating entities&#8217;
case library has more than 26,000 clinical cases elaborating general patient data, the diagnosis after admission, and academic discussions.
The PRC operating entities&#8217; users can easily locate the cases most related to them by searching the keywords and selecting the medical
fields while they encounter similar medical phenomenon in their practice.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>The User Services of the PRC Operating Entities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
offer a number of services that complement their high-quality content offerings and make MDMOOC a preferred professional destination site.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Continuing Medical Education.
</i>Pursuant to the Provisions on Continuing Medical Education issued by PRC Health Department, physicians and selected other medical
professionals are required to certify annually that they have accumulated a minimum number of continuing medical education hours to maintain
licensure. MDMOOC offers the professional users what the PRC operating entities believe is one of the largest online libraries of continuing
medical education programs. The PRC operating entities&#8217; extensive continuing medical education programs are produced in association
with entities accredited by the PRC Health Department, such as Chinese Medical Doctor Association and Chinese Journal of Continuing Medical
Education. From the convenience of their home or office computer and mobile application, the PRC operating entities&#8217; professional
users can obtain continuing medical education credits by accessing a variety of accredited editorial resources and programs including
online journal articles, medical conferences, and open classes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Physician self-uploaded
courseware</i>. The PRC operating entities offer their users registered as physicians, nurses, medical technologists, and medical students
the opportunity to create courseware for their medical practices and upload them to MDMOOC that can be accessed by other healthcare professionals.
We believe these courseware sharing function will keep MDMOOC&#8217;s high-quality medical information at the center of the communication
between healthcare professionals, and keep the healthcare professionals at the center of the healthcare dialogue.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Through the PRC operating
entities&#8217; warm and supportive social community, users are able to improve their healthcare skills through the communications with
each other. Moreover, filled with user experience and active healthcare experts interaction, the PRC operating entities&#8217; platform
enables their users to gain personal psychological support during the learning process, thereby further increasing the reliability of
the PRC operating entities&#8217; platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Registered Users</i>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">To</span><span style="font-size: 10pt">&#160;</span>&#160;<span style="font-size: 10pt">&#160;
<span style="font-family: Times New Roman, Times, Serif">utilize all of the features of MDMOOC online platforms, users must register.
This information enables the PRC operating entities to deliver targeted medical content based on their users&#8217; registration profiles.
MDMOOC website and mobile app share the same login information of one user. The PRC operating entities&#8217; WeChat subscription account
does not require registration.&#160;</span>&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To encourage initial use,
the PRC operating entities&#8217; consumer sites will allow visitors to access selected features without registering as users. Visitors,
however, will have to register as users to have access to all the features of the PRC operating entities&#8217; consumer sites, including
the interactive programs such as health diaries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Registration information will
also enable the PRC operating entities to deliver targeted advertising messages to the specific audience profile their customers seek
to reach either through MDMOOC or their consumer sites, or both. For example, through MDMOOC, an oncologist in Beijing, China can be targeted
with different messages than a cardiologist in Shanghai, China. The same targeting capabilities will be offered on Sunshine Health Forum.org,
where a consumer interested in diabetes can be targeted with different messages than a consumer interested in cancer.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Editorial, Design And Production</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
editorial staff has strong medical background, most of whom graduated from well-known medical universities, such as Shanxi Medical University,
Beijing University of Chinese Medicine, Donghua University, and have more than ten-year work experience in relevant areas. As of December
31, 2022, the PRC operating entities&#8217; editorial, design and production staff consisted of 17&#160;professionals who are all experienced
medical editors, writers and producers. The PRC operating entities intend to significantly increase their number of editors as they add
additional medical specialty areas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have an easy-to-use interface that incorporates original and proprietary content written by medical experts with an extensive library
of licensed content and medical databases. The PRC operating entities seek to be the premier online information resource in each of their
medical specialty areas. To support this effort, the PRC operating entities cover major medical conferences in many specialties and plan
to attend over 50 different conferences in China, with the PRC operating entities&#8217; editors and medical experts summarizing and reporting
on the breaking medical research and news delivered at these events.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Also, the PRC operating entities
communicate with their healthcare experts on a daily basis, which helps us timely receive their new ideas and thoughts from their clinical
practice and academic study.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0"><b><i>Zhongxin Health Patient Management Services in Patient-aid Projects</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">The PRC operating
entities utilize its self-developed patient management system, branded as &#8220;Zhongxin Health&#8221; to provide patient management
services to their pharmaceutical enterprises and NFPs customers to assist their patient management for patients with cancer, rare disease
or other major diseases.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 93; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">During cancer treatment
processes, patients face various changes using one or more anti-tumor medications, including, among others, dosing punctuality, incorrect
dosage, missed dose, taking with other drugs and adverse reaction management. If such challenges cannot be solved, the treatment process
will be negatively affected, and patients&#8217; confidence in treatment could be undermined, ultimately affecting the curative effects. In
order to resolve medication-related challenges in a timely manner and promote the continuity of treatment, the PRC operating entities
developed and designed the Zhongxin Health mini program with several functions. The program can automatically remind patients to take
medications and precautions based on different types of cancers and medication consumption time. It can also provide general self-treatment
information based on the adverse reactions that patients might have taking such medications and timely provide corresponding self-treatment
information for such adverse reactions specifically encountered by patients during the medication administration process. Additionally,
the program could improve patients&#8217; self-management ability through various illustrations and video courses. Utilizing the program, patients
can customize and self-manage their medication process based on different cancers and medication consumption time, and such system could
help improve patients&#8217; confidence in their treatment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0.25in">As of the date hereof,
the PRC operating entities have participated in approximately 19 patient management projects for approximately 10 types of different medications,
serving approximately 108,500 patients. For the fiscal years ended December 31, 2022 and 2021, approximately 44.4% and 45.1% of our revenues
were generated from Zhongxin Health patient management services, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 7.2pt 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in"><b>Zhongxin Health&#8217;s
Customers</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">Based on the demands
of pharmaceutical enterprises and NFPs customers for each type of medications in each project, the PRC operating entities provide comprehensive
and tailored services, including but not limited to, project general management, patients qualification screening and information intake,
WeChat public account management, mobile application and WeChat mini program design, development and management, and medication distribution
management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">The PRC operating
entities&#8217; pharmaceutical enterprises customers and NFPs customers benefit from patient management services provided by the PRC operating
entities to optimize their management, provide patients with handful information of medications and treatment, facilitate their patients&#8217;
treatment and medication process, and improve the duration of treatment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in"><b>Zhongxin Health
Mini Program</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">Patients could access
Zhongxin Health&#8217;s system through its WeChat mini program &#8220;Zhongxin Health.&#8221; Patients need to register log in WeChat
by using their own accounts before accessing their portals for tailored patient management services. Tracing the design on MOOC Mobile
App, Zhongxin Health mini program use white and sky blue color on the interface of the program, signaling health and learning respectively,
and creating a soft and welcoming texture to their platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">Zhongxin Health
mini program interface includes three main pages, main page, medication management and account page. The main page is open to the general
public with various sources without need to log in. It displays icons of medication management, hospital directory, medication directory,
cancer treatment knowledge library and online medical health consultation, that users could click and be directed to corresponding information
page. Scrolling down, it lists medical courses provided by physicians in China with a focus on lung cancer, liver cancer, other cancers
and other major disease. At the bottom are the latest medical articles written or recommended by the PRC operating entities&#8217; medical
editors, and the users are able to add bookmarks categorized by different types of cancers to the main page for easy access to relevant
articles in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 94; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">The screenshot below
shows the main page of Zhongxin Health mini program:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_005.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">Medication management
page primarily provides information of medication information and the PRC operating entities&#8217; patient management projects. On the
top, users are able search by different types of disease, medication names and patient management projects names to look for information
they need. Each patient management project has its separate page with detailed information, including but not limited to, name of medications,
provider information, target patient, project policy, term and project contact information, followed by relevant articles. Users could
check the projects status they applied for by providing their names and identification numbers to track their application status, prescription
amount, delivery status and other relevant matters.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">The screenshot below
shows the main page of Zhongxin Health mini program:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_006.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 95; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->91<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0pt; text-align: justify; text-indent: 0.5in">The users could
sign up and log in on the account page. Once logged in, the users are able to save articles, courses or other postings they are interested
in on the mini program.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Recent Development</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.25pt 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
established Xinjiang Pharmaceutical, aiming at realizing medications accessibility and affordability for patients. Xinjiang Pharmaceutical
plans to cooperate with Zhixun Internet Hospital and other internet hospitals to build a 2B2C (to business and to customer) pharmaceutical
procurement platform and streamline the delivery of medications from pharmaceutical factories to retail ends. This approach will enable
Xinjiang Pharmaceutical to supply domestic and international high-quality and cost-effective drugs, improving drug accessibility and lowering
medication cost.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since the beginning of 2022,
embracing the development opportunity of a series of investment promotion of pharmaceutical industry initiated by the Chongqing government,
Xinjiang Pharmaceutical has been able to develop rapidly. Xinjiang Pharmaceutical has obtained Pharmaceutical Trade License, Medical Device
Trade License, Qualification Certificate for Drug Information Service over the Internet and other related licenses. Xinjiang Pharmaceutical
plans to engage in pharmaceutical import and export trade, OME (original equipment manufacturer) production, medical consumables operation,
and pharmaceutical internet services, aiming to continuously expand the industry chain and supply chain of the pharmaceutical market in
China. Meanwhile, it remains committed to becoming a competitive technology-based pharmaceutical service enterprise.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Xinjiang Pharmaceutical obtained
the general distribution rights in Mainland China for anti-influenza drug from Natco Pharma Limited (&#8220;Natco&#8221;). Natco is a vertically
integrated and R&amp;D focused pharmaceutical company in India.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel (Beijing) Health Technology Co., Ltd, or West Angel, a PRC company, and
nine shareholders of West Angel transferred all of their equity interest, equal to 49.44% of the total equity interest of West Angel to
Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity interest of West Angel.&#160; West Angel is primarily engaged
in provision of online platform for communication between hospitals and patients.&#160;It has well established healthcare CRM (HCRM),
a system specially designated to track patient data to provide insight for understanding patient behaviors and habits for patient care,
relationship management and experience, hospital marketing and services, which may contribute in expanding our source of hospital customers
and developing HCRM for hospitals. In addition, West Angel&#8217;s customers include high ranking hospitals and reputable medical professionals.
Having those customers would provide competitive advantage for us in attracting pharmaceutical enterprise customers and NFP for training
and services provided by us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 2, 2022, Mr. Weiguang
Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33%
of the equity interest of Shanghai Zhongxin. &#160;Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin agreed to hold their equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai
Zhongxun owns 93.33% of Shanghai Zhongxin&#8217;s equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 2022, <span>Liaoning
Zhixun</span> launched Zhixun Internet Hospital to provide standardized Internet healthcare services for patients with oncology or other
major diseases. The establishment of Zhixun Internet Hospital will enable Zhongchao to form an All-in-One Service from patient education,
online follow-up consultation, treatment compliance management, to living quality improvement, creating comprehensive services for both
out-of-hospital and in-hospital patients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>The Customers of the PRC Operating Entities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
customers are enterprises, non-for-profit organizations (&#8220;NFP&#8221;), and medical journals, primarily located in China. The PRC
operating entities&#8217; terminal customers and end-users are healthcare professionals, nurses, doctors and other healthcare workers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
enterprise customers are pharmaceutical enterprises, healthcare enterprises engaged in researches and develops pharmaceuticals, vaccines,
and consumer healthcare products, pharmaceutical enterprises that engages in drug innovation, manufacturing, and marketing, and medical
journals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
NFP customers, most of whom are sponsored by pharmaceutical enterprises for the production of the training courses for specific healthcare
topics, are charity organizations, national public foundations, and nonprofit national association, which are governed by provincial and
regional government agencies and commissions. Government agencies include the National Health and Family Planning Commission (NHFPC) and
Ministry of Civil Affairs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">For the fiscal year ended December
31, 2022, we generated revenue of MDMOOC business from a total of 76 customers, of which 34 customers were NFP and 42 customers were pharmaceutical
enterprises. For the fiscal year ended December 31, 2021, we generated revenue from a total of 78 customers, of which 30 customers were
NFP and 35 customers were pharmaceutical enterprises. &#160;For the fiscal year ended December 31, 2020, we generated revenue from a total
of 77 customers, of which 28 customers were NFP and 49 customers were pharmaceutical enterprises.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We generate our revenues from
a relatively small number of customers. For the fiscal years ended December 31, 2022, 2021, and 2020, the PRC operating entities&#8217;
pharmaceutical enterprise customers accounted for 33.1%, 11.7%, and 10.5% of our total revenues, respectively. For the fiscal years ended
December 31, 2022, 2021, and 2020, the PRC operating entities&#8217; NFP customers accounted for 58.0%, 86.2%, and 87.2%, of our total
revenues, respectively. As compared with the revenues in 2020, the decrease of revenues in 2022 and 2021 generated by pharmaceutical enterprises
customers as a percentage of total revenue was mainly because the pharmaceutical enterprises placed more orders through NFP to attract
more medical experts and professionals in the name of NFP.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
plan to expand their market coverage to international markets to service customers in different countries. They also intend to provide
their solutions and services to corporate and government customers in the markets they intend to target.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Branding and Marketing</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
believe that their rich content and satisfactory user experience have contributed to the expansion of their user base and the increase
in user engagement, leading to a strong&#160;word-of-mouth&#160;effect that strengthens their brand awareness.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
promote their platform and enhance brand awareness through a variety of online and offline marketing and brand promotion activities. The
PRC operating entities cooperate with third-party apps, popular search engines and social media platforms for online and mobile marketing.
These online apps and websites promote MDMOOC and Sunshine Health Forum to those website users who are potentially interested in the PRC
operating entities&#8217; contents. MDMOOC and Sunshine Health Forum gain a substantial growth of exposures in public and amounts of public
subscribers under such precise measure of online audience delivery. The PRC operating entities also conduct onsite marketing primarily
in the form of donation activities with hospitals to improve the PRC operating entities&#8217; brand awareness.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">Zhongxin
Health mini program provides users with access to Zhixun Internet Hospital mini program, which could director the users who are interested
in internet healthcare to use the online medical consultation service.</span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Infrastructure, Operations and Technology</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The success of the PRC operating
entities&#8217; business is supported by their strong technological capabilities that enable them to deliver superior user experience
and increase their operational efficiency. The PRC operating entities&#8217; technology team, coupled with the large volume of data generated
and collected on their platform each day, have created opportunities for continued improvements in their technology capabilities, empowering
reliability, scalability and flexibility.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, the PRC operating entities had a technology team with approximately 10 engineers, including those focusing on technology development
to support every aspect of their business operation and those focusing on underlying data and technology maintenance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 97; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->93<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Big Data</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
build proprietary big data analysis framework on their platform to improve operating efficiencies and user satisfaction. The PRC operating
entities leverage big data analytics and artificial intelligence technologies to enhance the accuracy of user behavior predictions and
user profiling and optimize the PRC operating entities&#8217; operation, targeted content and user experience.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The seamless collaboration
among the PRC operating entities&#8217; technology and operational teams, together with the PRC operating entities&#8217; big data analytics
capability, result in improved operational efficiency for the PRC operating entities&#8217; and their healthcare training service providers.
The PRC operating entities&#8217; data engineers are involved in all critical operational areas. They have thorough understanding of the
computational needs from different business segments, and are therefore capable of providing technological support to address diversified
needs in operating the PRC operating entities&#8217; platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.25pt; text-align: justify; text-indent: 23.75pt"><i>Security
and Data Privacy</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.25pt; text-align: justify; text-indent: 23.75pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
are committed to protecting information of all participants on our platform. The PRC operating entities collect basic personal information
and data, such as name, phone numbers, professional certificate code, and personal address, only with users&#8217; prior consent. The
PRC operating entities do not provide sensitive user data to their medical company customers, NFP customers or other third-parties. In
accordance with ISO27001 requirements, the PRC operating entities establish, implement, maintain and continuously improve the information
security management system.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have a security team of engineers and technicians dedicated to protecting the security of the PRC operating entities&#8217; platform.
The PRC operating entities&#8217;&#160;back-end&#160;proprietary security system is capable of handling malicious attacks each day to
safeguard the security of their platform and to protect the privacy of their users and healthcare training service providers. The PRC
operating entities back up their user and certain other critical forms of data on a daily basis in separate and various secured data&#160;back-up&#160;systems
to minimize the risk of data lost. The PRC operating entities encrypt confidential personal information they gather from their platform.
To further ensure data security and avoid data leakage, the PRC operating entities have established internal protocols under which they
grant classified access to confidential personal data to limited employees with strictly defined and layered access authority. The PRC
operating entities strictly control and manage the use of data within their various teams.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.25pt; text-align: justify; text-indent: 23.75pt"><i>Cloud Services</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.25pt; text-align: justify; text-indent: 23.75pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have developed a secure, efficient and cost-effective cloud-based core system to operate their business. Cloud-based technology allows
us to process large amount of complex data&#160;in-house,&#160;which significantly reduces cost and improves operation efficiency. The
PRC operating entities utilize the system of a leading enterprise cloud service provider, Alibaba Cloud, in China so that the PRC operating
entities enjoy the instant scalability and robustness of cloud-based services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Risk Management and Internal Control</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have adopted and implemented various policies and procedures to ensure rigorous risk management and internal control.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
are committed to complying with relevant laws and regulations on online content. The PRC operating entities have invested significant
resources in developing advanced content monitoring technologies, policies and procedures.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
maintain content management and review procedures to monitor&#160;short-form videos, featured articles, chat messages and other content
on their platform to ensure that they are able to promptly identify content that may be deemed to be inappropriate, without scientific
support or proof, in violation of laws, regulations and government policies or infringing upon third-party rights. When any inappropriate
or illegal content is identified, the PRC operating entities promptly remove the content. Further actions may also be taken to hold relevant
content creators accountable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have an automated monitoring mechanism that serves as the first layer of defense in their content review system. This system automatically
flags and screens out content that duplicates other content, or involve in appropriate or illegal audio, video, comments or texts. Once
the content is processed by the automated monitoring mechanism, the PRC operating entities&#8217; system then extracts the content and
sends to their manual content screening team, their second layer of defense, for further review. The PRC operating entities have a dedicated
team reviewing and handling content on their platform for compliance with applicable laws and regulations, and ensuring the quality of
their content.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Research and Development (&#8220;R&amp;D&#8221;)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research and Development (&#8220;R&amp;D&#8221;)
is an integral part of the PRC operating entities&#8217; continued growth. The PRC operating entities&#8217; R&amp;D consists of product
development and technology support. The PRC operating entities&#8217; product development team is focused on market research and product
development. The PRC operating entities develop and update their products and services based on market conditions and government policies.
The PRC operating entities&#8217; product development team closely monitors the market to adjust and upgrade the PRC operating entities&#8217;
existing educational products, and designs new products based on customers&#8217; requests, The PRC operating entities&#8217; technology
team has experience in the development, design, operation and maintenance of platform products, servers and mobile apps, responsible for
monitoring the performance of the PRC operating entities&#8217; websites, mobile apps and technology infrastructure to enable us to respond
quickly to potential problems, updating and exploring new and advanced technologies and integrating them into the PRC operating entities&#8217;
existing and new services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, we have 8 researchers in the product development team and 2 developers in our technology support team. Most of our R&amp;D members
have no less than 5 years of working experience and 30% R&amp;D staff have master or doctor degree.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
product development team is focused on market research and product development. The PRC operating entities develop and update their products
and services based on market conditions and government policies. The PRC operating entities&#8217; product development team closely monitors
the market to adjust and upgrade their existing educational products, and designs new products based on customers&#8217; requests. The
PRC operating entities analysis the information about concepts and forms of medical education by searching medical articles from medical
journals, and attending medical conferences such as Global Alliance for Medical Education, or GAME annual meeting, and integrate the information
into the PRC operating entities&#8217; programs. Also, the PRC operating entities work with healthcare professionals to develop the PRC
operating entities&#8217; programs. When starting to create any programs, the PRC operating entities make face to face or telephone surveys
and get the learning needs from healthcare professionals, such as medical knowledge, clinical skills, case sharing, and the desire to
communicate with peers. The PRC operating entities incorporate such needs into their program design. When developing the PRC operating
entities&#8217; course module, the healthcare professionals, after review and test, may give us advice on the module to match the learning
and thinking habits of physicians and allied healthcare professionals. After the PRC operating entities complete the course production,
they invite these professionals to do final review on the content to assure its correctness.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
technology team are experienced in the development, design, operation and maintenance of platform products, servers and mobile apps. They
are responsible for monitoring the performance of the PRC operating entities&#8217; online platform, updating and exploring new and advanced
technologies and integrating them into the PRC operating entities&#8217; existing and new services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During fiscal years 2022,
2021, and 2020, our R&amp;D expenses were approximately $411,524, $758,878, and $816,553, respectively, representing 2.9%, 4.7%, and 4.5%,
of our total revenues for fiscal years 2022, 2021, and 2020, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC has domestic laws
for the protection of rights in copyrights, trademarks and trade secrets. The PRC is also a signatory to all of the world&#8217;s major
intellectual property conventions, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC Trademark Law, adopted
in 1982 and was most recently amended on April 23, 2019 and will become effective on November 1, 2019, with its implementation rules adopted
in 2014, protects registered trademarks. The Trademark Office of the State Administration of Industry and Commerce of the PRC, handles
trademark registrations and grants trademark registrations for a term of ten years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
intellectual property rights are important to their business. The PRC operating entities rely on a combination of trade secrets, confidentiality
procedures and contractual provisions to protect their intellectual property. They also rely on and protect unpatented proprietary expertise,
recipes and formulations, continuing innovation and other trade secrets to develop and maintain their competitive position. The PRC operating
entities enter into confidentiality agreements with most of their employees and consultants, and control access to and distribution of
the PRC operating entities&#8217; documentation and other licensed information. Despite these precautions, it may be possible for a third
party to copy or otherwise obtain and use the PRC operating entities&#8217; technology without authorization, or to develop similar technology
independently. Since the Chinese legal system in general, and the intellectual property regime in particular, is relatively weak, it is
often difficult to enforce intellectual property rights in China. Policing unauthorized use of the PRC operating entities&#8217; technology
is difficult and the steps they take may not prevent misappropriation or infringement of their proprietary technology. In addition, litigation
may be necessary in the future to enforce the PRC operating entities&#8217; intellectual property rights, to protect their trade secrets
or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of their
resources and could have a material adverse effect on their business, results of operations and financial condition. The PRC operating
entities require their employees to enter into non-disclosure agreements to limit access to and distribution of the PRC operating entities&#8217;
proprietary and confidential information. These agreements generally provide that any confidential or proprietary information developed
by the PRC operating entities or on their behalf must be kept confidential. These agreements also provide that any confidential or proprietary
information disclosed to third parties in the course of the PRC operating entities&#8217; business must be kept confidential by such third
parties. In the event of trademark infringement, the State Administration for Industry and Commerce has the authority to fine the infringer
and to confiscate or destroy the infringing products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities&#8217;
primary trademark portfolio consists of 16 registered trademarks. The PRC operating entities&#8217; trademarks are valuable assets that
reinforce the brand and their consumers&#8217; favorable perception of their products. The current registrations of these trademarks are
effective for varying periods of time and may be renewed periodically, provided that we, as the registered owner, comply with all applicable
renewal requirements including, where necessary, the continued use of the trademarks in connection with similar goods. In addition to
trademark protection, the PRC operating entities own 42 URL designations and domain names, including www.mdmooc.org, www.mdmooc.com, www.zhongxun.online,
ygjkclass.com, zxylmd.com, which are important to our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, we have registered 26 trademarks. The following is a list of trademarks we have registered that are important to our business:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

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Date</b></span></td>
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    <td style="border-bottom: black 1.5pt solid; vertical-align: bottom; width: 11%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Country of <br/>
Registration</b></span></td></tr>
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  <tr>
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    <td style="vertical-align: top; text-align: center"><img alt="" src="image_008.jpg" style="width: 62px; height: 20px"/></td>
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    <td style="vertical-align: top; text-align: center"><img alt="" src="image_009.jpg"/></td>
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  <tr>
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    <td style="vertical-align: top">&#160;</td>
    <td style="vertical-align: top; text-align: center"><img alt="" src="image_010.jpg" style="width: 71px; height: 19px"/></td>
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    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Approved</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 103; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The following is a list of our patent applications:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, the PRC operating entities owns 40 copyrights that have been approved. The following is a list of the PRC operating entities&#8217;
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: bottom">
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Number</b></span></td>
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Date</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
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  <tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Facilities</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">Our
headquarter and executive office is located in Shanghai, China and consist of approximately 223.7 square meter of office space under one
lease which has been renewed and will expire on December 31, 2023. In addition to our headquarter, we lease space in other 5 cities, including
Beijing, Shijiazhuang, Changde, Chongqing, Tianjin, Wuhan, Shengyang. Rent expenses amounted to $498,166, $426,152, and $312,675 for the
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development, and governmental restriction in response to COVID-19, the PRC operating entities established additional offices at shared
workspace in 7 cities (Chongqing, Tianjin, Wuhan, Shenyang, Chengdu, Shanghai, and Shijiazhuang) accommodating a total of 26 employees
as of the date of this Annual Report. The rent for these offices at shard workspace is payable monthly or semi-annually, and the leases
thereunder could be terminated with advance notice. In addition, we also purchased certain properties as offices for operations in Japan
in December 2020, January 2021, July 2022 for a total purchase price of approximately $1,093,226.
Due to the impact of COVID-19 pandemic, the properties in Japan are not in active use as offices. In October 2022, pursuant to a real
estate purchase agreement, we purchased a real estate property located in Tongzhou District for a total purchase price of approximately
$1.59 million.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We intend to procure additional
space as we add employees and expand geographically. We believe our facilities are adequate and suitable for our current needs and that,
should it be needed, suitable additional or alternative space will be available to accommodate any such expansion of our operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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    <td style="vertical-align: top">&#160;</td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top">&#160;</td>
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    <td style="vertical-align: top">&#160;</td>
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    <td style="vertical-align: top">&#160;</td>
    <td style="vertical-align: top">&#160;</td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top">&#160;</td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center">&#160;</td></tr>
  <tr style="background-color: rgb(204,238,255)">
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    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Suite 1102, Floor 11, Lidecaifu Building, Dalian Road, Jinfeng District, Yinchuan, China</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Employees</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, we had a total of 116 full-time employees, of which 10 are in research and development, 31 are in sales and marketing, 56 are
in technical and customer services, and 19 are in general administration.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC operating entities
have standard employment, comprehensive confidentiality and non-compete agreements with their management and standard confidentiality
and non-compete terms with all other employees. As required by laws and regulations in China, the PRC operating entities participate in
various social security plans that are organized by municipal and provincial governments, including pension insurance, medical insurance,
unemployment insurance, maternity insurance, job-related injury insurance and housing fund. The PRC operating entities are required by
PRC laws to make contributions to employee social security plans at specified percentages of the salaries, bonuses and certain allowances
of their employees, up to a maximum amount specified by the local government from time to time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is believed that the PRC
operating entities maintain a good working relationship with their employees, and the PRC operating entities have not experienced any
labor disputes. None of their employee is represented by a labor union or covered by collective bargaining agreements. The PRC operating
entities have not experienced any work stoppages.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif"><b>Legal
Proceedings</b></span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">As
previously disclosed, Ms. Lirong Yang, the sister of Mr. Weiguang Yang filed a civil compliant on April 18, 2022, against a third-party
individual for unauthorized occupation of a property located in the Tongzhou District, Beijing in the Tongzhou People&#8217;s Court in
Beijing (the &#8220;Tongzhou Court&#8221;). Shanghai Maidemu was considered as a beneficiary of the complaint as it was the ultimate owner/beneficiary
of the property pursuant to a certain real estate entrust agreement between Shanghai Maidemu and Ms. Yang; and the property was purchased
during a public judicial auction in May 2021 to be used as a Beijing office for Shanghai Maidemu. On October 18, 2022, pursuant to a real estate purchase
agreement, Ms. Lirong Yang sold such property to a third-party individual. </span>&#160; <span style="font-family: Times New Roman, Times, Serif">As
a result, on December 12, 2022, Ms. Lirong Yang filed a request for withdrawal of the compliant. As a result, the compliant was withdrawn
by Tongzhou Court on the same day.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except as disclosed above,
from time to time we, our subsidiaries, and the PRC operating entities may become involved in legal proceedings or be subject to claims
arising in the ordinary course of our business. We, our subsidiaries, and the PRC operating entities are not currently a party to any
legal proceedings that in the opinion of the management, if determined adversely to us, would have a material adverse effect on our business,
financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of
defense and settlement costs, diversion of management resources and other factors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Government Regulation</b>&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Regulation Related to Online Services</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulation Related to Online Transmission of Audio-Visual Programs</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Measures for the Administration
of Publication of Audio-Visual Programs through Internet or Other Information Network, or the Audio-Visual Measures, promulgated by the
SARFT, on July 6, 2004 and put into effect on October 11, 2004, and ceased to be effect apply to the activities relating to the opening,
broadcasting, integration, transmission or download of audio-visual programs using internet or other information network. Under the Audio-Visual
Measures, to engage in the business of transmitting audio-visual programs, a license issued by the SARFT is required, and &#8220;audio-visual
programs (including audio-visual products of films and televisions)&#8221; is defined under the Audio-Visual Measures as the audio-visual
programs consisting of movable pictures or sounds that can be listened to continuously, which are shot and recorded using video cameras,
recorders and other audio-visual equipment for producing programs. Foreign invested enterprises are not allowed to carry out such business.
On April 13, 2005, the State Council promulgated the Certain Decisions on the Entry of the Non-state-owned Capital into the Cultural Industry.
On July 6, 2005, five PRC governmental authorities, including the SARFT, jointly adopted the Several Opinions on Canvassing Foreign Investment
into the Cultural Sector. According to these regulations, non-state-owned capital and foreign investors are not allowed to engage in the
business of transmitting audio-visual programs through information networks. However, the Audio-Visual Measures was repealed according
to the Administrative Provisions on Audio-Visual Program Service through Special Network and Directed Transmission that was promulgated
by the State Administration of Press, Publication, Radio, Film and Television, or the SAPPRFT (currently known as the National Radio and
Television Administration of China, or the NRTA), on April 25, 2016, effective as of June 1, 2016 and amend on March 23, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To further regulate the provision
of audio-visual program services to the public via the internet, including through mobile networks, within the territory of China, the
SARFT and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program
Provisions, on December 20, 2007, which came into effect on January 31, 2008 and was last amended on August 28, 2015. Under the Audio-Visual
Program Provisions, &#8220;internet audio-visual program services&#8221; is defined as activities of producing, redacting and integrating
audio-visual programs, providing them to the general public via internet, and providing service for other people to upload and transmit
audio-visual programs, and providers of internet audio-visual program services are required to obtain a License for Online Transmission
of Audio-Visual Programs issued by the SARFT, or complete certain record-filing procedures with the SARFT. In general, providers of internet
audio-visual program services must be either state-owned or state-controlled entities, and the business to be carried out by such providers
must satisfy the overall planning and guidance catalog for internet audio-visual program service determined by the SARFT. On May 21, 2008,
SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs,
as amended on August 28, 2015, which sets out detailed provisions concerning the application and approval process regarding the License
for Online Transmission of Audio-Visual Programs. According to the above regulations, providers of internet audio-visual program services
that engaged in such services prior to the promulgation of the Audio-Visual Program Provisions are eligible to apply for the license so
long as those providers did not violate the relevant laws and regulations in the past or their violation of the laws and regulations is
minor in scope and can be rectified in a timely manner and they have no records of violation during the last three months prior to the
promulgation of the Audio-Visual Program Provisions. Further, on March 30, 2009, SARFT promulgated the Notice on Strengthening the Administration
of the Content of Internet Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted
via the internet, including through mobile networks, where applicable, and prohibits certain types of internet audio-visual programs containing
violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 17, 2010, the SARFT
promulgated Tentative Categories of Internet Audio-Visual Program Services, or the Categories, which clarified the scope of internet audio-visual
programs services, which was amended on March 10, 2017. According to the Categories, there are four categories of internet audio-visual
program services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making
and editing of certain specialized audio-visual programs concerning, among other things, educational content, and broadcasting such content
to the general public online. However, there are still significant uncertainties relating to the interpretation and implementation of
the Audio-Visual Program Provisions, in particular, the scope of &#8220;internet audio-visual programs.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 16, 2018, the SAPPRFT
promulgated the Notice on Further Regulating the Transmission Order of Internet Audio-Visual Program Services, providing that the classic
literary works, radio, film and television programs, internet original audio-visual programs shall not be re-edited, re-dubbed, re-subtitled
or partly captured and consolidated as a new program without authorizations and providers of internet audio-visual program services shall
strictly manage and supervise such re-edited programs uploaded by the internet users and shall not provide any transmission channel for
those internet audio-visual programs which have political orientation issues, copyright issues or content issues.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 18, 2019, the
CAC, the Ministry of Culture and Tourism and the NRTA jointly issued the Administrative Provisions on Internet Audio-Video Information
Services, or the Internet Audio-Video Information Services Provisions, which became effective on January 1, 2020. The Internet Audio-Video
Information Services Provisions defines the &#8220;Internet audio-video information services&#8221; as providing audio and video information
production, uploading and transmission to the public via Internet platforms such as websites and applications. Entities providing Internet
audio-video information services must obtain relevant licenses subject to applicable PRC laws and regulations and are required to authenticate
users&#8217; identities based on their organizational codes, PRC ID numbers, or mobile phone numbers etc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulation Related to Internet Culture Activities</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 10, 2003, Ministry
of Culture (currently known as the Ministry of Culture and Tourism, MOCT) MOCT promulgated the Interim Administrative Provisions on Internet
Culture, or the Internet Culture Provisions, which became effective on July 1, 2003 and was amended on February 17, 2011 and December
15, 2017. The Internet Culture Provisions require ICP services providers engaging in commercial &#8220;internet culture activities&#8221;
to obtain an Internet Culture Business Operating License from the MOCT. &#8220;Internet cultural activity&#8221; is defined in the Internet
Culture Provisions as an act of provision of internet cultural products and related services, which includes (i) the production, duplication,
importation, and broadcasting of the internet cultural products; (ii) the online dissemination whereby cultural products are posted on
the internet or transmitted via the internet to end-users, such as computers, fixed-line telephones, mobile phones, television sets and
games machines, for online users&#8217; browsing, use or downloading; and (iii) the exhibition and comparison of the internet cultural
products. In addition, &#8220;internet cultural products&#8221; is defined in the Internet Culture Provisions as cultural products produced,
broadcast and disseminated via the internet, which mainly include internet cultural products specially produced for the internet, such
as online music entertainment, online games, online shows and plays (programs), online performances, online works of art and online cartoons,
and internet cultural products produced from cultural products such as music entertainment, games, shows and plays (programs), performances,
works of art, and cartoons through certain techniques and duplicating those to internet for dissemination. In addition, foreign-invested
enterprises are not allowed to engage in the above-mentioned services except online music.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulation Related to Online Publishing</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 27, 2002, the SAPPRFT
and the MIIT jointly promulgated the Tentative Internet Publishing Administrative Measures, or the Internet Publishing Measures, which
took effect on August 1, 2002. The Internet Publishing Measures require entities that engage in internet publishing to obtain an Internet
Publishing License for engaging in internet publishing from the SAPPRFT. Pursuant to the Internet Publishing Measures, the definition
of &#8220;internet publishing&#8221; is broad and refers to the act by ICP services providers to select, edit and process works created
by themselves or others and subsequently post such works on the internet or transmit such works to the users&#8217; end through internet
for the public to browse. The &#8220;works&#8221; as defined under the Internet Publishing Measures include (i) contents from books, newspapers,
periodicals, audio-visual products, electronic publications that have already been formally published or works that have been made public
in other media, and (ii) all other edited or processed works of literatures, art, natural science, social science, engineering technology,
etc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 4, 2016, the SAPPRFT
and the MIIT jointly issued the Administrative Provisions on Online Publishing Services, or the Online Publishing Provisions. The Online
Publishing Provisions, taking effect on March 10, 2016, superseded the Internet Publishing Measures. Compared with the Internet Publishing
Measures, the Online Publishing Provisions set out more detailed provisions for online publishing activities, which mainly cover issues
such as defining online publishing services, licensing and approvals, the administrative and supervisory regime and legal liabilities.
According to the Online Publishing Provisions, all online publishing services provided within the territory of China are subject to the
Online Publishing Provisions, and an online publishing services permit shall be obtained to provide online publishing services. Pursuant
to the Online Publishing Provisions, &#8220;online publishing services&#8221; refer to providing online publications to the public through
information networks; and &#8220;online publications&#8221; refer to digital works with publishing features such as having been edited,
produced or processed and are made available to the public through information networks, including: (i) written works, pictures, maps,
games, cartoons, audio/video reading materials and other original digital works containing useful knowledge or ideas in the field of literature,
art, science or other fields; (ii) digital works of which the content is identical to that of any published book, newspaper, periodical,
audio/video product, electronic publication or the like; (iii) network literature databases or other digital works, derived from any of
the aforesaid works by selection, arrangement, collection or other means; and (iv) other types of digital works as may be determined by
the SAPPRFT. As the scope of online publication is broad, certain contents the PRC operating entities post on their website, such as video-audio
clips and course materials, may be deemed as online publications. In addition, foreign-invested enterprises are not allowed to engage
in the foregoing services. The Administrative Regulations on Publishing (2020 Revised), which was promulgated by the State Council and
became effective on November 29, 2020, specifies that entities and individually owned businesses engaging in retail of publications shall
obtain a publication business permit.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 108; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b><i>Regulations on Value-Added Telecommunication
Services and Internet Content Services </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Telecommunications Regulations
of the PRC, or the Telecom Regulations, promulgated on September&#160;25, 2000 by the State Council and most recently amended on February&#160;6,
2016, provide a regulatory framework for telecommunications services providers in the PRC. As required by the Telecom Regulations, a commercial
telecommunications services provider in the PRC shall obtain an operating license from the MIIT, or its counterparts at provincial level
prior to its commencement of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Telecom Regulations categorize
all telecommunication businesses in the PRC as either basic or value-added. The Catalog of Telecommunications Business, or the Telecom
Catalog, issued as an attachment to the Telecom Regulations and most recently updated on June&#160;6, 2019, further categorizes value-added
telecommunication services into two classes: class I value-added telecommunication services and class II value-added telecommunication
services. Information services provided via cable networks, mobile networks, or internet fall within class II value-added telecommunications
services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Measures on
Telecommunications Business Operating Licenses, or the Telecom License Measures, promulgated by the MIIT on March&#160;1, 2009 and last
amended on July&#160;3, 2017, any approved telecommunications services provider shall conduct its business in accordance with the specifications
in its license for value-added telecommunications services, or VATS License. The Telecom License Measures further prescribes types of
VATS Licenses required for operation of different value-added telecommunications services together with qualifications and procedures
for obtaining such VATS Licenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Administrative
Measures on Internet Information Services, promulgated on September&#160;25, 2000 and amended on January&#160;8, 2011 by the State Council,
commercial internet information services providers, which means providers of information or services to internet users with charge, shall
obtain a VATS License with the business scope of internet information services, namely the Internet Content Provider License or the ICP
License, from competent regulatory authorities before providing any commercial internet content services within the PRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Based on the Notice regarding
the Strengthening of Ongoing and Post Administration of Foreign Investment Telecommunication Enterprises issued by the MIIT in October
2020, the MIIT no longer issues Examination Letters for Foreign Investment in Telecommunication Business. Foreign-invested enterprises
would need to submit relevant foreign investment materials to MIIT for the establishment or change of telecommunication operating permits.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b><i>Restrictions on Foreign
Direct Investment in Value-Added Telecommunications Services </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Foreign direct investment
in telecommunications companies in China is governed by the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises
(2016 Revision), which was promulgated on December&#160;11, 2001 and amended on September&#160;10, 2008 and February&#160;6, 2016 by the
State Council. The regulations require that foreign-invested value-added telecommunications enterprises in China to be established as
Sino-foreign equity joint ventures and, with a few exceptions, the foreign investors may acquire up to 50% of the equity interests in
such joint ventures. In addition, the major foreign investor, as defined therein, is required to demonstrate a good track record and experience
in operating value-added telecommunications businesses. Moreover, foreign investors that meet these requirements must obtain approvals
from the MIIT and the MOFCOM, or their authorized local counterparts, which retain considerable discretion in granting such approvals.
On March&#160;29, 2022, the Decision of the State Council on Revising and Repealing Certain Administrative Regulations, which took effect
on May&#160;1, 2022, was promulgated to amend certain provisions of regulations including the Provisions on the Administration of Foreign-Invested
Telecommunications Enterprises (2016 Revision), the requirement for major foreign investor to demonstrate a good track record and experience
in operating value-added telecommunications businesses was deleted. However, as this promulgation is relatively new and no detailed guidance
or implementation measures have been issued, there remains uncertainty as to how it should be interpreted and implemented.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July&#160;13, 2006, the
Ministry of Information Industry (currently known as the MIIT), or the MII, released the Circular on Strengthening the Administration
of Foreign Investment in the Operation of Value-added Telecommunications Business, or the MII Circular. The MII Circular prohibits domestic
telecommunications enterprises from leasing, transferring or selling telecommunications business operation licenses to foreign investors
in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of telecommunications
business in China. Furthermore, under the MII Circular, the internet domain names and registered trademarks used by a value-added telecommunications
services operator shall be legally owned by that operator (or its shareholders). If a license holder fails to comply with the requirements
in the MII Circular and fails to cure such non-compliance within a time limit as required by the competent authority, the MII or its local
counterparts have the discretion to take measures against such license holders, including revoking their VATS Licenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: left; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt"><span style="font-size: 10pt"><b><i>Regulations
Relating To Drugs Retail Industry</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: left; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt"><span style="font-size: 10pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 1984, the SCNPC
promulgated the Drug Administration Law of the PRC, which was amended in 2001, 2013, 2015 and 2019 respectively to regulate all entities
or individuals engaging in research, manufacture, operation, use, supervision and management of drugs within the PRC. According to the
Drug Administration Law, no pharmaceutical operation, including pharmaceutical whole sale and pharmaceutical retail business, is permitted
without obtaining the Pharmaceutical Operation License. Where the trading of drugs is conducted without a Pharmaceutical Operation License,
the illegal incomes by selling drugs shall be confiscated and the local Food and Drug Administration, or the FDA (currently known as the
Medical Products Administration, or the MPA) shall impose the fine ranging from 15 to 30 times of the value of the illegally sold drugs
(including sold or unsold drugs). The Implementation Rules for the Drug Administration Law of the PRC, was promulgated by the State Council
in August 2002 and amended in 2016 and 2019, which emphasized the detailed implementation rules of drugs administration. The China Food
and Drug Administration, or the CFDA (currently known as the National Medical Products Administration, or the NMPA) promulgated the Measures
for the Administration of Pharmaceutical Operation License in February 2004 as amended in 2017, which stipulates the procedures for applying
the Pharmaceutical Operation License and the requirements and qualifications for pharmaceutical wholesalers or pharmaceutical retailers
with respect to their management system, personnel, facilities and etc. The valid term of the Pharmaceutical Operation License is five
years and shall be renewed through application six months prior to its expiration date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Measures
on Prescription Drugs and OTC Drugs Classification Management (Trial) and the Interim Provisions on the Circulation of Prescription and
OTC Drugs, which were both promulgated by the State Drug Administration, which was restructured and integrated into the CFDA, and became
effective in January 2000, drugs are divided into prescription drugs and over-the-counter drugs, or OTC drugs. For prescription drugs,
the dispensing, purchase and use can only be based on the prescription issued by the certified medical practitioner or certified medical
assistant practitioner. In addition, the prescription drugs can only be advertised and promoted in professional medical magazines. OTC
drugs, on the other hand, are further divided into Class A and Class B and they both can be purchased and used without a prescription
and promoted in public upon approval by the relevant governmental authorities. The pharmaceutical wholesale enterprises distributing prescription
drugs and/or OTC drugs, as well as pharmaceutical retail enterprises selling prescription drugs and/or Class-A OTC drugs are required
to obtain the Pharmaceutical Operation License.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Administrative
Measures for the Supervision and Administration of Circulation of Pharmaceuticals, promulgated by the CFDA in January 2007 and effective
in May 2007, pharmaceutical manufacture and operation enterprises and medical institutions shall be responsible for the quality of pharmaceuticals
they manufacture, provide or use. The operation of prescription drugs is highly regulated under these rules. Prescription drugs may not
be sold by pharmaceutical retail enterprises without valid prescriptions and an enterprise in violation of such restriction will be instructed
to rectify any violation, given a disciplinary warning, if it fails to do so or the circumstances are serious, it shall be imposed a fine
of no more than RMB1,000. In addition, a pharmaceutical manufacture or operation enterprise shall not sell prescription drugs directly
to the public by post or over Internet, and the enterprise in violation of such restriction shall be instructed to rectify, given a disciplinary
warning, and imposed a fine of not more than two times the value of the pharmaceuticals sold, but not more than RMB30,000. The newly revised
Drug Administration Law of the PRC in 2019 does not include restrictions on online sale of prescription drugs. Furthermore, according
to the Administrative Standard of Pharmaceutical Operating Quality, promulgated by the CFDA in April 2000 and amended in 2012, 2015 and
2016 respectively, the pharmaceutical operation enterprises shall take effective quality control measures over the process of procurement,
storage, transportation and sale of drugs in order to ensure their quality.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 26, 2016, the
Medical Reform Office of the State Council, the NHFPC, the China Food and Drug Administration, and five other government authorities promulgated
the Notice on Issuing the Implementing Opinions on Promoting the &#8220;Two-invoice System&#8221; for the Drug Procurement by Public Medical
Institutions (Trial), which became effective on the same date. On January 24, 2017, the General Office of the State Council further promulgated
the Several Opinions on Further Reform and Improvement in Policies of Drug Production, Circulation and Use. According to these rules,
a two invoice system is encouraged to be gradually and fully adopted for drug procurement by 2018. The two-invoice system generally requires
a drug manufacturer to issue only one invoice to its distributor, followed by the distributor issuing a second invoice directly to the
end customer hospital. Only one distributor is permitted to distribute drug products between the manufacturer and the hospital. The system
also encourages manufacturers to sell drug products directly to hospitals. Pharmaceutical manufacturers and distributors who fail to implement
the two-invoice system may be disqualified from attending future bidding events or providing distribution for hospitals and blacklisted
for drug procurement practices.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Circular
on Issuing the Opinions on Promoting the Drug Pricing Reform promulgated by the National Development and Reform Commission and other six
governmental authorities in 2015, except for narcotic drugs and Class I psychotropic drugs, the prices of drugs previously set by the
government were cancelled from June 1, 2015. Instead of direct price controls which were historically used in the PRC, the government
regulates prices mainly by establishing a centralized procurement mechanism, revising medical insurance reimbursement standards and strengthening
regulation of medical and pricing practices. In January 2019, the Notice of the General Office of the State Council on Issuance of the
Pilot Plan Regarding the Centralized Procurement and Use of the Drugs Organized by the State improved the pricing mechanism of drugs,
which also further regulates the scope and mode of centralized procurement. In February 2019, the National Healthcare Security Administration
issued the Opinions on Supporting Measures of Medical Insurance for the Pilot Program of Centralized Procurement and Use of Drugs Organized
by the State which provides supporting measures for the medical security department to implement the pilot work of the centralized procurement
and use of drugs organized by the State. In September 2019, National Healthcare Security Administration and other eight government authorities
issued the Implementation Opinions on Region Expansion of the Organization of Centralized Procurement and Use of Drugs by the State, which
expand the pilot program to wider areas, further reduce the medication burden of the masses and intensify reform and innovation. In January
2021, the General Office of the State Council has further published an updated policy Opinion on Promoting the Normalization and Institutionalization
of Centralized Volume-Based Procurement of Drugs to solidify the centralized procurement scheme, pursuant to which emphasis shall be placed
on including drugs that are listed in the Drug Catalog for Basic Medical Insurance with large consumption and high procurement price in
the procurement scope, and gradually covering various drugs which are clinically necessary and reliable. In principle, all holders registration
certificates of drugs falling under the scope of the centralized volume-based procurement and meet the requirements for the centralized
volume-based procurement in terms of quality standards, production capacity, and supply stability, may participate in such procurement.
All public medical institutions shall participate in the centralized volume-based drug procurement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulations Relating To Online Drug Information Services</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Measures
Regarding the Administration of Drug Information Service over the Internet, promulgated by the CFDA on July 8, 2004 and amended on November
17, 2017, the Internet drug information service refers to the activities of providing medical information (including medical devices)
and other services to Internet users through the Internet, and where any website intends to provide Internet drug information services,
it shall, prior to applying for an operation permit or record-filing from the State Council&#8217;s department in charge of information
industry or the telecom administrative authority at the provincial level, file an application with the provincial FDA, and shall be subject
to the examination and approval thereof for obtaining the qualifications for providing Internet drug information services. The validity
term for a Qualification Certificate for Internet Drug Information Services is five years and may be renewed at least six months prior
to its expiration date upon a re-examination by the relevant authority. Pursuant to the Measures Regarding the Administration of Drug
Information Service over the Internet, the Internet drug information services are classified into two categories, namely, profit-making
services and non-profit making services. Profit-making services refer to that of providing Internet users with drug information in return
for service fees whilst non-profit-making services refers to that of providing Internet users with drug information which is shared and
accessible by the public through the Internet free of charge. Furthermore, the information relating to drugs shall be accurate and scientific
in nature, and its provision shall comply with the relevant laws and regulations. No product information of stupefacient, psychotropic
drugs, medicinal toxic drugs, radiopharmaceutical, detoxification drugs and pharmaceutics made by medical institutes shall be distributed
on the website. In addition, advertisements relating to drugs (including medical devices) shall be approved by the NMPA or its competent
branches, and shall specify the approval document number.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulations Relating To Operation Of Medical Devices</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Measures on the
Supervision and Administration of the Business Operations of Medical Devices, or the Measures on Medical Devices, which was
promulgated by CFDA on July 30, 2014 and amended on November 17, 2017, a proposed amendment was promulgated on March 10, 2022 and
took effect on May 1, 2022, applies to any business activities of medical devices as well as the supervision and administration
thereof conducted within the territory of the PRC. Pursuant to the Measures on Medical Devices, CFDA shall be responsible for the
supervision and administration of nationwide business operations concerning medical devices. Medical devices are divided into three
classes depending on the degree of risks of medical devices. Entities engaged in distribution of Class III medical devices shall
obtain a medical device operating license and entities engaged in distribution of Class II medical devices shall complete filings
with the competent local MPA, while entities engaged in distribution of medical devices of Class I are not required to conduct any
filing or obtain any license. In addition, in accordance with Regulations on Supervision and Administration of Medical Devices,
promulgated by the State Council on February 9, 2021 and effective as of June 1, 2021, Class II and Class III medical devices shall
be registered with the NMPA or its local branches, while Class I medical devices shall be filed with the competent local MPA. In the
event that the business operator in distribution of Class III medical devices without a medical device operating license or the
business operator in distribution of Class II or Class III medical devices that are not registered with the NMPA or its local
branches, the business operator may be imposed fine or be shut down by the authorities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulations Relating To Healthcare Services</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>General Policies</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Guiding Opinions
of the State Council on Actively Propelling the &#8220;Internet Plus&#8221; Action Plan issued by the State Council on July 1, 2015, the
new mode of online medical treatment and public health shall be promoted. It is imperative to develop online medical treatment and public
health services based on the internet, support third-party institutions to build the service platforms for sharing medical information
such as medical images, health archives, testing reports, electronic medical records and other medical information, and gradually set
up the standard system for cross-hospital sharing and exchange of medical data. The mobile internet shall be vigorously used to provide
online appointments for diagnosis and treatment, reminder of waiting for diagnosis, pricing and payment, inquiry about diagnosis and treatment
reports, drug delivery and other services. Medical institutions shall be guided in providing basic-level examination, higher-level diagnosis
and other remote medical treatment to small and medium-sized cities and rural areas. Internet enterprises shall be encouraged to cooperate
with medical institutions in establishing online medical information platforms, strengthen the integration of regional medical treatment
and public health service resources, make full use of the internet, big data and other means, and improve the capability to prevent and
control major diseases and public health emergencies. Internet-extended doctor&#8217;s advice, electronic prescription and other internet
medical service applications shall be vigorously explored. The qualified medical inspection institutions and medical service institutions
shall be encouraged to collaborate with internet enterprises to develop gene testing, disease prevention and other health service modes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In April 2018, the Opinions
on Promoting the Development of &#8220;Internet Plus Health Care&#8221; issued by the General Office of the State Council encouraged medical
institutions to apply the internet and other information technologies to expand the space and content of medical services, developed an
online and offline integrated medical service model that covers the whole process of medical service. Internet hospitals under the support
of medical institutions shall be allowed. Medical institutions may use internet hospitals as their secondary name and, based on the physical
hospitals, use Internet technology to provide safe and appropriate medical services, allowing follow-up online diagnosis for some common
diseases and chronic diseases. After acquiring documents on the medical records of patients, physicians shall be allowed to prescribe
online for some common diseases and chronic diseases.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July 17, 2018, the National
Health Commission and the National Administration of Traditional Chinese Medicine jointly promulgated three documents, including the Measures
for the Administration of Internet Diagnosis and Treatment (Trial), the Measures for the Administration of Internet Hospitals (Trial)
and the Specifications for the Administration of Remote Medical Services (Trial). Pursuant to the Measures for the Administration of Internet
Hospitals (Trial), &#8220;internet hospitals&#8221; include: (a) internet hospitals as the second name of physical medical institutions,
and (b) internet hospitals that are independently established on the support of physical medical institutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Internet Hospital</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Measures
for the Administration of Internet Hospitals (Trial), the PRC implements access management for internet hospitals pursuant to the Administrative
Regulations on Medical Institutions and the Implementation Measures of the Administrative Regulations on Medical Institutions. Before
implementing access for internet hospitals, provincial health administrative departments shall establish provincial internet medical service
supervision platforms to connect with information platforms of internet hospitals to achieve real-time supervision. Establishing an internet
hospital is governed by the administrative approval process as stipulated in the Measures for the Administration of Internet Hospitals
(Trial). According to the Measures for the Administration of Internet Hospitals (Trial), applying for establishing an internet hospital
is required to submit an application to the practice registration authority of its supported physical medical institution, and submit
the application form, the feasibility study report on the establishment, the address of the supported physical medical institution, and
the agreement jointly signed by the applicant and the supported physical medical institution in relation to establishing an internet hospital
through cooperation. If an internet hospital information platform is set up through cooperation with a third-party institution, the relevant
cooperation agreement should be submitted. For an internet hospital sets up through cooperation, if the cooperation partner changes or
other factors exist that will invalidate the cooperation agreement, reapplication for establishing an internet hospital is required.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Such cooperation agreement
should be submitted. For an internet hospital sets up through cooperation, if the cooperation partner changes or other factors exist that
will invalidate the cooperation agreement, reapplication for establishing an internet hospital is required.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In terms of practicing rules
on Internet hospitals, the Measures for the Administration of Internet Hospitals (Trial) provides that where a third-party institution
jointly establishes an Internet hospital on the support of the physical medical institution, it shall provide the physical medical institution
with professional services such as physicians and pharmacists, and information technology support services, and clarify the responsibilities
and rights of all parties in respect of medical services, information security, and privacy protection through agreements and contracts.
In terms of supervision and management of Internet hospitals, the Measures for the Administration of Internet Hospitals (Trial) clarifies
that provincial health administrative departments and the registration authorities for Internet hospitals jointly implement supervision
on Internet hospitals through the provincial Internet medical service supervision platform, focusing on the supervision on Internet hospitals&#8217;
personnel, prescriptions, diagnosis and treatment behaviors, patients&#8217; privacy protection and information security. Administrative
Regulations on Medical Institutions and Implementation Measures of the Administrative Regulations on Medical Institutions set out the
regulatory framework for the management and operation of the medical institutions, and the operation of Internet hospitals shall comply
with Administrative Regulations on Medical Institutions and Implementation Measures of the Administrative Regulations on Medical Institutions
as well. Additionally, the Basic Standards for Internet Hospitals (Trial) as attached to the Measures for the Administration of Internet
Hospitals (Trial) sets forth specific requirements for diagnosis and treatment items, departments, personnel, buildings and device and
equipment, and rules and regulations of Internet hospitals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 3, 2019, The Health
Commission of Guangdong and the Bureau of Traditional Chinese Medicine of Guangdong issued a notice on the forwarding of three documents
including The Construction Standards of Internet Hospitals (Trial), which states that articles 8 and 9 of the Measures for the Administration
of Internet Diagnosis and Treatment (Trial) shall apply when a physical medical institution newly applied for establishment or a physical
medical institution that has obtained the Practicing License for Medical Institutions applies for the establishment of an internet hospital.
Before above-mentioned medical institutions&#8217; application, the internet hospital information system must be connected to the provincial
internet medical service supervision platform to meet the needs of supervision over the whole process of internet diagnosis and treatment
and accept the supervision and administration by regulatory authorities. At the time of practice registration, the above-mentioned medical
institutions shall meet both the basic standards for medical institutions of relevant grades and categories and for internet hospitals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Medical Institutions</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Administrative
Regulations on Medical Institutions (the &#8220;Regulations&#8221;), promulgated by the State Council, effective on September 1, 1994,
revised on February 6, 2016 and March 29, 2022 (effective on May 1, 2022), hospitals, health centers, sanatoriums, out-patient departments,
clinics, health clinics, health posts (rooms) and first aid stations are medical institutions. The health administrative departments of
the local people&#8217;s governments at or above the county level shall be responsible for the supervision and administration of the medical
institutions within their respective administrative regions. The establishment of medical institutions by entities or individuals shall
be subject to the examination and approval of the health administrative department of the local people&#8217;s governments at or above
the county level and obtain the written approval for the establishment of medical institutions if required by the relevant provisions
of the State Council. Furthermore, according to the Regulations, the practice of medical institutions shall complete the registration
and obtain Practicing License for Medical Institution. Furthermore, pursuant to the Administrative Regulations on Medical Institutions
and Implementation Measures of the Administrative Regulations on Medical Institutions, where a medical institution intends to change its
name, address, legal representative or major person-in-charge, form of ownership, target of service, mode of service, registered fund
(capital), diagnosis and treatment subjects, or number of beds (dental chairs), it shall apply to the registration authority for registration
of such alteration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Patient Diagnosis Service</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Measures
for the Administration of Internet Diagnosis and Treatment (Trial), internet diagnosis and treatment activities shall be provided by medical
institutions which have obtained a &#8220;Practicing License for a Medical Institution&#8221;, and the Internet-based diagnosis services
provided by a medical institution shall be consistent with its diagnosis subjects. Physicians and nurses carrying out internet diagnosis
and treatment activities shall be able to be found in the national electronic registration system of physicians and nurses. A medical
institution shall conduct electronic real-name verification for the medical staff members carrying out internet diagnosis and treatment
activities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Measures
for the Administration of Internet Hospitals (Trial), internet hospitals must inform patients about risks of internet hospitals and obtain
their consents for internet diagnosis and treatment. When a patient receives medical treatment in a physical medical institution and the
attending physician consults other physicians through internet hospitals, the physicians providing consultation may issue diagnosis opinions
and a prescription; and when a patient does not receive medical treatment in a physical medical institution, a physician may only provide
follow-up diagnosis for a patient of some common diseases and chronic diseases through internet hospitals, internet hospitals may provide
signing service for contract of family doctors. When a patient&#8217;s condition changes or there are other circumstances under which
online diagnosis and treatment services are inappropriate, the physician shall refer the patient to a physical medical institution. Internet
diagnosis and treatment activities shall not be allowed for any patient receiving initial diagnosis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Management of Prescription and Medical Records</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Internet hospitals who provide
internet diagnosis and treatment activities shall strictly comply with the Measures for the Administration of Prescriptions and other
provisions on the administration of prescriptions. Before issuing a prescription online, the physician shall have the patient&#8217;s
medical records and issue a prescription online for the same disease diagnosed after confirming that the patient is specifically diagnosed
in a physical medical institution to have a common disease or chronic disease or several common diseases or chronic diseases. The physicians
are subject to making prescription recommendations to patients based on treatment standards and drug instructions. Under any of the following
circumstances, the health administrative department at or above the county level shall request the medical institutions to make corrections
within a grace period, and may impose a fine no more than RMB5,000; and under serious circumstances, Practice License for Medical Institutions
shall be revoked: (i) prescribing by a pharmacist who has not obtained the right to prescribe or whose prescription right has been canceled;
(ii) prescribing narcotic drugs and the psychotropic drugs of category I by pharmacists who have not obtained the prescription right for
such narcotic drugs and psychotropic drugs; (iii) employing persons who have not obtained the qualifications for the professional and
technical positions of pharmaceutical science to conduct the prescription adjustment. If the medical practitioners issue prescriptions
without obtaining prescription rights at a medical institution not registered in their licenses, during their practicing activities, they
will be given a warning or be ordered to suspend their practicing activities for a period of not less than six months but not more than
one year and under the serious circumstances, their Practice Certificates for Medical Practitioners will be revoked.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Prescription Outflow</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In March 2007, the National
Ministry of Health (currently the National Health Commission of the People&#8217;s Republic of China) promulgated the Measures for the
Administration of Prescriptions, stipulating that doctors must use the common name of drugs when prescribing, and shall not restrict the
outflow of prescriptions. In April 2016, the General Office of the State Council issued the Notice on Printing and Distributing the Key
Tasks of Deepening the Reform of the Medical and Health System in 2016, proposing to promote the separation of dispensing from prescription
in various methods and prohibit public hospitals from restricting the outflow of prescriptions. In May 2021, the National Healthcare Security
Administration and National Health Commission issued the Guiding Opinions on Establishing and Improving the &#8220;Dual Channel&#8221;
Management Mechanism for National Healthcare Insurance Negotiated Drugs, proposing that the designated retail pharmacies should be connected
with the medical insurance information platform and the E-prescription circulation platform to ensure the smooth flow of E-prescriptions.
In particular, with regard to the zero-markup policy for drugs. In March 2012, the State Council promulgated the Plan and Implementation
for Deepening the Reform of the Medical and Health System During the 12th Five Year Plan Period, which proposes the abolishment of the
&#8220;compensation system for the medical cost through drug-selling profits&#8221; and the separation of dispensing from prescription.
The Plan initiated the gradual cancelation of the drug markups in public hospitals, which would prohibit public hospitals from selling
drugs to patients at a price higher than the actual purchase price, reducing the three sources of public hospital incomes that were government
subsidies, services charges and drug markups to government subsidies and services charges only. In September 2012, according to Notice
on promoting pharmaceutical price reform in county level public hospitals further released the NDRC, zero markup drug policy began to
be implemented in county level institutions. On May 6, 2015, the General Office of the State Council issued the Guiding Opinions on the
Pilot Programs of Comprehensive Reform of Urban Public Hospitals, launching the pilot programs on the separation of dispensing from prescription
in all urban public hospitals, and actively exploring a variety of effective ways to reform the compensation system for the medical cost
through drug-selling profits. On April 19,2017, the National Health and Family Planning Commission (currently the National Health Commission),
the Ministry of Finance, the Medical Reform Office of the State Council and other relevant government bodies issued the Notice on All-round
Promotion of the Comprehensive Reform of Public Hospitals, requiring that the comprehensive reform of public hospitals be fully promoted
by September 30, 2017, and that the drug markups (except for Chinese herbal medicine) be cancelled in all public hospitals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Practicing Physicians</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 20, 2021, the Standing
Committee of NPC (the &#8220;SCNPC&#8221;) issued the Doctors Law of the PRC (the &#8220;Doctors Law&#8221;), effective on May 1, 1999,
and amended on August 27, 2009 and March 1, 2022. According to the Doctors Law, when taking medical, preventive or healthcare measures
and when signing relevant medical certificate, the practicing physicians shall conduct diagnosis and investigation personally and fill
out the medical files without delay as required. No practicing physicians may conceal, forge or destroy any medical files or the relevant
data. On November 5, 2014, the National Health and Family Planning Commission of PRC (the &#8220;NHFPC&#8221;, now known as the National
Health Commission of PRC), the NDRC, the Ministry of Human Resources and Social Security, the State Administration of Traditional Chinese
Medicine, and the China Insurance Regulatory Commission (now known as the China Banking and Insurance Regulatory Commission), jointly
issued Several Opinions on Promoting and Standardizing Multi-Place Practice of Physicians, which puts forward to simplify the registration
procedure of the multiple place practice and proposes the feasibility of exploring the &#8220;record management.&#8221; According to Administrative
Measures for the Registration of Practicing physicians, promulgated by the NHFPC on February 28, 2017, effective on April 1, 2017, practicing
physicians shall obtain the practice certificate for practicing physicians to practice upon registration. Person who fails to obtain the
practice certificate for practicing physicians shall not engage in medical treatment, prevention and healthcare activities. A medical
practitioner who practices for multiple institutions at the same place of practice shall determine one institution as the main practicing
institution where he or she practices, and apply for registration to the administrative department of health and family planning approving
the practice of such institution; and, for other institutions where the medical practitioner is to practice, respectively apply for recordation
to the administrative health and family planning authority.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Protection of Patients&#8217; Information</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Internet hospitals shall strictly
comply with the relevant laws and regulations in the PRC on information security and confidentiality of medical data, and appropriately
keep patients&#8217; information, and shall not illegally trade or disclose patients&#8217; information. When patients&#8217; information
and medical data are illegally or improperly disclosed, a medical institution shall report to the competent health administrative department
in a timely manner and immediately take effective rectification.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>New Rules Governing Healthcare Industry</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The PRC government recently
issued several policies to regulate participants in the healthcare industry, including pharmacies, physicians, hospitals, and health insurance
companies, such as the Guidance on Promoting Hospital Safety and Order Management, the Promotion Action of High-quality Development of
Public Hospitals (2021-2025), the Construction Plan of National Clinical Specialty, the Notice on Publicizing the 5G+ Healthcare Application
Pilot Project, the Notice on Promulgating Five Specifications Including the Specifications for Pharmaceutical Outpatient Service of Medical
Institutions, the Notice on National Medical Insurance Plan in the 14th Five-year Plan, and the Detailed Rules for the Supervision of
Internet Diagnosis and Treatment (Trial).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Detailed Rules for the Supervision
of Internet Diagnosis and Treatment (Trial) (the &#8220;Supervision Rules&#8221;) stated that medical institutions&#8217; electronic prescriptions,
and prescription review records should be traceable, and the data interface should be opened to the provincial supervision platform. The
Supervision Rules also stated that prescription drug selling before a prescription is issued is strictly prohibited and that a medical
institution shall conduct electronic real-name verification for the medical staff members carrying out Internet diagnosis and treatment
activities. The Notice on Promulgating Five Specifications Including the Specifications for Pharmaceutical Outpatient Service of Medical
Institutions requires the pharmacist in outpatient services holds professional qualifications.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Supervision Rules also
stated that for the internet hospitals that are affiliated to physical institutions, their electronic medical records should be integrated.
Moreover, the physician should collect the patient&#8217;s medical diagnosis records before starting follow-up consultations. To fulfill
the requirements, hospitals need to operate an effective hospital information management system, these would require system upgrading
and platform rebuild. The Notice on Publicizing the 5G+ Healthcare Application Pilot Project encourages the application of 5G technology
in remote diagnosis, remote treatment, and hospital management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Guidance on Promoting
Hospital Safety and Order Management in the 14th Five-year Plan aims to further maintain normal medical order and protect the personal
safety of medical staff. The Promotion Action of High-quality Development of Public Hospitals (2021-2025) raises several main actions
so as to achieve high-quality development of public hospitals and further strengthen the public welfare feature of public hospitals, among
others, including the construction of key clinical specialist groups according to the Construction Plan of National Clinical Specialty
in the 14th Five-year Plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, the National
Medical Insurance Plan in the 14th Five-year Plan, issued by the General Office of the State Council on September 23, 2021, intends to
take a series of measures to achieve the high-quality development of the basic medical insurance system, insecure people&#8217;s health
and promote common wealth, including encouraging the innovation of insurance products, adjusting and optimizing the medical insurance
catalog on a dynamic basis, and improve direct settlement services for medical treatment in different places.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulations Related to Internet Information Security and Privacy
Protection</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">PRC government authorities
have enacted laws and regulations with respect to internet information security and protection of personal information from any abuse
or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint. The Decisions
on Maintaining Internet Security which was enacted by the Standing Committee of the PRC National People&#8217;s Congress (&#8220;SCNPC&#8221;)
in December 2000 and amended in August 2009, may subject violators to criminal punishment in China for any effort to: (i) gain improper
entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets;
(iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated
measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially
destabilizing content. If an information service provider violates these measures, the Ministry of Public Security and the local security
bureaus may revoke its operating license and shut down its websites.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 29, 2011, the
MIIT promulgated the Several Provisions on Regulation of Order of Internet Information Service Market, which prohibit internet information
service providers from collecting personal information of any user without prior consent. Internet information service providers shall
explicitly inform the users of the means of collecting and processing personal information, the scope of contents, and purposes. In addition,
internet information service providers shall properly keep the personal information of users, if the preserved personal information of
users is divulged or may possibly be divulged, internet information service providers shall immediately take remedial measures and report
any material leak to the tele-communications regulatory authority.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Decision on
Strengthening the Protection of Online Information issued by the SCNPC in December 2012, any collection and use of user personal information
must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and in accordance with the
specified purposes, methods and scopes. Any entity collecting personal information must also keep such information strictly confidential,
and is further prohibited from divulging, tampering or destroying any such information, or selling or providing such information to other
parties, and is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure,
damage or loss. Any violation of these laws and regulations may subject the entity collecting personal information to warnings, fines,
confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Notice of
the Supreme People&#8217;s Court, the Supreme People&#8217;s Procuratorate and the Ministry of Public Security on Legally Punishing Criminal
Activities Infringing upon the Personal Information of Citizens, issued in 2013, and the Interpretation of the Supreme People&#8217;s
Court and the Supreme People&#8217;s Procuratorate on Several Issues regarding Legal Application in Criminal Cases Infringing upon the
Personal Information of Citizens, which was issued on May 8, 2017 and took effect on June 1, 2017, the following activities may constitute
the crime of infringing upon a citizen&#8217;s personal information: (i) providing a citizen&#8217;s personal information to specified
persons or releasing a citizen&#8217;s personal information online or through other methods in violation of relevant national provisions;
(ii) providing legitimately collected information relating to a citizen to others without such citizen&#8217;s consent (unless the information
is processed, not traceable to a specific person and not recoverable); (iii) collecting a citizen&#8217;s personal information in violation
of applicable rules and regulations when performing a duty or providing services; or (iv) collecting a citizen&#8217;s personal information
by purchasing, accepting or exchanging such information in violation of applicable rules and regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Order for
the Protection of Telecommunication and Internet User Personal Information issued by the MIIT on July 16, 2013, which became effective
from September 1, 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles
of legality, rationality and necessity and be within the specified purposes, methods and scopes. &#8220;Personal information&#8221; is
defined as information that identifies a citizen, the time or location for his/her use of telecommunication and internet services, or
involves privacy of any citizen such as his/her birth date, ID card number, and address. An internet information service provider must
also keep information collected strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information,
or selling or providing such information to other parties. Any violation of the above decision or order may subject the internet information
service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites
or even criminal liabilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Ninth Amendment
to the Criminal Law issued by the SCNPC in August 2015, which became effective in November 2015, any person or entity that fails to fulfill
the obligations related to internet information security administration as required by applicable laws and refuses to rectify upon orders
is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due
to the leakage of the client&#8217;s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any
individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or
illegally obtain any personal information is subject to criminal penalty in severe situation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the PRC Cyber
Security Law issued by the SCNPC in November 2016, effective June 2017, personal information refers to all kinds of information recorded
by electronic or otherwise that can be used to independently identify or be combined with other information to identify natural persons&#8217;
personal information including but not limited to: natural persons&#8217; names, dates of birth, ID numbers, biologically identified personal
information, addresses and telephone numbers, etc. The Cyber Security Law also provides that: (i) to collect and use personal information,
network operators shall follow the principles of legitimacy, rightfulness and necessity, disclose their rules of data collection and use,
clearly express the purposes, means and scope of collecting and using the information, and obtain the consent of the persons whose data
is gathered; (ii) network operators shall neither gather personal information unrelated to the services they provide, nor gather or use
personal information in violation of the provisions of laws and administrative regulations or the scopes of consent given by the persons
whose data is gathered; and shall dispose of personal information they have saved in accordance with the provisions of laws and administrative
regulations and agreements reached with users; (iii) network operators shall not divulge, tamper with or damage the personal information
they have collected, and shall not provide the personal information to others without the consent of the persons whose data is collected.
However, if the information has been processed and cannot be recovered and thus it is impossible to match such information with specific
persons, such circumstance is an exception.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On January 23, 2019, the Office
of the Central Cyberspace Affairs Commission and other three authorities jointly issued the Circular on the Special Campaign of Correcting
Unlawful Collection and Usage of Personal Information via Apps. Pursuant to this 2019 circular, (i) app operators are prohibited from
collecting any personal information irrelevant to the services provided by such operator; (ii) information collection and usage policy
should be presented in a simple and clear way, and such policy should be consented by the users voluntarily; (iii) authorization from
users should not be obtained by coercing users with default or bundling clauses or making consent a condition of a service. App operators
violating such rules can be ordered by authorities to correct its incompliance within a given period of time, be reported in public; or
even quit its operation or cancel its business license or operational permits. Furthermore, the Provisions on the Cyber Protection of
Children&#8217;s Personal Information issued by the Office of the Central Cyberspace Affairs Commission came into effect on October 1,
2019, which requires, among others, that network operators who collect, store, use, transfer and disclose personal information of children
under the age of 14 establish special rules and user agreements for the protection of children&#8217;s personal information, inform the
children&#8217;s guardians in a noticeable and clear manner, and shall obtain the consent of the children&#8217;s guardians. Furthermore,
the authorities issuing the circular has pledged to initiate a campaign to correct unlawful collection and usage of personal information
via apps from January 2019 through December 2019.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the PRC Civil
Code&#160;which was approved by the National People&#8217;s Congress on May 28, 2020, and came into effect on January 1, 2021, the personal
information of a natural person shall be protected by the law. Any organization or individual that needs to obtain personal information
of others shall obtain such information legally and ensure the safety of such information, and shall not illegally collect, use, process
or transmit personal information of others, or illegally purchase or sell, provide or make public personal information of others. Furthermore,
information processors shall not divulge or tamper with personal information collected or stored by them; without the consent of a natural
person, information processors shall not illegally provide personal information of such person to others, except for information that
has been processed so that specific persons cannot be identified and that cannot be restored. In addition, an information processor shall
take technical measures and other necessary measures to ensure the security of the personal information that is collected and stored and
to prevent the information from being divulged, tampered with or lost; where personal information has been or may be divulged, tampered
with or lost, the information processor shall take remedial measures in a timely manner, inform the natural person concerned in accordance
with the provisions and report the case to the relevant competent department.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 20, 2021, the Standing
Committee of the National People&#8217;s Congress promulgated the Personal Information Protection Law of the PRC, or the Personal Information
Protection Law, which took effect on November 1, 2021. As the first systematic and comprehensive law specifically for the protection of
personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual&#8217;s consent
shall be obtained to use sensitive personal information, (ii) personal information operators using sensitive personal information shall
notify individuals of the necessity of such use and impact on the individual&#8217;s rights, and (iii) where it is necessary for personal
information to be provided by a personal information processor to a recipient outside the territory of the PRC due to any business need
or any other need, a security assessment organized by the national cyberspace authority shall be passed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Regulation Related to Private Education</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The laws and regulations governing
foreign investments in private education institutions in China are complex and have been developing. Pursuant to the Special Administrative
Measures for Entrance of Foreign Investment (Negative List) (2021 Version), or the Catalog, which is the principal regulation governing
foreign investment activities in China, foreign investments in pre-school education institutions, ordinary senior high schools and institutions
of higher education fall within the foreign restricted category (limited to the form of sino-foreign cooperative joint ventures), and
such joint ventures shall be led by the Chinese party, which means the principal or the key administrative person-in-charge shall be a
PRC national, the number of Chinese members of the council, board of directors or joint administrative committee shall account for at
least half of the total. In addition, the foreign investments in compulsory or religious education institutions are prohibited. The Catalog
does not provide specific restrictions on foreign investments in institutions like us that provide healthcare learning products and services
to the public. Besides, pursuant to the PRC Regulations on Sino-foreign Cooperative Education (2019 Revision) and other education-related
laws and regulations in China, foreign education institutions and other foreign organizations or individuals may not by themselves alone
establish schools or other education institutions within China which mainly enroll Chinese citizens, and sino-foreign cooperative education
institutions shall have corresponding qualifications and relatively high education quality.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Education Law of China</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 18, 1995, the PRC
National People&#8217;s Congress promulgated the PRC Education Law, or the Education Law. The Education Law stipulates that the government
formulates plans for the development of education, establishes and operates schools and other types of educational institutions, and in
principle, enterprises, institutions, social organizations and individuals are encouraged to operate schools and other types of educational
organizations. It is provided in the Education Law that no organization or individual may establish or operate a school or any other educational
institution for commercial purposes. On December 27, 2015, the SCNPC published the Decision on Amendment of the Education Law, which took
effect on June 1, 2016. The SCNPC narrowed the provision prohibiting the establishment or operation of schools or other educational institutions
for commercial purposes to only restricting a school or other educational institution founded with governmental funds or donated assets
in the amended Education Law. On April 29, 2021, the Education Law was further amended by SCNPC to emphasize the illegal acts in recruiting
students and replacing the admission qualifications obtained by others. Such amendments took effect on April 30, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>The Law for Promoting Private Education and its Implementing
Rules</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 28, 2002, the
SCNPC promulgated the Law for Promoting Private Education, or the Private Education Law and was later amended on June 29, 2013, November
7, 2016 and December 29, 2018, the amendment of which took effect on December 29,2018. On March 5, 2004 and last amended on April 7, 2021,
the PRC State Council promulgated the Implementation Rules for the Law for Promoting Private Education, which became effective on April
1, 2004, or the Private Education Implementation Rules. The Private Education Law and the Private Education Implementation Rules provide
rules for social organizations or individuals, other than state-owned entities, to establish schools or other educational organizations
using non-government funds in China, such schools or educational organizations established using non-government funds are referred to
as &#8220;private schools.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the amended Private
Education Law, establishment of private schools for academic education, pre-school education, self-taught examination support and other
cultural education shall be subject to approval by the authorities in charge of education, while establishment of private schools for
vocational qualification training and vocational skill training shall be subject to approvals from the authorities in charge of labor
and social welfare. A duly approved private school will be granted a private school operating permit, and shall be registered with relevant
authority as an enterprise institution. Entities and individuals may choose to establish non-profit private schools or for-profit private
schools at their own discretion. Nonetheless, for-profit private schools that are engaged in compulsory education are not allowed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 30, 2016, the
Ministry of Education (&#8220;MOE&#8221;), the SAIC and the Ministry of Human Resources and Social Security (&#8220;MOHRSS&#8221;) jointly
issued the Implementation Rules on the Supervision and Administration of For-profit Private Schools. Pursuant such rules, the establishment,
division, merger and other material changes of a for-profit private school shall first be approved by the education authorities or the
authorities in charge of labor and social welfare, and then be registered with the competent branch of SAIC. In addition, it also provides
that for-profit private training institutes shall be analogically governed by these Implementation Rules on the Supervision and Administration
of For-profit Private Schools.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 31, 2017, SAIC and
MOE jointly promulgated the Notice of the State Administration for Industry and Commerce and the Ministry of Education on the Work Concerning
the Administration of the Name Registration for For-profit Private Schools, which came into effect on September 1, 2017. Such notice provides
that the industry expression in the name of the private culture education institutions shall typically include &#8220;training school
/center,&#8221; such as &#8220;curriculum training school/center,&#8221; &#8220;extra-class education school/center,&#8221; &#8220;self-learning
school/center,&#8221; &#8220;tutorship school/center,&#8221; &#8220;extra tutoring for examinations school/center&#8221; and &#8220;extra
tutoring school/center&#8221; and such industry expression is allowed to embody the disciplines and characteristics of such education
institution.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In August 2018, the State
Council issued the Opinion on the Regulation of the Development of Extracurricular Training Institutions, or the New Opinion, which primarily
regulates extracurricular training institutions targeting K-12 students. The New Opinion reiterates prior guidance that extracurricular
training institutions must obtain a private school operating permit, and further requires such institutions to meet certain minimum requirements;
for example, extracurricular training institutions are required to (i) have a fixed training premise that conforms to specified safety
criteria, with an average area per student of no less than 3 square meters during the applicable training period; (ii) comply with relevant
fire safety, environmental protection, hygiene, food operation and other specified requirements; (iii) purchase personal safety insurance
for students to reduce safety risks; and (iv) not hire any teachers who are working concurrently in primary or secondary schools. Extracurricular
training institutions are prohibited from carrying out exam-oriented training, training that goes beyond the school syllabus, training
in advance of the corresponding school schedule and any training activities associated with student admission. The training content of
extracurricular training institutions is not to exceed the corresponding national curricular standards and training progress is not to
be more accelerated than the corresponding progress of local schools. According to the New Opinion, extracurricular training institutions
are also required to disclose relevant information regarding the institution, including their training content, schedule, targeted students
and school timetable to the relevant education authority, and their training classes may not end later than 20:30 each day. Tuition can
only be collected for courses in three months or a shorter installment. Additionally, the New Opinion requests that competent local authorities
formulate relevant local standards for extracurricular training institutions within their administrative area.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulation Related to Online and Distance Education</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Interim Administrative
Regulations on Educational Websites and Online and Distance Education Schools issued by the MOE, on July 5, 2000, educational websites
may provide educational services in relation to higher education, elementary education, pre-school education, teaching education, occupational
education, adult education, other education and public educational information services. &#8220;Educational websites&#8221; refer to organizations
providing education or education-related information services to website visitors by means of a database or online education platform
connected via the internet or an educational television station through an internet service provider. Setting up education websites is
subject to approval from relevant education authorities, depending on the specific types of education. Any educational website shall,
upon the receipt of approval, indicate on its website such approval information as well as the approval date and file number.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 29, 2004, the State
Council promulgated the Decision on Setting Down Administrative Licenses for the Administrative Examination and Approval Items Really
Necessary to Be Retained, which was amended on January 29, 2009 and August 25, 2016, respectively. Pursuant to such decision, the administrative
license for &#8220;educational websites&#8221; was not retained.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 3, 2016, the State
Council promulgated the Decision on Cancelling the Second Batch of 152 Items Subject to Administrative Examination and Approval by Local
Governments Designated by the Central Government, further explicitly withdrew the approval requirements for operating educational websites
as provided by the Administrative Regulations on Educational Websites and Online Education Schools, and reiterated the principle that
administrative approval requirements may only be imposed in accordance with the PRC Administrative Licensing Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 13, 2017, the MOE
promulgate the Notice of the Ministry of Education on Strengthening Interim and Ex Post Regulation after Canceling the Examination and
Approval of Online Schools on Educational Websites, which accounted the repeal of the Interim Administrative Regulations on Educational
Websites and Online and Distance Education Schools.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">In
December 2017, Shanghai Municipal Government promulgated the Management Methods of Classified Registration of Private Schools of Shanghai,
and circulated the Setting Standards for Private Training Institutions of Shanghai, the Management Measures for the For-profit Private
Training Institutions of Shanghai, and the Management Methods for the Non-Profit Private Training Institutions of Shanghai (collectively,
the &#8220;Shanghai Implementation Regulations&#8221;). Pursuant to the Shanghai Implementation Regulations, any management measures and
regulations applied to the institutions that provide training services only through internet will be further promulgated separately. However
no specific administration measures regarding the institutions offering training service only through internet have been promulgated by
Shanghai government as of the date of this Annual Report.</span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Regulations on Investments in Private Funds</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 21, 2014, the SRC
promulgated the Interim Measures for the Supervision and Administration of Private Investment Funds which defines the accredited investors
of private funds as those entities and individuals with corresponding risk identification and risk-taking capabilities who invest in a
single private fund an amount not less than RMB 1 million and accord with the following standards: with respect to entities, their net
assets shall not be less than RMB 10 million; and with respect to individuals, their financial assets shall not be less than RMB 3 million
or their personal average annual income in the last three years shall not be less than RMB 0.5 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Legal Regulations on Intellectual Property in the PRC</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Copyright</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Copyright
Law of the PRC, which was first promulgated by the Standing Committee of the National People&#8217;s Congress on September 7, 1990 and
became effective from June 1, 1993, and was last amended on November 11, 2020 and became effective as of June 1, 2021, copyrights include
personal rights such as the right of publication and that of attribution as well as property rights such as the right of production and
that of distribution. Reproducing, distributing, performing, projecting, broadcasting or compiling a work or communicating the same to
the public via an information network without permission from the owner of the copyright therein, unless otherwise provided in the Copyright
Law of the PRC, shall constitute infringements of copyrights. The infringer shall, according to the circumstances of the case, undertake
to cease the infringement, take remedial action, and offer an apology, pay damages, etc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Computer Software Copyright
Registration Measures, or the Software Copyright Measures, promulgated by the National Copyright Administration on February&#160;20, 2002,
regulates registrations of software copyright, exclusive licensing contracts for software copyright and assignment agreements. The National
Copyright Administration administers software copyright registration, and the Copyright Protection Center of China is designated as the
software registration authority. The Copyright Protection Center of China shall grant registration certificates to the Computer Software
Copyright applicants which meet the requirements of both the Software Copyright Measures and the Computer Software Protection Regulations,
promulgated by the State Council on June 4, 1991 and last amended on January 30, 2013.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Trademark</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Trademark
Law of the PRC, which was promulgated by the Standing Committee of the National People&#8217;s Congress on August 23, 1982 and became
effective from March 1, 1983, and was most recently amended on April 23, 2019 and became effective on November 1, 2019, the right to exclusive
use of a registered trademark shall be limited to trademarks which have been approved for registration and to goods for which the use
of such trademark has been approved. The period of validity of a registered trademark shall be ten years, counted from the day the registration
is approved. According to this law, using a trademark that is identical to or similar to a registered trademark in connection with the
same or similar goods without the authorization of the owner of the registered trademark constitutes an infringement of the exclusive
right to use a registered trademark. The infringer shall, in accordance with the regulations, undertake to cease the infringement, take
remedial action, and pay damages, etc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Patent</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Patent Law
of the PRC, which was promulgated by the Standing Committee of the National People&#8217;s Congress on September 4, 1992, and was most
recently amended on October 17, 2020and became effective on June 1, 2021, after the grant of the patent right for an invention or utility
model, except where otherwise provided for in the Patent Law, no entity or individual may, without the authorization of the patent owner,
exploit the patent, that is, make, use, offer to sell, sell or import the patented product, or use the patented process, or use, offer
to sell, sell or import any product which is a direct result of the use of the patented process, for production or business purposes.
And after a patent right is granted for a design, no entity or individual shall, without the permission of the patent owner, exploit the
patent, that is, for production or business purposes, manufacture, offer to sell, sell, or import any product containing the patented
design. Where the infringement of patent is decided, the infringer shall, in accordance with the regulations, undertake to cease the infringement,
take remedial action, and pay damages, etc.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-indent: -10pt"><i>Domain Name</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-indent: -10pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Administrative
Measures for Internet Domain Names of China, which was recently amended by the Ministry of Industry and Information Technology on August
24, 2017 and became effective on November 1, 2017, &#8220;domain name&#8221; shall refer to the character mark of hierarchical structure,
which identifies and locates a computer on the internet and corresponds to the internet protocol (IP) address of that computer. And the
principle of &#8220;first come, first serve&#8221; is followed for the domain name registration service. After completing the domain name
registration, the applicant becomes the holder of the domain name registered by him/it. Furthermore, the holder shall pay operation fees
for registered domain names on schedule. If the domain name holder fails to pay the corresponding fees as required, the original domain
name registrar shall write it off and notify the holder of the domain name in written form.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-indent: -10pt"><b>Regulations on Labor Protection in
the PRC</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-indent: -10pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Labor Law
of the PRC, or the Labor Law, which was promulgated by the Standing Committee of the NPC on July 5, 1994, came into effect on January
1, 1995, and was most recently amended on December 29, 2018, an employer shall develop and improve its rules and regulations to safeguard
the rights of its workers. An employer shall develop and improve its labor safety and health system, stringently implement national protocols
and standards on labor safety and health, conduct labor safety and health education for workers, guard against labor accidents and reduce
occupational hazards. Labor safety and health facilities must comply with relevant national standards. An employer must provide workers
with the necessary labor protection gear that complies with labor safety and health conditions stipulated under national regulations,
as well as provide regular health checks for workers that are engaged in operations with occupational hazards. Laborers engaged in special
operations shall have received specialized training and have obtained the pertinent qualifications. An employer shall develop a vocational
training system. Vocational training funds shall be set aside and used in accordance with national regulations and vocational training
for workers shall be carried out systematically based on the actual conditions of the company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Labor Contract Law of
the PRC, which was promulgated by the SCNPC on June 29, 2007, came into effect on January 1, 2008, and was amended on December 28, 2012
and became effective as of July 1, 2013, and the Implementation Regulations on Labor Contract Law, which was promulgated on September
18, 2008, and became effective since the same day, regulate both parties through a labor contract, namely the employer and the employee,
and contain specific provisions involving the terms of the labor contract. It is stipulated under the Labor Contract Law and the Implementation
Regulations on Labor Contract Law that a labor contract must be made in writing. An employer and an employee may enter into a fixed-term
labor contract, an un-fixed term labor contract, or a labor contract that concludes upon the completion of certain work assignments, after
reaching agreement upon due negotiations. An employer may legally terminate a labor contract and dismiss its employees after reaching
agreement upon due negotiations with the employee or by fulfilling the statutory conditions. Labor contracts concluded prior to the enactment
of the Labor Law and subsisting within the validity period thereof shall continue to be honored. With respect to a circumstance where
a labor relationship has already been established but no formal written contract has been made, a written labor contract shall be entered
into within one month from the commencement date of the employment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Interim Regulations
on the Collection and Payment of Social Insurance Premiums, the Regulations on Work Injury Insurance, the Regulations on Unemployment
Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in the PRC shall provide benefit plans for
their employees, which include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical
insurance. An enterprise must provide social insurance by processing social insurance registration with local social insurance agencies,
and shall pay or withhold relevant social insurance premiums for or on behalf of employees. The Law on Social Insurance of the PRC, which
was promulgated by the Standing Committee of the National People&#8217;s Congress on October 28, 2010, and became effective on July 1,
2011, and was most recently updated on December 29, 2018, has consolidated pertinent provisions for basic pension insurance, unemployment
insurance, maternity insurance, work injury insurance and basic medical insurance, and has elaborated in detail the legal obligations
and liabilities of employers who do not comply with relevant laws and regulations on social insurance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Interim Measures
for Participation in the Social Insurance System by Foreigners Working within the Territory of China, which was promulgated by the Ministry
of Human Resources and Social Security on September 6, 2011, and became effective on October 15, 2011, employers who employ foreigners
shall participate in the basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, and
maternity leave insurance in accordance with the relevant law, with the social insurance premiums to be contributed respectively by the
employers and foreigner employees as required. In accordance with such Interim Measures, the social insurance administrative agencies
shall exercise their right to supervise and examine the legal compliance of foreign employees and employers and the employers who do not
pay social insurance premiums in conformity with the laws shall be subject to the administrative provisions provided in the Social Insurance
Law and the relevant regulations and rules mentioned above.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Reform Plan
of the State Tax and Local Tax Collection Administration System ( the &#8220;Reform Plan&#8221;), which was issued by the General Office
of the Communist Party of China and the General Office of the State Council of the PRC On July 20, 2018. Under the Reform Plan, beginning
from January 1, 2019, tax authorities should be responsible for the collection of social insurance contributions in the PRC. Pursuant
to the Urgent Notice of the General Office of MOHRSS on Effectively Implementing the Spirit of the Standing Meeting of the State Council
and Effectively Conducting the Collection of Social Insurance Premiums in a Stable Manner (the &#8220;Urgent Notice&#8221;), which was
issued by the General Office of the MOHRSS on September 21, 2018, before the reform of the social insurance collection authorities being
in place, the relevant levying policies, including the base and rate of the social insurance premiums, shall remain unchanged. The Urgent
Notice also clarified that it is strictly prohibited for the local authorities themselves to organize and conduct centralized collection
of enterprises historical social insurance arrears. On April 1, 2019, the General Office of the State Council of the PRC issued the Comprehensive
Program on Reduction of Social Insurance Premiums, which generally reduced the social insurance contribution burden of enterprises, and
re-emphasized that local authorities shall not conduct centralized collection of enterprises historical social insurance arrears before
a uniform policy is published.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Regulations
on the Administration of Housing Provident Fund, which was promulgated by the State Counsel and became effective on April 3, 1999, and
was amended on March 24, 2002 and March 24,&#160;2019, housing provident fund contributions by an individual employee and housing provident
fund contributions by his or her employer shall belong to the individual employee. Registration by PRC companies at the applicable housing
provident fund management center is compulsory and a special housing provident fund account for each of the employees shall be opened
at an entrusted bank.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The employer shall timely
pay up and deposit housing provident fund contributions in full amount and late or insufficient payments shall be prohibited. The employer
shall process housing provident fund payment and deposit registrations with the housing provident fund administration center. With respect
to companies who violate the above regulations and fail to process housing provident fund payment and deposit registrations or open housing
provident fund accounts for their employees, such companies shall be ordered by the housing provident fund administration center to complete
such procedures within a designated period. Those who fail to process their registrations within the designated period shall be subject
to a fine ranging from RMB 10,000 to RMB 50,000. When companies breach these regulations and fail to pay up housing provident fund contributions
in full amount as due, the housing provident fund administration center shall order such companies to pay up within a designated period,
and may further apply to the People&#8217;s Court for mandatory enforcement against those who still fail to comply after the expiry of
such period.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-align: justify; text-indent: -10pt"><b>Regulations on
Tax in the PRC</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-align: justify; text-indent: -10pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-align: justify; text-indent: -10pt"><i>Income Tax</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-align: justify; text-indent: -10pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2008, the PRC Enterprise
Income Tax Law (&#8220;EIT Law&#8221;) took effect, which was last amended by the Standing Committee of the National People&#8217;s Congress
on December 29, 2018. The PRC Enterprise Income Tax Law applies a uniform 25 percent enterprise income tax rate to both FIEs and domestic
enterprises, except where tax incentives are granted to special industries and projects. The PRC Enterprise Income Tax Law defines &#8220;resident
enterprise&#8221; as an enterprise established outside of the territory of China but with its &#8220;de facto management body&#8221; within
China, which will also be subject to the 25% enterprise income tax rate. The implementation rules define the term &#8220;de facto management
body&#8221; as the body that exercises full and substantial control and overall management over the business, productions, personnel,
accounts, and properties of an enterprise. Enterprises qualified as &#8220;High and New Technology Enterprises&#8221; are entitled to
a 15% enterprises income tax rate rather than the 25% uniform statutory tax rate. The preferential tax treatment continues as long as
an enterprise can retain its &#8220;High and New Technology Enterprise&#8221; status. Under the PRC Enterprise Income Tax Law and its
implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008, and payable to its foreign
investor may be subject to a withholding tax rate of 10 percent if the PRC tax authorities determine that the foreign investor is a Non-resident
Enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated
before January 1, 2008, are exempt from PRC withholding tax.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The State Administration of
Taxation (&#8220;SAT&#8221;) has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent
years, including the Interim Measures for the Administration of Remittance of Income Tax for Non-Resident Enterprise Withheld at Source
(the &#8220;Interim Measures&#8221;) which became effective on January 1, 2009, the Notice of the SAT on Strengthening the Administration
of Enterprise Income Tax on Gain Derived from Equity Transfer Made by Non-Resident Enterprise (the &#8220;Notice&#8221;) which became
effective on January 1, 2008 and was amended on July 19, 2015, the Announcement of the SAT on Issues Concerning the Withholding of Non-resident
Enterprise Income Tax at Source (the &#8220;SAT Circular 37&#8221;) which was promulgated on October 17, 2017, became effective on December
1, 2017 and was amended on June 15, 2018, and the Public Notice of the SAT Regarding Certain Enterprise Income Tax Matters on Indirect
Transfer of Properties by Non-Resident Enterprises (the &#8220;Public Notice 7&#8221;) which became effective on February 3, 2015 and
was amended on December 1, 2017 and December 29, 2017.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The SAT Circular 37 amended
some provisions in Public Notice 7, repealed the Interim Measures and the Notice and simplifies procedures of withholding and payment
of income tax levied on non-resident enterprises. Pursuant to these rules and notices, where a non-resident enterprise investor transfers
equity interests or other taxable assets in a PRC resident enterprise indirectly by way of disposing of equity interests in an overseas
holding company, the non-resident enterprise investor, being the transferor, may be subject to PRC enterprise income tax if the indirect
transfer is considered to be an abusive use of company structure without reasonable commercial purposes. In addition, Public Notice 7
provides clear criteria on how to assess reasonable commercial purposes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-align: justify; text-indent: -10pt"><i>Value-Added Tax</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 10pt; text-align: justify; text-indent: -10pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Temporary
Regulations on Value-added Tax, which was most recently amended on November 19, 2017, and the Detailed Implementing Rules of the Temporary
Regulations on Value-added Tax, which was amended on October 28, 2011, and became effective on November 1, 2011, all taxpayers selling
goods, providing processing, repair or replacement services or importing goods within the PRC shall pay Value-Added Tax. The rate of VAT
is 17%, 11% or 6% in certain limited circumstances depending on the product type.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 4, 2018, the Ministry
of Finance and the SAT jointly issued the Notice of Adjustment of Value-added Tax Rates which declared that the VAT tax rate in regard
to the sale of goods, provision of processing, repairs and replacement services and importation of goods into China shall be reduced from
the previous 17% and 11% to 16% and 10% respectively from May 1, 2018.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Announcement
of the MOF, the SAT and the General Administration of Customs on Relevant Policies for Deepening Value-added Tax Reform promulgated on
March 20, 2019 and became effective on April 1, 2019 (the &#8220;Announcement&#8221;), for the VAT taxable sales or imports by a general
taxpayer of VAT, the applicable tax rate shall be adjusted to 13% from the original 16% and to 9% from original 10%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, according to
the Trial Scheme for the Conversion of Business Tax to Value-added Tax, which was promulgated by the MOF and the SAT, the PRC began to
launch taxation reforms in a gradual manner in January 1, 2012, whereby the collection of value-added tax in lieu of business tax items
was implemented on a trial basis in regions showing significant radiating effects in economic development and providing outstanding reform
examples, beginning with production service industries such as transportation and certain modern service industries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In accordance with Notice
of the Ministry of Finance and the State Administration of Taxation on Full Launch of the Pilot Scheme on Levying Value-added Tax in Place
of Business Tax, a SAT circular that took effect on May 1, 2016, amended on July 11, 2017 and April 1, 2019, upon approval of the State
Council, the pilot program of the collection of value-added tax in lieu of business tax shall be promoted nationwide in a comprehensive
manner starting May 1, 2016, and all taxpayers of business tax engaged in the building industry, the real estate industry, the financial
industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax instead
of business tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;<b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Regulation of Foreign Currency Exchange and
Dividend Distribution</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="text-decoration:underline">Foreign Currency Exchange.</span>
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as
amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Interim Measures
on Administration on Foreign Debts (2003). Under these regulations, Renminbi are freely convertible for current account items, including
the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account
items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval
of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise,
cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered
capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any
increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The dividends paid by the
subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement,
Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to
a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under
the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental
authorities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="text-decoration:underline">Dividend Distribution.</span>
The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law of the PRC, which
was promulgated by SCNPC on December 29, 1993 and became effective on July 1, 1994 and subsequently amended on December 25,1999, August
28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018, the Foreign Investment Enterprise Law (1986) and its detailed rules,
Foreign Investment Law, which was promulgated by SCNPC on March 15, 2019 and became effective on January 1, 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under these regulations, wholly
foreign-owned investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with
PRC accounting standards and regulations. In addition, wholly foreign-owned investment enterprises in China are required to allocate at
least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50%
of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and a wholly foreign-owned enterprise
is not permitted to distribute any profits until losses from prior fiscal years have been offset.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="text-decoration:underline">Circular 37</span>. On July
4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE
and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic
assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required
if the registered overseas SPV&#8217;s basic information such as domestic individual resident shareholder, name, operating period, or
major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division
has changed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Moreover, Circular 37 applies
retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange
registration of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its
branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result
in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB 50,000
for an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Notice on
Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment (the &#8220;SAFE Circular 13&#8221;),
which was promulgated by SAFE on February 13, 2015, became effective on June 1, 2015 and partially repealed on December 30, 2019, the
power to accept foreign exchange registration was delegated from local foreign exchange bureau to local commercial banks where the assets
or interest in the domestic entity was located.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Regulation Related to M&amp;A Regulations and
Overseas Listings</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 8, 2006, six PRC
regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration
for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions
of Domestic Enterprises by Foreign Investors, or the M&amp;A Rule, which became effective on September 8, 2006 and was amended on June
22, 2009. The M&amp;A Rules, among other things, require that (i)&#160;PRC entities or individuals obtain MOFCOM approval before they
establish or control an SPV overseas, provided that they intend to use the SPV to acquire their equity interests in a PRC company at the
consideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the PRC company overseas by listing
the SPV in an overseas market; (ii)&#160;the SPV obtains MOFCOM&#8217;s approval before it acquires the equity interests held by the PRC
entities or PRC individual in the PRC company by Share Swap; and (iii)&#160;the SPV obtains CSRC approval before it lists overseas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
February 17,</span><span style="font-family: Sans-Serif; font-size: 9pt; color: Red"><b> </b></span> <span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2023,
CSRC promulgated the Trial Measures, and five supporting guidelines, which became effective on March 31, 2023. According to the
Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and
indirectly, should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure or
conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to
administrative penalties; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be
determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or
profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the
corresponding figure in the issuer&#8217;s audited consolidated financial statements for the same period; (ii) its major operational
activities are carried out in China or its main places of business are located in China, or the senior managers in charge of
operation and management of the issuer are mostly Chinese citizens or are domiciled in China; (3) where a domestic company seeks to
indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible
for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC within three business days after the
submission of the overseas offering and listing application; and (4) if the issuer issues securities in the same overseas market
after the initial issuance and listing, it shall submit filings with the CSRC within three business days after the completion of the
issuance. Further, at the press conference held for the Trial Measures on February 17, 2023, officials from the CSRC clarified that
the PRC domestic companies that have already been listed overseas on or before the effective date of the Trial Measures (i.e., March
31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete the filing
procedures immediately but shall carry out filing procedures as required if they conduct refinancing or are involved in other
circumstances that require filing with the CSRC. The officials from the CSRC have also confirmed that for the PRC domestic companies
that seek to list overseas with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the
filing of the overseas listing of companies with VIE structure which meet the compliance requirements. </span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 24, 2023, the
CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China
promulgated the Archives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic companies that seek for
overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and the Archives Rules, enhance legal
awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives administration
system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such domestic companies shall
not leak any state secret and working secret of government agencies, or harm national security and public interest. Furthermore, a domestic
company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or
entities including securities companies, securities service providers and overseas regulators, any document and materials that contain
state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and
file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to, either directly or through
its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities
service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security
or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also
stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities
companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable
national regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Regulations on Offshore Parent Holding Companies&#8217;
Direct Investment in and Loans to Their PRC Subsidiaries</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An offshore company may invest
equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment
is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Foreign
Investment Law, as amended from time to time, and its respective implementing rules; the Administrative Provisions on Foreign Exchange
in Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving
and Adjusting Foreign Exchange Administration Policies for Direct Investment. Under the aforesaid laws and regulations, the state adopts
the management system of pre-establishment national treatment and a negative list for foreign investment. In addition, the increase of
registered capital and total investment amount shall both be registered with SAIC and SAFE. Shareholder loans made by offshore parent
holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose, which is subject to a number
of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on
Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration
Rules on the Settlement, Sale and Payment of Foreign Exchange. Under these regulations, the shareholder loans made by offshore parent
holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be
borrowed by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount
and the registered capital amount of the PRC subsidiaries, both of which are subject to the governmental approval.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Regulations Relating to Foreign Investment</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">As
a provider of health information, healthcare education and training services to healthcare professionals and the public in China, the
PRC operating entities offer a wide range of online and onsite health information services, healthcare education programs, and healthcare
training products. As of the date of the Annual Report, the VIE holds the Internet Content Provider License, and it falls within the restricted
foreign investment for value-added telecommunications services that foreign ownership may not be more than 50%. </span>&#160;<span style="font-family: Times New Roman, Times, Serif">The
VIE also has the Radio and the TV Program Production and Business License and it falls within the prohibited foreign investment for making
and editing radio and TV programs. In addition, if the competent PRC government authorities determine that the PRC operating entities&#8217;
business operations of health information, healthcare education and training services are subject to the licensing requirements for internet
audio-visual programming, internet culture business operating and online publishing (See &#8220;Risk Factor&#8212;Risks Related to Doing
Business in China&#8212;<i>The PRC operating entities may face risks and uncertainties with respect to the licensing requirement for internet
audio-visual programs</i>&#8221;, and &#8220;Risk Factors&#8212;Risks Related to Doing Business in China&#8212; <i>The PRC operating entities
failure to obtain, maintain or renew other licenses, approvals, permits, registrations or filings necessary to conduct their operations
in China could have a material adverse impact on our business, financial conditions and results of operations</i>.&#8221;), the PRC operating
entities may be required to obtain the Online Transmission of Audio-Visual Programs License, Internet Culture Business Operating License
and Online Publishing License, which fall into the category of prohibited foreign investment. The PRC operating entities&#8217; business
activities other than the above mentioned are not set out in the Negative List or any encouraged catalogue.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>The Foreign Investment Law</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 15, 2019, the National
People&#8217;s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws on
foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned
Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC
regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment
Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view
of investment protection and fair competition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Foreign Investment
Law, &#8220;foreign investment&#8221; refers to investment activities directly or indirectly conducted by one or more natural persons,
business entities, or otherwise organizations of a foreign country (collectively referred to as &#8220;foreign investor&#8221;) within
China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other
investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares
in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with
other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations,
or the State Council. Based on our understanding of the current PRC Laws, the Foreign Investment Law does not explicitly classify VIE
Arrangements as a form of foreign investment and our VIE Arrangements are valid and binding, and do not result in any violation of PRC
laws or regulations currently in effect. However, the Foreign Investment Law contains a catch-all provision under the definition of &#8220;foreign
investment&#8221;, which includes investments made by foreign investors in China through means stipulated in laws or administrative regulations
or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions
promulgated by the Stale Council to provide for VIE Arrangements as a form of foreign investment, at which time it will be uncertain whether
our VIE Arrangements will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes,
how our VIE Arrangements should be dealt with. In addition, if future laws, administrative regulations or provisions prescribed by the
State Council mandate further actions to be taken by companies with respect to existing VIE Arrangements, the PRC operating entities may
face substantial uncertainties as to whether the PRC operating entities can complete such actions in a timely manner, or at all.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Foreign Investment
Law, the State Council will publish or approve to publish the &#8220;negative list&#8221; for special administrative measures concerning
foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities (&#8220;FIEs&#8221;), except for
those FIEs that operate in industries deemed to be either &#8220;restricted&#8221; or &#8220;prohibited&#8221; in the &#8220;negative
list&#8221;. The Foreign Investment Law provides that foreign investors shall not invest in any field with investment prohibited by the
Negative List for foreign investment access; while for any field with investment restricted by the Negative List for foreign investment
access, foreign-invested entities shall meet the investment conditions stipulated under the Negative List. If our consolidation of the
financial results of the VIE through VIE Arrangements as a primary beneficiary is deemed as foreign investment in the future, and any
business of the consolidated VIE is &#8220;restricted&#8221; or &#8220;prohibited&#8221; from foreign investment under the &#8220;negative
list&#8221; effective at the time, the PRC operating entities may be deemed to be in violation of the Foreign Investment Law, the VIE
Arrangements that allow us to consolidate the financial results of the VIE may be deemed as invalid and illegal, and the PRC operating
entities may be required to unwind such VIE Arrangements and/or restructure our business operations, any of which may have a material
adverse effect on our business operation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Besides, the PRC government
has established a foreign investment information reporting system. According to Measures on Reporting of Foreign Investment Information,
which was released on December 30, 2020 and became effective on January 1, 2021, foreign investors or foreign-invested enterprises shall
submit investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise
credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment
affecting or likely affecting the state security.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, the Foreign Investment
Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their
structure and corporate governance within five years after the implementing of the Foreign Investment Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, the Foreign Investment
Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others,
that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital
gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and
income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments
at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations
and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit
conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case
statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition
of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">C. <span style="text-decoration:underline">Our Structure</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">See &#8220;Item 4. Information
on the Company &#8211; A. History and Development of the Company.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">D. <span style="text-decoration:underline">Property, Plants and Equipment</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">See &#8220;Item 4. Information
on the Company &#8211; B. Business Overview &#8211; Facilities</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_007"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 4A. UNRESOLVED STAFF COMMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_008"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>You should read the following
discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements
and the related notes included elsewhere in this annual report on Form&#160;20-F. This discussion may contain forward-looking statements
based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors, including those set forth under &#8220;Item 3. Key Information&#8212;D.
Risk Factors&#8221; or in other parts of this annual report on Form 20-F.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Operating results</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Overview</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are not a Chinese operating
company but rather a holding company incorporated in Cayman Islands. As a holding company with no material operation of our own, we conduct
a substantial majority of our operation through our wholly owned subsidiary, Beijing Zhongchao Zhongxing Technology Limited, a PRC company
(&#8220;Zhongchao WFOE&#8221;) and a variable interest entity in China, Zhongchao Medical Technology (Shanghai) Co., Ltd. (&#8220;Zhongchao
VIE&#8221;) and its subsidiaries (collectively, the &#8220;PRC operating entities&#8221;). Due to the existing VIE agreements between
Zhongchao WFOE and Zhongchao VIE, we are able to consolidate the financial results of Zhongchao VIE under the U.S. GAAP, however, we do
not hold equity interest in Zhongchao VIE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao VIE, together with
its subsidiaries, is a provider of healthcare information, education, and training services to healthcare professionals and the public
in China. They offer a wide range of online and onsite health information services, healthcare education programs, and healthcare training
products, consisting primarily of clinical practice training, open classes of popular medical topics, interactive case studies, academic
conference and workshops, continuing education courses, and articles and short videos with educational healthcare content to healthcare
professionals as well as the public. Zhongchao VIE, together with its subsidiaries, also has been engaged by certain customers on a project
basis to establish individual columns on its online platform to provide training and knowledge of certain drug treatment for healthcare
professionals and patients. Zhongchao VIE and its subsidiaries also plug in supplemental features, to manage the drug treatment including
reviewing patients&#8217; applications, tracking their usage of drugs, and collecting related information, or the patient-aid projects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao VIE commenced operation
in August 2012 with a vision to offer a wide range of accessible and immediate healthcare information and continuous learning and training
opportunities for Chinese healthcare professionals. Since its inception, Zhongchao VIE has been focused on developing information, education,
and training programs to address the needs in the healthcare industry in China; and developing online platforms and onsite activities
to deliver its information services, education programs and training products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao VIE provide healthcare
information, education, and training services to the healthcare professionals under &#8220;MDMOOC&#8221; brand. As of the date of this
report, its MDMOOC online platform has more than 219,825 registered users and a database of approximately 109,721healthcare experts including
around 1,152&#160;physicians, and 108,569 allied healthcare professionals in medical academics, associations, and leading hospitals who
constantly collaborate with Zhongchao VIE to develop training programs on needed basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao VIE provides its
healthcare educational content to the public via its &#8220;Sunshine Health Forums&#8221;, which, based on the amount of the registered
users and daily review volume, we believe is one of the largest platform in China, for general healthcare knowledge and information to
the public. In July 2020, Zhongchao VIE launched&#160;&#160;&#160;focused patient management services to hospitals, pharmacies, pharmaceutical
enterprises and non-profit organizations and insurance companies via &#8220;Zhongxun&#8221;. In May 2021, Zhongchao VIE launched patient
management service on the professional field of tumor and rare diseases via &#8220;Zhongxin&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through its platforms, Zhongchao VIE have been engaged by certain
customers on a project basis to establish individual columns on its MDMOOC online platform to provide training and knowledge of certain
drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare disease-related. Zhongchao
VIE establishes online columns to facilitate qualified patients to obtain free drug treatment from non-profit organizations (&#8220;NFPs&#8221;)
till the earlier of the expiration of contract period or the free drugs are completely delivered. For each column, its plugs in features
to manage the drug treatment including reviewing patients&#8217; applications, tracking their usage of drugs, and collecting related information
(such programs with new plug-in features are hereinafter referred as the &#8220;patient-aid projects&#8221;). Those customers are its
existing customers. They provide those drugs sponsored by pharmaceutical companies without charge to qualified patients and Zhongchao
VIE charges those customers on its services in connection with the online columns and related training and management. In this way, Zhongchao
VIE can not only facilitate the clinical application of those drugs, but also can benefit patients.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this report,
Zhongchao VIE has established nearly 22 columns for cancer-related drug treatment, including drug treatment for lung cancer, liver cancer,
and extended blood cancer, and 4 columns for drug treatment of rare diseases, including drug treatment for pulmonary fibrosis, multiple
sclerosis, and systemic lupus erythematosus. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">In
May 2021, Zhongchao Shanghai launched patient management services focusing on the professional field of tumor and rare disease operated
through its subsidiary Shanghai Zhongxin, together with Shanghai Zhongxun, provide patient management services, branded as &#8220;Zhongxin
Health&#8221; (&#20247;&#33455;&#20581;&#24247;). As of now, as Zhongxin Health provides comprehensive disease education and management
services for tumor patients receiving treatment, in September 2022, Zhongchao announced its new strategic extension of the business model
from &#8220;Medical-Pharmaceutical&#8221; to &#8220;Medical-Pharmaceutical-Patient.&#8221; The establishment of Shanghai Zhongxin was
the important first step of Zhongchao&#8217;s transformation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.1in 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Recent developments</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On February 10, 2022, Beijing Yisuizhen subscribed for 10.56% equity interest
of West Angel (Beijing) Health Technology Co., Ltd, or West Angel, a PRC company, and nine shareholders of West Angel transferred all
of their equity interest, equal to 49.44% of the total equity interest of West Angel to Beijing Yisuizhen. As a result, Beijing Yisuizhen
holds 60% of the equity interest of West Angel.&#160; West Angel is primarily engaged in provision of online platform for communication
between hospitals and patients. It has well established healthcare CRM (HCRM), a system specially designated to track patient data to
provide insight for understanding patient behaviors and habits for patient care, relationship management and experience, hospital marketing
and services, which may contribute in expanding our source of hospital customers and developing HCRM for hospitals. In addition, West
Angel&#8217;s customers include high ranking hospitals and reputable medical professionals. Having those customers would provide competitive
advantage for us in attracting pharmaceutical enterprise customers and NFP for training and services provided by us.</p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 2, 2022, Mr. Weiguang
Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33%
of the equity interest of Shanghai Zhongxin. &#160;Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin agreed to hold their equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai
Zhongxun owns 93.33% of Shanghai Zhongxin&#8217;s equity interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2023, Chongqing
Xinjiang Pharmaceutical Co., Ltd. (&#8220;Chongqing Xinjiang&#8221;), one of the&#160;China&#160;operating entities obtained the general
distribution rights in Mainland China for anti-influenza drug from Natco Pharma Limited (&#8220;Natco&#8221;). Natco is a vertically integrated
and R&amp;D focused pharmaceutical company in&#160;India. The first batch of cargo has arrived at the port in&#160;Chongqing&#160;City,
and the drug will be introduced to the market for domestic treatment and prevention of Type A and Type B influenza viruses after the inspection
and quarantine.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In February 2023, the Company&#8217;s
VIE renewed the partnership Johnson &amp; Johnson (China) Investment Limited (&#8220;J&amp;J&#8221;). The renewed partnership is expected
to further strengthen two parities&#8217; cooperation in the global advanced field of innovative medical and health.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In March 2023, the Company
launched &#8220;E-Class,&#8221; a medical education intelligent content production platform developed by Zhongchao VIE. The &#8220;E-Class&#8221;
platform aims at enhancing the efficiency in creating health education courses, promoting doctors&#8217; health education capabilities,
and meeting patients&#8217; demands for medical and health knowledge and information.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao VIE&#8217;s business
operations could be adversely affected by the effects of a widespread outbreak of contagious disease, including the outbreak of respiratory
illness caused by a novel&#160;coronavirus&#160;known as&#160;COVID-19. Zhongchao VIE&#8217;s corporate headquarter is located in Shanghai,
China, where any outbreak of contagious diseases and other adverse public health developments could be adverse on the Company&#8217;s
business operations.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Key Factors that Affect Operating Results</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that the principal
competitive factors in our markets are industry expertise, breadth and depth of service offerings, quality of the services offered, reputation
and track record, marketing, scalability of infrastructure and price. The combination of our large user base, professional database and
high quality education content position us to be a leading provider of healthcare information, education, and training services to meet
the needs of healthcare organizations and professionals and will continue to contribute to our growth and success.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe the following factors
drive our success:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; font-size: 10pt">&#160;</td>
    <td style="width: 24px; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Acknowledged by leading pharmaceutical enterprises</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Reliable Professional Content Production</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Well Organized and Easy-To-Use Websites and Apps</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Results of Operations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table sets forth
a summary of our consolidated results of operations for the periods presented. This information should be read together with our consolidated
financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily
indicative of our future trends.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="width: 64%">Revenues</td><td style="width: 1%">&#160;</td>
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">16,296,770</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">17,989,788</td><td style="width: 1%; text-align: left">&#160;</td></tr>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(6,857,944</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(6,117,640</td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
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    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">9,438,826</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">11,872,148</td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td>&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(3,441,941</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(5,863,373</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(3,124,301</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; padding-bottom: 1.5pt">Research and development expenses</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(411,524</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(758,878</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(816,553</td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
    <td>&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">(2,822,319</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Year ended December 31, 2022 compared to
year ended December 31, 2021</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Revenues</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We generate revenues from
pharmaceutical enterprise customers and NFP from design and production of online medical courses, organizing offline medical training
services, consulting and academic support services and patient management services for patient-aid projects.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenues decreased by $2,145,254, or 13.2% from $16,296,770 for the
fiscal year ended December 31, 2021 to $14,151,516 for the fiscal year ended December 31, 2022. The decrease was primarily caused by a
decrease of $2,149,633 in revenues from medical training and education services, which was attributable decreased orders from the PRC
operating entities&#8217; NFP customers as affected by governmental regulations against centralized purchase of medical related products,
a decrease of $1,054,741 &#160;&#160;in revenues from patient management services in patient-aid projects as the PRC operating entities&#8217;
customers reduced patient-aid projects as affected by lock-down policies under COVID-19 pandemic, partially offset by an increase of $1,216,096
from sales of patented drugs which was launched in the year of 2022.</p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal years ended
December 31, 2022 and 2021, we earned a gross profit margin of 44.9% and 57.9%, respectively. Our gross profit margin decreased as a result
of decreased service orders from our NFP customers for patient-aid projects while the labor cost was stable over period. With China has
lifted its &#8220;zero-COVID&#8221; policy over COVID-19 pandemic,&#160;the Company expected to an increase in service orders from NFP
and maintain the high profit margin in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


</div><!-- Field: Page; Sequence: 133; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Cost of revenues</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues was comprised
of direct related costs incurred for preparation of online medical training courses and offline education seminars and patient management
services in patient-aid projects and cost of patented drugs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues incurred
for preparation of online medical training courses and offline education seminars and patient management services in patient-aid projects
was comprised of direct related costs incurred for preparation of online medical training courses and offline education seminars and patient
management services in patient-aid projects, including expenses of travelling and accommodation, seminar site-rental, video production
and backdrop production, professional service fees charged by experts who provide online and offline seminars, and&#160; salary and welfare
expenses incurred by the key members of the editorial, design and production team and patient-aid projects, as well as outsourced labor
cost in patient-aid projects. The travelling and accommodation expenses, including but not limited to the transportation expenses and
hotel accommodation expenses, represented the costs arising from lecturers&#8217; attendance and participation of the offline seminars.
Other travelling expenses were incurred by the Company&#8217;s medical department for videos production, live streaming of the offline
seminars, and materials collection to create online courses. These travelling and accommodation expenses are well budgeted before any
agreements entered into by the Company and the customers. Therefore, such expenses are well covered by the customers under those agreements.
The Company is not reimbursed by the customers separately.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues incurred
for patented drugs was primarily comprised of purchase cost of drugs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues
increased by $936,908, or 13.7%, from $6,857,944 for the fiscal year ended December 31, 2021 to $7,794,852 for the fiscal year ended
December 31, 2022. The increase was mainly attributable to an increase of $627,981 in cost of patented drugs as we commenced sales
of patented drugs in the year of 2022, and an increase of $308,927 in cost of revenues from our MDMOOC services primarily because
held more onsite medical training courses than ever which cost far higher than online courses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Selling and marketing expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Selling and marketing expenses
decreased by $1,037,348, or 33.1%, from $3,137,316 for the fiscal year ended December 31, 2021 to $2,099,968 for the fiscal year ended
December 31, 2022. The decrease was mainly attributable to a decrease of $1,214,333 in advertising expenses as the Company gained reputation
in medical&#160;healthcare industry and decreased related expenditure, partially offset by an increase of $218,252 in salary and welfare
expenses as the PRC operating entities accrued  bonus for their sales persons so as to incentivize our sales persons to develop its business
and maintain current customers;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>General and administrative expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">General and administrative
expenses increased by $936,261, or 16.0%, from $5,863,373 for the fiscal year ended December 31, 2021 to $6,799,634 for the fiscal year
ended December 31, 2022. The increase was mainly attributable to an increase of $1,095,032 in salary and welfare expenses which was primarily
because the PRC operating entities accrued bonus for their employees and charged certain labor costs from cost of revenues to general
and administrative expenses with decrease orders from patient management services in patient-aid projects, and an increase of $577,767
in professional and consulting service expenses because the company closed an acquisition of subsidiaries in the year of 2022, partially
offset by a decrease of $696,380 in provision against doubtful accounts receivable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Other income, net</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2022, other income, net was primarily consisted of government subsidies of $221,711, other income of $183,957 from provision
of consulting services, gain of $96,921 from sales of property and equipment, and rental income of $51,861 earned from leasing our properties
in Japan, partially offset by a decrease of $240,489 in fair value of short-term investments.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 134; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->130<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2021, other income, net was primarily consisted of government subsidies of $55,807 and rental income of $50,543 earned from
leasing our properties in Japan, partially offset by loss of $13,758 from equity investment in a limited partnership and a decrease of
$58,412 in fair value of short-term investments.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Income tax expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We had income tax expenses
of $272,313 for the fiscal year ended December 31, 2022, as compared to tax benefits of $349,418 for the fiscal year ended December 31,
2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Current income tax expenses
decreased by $859,010 from $997,198 for the fiscal year ended December 31, 2021 to $138,188 for the fiscal year ended December 31, 2022.
The decrease was mainly due to combined effects of i) we incurred net operating losses in more of our subsidiaries leading to a decrease
of current income tax expenses, and ii) certain the VIE&#8217;s subsidiaries qualified as Small and Micro-sized Enterprises (&#8220;SMEs&#8221;)
in the year of 2022, which were entitled to preferential income tax rate, leading to a decrease of current income tax expenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.75in">Deferred income tax
benefits decreased from $1,346,616 for the fiscal year ended December 31, 2021 to deferred income tax expenses of $134,125 for the
fiscal year ended December 31, 2022. The change was mainly because certain of the VIE&#8217;s subsidiaries, including those loss
making subsidiaries, qualified as SMEs which were entitled to preferential income tax rate, leading to a decrease of deferred tax
assets arising from net operating losses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Net income</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result of the foregoing,
we reported a net loss of $2,822,319 for the year ended December 31, 2022, as compared with a net income of $238,665 for the year ended
December 31, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Year ended December 31, 2021 compared to
year ended December 31, 2020</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Revenues</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We generate revenues from
pharmaceutical enterprise customers and NFP from design and production of online medical courses, organizing offline medical training
services, consulting and academic support services and assistance services for patient-aid projects.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenues decreased by $1,693,018,
or 9.4% from $17,989,788 for the fiscal year ended December 31, 2020 to $16,296,770 for the fiscal year ended December 31, 2021. The decrease
was primarily caused by decrease of $1,789,732 in revenues from medical training and education services, which was attributable decreased
orders from our NFP customers as affected by governmental regulations against centralized purchase of medical related products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal years ended
December 31, 2021 and 2020, we earned a high gross profit margin of 57.9% and 66.0%, respectively. The high gross profit margin was attributable
to our reputation acknowledgement among leading pharmaceutical enterprises and NFPs with our capability to design and produce of high-quality
professional content and organize assistance services for patient-aid projects.&#160;The Company expected to maintain the high profit
margin in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Cost of revenues</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues was comprised
of direct related costs incurred for preparation of online medical training courses and offline education seminars&#160;&#160; and patient-aid
projects, including expenses of travelling and accommodation, seminar site-rental, video production and backdrop production, professional
service fees charged by experts who provide online and offline seminars, and&#160; salary and welfare expenses incurred by the key members
of the editorial, design and production team and patient-aid projects, as well as outsourced labor cost in patient-aid projects. The travelling
and accommodation expenses, including but not limited to the air-ticket expenses and hotel accommodation expenses, represented the costs
arising from lecturers&#8217; attendance and participation of the offline seminars. Other travelling expenses were incurred by the Company&#8217;s
medical department for videos production, live streaming of the offline seminars, and materials collection to create online courses. These
travelling and accommodation expenses are well budgeted before any agreements entered into by the Company and the customers. Therefore,
such expenses are well covered by the customers under those agreements. The Company is not reimbursed by the customers separately.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues increased
by $740,304, or 12.1%, from $6,117,640 for the fiscal year ended December 31, 2020 to $6,857,944 for the fiscal year ended December 31,
2021. The increase was mainly attributable to an increase of $964,170 in outsourced labor cost and an increase of $231,818 in salary and
welfare expenses as we employed increasing staff and outsourced staff to work for patient-aid projects, also as Company did not enjoy
the temporary social insurance contribution exemption as it did in 2020, partially offset by a decrease of $455,686 in connection with
medical training and education services, which was in line with the decrease of revenues from medical training and education services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Selling and marketing expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Selling and marketing expenses
decreased by $304,625, or 8.9%, from $3,441,941 for the fiscal year ended December 31, 2020 to $3,137,316 for the fiscal year ended December
31, 2021. The decrease was mainly attributable to a decrease of $647,416 in advertising expenses as the Company gained reputation in medical&#160;healthcare
industry and decreased related expenditure, partially offset by an increase of $340,747 in salary and welfare expenses as the Company
did not enjoy the temporary social insurance contribution exemption as it did in 2020 as affected by COVID-19 and transferred part-time
sales staff to full-time employees so as to develop its business and maintain current customers;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>General and administrative expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">General and administrative
expenses increased by $2,739,072, or 87.7%, from $3,124,301 for the fiscal year ended December 31, 2020 to $5,863,373 for the fiscal year
ended December 31, 2021. The increase was mainly attributable to an increase of $1,113,460 in write-off doubtful accounts against accounts
receivable&#160;because of remote collection from certain NFPs, an increase of $791,019 in salary and welfare expenses as a result of
combining effects of an increase of headcounts in supporting functions in 2021 and Company did not enjoy the temporary social insurance
contribution exemption as it did in 2020, an increase of $342,517 in professional and consulting service expenses, &#160;&#160;an increase
of $139,284 in depreciation and amortization expenses with purchase of properties and equipment, and an increase of $110,068 in rental
expenses as we leased new offices.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Other income, net</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2021, other income, net was primarily consisted of government subsidies of $55,807 and rental income of $50,543 earned from
leasing our properties in Japan, partially offset by loss of $13,758 from equity investment in a limited partnership and a decrease of
$58,412 in fair value of short-term investments.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2020, other income, net was primarily consisted of government subsidies of $341,520, partially offset by loss of $25,622
from equity investment in a limited partnership and loss of $10,331 from short-term investments.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Income tax expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We had income tax benefits
of $349,418 for the fiscal year ended December 31, 2021, as compared to tax expense of $484,787 for the fiscal year ended December 31,
2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Current income tax expenses
increased by $453,987 from $543,211 for the fiscal year ended December 31, 2020 to $997,198 for the fiscal year ended December 31, 2021.
The increase was mainly because the taxable income of 2021 was primarily generated from Shanghai Zhongxun and Zhongxin which were subject
to the income tax rate of 25%, while the taxable income of 2020 was primarily generated from Shanghai Jingyi which was subject to a preferential
income tax rate&#160;of 10%.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Deferred income tax benefits
increased from $58,424 for the fiscal year ended December 31, 2020 to $1,346,616 for the fiscal year ended December 31, 2021. The change
was mainly caused by an increase of deferred tax benefit from net operating losses in Zhongchao Shanghai and its subsidiaries during the
year ended December 31, 2021.&#160;According&#160;&#160;to PRC tax law, net operating losses can be carried forward for five years to
deduct taxable income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Net income</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result of the foregoing,
our net income decreased from $4,457,097 for the fiscal year ended December 31, 2020 to $238,665 for the fiscal year ended December 31,
2021.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Taxation</b>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Cayman Islands</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the current tax laws
of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders,
no Cayman Islands withholding tax will be imposed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>British Virgin Islands</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the current tax laws
of BVI, the Company&#8217;s subsidiary incorporated in the BVI is not subject to tax on income or capital gains.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Hong Kong</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao HK is incorporated
in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted
in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and
assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from
the year of assessment 2018/2019. Before that, the applicable tax rate was 16.5% for corporations in Hong Kong. The Company did not make
any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under
Hong Kong tax laws, Zhongchao HK is exempted from income tax on its foreign-derived income and there are no withholding taxed in Hong
Kong on remittance of dividends.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>USA</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao USA is incorporated
in the United States and is subject to a federal tax rate of 21%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Japan</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the current tax laws
of Japan, Zhongchao Japan is incorporated in Japan is subject to an income tax rate of 30%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>PRC</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the year ended December
31, 2022, Zhongchao Shanghai and Beijing Branch of Shanghai Zhongxun is subject to PRC Enterprise Income Tax (&#8220;EIT&#8221;) on the
taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%. The Company&#8217;s
other subsidiary and the VIE&#8217;s subsidiaries that are located in the PRC were qualified as Small and Micro-sized Enterprises (&#8220;SMEs&#8221;).</p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the year ended December
31, 2021 and 2020, Zhongchao Shanghai, Shanghai Maidemu, Shanghai Zhongxun, Shanghai Zhongxin, Huijing are subject to EIT rate of 25%.
Hainan Zhongteng, located in Hainan Province, is subject to 15%. Beijing Boya, Shanghai Xinyuan and Hainan Muxin qualify as SMEs. Liaoning
Zhixun was not qualified as a SMEs until fiscal year 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Qualified as a Software Development
Enterprise and a High and New Technology Enterprise, Zhongchao Shanghai applied a preferential income tax rate of 12.5% for the year ended
December 31, 2020. From January 1, 2021, Zhongchao Shanghai was subject to an EIT of 25%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">SMEs are entitled to a reduced
EIT rate of a reduced EIT rate of 20%, 87.5% reduction of taxable income for the first RMB1,000,000 taxable income and 75% reduction of
taxable income between RMB 1,000,000 and RMB 3,000,000, and no reduction for the remaining taxable income for the year ended December
31, 2022; 87.5% reduction of taxable income for the first RMB1,000,000 taxable income and 50% reduction of taxable income between RMB
1,000,000 and RMB 3,000,000, and no reduction for the remaining taxable income for the year ended December 31, 2021; and 75% reduction
of taxable income for the first RMB1,000,000 taxable income and 50% reduction of taxable income between RMB 1,000,000 and RMB 3,000,000,
and no reduction for the remaining taxable income for the years ended before December 31, 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 2018, the State
Taxation Administration of the PRC announced a preferential tax treatment for research and development expenses. Qualified entities are
entitled to deduct 175% research and development expenses against income to reach a net operating income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Critical Accounting Estimates</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We prepare our consolidated
financial statements in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management
to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period. We continually evaluate these judgments and estimates based
on our own experience, knowledge and assessment of current business and other conditions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our expectations regarding
the future are based on available information and assumptions that we believe to be reasonable, which together form our basis for making
judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial
reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment
than others in their application. Out of our significant accounting policies, which are described in Note 2 &#8211; Summary of Significant
Accounting Policies of our consolidated financial statements included elsewhere in this Form 20-F, certain accounting policies are deemed
&#8220;critical,&#8221; as they require management&#8217;s highest degree of judgment, estimates and assumptions, including (i) revenue
recognition, (ii) accounts receivable, (iii) share-based compensation, and (iv) income tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We consider an accounting
estimate to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain
at the time such estimate is made and if different accounting estimates that reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe the following
accounting estimates involve the most significant judgments used in the preparation of our financial statements.&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Allowance for doubtful accounts</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We review the adequacy of the allowance for doubtful accounts on an ongoing
basis, using historical collection trends and aging of receivables. We also periodically evaluate individual customer&#8217;s financial
condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
During the years ended December 31, 2022, 2021, and 2020, the Company wrote off $543,315, $1,449,827 and $336,367 against accounts receivable
due from certain customers. As affected by COVID-19, our customers had difficulties in repayment and the Company evaluated it is remote
to collect the balance.&#160;As of December 31, 2022 and 2021, the Company recorded allowance of $207,269 and $nil against doubtful
accounts receivable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Share-based compensation</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We measure the cost of the
employee share options based on the grant date fair value of the awards and recognizes compensation cost over the vesting period, which
is generally the requisite service period as required by the option agreement. The grant date fair value is estimated using binomial option
pricing model, which involves key assumptions of expected volatility, risk-free interest rate, exercise multiples, expected dividend yield,
life of options, and fair value of underlying ordinary shares. For the years ended December 31, 2022, 2021, and 2020, the Company had
stock-based compensation expenses of $160,777, $211,823, and $168,350, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Valuation of deferred tax assets</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Deferred income taxes are
provided using assets and liabilities method, which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities
are determined on the basis of the differences between financial statements and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Deferred tax assets are recognized
to the extent that these assets are more likely than not to be realized. In making such determination, our management considers all positive
and negative evidence, including future reversals of projected future taxable income and results of recent operation. For the years ended
December 31, 2022, 2021 and 2020, we provided valuation allowance of $339,495, $nil and $nil against deferred tax assets.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In order to assess uncertain
tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being
realized upon settlement. we recognize interest and penalties, if any, under accrued expenses and other current liabilities on our consolidated
balance sheet and under other expenses in our consolidated statement of operations and comprehensive (loss) income. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Recent Accounting Pronouncements </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A list of recently issued
accounting pronouncements that are relevant to us is included in Footnote 2(cc) of our audited consolidated financial statements included
elsewhere in this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Inflation </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To date, inflation in China
has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent
changes in the consumer price index for December&#160;2020, 2021 and 2022 were increases of 2.5%, 0.9% respectively. Although we have
not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation
in China in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 3px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Liquidity and capital resources</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In assessing our liquidity, we monitor and analyze our cash on-hand
and our operating and capital expenditure commitments. To date, we have financed our operations primarily through cash flows from operations,
and equity financing.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the year ended December
31, 2022, 2021 and 2020, the Company generated net (loss) income of $(2,822,319), $238,665, and $4,457,097, respectively. In the year
of 2022, we raised proceeds of $1,850,744 from a shelf offering of 1,060,000 of our Class A ordinary shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31, 2022 and
2021, we had cash and cash equivalents of $11,520,453 and $13,914,982, and working capital of $18,539,125 and $23,665,269, respectively.
We intend to continue to use these funds to grow our business primarily by:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Strengthen our brand awareness
of MDMOOC and Sunshine Health School</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Expand and enhancement of medical course content</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we consolidate the
results of the PRC operating entities and its subsidiaries, we only have access to cash balances or future earnings of the PRC operating
entities through our VIE Arrangements with the PRC operating entities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Current foreign exchange and
other regulations in the PRC may restrict our PRC subsidiary, our VIE and VIE&#8217;s subsidiaries in their ability to transfer their
net assets to the Company and its subsidiaries in Cayman Islands, and Hong Kong. However, these restrictions have no impact on the ability
of our PRC subsidiary to transfer funds to us as we have no present plans to declare dividend which we plan to retain our retained earnings
to continue to grow our business. In addition, these restrictions have no impact on the ability for us to meet our cash obligations as
all of our current cash obligations are due within the PRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To utilize the proceeds we
received from the IPO and over-allotment, we may make additional capital contributions to our PRC subsidiary, establish new PRC subsidiaries
and make capital contributions to these new PRC subsidiaries, or make loans to the PRC subsidiaries. However, most of these uses are subject
to PRC regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A majority of our future revenues
are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into
foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange
transactions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We expect that a substantial
majority of our future revenues will be denominated in Renminbi. Under existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made
in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC
subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural
requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted
into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Cash Flows</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table sets forth
a summary of our cash flows for the fiscal years ended December 31, 2022, 2021, and 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">(661,740</td><td style="width: 1%; text-align: left">)</td><td style="width: 1%">&#160;</td>
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">(1,037,839</td><td style="width: 1%; text-align: left">)</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(3,346,658</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(4,017,284</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(4,094,678</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">1,850,744</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(2,394,529</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(1,157,965</td><td style="text-align: left">)</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Operating activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i><span style="text-decoration:underline">Fiscal Years Ended December 31, 2022 and
2021</span></i>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash used in operating
activities was $661,740 for the fiscal year ended December 31, 2022, a change of $3,523,588 from net cash provided by operating activities
of $2,861,848 for the fiscal year ended December 31, 2021. We incurred net loss of $2,822,319 for the fiscal year ended December 31,
2022, a change of $3,030,984, from net income of $238,665 for the fiscal year ended December 31, 2021. In addition to the change in profitability,
the change in net cash used in operating activities was the result of several factors, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i><span style="text-decoration:underline">Fiscal Years Ended December 31, 2021 and
2020</span></i>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash provided by operating
activities was $2,861,848 for the fiscal year ended December 31, 2021, a change of $3,899,687 from net cash used in operating activities
of $1,037,839 for the fiscal year ended December 31, 2020. We made a net income of $238,665 for the fiscal year ended December 31, 2021,
a decrease of $4,218,432, from $4,457,097 for the fiscal year ended December 31, 2020. In addition to the change in profitability, the
change in net cash used in operating activities was the result of several factors, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Investing activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2022, we had net cash used in investing activities of $3,346,658 which was primarily attributable to purchase of properties
and equipment of $1,615,905, payment of $3,055,432 in acquisition of subsidiaries,&#160;investments of $996,638 in certain short-term
investments, and loans of $1,032,219 made to third parties, partially offset by proceeds of $1,112,440 from sales of one property, proceeds
of $533,891 from redemption of short-term investments, and collection of loans of $1,806,772 from third parties.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2021, we had net cash used in investing activities of $4,017,284 which was primarily attributable to purchase of properties
and equipment of $1,799,860, investment in an equity method investee of $708,129, loan made to a related party of $387,549,
investment in an equity security of $150,000, &#160;&#160;net loans made to third parties of $2,650,113, partially offset by redemption
of certain listed equity securities through open market of $1,678,367.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2020, we had net cash used in investing activities of $4,094,678 which was primarily attributable to purchases of certain
listed equity securities through open market of $2,043,259, investment in a limited partnership of $1,217,039 and deposits of $688,267
paid for purchase of offices in Japan and foreclosure property&#160;in China.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Financing activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2022, we had net cash provided by financing activities of $1,850,744 from offering 1,060,000 Class A ordinary shares in a
shelf offering.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2021, we had no cash provided by or used in financing activities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the fiscal year ended
December 31, 2020, we had net cash provided by financing activities of $11,497,654 representing net proceeds raised from initial public
offering in February 2020.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Based on the current operating
plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for us to meet our future liquidity
and capital requirement for at least 12 months from the date of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Holding Company Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zhongchao Inc. is a holding
company with no material operations of its own. We conduct our operations primarily through our PRC subsidiary and the PRC operating entities
in China. As a result, Zhongchao Inc.&#8217;s ability to pay dividends depends upon dividends paid by our PRC subsidiary. If our existing
PRC subsidiary or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict
their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us
only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each
of our subsidiaries and the PRC operating entities in China is required to set aside at least 10% of its after-tax profits each year,
if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our wholly
foreign-owned subsidiaries in China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise
expansion funds and staff bonus and welfare funds at their discretion, and the PRC operating entities may allocate a portion of its after-tax
profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds
are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination
by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate
accumulated profits and meet the requirements for statutory reserve funds.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Research and development, Patents and License, etc.</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research and development expenses
consist primarily of salary and welfare expenses for IT department employees who work for development of the Company&#8217;s platform
and database, and software and related intellectual property expenses which was used to develop an extensive library of licensed content
and medical database.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our research and development
expenses were $411,524, $758,878, and $816,553 for the fiscal years ended December 31, 2022, 2021, and 2020, respectively.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are continued to commit
to work on the development and maintenance in our platform and database as we intend to provide professionals and consumers with Internet-based
access to our courses and education software and enhance the consumer experience.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>D.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Trend information</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Other than as disclosed elsewhere
in this Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a
material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause reported
financial information not necessarily to be indicative of future operating results or financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>E.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Off-balance Sheet Arrangements</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not entered into any
derivative contracts that are indexed to our shares and classified as shareholders&#8217; equity or that are not reflected in our consolidated
financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development
services with us.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>F.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Tabular Disclosure of Contractual Obligations</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Commitments and Contingencies</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time, the Company
may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes
of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse
impact on its financial position, results of operations or liquidity.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Contractual obligations</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31, 2022, our
contractual obligation primarily comprised of operating lease payments, which is presented in below table:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 88%; text-indent: -9pt; padding-left: 9pt">For the year ended December 31, 2023</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">550,915</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 9pt">For the year ended December 31, 2024</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">324,647</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -9pt; padding-left: 9pt">For the year ended December 31, 2025</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">317,927</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 9pt">For the year ended December 31, 2026</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">317,980</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">For the year ended December 31, 2027 and thereafter</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">397,475</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Total lease payments</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right">1,908,944</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We lease offices which are classified as operating leases in accordance with ASC Topic 842. As of December 31, 2022, our future lease payments totaled $1,908,944.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>G.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Safe Harbor</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This annual report on Form
20-F contains forward-looking statements. These statements are made under the &#8220;safe harbor&#8221; provisions of Section&#160;21E
of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as &#8220;will,&#8221;
&#8220;expects,&#8221; &#8220;anticipates,&#8221; &#8220;future,&#8221; &#8220;intends,&#8221; &#8220;plans,&#8221; &#8220;believes,&#8221;
&#8220;estimates,&#8221; &#8220;may,&#8221; &#8220;intend,&#8221; &#8220;is currently reviewing,&#8221; &#8220;it is possible,&#8221;
&#8220;subject to&#8221; and similar statements. Among other things, the sections titled &#8220;Item 3. Key Information&#8212;D. Risk
Factors,&#8221; &#8220;Item 4. Information on the Company,&#8221; and &#8220;Item 5. Operating and Financial Review and Prospects&#8221;
in this annual report on Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make
written or oral forward-looking statements in our filings with the SEC, in our annual report to shareholders, in press releases and other
written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical
facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to change, and such change
may be material and may have a material and adverse effect on our financial condition and results of operations for one or more prior
periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results
to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in this annual report
on Form&#160;20-F. All information provided in this annual report on Form&#160;20-F and in the exhibits is as of the date of this annual
report on Form&#160;20-F, and we do not undertake any obligation to update any such information, except as required under applicable law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_009"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">A. <span style="text-decoration:underline">Directors and Senior Management</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Below is a list of our directors,
senior management and any employees upon whose work we are dependent as of the date of this Annual Report, and a brief account of the
business experience of each of them. The business address for our directors and officers is Nanxi Creative Center, Suite 218, 841 Yan&#8217;An
Middle Road, Jing&#8217;An District, Shanghai, China 200040.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: bottom">
    <td style="border-bottom: black 1.5pt solid; width: 25%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Name </b></span></td>
    <td style="width: 1%">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; width: 10%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Age </b></span></td>
    <td style="width: 1%">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; width: 63%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Position </b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Weiguang Yang</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">40</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">President, Chief Executive Officer, and Chairman of the Board</span></td></tr>
  <tr>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Pei Xu</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">40</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief Financial Officer, Secretary, and Director</span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Xuejun Chen</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">44</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief Medical Officer</span></td></tr>
  <tr>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Baoqian Tian</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">38</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief Sales Officer</span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Shuang Wu</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">39</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief Operating Officer</span></td></tr>
  <tr>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">John C. General <sup>(1)(4)</sup></span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">60</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Independent director </span></td></tr>
  <tr style="background-color: #CCECFF">
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Kevin Dean Vassily <sup>(2)</sup></span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">56</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Independent director </span></td></tr>
  <tr>
    <td style="vertical-align: top"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Dan Li <sup>(3)</sup></span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">46</span></td>
    <td style="vertical-align: bottom">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Independent director </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chair of the Audit Committee.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(2)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chair of the Compensation Committee.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(3)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chair of the Nominating Committee.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(4)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Audit Committee financial expert.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Weiguang Yang</i></b>&#160;is
the founder of Zhongchao Inc. and Zhongchao Shanghai. He has served as our general manager Zhongchao Shanghai since August 2012. Since
January 2021, Mr. Yang has served as the co-chief executive officer and director of TradeUp Acquisition Corp. (NASDAQ: UPTD), a special
purpose acquisition corporation. From June 2013 to June 2016, Mr. Yang served as the first Chinese board member on the Global Alliance
for Medical Education (GAME), a non-for-profit organization dedicated to the advancement of innovation in medical education throughout
the world. From October 2015 to July 2012, Mr. Yang was the general manager at Medwork, a continuing medical education company. Mr. Yang
obtained a bachelor degree in Clinical Medicine Science (traumatic surgery) from Gannan Medical University in 2005. Mr. Yang attended
the master course of Social Medicine and Health Management as continuing education from 2006 to 2008 in Capital Medical University of
China. From 2010 to 2012, Mr. Yang took part in the master course of Integrated Marketing Communication in Tsinghua University.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Pei Xu</i></b> is the
CFO of Zhongchao Inc. and Zhongchao Shanghai. She has been serving&#160;as our CFO of Zhongchao Shanghai since January 2016. From September
2013 to January 2016, Ms. Xu served as the financial director of Zhongchao Shanghai. From September 2008 to August 2013, Ms. Xu worked
for Otsuka (China) Investment Co., Ltd.&#160;as a financial director. Ms. Xu holds a bachelor degree in finance from Jiangxi University
of Finance and Economics.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Xuejun Chen </i></b>is
the Chief Medical Officer of Zhongchao Inc. and Deputy General Manager of Medicine of Zhongchao Shanghai. He has been serving&#160;as
our deputy general manager of medicine of Zhongchao Shanghai since March 2012, mainly responsible for designing PI and COPS courses on
our MDMOOC online platform. Mr. Chen also serves as medical Director at Medwork from January 2010 to February 2012. From September 2008
to December 2009, Mr. Chen served D&amp;S, a Chinese public relation corporation, as medical director. Mr. Chen holds a bachelor degree
in Clinical Medicine Science from Shanxi Medical University and a master degree in pharmacology from Harbin University of Commerce.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Baoqian Tian </i></b>has
been serving as our Chief Sales Officer of Zhongchao Inc. and Deputy General Manager of Sales of Zhongchao Shanghai. He has been serving
as our deputy general manager of sales of Zhongchao Shanghai since November 2017. Prior to joining us, he served as the account director
in Beijing Think Marketing Consulting Co., Ltd., a provider of advertising and consulting services to pharmaceutical enterprises from
July 2010 to July 2016. From July 2007 to July 2010, Mr. Tian worked as a project manager of China International Exhibition Center Group
Corporation. Mr. Tian holds a bachelor degree in Tourism Management (Event Management) from Beijing International Studies University and
a master degree in Business Administration from University of Chinese Academy of Sciences.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Shuang Wu </i></b>is
the Chief Operating Officer of Zhongchao Inc. and Zhongchao Shanghai. She has been serving&#160;as our Chief Operating Officer of Zhongchao
Shanghai since March 2012. She is also the founder of Sunshine Health Forum. Ms. Wu holds a Bachelor of Management in healthcare management
from North China University of Science and Technology.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>John C. General </i></b>is
an independent director of the Company. Mr. General serves as a Senior Manager of Global Revenue Assurance for Avaya, responsible for
the appropriate recognition of revenue under current accounting standards, and review of transactions for audit purposes from April 2013
to present. He served as a manager of financial operations for Bed Bath &amp; Beyond, Value Services Inc., responsible for the controllership
and compliance reporting for the Company&#8217;s gift card business for all retail concepts from July 2010 to April 2013. He served as
a director in the department of SOX Implementation for Virgin Mobile, responsible for ensuring SOX compliance from July 2004 to March
2009. From September 1986 to December 2003, he served in various positions at AT&amp;T Corp., where he last served as a Financial Director
responsible for revenue assurance and billing operations. He holds a license as a Certified Public Accountant, a certificate in Senior
Executive Education from Columbia University, an MBA in Finance from Rutgers University, and bachelor&#8217;s degrees in both economics
and accounting from Fairleigh Dickinson University.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b><i>Kevin Dean Vassily </i></b>is
an independent director of the Company. In January 2021, he was appointed Chief Financial Officer, and in March 2021, became a member
of the board of directors of iPower Inc. (NASDAQ: IPW), a leading online hydroponic equipment retailer and supplier. Prior to joining
iPower, from 2019 to January 2021, Mr. Vassily served as Vice President of Market Development for Facteus, a financial analytics company
focused on the Asset Management industry. From March 2019 through 2020, he served as an advisor at Woodseer, a financial technology firm
providing global dividend forecasts.&#160;He serves as an advisor at Go Capture, responsible to provide strategic, business development,
and product development advisory work for emerging &#8220;Data as a Service&#8221; platform from July 2018 to present. He also serves
as an advisor at Prometheus Fund, responsible to provide strategic, due diligence, and opportunity sourcing for Shanghai based merchant
bank/PE firm focused on the &#8220;green&#8221; economy from July 2018 to present. Mr. Vassily served as an associate director of research
at Keybanc Capital Markets, responsible for the KeyBanc Data Insights initiative and co-managed the Technology Research vertical from
January 2015 to June 2018. From December 2010 to December 2014, he served as the director of research at Pacific Epoch, responsible for
a complete overhaul of product and a complete business model restart post acquisition focusing on a &#8220;data-first&#8221; offering.
From May 2007 to December 2010, he served as Asia technology business development/senior analyst at Pacific Crest Securities, responsible
for establishing firm&#8217;s presence and relevance covering Asia Technology. From June 2003 to September 2006, he served as senior research
analyst in the semiconductor technology group at Susquehanna International Group, responsible for research in semiconductor and related
technologies. From January 2001 to May 2003, he served as the vice president and senior research analyst for semiconductor capital equipment
at Thomas Weisel Partners, responsible for publishing research and maintaining financial models on each of the companies under coverage.
He holds a bachelor degree in liberal arts from Denison University and a master degree in business administration from the Tuck School
of Business at Dartmouth College. Mr. Vassily also serves as an independent director for three special
purpose acquisition companies listing on Nasdaq, including (i) Denali Capital Acquisition Corp. (NASDAQ: DECA), (ii) Feutune Light Acquisition
Corp. (NASDAQ: FLV), and (iii) Aimfinity Investment Corp. I (NASDAQ: AIMA), and an independent director nominee for Fortune Joy International
Acquisition Corp., a special purpose acquisition company to be listed on Nasdaq.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Dan Li </i></b>is an
independent director of the Company. Ms. Li works as the research assistant in Beijing Friendship Hospital - China Capital Medical University,
responsible for conducting research in tropical diseases and development of detection kit of pathogenic microorganism from June 2012 to
present. She served as a manager of the medicine management department in EPS Corporation, responsible for managing the importation of
medicines from Japan to China from October 2009 to November 2011. Ms. Li holds a bachelor degree in clinical medicine from the Medical
School of North China University of Science and Technology, a master degree in hemorheology from the Medical School of Peking University,
and a Ph.D. in biochemistry from the Medical School of Keio University.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">None of the events listed
in Item 401(f) of Regulation S-K has occurred during the past ten years that is material to the evaluation of the ability or integrity
of any of our directors, director nominees or executive officers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Limitation on Liability and Other Indemnification Matters</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Companies Law does not
limit the extent to which a company&#8217;s memorandum and articles of association may provide for indemnification of officers and directors,
except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime. Our Amended and Restated Memorandum and Articles of Association permit
indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses
or damages arise from dishonesty of such directors or officers willful default of fraud.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing
provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">B. <span style="text-decoration:underline">Compensation of Directors and Executive Officers</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Executive Compensation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Summary Compensation Table </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The following table shows the annual compensation
paid by us for the years ended 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="border-bottom: black 1.5pt solid"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Name/principal position</b></span></td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Year</b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Salary</b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Equity<br/>
Compensation</b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>All&#160;Other<br/>
Compensation</b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Total Paid</b></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 40%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Weiguang Yang/ CEO<sup>(1)</sup></span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: center">&#160;</td>
    <td style="width: 9%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2022</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">157,498</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;-</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;-</span></td>
    <td style="width: 1%">&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 146; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under Chinese law, we may
only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date
on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement
in the absence of cause, then we are obligated to pay the employee one month&#8217;s salary for each year we have employed the employee.
We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime
or the employee&#8217;s actions or inactions have resulted in a material adverse effect to us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Employment Agreements </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Weiguang Yang Employment Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 7, 2019, we entered
into an employment agreement with Weiguang Yang pursuant to which he agreed to serve as our Chief Executive Officer. The agreement provides
for an annual base salary of USD$69,593 payable in accordance with the Company&#8217;s ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month&#8217; notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive&#8217;s
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through
the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits
under the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 1-month&#8217;
advanced notice or payment of 1-month&#8217; salary in lieu of the notice. Weiguang Yang has agreed not to compete with us for 2 years
after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for
agreements of this nature.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Pei Xu Employment Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 7, 2019, we entered
into an employment agreement with Pei Xu pursuant to which she agreed to serve as our Chief Financial Officer. The agreement provides
for an annual base salary of USD$34,796 payable in accordance with the Company&#8217;s ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month&#8217; notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive&#8217;s
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through
the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits
under the agreement. If her employment is terminated at our election without cause or by her, the Company shall provide 1-month&#8217;
advanced notice or payment of 1-month&#8217; salary in lieu of the notice. Pei Xu has agreed not to compete with us for 2 years after
the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements
of this nature.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Xuejun Chen Employment Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 7, 2019, we entered
into an employment agreement with Xuejun Chen pursuant to which he agreed to serve as our Chief Medical Officer. The agreement provides
for an annual base salary of USD$40,016 payable in accordance with the Company&#8217;s ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month&#8217; notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive&#8217;s
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through
the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits
under the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 1-month&#8217;
advanced notice or payment of 1-month&#8217; salary in lieu of the notice. Xuejun Chen has agreed not to compete with us for 2 years after
the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements
of this nature.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Baoqian Tian Employment Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 7, 2019, we entered
into an employment agreement with Baoqian Tian pursuant to which he agreed to serve as our Chief Sales Officer. The agreement provides
for an annual base salary of USD$52,195 payable in accordance with the Company&#8217;s ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month&#8217; notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive&#8217;s
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through
the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits
under the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 1-month&#8217;
advanced notice or payment of 1-month&#8217; salary in lieu of the notice. Baoqian Tian has agreed not to compete with us for 2 years
after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for
agreements of this nature.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Shuang Wu Employment Agreement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On August 7, 2019, we entered
into an employment agreement with Shuang Wu pursuant to which she agreed to serve as our Chief Operating Officer. The agreement provides
for an annual base salary of USD$33,056 payable in accordance with the Company&#8217;s ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month&#8217; notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive&#8217;s
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through
the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits
under the agreement. If her employment is terminated at our election without cause or by her, the Company shall provide 1-month&#8217;
advanced notice or payment of 1-month&#8217; salary in lieu of the notice. Shuang Wu has agreed not to compete with us for 2 years after
the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements
of this nature.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Director Compensation</b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The directors may receive
such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all
traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors
or committees of our board of directors or general meetings or separate meetings of any class of shares or of debenture of the Company
or otherwise in connection with the discharge of his or her duties as a director. Employee directors will not receive any additional remuneration
for serving as directors of the Company other than their remuneration as employees of the Company. Each of the non-employee directors
is entitled to receive annual cash compensation in the amount of $24,000, payable quarterly, and stock option to purchase certain amount
of Class A Ordinary Shares under Company&#8217;s 2019 Equity Incentive Plan. On October 10, 2022, we compensated each of three independent
directors, John C. General, Kevin Dean Vassily, and Dan Li, 6,000 Class A Ordinary Shares for their services provided to the Company as
members of the Board and the Board&#8217;s committees.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>2019 Equity Incentive Plan (the &#8220;2019
Plan&#8221;)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have adopted a 2019 Equity
Incentive Plan (the &#8220;Plan&#8221;). The Plan provides for discretionary grants of Awards (as defined in the Plan) to key employees,
directors and consultants of the Company. The purpose of the Plan is to recognize contributions made to our company and its subsidiaries
by such individuals and to provide them with additional incentive to achieve the objectives of our Company. Except as otherwise disclosed
in this Annual Report, no grants have been made under the plan as of the date hereof. The following is a summary of the Plan and is qualified
by the full text of the Plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Administration</i>.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Plan is administered by
our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the
Plan as the &#8220;Committee&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 148; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Number of Class A Ordinary Shares.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The number of Class A Ordinary
Shares that may be issued under the Plan is the maximum aggregate number of Class A Ordinary Shares reserved and available pursuant to
this Plan shall be the aggregate of (i) 970,871 Class A Ordinary Shares and (ii) on each January 1, starting with January 1, 2020 until
December 31, 2025, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of Class A Ordinary Shares (on
a fully-diluted basis) on the immediately preceding December 31, and (B) such lower number of Class A Ordinary Shares as may be determined
by the Committee, subject in all cases to adjustment as provided in. If an Award (or any portion thereof) terminates, expires or lapses
or is cancelled for any reason, any Class A Ordinary Shares subject to the Award (or such portion thereof) shall again be available for
the grant of an Award pursuant to the Plan (unless the Plan has terminated). If any Award (in whole or in part) is settled in cash or
other property in lieu of Class A Ordinary Shares, then the number of Class A Ordinary Shares subject to such Award (or such part) shall
again be available for grant pursuant to the Plan. Class A Ordinary Shares that have actually been issued under the Plan, pursuant to
Awards under the Plan shall not be returned to the Plan and shall not cause the number of Class A Ordinary Shares available to be subject
to Awards under the Plan to be increased. Subject to any required action by the shareholders of the Company, the number of Class A Ordinary
Shares covered by each outstanding Award, the number of Class A Ordinary Shares which have been authorized for issuance under the Plan
but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, and
the number of Class A Ordinary Shares subject to grant as Incentive Stock Options, as well as the price per Class A Ordinary Shares covered
by each such outstanding Award and any other affected terms of such Awards, shall be proportionally and equitably adjusted for any increase
or decrease in the number of issued Class A Ordinary Shares resulting from a subdivision or consolidation, share dividend, amalgamation,
spin-off, arrangement or consolidation, combination or reclassification of Class A Ordinary Shares. Except as the board of director or
the Committee determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Types of Awards</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The 2019 Plan permits the granting of any or all
of the following types of awards to all grantees:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">share appreciation rights, or SARs;</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">restricted shares;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">restricted share units; and</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">share payments</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Awards granted under the 2019
Plan may, in the discretion of the Committee, be granted alone or in addition to, in tandem with or in substitution for, any other award
under the 2019 Plan. The material terms of each Award will be set forth in a written award agreement between the grantee and us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Share Options and SARs</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Committee is authorized
to grant SARs and share options (including ISOs except that an ISO may only be granted to an employee of ours or one of our subsidiary
corporations). A share option allows a grantee to purchase a specified number of our Class A Ordinary Shares at a predetermined price
per share (the &#8220;exercise price&#8221;) during a fixed period measured from the date of grant. An SAR entitles the grantee to receive
the excess of the fair market value of a specified number of Class A Ordinary Shares on the date of exercise over a predetermined exercise
price per share. The exercise price of an option or an SAR will be determined by the Committee and set forth in the award agreement but
the exercise price may not be less than the fair market value of a share on the grant date. The term of each option or SAR is determined
by the Committee and set forth in the award agreement, except that the term may not exceed 10 years. Options may be exercised by payment
of the purchase price through one or more of the following means: payment in cash, payment in check, payment in promissory note, with
the approval of the Committee, by delivery of our Class A Ordinary Shares acquired upon the exercise of such option; consideration received
by the Company under a broker-assisted or similar cashless exercise program implemented by the Company in connection with the Plan; payment
by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable laws; or any combination
of the foregoing methods of payment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Restricted Shares</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Committee may award restricted
shares consisting of our Class A Ordinary Shares which remain subject to a risk of forfeiture and may not be disposed of by grantees until
certain restrictions established by the Committee lapse. A grantee receiving restricted shares will have all of the rights of a shareholder,
including the right to vote the shares and the right to receive any dividends, except as otherwise provided in the award agreement. If
the price for the restricted shares was paid in services, then upon termination as a service provider, the grantee shall no longer have
any right in the unvested restricted shares and such restricted shares shall be and thereupon either cancelled or surrendered to the Company
without consideration. If a purchase price was paid by the grantee for the restricted shares (other than in services), then upon the grantee&#8217;s
termination as a service provider, the Company shall have the right to repurchase from the grantee the unvested restricted shares then
subject to restrictions at a cash price per share equal to the price paid by the grantee for such restricted shares or such other amount
as may be specified in the award agreement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Restricted Share Units</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Committee may also grant
restricted share unit awards. A restricted share unit award is the grant of a right to receive a specified number of our Class A Ordinary
Shares upon lapse of a specified forfeiture condition. If the condition is not satisfied during the restriction period, the award will
lapse without the issuance of the Class A Ordinary Shares underlying such award.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Restricted share units carry
no voting or other rights associated with share ownership until the Class A Ordinary Shares underlying the award are delivered in settlement
of the award. The Company shall cause such Class A Ordinary Shares to be evidenced as issued by entry in the Company&#8217;s register
of shareholders promptly after the restricted share unit vests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Share Payments</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Committee may grant share
payments to any service provider in the manner determined from time to time by the Committee;&#160;provided, that unless otherwise determined
by the Committee such share payments shall be made in lieu of base salary, bonus, or other cash compensation otherwise payable to such
grantee, including any such compensation that has been deferred at the election of the grantee;&#160;provided,&#160;further, that not
less than the par value of any Class A Ordinary Share shall be received by the Company in connection with its issue pursuant to any such
share payment. In accordance with applicable law, such par value may be paid through the provision of services. The number of Class A
Ordinary Shares issuable as a share payment shall be determined by the Committee and may be based upon satisfaction of such specific criteria
as determined appropriate by the Committee, including specified dates for electing to receive such share payment at a later date and the
date on which such share payment is to be made.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Change in Control</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If there is a merger or consolidation
of us with or into another corporation or a sale of substantially all of our ordinary shares, or, collectively, a Change in Control, the
Company as determined in the sole discretion of the Committee and without the consent of the grantee may take any of the following actions:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(i) accelerate or not accelerate
the vesting, in whole or in part, of any award, or some or all awards, of any grantee, some grantees or all grantees;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(ii) purchase any award for
an amount of cash or ordinary shares equal to the value that could have been attained upon the exercise of such award or realization of
the grantee&#8217;s rights had such award been currently exercisable or payable or fully vested (and, for the avoidance of doubt, if as
of such date the Committee determines in good faith that no amount would have been attained upon the exercise of such award or realization
of the grantee&#8217;s rights, then such award may be terminated by the Company without payment); or</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(iii) provide for the assumption,
conversion or replacement of any award by the successor or surviving company or a parent or subsidiary of the successor or surviving company
with other rights (including cash) or property selected by the Committee in its sole discretion or the assumption or substitution of such
award by the successor or surviving company, or a parent or subsidiary thereof, with such appropriate adjustments as to the number and
kind of ordinary shares and prices as the Committee deems, in its sole discretion, reasonable, equitable and appropriate. In the event
the successor or surviving company refuses to assume, convert or replace outstanding awards, the awards shall fully vest and the grantee
shall have the right to exercise or receive payment as to all of the Class A Ordinary Shares subject to the award, including Class A Ordinary
Shares as to which it would not otherwise be vested, exercisable or otherwise issuable (including at the time of the Change in Control).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Amendment to and Termination of the 2019 Plan</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Board of Directors in
its sole discretion may terminate this 2019 Plan at any time. The Board of Directors may amend this 2019 Plan at any time in such respects
as the Board of Directors may deem advisable; provided, that, if required to comply with applicable laws or stock exchange rules or the
rules of any automated quotation systems (other than any requirement which may be disapplied by the Company following any available home
country exemption), the Company shall obtain shareholder approval of any 2019 Plan amendment in such a manner and to such a degree as
required.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, subject to the
terms of the 2019 Plan, no amendment or termination of the 2019 Plan may materially and adversely affect the right of a grantee under
any award granted under the 2019 Plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">C. <span style="text-decoration:underline">Board Practices</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Composition of Board; Risk Oversight</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Board of Directors consists
of five (5) directors as of this Annual Report. Pursuant to our Amended and Restated Memorandum and Articles of Association, our officers
will be elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such
time as they resign or are removed from office by resolution of our shareholders. The directors have been divided into two classes, being
the class I directors (the &#8220;Class I Directors&#8221;) and the class II directors (the &#8220;Class II Directors&#8221;). The number
of directors in each class shall be as nearly equal as possible. The Class I Directors shall stand elected for a term expiring at the
Company&#8217;s initial meeting after the adoption of the Amended and Restated Memorandum and Articles of Association and the Class II
Directors shall stand elected for a term expiring at the Company&#8217;s third annual general meeting following the initial meeting. Directors
elected to succeed those Class I Directors whose terms expire shall be elected for a term of office to expire at the first annual general
meeting following their election and directors elected to succeed those Class II Directors whose terms expire shall be elected for a term
of office to expire at the third annual general meeting following their election. The initial members of Class I Directors are John C.
General, Kevin Dean Vassily, Dan Li. The initial members of Class II Directors are Weiguang Yang and Pei Xu. A director will be removed
from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors,
or becomes physically or mentally incapable of acting as director. Except as noted above, there are no family relationships between any
of our executive officers and directors. Officers are elected by, and serve at the discretion of, the board of directors. Our board of
directors shall hold meetings on at least a quarterly basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a smaller reporting company
under the NASDAQ rules we are only required to maintain a board of directors comprised of at least 50% independent directors, and an audit
committee of at least two members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Securities
Exchange Act of 1934. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors
unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected
or nominated.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There is no formal requirement
under the Company&#8217;s Amended and Restated Memorandum and Articles of Association mandating that we hold an annual meeting of our
shareholders. However, notwithstanding the foregoing, we&#160;intend to hold such meetings on our annual meeting to, among other things,
elect our directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board plays a significant
role in our risk oversight. The board makes all relevant Company decisions. As such, it is important for us to have our Chief Executive
Officer serve on the board as he plays key roles in the risk oversight or the Company. As a smaller reporting company with a small board
of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Director Independence</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board has reviewed the
independence of our directors, applying the NASDAQ independence standards. Based on this review, the board determined that each of John
C. General, Kevin Dean Vassily, and Dan Li is &#8220;independent&#8221; within the meaning of the NASDAQ rules. In making this determination,
our board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our
board deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent
directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive
session without the presence of non-independent directors and management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Duties of Directors</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under Cayman Islands law,
our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to
exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances.
In fulfilling their duty of care to us, our directors must ensure compliance with our Amended and Restated Memorandum and Articles of
Association. A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Board Committees</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Currently, three committees
have been established under the board: the Audit Committee, the Compensation Committee and the Nominating Committee.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Audit Committee is responsible
for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company,
including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the board
of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation,
and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans).
The Nominating Committee of the board is responsible for the assessment of the performance of the board, considering and making recommendations
to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers
diversity of opinion and experience when nominating directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Audit Committee</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Audit Committee is responsible
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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</div><p style="margin: 0">&#160;</p><div>

</div><p style="margin: 0"></p><div>

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</div><p style="margin: 0">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Audit Committee consists
of John C. General, Kevin Dean Vassily, and Dan Li, with John C. General serving as chair of the Audit Committee. Our board has affirmatively
determined that each of the members of the Audit Committee meets the definition of &#8220;independent director&#8221; for purposes of
serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. In addition, our board has determined that John C.
General qualifies as an &#8220;audit committee financial expert&#8221; as such term is currently defined in Item 407(d)(5) of Regulation
S-K and meets the financial sophistication requirements of the NASDAQ rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Compensation Committee</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Compensation Committee
is responsible for, among other matters:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Compensation Committee
consists of John C. General, Kevin Dean Vassily, and Dan Li, with Kevin Dean Vassily serving as chair of the Compensation Committee. Our
board has affirmatively determined that each of the members of the Compensation Committee meets the definition of &#8220;independent director&#8221;
for purposes of serving on Compensation Committee under NASDAQ rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Nominating Committee</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Nominating Committee is
responsible for, among other matters:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Nominating Committee consists
of consists of John C. General, Kevin Dean Vassily, and Dan Li, with Dan Li serving as chair of the Nominating Committee. Our board has
affirmatively determined that each of the members of the Nominating Committee meets the definition of &#8220;independent director&#8221;
for purposes of serving on a Nominating Committee under NASDAQ rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Code of Business Conduct and Ethics</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board has adopted a code
of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website.
We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business
Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller,
or persons performing similar functions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Duties of Directors</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under Cayman Islands law,
our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise
the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of
care to us, our directors must ensure compliance with our Amended and Restated Memorandum and Articles of Association. We have the right
to seek damages if a duty owed by our directors is breached.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The functions and powers of
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Interested Transactions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A director may vote, attend
a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director
must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction
we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting
or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any
specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure,
and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Remuneration and Borrowing</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The directors may receive
such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all
traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors
or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as
a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors.
Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property
or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt,
liability or obligation of the company or of any third party.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Board Diversity Matrix</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top; ">
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                                            Diversity Matrix (As of May 11, 2023)</b></p></td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Country of Principal Executive Offices</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Foreign Private Issuer</span></td>
    <td colspan="4" style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Yes</span></td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Disclosure Prohibited Under Home Country Law</span></td>
    <td colspan="4" style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">No</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Total Number of Directors</span></td>
    <td colspan="4" style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5</span></td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td colspan="5" style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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    <td style="width: 8%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Female </b></span></td>
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  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Directors </span></td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2</span></td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">3</span></td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">0</span></td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">0</span></td></tr>
  <tr style="vertical-align: top">
    <td colspan="5" style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
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  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Underrepresented Individual in Home Country Jurisdiction</span></td>
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  <tr style="vertical-align: top; background-color: #CCEEFF">
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  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Did Not Disclose Demographic Background</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 154; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">D. <span style="text-decoration:underline">Employees</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, we have a total of 116 full-time employees, of which 10 are in research and development, 31 are in sales and marketing, 56 are
in technical and customer services, and 19 are in general administration.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have standard employment,
comprehensive confidentiality and non-compete agreements with our management and standard confidentiality and non-compete terms with all
other employees. As required by laws and regulations in China, we participate in various social security plans that are organized by municipal
and provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury
insurance and housing fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages
of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to
time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In March 2022, in consideration of the business promotion purpose and
the uncertainty of the COVID-19 development and governmental restrictions in connection with the COVID-19, we leased a residential apartment
for an employee in Chongqing for a two-year term payable quarterly for a total of $892&#160;&#160; (RMB 6,000) each rent payment.</p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that we maintain
a good working relationship with our employees, and we have not experienced any labor disputes. None of our employee is represented by
a labor union or covered by collective bargaining agreements. We have not experienced any work stoppages.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">E. <span style="text-decoration:underline">Share Ownership</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">See Item 7 below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><div><a id="m_010"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">A. <span style="text-decoration:underline">Major Shareholders</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following tables set forth
certain information with respect to the beneficial ownership of our Class A Ordinary Shares (including Class A Ordinary Shares issuable
upon the conversion of outstanding Class B Ordinary Shares) for:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">each shareholder known by us to be the beneficial owner of more than 5% of our outstanding Class A Ordinary Shares or Class B Ordinary Shares;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">each of our directors;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The beneficial ownership of
our Class A Ordinary Shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person
exercises sole or shared voting or investment power, and includes the Class A Ordinary Shares issuable upon the conversion of the outstanding
Class B Ordinary Shares and the Class A Ordinary Shares issuable pursuant to share options that are exercisable within 60 days of the
date of this Annual Report. Class A Ordinary Shares issuable pursuant to share options are deemed outstanding for computing the percentage
of the person holding such options but are not outstanding for computing the percentage of any other person. As of the date of this Annual
Report, there were no Class A Ordinary Shares issuable pursuant to share options exercisable within 60 days thereof.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->151<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The percentage of beneficial
ownership owned is based on 20,531,423 Class A Ordinary Shares (including 1,350,068 Class A Ordinary Shares to be issued upon exercise
of the HF Warrant the Company issued to HF Capital. For more details of the HF Warrant, see &#8220;Our Corporate History and Structure&#8221;
on page 53).
For more details of the F-3, please see &#8220;Item 4. Information on the Company&#8212;The &#8220;Shelf&#8221; Offering&#8221; on page
65) and 5,497,715 Class B Ordinary Shares outstanding as of the date of this Annual Report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="font-weight: bold; border-bottom: Black 1.5pt solid">Name and Address of Beneficial Owner</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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Ordinary shares</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
    <td style="font-style: italic">Directors,&#160;Named&#160; Executive Officers, and 5% Beneficial Owner</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">-</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">5,497,715</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Pei Xu <sup>(2) (10)</sup> &#160;</span></td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">5,497,715</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">

</p><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">*</td><td style="text-align: justify">Represents less than 1%.</td>
</tr></table><div>

</div><p style="margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Represents
the voting power with respect to all of our Class A Ordinary Shares and Class B Ordinary Shares, voting as a single class. According
to our charter, each Class A Ordinary Shares entitles to 1 vote and each Class B Ordinary Share entitles to 15 votes.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Unless
otherwise indicated, the business address of each of the individuals is Zhongchao, Nanxi Creative Center, Suite 218, 841 Yan&#8217;An
Middle Road, Jing&#8217;An District, Shanghai, China 200040.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Mr.&#160;Weiguang Yang is the Chairman, Chief Executive Officer, and President of Zhongchao. Mr. Yang holds the shares through his control of More Healthy Holdings Limited.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(2)</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(4)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Mr. Baoqian Tian is the Chief Sales Officer of Zhongchao.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(5)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Ms. Shuang Wu is the Chief Operating Officer of Zhongchao.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Mr. John C. General is the independent director, chair of the Audit Committee, and Audit Committee financial expert of Zhongchao.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(7)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Ms. Dan Li is the independent director and the chair of the Nominating Committee of Zhongchao.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this Annual
Report, there were 5 holders of record entered in our Class A ordinary share register and 1 holder of record entered in our Class B ordinary
share register. The number of individual holders of record is based exclusively upon our share register and does not address whether a
share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial
owner of a share or shares in our company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To our knowledge, no other
shareholder beneficially owns more than 5% of our shares. Our company is not owned or controlled directly or indirectly by any government
or by any corporation or by any other natural or legal person severally or jointly. Our major shareholders do not have any special voting
rights.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">B. <span style="text-decoration:underline">Related Party Transactions</span>&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="padding-bottom: 1.5pt; width: 2%">&#160;</td>
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  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Yang Weiguang</span></td>
    <td style="vertical-align: top">&#160;</td>
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  <tr>
    <td style="vertical-align: top; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Beijing Ougaini Trading Co., Ltd (&#8220;Beijing Ougaini&#8221;)</span></td>
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  <tr style="background-color: #CCEEFF">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>(1) Purchase from a related
party</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><i>&#160;</i></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the Years Ended<br/> December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin: 0pt 0; text-align: justify">During the year ended December 31, 2022, the Company
also prepaid $118,888 to Beijing Ougaini for purchase of products for employee welfare and marketing promotion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>(2) Balances with related
parties</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">As of December 31, 2022 and 2021, the
balances with related parties were as follows:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Beijing Ougaini</td><td style="width: 1%; padding-bottom: 4pt">&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Beijing Yisuizhen (ii)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">226,178</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">392,305</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
  </table><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 157; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->153<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left">(i)</td><td style="text-align: justify">As of December 31, 2022, the Company had a balance of $226,178
due from Mr. Yang Weiguang. The balance was comprised of the following:</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">-</td><td style="text-align: justify">A balance of $144,986 arising from transfer of 6.67% equity interest of Shanghai Zhongxin to four former
shareholders of West Angel, who paid consideration to Mr. Yang. (Note 4)</td></tr></table><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">-</td><td style="text-align: justify">A balance of $81,192 as tuition paid on behalf of to Mr. Yang.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of this report,
Mr. Yang has repaid the above outstanding balances to the Company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">On
October 10, 2022, we compensated each of three independent directors, John C. General, Kevin Dean Vassily, and Dan Li, 6,000 Class A Ordinary
Shares for their services provided to the Company as members of the Board and the Board&#8217;s committees. During the year ended December
31, 2022, the Company made short term interest-free loans to three </span>&#160;&#160;<span style="font-family: Times New Roman, Times, Serif">unaffiliated
third parties in the aggregated amount of approximately $1.03</span>&#160;&#160; <span style="font-family: Times New Roman, Times, Serif">million
and Mr. Weiguang Yang provides irrevocable guarantee over such outstanding loans. The Company received the full payment of the loans as
of the date of this report.</span></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>VIE Arrangements with the VIE and its Shareholders</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">See &#8220;Corporate History
and Structure&#8212; VIE Arrangements.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Policies and Procedures for Related Party Transactions</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board of directors has
created an audit committee which will be tasked with review and approval of all related party transactions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">C. <span style="text-decoration:underline">Interests of Experts and Counsel</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_011"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 8. FINANCIAL INFORMATION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A. <span style="text-decoration:underline">Consolidated Statements and Other Financial
Information</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">See Item 19 for our audited
consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif"><b>Legal
Proceedings</b></span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">As
previously disclosed, Ms. Lirong Yang, the sister of Mr. Weiguang Yang filed a civil compliant on April 18, 2022, against a third-party
individual for unauthorized occupation of a property located in the Tongzhou District, Beijing in the Tongzhou Court. Shanghai Maidemu
was considered as a beneficiary of the complaint as it was the ultimate owner/beneficiary of the property pursuant to a certain real estate
entrust agreement between Shanghai Maidemu and Ms. Yang; and the property was purchased during a public judicial auction in May 2021 to
be used as a Beijing office for Shanghai Maidemu. On October 18, 2022, pursuant to a real estate purchase agreement, Ms. Lirong Yang sold such property
to a third-party individual. </span>&#160; <span style="font-family: Times New Roman, Times, Serif">As a result, on December
12, 2022, Ms. Lirong Yang filed a request for withdrawal of the compliant. As a result, the compliant was withdrawn by Tongzhou Court
on the same day. &#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except as disclose above,
from time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not
currently a party to any legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse
effect on our business, financial condition or results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->154<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Dividend Policy</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The holders of our Class A
Ordinary Shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of
directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the
future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries may, from time
to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan
agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.
In the event of our liquidation, dissolution or winding up, holders of our Class A Ordinary Shares are entitled to receive, ratably, the
net assets available to shareholders after payment of all creditors.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">B. <span style="text-decoration:underline">Significant Changes</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except as disclosed elsewhere
in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated financial statements
included in this Annual Report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_012"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 9. THE OFFER AND LISTING</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">A. <span style="text-decoration:underline">Offering and Listing Details.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Registration Statement
on Form F-1 (File No. 333-234807) became effective on February 21, 2020. Our Class A Ordinary Shares are currently listed on NASDAQ Capital
Market under the symbol ZCMD.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">B. <span style="text-decoration:underline">Plan of Distribution</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Registration Statement
on Form F-3 (File No. 333-256190) became effective on May 24, 2021. We may offer and sell Class A ordinary shares, $0.0001 par value per
share, having an aggregate offering price of up to $10,400,000 from time to time through or to US Tiger Securities, Inc., acting as our
agent.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">C. <span style="text-decoration:underline">Markets</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Class A Ordinary Shares
are currently listed on NASDAQ Capital Market under the symbol ZCMD.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">D. <span style="text-decoration:underline">Selling Shareholders</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">E. <span style="text-decoration:underline">Dilution</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">F. <span style="text-decoration:underline">Expenses of the Issue</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_013"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 10. ADDITIONAL INFORMATION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">A. <span style="text-decoration:underline">Share Capital</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 159; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->155<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">B. <span style="text-decoration:underline">Amended and Restated Memorandum and Articles of Association</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The information required by
Item 10.B of Form 20-F is included in the section titled &#8220;Description of Share Capital&#8221; in our Registration Statement, which
section is incorporated herein by reference. Our Amended and Restated Memorandum and Articles of Association were filed as Exhibit 3.1
to the Registration Statement filed on November 21, 2019 and are hereby incorporated by reference into this Annual Report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">C. <span style="text-decoration:underline">Material Contracts</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The information required by
Item 10.C of Form 20-F is included in the sections titled &#8220;Our Business,&#8221; &#8220;Directors and Executive Officers,&#8221;
&#8220;Related Party Transactions,&#8221; and &#8220;Underwriting&#8221; in our Registration Statement, which sections are incorporated
herein by reference. &#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">D. <span style="text-decoration:underline">Exchange Controls</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under Cayman Islands law,
there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect
the remittance of dividends, interest or other payments to nonresident holders of our shares.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">E. <span style="text-decoration:underline">Taxation</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>The following summary of
the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our Class A Ordinary Shares is based upon
laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change. This summary
does not deal with all possible tax consequences relating to an investment in our Class A Ordinary Shares, such as the tax consequences
under state, local and other tax laws.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Cayman Islands Taxation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Cayman Islands currently
levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature
of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands.
The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by the Company. There are no
exchange control regulations or currency restrictions in the Cayman Islands.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Material PRC Income Tax Considerations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the new EIT Law and
the Implementing Rules, an enterprise established outside of the PRC with &#8220;de facto management bodies&#8221; within the PRC is considered
as a resident enterprise and will be subject to a PRC income tax rate of 25% on its global income. According to the Implementing Rules,
&#8220;de facto management bodies&#8221; refer to &#8220;establishments that carry out substantial and overall management and control
over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.&#8221; Accordingly, our holding
company may be considered a resident enterprise and may therefore be subject to a PRC income tax on our global income. The State Administration
of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident
Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria
for determining whether the &#8220;de facto management body&#8221; of a Chinese-controlled offshore incorporated enterprise is located
in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those invested in by individuals
or foreign enterprises, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation&#8217;s general
position on how the &#8220;de facto management body&#8221; test should be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises or controlled by or invested in by individuals or foreign enterprises. If
we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, such PRC income tax on our global
income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We do not believe that Zhongchao
meets all of the conditions required for PRC resident enterprise. The Company is a company incorporated outside the PRC. As a holding
company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the
resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons,
we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise
is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term &#8220;de
facto management body.&#8221; There can be no assurance that the PRC government will ultimately take a view that is consistent with ours.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 160; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">However, if the PRC tax authorities
determine that Zhongchao is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding
tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be reduced by applicable tax
treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the
benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In
addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of Class
A Ordinary Shares, if such income is treated as sourced from within the PRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is unclear whether our
non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders
in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally
apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC
shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC
in the event that the Company is treated as a PRC resident enterprise.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Provided that our Cayman Islands
holding company, Zhongchao, is not deemed to be a PRC resident enterprise, our shareholders who are not PRC residents will not be subject
to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under Circular
7, where a non-resident enterprise conducts an &#8220;indirect transfer&#8221; by transferring taxable assets, including, in particular,
equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident
enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant
tax authority such indirect transfer. Using a &#8220;substance over form&#8221; principle, the PRC tax authority may disregard the existence
of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding
or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee
would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident
enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7,
and we may be required to expend valuable resources to comply with Bulletin 37, or to establish that we should not be taxed under Circular
7 and Bulletin 37.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Prospective investors should
consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties,
and any available foreign tax credits.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Material U.S. Tax Considerations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following is a summary
of the material U.S. federal income tax consequences of owning and disposing of our Class A Ordinary Shares. The discussion below of the
U.S. federal income tax consequences to &#8220;U.S. Holders&#8221; will apply to a beneficial owner of our shares that is for U.S. federal
income tax purposes:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If a beneficial owner of our
shares is not described as a U.S. Holder in one of the four bullet points above and is not an entity treated as a partnership or other
pass-through entity for U.S. federal income tax purposes, such owner will be considered a &#8220;Non-U.S. Holder.&#8221; The U.S. federal
income tax consequences applicable to Non-U.S. Holders is described below under the heading &#8220;Tax Consequences to Non-U.S. Holders
of Class A Ordinary Shares.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 161; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->157<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This summary is based on the
Internal Revenue Code of 1986, as amended (the &#8220;Code&#8221;), its legislative history, existing Treasury regulations promulgated
thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations,
possibly on a retroactive basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This discussion does not address
all aspects of U.S. federal income taxation that may be relevant to us or to any particular holder of our shares based on such holder&#8217;s
individual circumstances. In particular, this discussion considers only holders that own our shares as capital assets within the meaning
of Section 1221 of the Code. This discussion also does not address the potential application of the alternative minimum tax or the U.S.
federal income tax consequences to holders that are subject to special rules, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">persons that hold our shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This discussion does not address
any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally, this
discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through
such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner
of our shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner
and the activities of the partnership. This discussion also assumes that any distribution made (or deemed made) in respect of our shares
and any consideration received (or deemed received) by a holder in connection with the sale or other disposition of such shares will be
in U.S. dollars.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not sought, and will
not seek, a ruling from the Internal Revenue Service (or &#8220;IRS&#8221;), or an opinion of counsel as to any U.S. federal income tax
consequence described herein. The IRS may disagree with one or more aspects of the discussion herein, and its determination may be upheld
by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not
adversely affect the accuracy of the statements in this discussion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">BECAUSE OF THE COMPLEXITY
OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN,
EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP
AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL
TAX LAWS AND APPLICABLE TAX TREATIES.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Tax Consequences to U.S. Holders of Class A
Ordinary Shares</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Taxation of Distributions
Paid on Class A Ordinary Shares</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Subject to the passive foreign
investment company (or &#8220;PFIC&#8221;), rules discussed below, a U.S. Holder generally will be required to include in gross income
as ordinary income the amount of any cash dividend paid on our Class A Ordinary Shares. A cash distribution on such shares will be treated
as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and
profits (as determined for U.S. federal income tax purposes). Any distributions in excess of such earnings and profits generally will
be applied against and reduce the U.S. Holder&#8217;s basis in its Class A Ordinary Shares and, to the extent in excess of such basis,
will be treated as gain from the sale or exchange of such Class A Ordinary Shares. With respect to corporate U.S. Holders, dividends on
our shares will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends
received from other domestic corporations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to non-corporate
U.S. Holders, including individual U.S. Holders, dividends on our shares will be taxed at the lower long-term capital gains rate applicable
to qualified dividend income (see &#8220;Taxation on the Disposition of Class A Ordinary Shares&#8221; below), provided that (1) our Class
A Ordinary Shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a
Chinese &#8220;resident enterprise&#8221; under the EIT Law, we are eligible for the benefits of the Agreement between the Government
of the United States of America and the Government of the People&#8217;s Republic of China for the Avoidance of Double Taxation and the
Prevention of Tax Evasion with Respect to Taxes on Income, or the &#8220;U.S.-PRC Tax Treaty,&#8221; (2) we are not a PFIC, as discussed
below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements
are met. Under published IRS authority, shares are considered for purposes of clause (1) above to be readily tradable on an established
securities market in the United States only if they are listed on certain exchanges, which presently include the Nasdaq Stock Market.
U.S. Holders should consult their own tax advisors regarding the tax treatment of any dividends paid with respect to our Class A Ordinary
Shares, including the effects of any change in law after the date of this Annual Report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If PRC taxes apply to dividends
paid to a U.S. Holder on our Class A Ordinary Shares, such U.S. Holder may be entitled to a reduced rate of PRC tax under the U.S-PRC
Tax Treaty. In addition, such PRC taxes may be treated as foreign taxes eligible for credit against such holder&#8217;s U.S. federal income
tax liability (subject to certain limitations). U.S. Holders should consult their own tax advisors regarding the creditability of any
such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Taxation on the Disposition
of Class A Ordinary Shares</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Upon a sale or other taxable
disposition of our Class A Ordinary Shares, and subject to the PFIC rules discussed below, a U.S. Holder will recognize capital gain or
loss in an amount equal to the difference between the amount realized in U.S. dollars and the U.S. Holder&#8217;s adjusted tax basis in
the Class A Ordinary Shares. Capital gains recognized by U.S. Holders generally are subject to U.S. federal income tax at the same rate
as ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal
income tax at a maximum rate of 20%. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder&#8217;s holding
period for the Class A Ordinary Shares exceeds one year. The deductibility of capital losses is subject to various limitations. If PRC
taxes would otherwise apply to any gain from the disposition of our Class A Ordinary Shares by a U.S. Holder, such U.S. Holder may be
entitled to a reduction in or elimination of such taxes under the U.S.-PRC Tax Treaty. Any PRC taxes that are paid by a U.S. Holder with
respect to such gain may be treated as foreign taxes eligible for credit against such holder&#8217;s U.S. federal income tax liability
(subject to certain limitations that could reduce or eliminate the available tax credit). U.S. Holders should consult their own tax advisors
regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Passive Foreign Investment Company Rules</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A foreign (i.e., non-U.S.)
corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share
of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively,
a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined
based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which
it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income
generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of
a trade or business) and gains from the disposition of passive assets.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Based on our current composition
and assets, we do not expect to be treated as a PFIC under the current PFIC rules. We must make a separate determination each year as
to whether we are a PFIC. As such, our PFIC status, will not be determinable until after the end of each taxable year. Accordingly, there
can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the amount
of cash we raise in the IPO, together with any other assets held for the production of passive income, it is possible that, for our 2019
taxable year or for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income.
We will make this determination following the end of any particular tax year. If we are determined to be a PFIC and a U.S. Holder did
not make either a timely qualified electing fund (or &#8220;QEF&#8221;), election for our first taxable year as a PFIC in which the U.S.
Holder held (or was deemed to hold) Class A Ordinary Shares, or a mark-to-market election, as described below, such holder generally will
be subject to special rules with respect to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">any gain recognized by the U.S. Holder on the sale or other disposition of its Class A Ordinary Shares; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">any &#8220;excess distribution&#8221; made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Class A Ordinary Shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder&#8217;s holding period for the Class A Ordinary Shares).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under these rules,</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the U.S. Holder&#8217;s gain or excess distribution will be allocated ratably over the U.S. Holder&#8217;s holding period for the Class A Ordinary Shares;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the amount allocated to the U.S. Holder&#8217;s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder&#8217;s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year of the U.S. Holder.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In general, a U.S. Holder
may avoid the PFIC tax consequences described above in respect to our Class A Ordinary Shares by making a timely QEF election to include
in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income),
on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable
year ends. There can be no assurance, however, that we will pay current dividends or make other distributions sufficient for a U.S. Holder
who makes a QEF election to satisfy the tax liability attributable to income inclusions under the QEF rules, and the U.S. Holder may have
to pay the resulting tax from its other assets. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed
income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The QEF election is made on
a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF
election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund), to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections
generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent
of the IRS. In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request
from a U.S. Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS
may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However,
there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If a U.S. Holder has made
a QEF election with respect to our Class A Ordinary Shares, and the special tax and interest charge rules do not apply to such shares
(because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares),
any gain recognized on the appreciation of our Class A Ordinary Shares generally will be taxable as capital gain and no interest charge
will be imposed. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of a PFIC&#8217;s earnings and
profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included
in income generally should not be taxable as a dividend to those U.S. Holders who made a QEF election. The tax basis of a U.S. Holder&#8217;s
shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends,
under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under
the applicable attribution rules as owning shares in a QEF.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although a determination as
to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years
to a U.S. Holder who held Class A Ordinary Shares while we were a PFIC, whether or not we meet the test for PFIC status in those years.
A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed
to hold) our Class A Ordinary Shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect
to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable
year of ours that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF
election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our Class
A Ordinary Shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, and
pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Alternatively, if a U.S. Holder,
at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market
election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable
year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in us and for which we are determined to be a PFIC,
such holder generally will not be subject to the PFIC rules described above in respect to its Class A Ordinary Shares. Instead, in general,
the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its Class A Ordinary Shares
at the end of its taxable year over the adjusted basis in its Class A Ordinary Shares. The U.S. Holder also will be allowed to take an
ordinary loss in respect of the excess, if any, of the adjusted basis of its Class A Ordinary Shares over the fair market value of its
Class A Ordinary Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result
of the mark-to-market election). The U.S. Holder&#8217;s basis in its Class A Ordinary Shares will be adjusted to reflect any such income
or loss amounts, and any further gain recognized on a sale or other taxable disposition of the Class A Ordinary Shares will be treated
as ordinary income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The mark-to-market election
is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, or on a foreign
exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair
market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election
in respect to our Class A Ordinary Shares under their particular circumstances.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we are a PFIC and, at any
time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of
such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution
from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to
provide to a U.S. Holder no later than 90 days after the request the information that may be required to make or maintain a QEF election
with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier
PFIC or will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax
advisors regarding the tax issues raised by lower-tier PFICs. If a U.S. Holder owns (or is deemed to own) shares during any year in a
PFIC, such holder may have to file an IRS Form 8621 (whether or not a QEF election or mark-to-market election is made). The rules dealing
with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described
above. Accordingly, U.S. Holders of our Class A Ordinary Shares should consult their own tax advisors concerning the application of the
PFIC rules to our Class A Ordinary Shares under their particular circumstances.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Tax Consequences to Non-U.S. Holders of Class
A Ordinary Shares</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Dividends paid to a Non-U.S.
Holder in respect to its Class A Ordinary Shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively
connected with the Non-U.S. Holder&#8217;s conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, a Non-U.S. Holder
generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our Class A Ordinary
Shares, unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an
applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States)
or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other
disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a
30% rate or a lower applicable tax treaty rate).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Dividends and gains that are
effectively connected with the Non-U.S. Holder&#8217;s conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax
in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes,
may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Backup Withholding and Information Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In general, information reporting
for U.S. federal income tax purposes should apply to distributions made on our Class A Ordinary Shares within the United States to a non-corporate
U.S. Holder and to the proceeds from sales and other dispositions of our Class A Ordinary Shares by a non-corporate U.S. Holder to or
through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will
be subject to information reporting in limited circumstances. In addition, backup withholding of United States federal income tax, currently
at a rate of 24%, generally will apply to dividends paid on our Class A Ordinary Shares to a non-corporate U.S. Holder and the proceeds
from sales and other dispositions of shares by a non-corporate U.S. Holder, in each case who (a) fails to provide an accurate taxpayer
identification number; (b) is notified by the IRS that backup withholding is required; or (c) in certain circumstances, fails to comply
with applicable certification requirements. A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup
withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or
by otherwise establishing an exemption.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Backup withholding is not
an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder&#8217;s or a Non-U.S.
Holder&#8217;s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is
timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the
availability of and procedure for obtaining an exemption from backup withholding in their particular circumstances.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Individual U.S. Holders may
be required to report ownership of our Class A Ordinary Shares and certain related information on their individual federal income tax
returns in certain circumstances. Generally, this reporting requirement will apply if (1) the Class A Ordinary Shares are held in an account
of the individual U.S. Holder maintained with a &#8220;foreign financial institution&#8221; or (2) the Class A Ordinary Shares are not
held in an account maintained with a &#8220;financial institution,&#8221; as such terms are defined in the Code. The reporting obligation
will not apply to an individual, however, unless the total aggregate value of the individual&#8217;s foreign financial assets exceeds
US$50,000 during a taxable year. For avoidance of doubt, this reporting requirement should not apply to Class A Ordinary Shares held in
an account with a U.S. brokerage firm. Failure to comply with this reporting requirement, if it applies, will result in substantial penalties.
In certain circumstances, additional tax and other reporting requirements may apply, and U.S. Holders of our Class A Ordinary Shares are
advised to consult with their own tax advisors concerning all such reporting requirements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">F. <span style="text-decoration:underline">Dividends and Paying Agents</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">G. <span style="text-decoration:underline">Statement by Experts</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">H. <span style="text-decoration:underline">Documents on Display</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have previously filed the
Registration Statement with the SEC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Documents concerning us that
are referred to in this document may be inspected at c/o Nanxi Creative Center, Suite 218, 841 Yan&#8217;An Middle Road, Jing&#8217;An
District, Shanghai, China 200040, People&#8217;s Republic of China. In addition, we file annual reports and other information with the
Securities and Exchange Commission. We file annual reports on Form 20-F and submit other information under cover of Form 6-K. As a foreign
private issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal
shareholders are exempt from the insider short-swing disclosure and profit recovery rules of Section 16 of the Exchange Act. Annual reports
and other information we file with the Commission may be inspected at the public reference facilities maintained by the Commission at
Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such offices upon payment
of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference
rooms and you can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In addition, the Commission
maintains a web site that contains reports and other information regarding registrants (including us) that file electronically with the
Commission which can be assessed at http://www.sec.gov.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">I. <span style="text-decoration:underline">Subsidiary Information</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For a listing of our subsidiaries,
see &#8220;Item 4. Information on the Company &#8212; A. History and Development of the Company.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">J. <span style="text-decoration:underline">Annual Report to Security Holders</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_014"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><b><i>Interest Rate Risk</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our exposure to interest rate
risk primarily relates to interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. While interest-earning
instruments carry a degree of interest rate risk, we have not been exposed, nor do we anticipate being exposed, to material risks due
to changes in market interest rates.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><b><i>Foreign Currency Risk</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A majority of the Company&#8217;s
expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries&#8217; assets and liabilities
are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required
by law to be transacted only by authorized financial institutions at exchange rates set by the People&#8217;s Bank of China (&#8220;PBOC&#8221;).
Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory
bodies which require certain supporting documentation in order to affect the remittance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our functional currency is
the RMB, and our financial statements are presented in U.S. dollars. The RMB depreciated by 8.2% in fiscal year 2022, and depreciated
by 2.5% in fiscal year 2021. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate
between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial
results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently,
our assets, liabilities, revenues and costs are denominated in RMB.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To the extent that the Company
needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against
U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides
to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business
purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_015"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With the exception of Items
12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12 is not
applicable, as the Company does not have any American Depositary Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="m_016"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Part II</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="m_017"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">None.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_018"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">See &#8220;Item 10. Additional Information&#8221;
for a description of the rights of securities holders, which remain unchanged</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Use of Proceeds</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following &#8220;Use of
Proceeds&#8221; information relates to the Registration Statement on Form F-1, in relation to our initial public offering of 3,000,000
Class A Ordinary Shares. The Class A Ordinary Shares were sold at an offering price of $4.00 per share, generating gross proceeds of approximately
$12.0 million, and net proceeds of approximately $9.97 million. The registration statement relating to the IPO also covered the underwriters&#8217;
common stock purchase warrants and the Ordinary Shares issuable upon the exercise thereof in the total amount of 315,000 Class A Ordinary
Shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have earmarked and have
been using the proceeds of the initial public offering as follows: approximately $2.99 million for development of the online course content;
approximately $1.99 million for platform technology upgrade and system integration; and approximately $4.99 million for business expansion,
i.e., to expand our existing locations to develop new customers by hiring more qualified personnel, and marketing effort. We used a portion
of the proceeds from the IPO to accelerate our R&amp;D in order to improve and broaden the online course content. We believe our online
and onsite education and training services, medical expertise and customer relationships will enable us to capture significant market
share with the services, programs, and products that we provide<i>.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with the offering
under Form F-3, we intend to use the net proceeds from the sale of any securities offered under Form F-3 and the accompanying prospectus
for general corporate purposes. General corporate purposes may include but not limited to costs for research and development, sales and
marketing activities, funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company.
We may temporarily invest the net proceeds in a variety of capital preservation instruments, including investment grade instruments, certificates
of deposit or direct or guaranteed obligations of the U.S. government, or may hold such proceeds as cash, until they are used for their
stated purpose. We have not determined the amount of net proceeds to be used specifically for such purposes. As a result, management will
retain broad discretion over the allocation of net proceeds.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_019"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 15. CONTROLS AND PROCEDURES</b>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Disclosure Controls and Procedures</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the supervision and
with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation
of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December
31, 2022. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2022 were
not effective at the reasonable assurance level due to the material weakness described below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 168; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->164<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Internal Control over Financial Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif">In</span>&#160;
<span style="font-family: Times New Roman, Times, Serif">connection with the audit of our financial statements for the years ended December
31, 2022, we identified two material weakness in our internal control over financial reporting, as defined in the standards established
by the Public Company Accounting Oversight Board of the United States, as of December 31, 2022. The material weakness identified was the
lack of dedicated resources to take responsibility for the finance and accounting functions and for the preparation of financial statements
in compliance with generally accepted accounting principles in the United States, or U.S. GAAP.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have already taken some
steps and have continued to implement measures to remediate the material weakness identified, including but not limited to providing trainings
to staff, changing to a new and well-established accounting system, and continue to monitor the internal control over financial reporting.
However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future. See
&#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212; <i>We have identified material weaknesses in our internal control over financial
reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately
report our financial results or prevent fraud</i>.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Notwithstanding there are
material weaknesses identified as described above, we believe that our consolidated financial statements contained in this Annual Report
on Form 20-F fairly present our financial position, results of operations and cash flows for the years covered thereby in all material
respects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Management&#8217;s Annual Report on Internal
Control over Financial Reporting Attestation Report of the Registered Public Accounting Firm</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. Generally Accepted Accounting Principles
(&#8220;U.S. GAAP&#8221;). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions or because the degree of compliance with policies or procedures may deteriorate. Under the supervision and with
the participation of our management, including our chief executive officer and chief financial officer, we conducted an assessment of
the effectiveness of our internal control over financial reporting as of December 31, 2022. The assessment was based on criteria established
in the framework Internal Control&#8212;Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management determined that, as of December 31, 2022, our internal control over financial reporting
was not effective due to the existence of the following significant deficiencies and material weaknesses:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To remediate the material
weakness and significant deficiency described above, we have undertaken the following actions:&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Hired an experienced outside consultant with adequate experience with US GAAP and the SEC reporting and compliance requirements</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Continued our efforts to provide ongoing training courses in US GAAP to existing personnel, including our Chief Financial Officer</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Continued our efforts to setup the internal audit department, and enhance the effectiveness of the internal control system</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Continued our efforts to implement necessary review and controls at related levels and the submission of all important documents and contracts to the office of our Chief Executive Officer for retention</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 169; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->165<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As defined under standards
established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company&#8217;s
annual or interim consolidated financial statements will not be prevented or detected on a timely basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We did not include an attestation
report of the company&#8217;s registered public accounting firm in this Annual Report on Form 20-F due to rules of the SEC where domestic
and foreign registrants that are non-accelerated filers, which we are, and &#8220;emerging growth companies&#8221; which we also are,
are not required to provide the auditor attestation report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Changes in Internal Control over Financial
Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Other than those disclosed
above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this Annual
Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_020"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item
<span style="font-variant: small-caps">16. </span>RESERVED</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="m_021"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Board of Directors has
determined that John C. General is an audit committee financial expert as that term is defined in Item 16A(b) of Form 20-F, and &#8220;independent&#8221;
as that term is defined in the NASDAQ listing standards.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_022"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 16B. CODE OF ETHICS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Board has adopted a code
of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website:
http://izcmd.com/.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><div><a id="m_023"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif"><b>Item 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES</b></span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table represents
the approximate aggregate fees for services rendered by Prager Metis CPAs, LLC for the year ended December 31, 2022 and by Marcum Bernstein
&amp; Pinchuk LLP for the year ended December 31, 2021, respectively:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: bottom">
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>December&#160;31, <br/>
2022<sup>(1)</sup></b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>December&#160;31, <br/>
2021</b></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>USD</b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>USD</b></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 76%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Audit Fees</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="width: 9%; text-align: right">350,000</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">240,000</span></td>
    <td style="width: 1%">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Audit Related Fees</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><p style="margin: 0pt 0; font: 10pt Times New Roman, Times, Serif">-</p></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">30,000</span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tax Fees</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">All Other Fees</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="padding-left: 0.125in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Total Fees</b></span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><p style="margin: 0pt 0; font: 10pt Times New Roman, Times, Serif">350,000</p></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">270,000</span></td>
    <td>&#160;</td></tr>
  </table><div>





</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(1)</td><td style="text-align: justify">Upon the approval of the audit committee of the board of
directors of the Company and the board of directors of the Company, the Company appointed Prager Metis CPAs, LLC as the independent registered
public accounting firm. Prager Metis CPAs, LLC replaced Marcum Asia CPAs LLP (&#8220;MarcumAsia&#8221; formerly known as &#8220;Marcum
Bernstein &amp; Pinchuk LLP&#8221;), the former independent registered public accounting firm of the Company, which the Company dismissed
effective as of September 27, 2022.</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#8220;Audit-related fees&#8221;
are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not
reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur
in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 170; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->166<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#8220;Tax fees&#8221; include
fees for professional services rendered by our independent registered public accounting firm for tax compliance and tax advice on actual
or contemplated transactions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#8220;Other fees&#8221; include
fees for services rendered by our independent registered public accounting firm with respect to government incentives and other matters.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The policy of our audit committee
is to pre-approve all audit and non-audit services provided by our independent auditor including audit services, audit-related services,
tax services and other services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Audit Committee evaluated
and approved in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_024"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_025"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_026"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 16F. CHANGE IN REGISTRANT&#8217;S CERTIFYING ACCOUNTANT</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_027"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Item 16G. CORPORATE GOVERNANCE</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">See &#8220;Item 6. Directors, Senior Management
and Employees&#8221; for more information.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_028"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 16H. MINE SAFETY DISCLOSURE</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="m_029"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="m_030"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 16J. INSIDER TRADING POLICIES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have adopted an insider
trading policy to promote compliance with applicable securities laws and regulations, including those that prohibit insider trading. This
policy applies to all officers and directors of the Company, all other employees of the Company and its subsidiaries, all secretaries
and assistants supporting such directors, officers and employees, and consultants or advisors to the Company or its subsidiaries who have
or may have access to Material Nonpublic Information (as defined below) regarding the Company and members of the immediate family or household
of any such person. (each, an &#8220;Insider&#8221;) and extends to all activities within and outside an individual&#8217;s duties in
the Company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 171; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->167<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The insider trading policy
establishes guidelines and procedures for the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">1.</td><td style="text-align: justify">No Trading: With certain exceptions, no Insider can engage in any transaction involving a purchase or
sale of the Company&#8217;s securities, including any offer to purchase or offer to sell, during any period commencing with the date that
he or she possesses Material Nonpublic Information concerning the Company, and ending at the close of business on the second trading day
following the date of public disclosure of that information, or at such time as such nonpublic information is no longer material.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">2.</td><td style="text-align: justify">No Tipping: No Insider shall disclose (&#8220;tip&#8221;) Material Nonpublic Information to any other
person (including family members) where such information may be used by such person to his or her profit by trading in the securities
of companies to which such information relates, nor shall such Insider or related person make recommendations or express opinions on the
basis of Material Nonpublic Information as to trading in the Company&#8217;s securities.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">3.</td><td style="text-align: justify">Confidentiality of Nonpublic Information. Nonpublic information relating to the Company is the property
of the Company and the unauthorized disclosure of such information (including, without limitation, via email or by posting on Internet
message boards or blogs, anonymously or otherwise) is strictly forbidden.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">4.</td><td style="text-align: justify">Black-Out Period and Trading Window. The Insider shall not conduct any transactions involving the purchase
or sale of the Company&#8217;s securities, other than during the period in any fiscal quarter commencing at the close of business on the
second trading day following the date of public disclosure of the financial results for the prior fiscal quarter or year and ending on
the twenty-fifth day of the third month of the fiscal quarter (the &#8220;Trading Window&#8221;). Notwithstanding the foregoing, persons
subject to the Insider Trading Policy may submit a request to the Company to purchase or sell the Company&#8217;s securities outside the
Trading Window on the basis that they do not possess any Material Nonpublic Information. The compliance officer shall review all such
requests and may grant such requests on a case-by-case basis if he or she determines that the person making such request does not possess
any Material Nonpublic Information at that time.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">5.</td><td style="text-align: justify">Duty to Report Inappropriate and Irregular Conduct. All Insiders have a responsibility for maintaining
financial integrity within the Company, consistent with generally accepted accounting principles and both federal and state securities
laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or irregularities, whether by witnessing
the incident or being told of it, must report it to their immediate supervisor and to the chairman of the Company&#8217;s Audit Committee
of the Board (or to the Chairman of the Board, if an Audit Committee has not been established).</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are committed to maintaining
the highest standards of ethical conduct and have implemented these insider trading policies and procedures to ensure compliance with
applicable securities laws and to protect the interests of our shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 172; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->168<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="m_031"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Part III</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="m_032"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 17. FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We have elected to provide financial statements
pursuant to Item 18.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_033"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 18. FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The consolidated financial statements of Zhongchao
Inc., and its subsidiaries are included at the end of this Annual Report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="m_034"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Item 19. EXHIBITS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>EXHIBIT INDEX</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="border-bottom: black 1.5pt solid; width: 9%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exhibit</b></span></td>
    <td style="width: 1%">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; width: 90%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exhibit title</b></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1.1***</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020000736/ff12019a3ex1-1_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Form of Underwriting Agreement</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">3.1**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex3-1_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Amended and Restated Memorandum and Articles of Association</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">4.1**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019025969/ff12019a1ex4-1_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Specimen Class A Ordinary Share Certificate</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">4.2***</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020000736/ff12019a3ex4-2_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Form of Underwriter Warrant</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>4.3</td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex4-3_zhongchaoinc.htm">Description of Securities</a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5.1***</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020000736/ff12019a3ex5-1_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Opinion of Conyers Dill &amp; Pearman</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5.2***</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020000736/ff12019a3ex5-2_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Opinion of Hunter Taubman Fischer &amp; Li LLC</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.1**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-1_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Employment Agreement between Zhongchao Inc. and Weiguang Yang dated as of August 7, 2019</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.2**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-2_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Employment Agreement between Zhongchao Inc. and Pei Xu dated as of August 7, 2019</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.3**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-3_zhong.htm">Employment Agreement between Zhongchao Inc. and Xuejun Chen dated as of August 7, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.4**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-4_zhong.htm">Employment Agreement between Zhongchao Inc. and Baoqian Tian dated as of August 7, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.5**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-5_zhong.htm">Employment Agreement between Zhongchao Inc. and Shuang Wu dated as of August 7, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.6**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-6_zhong.htm">Equity Interest Pledge Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.7**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-7_zhong.htm">Proxy Agreement and Power of Attorney among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.8**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-8_zhong.htm">Spouse Consent Letters of the spouse of each married shareholder of Zhongchao Medical Technology (Shanghai) Corp. dated as of August 14, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.9**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-9_zhong.htm">Master Exclusive Service Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.10**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-10_zhong.htm">Business Cooperation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.11**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-11_zhong.htm">Exclusive Option Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.12**</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-12_zhong.htm">Director Offer Letter between Zhongchao Inc. and Weiguang Yang dated as of November 17, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.13**</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-13_zhong.htm">Director Offer Letter between Zhongchao Inc. and Pei Xu dated as of November 17, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.14**</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-14_zhong.htm">Independent Director Offer Letter between Zhongchao Inc. and John C. General dated as of November 17, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.15**</span></td>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-15_zhong.htm">Independent Director Offer Letter between Zhongchao Inc. and Kevin Dean Vassily dated as of November 17, 2019</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.16**</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex10-16_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Independent Director Offer Letter between Zhongchao Inc. and Dan Li dated as of November 17, 2019</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.17**</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019025969/ff12019a1ex10-17_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Warrant to Purchase Class A Ordinary Shares between Zhongchao Inc. and HF Capital Management Delta, Inc. dated as of August 1, 2019</span></a></td></tr>
  </table><div>
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="border-bottom: black 1.5pt solid; width: 9%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exhibit</b></span></td>
    <td style="width: 1%">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; width: 90%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exhibit title</b></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.18**</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019025969/ff12019a1ex10-18_zhongchao.htm">English translated copy of Framework Agreement among Zhongchao Medical Technology (Shanghai) Corp., Mr. Weiguang Yang, and Yantai Hanfujingfei Investment Center (LP) dated as of August 1, 2019</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.19****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020026897/ea126886ex10-1_zhongchao.htm">Equity Interest Pledge Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.20****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020026897/ea126886ex10-2_zhongchao.htm">Proxy Agreement and Power of Attorney among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.21****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020026897/ea126886ex10-3_zhongchao.htm">Spouse Consent Letters of the spouse of each married shareholder of Zhongchao Medical Technology (Shanghai) Corp. dated as of September 10, 2020.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.22****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020026897/ea126886ex10-4_zhongchao.htm">Business Cooperation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.23****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020026897/ea126886ex10-5_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Exclusive Option Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.24****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390020026897/ea126886ex10-6_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Confirmation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Shanghai and its shareholders dated as of September 10, 2020.</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.25*****</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390021066079/ea152595ex10-1_zhongchao.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sales Agreement by and between the Zhongchao Inc. and US Tiger Securities, Inc., as the sales agent dated as of December 17, 2021.</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.26&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-26_zhongchao.htm" style="-sec-extract: exhibit">Business Cooperation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.27&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-27_zhongchao.htm" style="-sec-extract: exhibit">Exclusive Option Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.28&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-28_zhongchao.htm" style="-sec-extract: exhibit">Equity Interest Pledge Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.29&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-29_zhongchao.htm" style="-sec-extract: exhibit">Proxy Agreement and Power of Attorney among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.30&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-30_zhongchao.htm" style="-sec-extract: exhibit">Spouse Consent Letter of the spouse of Mr. Weiguang Yang, the shareholder of Zhongchao Medical Technology (Shanghai) Corp. dated as of September 10, 2021.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.31&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-31_zhongchao.htm" style="-sec-extract: exhibit">Guarantee Agreement between Mr. Weiguang Yang and Zhongchao USA LLC dated as of April 26, 2022</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">10.32&#x5e;</span></td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390022024615/f20f2021ex10-32_zhongchao.htm" style="-sec-extract: exhibit">Guarantee Agreement between Mr. Weiguang Yang and Shanghai Maidemu Cultural Communication Corp. dated as of April 26, 2022.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">12.1</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex12-1_zhongchaoinc.htm">Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">12.2</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex12-2_zhongchaoinc.htm">Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">13.1</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex13-1_zhongchaoinc.htm">Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">14.1**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex14-1_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Code of Conduct and Ethics</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">15.1</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex15-1_zhongchaoinc.htm">Consent of Prager Metis CPAs, LLC</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>15.2</td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex15-2_zhongchaoinc.htm">Consent of Marcum Bernstein &amp; Pinchuk LLP</a></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">19.1</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif"><a href="f20f2022ex19-1_zhongchaoinc.htm">Insider Trading Policies</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">21.1</span><span style="font-size: 10pt">&#160;</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex21-1_zhongchaoinc.htm">List of Subsidiaries and VIE of the Registrant</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">24.1*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="https://www.sec.gov/Archives/edgar/data/1785566/000121390021040764/f20f2020a1_zhongchao.htm#p_001">Power of Attorney (included on signature page)</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">99.1**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex99-1_zhong.htm">Charter of the Audit Committee</a></span></td></tr>
  <tr style="vertical-align: top; ">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">99.2**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex99-2_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Charter of the Compensation Committee</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">99.3**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1785566/000121390019024295/ff12019ex99-3_zhong.htm"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Charter of the Nominating and Corporate Governance Committee</span></a></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.INS</span></td>
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Inline XBRL Instance Document</span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.SCH</span></td>
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Inline XBRL Taxonomy Extension Schema Document</span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.CAL</span></td>
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Inline XBRL Taxonomy Extension Calculation Linkbase Document</span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.DEF</span></td>
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Inline XBRL Taxonomy Extension Definition Linkbase Document</span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.LAB</span></td>
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Inline XBRL Taxonomy Extension Label Linkbase Document</span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.PRE</span></td>
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    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Inline XBRL Taxonomy Extension Presentation Linkbase Document</span></td></tr>
  <tr style="vertical-align: top; ">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">104</span></td>
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    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">*</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Previously filed; incorporated by reference to the identically named exhibit filed with the Annual Report on 20-F/A (File No. 001-39229) filed with the Securities and Exchange Commission on August 6, 2021</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">**</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-234807) filed with the Securities and Exchange Commission on December 27, 2019</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">***</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-234807) filed with the Securities and Exchange Commission on January 10, 2020.</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">****</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Previously filed; incorporated by reference to the identically named exhibit filed with Form 6-K (File No. 001-39229) filed with the Securities and Exchange Commission on September 16, 2020.</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">*****</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Previously filed; incorporated by reference to the identically named exhibit filed with Form 6-K (File No. 001-39229) filed with the Securities and Exchange Commission on December 17, 2021.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#x5e;</td>
    <td style="text-align: justify">Previously filed; incorporated by reference to the identically named exhibit
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>


</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>SIGNATURES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The registrant hereby certifies
that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
Annual Report on its behalf.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td colspan="2"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Zhongchao Inc.</b></span></td></tr>
  <tr style="vertical-align: top">
    <td style="width: 60%">&#160;</td>
    <td style="width: 5%">&#160;</td>
    <td style="width: 35%">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">By:</span></td>
    <td style="border-bottom: black 1.5pt solid"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">/s/&#160;Weiguang Yang</span></td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Title:</span></td>
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<b>(Principal Executive Officer)</b></span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Dated:&#160; </span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">May 11, 2023</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: left"><td style="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->171<!-- Field: /Sequence --></td></tr></table></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>TABLE OF CONTENTS </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr> <td style="vertical-align: top; width: 90%; padding-left: 10pt; text-indent: -10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Consolidated Financial Statements</b></span></td> <td style="vertical-align: bottom; width: 10%; text-align: center">&#160;</td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: top; padding-left: 10pt; text-indent: -10pt"><a href="#f_001"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Report of Independent Registered Public Accounting Firm (PCAOB ID: 273)</span></a></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-2</span></td></tr> <tr> <td style="vertical-align: top; padding-left: 10pt; text-indent: -10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="#f_001a">Report of Independent Registered Public Accounting Firm (PCAOB ID: <ix:nonNumeric contextRef="c0" name="dei:AuditorFirmId">5395</ix:nonNumeric>)</a></span></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-3</span></td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: top"><a href="#f_003"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Balance Sheets as of December 31, 2022 and 2021 </span></a></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-4</span></td></tr> <tr> <td style="vertical-align: top; padding-left: 10pt; text-indent: -10pt"><a href="#f_004"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Operations and Comprehensive (Loss) Income for the Years Ended December 31, 2022, 2021, and 2020 </span></a></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-5</span></td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: top; padding-left: 10pt; text-indent: -10pt"><a href="#f_005"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Changes in Equity for the Years Ended December 31, 2022, 2021, and 2020 </span></a></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-6</span></td></tr> <tr> <td style="vertical-align: top; padding-left: 10pt; text-indent: -10pt"><a href="#f_006"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020 </span></a></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-7</span></td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: top; padding-left: 10pt; text-indent: -10pt"><a href="#f_007"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Notes to Consolidated Financial Statements</span></a></td> <td style="vertical-align: bottom; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-8</span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="text-align: right; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><img alt="" src="image_021.jpg"/></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td rowspan="22" style="width: 22%; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><br/>
<br/>
<br/>
<img alt="" src="image_020.jpg"/><br/>
</span></td>
    <td style="width: 78%; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">To the Stockholders and Board of Directors of </span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Zhongchao Inc.</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Opinion on the Financial Statements</b></span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt; text-align: justify"><p style="margin: 0; font: 9pt Times New Roman, Times, Serif">We have audited the accompanying consolidated balance sheet of Zhongchao
Inc. (the &#8220;Company&#8221;) as of December 31, 2022, and the related consolidated statements of operations and comprehensive (loss)
income, changes in equity and cash flows for the year ended December 31, 2022, and related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with
accounting principles generally accepted in the United States of America.</p></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="font-size: 10pt">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">These financial statements are the responsibility of the Company&#8217;s
management. Our responsibility is to express an opinion on the Company&#8217;s financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt; text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over
financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company&#8217;s internal control over
financial reporting. Accordingly, we express no such opinion.</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt; text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provide a reasonable basis for our opinion.</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>/s/ Prager Metis CPAs, LLC</i></span></td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We have served as the Company&#8217;s auditor since 2022.</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Hackensack, New Jersey</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">May 11, 2023</span></td></tr>
  <tr style="vertical-align: top">
    <td style="font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PCAOB ID Number 273</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">
</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><img alt="" src="image_022.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 177; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->2<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_001a"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Report of Independent Registered Public Accounting
Firm</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif">To
the Shareholders and Board of Directors of Zhongchao Inc.</span>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Opinion on the Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have audited the accompanying consolidated
balance sheet of Zhongchao Inc. (the &#8220;Company&#8221;) as of December 31, 2021, the related consolidated statements of income and
comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2021, and the related
notes (collectively referred to as the &#8220;financial statements&#8221;). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2021 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United
States of America.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Basis for Opinion</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">These financial statements are the responsibility
of the Company&#8217;s management. Our responsibility is to express an opinion on the Company&#8217;s financial statements based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (&#8220;PCAOB&#8221;) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company&#8217;s internal
control over financial reporting. Accordingly, we express no such opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the <span style="font-family: Times New Roman, Times, Serif">accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-variant: small-caps">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif">/s/ <ix:nonNumeric contextRef="c0" name="dei:AuditorName">Marcum
Asia CPAs LLP</ix:nonNumeric></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-variant: small-caps">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Marcum Asia CPAs LLP</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif">(Formerly
known as &#8220;Marcum Bernstein &amp; Pinchuk LLP&#8221;)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-variant: small-caps">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif">We have served
as the Company&#8217;s auditor from 2019 to 2022</span></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><ix:nonNumeric contextRef="c0" name="dei:AuditorLocation">New York, NY</ix:nonNumeric><br/>
May 6, 2022&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="f_003"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CONSOLIDATED BALANCE SHEETS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(Expressed in U.S. dollar, except for the number
of shares)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -9pt; padding-left: 9pt">Prepayments</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-3">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Loans receivable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:NotesAndLoansReceivableNetCurrent" scale="0" unitRef="usd">1,840,000</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Other current assets</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="font-weight: bold; text-align: left; text-indent: -9pt; padding-left: 9pt">Total Current Assets</td><td style="font-weight: bold">&#160;</td>
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    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AssetsCurrent" scale="0" unitRef="usd">27,253,676</ix:nonFraction></td><td style="font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Investment in equity method investees</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LongTermInvestments" scale="0" unitRef="usd">1,179,300</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LongTermInvestments" scale="0" unitRef="usd">1,993,285</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Investment in an equity security</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AssetsHeldInTrust" scale="0" unitRef="usd">84,606</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AssetsHeldInTrust" scale="0" unitRef="usd">150,000</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 9pt">Goodwill</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Goodwill" scale="0" unitRef="usd">5,767,504</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-4">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Property and equipment, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentNet" scale="0" unitRef="usd">3,890,947</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentNet" scale="0" unitRef="usd">3,923,086</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Deposit for property</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DepositsAssetsNoncurrent" scale="0" unitRef="usd">239,481</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DepositsAssetsNoncurrent" scale="0" unitRef="usd">181,233</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Prepayments for lease of land</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:PrepaymentsForLeaseOfLand" scale="0" unitRef="usd">304,787</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:PrepaymentsForLeaseOfLand" scale="0" unitRef="usd">353,347</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Intangible assets, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IntangibleAssetsNetExcludingGoodwill" scale="0" unitRef="usd">912,054</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IntangibleAssetsNetExcludingGoodwill" scale="0" unitRef="usd">30,259</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Right of use assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:OperatingLeaseRightOfUseAsset" scale="0" unitRef="usd">1,666,777</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:OperatingLeaseRightOfUseAsset" scale="0" unitRef="usd">205,824</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Deferred tax assets</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredIncomeTaxAssetsNet" scale="0" unitRef="usd">1,864,729</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredIncomeTaxAssetsNet" scale="0" unitRef="usd">2,176,710</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Total Assets</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Assets" scale="0" unitRef="usd">38,614,345</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Assets" scale="0" unitRef="usd">36,267,420</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left; text-indent: -9pt; padding-left: 9pt">LIABILITIES AND EQUITY</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="font-weight: bold; text-align: left; text-indent: -9pt; padding-left: 9pt">Current Liabilities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Accounts payable</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AccountsPayableCurrent" scale="0" unitRef="usd">140,834</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AccountsPayableCurrent" scale="0" unitRef="usd">38,933</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Advances from customers</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CustomerAdvancesCurrent" scale="0" unitRef="usd">395,263</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CustomerAdvancesCurrent" scale="0" unitRef="usd">7,432</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Income tax payable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TaxesPayableCurrent" scale="0" unitRef="usd">2,292,765</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TaxesPayableCurrent" scale="0" unitRef="usd">2,478,273</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Operating lease liabilities, current portion</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:OperatingLeaseLiabilityCurrent" scale="0" unitRef="usd">480,633</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:OperatingLeaseLiabilityCurrent" scale="0" unitRef="usd">88,968</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The&#160;accompanying notes are an integral part
of the consolidated financial statements</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>


</div><!-- Field: Page; Sequence: 179; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_004"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
(LOSS) INCOME</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(Expressed in U.S. dollar, except for the number
of shares)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
    <td>&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
    <td>&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td>&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
the consolidated financial statements</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>


</div><!-- Field: Page; Sequence: 180; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_005"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(Expressed in U.S. dollar, except for the number
of shares)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="font-weight: bold; text-align: center">&#160;</td><td style="font-weight: bold">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center"></td><td style="font-weight: bold">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Issuance of Class A Ordinary Shares in connection with public offering</td><td>&#160;</td>
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  </table><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
the consolidated financial statements</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>


</div><!-- Field: Page; Sequence: 181; Value: 1 --><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_006"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CONSOLIDATED STATEMENTS OF CASH FLOWS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(Expressed in U.S. dollar, except for the number
of shares)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-128">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Equity investment loss</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Changes in operating assets and liabilities:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Accounts receivable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsReceivable" scale="0" sign="-" unitRef="usd">1,076,292</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsReceivable" scale="0" unitRef="usd">104,230</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsReceivable" scale="0" unitRef="usd">5,486,914</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 0.25in">Prepayments</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:Prepayments" scale="0" sign="-" unitRef="usd">659,496</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:Prepayments" scale="0" unitRef="usd">171,144</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="zcmd:Prepayments" scale="0" sign="-" unitRef="usd">197,402</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Prepayments &#8211; related party</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInPrepaidSupplies" scale="0" unitRef="usd">118,888</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-129">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-130">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-indent: -9pt; padding-left: 0.25in">Inventories</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInInventories" scale="0" unitRef="usd">193,833</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-131">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-132">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Other current assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherCurrentAssets" scale="0" sign="-" unitRef="usd">66,148</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherCurrentAssets" scale="0" sign="-" unitRef="usd">1,302,009</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherCurrentAssets" scale="0" unitRef="usd">1,143,200</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Accounts payable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="0" unitRef="usd">103,825</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="0" sign="-" unitRef="usd">375,144</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="0" unitRef="usd">260,350</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Advances from customers</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInCustomerAdvances" scale="0" unitRef="usd">369,249</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInCustomerAdvances" scale="0" unitRef="usd">496</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInCustomerAdvances" scale="0" unitRef="usd">6,398</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Income tax payable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="0" unitRef="usd">3,557</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="0" unitRef="usd">905,733</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="0" unitRef="usd">535,981</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherAccruedLiabilities" scale="0" sign="-" unitRef="usd">167,585</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 0.25in">Deferred government grants</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-133">-</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-134">-</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInDeferredIncomeTaxes" scale="0" unitRef="usd">325,992</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
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  <tr style="font-size: 7pt; vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-size: 7pt; text-indent: -9pt; padding-left: 9pt">&#160;</td><td style="font-size: 7pt">&#160;</td>
    <td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt; text-align: right">&#160;</td><td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt">&#160;</td>
    <td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt; text-align: right">&#160;</td><td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt">&#160;</td>
    <td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt; text-align: right">&#160;</td><td style="font-size: 7pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="font-weight: bold; text-align: left; text-indent: -9pt; padding-left: 9pt">Cash Flows from Investing Activities:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Purchases of property and equipment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireOtherPropertyPlantAndEquipment" scale="0" unitRef="usd">1,615,905</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Proceeds from disposal of property and equipment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromSaleOfPropertyPlantAndEquipment" scale="0" unitRef="usd">1,112,440</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-135">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-136">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Payments of deposits for property purchase</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireLandHeldForUse" scale="0" unitRef="usd">245,467</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-137">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireLandHeldForUse" scale="0" unitRef="usd">688,267</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Investments in short-term investments</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireShortTermInvestments" scale="0" unitRef="usd">996,638</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-138">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireShortTermInvestments" scale="0" unitRef="usd">2,043,259</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Release from short-term investments</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:ReleaseFromShorttermInvestments" scale="0" unitRef="usd">533,891</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:ReleaseFromShorttermInvestments" scale="0" unitRef="usd">1,678,367</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-139">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Investment in a limited partnership</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-140">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-141">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="zcmd:InvestmentInALimitedPartnership" scale="0" unitRef="usd">1,217,039</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Investment in equity method investees</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-142">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireEquityMethodInvestments" scale="0" unitRef="usd">708,129</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-143">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Investment in an equity security</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-144">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:InvestmentInAnEquitySecurity" scale="0" sign="-" unitRef="usd">150,000</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-145">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Acquisition of a subsidiary</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AcquisitionOfASubsidiary" scale="0" unitRef="usd">3,055,432</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-146">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-147">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Loan (provided to) repayment from related parties</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LoanRepaymentFromprovidedToARelatedParty" scale="0" unitRef="usd">139,694</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LoanRepaymentFromprovidedToARelatedParty" scale="0" sign="-" unitRef="usd">387,549</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LoanRepaymentFromprovidedToARelatedParty" scale="0" unitRef="usd">14,489</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Loans provided to third parties</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireLoansReceivable" scale="0" unitRef="usd">1,032,219</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireLoansReceivable" scale="0" unitRef="usd">3,725,211</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-148">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Loans repayment from third parties</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LoansRepaymentFromThirdParties" scale="0" unitRef="usd">1,806,772</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LoansRepaymentFromThirdParties" scale="0" unitRef="usd">1,075,098</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-149">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Increase of cash in connection with acquisition of subsidiary</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInLeaseAcquisitionCosts" scale="0" sign="-" unitRef="usd">6,206</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-150">-</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">&#160;</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="font-weight: bold; text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Net Cash Used in Investing Activities</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="0" sign="-" unitRef="usd">3,346,658</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="0" sign="-" unitRef="usd">4,017,284</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="0" sign="-" unitRef="usd">4,094,678</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td></tr>
  <tr style="font-size: 7pt; vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-size: 7pt; text-indent: -9pt; padding-left: 9pt">&#160;</td><td style="font-size: 7pt">&#160;</td>
    <td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt; text-align: right">&#160;</td><td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt">&#160;</td>
    <td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt; text-align: right">&#160;</td><td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt">&#160;</td>
    <td style="font-size: 7pt; text-align: left">&#160;</td><td style="font-size: 7pt; text-align: right">&#160;</td><td style="font-size: 7pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="font-weight: bold; text-align: left; text-indent: -9pt; padding-left: 9pt">Cash Flows from Financing Activities:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Acquisition of property and equipment by settlement of deposits for property and equipment</td><td>&#160;</td>
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  </table><div>



</div><p style="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
the consolidated financial statements</p><div>


</div><!-- Field: Page; Sequence: 182; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->7<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_007"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td>
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</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_2" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Zhongchao Inc. (&#8220;Zhongchao Cayman&#8221;,
or the &#8220;Company&#8221;) is a holding company incorporated on April 16, 2019, under the laws of the Cayman Islands. The Company
commenced operations on August 17, 2012, through its variable interest entity (&#8220;VIE&#8221;), Zhongchao Medical Technology (Shanghai)
Limited (&#8220;Zhongchao Shanghai&#8221;), a limited liability company established under the laws of the PRC. The Company provides customized
medical courses and customized medical training services to pharmaceutical enterprises, and not-for-profit organizations (&#8220;NFPs&#8221;)
including medical associations, medical institutions, medical journals, medical foundations, hospitals and etc. in the PRC.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_3" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements reflect
the activities of Zhongchao Shanghai and each of the following entities:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_4" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_3"><ix:nonNumeric contextRef="c0" continuedAt="_ScheduleOfCondensedFinancialStatementsTableTextBlock-c0_cont_1" escape="true" name="srt:ScheduleOfCondensedFinancialStatementsTableTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td>&#160;</td>
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  <tr style="vertical-align: top; background-color: #CCEEFF">
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td>&#160;</td>
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in technology development, transfer, service and consulting in the fields of medical technology and computer technology (no medical diagnosis
and treatment activities allowed).</span></ix:nonNumeric></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;<ix:nonNumeric contextRef="c86" name="zcmd:BusinessBackground">Incorporated on May 14, 2019</ix:nonNumeric></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;<ix:nonNumeric contextRef="c87" name="zcmd:BusinessBackground">A holding company</ix:nonNumeric></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-indent: 0in; padding-left: 0.065in"><ix:nonNumeric contextRef="c88" name="zcmd:BusinessBackground"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A PRC
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    <td>&#160;</td>
    <td rowspan="3"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonNumeric contextRef="c88" name="zcmd:Ownership">100% owned by Zhongchao HK</ix:nonNumeric> &#160; &#160; &#160;</span></td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;<ix:nonNumeric contextRef="c89" name="zcmd:BusinessBackground">Incorporated on May 29, 2019</ix:nonNumeric></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;<ix:nonNumeric contextRef="c90" name="zcmd:BusinessBackground">A holding company</ix:nonNumeric></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td rowspan="3"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Zhongchao Shanghai &#160; &#160; &#160;</span></td>
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;<ix:nonNumeric contextRef="c91" name="zcmd:BusinessBackground">A PRC limited liability company</ix:nonNumeric></span></td>
    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
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    <td style="text-indent: 0in; padding-left: 0.065in"><ix:nonNumeric contextRef="c93" name="zcmd:BusinessBackground"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Engaged
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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    <td>&#160;</td>
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  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;<ix:nonNumeric contextRef="c95" name="zcmd:BusinessBackground">Incorporated on March 12, 2015</ix:nonNumeric></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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    <td>&#160;</td></tr>
  </table><p style="margin: 0">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-size: 8pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ORGANIZATION
                                            AND PRINCIPAL ACTIVITIES (CONTINUED)</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.25in; margin: 0pt 0 0pt 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: 0.25in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: 0.25in"></p><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_5" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_4"><ix:continuation continuedAt="_ScheduleOfCondensedFinancialStatementsTableTextBlock-c0_cont_2" id="_ScheduleOfCondensedFinancialStatementsTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td rowspan="3" style="width: 28%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Shanghai Huijing Information
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    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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<tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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    <td>&#160;</td></tr>
<tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
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    <td>&#160;</td></tr>

<tr style="vertical-align: top; ">
    <td rowspan="3"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Shanghai Zhongxun Medical Technology Co.,
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  <tr style="vertical-align: top; ">
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td rowspan="3"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Shanghai Zhongxin Medical Technology Co.,
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td>&#160;</td>
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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    <td>&#160;</td></tr>
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    <td>&#160;</td></tr>
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
</table><p style="margin: 0">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="margin: 0"></p><div>

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</div><p style="margin: 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>


</div><p style="margin: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ORGANIZATION
                                            AND PRINCIPAL ACTIVITIES (CONTINUED)</b></span></td>
</tr></table><div>
</div><p style="margin: 0"></p><div>

</div><p style="margin: 0">&#160;</p><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_6" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_5"><ix:continuation id="_ScheduleOfCondensedFinancialStatementsTableTextBlock-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td rowspan="3" style="width: 28%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Hainan Muxin Medical Technology Co., Ltd.
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    <td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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    <td>&#160;</td></tr>
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    <td rowspan="3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Ningxia Zhongxin Internet Hospital Co., Ltd. (&#8220;Ningxia Zhongxin&#8221;)</p>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td style="text-indent: 0in; padding-left: 0.065in"><ix:nonNumeric contextRef="c123" name="zcmd:BusinessBackground"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Engaged in online hospital operation, provide online medical service, online consultation, prescription information services, and medication retails.</span></ix:nonNumeric></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td rowspan="3"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chongqing Xinjiang Pharmaceutical Co.,
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    <td>&#160;</td>
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    <td>&#160;&#160;<ix:nonNumeric contextRef="c124" name="zcmd:BusinessBackground"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A PRC limited liability company</span></ix:nonNumeric></td>
    <td>&#160;</td>
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  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; ">
    <td rowspan="4"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Beijing Yisuizhen Technology Co., Ltd.
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td rowspan="6"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">West Angel (Beijing) Health Technology
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
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    <td>&#160;</td>
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-size: 10pt">&#160;</span></p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_7" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>*</b></span></td><td style="text-align: justify"><p style="margin-top: 0; margin-bottom: 0"><ix:nonFraction contextRef="c61" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">51</ix:nonFraction>% of the equity interest owned by Shanghai Zhongxun before November 2020. Through certain entrustment agreements signed in November 2020, Mr. Weiguang Yang, Beijing Zhongchao Yixin Management Consulting Partnership, LLP (&#8220;Zhongchao Yixin&#8221;), and Beijing Zhongren Yixin Management Consulting Partnership, LLP (&#8220;Zhongren Yixin&#8221;), hold <ix:nonFraction contextRef="c62" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">19</ix:nonFraction>%, <ix:nonFraction contextRef="c63" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">20</ix:nonFraction>% and <ix:nonFraction contextRef="c64" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">10</ix:nonFraction>% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. As a result, Shanghai Zhongxun owned <ix:nonFraction contextRef="c65" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">100</ix:nonFraction>% of Shanghai Zhongxin&#8217;s equity interest as of December 31, 2021.</p> <p style="margin-top: 0; margin-bottom: 0">&#160;</p> <p style="margin-top: 0; margin-bottom: 0">In the year of 2022, Mr. Weiguang Yang transferred <ix:nonFraction contextRef="c66" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">6.67</ix:nonFraction>% to four shareholders of West Angel, as a part of consideration to acquire <ix:nonFraction contextRef="c67" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">60</ix:nonFraction>% equity interest in West Angel. Shanghai Zhongxun owns <ix:nonFraction contextRef="c68" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">93.33</ix:nonFraction>% of Shanghai Zhongxin&#8217;s equity interest as of December 31, 2022.</p></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_8" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif">On
August 14, 2019, Zhongchao WFOE entered into a series of agreements (the &#8220;VIE Agreements&#8221;) with Zhongchao Shanghai and the
shareholders of Zhongchao Shanghai. The VIE Agreements allows Zhongchao Cayman to consolidate the financial statements and received the
economic benefits of the operation results of Zhongchao Shanghai through the VIE Agreements. Under U.S. GAAP, for accounting purposes,
Zhongchao Cayman was deemed to have a controlling financial interest in, and be the primary beneficiary of Zhongchao Shanghai, because
pursuant to the VIE Agreements, the operations of Zhongchao Shanghai were solely for the benefit of Zhongchao WFOE and ultimately, Zhongchao
Cayman.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_9" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 14, 2019, Zhongchao Cayman completed
a reorganization of entities under common control of Weiguang Yang, who owned a majority of the voting power of Zhongchao Cayman prior
to the reorganization. Zhongchao Cayman, Zhongchao Group Inc. (&#8220;Zhongchao BVI&#8221;), and Zhongchao Group Limited (&#8220;Zhongchao
HK&#8221;) were established as the holding companies of Zhongchao WFOE. Zhongchao WFOE is the primary beneficiary of Zhongchao Shanghai
and its subsidiaries, and all of these entities are under common control which results in the consolidation of Zhongchao Shanghai and
subsidiaries which have been accounted for as a reorganization of entities under common control at carrying value. The consolidated financial
statements are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the
consolidated financial statements. Total assets and liabilities presented on the Company&#8217;s consolidated balance sheets and revenues,
expenses, net incomes presented on consolidated statements of operations as well as the cash flows from operating, investing and financing
activities presented on the consolidated statements of cash flows are substantially the financial positions, operations and cash flows
of Zhongchao Shanghai and its subsidiaries.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_10" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 15, 2019, Yantai Hanfujingfei Investment
Centre (LP) (&#8220;Yantai HF&#8221;), a <ix:nonFraction contextRef="c69" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">6.25</ix:nonFraction> % shareholder of Zhongchao Shanghai, planned to withdraw its equity interest in Zhongchao
Shanghai (which is representative of <ix:nonFraction contextRef="c70" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:SharesIssued" scale="0" unitRef="shares">1,350,068</ix:nonFraction> shares in Zhongchao Shanghai, among which <ix:nonFraction contextRef="c71" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:SharesIssued" scale="0" unitRef="shares">675,068</ix:nonFraction> shares were issued by Zhongchao Shanghai
and the remaining <ix:nonFraction contextRef="c70" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:StockRepurchaseProgramRemainingNumberOfSharesAuthorizedToBeRepurchased" scale="0" unitRef="shares">675,000</ix:nonFraction> shares were purchased from two existing shareholders), and to contribute the same amount of capital to Zhongchao
Cayman directly. The Company and HF Capital Management Delta, Inc. (&#8220;HF Capital&#8221;), the sole member of which was the managing
partner of Yantai HF , entered into a certain warrant agreement to purchase ordinary shares of the Company, pursuant to which the Company
granted a warrant to HF Capital, who expects to exercise the warrant and receive the ordinary shares of the Company before the effective
date and closing of the offering because these conditions are considered to be administrative procedures and there are no uncertainties
of going through them. The warrant entitled HF Capital to purchase <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:ClassOfWarrantOrRightOutstanding" scale="0" unitRef="shares">1,350,068</ix:nonFraction> Class A Ordinary Shares, representing <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="zcmd:PercentageOfEconomicBeneficialInterest" scale="-2" unitRef="pure">5.19</ix:nonFraction>% economic beneficial
interest, or <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="zcmd:OwnershipVotingPercentage" scale="-2" unitRef="pure">1.31</ix:nonFraction>% of the voting ownership interest of the Company as of December 31, 2022, from the Company, if the following conditions
are met:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_11" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_10"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">All PRC governmental consent
    and approval required for HF Capital to exercise the warrant and payment of the capital contribution have been obtained, including
    without limitation, any approval or filing with respect to HF Capital&#8217;s investment into the Company, and payment by HF Capital
    of the capital contribution to the Company, and reasonable evidence thereof shall have been provided to the Company;</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">HF Capital has fully paid
    the capital contribution to Zhongchao Cayman; and</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">3)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The Company released the
    paid-in capital of HF Capital from Zhongchao Shanghai</span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_12" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The practice is solely a result of tax planning
from HF Capital. As the warrant does not cause the Company to transfer or receive any assets, or exchange any other financial instruments
on potentially favorable or unfavorable terms with shareholder. The warrant does not meet the definition of a financial instrument as
defined in ASC 480 <i>Distinguishing Liabilities from Equity</i>. The management believed the agreement between the Company and HF Capital
is a commitment rather than a financial instrument. As such, the warrant is not subject to accounting treatment. In addition, the management
expected that there is no circumstance under which the <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="zcmd:OrdinarySharesIssued" scale="0" unitRef="shares"><ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="zcmd:OrdinarySharesOutstanding" scale="0" unitRef="shares">1,350,068</ix:nonFraction></ix:nonFraction> Class A Ordinary Shares would not be issued, thus the <ix:nonFraction contextRef="c6" decimals="0" format="ixt:num-dot-decimal" name="zcmd:OrdinarySharesIssued" scale="0" unitRef="shares"><ix:nonFraction contextRef="c6" decimals="0" format="ixt:num-dot-decimal" name="zcmd:OrdinarySharesOutstanding" scale="0" unitRef="shares">1,350,068</ix:nonFraction></ix:nonFraction> underlying
Class A Ordinary Shares should be included in the ordinary shares outstanding as of December 31, 2022 and 2021 and in the calculation
of the basic and diluted weighted average ordinary share issued and outstanding for calculating basic and diluted earnings per share.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->11<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_13" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 2, 2019, the registration of HF Capital&#8217;s
withdrawal of its capital contribution in Zhongchao Shanghai was completed with local State Administration for Industry and Commerce.
The paid-in capital of HF Capital in an amount of RMB<ix:nonFraction contextRef="c72" decimals="-6" format="ixt:num-dot-decimal" name="us-gaap:OtherAdditionalCapital" scale="6" unitRef="cny">20</ix:nonFraction> million (approximately US$<ix:nonFraction contextRef="c72" decimals="-5" format="ixt:num-dot-decimal" name="us-gaap:OtherAdditionalCapital" scale="6" unitRef="usd">2.9</ix:nonFraction> million) is currently being held in the corporate
bank account of Zhongchao Shanghai and is to be deposited in a designated bank account mutually controlled by Zhongchao Shanghai and
HF Capital after the completion of HF Capital&#8217;s ODI procedures and to be released as HF Capital&#8217;s capital contribution in
Zhongchao Cayman.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_14" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Class A Ordinary Shares issued and outstanding
presented on the financial statements is reconciled with the number of shares legally as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_15" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_14"><ix:nonNumeric contextRef="c0" escape="true" name="zcmd:ScheduleOfFinancialStatementsReconciledTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">December&#160;31,<br/>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="zcmd:OrdinarySharesCommittedToBeIssuedToInvestor" scale="0" unitRef="shares">1,350,068</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c6" decimals="0" format="ixt:num-dot-decimal" name="zcmd:OrdinarySharesCommittedToBeIssuedToInvestor" scale="0" unitRef="shares">1,350,068</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="zcmd:NumberOfClassOrdinarySharesOutstandingAndIssuedPresentedOnFinancialStatements" scale="0" unitRef="shares">20,531,423</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c6" decimals="0" format="ixt:num-dot-decimal" name="zcmd:NumberOfClassOrdinarySharesOutstandingAndIssuedPresentedOnFinancialStatements" scale="0" unitRef="shares">19,453,423</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
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</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_16" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="text-decoration:underline">VIE Agreements with Zhongchao Shanghai</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_17" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Due to the restrictions imposed by PRC laws and
regulations on foreign ownership of companies engaged in value-added telecommunication services and certain other businesses, the Company
operates its businesses in which foreign investment is restricted or prohibited in the PRC through certain PRC domestic companies. As
such, Zhongchao Cayman consolidated Zhongchao Shanghai&#8217;s financial statements and received the economic benefits of the operation
results of Zhongchao Shanghai through VIE Arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such
VIE Arrangements consist of a series of six agreements&#160;(collectively,&#160;the &#8220;VIE Arrangements&#8221;), which were signed
on August 14, 2019.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_18" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 1, 2020, all shareholders of Zhongchao
Shanghai, except Mr. Yang and Shanghai Xingzhong Investment Management LP (&#8220;Shanghai Xingzhong,&#8221;) decided to withdraw their
capital contribution from Zhongchao Shanghai (the &#8220;Capital Reduction&#8221;). Given the effect of the Capital Reduction, Mr. Yang
became the <ix:nonFraction contextRef="c73" decimals="3" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">76.4</ix:nonFraction>% shareholder of Zhongchao Shanghai with the remaining equity interests held by Shanghai Xingzhong. On September 10, 2020,
Zhongchao WFOE, and Zhongchao Shanghai, and its shareholders signed a confirmation agreement to confirm that the VIE Agreements entered
on August 14, 2019 have been terminated because of the Capital Reduction.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_19" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Accordingly, on September 10, 2020, to clarify
the legal effect of the Capital Reduction and to sustain the effective control over Zhongchao Shanghai by the Company, Mr. Yang and Shanghai
Xingzhong, as the shareholders of Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao WFOE, the terms of which are substantially
the same as those of the VIE Agreements except the number of shareholders of Zhongchao Shanghai reduced to two (the &#8220;2020 VIE Agreements&#8221;).
Upon entry into the 2020 VIE Agreements, the VIE Agreements, except for the Master Exclusive Service Agreement dated August 14, 2020,
were expired.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_20" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 9, 2021, Shanghai Xingzhong transferred
its equity interest in Zhongchao Shanghai to Shanghai Xingban Enterprises Management Partnership (Limited Partnership) (&#8220;Shanghai
Xingban&#8221;). On September 10, 2021, to clarify the legal effect of such share transfer and to sustain the Company&#8217;s ability
to consolidate the financial results of Zhongchao Shanghai, Mr. Yang and Shanghai Xingban, as the shareholders collectively holding <ix:nonFraction contextRef="c74" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EquityMethodInvestmentOwnershipPercentage" scale="-2" unitRef="pure">100</ix:nonFraction>%
equity interest in Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao WFOE (the &#8220;2021 VIE Agreements&#8221;).
Upon entry into the 2021 VIE Agreements, the 2020 VIE Agreements dated August 14, 2020, except for the Master Exclusive Service Agreement,
were expired.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_21" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The significant terms of the VIE Arrangements,
2020 VIE Arrangements and 2021 VIE Agreements by and among the Company&#8217;s wholly-owned subsidiary, Zhongchao WFOE, its consolidated
variable interest entity, Zhongchao Shanghai, and the shareholders of Zhongchao Shanghai are as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_22" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif"><b><i>Agreements
that Provide Us Effective Control </i></b></span>&#160;<span style="font-family: Times New Roman, Times, Serif"><b><i>over Zhongchao
Shanghai</i></b></span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_23" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#8217;s wholly foreign owned entity,
Zhongchao WFOE, has entered into the following agreements with Zhongchao Shanghai and its shareholders.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 187; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->12<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="text-decoration:underline">VIE Agreements with Zhongchao Shanghai (continued)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_24" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Equity Interest Pledge Agreement</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_25" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the equity interest pledge agreement
dated August 14, 2019, each shareholder of Zhongchao Shanghai (collectively &#8220;Shareholder&#8221;) has pledged all of its equity
interest in Zhongchao Shanghai to guarantee the shareholder&#8217;s and Zhongchao Shanghai&#8217;s performance of their obligations under
the master exclusive service agreement, business cooperation agreement, exclusive option agreement and proxy agreement and power of attorney.
If Zhongchao Shanghai or any of its shareholders breaches their contractual obligations under these agreements, Zhongchao WFOE, as pledgee,
will be entitled to dispose the pledged equity interest entirely or partially. Each of the shareholders of Zhongchao Shanghai agrees
that, during the term of the equity interest pledge agreement, it will not dispose of the pledged equity interests or create or allow
any encumbrance on the pledged equity interests without the prior written consent of Zhongchao WFOE. In addition, Zhongchao WFOE has
the right to collect dividends generated by the pledged equity interest during the term of the pledge. The term of the initial equity
interest pledge agreement is <ix:nonNumeric contextRef="c75" format="ixt-sec:duryear" name="zcmd:InitialEquityInterestPledgeAgreement">20</ix:nonNumeric> years. After the expiration of the term of initial pledge registration, Zhongchao WFOE may at its sole
discretion require the Shareholders to extend the term of the equity interest registration.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_26" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Proxy Agreement and Power of Attorney</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_27" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the proxy agreement and power of
attorney dated August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably appointed Zhongchao WFOE to act as such shareholder&#8217;s
exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Zhongchao Shanghai
requiring shareholder approval, disposing of all or part of the shareholder&#8217;s equity interest in Zhongchao Shanghai, oversee and
review Zhongchao Shanghai&#8217;s operation and financial information. Zhongchao WFOE is entitled to designate any person to act as such
shareholder&#8217;s exclusive attorney-in-fact without notifying or the approval of such shareholder, and if required by PRC law, Zhongchao
WFOE shall designate a PRC citizen to exercise such right. Each proxy agreement power of attorney will remain in force for so long as
the Zhongchao Shanghai exists. The shareholders of Zhongchao Shanghai do not have the right to terminate this agreement or revoke the
appointment of the attorney-in-fact without the prior written consent of Zhongchao WFOE</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_28" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Spouse Consent&#160;Letters</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_29" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the&#160;Spouse Consent&#160;Letters
dated August 14, 2019, the spouse of each married shareholder of Zhongchao Shanghai, unconditionally and irrevocably agreed not to assert
any rights over the equity interest in Zhongchao Shanghai held by and registered in the name of their spouse. In addition, each of them
agreed to be bound by the VIE Arrangements described here if the spouse obtains any equity interest in Zhongchao Shanghai for any reason.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_30" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Master Exclusive Service Agreement</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_31" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_30"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the master exclusive service agreement
between Zhongchao WFOE and Zhongchao Shanghai dated August 14, 2019, Zhongchao WFOE has the exclusive right to provide Zhongchao Shanghai
with technical support, consulting services and other services. Zhongchao WFOE has the right to designate and appoint, at its sole discretion,
any entities affiliated with the Zhongchao WFOE to provide any and all services. The service fees are calculated and paid on a yearly
basis and at the amount that equals to <ix:nonFraction contextRef="c75" decimals="2" format="ixt:num-dot-decimal" name="zcmd:ServiceFees" scale="-2" unitRef="pure">100</ix:nonFraction>% of the consolidated net profits of Zhongchao Shanghai. Zhongchao WFOE may adjust the service
fee at its discretion after taking into account multiple factors, such as the difficulty of the services provided, the time consumed,
the content and commercial value of services provided and the market price of comparable services. Zhongchao WFOE owns the intellectual
property rights arising out of the performance of this agreements. Zhongchao Shanghai shall seek approval from Zhongchao WFOE prior to
entering into any contracts obtaining the same or similar services as provided under the Master Exclusive Service Agreement. This agreement
will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written notice to Zhongchao Shanghai and its
shareholders or upon the transfer of all the equity interest held by Zhongchao Shanghai&#8217;s shareholders to Zhongchao WFOE and/or
a third party designated by Zhongchao WFOE.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 188; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->13<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="text-decoration:underline">VIE Agreements with Zhongchao Shanghai (continued)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_32" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_31"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Agreements that Provide Us with the Option
to Purchase the Equity Interest in Zhongchao Shanghai</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_33" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Business Cooperation Agreement</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_34" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the business cooperation agreement dated
August 14, 2019, without Zhongchao WFOE&#8217;s prior written consent, Zhongchao Shanghai agrees not to engage in any transaction which
may materially affect its asset, obligation, right or operation, including but not limited to: any activities not within its normal business
scope, merger and acquisition, offering any loan to any third party and incurring any debt from any third party. Zhongchao Shanghai shall
seek approval from Zhongchao WFOE prior to entering into any material contract, except the contracts executed in the ordinary course
of business. Zhongchao Shanghai shall cause the persons designated by Zhongchao WFOE to be the directors and executive officers of Zhongchao
Shanghai. This agreement will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written notice to
Zhongchao Shanghai and its shareholders or upon the transfer of all the equity interest held by Zhongchao Shanghai&#8217;s shareholders
to Zhongchao WFOE and/or a third party designated by Zhongchao WFOE.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_35" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_34"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Exclusive Option Agreement</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_36" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_35"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the exclusive option agreement dated
August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably granted Zhongchao WFOE an exclusive option to purchase, or have
its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder&#8217;s
equity interests in Zhongchao Shanghai. The purchase price is equal to the lowest price allowable under PRC laws and regulations at the
time of the transfer. Zhongchao Shanghai has agreed that without Zhongchao WFOE&#8217;s prior written consent, Zhongchao Shanghai shall
cause the persons designated by Zhongchao WFOE to be the directors and executive officers of Zhongchao Shanghai, not amend its articles
of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or
allow any encumbrance on its assets or other beneficial interests, provide any loans to any third parties, enter into any material contract,
merge with or acquire any other persons or make any investments, or distribute dividends to the shareholders. The shareholders of Zhongchao
Shanghai have agreed that, without Zhongchao WFOE&#8217;s prior written consent, they will not dispose of their equity interests in Zhongchao
Shanghai or create or allow any encumbrance on their equity interests. Moreover, without Zhongchao WFOE&#8217;s prior written consent,
no dividend will be distributed to Zhongchao Shanghai&#8217;s shareholders, and if any of the shareholders receives any profit, interest,
dividend or proceeds of share transfer or liquidation, the shareholder must give such profit, interest, dividend and proceeds to Zhongchao
WFOE. These agreements will remain effective as long as Zhongchao Shanghai exists unless Zhongchao WFOE advance written notice to Zhongchao
Shanghai and the shareholders or upon the transfer of all the equity interest held by the shareholders to Zhongchao WFOE and/or its designee.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_37" id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_36"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has concluded that the Company is
the primary beneficiary of Zhongchao Shanghai and its subsidiaries, and should consolidate their financial statements. The Company is
the primary beneficiary based on the Proxy Agreement and Power of Attorney entered into as part of the VIE Agreements that each equity
holder of Zhongchao Shanghai assigned their rights as a shareholder of Zhongchao Shanghai to Zhongchao WOFE. These rights include, but
are not limited to, voting on all matters of Zhongchao Shanghai requiring shareholder approval, disposing of all or part of the shareholder&#8217;s
equity interest in Zhongchao Shanghai, oversee and review Zhongchao Shanghai&#8217;s operation and financial information. As such, the
Company, through Zhongchao WOFE, is deemed to hold all of the voting equity interest in Zhongchao Shanghai and its subsidiaries. For
the periods presented, the Company has not provided any financial or other support to either Zhongchao Shanghai or its subsidiaries.
However, pursuant to the Master Exclusive Services Agreement, the Company may provide complete technical support, consulting services
and other services during the term of the VIE agreements. Though not explicit in the VIE agreements, the Company may provide financial
support to Zhongchao Shanghai and its subsidiaries to meet its working capital requirements and capitalization purposes. The terms of
the VIE Agreements and the Company&#8217;s plan of financial support to the VIE were considered in determining that the Company is the
primary beneficiary of the VIE. Accordingly, the financial statements of the VIE are consolidated in the Company&#8217;s consolidated
financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_37"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Based on the foregoing VIE Agreements, Zhongchao
WFOE <span style="text-underline-style: double"><span style="text-decoration:underline">consolidated the financial statements </span></span>of Zhongchao Shanghai and its subsidiaries,
which enables Zhongchao WFOE to receive all of their expected residual returns and absorb the expected losses of the VIE and its subsidiaries.
Accordingly, the Company consolidates the accounts of Zhongchao Shanghai and its subsidiaries for the periods presented herein, in accordance
with Accounting Standards Codification, or ASC, 810-10, Consolidation.</p></ix:continuation><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


</div><!-- Field: Page; Sequence: 189; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->14<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_1" escape="true" name="us-gaap:SignificantAccountingPoliciesTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES</b></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_2" id="_SignificantAccountingPoliciesTextBlock-c0_cont_1"><ix:nonNumeric contextRef="c0" continuedAt="_BasisOfAccountingPolicyPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:BasisOfAccountingPolicyPolicyTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Basis of presentation</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_3" id="_SignificantAccountingPoliciesTextBlock-c0_cont_2"><ix:continuation id="_BasisOfAccountingPolicyPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (&#8220;U.S. GAAP&#8221;).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_4" id="_SignificantAccountingPoliciesTextBlock-c0_cont_3"><ix:nonNumeric contextRef="c0" continuedAt="_ConsolidationPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:ConsolidationPolicyTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Principal of consolidation</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_5" id="_SignificantAccountingPoliciesTextBlock-c0_cont_4"><ix:continuation continuedAt="_ConsolidationPolicyTextBlock-c0_cont_2" id="_ConsolidationPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Affiliates are entities controlled by the Company.
Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and
be exposed to the variable returns from its activities. The financial statements of affiliates are included in the consolidated financial
statements from the date that control commences until the date that control ceases.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_6" id="_SignificantAccountingPoliciesTextBlock-c0_cont_5"><ix:continuation continuedAt="_ConsolidationPolicyTextBlock-c0_cont_3" id="_ConsolidationPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements include
the accounts of Zhongchao Cayman, its subsidiaries and VIE and VIE&#8217;s subsidiaries, and Zhongchao&#160;Japan. These companies are
controlled by a common controlling shareholder. Zhongchao Japan was acquired from the Company&#8217;s controlling shareholder in December
2021, such acquisition was accounted for as acquisition under common control and the Zhongchao Japan was consolidated from December 2021,
and the comparative financial statement were prepared on a consolidated basis retrospectively from the date Zhongchao Japan was incorporated
(i.e, October 30, 2020). In the consolidated financial statements, the assets and liabilities of Zhongchao Japan are presented at their
carrying amount. The Company recognizes in equity any difference between the consideration paid and the net assets recognized. No goodwill
or losses may be recognized on consolidation. The revenues, cost, operating expenses and other expenses are consolidated for the relevant
periods to be presented in the financial statements as if the combination occurred on October 1, 2020.&#160;Zhongchao Japan&#8217;s historical
financial statements have immaterial impact to the consolidated financial statements of the Company.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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</div><div>

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is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers, liabilities incurred by the
Company and equity instruments issued by the Company. Transaction costs directly attributable to the acquisition are expensed as incurred.
Identifiable assets acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective
of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests
and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the acquisition date amounts of the
identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the acquisition date amounts
of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and
comprehensive (loss) income. During the measurement period, which can be up to one year from the acquisition date, the Company may record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Subsequent to the conclusion of
the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any further
adjustments are recorded in the consolidated statements of operations and comprehensive (loss) income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

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fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of operations and comprehensive
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><div>

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</div><div>

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Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates on the date of the balance sheet. The resulting exchange differences are recorded in the consolidated
statements of operations and comprehensive (loss) income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of the Company and its subsidiaries are recorded as a separate component of accumulated
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</div><div>

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</div><div>

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</div><div>

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</div><div>


</div><!-- Field: Page; Sequence: 191; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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</div><div>

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of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions
using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. The Company
bases its estimates on past experience and on various other assumptions that are believed to be reasonable, the results of which form
the basis for making judgments about the carrying values of assets and liabilities. Estimates are used when accounting for items and
matters including, but not limited to, fair value of the Company&#8217;s ordinary shares, fair value of the Company&#8217;s subsidiaries,
determinations of the useful lives and valuation of long-lived assets, valuation of goodwill, estimates of allowances for doubtful accounts,
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</div><div>

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</div><div>

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to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of the fair value
hierarchy are described below:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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</div><div>

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</div><div>

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from a related party, other receivables, loans receivable, accounts payable and other payables, which approximate their fair values because
of the short-term nature of these instruments. Short-term investments are trading securities with observable market price in active market.
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</div><div>

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</div><div>

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</div><div>

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</div><div>

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equity securities purchased through various open market transactions. Equity securities not measured by the equity method are carried
at fair value with unrealized gains and losses recorded in the consolidated statements of operations and comprehensive (loss) income,
according to ASC 321 &#8220;Investments &#8212; Equity Securities&#8221;. During the years ended December 31, 2022 and 2021, the Company
purchased certain listed equity securities and accounted for such investments as &#8220;short-term investments&#8221; and subsequently
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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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</div><div>

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amount less an allowance for any uncollectible accounts and do not bear interest. The Company provides customers with credit term ranging
between one to six months, depending on credit assessment of customers. Management reviews the adequacy of the allowance for doubtful
accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual
customer&#8217;s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. During the years ended December 31, 2022, 2021 and 2020, the Company accrued provisions against doubtful accounts
of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:WroteOffAgainstAccountsReceivables" scale="0" unitRef="usd">753,447</ix:nonFraction>, $<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:WroteOffAgainstAccountsReceivables" scale="0" unitRef="usd">1,449,827</ix:nonFraction> and $<ix:nonFraction contextRef="c32" decimals="0" format="ixt:num-dot-decimal" name="zcmd:WroteOffAgainstAccountsReceivables" scale="0" unitRef="usd">336,367</ix:nonFraction>, respectively, among which $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:WrittenOff" scale="0" unitRef="usd">543,315</ix:nonFraction>, $<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:WrittenOff" scale="0" unitRef="usd">1,449,827</ix:nonFraction> and $<ix:nonFraction contextRef="c32" decimals="0" format="ixt:num-dot-decimal" name="zcmd:WrittenOff" scale="0" unitRef="usd">336,367</ix:nonFraction> were written off as the Company evaluated
it is remote to collect the balance. As of December 31, 2022 and 2021, allowances for doubtful accounts against accounts receivable were
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</div><div>

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</div><div>

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drugs. Inventories are stated at the lower of cost or net realizable value. Inventory costs include expenses that are directly or indirectly
incurred in the purchase of patented drugs. Cost of inventories is determined using the weighted average cost method. Inventories are
written down to estimated net realizable value, which could be impacted by certain factors including historical usage, expiration date,
expected demand, anticipated sales price, new product development schedules, product obsolescence, customer concentrations and other
factors.&#160; The Company continually evaluate the recoverability, and inventory provisions are recorded in the consolidated statements
of operations and comprehensive (loss) income. For the years ended December 31, 2022, 2021 and 2020, the Company did not provide inventory
provisions against patented drugs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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for providing services to the Company. The suppliers usually require advance payments when the Company orders service and the prepayments
will be utilized to offset the Company&#8217;s future payments. These amounts are unsecured, non-interest bearing and generally short-term
in nature.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_39" id="_SignificantAccountingPoliciesTextBlock-c0_cont_38"><ix:nonNumeric contextRef="c0" continuedAt="_InvestmentPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:InvestmentPolicyTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Investments in equity method investees</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

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which the Company exercised significant influences, the Company also accounts for the investment in a limited partnership in which the
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_41" id="_SignificantAccountingPoliciesTextBlock-c0_cont_40"><ix:continuation continuedAt="_InvestmentPolicyTextBlock-c0_cont_3" id="_InvestmentPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company applies the equity method to account
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Ventures&#8221;, over which it has significant influence but does not own a controlling financial interest.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_42" id="_SignificantAccountingPoliciesTextBlock-c0_cont_41"><ix:continuation continuedAt="_InvestmentPolicyTextBlock-c0_cont_4" id="_InvestmentPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the equity method, the Company&#8217;s share of the post-acquisition
profits or losses of the equity investee is recognized in the consolidated statements of operations and comprehensive (loss) income. The
Company records its share of the results of the equity investees on a one quarter in arrears basis. When the Company&#8217;s share of
losses of 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.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 193; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)</b></span></td></tr>
  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Investments in equity method investees (continued)</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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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, including consideration of the impact of the COVID-19 pandemic; 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. No impairment of was recognized for the years ended December 31, 2022, 2021 and 2020.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_45" id="_SignificantAccountingPoliciesTextBlock-c0_cont_44"><ix:continuation continuedAt="zcmd_GovernmentGrants-c0_cont_2" id="zcmd_GovernmentGrants-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Equity securities not accounted for using the
equity method are carried at fair value with unrealized gains and losses recorded in the consolidated statements of operations and comprehensive
(loss) income, according to ASC 321 &#8220;Investments &#8212; Equity Securities&#8221;, which the Company adopted beginning January
1, 2021.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_46" id="_SignificantAccountingPoliciesTextBlock-c0_cont_45"><ix:continuation continuedAt="zcmd_GovernmentGrants-c0_cont_3" id="zcmd_GovernmentGrants-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022, the Company had investment
in one equity security. The Company elected to record an equity investment in privately held companies using the measurement alternative
at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical
or similar investments of the same issuer. As a practical expedient, the Company uses Net Asset Value (&#8220;NAV&#8221;) or its equivalent
to measure the fair value of the investment in the fund. NAV is primarily determined based on information provided by financial institution.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_47" id="_SignificantAccountingPoliciesTextBlock-c0_cont_46"><ix:continuation id="zcmd_GovernmentGrants-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The equity investment in privately held companies
accounted for using the measurement alternative are subject to periodic impairment reviews. The Company&#8217;s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security, including consideration
of the impact of the COVID-19 pandemic.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_48" id="_SignificantAccountingPoliciesTextBlock-c0_cont_47"><ix:nonNumeric contextRef="c0" continuedAt="_PropertyPlantAndEquipmentPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:PropertyPlantAndEquipmentPolicyTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Property and equipment</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_49" id="_SignificantAccountingPoliciesTextBlock-c0_cont_48"><ix:continuation continuedAt="_PropertyPlantAndEquipmentPolicyTextBlock-c0_cont_2" id="_PropertyPlantAndEquipmentPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Property and equipment primarily consist of buildings,
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useful lives as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_50" id="_SignificantAccountingPoliciesTextBlock-c0_cont_49"><ix:nonNumeric contextRef="c0" escape="true" name="zcmd:ScheduleOfProperyAndEquipmentUsefulLivesTableTextBlock"><ix:continuation continuedAt="_PropertyPlantAndEquipmentPolicyTextBlock-c0_cont_3" id="_PropertyPlantAndEquipmentPolicyTextBlock-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_51" id="_SignificantAccountingPoliciesTextBlock-c0_cont_50"><ix:continuation id="_PropertyPlantAndEquipmentPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Costs of repairs and maintenance are expensed
as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed of or retired are
removed from the accounts, and any resulting gain or loss is recorded in other income, net in the consolidated statements of operations
and comprehensive (loss) income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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any impairment loss. Amortization is provided against the cost of lease prepayments on a straight-line basis over the period of the rights,
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</div><div>


</div><!-- Field: Page; Sequence: 194; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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</div><div>

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</div><div>

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criterion. Intangible assets arising from business combinations are measured at fair value upon acquisition using valuation techniques
such as discounted cash flow analysis. Major assumptions used in determining the fair value of these intangible assets include future
growth rates and weighted average cost of capital. Separately identifiable intangible assets that have determinable lives continue to
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</div><div>

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</div><div>

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useful lives as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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    <td>&#160;</td>
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</div><div>

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</div><div>

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whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets was recognized for the years
ended December 31, 2022, 2021 and 2020.&#160;&#160;</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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consideration over the acquisition date amounts of the identifiable tangible and intangible assets acquired and liabilities assumed from
the acquired entity as a result of the Company&#8217;s acquisitions of interests in its subsidiaries. Goodwill is not amortized but is
tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired.
The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.
In the qualitative assessment, the Company considers factors such as macroeconomic conditions, industry and market considerations, overall
financial performance of the reporting unit, and other specific information related to the operations, business plans and strategies
of the reporting unit, including consideration of the impact of the COVID-19 pandemic. Based on the qualitative assessment, if it is
more likely than not that the fair value of a reporting unit is less than the carrying amount, the quantitative impairment test is performed.
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</div><div>


</div><!-- Field: Page; Sequence: 195; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->20<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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</div><div>

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information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity&#8217;s contracts to provide
goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services
recognized as performance obligations are satisfied.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_66" id="_SignificantAccountingPoliciesTextBlock-c0_cont_65"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_3" id="_RevenueRecognitionPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In accordance with ASC 606, revenues are recognized
when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to
be entitled to in exchange for those services.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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performance obligation. Transaction price is allocated among different performance obligations identified in one contract.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_68" id="_SignificantAccountingPoliciesTextBlock-c0_cont_67"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_5" id="_RevenueRecognitionPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Timing of revenue recognition may differ from
the timing of invoicing to customers. Accounts receivable consisted of amounts invoiced and amounts for which revenue recognized prior
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</div><div>

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</div><div>

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to be longer than one year.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_71" id="_SignificantAccountingPoliciesTextBlock-c0_cont_70"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_8" id="_RevenueRecognitionPolicyTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Medical training and education services</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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services&#8221;). The Company identifies a single performance obligation from contracts. The Company recognizes revenue at the point
when the service was rendered. Payments received in advance from customers are recorded as &#8220;advance from customers&#8221; in the
consolidated balance sheets. Advance from customers is recognized as revenue when the Company delivers the courses to its customers.
Such advance payment received are non-refundable. In cases where fees are collected after the sales, revenue and accounts receivable
are recognized upon delivery of medical training and education courses to the customers. The fees are fixed and determinable at the inception
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</div><div>

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courses &#8211; though customers can benefit from each service commitment, including design, production and presentation of medical courses,
together with other readily available resources. The promises in the contracts with customers is integration of all of these service
commitments. The Company concludes that these service commitments are highly dependent with each other, in the context of the contract
term. Thus, these service commitments are not distinct from each other, and the Company combines all service commitments performed as
a single performance obligation. In cases where the Company engages third party experts to provide presentation in medical courses, as
the Company determines the contents and the participants, it has the ability to direct these experts to provide medical training services
for the Company. Therefore, the Company is primarily responsible for fulfilling the promise to provide the medial courses and has the
discretion in establishing the transaction price. The Company is a principal in the provision of services and recognizes revenues on
a gross basis.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->21<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Revenue recognition (continued)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Medical training and education services (continued)</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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for users to access for a period of time. The performance obligation of presentation of the courses online for users for a period of
time is immaterial in the context of the contract because presentation of each course incurred no significant additional cost, nor will
it occupy any significant resources of the Company, except for little digital space on the Company&#8217;s server, which is inconsequential.
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</div><div>

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</div><div>

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from NFPs. The Company is responsible to provide doctors with access to training courses or training materials in connection with the
drug treatment, review the completeness of application documents from patients, and other ad-hoc works (such programs with these plug-in
features are hereinafter referred as the &#8220;patient-aid projects&#8221;). The arrangements are structured as fixed price contracts.
The price is determined as stated in contracts and does not include any variable consideration. The Company identifies a single performance
obligation from contracts and recognizes revenue over a period of time during which the Company provides the assistance to the NFPs till
the earlier of the expiration of contract period or the free drugs are completely delivered. The Company uses an input-based method to
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 197; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->22<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_86" id="_SignificantAccountingPoliciesTextBlock-c0_cont_85"><ix:nonNumeric contextRef="c0" continuedAt="zcmd_CostOfRevenues-c0_cont_1" escape="true" name="zcmd:CostOfRevenues"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Cost of revenues</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_87" id="_SignificantAccountingPoliciesTextBlock-c0_cont_86"><ix:continuation continuedAt="zcmd_CostOfRevenues-c0_cont_2" id="zcmd_CostOfRevenues-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cost of revenues was comprised of direct related
costs incurred for preparation of online medical training courses and offline education seminars and patient-aid projects and cost of
patented drugs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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courses and offline education seminars and patient management services in patient-aid projects includes expenses of travelling and accommodation,
seminar site-rental, video production and backdrop production, professional service fees charged by experts who provide online and offline
seminars, salary and welfare expenses incurred by the key members of the editorial, design and production team, and labor cost for patient-aid
projects. The travelling and accommodation expenses, including but not limited to the air-ticket expenses and hotel accommodation expenses,
represented the costs arising from lecturers&#8217; attendance and participation of the offline seminars. Other media expenses were incurred
by the Company&#8217;s medical department for videos production, live streaming of the offline seminars, and materials collection to
create online courses. These travelling, accommodation and media expenses are well budgeted before any agreements entered into by the
Company and the customers. Therefore, such expenses are well covered by the customers under those agreements. The Company is not reimbursed
by the customers separately.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are
government mandated defined contribution plans. The Company is required to accrue for these benefits based on certain percentages of
the employees&#8217; respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash
contributions to the state-sponsored plans out of the amounts accrued. Total expenses for the plans were $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DefinedBenefitPlanBenefitObligation" scale="0" unitRef="usd">817,345</ix:nonFraction>, $<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DefinedBenefitPlanBenefitObligation" scale="0" unitRef="usd">804,730</ix:nonFraction>, and $<ix:nonFraction contextRef="c32" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DefinedBenefitPlanBenefitObligation" scale="0" unitRef="usd">310,637</ix:nonFraction>
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</div><div>

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</div><div>

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of salary and welfare expenses for the Company&#8217;s IT department employees who work for the development of the Company&#8217;s platform
and database, and software and related intellectual property expenses which were used to develop an extensive library of licensed content
and medical database. For the years ended December 31, 2022, 2021, and 2020, the Company incurred research and development expenses of
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</div><div>

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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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</div><div>

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employees and one non-employee are measured at fair value on grant date and measurement date, respectively, and share-based compensation
expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution
method, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference
to the fair value of the underlying shares.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based
awards granted by the Company, including but not limited to the fair value of the Company ordinary shares, expected life, expected volatility
and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment.
If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation
expense may differ materially in the future from that recorded in the current reporting period. Moreover, the estimates of fair value
of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive
share-based awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the
Company for accounting purposes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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and related surcharges on the revenues earned for both sales of products and rendering of services in the PRC. The applicable rate of
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</div><div>

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</div><div>

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with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of
deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis
and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is more likely
than not these items will be utilized against taxable income in the future. Deferred tax is calculated using tax rates that are expected
to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement,
except when it is related to items credited or charged directly to equity. 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 for in accordance with the laws of the relevant taxing authorities.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="zcmd:AmountOfTaxBenefit" scale="-2" unitRef="pure">50</ix:nonFraction>% likely of being realized
on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period
incurred. As of December 31, 2022, income tax returns for the tax years ended December 31, 2017 through December 31, 2021 remain open
for statutory examination.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->24<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-size: 7pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-size: 7pt">&#160;</span></p><div>

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</div><div>

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the period. Diluted (loss) earnings per share is computed by dividing net (loss) income attributable to ordinary shareholders by the
sum of the weighted average number of ordinary share outstanding and of potential ordinary share (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary
shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the
calculation of diluted earnings per share.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>


</div><div>

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</div><div>

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income and other comprehensive (loss) income arising from foreign currency adjustments. Comprehensive (loss) income is reported in the
consolidated statements of operations and comprehensive (loss) income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters,
including, among others, government investigations and tax matters. In accordance with ASC No. 450-20, &#8220;Loss Contingencies&#8221;,
the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss
can be reasonably estimated.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee&#8217;s obligation to make lease
payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee&#8217;s
right to use, or control the use of, a specified asset for the lease term.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>

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or, if that rate cannot be readily determined, the Company&#8217;s incremental borrowing rate for the same term as the underlying lease.
The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any
initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets
are reviewed for impairment. No impairment for right-of-use lease assets as of December 31, 2022 and 2021.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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customer base, homogeneity of service and technology. The Group&#8217;s operating segments are based on such organizational structure
and information reviewed by the Company&#8217;s CODM to evaluate the operating segment results. Based on management&#8217;s assessment,
the Company has determined that it has two operating segments: (i)&#160;provision of training and education services and assistance in
patient-aid projects (collectively &#8220;MDMOOC services&#8221;). (ii) sales of patented drugs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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period have been reclassified to conform to the financial statements for the current period. The reclassification has no impact on the
total assets and total liabilities as of December 31, 2022 or on the statements of operations for the year ended December 31, 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_119" id="_SignificantAccountingPoliciesTextBlock-c0_cont_118"><ix:nonNumeric contextRef="c0" continuedAt="zcmd_RecentlyIssuedAccountingPronouncements-c0_cont_1" escape="true" name="zcmd:RecentlyIssuedAccountingPronouncements"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Recently issued accounting pronouncements</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_120" id="_SignificantAccountingPoliciesTextBlock-c0_cont_119"><ix:continuation continuedAt="zcmd_RecentlyIssuedAccountingPronouncements-c0_cont_2" id="zcmd_RecentlyIssuedAccountingPronouncements-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In June 2016, the FASB issued ASU No. 2016-13,
<i>Financial Instruments &#8211; Credit Losses</i> (Topic 326): <i>Measurement of Credit Losses on Financial Instruments</i>. This ASU
is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This
ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments
used in estimating credit losses, as well as the credit quality and underwriting standards of the Company&#8217;s portfolio. These disclosures
include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.
The effective date was for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public
business entities that meet the definition of an SEC filer and eligible to be Smaller Reporting Companies, or SRC, as defined by the
SEC and all non-public business entities. As an &#8220;emerging growth company,&#8221; or EGC, the Company has elected to take advantage
of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards
applicable to private companies. The Company will adopt ASU 2016-13 and its related amendments effective January 1, 2023, and the Company
does not expect material impact on adoption of this standard on its consolidated financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_121" id="_SignificantAccountingPoliciesTextBlock-c0_cont_120"><ix:continuation id="zcmd_RecentlyIssuedAccountingPronouncements-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company does not believe other recently issued
but not yet effective accounting standards, if currently adopted, would have a material impact on its the consolidated financial position,
statements of operations and cash flows.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 7pt">&#160;</span></p></ix:continuation></ix:continuation><div>

</div><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)</b></span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_122" id="_SignificantAccountingPoliciesTextBlock-c0_cont_121"><ix:nonNumeric contextRef="c0" continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_1" escape="true" name="zcmd:SignificantRisksAndUncertainties"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Significant risks and uncertainties</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_123" id="_SignificantAccountingPoliciesTextBlock-c0_cont_122"><ix:continuation continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_2" id="zcmd_SignificantRisksAndUncertainties-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Credit risk</span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_124" id="_SignificantAccountingPoliciesTextBlock-c0_cont_123"><ix:continuation continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_3" id="zcmd_SignificantRisksAndUncertainties-c0_cont_2"><p style="text-align: justify; margin: 0pt 0; font: 10pt Times New Roman, Times, Serif">Assets that potentially subject the Company to significant concentration
of credit risk primarily consist of cash and cash equivalents. The maximum exposure of such assets to credit risk is their carrying amount
as at the balance sheet dates. As of December 31, 2022, the Company held cash and cash equivalents of $<ix:nonFraction contextRef="c140" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CashEquivalentsAtCarryingValue" scale="0" unitRef="usd">11,520,453</ix:nonFraction>, among which were $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:DepositedInFinancialInstitutions" scale="0" unitRef="usd">4,700,379</ix:nonFraction>
was deposited in financial institutions located in Mainland China, and each bank account is insured by the government authority with the
maximum limit of RMB <ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:BankOverdrafts" scale="0" unitRef="cny">500,000</ix:nonFraction> (equivalent to approximately $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:BankOverdrafts" scale="0" unitRef="usd">72,500</ix:nonFraction>). The Company also held cash of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CashEquivalentsAtCarryingValue" scale="0" unitRef="usd">4,709,310</ix:nonFraction> deposited in the financial
institutions in the United States, and each bank account is insured with the maximum limit of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:InsuranceRecoveries" scale="0" unitRef="usd">250,000</ix:nonFraction> by Federal Deposit Insurance Corporation
(&#8220;FDIC&#8221;) insurance. In addition, the Company maintains certain bank accounts in Japan with cash balance of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CashUninsuredAmount" scale="0" unitRef="usd">1,538,404</ix:nonFraction>, which
are not insured by FDIC insurance or other insurance. To limit exposure to credit risk relating to deposits, the Company primarily place
cash and cash equivalent deposits with large financial institutions &#160;which management believes are of high credit quality and the
Company also continually monitors their credit worthiness.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p></ix:continuation></ix:continuation><div>



</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_125" id="_SignificantAccountingPoliciesTextBlock-c0_cont_124"><ix:continuation continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_4" id="zcmd_SignificantRisksAndUncertainties-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#8217;s operations are carried out
in China. Accordingly, the Company&#8217;s business, financial condition and results of operations may be influenced by the political,
economic and legal environments in the PRC as well as by the general state of the PRC&#8217;s economy. In addition, the Company&#8217;s
business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, rates and methods of taxation among other factors.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_126" id="_SignificantAccountingPoliciesTextBlock-c0_cont_125"><ix:continuation continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_5" id="zcmd_SignificantRisksAndUncertainties-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Foreign currency risk</span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_127" id="_SignificantAccountingPoliciesTextBlock-c0_cont_126"><ix:continuation continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_6" id="zcmd_SignificantRisksAndUncertainties-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Substantially all of the Company&#8217;s operating
activities and the Company&#8217;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&#8217; Bank of China (&#8220;PBOC&#8221;) 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&#8217; 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.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_128" id="_SignificantAccountingPoliciesTextBlock-c0_cont_127"><ix:continuation continuedAt="zcmd_SignificantRisksAndUncertainties-c0_cont_7" id="zcmd_SignificantRisksAndUncertainties-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">3)</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Other risk</span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation id="_SignificantAccountingPoliciesTextBlock-c0_cont_128"><ix:continuation id="zcmd_SignificantRisksAndUncertainties-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#8217;s business, financial condition
and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics
and other catastrophic incidents, such as the COVID-19 outbreak and spread, management is currently evaluating the impact of the COVID-19
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company&#8217;s financial
position and results of its operations, the specific impact is not readily determinable as of the date of these financial statements.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.</p></ix:continuation></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:VariableInterestEntityDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>3.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>VARIABLE INTEREST ENTITIES
    AND OTHER CONSOLIDATION MATTERS</b></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_2" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 14, 2019, Zhongchao WFOE entered into
VIE Agreements with Zhongchao Shanghai and its shareholders. The key terms of these VIE Agreements are summarized in &#8220;Note 1 -
Organization and Principal Activities&#8221; above.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_3" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">VIE is an entity that has either a total equity
investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or
whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive
the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder,
if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Zhongchao
WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Zhongchao Shanghai, because it has both of
the following characteristics:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_4" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">1.</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">power to direct activities
    of Zhongchao Shanghai that most significantly impact its economic performance, and</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">2.</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">obligation to absorb losses
    of the entity that could potentially be significant to Zhongchao Shanghai or right to receive benefits from the entity that could
    potentially be significant to Zhongchao Shanghai.</span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_5" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, as all of these VIE agreements are
governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance
with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed
as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company&#8217;s
ability to enforce these VIE agreements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or
courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons.
In the event the Company is unable to enforce these VIE Agreements, it may not be able to consolidate the financial statements of Zhongchao
Shanghai and its ability to conduct its business may be materially and adversely affected.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p></ix:continuation><div>
</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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the financial statements of Zhongchao Shanghai and its subsidiaries. Current regulations in China permit Zhongchao Shanghai to pay dividends
to the Company only out of its accumulated distributable profits, if any, determined in accordance with their articles of association
and PRC accounting standards and regulations. The ability of Zhongchao Shanghai to make dividends and other payments to the Company may
be restricted by factors including changes in applicable foreign exchange and other laws and regulations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p></ix:continuation><div>
</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_7" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt"><i><span style="text-decoration:underline">Risks
of variable interest entity structure</span></i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_8" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt"><span style="font-family: Times New Roman, Times, Serif">In
the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the
VIE Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii)
the business operations of WFOE and the VIE are in compliance with existing PRC laws and regulations in all material respects, except as disclosed in this Annual Report.</span>&#160;</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_9" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">However, there
are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly,
the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its
management. If the current corporate structure of the Company or the VIE Arrangements is found to be in violation of any existing or
future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply
with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company&#8217;s
current corporate structure or the VIE Arrangements is remote based on current facts and circumstances.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>3.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>VARIABLE INTEREST ENTITIES
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_10" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following significant amounts of Zhongchao
Shanghai and its subsidiaries are included in the accompanying consolidated financial statements as of December 31, 2022 and 2021, and
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</div><div>

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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_12" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_11"><ix:continuation continuedAt="_ScheduleOfVariableInterestEntitiesTextBlock-c0_cont_2" id="_ScheduleOfVariableInterestEntitiesTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_13" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_12"><ix:continuation id="_ScheduleOfVariableInterestEntitiesTextBlock-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">*</span></td><td style="text-align: justify"><ix:footnote id="ix_0_footnote" xml:lang="en-US"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
balances due from/to Zhongchao Inc., are eliminated on consolidation.</span></ix:footnote></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation id="_VariableInterestEntityDisclosureTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022 and 2021, the VIE and
its subsidiaries did not collateralize their assets for the obligation. Moreover the beneficial interest holders of the VIE and its subsidiaries
had no recourse to the general credit of the Company or its subsidiaries.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>


</div><!-- Field: Page; Sequence: 203; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->28<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:BusinessCombinationDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>4.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ACQUISITION OF BEIJING
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_2" id="_BusinessCombinationDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; ">In November 2021, Beijing
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accounted for the investment under equity method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; ">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_3" id="_BusinessCombinationDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; ">In February 2022, Beijing
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</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_4" id="_BusinessCombinationDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; "><span style="font-family: Times New Roman, Times, Serif">In
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</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_5" id="_BusinessCombinationDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; ">The allocation of the
purchase price as of the date of acquisition is summarized as follows:</p><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_6" id="_BusinessCombinationDisclosureTextBlock-c0_cont_5"><ix:nonNumeric contextRef="c0" continuedAt="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_1" escape="true" name="us-gaap:ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Goodwill" scale="0" unitRef="usd">5,767,504</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left">Deferred tax liabilities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredIncomeTaxLiabilities" scale="0" unitRef="usd">234,225</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Non-controlling interest (iii)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" id="ix_4_fact" name="us-gaap:BusinessCombinationAcquisitionOfLessThan100PercentNoncontrollingInterestFairValue" scale="0" unitRef="usd">2,585,087</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; padding-bottom: 1.5pt">Foreign currency adjustments</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:OtherComprehensiveIncomeLossForeignCurrencyTransactionAndTranslationAdjustmentNetOfTax" scale="0" unitRef="usd">120,261</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><p style="margin: 0pt 0; font: 10pt Times New Roman, Times, Serif"><b><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireBusinessesGross" scale="0" unitRef="usd">4,008,767</ix:nonFraction></b></p></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="text-align: left">Total purchase price is comprised of</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-align: left">Cash consideration</td><td>&#160;</td>
    <td style="text-align: left">$</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:BusinessCombinationConsiderationTransferred1" scale="0" unitRef="usd">3,055,432</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
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    <td style="padding-left: 0.125in; text-align: left">Fair value of previously held equity interests (iv)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" id="ix_5_fact" name="zcmd:FairValueOfPreviouslyHeldEquityInterests" scale="0" unitRef="usd">708,129</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-align: left">Fair value of 6.67% equity interest in Zhongxin (v)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" id="ix_6_fact" name="us-gaap:FairValueMeasurementWithUnobservableInputsReconciliationRecurringBasisLiabilityTransfersNet" scale="0" unitRef="usd">393,816</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" id="ix_7_fact" name="zcmd:NotesPayableRelatedPartieCurrentAndNoncurrent" scale="0" unitRef="usd">148,610</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:IncomeLossFromContinuingOperationsIncludingPortionAttributableToNoncontrollingInterest" scale="0" unitRef="usd">4,008,767</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
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</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_7" id="_BusinessCombinationDisclosureTextBlock-c0_cont_6"><ix:continuation continuedAt="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_2" id="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(i)</td><td style="text-align: justify"><ix:footnote id="ix_1_footnote" xml:lang="en-US">Net asset deficit assumed primarily included other current liabilities
for operating expenses.</ix:footnote></td>
</tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_8" id="_BusinessCombinationDisclosureTextBlock-c0_cont_7"><ix:continuation continuedAt="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_3" id="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(ii)</td><td style="text-align: justify"><ix:footnote id="ix_2_footnote" xml:lang="en-US">Software acquired in the business combination had estimated
useful life of <ix:nonNumeric contextRef="c0" format="ixt-sec:duryear" name="zcmd:EstimatedUsefulLife">3</ix:nonNumeric> years.</ix:footnote></td>
</tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_9" id="_BusinessCombinationDisclosureTextBlock-c0_cont_8"><ix:continuation continuedAt="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_4" id="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(iii)</td><td style="text-align: justify"><ix:footnote id="ix_3_footnote" xml:lang="en-US">Fair value of the noncontrolling interests was estimated with
reference to the market price per share as of the acquisition date.</ix:footnote></td>
</tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_10" id="_BusinessCombinationDisclosureTextBlock-c0_cont_9"><ix:continuation continuedAt="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_5" id="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(iv)</td><td style="text-align: justify"><ix:footnote id="ix_4_footnote" xml:lang="en-US">A gain of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:BusinessCombinationConsiderationTransferredEquityInterestsIssuedAndIssuable" scale="0" unitRef="usd">850</ix:nonFraction> in relation to the revaluation of the previously
held equity interests was recorded in other income, net in the consolidated statements of operations and comprehensive (loss) income
for the year ended December 31, 2022. The fair value of the previously held equity interests approximated the cost of investments as
Beijing Yisuizhen has not commenced operations since its setup.</ix:footnote></td>
</tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation id="_BusinessCombinationDisclosureTextBlock-c0_cont_10"><ix:continuation id="_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(v)</td><td style="text-align: justify"><ix:footnote id="ix_5_footnote" xml:lang="en-US">In exchange for the equity interest in Beijing Yisuizhen and
West Angel, the Company also granted <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:DeferredCompensationArrangementWithIndividualCashAwardsGrantedPercentage" scale="-2" unitRef="pure">6.67</ix:nonFraction>% equity interest in Shanghai Zhongxin, with fair value of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LongTermDebtFairValue" scale="0" unitRef="usd">393,816</ix:nonFraction> (RMB <ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LongTermDebtFairValue" scale="0" unitRef="cny">2,713,000</ix:nonFraction>), to four
shareholders of West Angel at cash consideration of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:CashConsideration" scale="0" unitRef="usd">148,610</ix:nonFraction> (RMB <ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:CashConsideration" scale="0" unitRef="cny">1,000,000</ix:nonFraction>). The Company engaged a third party valuation team to estimate
the fair value of equity interest of Shanghai Zhongxin. As of December 31, 2022, the four shareholders paid the cash consideration to
Mr. Yang, the Chief Executive Officer of the Company. The Company recorded the outstanding balance in the account of due from related
parties (Note 16).</ix:footnote></td>
</tr></table></ix:continuation></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; ">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; "></p><div>

</div><!-- Field: Page; Sequence: 204; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->29<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; ">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_CashCashEquivalentsAndShortTermInvestmentsTextBlock-c0_cont_1" escape="true" name="us-gaap:CashCashEquivalentsAndShortTermInvestmentsTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>5.</b></span></td>
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</div><ix:continuation id="_CashCashEquivalentsAndShortTermInvestmentsTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022 and 2021, the balance
of short-term investments represented certain listed equity securities purchased through various open market transactions. The short-term
investments are trading securities. They are initially recorded at cost, and subsequently measured at fair value with the changes in
fair value recorded in other income, net in the consolidated statements of operations and comprehensive (loss) income. Loss from such
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_OtherCurrentAssetsTextBlock-c0_cont_1" escape="true" name="us-gaap:OtherCurrentAssetsTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><ix:continuation continuedAt="_OtherCurrentAssetsTextBlock-c0_cont_2" id="_OtherCurrentAssetsTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Other current assets consist of the following:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_OtherCurrentAssetsTextBlock-c0_cont_3" id="_OtherCurrentAssetsTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" continuedAt="_ScheduleOfOtherCurrentAssetsTableTextBlock-c0_cont_1" escape="true" name="us-gaap:ScheduleOfOtherCurrentAssetsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation id="_OtherCurrentAssetsTextBlock-c0_cont_3"><ix:continuation id="_ScheduleOfOtherCurrentAssetsTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(i)</span></td> <td style="text-align: justify"><ix:footnote id="ix_6_footnote" xml:lang="en-US"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">During the year ended December 31, 2022, the Company sold one of its properties to a third party at cash consideration of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:SaleOfStockConsiderationReceivedOnTransaction" scale="0" unitRef="usd">1,323,308</ix:nonFraction> (Note 8), among which the third party paid $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToEmployees" scale="0" unitRef="usd">1,112,440</ix:nonFraction>. The Company recorded the remaining balance as &#8220;due from a third party&#8221; in the account of other current assets.</span></ix:footnote></td></tr>
</table></ix:continuation></ix:continuation><div>

</div><p style="margin: 0">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:LoansNotesTradeAndOtherReceivablesDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_2" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Loans receivable consist of the following:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_4" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Borrower A, B and C</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_5" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2021, the
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to Borrowers A, B, and C, respectively. During the year ended December 31, 2021, the Company collected RMB <ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:BusinessAcquisitionPreacquisitionContingencyTotalAmounts" scale="0" unitRef="cny">5,000,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:BusinessAcquisitionPreacquisitionContingencyTotalAmounts" scale="0" unitRef="usd">775,098</ix:nonFraction>)
from Borrower A. These loans were interest free. During the year ended December 31, 2022, the Company fully collected the loans receivables
from Borrower A, B and C.&#160;&#160;</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_6" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Borrower D and E</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_7" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2021, the
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</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_8" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2022, the
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</div><div>

</div><ix:continuation id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April 2022, Mr. Yang, the Chief Executive Officer
of the Company, provided a guarantee on the borrowings to Borrower A, D and E, respectively, providing that Mr. Yang will repay the loans
on behalf of the Borrower A, D and E if any of them failed to repay the loan. In December 2022, the Company extended borrowings for another
six months and Mr. Yang provided an extended guarantee on the borrowings. As of the date of this report, the Company collected $<ix:nonFraction contextRef="c163" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LoansAndLeasesReceivableFeesEarnedButExcludedFromYield" scale="0" unitRef="usd">1,590,000</ix:nonFraction>
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the balance of loan receivable was zero.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>


</div><!-- Field: Page; Sequence: 205; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->30<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:PropertyPlantAndEquipmentDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>8.</b></span></td>
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_2" id="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Property and equipment, net consist of the following:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_3" id="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:PropertyPlantAndEquipmentTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c176" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentOther" scale="0" unitRef="usd">79,082</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c178" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentOther" scale="0" unitRef="usd">32,535</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c179" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentOther" scale="0" unitRef="usd">35,213</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c180" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentOther" scale="0" unitRef="usd">53,253</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-175">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less: accumulated depreciation</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AccumulatedDepreciationDepletionAndAmortizationPropertyPlantAndEquipment" scale="0" unitRef="usd">379,879</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AccumulatedDepreciationDepletionAndAmortizationPropertyPlantAndEquipment" scale="0" unitRef="usd">636,239</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
    <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentGross" scale="0" unitRef="usd">3,890,947</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">$</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PropertyPlantAndEquipmentGross" scale="0" unitRef="usd">3,923,086</ix:nonFraction></td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation continuedAt="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_4" id="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation expenses totaled $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Depreciation" scale="0" unitRef="usd">241,842</ix:nonFraction>, $<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Depreciation" scale="0" unitRef="usd">312,898</ix:nonFraction>,
and $<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Depreciation" scale="0" unitRef="usd">176,111</ix:nonFraction> for the years ended December 31, 2022, 2021 and 2020, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_5" id="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In May 2021, the Company, through Ms. Lirong
Yang, sister of the Company&#8217;s CEO, purchased a property for a total purchase price of approximately $<ix:nonFraction contextRef="c173" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:InventoryBuildingsAndImprovements" scale="0" unitRef="usd">1,397,317</ix:nonFraction> in a public judicial
auction in May 2021 to be used as office for Shanghai Maidemu, one of subsidiaries of the VIE of the Company. Pursuant to a real estate
entrust agreement between Shanghai Maidemu and Ms. Yang, Shanghai Maidemu is considered ultimate ownership/beneficiary of this property.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_PropertyPlantAndEquipmentDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2021, the Company obtained
the property ownership certificate, but the property was illegally encroached by an outsider. Till March 2022, Jinan Intermediate People&#8217;s
court has sent a letter to Beijing Higher People&#8217;s court, hoping that the eviction order of this case would be implemented by the Tongzhou
District People&#8217;s court, where the property is located. During the year ended December 31, 2022, the Company sold the property to a third
party for $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredGainOnSaleOfProperty" scale="0" unitRef="usd">1,323,308</ix:nonFraction>. The difference between the cash consideration and the net book value was recorded as &#8220;gain from disposal of
property and equipment&#8221; in the account of &#8220;other income, net&#8221; in the consolidated statements of operations and comprehensive
(loss) income.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="zcmd_PrepaymentsForLeaseOfLandTextBlock-c0_cont_1" escape="true" name="zcmd:PrepaymentsForLeaseOfLandTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>PREPAYMENTS FOR LEASE
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
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</div><ix:continuation continuedAt="zcmd_PrepaymentsForLeaseOfLandTextBlock-c0_cont_2" id="zcmd_PrepaymentsForLeaseOfLandTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Prepayments for lease of land consist of the followings:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="zcmd_PrepaymentsForLeaseOfLandTextBlock-c0_cont_3" id="zcmd_PrepaymentsForLeaseOfLandTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="zcmd:ScheduleOfPrepaymentsForLeaseOfLandTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:PrepaymentsForLeaseOfLandGross" scale="0" unitRef="usd">401,031</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:PrepaymentsForLeaseOfLandGross" scale="0" unitRef="usd">434,045</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; ">
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AccumulatedAmortizationOfOtherDeferredCosts" scale="0" unitRef="usd">96,244</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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</div><div>

</div><ix:continuation id="zcmd_PrepaymentsForLeaseOfLandTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Amortization expenses totaled $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AmortizationExpensesForLeaseOfLand" scale="0" unitRef="usd">22,226</ix:nonFraction>, $<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AmortizationExpensesForLeaseOfLand" scale="0" unitRef="usd">23,185</ix:nonFraction>,
and $<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AmortizationExpensesForLeaseOfLand" scale="0" unitRef="usd">21,670</ix:nonFraction> for the years ended December 31, 2022, 2021, and 2020, respectively.&#160;</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


</div><!-- Field: Page; Sequence: 206; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->31<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:GoodwillAndIntangibleAssetsDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>10.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INTANGIBLE ASSETS, NET</b></span></td></tr>
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</div><div>

</div><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_2" id="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Intangible assets, net consist of the following:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_3" id="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfImpairedIntangibleAssetsTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_4" id="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the years ended December 31, 2022, 2021 and
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</div><div>

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</div><div>

</div><ix:continuation id="_GoodwillAndIntangibleAssetsDisclosureTextBlock-c0_cont_5"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:LessorOperatingLeasePaymentsToBeReceivedMaturityTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_InvestmentCompanyFinancialHighlightsTextBlock-c0_cont_1" escape="true" name="us-gaap:InvestmentCompanyFinancialHighlightsTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>11.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INVESTMENTS IN EQUITY
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
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</div><ix:continuation continuedAt="_InvestmentCompanyFinancialHighlightsTextBlock-c0_cont_2" id="_InvestmentCompanyFinancialHighlightsTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022 and 2021, the Company&#8217;s
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</div><div>

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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Beijing Yisuizhen (b)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation continuedAt="_InvestmentCompanyFinancialHighlightsTextBlock-c0_cont_4" id="_InvestmentCompanyFinancialHighlightsTextBlock-c0_cont_3"><ix:continuation continuedAt="_ScheduleOfSubsidiaryOfLimitedLiabilityCompanyOrLimitedPartnershipDescriptionTextBlock-c0_cont_2" id="_ScheduleOfSubsidiaryOfLimitedLiabilityCompanyOrLimitedPartnershipDescriptionTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(a)</span></td> <td style="text-align: justify"><ix:footnote id="ix_7_footnote" xml:lang="en-US"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">On November 5, 2020, the Company entered into a five-year partnership agreement to invest $<ix:nonFraction contextRef="c186" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:InvestmentOwnedUnderlyingFaceAmountAtMarketValue" scale="0" unitRef="usd">1,217,039</ix:nonFraction>, for <ix:nonFraction contextRef="c186" decimals="2" format="ixt:num-dot-decimal" name="zcmd:PartnershipInterestPercentage" scale="-2" unitRef="pure">28</ix:nonFraction>% partnership interest in the limited partnership. The funds raised by the limited partnership are invested in one PRC private company engaged in immunotherapy. For the years ended December 31, 2022, 2021 and 2020, equity investment loss of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PrincipalInvestmentGainsLosses" scale="0" unitRef="usd">80</ix:nonFraction>, $<ix:nonFraction contextRef="c8" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PrincipalInvestmentGainsLosses" scale="0" unitRef="usd">13,758</ix:nonFraction> and $<ix:nonFraction contextRef="c9" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PrincipalInvestmentGainsLosses" scale="0" unitRef="usd">25,622</ix:nonFraction> have been recorded in other income, net for the Company&#8217;s share of the operating loss of the limited partnership. As of December 31, 2022 and 2021, no significant impairment indicators have been noted in connection with the investment.</span></ix:footnote></td></tr> </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&#160;</p><div>


</div><!-- Field: Page; Sequence: 207; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->32<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>12.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INVESTMENT IN AN EQUITY
    SECURITY</b></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-c0_cont_2" id="_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2021, the
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Ivy was mainly engaged in investments in equities, options, futures, debt securities and commodities, and interim investments in money
market or equivalent instruments. The Company can withdraw the investment after six months of the investment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-c0_cont_3" id="_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a practical expedient, the Company uses Net
Asset Value (&#8220;NAV&#8221;) or its equivalent to measure the fair value of the investment in the Elite Ivy. For the year ended December
31, 2022 and 2021, the Company recorded downward adjustments of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="zcmd:DownwardAdjustmentsInInvestmentsInAnEquitySecurity" scale="0" unitRef="usd">65,394</ix:nonFraction> and $<span style="-sec-ix-hidden: hidden-fact-177">nil</span> on the investment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company considers both qualitative and quantitative
factors that may have a significant effect on the fair value of the equity security. For the year ended December 31, 2022 and 2021, the
Company did not record impairment against the investment.&#160;&#160;&#160;</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_AccountsPayableAccruedLiabilitiesAndOtherLiabilitiesDisclosureCurrentTextBlock-c0_cont_1" escape="true" name="us-gaap:AccountsPayableAccruedLiabilitiesAndOtherLiabilitiesDisclosureCurrentTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_AccountsPayableAccruedLiabilitiesAndOtherLiabilitiesDisclosureCurrentTextBlock-c0_cont_4" id="_AccountsPayableAccruedLiabilitiesAndOtherLiabilitiesDisclosureCurrentTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Other tax payable</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:IncomeTaxDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>14.</b></span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INCOME
TAXES</b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_2" id="_IncomeTaxDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Cayman Islands</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

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the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman
Islands withholding tax will be imposed.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_4" id="_IncomeTaxDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>British Virgin Islands</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_6" id="_IncomeTaxDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Hong Kong</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_7" id="_IncomeTaxDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Zhongchao HK is incorporated in Hong Kong and
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Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax laws,
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_8" id="_IncomeTaxDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>USA</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p></ix:continuation><div>

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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_10" id="_IncomeTaxDisclosureTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Japan</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p></ix:continuation><div>

</div><div>

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</div><div>

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</div><div>

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EIT rate of 20%, 87.5% reduction of taxable income for the first RMB1,000,000 taxable income and 75% reduction of taxable income between
RMB 1,000,000 and RMB 3,000,000, and no reduction for the remaining taxable income for the year ended December 31, 2022; 87.5% reduction
of taxable income for the first RMB1,000,000 taxable income and 50% reduction of taxable income between RMB 1,000,000 and RMB 3,000,000,
and no reduction for the remaining taxable income for the year ended December 31, 2021; and 75% reduction of taxable income for the first
RMB1,000,000 taxable income and 50% reduction of taxable income between RMB 1,000,000 and RMB 3,000,000, and no reduction for the remaining
taxable income for the years ended before December 31, 2020.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_17" id="_IncomeTaxDisclosureTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September 2018, the State Taxation Administration
of the PRC announced a preferential tax treatment for research and development expenses. Qualified entities are entitled to deduct <ix:nonFraction contextRef="c193" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationTaxCreditsResearch" scale="-2" unitRef="pure">175</ix:nonFraction>%
research and development expenses against income to reach a net operating income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>14.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INCOME TAXES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_18" id="_IncomeTaxDisclosureTextBlock-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The components of (loss) profit before income tax benefits (expenses)
are summarized as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_19" id="_IncomeTaxDisclosureTextBlock-c0_cont_18"><ix:nonNumeric contextRef="c0" escape="true" name="zcmd:ScheduleOfComponentsOflossProfitBeforeIncomeTaxBenefitsexpensesAreSummarizedTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the Years Ended<br/> December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_20" id="_IncomeTaxDisclosureTextBlock-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Income tax benefits (expenses) consist of the following:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_21" id="_IncomeTaxDisclosureTextBlock-c0_cont_20"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfComponentsOfIncomeTaxExpenseBenefitTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the Years Ended<br/> December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 64%; text-align: left">Current income tax expenses</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">(<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CurrentIncomeTaxExpenseBenefit" scale="0" sign="-" unitRef="usd">138,188</ix:nonFraction></td><td style="width: 1%; text-align: left">)</td><td style="width: 1%">&#160;</td>
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_22" id="_IncomeTaxDisclosureTextBlock-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Below is a reconciliation of the statutory tax rate to the effective
tax rate:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_23" id="_IncomeTaxDisclosureTextBlock-c0_cont_22"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfEffectiveIncomeTaxRateReconciliationTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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    <td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the Years Ended<br/> December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c8" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationAtFederalStatutoryIncomeTaxRate" scale="-2" unitRef="pure">25</ix:nonFraction></td><td style="width: 1%; text-align: left">%</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left">Effect of different income tax rates in other jurisdictions</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->35<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>14.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INCOME TAXES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_24" id="_IncomeTaxDisclosureTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Deferred tax assets as of December 31, 2022 and 2021 consist of the
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_25" id="_IncomeTaxDisclosureTextBlock-c0_cont_24"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfDeferredTaxAssetsAndLiabilitiesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="font-weight: bold; text-align: left">Deferred tax assets:</td><td>&#160;</td>
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    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LeaseLiabilities" scale="0" unitRef="usd">71,024</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:LeaseLiabilities" scale="0" unitRef="usd">31,615</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Less: Deferred tax liability - Right of use assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredTaxLiabilitiesGoodwillAndIntangibleAssetsIntangibleAssets" scale="0" unitRef="usd">81,910</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredTaxLiabilitiesGoodwillAndIntangibleAssetsIntangibleAssets" scale="0" unitRef="usd">37,184</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Software acquired in business combination</td><td style="padding-bottom: 1.5pt">&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_26" id="_IncomeTaxDisclosureTextBlock-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif">As
of December 31, 2022 and 2021, the Company had net operating loss carryforwards of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:OperatingLossCarryforwards" scale="0" unitRef="usd">7,166,560</ix:nonFraction> and
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be carried forward&#160;indefinitely and shall not expire. <ix:nonNumeric contextRef="c0" name="zcmd:NetOperatingLossCarryforwardsDescription">The Company also has net operating loss carryforwards from PRC of
$5,653,804 which expire starting in 2025 through 2027.</ix:nonNumeric> The Company reviews deferred tax assets for a valuation allowance based upon
whether it is more likely than not that the deferred tax asset will be fully realized. As of December 31, 2022 and 2021, the Company
recorded valuation allowance of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:DeferredTaxAssetsNet" scale="0" unitRef="usd">339,495</ix:nonFraction> and $<span style="-sec-ix-hidden: hidden-fact-185">nil</span> against the deferred tax assets arising from net operating loss carrying forward
based upon management&#8217;s assessment that it is more likely than not that part of deferred tax assets will not be realized. </span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_27" id="_IncomeTaxDisclosureTextBlock-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company evaluates its valuation allowance
requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether,
based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management&#8217;s judgement
about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income
from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence
of sufficient taxable income of the appropriate character within the carryforward period available under applicable tax law.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Unrecognized tax benefits</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The aggregate change in the balance of gross unrecognized
tax benefits for the years ended December 31, 2022 and 2021 is as follows:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
    <td>&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(1,470,344</td><td style="text-align: left">)</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;&#160;</p><div>


</div><!-- Field: Page; Sequence: 211; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->36<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>14.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INCOME TAXES (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2022 and 2021, there were $Nil
and $1,470,344 respectively of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The balance is
presented as a current liability in the consolidated financial statements as of December 31, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes interest and penalty charges
related to income tax payable as necessary in the provision for income taxes. For the years ended December 31, 2022 and 2021, no interest
expense or penalty was accrued in relation to the income tax payable. The Company has a liability for accrued interest and penalty of
$Nil as of December 31, 2022 and 2021, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">ASC 740 states that a tax benefit from an uncertain
tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions
of any related appeals or litigation processes, on the basis of the technical merits. We record unrecognized tax benefits as liabilities
in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not
previously available. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution
of uncertain tax positions may result in liabilities which could be materially different from these estimates. In such an event, the Company
will record additional tax expense or tax benefit in the period in which such resolution occurs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;&#160;</p><div>

</div><ix:continuation id="_IncomeTaxDisclosureTextBlock-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the Tax Act, the Company has evaluated
whether it has an additional tax liability from the Global Intangible Low Taxed Income (&#8220;GILTI&#8221;) inclusion on current earnings
and profits of its foreign controlled corporations. The law also provides that corporate taxpayers may benefit from a <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationShareBasedCompensationExcessTaxBenefitPercent" scale="-2" unitRef="pure">50</ix:nonFraction>% reduction in
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a foreign tax credit in connection with the foreign taxes paid. As of December 31, 2022 and 2021 the Company does not have any aggregated
positive tested income; and as such, did not record a liability for GILTI tax. With the effective date of January 1, 2018, the Tax Act
introduced a provision to tax global intangible low-taxed income (&#8220;GILTI&#8221;). The Company will account for future tax liability
arising from Global Intangible Low-Taxed Income, if any, as a period cost.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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  <tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_EarningsPerShareTextBlock-c0_cont_3" id="_EarningsPerShareTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfEarningsPerShareBasicAndDilutedTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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</div><div>

</div><ix:continuation continuedAt="_EarningsPerShareTextBlock-c0_cont_4" id="_EarningsPerShareTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 14, 2019, Zhongchao Cayman completed
a reorganization of entities under common control of its then existing shareholders, who collectively owned a majority of the equity
interests of Zhongchao Cayman prior to the reorganization. All references to numbers of common shares and per-share data in the consolidated
financial statements have been adjusted to reflect such issuance of shares on a retrospective basis. In addition, the contingently issuable
ordinary shares of <ix:nonFraction contextRef="c201" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:ExcessStockSharesOutstanding" scale="0" unitRef="shares">1,350,068</ix:nonFraction> shares of Class A ordinary share underlying the warrant (Note 1) issued to one existing shareholder of Zhongchao
Shanghai is included in calculation of basic and diluted weighted average number of ordinary share outstanding, as the Company does not
expect any circumstances under which those shares would not be issued.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_EarningsPerShareTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Potential ordinary shares that have an anti-dilutive
effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted (loss) earnings
per share. For the years ended December 31, 2022, 2021 and 2020, the Company had no dilutive shares.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><!-- Field: Page; Sequence: 212; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:RelatedPartyTransactionsDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>RELATED PARTY TRANSACTIONS
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_2" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>1)</i></span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Nature
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</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_3" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="zcmd:RelationshipsWithRelatedPartiesTableTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_5" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Purchase from a related party</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_8" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_7"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><div>

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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_11" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_10"><ix:continuation continuedAt="zcmd_ScheduleOfRelatedPartyTransactionTableTextBlock-c0_cont_2" id="zcmd_ScheduleOfRelatedPartyTransactionTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left">(i)</td><td style="text-align: justify">As of December 31, 2022, the Company had a balance of $<ix:nonFraction contextRef="c202" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PolicyholderFunds" scale="0" unitRef="usd">226,178</ix:nonFraction>
due from Mr. Yang Weiguang. The balance was comprised of the following:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

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<td style="width: 0.25in"></td><td style="width: 0.25in">-</td><td style="text-align: justify">A balance of $<ix:nonFraction contextRef="c204" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:PolicyholderFunds" scale="0" unitRef="usd">81,192</ix:nonFraction> as tuition paid on behalf of to Mr. Yang.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_14" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_13"><ix:continuation continuedAt="zcmd_ScheduleOfRelatedPartyTransactionTableTextBlock-c0_cont_5" id="zcmd_ScheduleOfRelatedPartyTransactionTableTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.25in; text-align: justify; text-indent: 0.5in">As of the date of this report,
Mr. Yang has repaid the above outstanding balances to the Company.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_14"><ix:continuation id="zcmd_ScheduleOfRelatedPartyTransactionTableTextBlock-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left">(ii)</td><td style="text-align: justify"><ix:footnote id="ix_10_footnote" xml:lang="en-US">As of December 31, 2021, the Company had a balance of $<ix:nonFraction contextRef="c205" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:RelatedPartyTransactionAmountsOfTransaction" scale="0" unitRef="usd">392,305</ix:nonFraction>
due from Beijing Yisuizhen, over which the Company owned <ix:nonFraction contextRef="c206" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:InvestmentInterestRate" scale="-2" unitRef="pure">47</ix:nonFraction>% equity interest before August 17, 2022. The balance was a loan to the newly
set up equity investee to support its working capital. The outstanding balance was repaid by Beijing Yisuizhen before business combination
with the Company.</ix:footnote></td>
</tr></table></ix:continuation></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>17.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>EQUITY</b></span></td></tr>
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</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_2" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="text-decoration:underline">Ordinary share</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_3" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#8217;s authorized share capital
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per share (each, a &#8220;Class B Ordinary Share&#8221;; collectively, &#8220;Class B Ordinary Shares&#8221;). On April 16, 2019, the
Company issued <ix:nonFraction contextRef="c210" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TemporaryEquitySharesIssued" scale="0" unitRef="shares">10,000</ix:nonFraction> Class B Ordinary Shares. On August 14, 2019, the Company issued <ix:nonFraction contextRef="c201" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TemporaryEquitySharesIssued" scale="0" unitRef="shares">14,752,352</ix:nonFraction> Class A Ordinary Shares and <ix:nonFraction contextRef="c211" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TemporaryEquitySharesIssued" scale="0" unitRef="shares">5,497,715</ix:nonFraction>
Class B Ordinary Shares. <ix:nonNumeric contextRef="c0" name="zcmd:OrdinarySahresDescription">Holders of Class A Ordinary Shares and Class B Class A Ordinary Shares have the same rights except for voting
and conversion rights. In respect of matters requiring a shareholder vote, each Class A Ordinary Share will be entitled to 1 vote and
each Class B Ordinary Share will be entitled to 15 votes.</ix:nonNumeric> The Class A Ordinary Shares are not convertible into shares of any other class.
The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time after issuance at the option of the holder on a
one to one basis.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_4" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, the Company was committed to issue
<ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TemporaryEquitySharesIssued" scale="0" unitRef="shares">1,350,068</ix:nonFraction> Class A Ordinary Shares to a <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:SharebasedCompensationArrangementBySharebasedPaymentAwardPurchasePriceOfCommonStockPercent" scale="-2" unitRef="pure">6.25</ix:nonFraction> % shareholder of Zhongchao Shanghai, who is now in the progress of changing from a shareholder
of Zhongchao Shanghai to a direct investor of Zhongchao Cayman (Note 1). The <ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TemporaryEquitySharesIssued" scale="0" unitRef="shares">1,350,068</ix:nonFraction> Class A Ordinary Shares, representing <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="zcmd:EconomicBeneficialInterestRate" scale="-2" unitRef="pure">5.19</ix:nonFraction>% economic
beneficial interest, or <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:VariableInterestEntityOwnershipPercentage" scale="-2" unitRef="pure">1.31</ix:nonFraction>% of the voting ownership interest of the Company as of December 31, 2022, will be issued to the shareholder
upon its capital contribution in Zhongchao Cayman and the Company released its paid-in capital in Zhongchao Shanghai. Such ordinary shares
are included in the shares issued and outstanding as of December 31, 2022 and 2021 and in the calculation of earnings per share as such
commitment to issue the shares is considered to be part the reorganization, and the shares are considered to be in existence from the
time this shareholder made the investment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_5" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 26, 2020, the Company closed its
initial public offering (IPO) on the Nasdaq Global Market. The Company offered <ix:nonFraction contextRef="c212" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:TemporaryEquitySharesIssued" scale="0" unitRef="shares">3,000,000</ix:nonFraction> Class A Ordinary Shares in the IPO, par value
$<ix:nonFraction contextRef="c212" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:CommonStockParOrStatedValuePerShare" scale="0" unitRef="usdPershares">0.0001</ix:nonFraction> per share, at $<ix:nonFraction contextRef="c212" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:SharesIssuedPricePerShare" scale="0" unitRef="usdPershares">4.00</ix:nonFraction> per share. In addition, the underwriters of the Company&#8217;s IPO have exercised in full their over-allotment
option to purchase additional <ix:nonFraction contextRef="c213" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:StockRepurchasedDuringPeriodShares" scale="0" unitRef="shares">315,000</ix:nonFraction> Class A Ordinary Shares, at $<ix:nonFraction contextRef="c214" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:SharesIssuedPricePerShare" scale="0" unitRef="usdPershares">4.00</ix:nonFraction> per share.&#160;&#160;Gross proceeds of the Company&#8217;s IPO,
including the proceeds from the sale of the over-allotment shares, totaled $<ix:nonFraction contextRef="c215" decimals="-4" format="ixt:num-dot-decimal" name="zcmd:GrossProceeds" scale="6" unitRef="usd">13.26</ix:nonFraction> million, before deducting underwriting discounts and
other related expenses.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_6" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 17, 2021, the Company, entered into
a Sales Agreement with U.S. Tiger Securities, acting as Sales Agent, pursuant to which the Company may offer and sell, from time to time,
through the Sales Agent, its Class A Ordinary Shares. Class A Ordinary Shares will be offered and sold pursuant to the prospectus supplement,
dated December 17, 2021, to the Registration Statement on Form F-3 (File No. 333-256190) that forms a part of such Form F-3, for an aggregate
offering price of up to $<ix:nonFraction contextRef="c216" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AggregateOfferingPrice" scale="0" unitRef="usd">10,400,000</ix:nonFraction>. On January 6, 2022, the Sales Agent sold an aggregate of <ix:nonFraction contextRef="c217" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:SaleOfStockNumberOfSharesIssuedInTransaction" scale="0" unitRef="shares">1,060,000</ix:nonFraction> Class A Ordinary Shares at an
offering price of $<ix:nonFraction contextRef="c218" decimals="1" format="ixt:num-dot-decimal" name="us-gaap:SaleOfStockPricePerShare" scale="0" unitRef="usdPershares">1.8</ix:nonFraction> per share for gross proceeds of $<ix:nonFraction contextRef="c218" decimals="0" format="ixt:num-dot-decimal" name="zcmd:GrossProceeds" scale="0" unitRef="usd">1,908,000</ix:nonFraction>.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_7" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 10, 2022, September 13, 2021, and
July 13, 2020, the Company granted an aggregation of <ix:nonFraction contextRef="c219" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AggregateNumberOfShares" scale="0" unitRef="shares"><ix:nonFraction contextRef="c220" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AggregateNumberOfShares" scale="0" unitRef="shares"><ix:nonFraction contextRef="c221" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AggregateNumberOfShares" scale="0" unitRef="shares">18,000</ix:nonFraction></ix:nonFraction></ix:nonFraction> Class A Ordinary Shares to three non-executive directors as compensations
for one year from March 1, 2022, 2021 and 2020, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->39<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>17.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>EQUITY (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_8" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="text-decoration:underline">Restricted net assets</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_9" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#8217;s ability to pay dividends
is primarily dependent on the Company receiving distributions of funds from its subsidiary or VIE. Relevant PRC statutory laws and regulations
permit payments of dividends by Zhongchao WFOE and its subsidiaries only out of its retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid
in capital of the PRC subsidiary and VIE and VIE&#8217;s subsidiaries included in the Company&#8217;s consolidated net assets are also
non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared
in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Zhongchao WFOE, Zhongchao Shanghai
and its subsidiaries. The Company is required to set aside at least <ix:nonFraction contextRef="c4" decimals="2" format="ixt:num-dot-decimal" name="zcmd:AftertaxProfits" scale="-2" unitRef="pure">10</ix:nonFraction>% of their after-tax profits each year, if any, to fund certain
statutory reserve funds until such reserve funds reach <ix:nonFraction contextRef="c4" decimals="2" format="ixt:num-dot-decimal" name="zcmd:ReserveFunds" scale="-2" unitRef="pure">50</ix:nonFraction>% of its registered capital. In addition, the Company may allocate a portion
of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion.
The statutory reserve funds and the discretionary funds are not distributable as cash dividends.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_10" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2022, 2021
and 2020 the Company accrued statutory reserve funds of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AccruedStatutoryReserve" scale="0" unitRef="usd">115,963</ix:nonFraction>, $<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AccruedStatutoryReserve" scale="0" unitRef="usd">397,552</ix:nonFraction>, and $<ix:nonFraction contextRef="c32" decimals="0" format="ixt:num-dot-decimal" name="zcmd:AccruedStatutoryReserve" scale="0" unitRef="usd">385,689</ix:nonFraction>, respectively, which is <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="zcmd:PercentageOfRetainedEarning" scale="-2" unitRef="pure"><ix:nonFraction contextRef="c8" decimals="2" format="ixt:num-dot-decimal" name="zcmd:PercentageOfRetainedEarning" scale="-2" unitRef="pure"><ix:nonFraction contextRef="c9" decimals="2" format="ixt:num-dot-decimal" name="zcmd:PercentageOfRetainedEarning" scale="-2" unitRef="pure">10</ix:nonFraction></ix:nonFraction></ix:nonFraction>% of the retained earnings
of profit-making PRC subsidiaries, VIE or VIE&#8217;s subsidiaries as of December 31, 2022, 2021 and 2020, respectively. As of December&#160;31,
2022 and 2021, the Company had statutory reserve of $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="zcmd:StatutoryReserveFunds" scale="0" unitRef="usd">1,315,017</ix:nonFraction> and $<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="zcmd:StatutoryReserveFunds" scale="0" unitRef="usd">1,199,054</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_11" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022 and 2021, the Company
had net assets restricted in the aggregate, which include paid-in capital and statutory reserve of the Company&#8217;s PRC subsidiary
and VIE and VIE&#8217;s subsidiaries that are included in the Company&#8217;s consolidated net assets, were approximately $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AssetsNet" scale="0" unitRef="usd">13,314,132</ix:nonFraction>
and $<ix:nonFraction contextRef="c5" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AssetsNet" scale="0" unitRef="usd">13,198,169</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_12" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The current PRC Enterprise Income Tax (&#8220;EIT&#8221;)
Law also imposed a <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationChangeInEnactedTaxRate" scale="-2" unitRef="pure">10</ix:nonFraction>% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company
outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction
of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a <ix:nonFraction contextRef="c222" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationChangeInEnactedTaxRate" scale="-2" unitRef="pure">5</ix:nonFraction>% withholding tax rate, subject to
approval from the related PRC tax authorities.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_13" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The ability of the Company&#8217;s PRC subsidiary
and VIE and VIE&#8217;s subsidiaries to make dividends and other payments to the Company may also be restricted by changes in applicable
foreign exchange and other laws and regulations. Foreign currency exchange regulation in China is primarily governed by the following
rules:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_14" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_13"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Foreign Exchange Administration
    Rules (1996), as amended in August 2008, or the Exchange Rules;</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Administration Rules of
    the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.</span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:continuation><div>
</div><div>


</div><!-- Field: Page; Sequence: 215; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->40<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>17.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>EQUITY (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="text-decoration:underline">Restricted net assets (continued)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_15" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Currently, under the Administration Rules, Renminbi
is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related
foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and
investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the &#8220;SAFE&#8221;)
is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange
for the distribution of profits to its shareholders may affect payment from their foreign exchange accounts or purchase and pay foreign
exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit
distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current
account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign
exchange at certain designated foreign exchange banks.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_16" id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Although the current Exchange Rules allow the
convertibility of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange
for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority
of the People&#8217;s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. The
Company cannot be sure that it will be able to obtain all required conversion approvals for its operations or the Chinese regulatory
authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of the Company&#8217;s
retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit the Company&#8217;s ability to use
its retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities
outside China.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022 and 2021, there was $<span style="-sec-ix-hidden: hidden-fact-197">nil</span>
retained earnings in the aggregate, respectively, which was generated by the Company&#8217;s VIE and its subsidiaries in Renminbi included
in the Company&#8217; consolidated net assets, aside from $<ix:nonFraction contextRef="c223" decimals="0" format="ixt:num-dot-decimal" name="zcmd:StatutoryReserveFunds" scale="0" unitRef="usd">1,315,017</ix:nonFraction> and $<ix:nonFraction contextRef="c224" decimals="0" format="ixt:num-dot-decimal" name="zcmd:StatutoryReserveFunds" scale="0" unitRef="usd">1,199,054</ix:nonFraction> statutory reserve funds as of December 31, 2022 and
2021, that may be affected by increased restrictions on currency exchanges in the future and accordingly may further limit the Company&#8217;s
PRC subsidiary and VIE and VIE&#8217;s subsidiaries&#8217; ability to make dividends or other payments in U.S. dollars to the Company,
in addition to $<ix:nonFraction contextRef="c223" decimals="0" format="ixt:num-dot-decimal" name="zcmd:RestrictedNetAssetsValue" scale="0" unitRef="usd">13,314,132</ix:nonFraction> and $<ix:nonFraction contextRef="c224" decimals="0" format="ixt:num-dot-decimal" name="zcmd:RestrictedNetAssetsValue" scale="0" unitRef="usd">13,198,169</ix:nonFraction> restricted net assets as of December 31, 2022 and 2021, respectively, as discussed above.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_ConcentrationRiskDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:ConcentrationRiskDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>18.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>CONCENTRATION RISK</b></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_ConcentrationRiskDisclosureTextBlock-c0_cont_2" id="_ConcentrationRiskDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has a concentration of its account
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respectively. As of December 31, 2021, four customers accounted for <ix:nonFraction contextRef="c227" decimals="3" format="ixt:num-dot-decimal" name="zcmd:ConcentrationRiskPercentage" scale="-2" unitRef="pure">20.3</ix:nonFraction>%, <ix:nonFraction contextRef="c228" decimals="3" format="ixt:num-dot-decimal" name="zcmd:ConcentrationRiskPercentage" scale="-2" unitRef="pure">12.0</ix:nonFraction>%, <ix:nonFraction contextRef="c229" decimals="3" format="ixt:num-dot-decimal" name="zcmd:ConcentrationRiskPercentage" scale="-2" unitRef="pure">11.2</ix:nonFraction>% and <ix:nonFraction contextRef="c230" decimals="3" format="ixt:num-dot-decimal" name="zcmd:ConcentrationRiskPercentage" scale="-2" unitRef="pure">10.8</ix:nonFraction>% of net accounts receivable, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation id="_ConcentrationRiskDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the year ended December 31, 2022, one supplier
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_1" escape="true" name="us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>19.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SHARE BASED COMPENSATION</b></span></td></tr>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_3" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfShareBasedCompensationArrangementByShareBasedPaymentAwardRestrictedStockUnitsVestedAndExpectedToVestTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_4" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Among the outstanding restricted share units
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_5" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 13, 2021, the Company granted and
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by reference to the closing price on September 13, 2021, and the total fair value of these restricted Class A Ordinary Share units aggregated
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_7" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the years ended December 31, 2022, 2021 and
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</div><div>

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</div><div>

</div><ix:continuation id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_8"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfEmployeeServiceShareBasedCompensationAllocationOfRecognizedPeriodCostsTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="width: 64%; text-align: left">Selling and marketing expenses</td><td style="width: 1%">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_SegmentReportingDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:SegmentReportingDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>20.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SEGMENT REPORTING</b></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:nonNumeric><div>
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</div><ix:continuation continuedAt="_SegmentReportingDisclosureTextBlock-c0_cont_2" id="_SegmentReportingDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#8217;s organizational structure
is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to,
customer base, homogeneity of service and technology. The Company&#8217;s operating segments are based on such organizational structure
and information reviewed by the CODM to evaluate the operating segment results. Based on management&#8217;s assessment, the Company has
determined that it has <ix:nonFraction contextRef="c0" decimals="0" format="ixt-sec:numwordsen" name="us-gaap:NumberOfOperatingSegments" scale="0" unitRef="segment">two</ix:nonFraction> operating segments for the year ended December 31, 2022: (i)&#160;MDMOOC services, and (ii)&#160;sales of
patented drugs. For the years ended December 31, 2021 and 2020, the Company determined that it had <ix:nonFraction contextRef="c8" decimals="0" format="ixt-sec:numwordsen" name="us-gaap:NumberOfReportableSegments" scale="0" unitRef="segment">one</ix:nonFraction> reporting segment which is MDMOOC
services.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SegmentReportingDisclosureTextBlock-c0_cont_3" id="_SegmentReportingDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table presents major accounts of
statements of operations by segments for the&#160;year ended December&#160;31, 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SegmentReportingDisclosureTextBlock-c0_cont_4" id="_SegmentReportingDisclosureTextBlock-c0_cont_3"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ReconciliationOfOperatingProfitLossFromSegmentsToConsolidatedTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="width: 1%; border-bottom: Black 4pt double; text-align: left">$</td><td style="width: 9%; border-bottom: Black 4pt double; text-align: right"><ix:nonFraction contextRef="c245" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:Revenues" scale="0" unitRef="usd">12,935,420</ix:nonFraction></td><td style="width: 1%; padding-bottom: 4pt; text-align: left">&#160;</td><td style="width: 1%; padding-bottom: 4pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">(<ix:nonFraction contextRef="c245" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:NetIncomeLossAllocatedToLimitedPartners" scale="0" sign="-" unitRef="usd">2,409,212</ix:nonFraction></td><td style="padding-bottom: 4pt; text-align: left">)</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>

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  <tr style="vertical-align: bottom">
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-align: left">MDMOOC services</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:FinancialServicesLiabilities" scale="0" unitRef="usd">37,183,491</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>

</div><ix:continuation id="_SegmentReportingDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Substantially all of the Company&#8217;s revenues
are derived from China based on the geographical locations where services are provided to customers. In addition, the Company&#8217;s
long-lived assets are substantially all located in and derived from China, and the amount of long-lived assets attributable to any individual
other country is not material. Therefore, no geographical segments are presented.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:CommitmentsAndContingenciesDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_2" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i><span style="text-decoration:underline">Contingencies</span></i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_3" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">From time to
time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although
the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have
a material adverse impact on its financial position, results of operations or liquidity.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_4" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt"><i><span style="text-decoration:underline">Lease
commitment</span></i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_5" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">As of December
31, 2022, the Company leases offices space under 12 non-cancelable operating lease arrangements, 9 of which had a term over 12 months.
The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease
term and initial measurement of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line
basis over the lease term.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_6" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">The Company
determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria
of a finance or operating lease. When available, the Company discounted lease payments based on an estimate of its incremental borrowing
rate to present value.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt"></p><div>

</div><!-- Field: Page; Sequence: 218; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->43<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>21.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>COMMITMENTS AND
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">&#160;</p><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_7" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">The Company&#8217;s
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</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_8" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05pt; text-align: justify; text-indent: -0.05pt">The table below
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</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_9" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_8"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:OperatingLeasesOfLesseeDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_10" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2022 and 2021, the weighted
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</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_11" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Rental expense for the years ended December 31,
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respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_12" id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following is a schedule, by years, of maturities of lease liabilities
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</div><div>

</div><ix:continuation id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_12"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfFutureMinimumRentalPaymentsForOperatingLeasesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
    <td style="text-align: left; padding-left: 0pt">2024</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  </table></ix:nonNumeric></ix:continuation><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_SubsequentEventsTextBlock-c0_cont_1" escape="true" name="us-gaap:SubsequentEventsTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>22.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SUBSEQUENT EVENTS</b></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
</div><div>

</div><ix:continuation id="_SubsequentEventsTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has evaluated subsequent events through
the issuance of the consolidated financial statements and no other subsequent event is identified that would have required adjustment
or disclosure in the consolidated financial statements.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


</div><!-- Field: Page; Sequence: 219; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->44<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>CONDENSED FINANCIAL
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p></ix:nonNumeric><div>
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</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_2" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The subsidiary did not pay any dividend to the
parent company for the periods presented. For the purpose of presenting parent only financial information, the parent company records
its investment in its subsidiary under the equity method of accounting. Such investment is presented on the separate condensed balance
sheets of the parent company as &#8220;Investment in subsidiaries and the income of the subsidiary is presented as &#8220;share of income
of subsidiary&#8221;. Certain information and footnote disclosures generally included in financial statements prepared in accordance
with U.S. GAAP have been condensed and omitted.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_3" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The parent company did not have significant capital
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</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_4" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>PARENT COMPANY BALANCE SHEETS</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_5" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_4"><ix:nonNumeric contextRef="c0" escape="true" name="srt:ScheduleOfCondensedBalanceSheetTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; ">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>


</div><!-- Field: Page; Sequence: 220; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->45<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>ZHONGCHAO INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>23.</b></span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (CONTINUED)</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_6" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>PARENT COMPANY STATEMENTS OF OPERATIONS</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_7" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_6"><ix:nonNumeric contextRef="c0" escape="true" name="srt:ScheduleOfCondensedIncomeStatementTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">For the Years Ended<br/> December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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</div><div>

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</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">F-46</p><div>

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<ix:footnote id="ix_9_footnote" xml:lang="en-US">As of December 31, 2022, the Company had a balance of $226,178 due from Mr. Yang Weiguang. The balance was comprised of the following:
-A balance of $144,986 arising from transfer of 6.67% equity interest of Shanghai Zhongxin to four former shareholders of West Angel, who paid consideration to Mr. Yang. (Note 4)
-A balance of $81,192 as tuition paid on behalf of to Mr. Yang.
As of the date of this report, Mr. Yang has repaid the above outstanding balances to the Company.</ix:footnote><!--Text not found in footnote sections assigned to Schedule of the balances with related parties-->
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UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
December 31
,
2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date
of event requiring this shell company report for the transition period from ____________to ____________
Commission
file number:
001-39229
ZHONGCHAO
INC.
(Exact
Name of Registrant as Specified in its Charter)
N/A
(Translation
of Registrant's Name into English)
Cayman
Islands
(Jurisdiction
of Incorporation or Organization)
Nanxi
Creative Center
,
Suite 218
841 Yan'an Middle Road
Jing'An District
, Shanghai,
China
200040
Tel: 021-32205987
(Address
of principal executive offices)
Weiguang
Yang
, Chief Executive Officer
Nanxi Creative Center
,
Suite 218
841 Yan'an Middle Road
Jing'An District
, Shanghai,
China
200040
Tel:
021
-
32205987
(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities
registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Class A Ordinary shares, par value $0.0001
NASDAQ
Capital Market
Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered
by the annual report:
As
of December 31, 2022, the issuer had
20,531,423
Class A Ordinary Shares (including 1,350,068 Class A Ordinary Shares to be issued upon
exercise of the HF Warrant the Company issued to HF Capital. For more details of the HF Warrant, please see "Our Corporate History
and Structure" on page 53) and
5,497,715
Class B Class A Ordinary Shares.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No
☒
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
No
☒
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of "large accelerated filer," accelerated filer," and "emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Emerging growth company
☒
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
☐
†
The term "new or revised financial accounting standard"
refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
If securities are registered pursuant to Section 12(b)
of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
*
If
    "Other" has been checked in response to the previous question, indicate by check mark which financial statement item
    the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No
☒
Indicate
by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. Yes ☐ No
☒
TABLE
OF CONTENTS
INTRODUCTION
ii
PART I
1
ITEM
    1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
1
ITEM
    2.
OFFER STATISTICS AND EXPECTED TIMETABLE
1
ITEM
    3.
KEY INFORMATION
1
ITEM
    4.
INFORMATION ON THE COMPANY
53
ITEM
    4A.
UNRESOLVED STAFF COMMENTS
126
ITEM
    5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
126
ITEM
    6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
140
ITEM
    7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
151
ITEM
    8.
FINANCIAL INFORMATION
154
ITEM
    9.
THE OFFER AND LISTING
155
ITEM
    10.
ADDITIONAL INFORMATION
155
ITEM
    11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
163
ITEM
    12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
163
PART II
164
ITEM
    13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
164
ITEM
    14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
164
ITEM
    15.
CONTROLS AND PROCEDURES
164
ITEM
    16.
RESERVED
166
ITEM
    16A.
AUDIT COMMITTEE FINANCIAL EXPERT
166
ITEM
    16B.
CODE OF ETHICS
166
ITEM
    16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
166
ITEM
    16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
167
ITEM
    16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
167
ITEM
    16F.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
167
ITEM
    16G.
CORPORATE GOVERNANCE
167
ITEM
    16H.
MINE SAFETY DISCLOSURE
167
ITEM
    16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
167
ITEM 16J.
INSIDER TRADING POLICIES
167
PART III
169
ITEM
    17.
FINANCIAL STATEMENTS
169
ITEM
    18.
FINANCIAL STATEMENTS
169
ITEM
    19.
EXHIBITS
169
i
INTRODUCTION
Unless
otherwise indicated, numerical figures included in this Annual Report on Form 20-F (the "Annual Report") have been subject
to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures
that precede them.
For
the sake of clarity, this Annual Report follows the English naming convention of first name followed by last name, regardless of whether
an individual's name is Chinese or English. Numerical figures included in this Annual Report have been subject to rounding adjustments.
Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
Certain market data and other statistical information contained in this Annual Report are based on information from independent industry
organizations, publications, surveys and forecasts. Some market data and statistical information contained in this Annual Report are
also based on management's estimates and calculations, which are derived from our review and interpretation of the independent
sources listed above, our internal research and our knowledge of the PRC information technology industry. While we believe such information
is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent
source.
●
All
    references to "RMB," "yuan" and "Renminbi" are to the legal currency of China, all references
    to "HKD" is to the legal currency of Hong Kong, and all references to "USD," and "U.S. dollars"
    are to the legal currency of the United States.
●
"China"
    and "PRC" refer to the People's Republic of China, excluding, for the purposes of this Annual Report only, Macau,
    Taiwan and Hong Kong;
●
"Class
    A Ordinary Shares" refers to our Class A ordinary shares, $0.0001 par value per share;
●
"Class
    B Ordinary Shares" refers to our Class B ordinary shares, $0.0001 par value per share;
●
"Controlling
    Shareholder" refers to Mr. Weiguang Yang, the CEO of the Company;
●
Unless
    specifically described otherwise, as used in this prospectus and in the context of describing our consolidated financial information
    the terms "we," "us," "our company," "our", "Zhongchao" and "Zhongchao
    Cayman" refer to Zhongchao Inc., a Cayman Islands company, and its subsidiaries, consolidated affiliated companies and the
    PRC operating entities, as the context required;
●
"Hainan
    Muxin" refers to Hainan Muxin Medical Technology Co., Ltd., a PRC company.
●
"Horgos
    Zhongchao Medical" refers to Horgos Zhongchao Medical Technology Co., Ltd., a PRC company.
●
"Horgos
    Zhongchao Zhongxing" refers to Horgos Zhongchao Zhongxing Medical Technology Co., Ltd., a PRC company.
●
"Hainan
    Zhongteng" refers to Hainan Zhongteng Medical Technology Co., Ltd., a PRC company.
●
"mobile
    MAUs" are the number of unique IP address that various mobile devices having access to the PRC operating entities' MDMOOC
    mobile app or Sunshine Health Forums from mobile end at least once during a month. The numbers of the PRC operating entities'
    mobile MAUs are calculated using internal company data that has not been independently verified, and the PRC operating entities treat
    each distinguishable device IP address as a separate user for purposes of calculating mobile MAUs, although inaccuracy may result
    from the possibility that one mobile device may have more than one IP addresses;
●
"monthly
    UVs" of MDMOOC website, MDMOOC.org, or the website of PRC operating entities' Sunshine Health Forums, ygjkclass.com,
    are to the number of unique IP address that various internet browsers apply to access our websites, from either PC end or mobile
    end, at least once during a month. The numbers of PRC operating entities' monthly UVs of PRC operating entities' websites are
    calculated using internal company data that has not been independently verified, and the PRC operating entities treat each distinguishable
    IP address as a separate user for purposes of calculating monthly UVs, although inaccuracy may result from the possibility that some
    individuals may have more than one IP address and/or share the same IP address with other individuals to access PRC operating entities'
    platform.
ii
●
"NFP(s)"
    refers to not-for-profit organizations.
●
"Ningxia
    Zhongxin" refers Ningxia Zhongxin Internet Hospital Co., Ltd., a PRC company.
●
"SAIC"
    refers to State Administration for Industry and Commerce in China and currently known as State Administration for Market Regulation;
●
"Shanghai
    Huijing" refers to Shanghai Huijing Information Technology Co., Ltd., a PRC company.
●
"Shanghai
    Jingyi" or "Shanghai Zhongxin" refers to Shanghai Zhongxin Medical Technology Co., Ltd., a PRC company, which was
    formerly known as Shanghai Jingyi, or Shanghai Jingyi Medical Technology Co., Ltd., a PRC company and changed to its current name
    as Shanghai Zhongxin on November19, 2020.
●
"Shanghai
    Maidemu" refers to Shanghai Maidemu Cultural Communication Corp., a PRC company.
●
"Shanghai
    Xingban" refers to Shanghai Xingban Enterprise Management Partnership (Limited Partnership), a PRC limited partnership.
●
"Shanghai
    Xingzhong" refers to Shanghai Xingzhong Investment Management LP, a PRC company.
●
"Shanghai
    Zhongxun" refers to Shanghai Zhongxun Medical Technology Co., Ltd., a PRC company.
●
"Xinjiang
    Pharmaceutical" refers to Chongqing Xinjiang Pharmaceutical Co., Ltd., a PRC company;
●
"Zhongchao
    BVI" refers to Zhongchao Group Inc., a British Virgin Island company.
●
"Zhongchao
    HK" refers to Zhongchao Group Limited, a Hong Kong company.
●
"Zhongchao
    Shanghai" refers to Zhongchao Medical Technology (Shanghai) Co., Ltd., a PRC company.
●
"Zhongchao
    WFOE" refers to Beijing Zhongchao Zhongxing Technology Limited, a PRC company.
●
"Beijing
    Boya" refers to Beijing Zhongchao Boya Medical Technology Co., Ltd., a PRC company.
●
"Beijing
    Yisuizhen" refers to Beijing Yisuizhen Technology Co., Ltd., a PRC company.
●
"Liaoning
    Zhixun" refers to Zhixun Internet Hospital (Liaoning) Co., Ltd., a PRC company.
●
"West
    Angel" refers to West Angel (Beijing) Health Technology Co., Ltd., a PRC company.
Discrepancies
in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This
Annual Report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2022 and 2021.
Unless otherwise noted,
all currency figures in this filing are in U.S. dollars. Any discrepancies in any table between the amounts identified as total
amounts and the sum of the amounts listed therein are due to rounding. Our reporting currency is U.S. dollar and the
functional
currencies for the subsidiaries, the VIE and the VIE's subsidiaries are
Renminbi,
Japanese yen and U.S. dollar. This Annual Report contains translations of certain foreign currency amounts into U.S. dollars for the
convenience of the reader. Other than in accordance with relevant accounting rules and as otherwise stated, all translations of
Renminbi into U.S. dollars, and of Japan yen into U.S. dollar in this Annual Report were made at the rate of RMB 6.8972 to USD1.00
and JPY 115.1700 to USD1.00, respectively, the noon mid rates on December 30, 2022, as set forth in the H.10 statistical release of
the U.S. Federal Reserve Board. Where we make period-on-period comparisons of operational metrics, such calculations are based on
the Renminbi amount or Japan yen, and not the translated U.S. dollar equivalent. We make no representation that the Renminbi, Japan
yen or U.S. dollar amounts referred to in this Annual Report could have been or could be converted into U.S. dollars or Renminbi or
Japan yen, as the case may be, at any particular rate or at all.
iii
Part
I
Item
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
Applicable.
Item
2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not
Applicable.
Item
3. KEY INFORMATION
Contractual
Arrangements between the Zhongchao WFOE and Zhongchao Shanghai
Zhongchao
Inc. (the "Company" or "Zhongchao Cayman") is an offshore holding company incorporated in the Cayman Islands.
As a holding company with no material operations of our own, we, through the contractual arrangements (the "Contractual Arrangements"),
between Beijing Zhongchao Zhongxing Technology Limited ("Zhongchao WFOE"), a wholly subsidiary of Zhongchao Cayman incorporated
in the PRC, and a variable interest entity (the "VIE"), Zhongchao Medical Technology (Shanghai) Co., Ltd. ("Zhongchao
Shanghai") and its subsidiaries or collectively "the PRC operating entities", consolidate the financial results of
the PRC operating entities. Due to the restrictions imposed by PRC laws and regulations on foreign ownership of companies engaged in
value-added telecommunication services and certain other businesses, we operate our businesses in which foreign investment is restricted
or prohibited in the PRC through certain PRC domestic companies. Accordingly, the Contractual Arrangements are designed to allow Zhongchao
Cayman to consolidate Zhongchao Shanghai's operations and financial results in Zhongchao Cayman's financial statements in
accordance with U.S. GAAP as the primary beneficiary. Neither we nor our subsidiaries own any equity interests in the PRC operating
entities. See "Item 3. Key Information — A. History and Development of the Company — VIE Arrangements" for more
information.
As
we chose such VIE structure, we are subject to certain unique risks and uncertainties that may not otherwise exist if we had direct equity
ownership in the PRC operating entities. Because we do not directly hold equity interests in the VIE and its subsidiaries, our Contractual
Arrangements may not be effective in providing control over Zhongchao Shanghai. Further, we are subject to risks due to uncertainty of
the interpretation and the application of the PRC laws and regulations, including but not limited to limitations on foreign ownership
and regulatory review of overseas listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the
Contractual Arrangements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard
that could disallow the VIE structure, which would likely result in a material change in our operations and cause the value of our Class
A Ordinary Shares to decrease significantly or become worthless. However, as of the date of this Annual Report, the agreements under
the Contractual Arrangements have not been tested in any courts of law. For a description of the VIE contractual arrangements, see "Item
3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—
We conduct our business through Zhongchao
Shanghai and its subsidiaries by means of VIE Arrangements. If the PRC courts or administrative authorities determine that these VIE
Arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected.
In addition, changes in such PRC laws and regulations may materially and adversely affect our business
" and "Item 3.
Key Information—D. Risk Factors—Risks Related to Related to Doing Business in China —
The Chinese government exerts
substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval
from Chinese authorities to list on U.S. exchanges nor for the execution of VIE agreements, however, if the VIE or the holding company
were required to obtain approval and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to
continue listing on U.S. exchange or continue to offer securities to investors, which could materially affect the interest of the investors
and cause the value of our Class A Ordinary Shares to significantly decline or be worthless
."
1
Permission
Required from the PRC Authorities to Issue Our Securities to Foreign Investors
PRC
laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks may result
in a material change in our operations, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance
of our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline
or be worthless. The Chinese government may intervene or influence the operations of the PRC operating entities at any time and may exert
more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change
in the operations of the PRC operating entities and/or the value of our Class A Ordinary Shares. Further, any actions by the Chinese
government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers
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 be 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 the use of variable interest entities for overseas listing, adopting new measures to extend
the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. On February 17, 2023, the China Securities
Regulatory Commission (the "CSRC") promulgated the Trial Administrative Measures of the Overseas Securities Offering and
Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which became effective on March 31, 2023. According
to the Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly
and indirectly, should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure or conceals
any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties;
(2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas
offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities
of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer's audited
consolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places
of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens
or are domiciled in China; (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer
shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted
to the CSRC within three business days after the submission of the overseas offering and listing application; and (4) if the issuer issues
securities in the same overseas market after the initial issuance and listing, it shall submit filings with the CSRC within three business
days after the completion of the issuance. Further, at the press conference held for the Trial Measures on February 17, 2023, officials
from the CSRC clarified that the PRC domestic companies that have already been listed overseas on or before the effective date of the
Trial Measures, March 31, 2023, shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete
the filing procedures immediately but shall carry out filing procedures as required if they conduct refinancing or are involved in other
circumstances that require filing with the CSRC. The officials from the CSRC have also confirmed that for the PRC domestic companies
that seek to list overseas with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the filing
of the overseas listing of companies with VIE structure which meet the compliance requirements. As the Trial Measures were newly published,
there are substantial uncertainties as to the implementation and interpretation, and how they will affect our current listing, and future
offering or financing. If we are required by the Trial Measures for any future offering or any other financing activities to file with
the CSRC, we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure of us to
fully comply with new regulatory requirements may significantly limit or completely hinder our ability to continue to offer our Class
A Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and adversely
affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become
worthless. See "Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—
We face
risks associated with uncertainties surrounding the PRC laws and regulations governing the education industry in general, and the online
for-profit private training in particular
" "—
We may be liable for improper use or appropriation of personal
information provided by our customers
" "
— New rules for China-based companies seeking for securities offerings
in foreign stock markets was released by the CSRC recently. The Chinese government may exert more oversight and control over overseas
public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to offer or continue
to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares to significantly decline or
become worthless."
for more information.
2
Permission
Required from the PRC Authorities for Our and PRC Operating Entities' Operation in China.
As
of the date of this Annual Report, except as disclosed in this Annual Report, we, or the PRC operating entities are not required to obtain
any other permission or approval from the PRC authorities for our operation in China, nor have we, or the PRC operating entities, received
any denial for our operation in China. Given the uncertainties of interpretation and implementation of relevant laws and regulations
and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or
approvals in the future. If any of the PRC operating entities is found to be in violation of any existing or future PRC laws or regulations,
or fail to obtain or maintain any of the requisite licenses and permits, the relevant PRC regulatory authorities would have broad discretion
to take action in dealing with such violations or failures. In addition, if any of the PRC operating entities had inadvertently concluded
that such licenses, permits, registrations or filings were not required, or if applicable laws, regulations or interpretations change
in a way that requires any of the PRC operating entities to obtain such licenses, permits, registrations or filings in the future, the
relevant PRC operating entities may be unable to obtain such necessary licenses, permits, registrations or filings in a timely manner,
or at all, and such licenses, permits, registrations or filings may be rescinded even if obtained. Any such circumstance may subject
the relevant PRC operating entities to fines and other regulatory, civil or criminal liabilities, and the relevant PRC operating entities
may be ordered by the competent government authorities to suspend relevant operations, which will materially and adversely affect our
business operations. See "Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—
The
PRC operating entities' failure to obtain, maintain or renew other licenses, approvals, permits, registrations or filings necessary
to conduct their operations in China could have a material adverse impact on our business, financial conditions and results of operations.
"
We
have been advised by our PRC legal counsel, Han Kun Law Offices, based on their understanding of the current PRC laws, rules and regulations,
that (i) the structure for operating our business in China (including our corporate structure and VIE Arrangements with Zhongchao Shanghai,
Zhongchao Shanghai and their shareholders), as of the date of this Annual Report, do not result in any violation of PRC laws or regulations
currently in effect; and (ii) the Contractual Arrangements among Zhongchao WFOE and Zhongchao Shanghai and their shareholders governed
by PRC law are valid, binding and enforceable in accordance with the terms of each of the VIE Arrangements, and do not result in any
violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and
application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect
on the legality, binding effect and enforceability of the Contractual Arrangements. In particular, we cannot rule out the possibility
that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take
a view that is inconsistent with the opinion of our PRC legal counsel.
Dividend
Distributions or Transfers of Cash among the Holding Company, Its Subsidiaries, and the Consolidated VIE
For
the year ended December 31, 2022, Zhongchao Cayman made cash transfer of $1.5 million to Zhongchao USA. For the year ended December 31,
2021, Zhongchao Cayman made cash transfer of $3.4 million to Zhongchao USA. Except as otherwise disclosed above, for the years ended
December 31, 2022 and 2021, no other cash transfer or transfer of other assets have occurred between Zhongchao Cayman, its subsidiaries,
the consolidated VIE and the subsidiaries of the VIE.   For the years ended December 31, 2022 and 2021, none of our subsidiaries,
the consolidated VIE, or the subsidiaries of the VIE have made any dividends or distributions to Zhongchao Cayman. For the years ended
December 31, 2022 and 2021, no dividends or distributions have been made to any U.S. investors.
We
intend to keep any future earnings to re-invest in and finance the expansion of the business of the PRC operating entities, and we do
not anticipate that any cash dividends will be paid in the foreseeable future. Under Cayman Islands law, a Cayman Islands company may
pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if
this would result in the Company being unable to pay its debts due in the ordinary course of business. If we determine to pay dividends
on any of our Class A Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong
subsidiary, Zhongchao Group Limited ("Zhongchao HK"), unless we receive proceeds from future offerings.
Zhongchao
WFOE's ability to distribute dividends is based upon its distributable earnings. Current PRC regulations permit our indirect PRC
subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits
each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China
may also set aside a portion of its after-tax profits to fund an optional employee welfare fund, although the amount to be set aside,
if any, is determined at the discretion of its board of shareholders. Although the statutory reserves can be used, among other ways,
to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve
funds are not distributable as cash dividends except in the event of liquidation.
3
The
PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC.
Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency
for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future,
the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are
unable to receive all of the revenues from our operations through the current Contractual Arrangements, we may be unable to pay dividends
on our Class A Ordinary Shares.
Cash
dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for
tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject
to PRC withholding tax at a rate of up to 10.0%.
In
order for us to pay dividends to our shareholders, we will rely on payments made from Zhongchao Shanghai to Zhongchao WFOE, pursuant
to the Contractual Arrangements between them, and the distribution of such payments to Zhongchao HK as dividends from Zhongchao WFOE.
Certain payments from the VIE, Zhongchao Shanghai, to Zhongchao WFOE are subject to PRC taxes, including business taxes and value added
tax.
Pursuant
to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax
Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident
enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements
must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends;
and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months
preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong
Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident
certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant
Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends
to be paid by our PRC subsidiary to its immediate holding company, Zhongchao HK. As of the date of this Annual Report, we have not applied
and have no plan to apply for the tax resident certificate from the relevant Hong Kong tax authority. See "Item 3. Key Information—D.
Risk Factors— Risks Related to Doing Business in China—
Governmental control of currency conversion may limit our ability
to use our revenues effectively and the ability of our PRC subsidiaries to obtain financing
."
Further,
any transfer of funds by us to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject
to PRC regulations. Capital contributions to our PRC subsidiaries are subject to the approval of or filing with the Ministry of Commerce
of the People's Republic of China, or the MOFCOM, in its local branches and registration with a local bank authorized by the China's
State Administration of Foreign Exchange, or the SAFE. Any foreign loan procured by our PRC subsidiaries is required to be registered
or filed with the SAFE or its local branches or satisfy relevant requirements as provided by the SAFE. Any medium- or long-term loan
to be provided by us to the VIEs must be registered with the National Development and Reform Commission, or the NDRC, and the SAFE or
its local branches. We may not be able to obtain these government approvals or complete such registrations on a timely basis, if at all,
with respect to future capital contributions or foreign loans by us to our PRC subsidiaries. If we fail to receive such approvals or
complete such registration or filing, our ability to use the proceeds of our financing activities and to capitalize our PRC operations
may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. See "Item
3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—
PRC regulation of loans and direct
investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the initial public offering
or any subsequent offerings to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely
affect our liquidity and our ability to fund and expand our business
."
4
Financial
Information Related to the VIE
The
following tables present selected condensed consolidated statements of income and comprehensive income, and cash flows for the years
ended December 31, 2022 and 2021, and the selected condensed consolidated balance sheets as of December 31, 2022 and 2021, which showing
financial information for parent company, Zhongchao Cayman, its subsidiaries (Zhongchao Group Inc. ("Zhongchao BVI"), Zhongchao
HK, Zhongchao USA, Zhongchao Japan and Zhongchao WFOE), the VIE and its subsidiaries, eliminating entries and consolidated information.
Selected
Condensed Consolidated Balance Sheets Data
December 31, 2022
Parent
Subsidiaries
VIE and Its
Subsidiaries
Elimination
Total
Cash and cash equivalents
$
4,110,216
$
2,909,858
$
4,500,379
$
-
$
11,520,453
Accounts receivable
-
-
6,772,988
-
6,772,988
Total current assets
4,110,216
5,291,289
13,302,655
-
22,704,160
Investment in subsidiaries, VIE and VIE's subsidiaries
16,906,213
-
-
(16,906,213
)
-
Property and equipment, net
-
779,230
3,111,717
-
3,890,947
Total non-current assets
16,906,213
928,072
14,982,113
(16,906,213
)
15,910,185
Amount due from the Company and its subsidiaries
9,423,617
-
-
(9,423,617
)
-
Total Assets
$
30,440,046
$
6,219,361
$
28,284,768
$
(26,329,830
)
$
38,614,345
Total current liabilities
$
-
$
3,816
$
4,161,219
$
-
$
4,165,035
Total non-current liabilities
-
-
1,430,045
-
1,430,045
Amounts due to the Company and its subsidiaries
-
8,193,902
762,962
(8,956,864
)
-
Total Liabilities
-
8,197,718
6,354,226
(8,956,864
)
5,595,080
Total Shareholders' Equity (Deficit)
30,440,046
(1,978,357
)
21,930,542
(17,372,966
)
33,019,265
Total Liabilities and Shareholders' Equity
$
30,440,046
$
6,219,361
$
28,284,768
$
(26,329,830
)
$
38,614,345
December 31, 2021
Parent
Subsidiaries
VIE and Its
Subsidiaries
Elimination
Total
Cash and cash equivalents
$
3,758,618
$
3,038,636
$
7,117,728
$
-
$
13,914,982
Accounts receivable
-
-
9,218,883
-
9,218,883
Total current assets
3,758,618
5,128,653
18,366,405
-
27,253,676
Investment in subsidiaries, VIE and VIE's subsidiaries
21,022,642
-
-
(21,022,642
)
-
Property and equipment, net
-
754,645
3,168,441
-
3,923,086
Total non-current assets
21,022,642
1,207,046
7,806,698
(21,022,642
)
9,013,744
Amount due from the Company and its subsidiaries
7,785,162
-
-
(7,785,162
)
-
Total Assets
$
32,566,422
$
6,335,699
$
26,173,103
$
(28,807,804
)
$
36,267,420
Total current liabilities
$
-
$
2,363
$
3,586,044
$
-
$
3,588,407
Total non-current liabilities
-
-
112,591
-
112,591
Amounts due to the Company and its subsidiaries
-
6,942,772
599,347
(7,542,119
)
-
Total Liabilities
-
6,945,135
4,297,982
(7,542,119
)
3,700,998
Total Shareholders' Equity (Deficit)
32,566,422
(609,436
)
21,875,121
(21,265,685
)
32,566,422
Total Liabilities and Shareholders' Equity
$
32,566,422
$
6,335,699
$
26,173,103
$
(28,807,804
)
$
36,267,420
5
Selected
Condensed Consolidated Statements of Operations Data
For the year ended December 31, 2022
Parent
Subsidiaries
VIE and its
Subsidiaries
Elimination
Total
Revenues
$
-
$
-
$
14,151,516
$
-
$
14,151,516
Share of loss of subsidiaries, VIE and VIE's subsidiaries
$
(2,919,423
)
$
-
$
-
$
2,919,423
$
-
Net loss
$
(2,940,891
)
$
(1,373,555
)
$
(1,427,296
)
$
2,919,423
$
(2,822,319
)
For the year ended December 31, 2021
Parent
Subsidiaries
VIE and its
Subsidiaries
Elimination
Total
Revenues
$
-
$
200,001
$
16,096,769
$
-
$
16,296,770
Share of income of subsidiaries, VIE and VIE's subsidiaries
$
266,775
$
-
$
-
$
(266,775
)
$
-
Net income (loss)
$
238,665
$
(572,063
)
$
838,838
$
(266,775
)
$
238,665
For
    the year ended December 31, 2020
Parent
Subsidiaries
VIE
    and its
Subsidiaries
Elimination
Total
Revenues
$
-
$
-
$
17,989,788
$
-
$
17,989,788
Share
    of income of subsidiaries, VIE and VIE's subsidiaries
$
4,470,613
$
-
$
-
$
(4,470,613
)
$
-
Net
    income (loss)
$
4,458,380
$
(13,416
)
$
4,484,029
$
(4,470,613
)
$
4,458,380
Selected
Condensed Consolidated Cash Flows Data
For the year ended December 31, 2022
Parent
Subsidiaries
VIE and its
Subsidiaries
Elimination
Total
Net cash provided by (used in) operating activities
$
139,309
$
(1,198,586
)
$
397,537
$
-
$
(661,740
)
Net cash used in investing activities
$
(1,638,455
)
$
(509,185
)
$
(2,837,473
)
$
1,638,455
$
(3,346,658
)
Net cash provided by financing activities
$
1,850,744
$
1,638,455
$
-
$
(1,638,455
)
$
1,850,744
6
For the year ended December 31, 2021
Parent
Subsidiaries
VIE and its Subsidiaries
Elimination
Total
Net cash provided by (used in) operating activities
$
3,737
$
(823,321
)
$
3,681,432
$
-
$
2,861,848
Net cash used in investing activities
$
(3,400,000
)
$
(820,982
)
$
(3,196,302
)
$
3,400,000
$
(4,017,284
)
Net cash provided by financing activities
$
-
$
3,400,000
$
-
$
(3,400,000
)
$
-
For the year ended December 31, 2020
Parent
Subsidiaries
VIE and its Subsidiaries
Elimination
Total
Net cash used in operating activities
$
(700,873
)
$
(26,501
)
$
(310,465
)
$
-
$
(1,037,839
)
Net cash used in investing activities
$
(3,690,000
)
$
(2,508,402
)
$
(1,586,276
)
$
3,690,000
$
(4,094,678
)
Net cash provided by financing activities
$
11,497,654
$
3,690,000
$
-
$
(3,690,000
)
$
11,497,654
A.
[Reserved]
B.
Capitalization and Indebtedness
Not
applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
applicable.
D.
Risk Factors
7
SUMMARY
OF RISK FACTORS
You
should carefully consider the following risk factors, together with all of the other information included in this Annual Report. Investment
in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other
information included in this Annual Report before making an investment decision. The risks and uncertainties described below represent
our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results
of operations could suffer. In that case, you may lose all or part of your investment.
Risks
Related to the Business and Industry of the PRC Operating Entities
Risks
and uncertainties related to the business and industry of the PRC operating entities include, but are not limited to, the following:
●
We
    depend on the healthcare industry for a significant portion of our revenues.
●
We
    expect competition to increase significantly in the future which could reduce the PRC operating entities' revenues, potential
    profits and overall market share.
●
If
    the PRC operating entities are unable to collect their receivables from their customers, our results of operations and cash flows
    could be adversely affected.
●
The
    PRC operating entities may not be able to prevent others from unauthorized use of the PRC operating entities' intellectual
    property, which could cause a loss of customers, reduce the PRC operating entities' revenues and harm their competitive position.
●
The
    Internet is subject to many legal uncertainties and potential government regulations that may decrease demand for the PRC operating
    entities' services, increase the PRC operating entities' cost of doing business or otherwise have a material adverse
    effect on our financial results or prospects.
Risks
Related to Our Corporate Structure
We
are also subject to risks and uncertainties related to our corporate structure, including, but not limited to, the following:
●
The
    dual class structure of our ordinary shares has the effect of concentrating voting control with our CEO, directors and their affiliates.
●
We
    depend upon the VIE Arrangements in consolidating the financial results of the PRC operating entities, which may not be as effective
    as direct ownership.
●
We
    conduct our business through Zhongchao Shanghai and its subsidiaries by means of VIE Arrangements. If the PRC courts or administrative
    authorities determine that these VIE Arrangements do not comply with applicable regulations, we could be subject to severe penalties
    and our business could be adversely affected. In addition, changes in such PRC laws and regulations may materially and adversely
    affect our business.
●
The
    shareholders of the VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our
    business and financial condition.
8
Risks
Related to Doing Business in China
Our
WFOE and the PRC operating entities are based in China, and the PRC operating entities have all of their operations in China, and therefore,
we face risks and uncertainties related to doing business in China in general, including, but not limited to, the following:
●
The
    majority of the PRC operating entities' business operations are conducted in China. Accordingly, the PRC operating entities'
    business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments
    in China. See "Risk Factor —
Adverse changes in political, economic and other policies of the Chinese government could
    have a material adverse effect on the overall economic growth of China, which could materially and adversely affect the growth of
    the PRC operating entities' business and their competitive position
." on page 19 of this Annual Report.
●
The
    Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy
    through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including
    those relating to taxation, environmental regulations, land use rights, property and other matters. See "Risk Factor —
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently
    not required to obtain approval from Chinese authorities to list on U.S. exchanges nor for the execution of VIE agreements, however,
    if the VIE or the holding company were required to obtain approval and were denied permission from Chinese authorities to list on
    U.S. exchanges, we will not be able to continue listing on U.S. exchange or continue to offer securities to investors, which could
    materially affect the interest of the investors and cause the value of our Class A Ordinary Shares to significantly decline or be
    worthless
." on page 35 of this Annual Report.
●
If
    the PRC operating entities fail to comply with any regulatory requirements, including obtaining any required licenses, approvals,
    permits or filings in a timely manner or at all, the PRC operating entities' continued business operations may be disrupted
    and the PRC operating entities may be subject to various penalties or be unable to continue their operations, all of which will materially
    and adversely affect our business, financial condition and results of operations. See "Risk Factor —
We face risks
    associated with uncertainties surrounding the PRC laws and regulations governing the education industry in general, and the online
    for-profit private training in particular
." on page 34 of this Annual Report.
●
There
    are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited
    to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain
    circumstances. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
    See "Risk Factor —
PRC laws and regulations governing our current business operations are sometimes vague and
    uncertain and any changes in such laws and regulations may impair our ability to operate profitably
." on page 36 of this
    Annual Report.
9
●
Circular
    on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Offshore Investment and Financing and Roundtrip
    Investment Through Special Purpose Vehicles, or SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate
    entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register
    with SAFE or its local branches in connection with their direct or indirect offshore investment activities. See "Risk Factor —
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident
    shareholders to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit
    our PRC subsidiary ability to distribute profits to us, or otherwise materially and adversely affect us
." on page 47 of
    this Annual Report.
●
The
    PRC government imposes control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of
    currency out of China. We receive a majority of our revenues in Renminbi, which currently is not a freely convertible currency. See
    "Risk Factor —
Governmental control of currency conversion may limit our ability to use our revenues effectively and
    the ability of our PRC subsidiaries to obtain financing
." on page 49 of this Annual Report.
●
On
    December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public
    accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However,
    whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered
    in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor's,
    control. The Consolidated Appropriations Act contained, among other things, an identical provision to the AHFCAA, which reduces the
    number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two. See
    "Risk Factor —
The recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and
    the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market
    companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
    These developments could add uncertainties to our offering
." on page 38 of this Annual Report.
●
The
    business of the PRC operating entities involves collecting and retaining certain internal and customer data. We also maintain information
    about various aspects of our operations as well as regarding our employees. We may be deemed as a data processor under the Data Security
    Management Regulations Draft and may be subject to the cybersecurity review in connection with our continuing listing abroad because,
    as of the date of this Annual Report, the MDMOOC online platform has more than 219,825 registered users and a database of approximately
    109,721 healthcare experts.  See "Risk Factor —
We may be liable for improper use or appropriation of personal
    information provided by our customers
." on page 42 of this Annual Report.
●
The
    majority of the operations of the PRC operating entities conducted outside of the U.S. In addition, our management consists of five
    officers who are all located in China and three independent directors, among which two are located in the United States and one is
    located in China. As a result, it may not be possible for the U.S. regulators to conduct investigations or inspections, or to effect
    service of process within the U.S. or elsewhere outside the U.S. See "Risk Factor —
U.S. regulators' ability
    to conduct investigations or enforce rules in China is limited.
" on page 45 of this Annual Report.
10
RISKS
RELATED TO THE BUSINESS AND INDUSTRY OF THE PRC OPERATING ENTITIES
The
PRC operating entities may be unable to effectively manage their rapid growth, which could place significant strain on their management
personnel, systems and resources. The PRC operating entities may not be able to achieve anticipated growth, which could materially and
adversely affect their business and prospects.
The
PRC operating entities significantly expanded their business recently. In September 2022, Zhongchao announced its new strategic extension
of the business model from "Medical-Pharmaceutical" to "Medical-Pharmaceutical-Patient" for patients with oncology
and other major diseases to meet patients' different medical health needs. In 2021, the PRC operating entities' business
and operation was impacted by the COVID-19 pandemic and local governmental restrictions in response to the pandemic and to the medical
related products, so the revenues and net income decreased. For the fiscal years ended December 31, 2022 and 2021 and 2020, our revenues
were $14,151,516, $16,296,770, and $17,989,788, respectively, and our net (loss) income were $(2,822,319), $238,665, and $4,457,097,
respectively. As of the date of this Annual Report, Zhongchao Shanghai maintains 12 subsidiaries and 4 branches, of which are located
in China (Beijing, Shanghai, Hainan, Liaoning and Chongqing) to serve different customers in various geographic locations. On March 26,
2020, the board of Horgos Zhongchao Medical, one of the wholly-owned subsidiaries of Zhongchao Shanghai, approved its dissolution. The
application for cancellation registration was approved by the registration authority on May 11, 2020. Horgos Zhongchao Zhongxing Medical
Technology Co., Ltd., or Horgos Zhongchao Zhongxing, one of the wholly-owned subsidiaries of Zhongchao Shanghai, applied for its cancellation
registration, which was approved on September 16, 2020.
In
addition, on April 27, 2020, Beijing Zhongchao Boya Medical Technology Co., Ltd., or Beijing Boya was incorporated under the PRC
laws, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its equity was entrusted to Zhongchao Shanghai by the
other shareholder Shanghai Lingzhong Enterprise Management Partnership, LLP ("Shanghai Lingzhong") through a share
entrustment agreement on December 1, 2021. Beijing Boya is primarily engaged in technology development, transfer, and service, and
consultation in the fields of medical technology and computer technology, market information consulting and investigating, and
organization of culture and art activities. On October 12, 2020, two shareholders of Shanghai Jingyi Medical Technology Co., Ltd.,
or Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr. Weiguang Yang holds 49% of
Shanghai Jingyi's equity and Zhongchao Shanghai holds 51% of its equity. On November 19, 2020, Shanghai Jingyi changed its
name to Shanghai Zhongxin Medical Technology Co., Ltd., or Shanghai Zhongxin. Shanghai Zhongxun Medical Technology Co., Ltd., or
Shanghai Zhongxun holds 51% of the equity interest of Shanghai Zhongxin, and, through certain entrustment agreements, Mr. Weiguang
Yang, Beijing Zhongchao Yixin Management Consulting Partnership, LLP ("Zhongchao Yixin"), and Beijing Zhongren Yixin
Management Consulting Partnership, LLP ("Zhongren Yixin"), hold 19%, 20% and 10% of the equity interest of Shanghai
Zhongxin on behalf of Shanghai Zhongxun, respectively. On August 2, 2022, Mr. Weiguang Yang transferred certain parts of his shares
of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of the equity interest of Shanghai
Zhongxin, and Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin's equity interest. On July 6, 2020, Zhixun Internet Hospital
(Liaoning) Co., Ltd., or Liaoning Zhixun was incorporated under the PRC laws and wholly owned by Shanghai Zhongxun. Liaoning Zhixun
primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services,
healthcare consultation in services, sales of medical appliances and other medical products. On January 11, 2021, Shanghai Zhongxun
transferred its whole equity ownership of Liaoning Zhixun to Shanghai Zhonxin, and as a result, Shanghai Zhongxin becomes the sole
shareholder of Liaoning Zhixun.
On
January 13, 2021, Shanghai Xinyuan Human Resources Co., Ltd., or Shanghai Xinyuan, was incorporated under the PRC laws, as the wholly
owned subsidiary of Shanghai Zhongxin. Shanghai Xinyuan is primarily engaged in human resources services and information consulting services.
On May 18, 2021, Ningxia Zhongxin Internet Hospital Co., Ltd., or Ningxia Zhongxin, was incorporated under the PRC laws, whose sole shareholder
is Shanghai Zhongxin. Ningxia Zhongxin will be engaged in operating an online hospital to provide online medical service, including online
consultation, prescription information services, and medication retails. On July 16, 2021, Hainan Zhongteng Medical Technology Co., Ltd.,
or Hainan Zhongteng, was incorporated under the PRC laws, as the wholly owned subsidiary of Beijing Boya. Hainan Zhongteng is primarily
engaged in healthcare consulting services. On July 21, 2021, Hainan Muxin Medical Technology Co., Ltd., or Hainan Muxin, was incorporated
under the PRC laws, as the wholly owned subsidiary of Shanghai Zhongxin. Hainan Muxin is primarily engaged in healthcare consulting services.
On August 19, 2021 pursuant to an equity transfer agreement, Shanghai Zhongxin agrees to transfer all of its equity interest of Liaoning
Zhixun to Beijing Boya. As a result, Liaoning Zhixun is wholly owned by Beijing Boya. On October 9, 2022, Ningxia Zhongxin submitted
the application for cancellation registration to local administration for market regulation, and the application was approved on the
same day.
11
As
of the date of this Annual Report, the PRC entities have 109 full-time employees and a few contractors from the third party. In September
2020, the PRC operating entities established an office in Tianjin as the offices for medical service staff and technic staff. In October
2020, the PRC operating entities established an office in Japan and will pursue potential market opportunities there. In 2021, as the
PRC operating entities had been seeking business expansion countrywide, in consideration of cost, uncertainty of the COVID-19 development,
and governmental restriction in response to COVID-19, the PRC operating entities established additional offices at shared workspace in
7 cities (Chongqing, Tianjin, Wuhan, Shenyang, Chengdu, Shijiazhuang and Changde) accommodating a total of 27 employees as of the date
of this Annual Report. The rent for these offices at shared workspace is payable monthly or semi-annually, and the leases thereunder
could be terminated with advanced notice.  Zhongchao Shanghai and its subsidiaries are actively looking for additional locations
to establish new offices and expand their current offices and sales and delivery centers. The PRC operating entities intend to continue
their expansion in the foreseeable future to pursue existing and potential market opportunities. The PRC operating entities' growth
has placed and will continue to place significant demands on their management and administrative, operational and financial infrastructure.
Continued expansion increases the challenges the PRC operating entities face in:
●
recruiting,
    training, developing and retaining sufficient IT talents and management personnel;
●
creating
    and capitalizing upon economies of scale;
●
managing
    a larger number of customers in a greater number locations;
●
maintaining
    effective oversight of personnel and offices;
●
coordinating
    work among offices and project teams and maintaining high resource utilization rates;
●
integrating
    new management personnel and expanded operations while preserving the PRC operating entities' culture and core values;
●
developing
    and improving the PRC operating entities' internal administrative infrastructure, particularly its financial, operational,
    human resources, communications and other internal systems, procedures and controls; and
●
adhering
    to and further improving the PRC operating entities' high quality and process execution standards and maintaining high levels
    of client satisfaction.
Moreover,
as the PRC operating entities introduce new services or enter into new markets, the PRC operating entities may face new market, technological
and operational risks and challenges with which they are unfamiliar, and it may require substantial management efforts and skills to
mitigate these risks and challenges. As a result of any of these problems associated with expansion, the PRC operating entities'
business, results of operations and financial condition could be materially and adversely affected. Furthermore, the PRC operating entities
may not be able to achieve anticipated growth, which could materially and adversely affect their business and prospects.
We
depend on the healthcare industry for a significant portion of our revenues.
Our revenues could seriously
decrease if there were adverse developments in the healthcare industry. Our near-term and long-term prospects depend upon selling the
PRC operating entities' services to the healthcare industry. In 2022, 33.1% of our revenues were derived from services provided
to pharmaceutical enterprises. Accordingly, our success is highly dependent on the sales and marketing expenditures of pharmaceutical
enterprises and The PRC operating entities' ability to attract these expenditures. Some of the adverse developments in the healthcare
industry that could affect our revenues would be:
-
a
    reduction in sales and marketing expenditures of pharmaceutical enterprises;
-
public
    or private market initiatives or reforms designed to regulate the manner in which pharmaceutical enterprises promote their products;
-
regulatory
    or legislative developments that discourage or prohibit pharmaceutical enterprises' promotional activities;
-
a
    decrease in the number of new drugs being developed; or
-
the
    adoption of current legislative and regulatory proposals to control drug costs for patients.
12
The
PRC operating entities face intense competition from onshore and offshore healthcare information, education, and training services companies,
and, if the PRC operating entities are unable to compete effectively, the PRC operating entities may lose customers and our revenues
may decline.
The
market for healthcare information, education, and training services is highly competitive and the PRC operating entities expect competition
to persist and intensify. We believe that the principal competitive factors in the PRC operating entities' markets are industry
expertise, breadth and depth of service offerings, quality of the services offered, reputation and track record, marketing and selling
skills, scalability of infrastructure and price. In addition, the trend towards offshore outsourcing, international expansion by foreign
and domestic competitors and continuing technological changes will result in new and different competitors entering our markets. the
PRC operating entities' ability to compete also depends in part on a number of factors beyond the PRC operating entities'
control, including the ability of the PRC operating entities' competitors to recruit, train, develop and retain highly skilled
professionals, the price at which the PRC operating entities' competitors offer comparable services and the PRC operating entities'
competitors' responsiveness to client needs. Therefore, we cannot assure you that the PRC operating entities will be able to retain
their customers while competing against such competitors. Increased competition, the PRC operating entities' inability to compete
successfully against competitors, pricing pressures or loss of market share could harm the PRC operating entities' business, financial
condition and results of operations.
Our
success depends substantially on the continuing efforts of the PRC operating entities' senior executives and other key personnel,
and the PRC operating entities' business may be severely disrupted if they lose their services.
Our
future success heavily depends upon the continued services of the PRC operating entities' senior executives and other key employees.
If one or more of the PRC operating entities' senior executives or key employees are unable or unwilling to continue in their present
positions, it could disrupt the PRC operating entities' business operations, and the PRC operating entities may not be able to
replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and the PRC
operating entities may be unable to retain their senior executives and key personnel or attract and retain new senior executive and key
personnel in the future, in which case the PRC operating entities' business may be severely disrupted, and our financial condition
and results of operations may be materially and adversely affected. If any of the PRC operating entities' senior executives or
key personnel joins a competitor or forms a competing company, the PRC operating entities may lose customers, suppliers, know-how and
key professionals and staff members to them. Also, if any of the PRC operating entities' business development managers, who generally
keep a close relationship with the PRC operating entities' customers, joins a competitor or forms a competing company, the PRC
operating entities may lose customers, and our revenues may be materially and adversely affected. Additionally, there could be unauthorized
disclosure or use of the PRC operating entities' technical knowledge, practices or procedures by such personnel. Most of the PRC
operating entities' executives and key personnel have entered into employment agreements with us that contain non-competition provisions,
non-solicitation and nondisclosure covenants. However, if any dispute arises between the PRC operating entities' executive officers
and key personnel and us, such non-competition, non-solicitation and non-disclosure provisions might not provide effective protection
to us, especially in China, where most of these executive officers and key employees reside, in light of the uncertainties with China's
legal system.
13
The
PRC operating entities may be unable to maintain their existing relationships with their content providers or to build new relationships
with other content providers.
Our
success depends significantly on the PRC operating entities' ability to maintain the PRC operating entities' existing relationships
with the third parties who provide healthcare information, education, and training content for the PRC operating entities' library
and courses and the PRC operating entities' ability to build new relationships with other content partners. Most of the PRC operating
entities' agreements with content providers are on a case-by-case basis. The PRC operating entities generate their resource library
of content providers, most of whom are healthcare experts working in leading Chinese hospital or well-known universities. Every time
the PRC operating entities have a need for content production, they will search in their resource library and reach out to the relevant
experts for content production. Upon the completion of the content production, they will send over a standard form of service order to
the experts evidencing such completion and ask for their best ways for the service payment. The PRC operating entities' content
partners usually receive their service payment within one week after the PRC operating entities receive the signed copies of the service
orders. If a significant number of the PRC operating entities' content providers refuse to cooperate with us, it could result in
a reduction in the number of courses the PRC operating entities are able to produce and decreased revenues. Most of the PRC operating
entities' agreements with the PRC operating entities' content partners are also non-exclusive, and the PRC operating entities'
competitors offer, or could offer, healthcare information, education, and training content that is similar to or the same as the PRC
operating entities. If the PRC operating entities' current content partners offer information to users or the PRC operating entities'
competitors on more favorable terms than those offered to us or increase the PRC operating entities' service fees, the PRC operating
entities' competitive position and our profit margins and prospects could be harmed. In addition, the failure by The PRC operating
entities' content partners to deliver high-quality content and to continuously upgrade their content in response to user demand
and evolving healthcare advances and trends could result in user dissatisfaction and inhibit the PRC operating entities' ability
to attract users.
If
the PRC operating entities fail to provide high-quality and reliable content in a cost-effective manner, they may not be able to attract
and retain users to remain competitive.
Our
success depends on the PRC operating entities' ability to maintain and grow user engagement on the PRC operating entities'
platform. To attract and retain users and compete against the PRC operating entities' competitors, the PRC operating entities must
continue to offer high-quality and reliable content to provide the PRC operating entities' users with a superior healthcare information,
education, and training service experience. To this end, the PRC operating entities must continue to produce original content and source
new professional and user-generated content in a cost effective manner. Given that they operate in a rapidly evolving industry, the PRC
operating entities need to anticipate industry changes and respond to such changes timely and effectively. If the PRC operating entities
fail to continue to offer high-quality and reliable content to their users, we may suffer from reduced user traffic and engagement, and
their business, financial condition and results of operations may be materially and adversely affected.
In
addition to content generated by the PRC operating entities' users and content partners, the PRC operating entities rely on their in-house team
to create original content and to edit, manage, and supervise the original content origination and production process, and the PRC operating
entities intend to continue to invest resources in content production. The PRC operating entities face competition for qualified personnel
in a limited pool of high-quality creative talent. If the PRC operating entities are not able to compete effectively for talents or attract
and retain top talents at reasonable costs, their original content production capabilities would be negatively impacted. Any deterioration
in the PRC operating entities' in-house content production capability, inability to attract creative talents at reasonable
costs or losses in personnel may materially and adversely affect the PRC operating entities' business and operating results.
We
generate a significant portion of our revenues from a relatively small number of major customers and loss of business from these customers
could reduce our revenues and significantly harm the PRC operating entities' business.
We
believe that in the foreseeable future we will continue to derive a significant portion of our revenues from a small number of major
customers. For the year ended December 31, 2022, one customer accounted for approximately 15.9% of the total revenue. For the year
ended December 31, 2021, three customers accounted for approximately 23.4%, 21.9%, and 10.7% of the total revenue, respectively. For
the year ended December 31, 2020, two customers accounted for approximately 26.9% and 19.7% of the total revenue, respectively. The PRC
operating entities' ability to maintain close relationships with these and other major customers is essential to the growth and
profitability of the PRC operating entities' business. However, the volume of work performed for a specific client is likely to
vary from year to year, especially when the PRC operating entities are not their customers' exclusive healthcare information, education,
and training services provider and the PRC operating entities do not have long-term commitments from any of their customers to purchase
the PRC operating entities' services. A major client in one year may not provide the same level of revenues for the PRC operating
entities in any subsequent year. The healthcare information, education, and training services the PRC operating entities provide to their
customers, and the revenues and income from those services, may decline or vary as the type and quantity of healthcare information, education,
and training services the PRC operating entities provide changes over time. In addition, The PRC operating entities' reliance on
any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us
when negotiating contracts and terms of service. In addition, a number of factors other than The PRC operating entities' performance
could cause the loss of or reduction in business or revenues from a client, and these factors are not predictable. These factors may
include corporate restructuring, pricing pressure, changes to its outsourcing strategy, switching to another services provider or returning
work in-house. In the future, a small number of customers may continue to represent a significant portion of our total revenues in any
given period. The loss of any of The PRC operating entities' major customers could adversely affect our financial condition and
results of operations.
14
We
expect competition to increase significantly in the future which could reduce the PRC operating entities' revenues, potential profits
and overall market share.
The
market for traditional and online healthcare information, education, and training services is competitive. Barriers to entry on the Internet
are relatively low, and we expect competition to increase significantly in the future. The PRC operating entities face competitive pressures
from certain actual and potential competitors, both online and onsite, many of which have longer operating histories, greater brand name
recognition, larger user bases and significantly greater financial, technical and marketing resources than the PRC operating entities
do. We cannot assure you that healthcare information, education, and training education services maintained by the PRC operating entities'
existing and potential competitors will not be perceived by the healthcare community as being superior to the PRC operating entities'.
The
PRC operating entities may be unable to adequately develop their systems, processes and support in a manner that will enable them to
meet the demand for the PRC operating entities' services.
The
PRC operating entities have initiated their online operations in the recent 10 years and are developing its ability to provide its courses
and education systems on a transactional basis over the Internet. The PRC operating entities' future success will depend on their
ability to develop the infrastructure effectively, including additional hardware and software, and implement the services, including
customer support, necessary to meet the demand for the PRC operating entities' services. In the event the PRC operating entities
are not successful in developing the necessary systems and implementing the necessary services on a timely basis, our revenues could
be adversely affected, which would have a material adverse effect on our financial condition.
The
PRC operating entities may lose business if they are unable to keep up with rapid technological or other changes.
If
the PRC operating entities are unable to keep up with changing technology and other factors related to their market, they may be unable
to attract and retain users and advertisers, which would reduce our revenues. The markets in which the PRC operating entities compete
are characterized by rapidly changing technology, evolving technological standards in the industry, frequent new service and product
announcements and changing consumer demands. the PRC operating entities' future success will depend on the PRC operating entities'
ability to adapt to these changes and to continuously improve the performance, features and reliability of the PRC operating entities'
service in response to competitive services and product offerings and the evolving demands of the marketplace. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to incur substantial
expenditures to modify or adapt the PRC operating entities' services or infrastructure, which might impact the PRC operating entities'
ability to become or remain profitable.
15
If the PRC operating
entities are unable to collect their receivables from their customers, our results of operations and cash flows could be adversely affected.
The
PRC operating entities' business depends on their ability to successfully obtain payment from their customers of the amounts they
owe us for work performed. As of December 31, 2022 and 2021, our accounts receivable balance amounted to approximately $6,772,988 and
$9,218,883, respectively. As of December 31, 2022 and 2021, we had doubtful allowance of $207,269 and $nil against accounts receivable.
For the years ended December 31, 2022, 2021 and 2020, we wrote off $543,315, $1,449,827 and $336,367,
respectively, against accounts receivable. Since the PRC operating entities generally do not require collateral or other security from
their customers, they establish an allowance for doubtful accounts based upon estimates, historical experience and other factors surrounding
the credit risk of specific customers. However, actual losses on client receivables balance could differ from those that we anticipate
and as a result we might need to adjust their allowance. There is no guarantee that we will accurately assess the creditworthiness of
the PRC operating entities' customers. Macroeconomic conditions, including related turmoil in the global financial system, could
also result in financial difficulties for the PRC operating entities' customers, including limited access to the credit markets,
insolvency or bankruptcy, and as a result could cause customers to delay payments to us, request modifications to their payment arrangements
that could increase our receivables balance, or default on their payment obligations to us. As a result, an extended delay or default
in payment relating to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts
receivable. If the PRC operating entities are unable to collect their receivables from their customers in accordance with the contracts
with the PRC operating entities' customers, our results of operations and cash flows could be adversely affected.
The growth and success of the PRC operating
entities' business depends on their ability to anticipate and develop new services and enhance existing services in order to keep
pace with rapid changes in technology and in the industries they focus on
.
The market for the PRC operating
entities' services is characterized by rapid technological change, evolving industry standards, changing client preferences and
new product and service introductions. The PRC operating entities' future growth and success depend significantly on their ability
to anticipate developments in healthcare information, education, and training services, and develop and offer new product and service
lines to meet their customers' and end-users' evolving needs. The PRC operating entities may not be successful in anticipating
or responding to these developments in a timely manner, or if they do respond, the services or technologies they develop may not be successful
in the marketplace. The development of some of the services and technologies may involve significant upfront investments and the failure
of these services and technologies may result in the PRC operating entities' being unable to recover these investments, in part
or in full. Further, services or technologies that are developed by the PRC operating entities' competitors may render the PRC operating
entities' services uncompetitive or obsolete. In addition, new technologies may be developed that allow the PRC operating entities'
customers to more cost-effectively perform the services that they provide, thereby reducing demand for the PRC operating entities'
services. Should the PRC operating entities fail to adapt to the rapidly changing healthcare information, education, and training services
market or if they fail to develop suitable services to meet the evolving and increasingly sophisticated requirements of the PRC operating
entities' customers in a timely manner, the PRC operating entities' business and results of operations could be materially
and adversely affected.
If the PRC operating entities do not succeed
in attracting new customers for their services or growing revenues from existing customers, they may not achieve our revenue growth goals.
The PRC operating entities
plan to significantly expand the number of customers they serve to diversify their client base and grow our revenues. Revenues from a
new client often rise quickly over the first several years following the PRC operating entities' initial engagement as they expand
the services that they provide to that client. Therefore, obtaining new customers is important for them to achieve rapid revenue growth.
The PRC operating entities also plan to grow revenues from their existing customers by identifying and selling additional services to
them. The PRC operating entities' ability to attract new customers, as well as their ability to grow revenues from existing customers,
depends on a number of factors, including the PRC operating entities' ability to offer high quality services at competitive prices,
the strength of the PRC operating entities' competitors and the capabilities of the PRC operating entities' sales and marketing
teams. If the PRC operating entities are not able to continue to attract new customers or to grow revenues from their existing customers
in the future, we may not be able to grow our revenues as quickly as we anticipate or at all.
16
As a result of the PRC operating entities'
significant recent growth, evaluating their business and prospects may be difficult and the PRC operating entities' past results
may not be indicative of its future performance.
Our future success depends
on the PRC operating entities' ability to significantly increase revenue and maintain profitability from the PRC operating entities'
operations. The PRC operating entities' business has grown and evolved significantly in recent years. The PRC operating entities'
growth in recent years makes it difficult to evaluate their historical performance and make a period-to-period comparison of the PRC operating
entities' historical operating results less meaningful. The PRC operating entities may not be able to achieve a similar growth rate
or maintain profitability in future periods. Therefore, you should not rely on our past results or our historic rate of growth as an indication
of The PRC operating entities' future performance. You should consider our future prospects in light of the risks and challenges
encountered by a company seeking to grow and expand in a competitive industry that is characterized by rapid technological change, evolving
industry standards, changing client preferences and new product and service introductions. These risks and challenges include, among others:
●
the uncertainties associated with the PRC operating entities' ability to continue their growth and maintain profitability;
●
preserving the PRC operating entities' competitive position in the healthcare information, education, and training services industry in China;
●
offering consistent and high-quality services to retain and attract customers;
●
implementing PRC operating entities' strategy and modifying it from time to time to respond effectively to competition and changes in client preferences;
●
managing PRC operating entities' expanding operations and successfully expanding their solution and service offerings;
●
responding in a timely manner to technological or other changes in the healthcare information, education, and training services industry;
●
managing risks associated with intellectual property; and
●
recruiting, training, developing and retaining qualified managerial and other personnel.
If the PRC operating entities
are unsuccessful in addressing any of these risks or challenges, their business may be materially and adversely affected.
The PRC operating entities' profitability
will suffer if they are not able to maintain their resource utilization levels or continue to improve their productivity levels.
Our gross margin and profitability
are significantly impacted by the PRC operating entities' utilization of human resources as well as other resources, such as computers,
IT infrastructure and office space, and the PRC operating entities' ability to increase their productivity levels. The PRC operating
entities have expanded their operations significantly in recent years through organic growth, which has resulted in a significant increase
in the PRC operating entities' headcount and fixed overhead costs. The PRC operating entities may face difficulties maintaining
high levels of utilization, especially for their newly established businesses and resources. The framework agreements with some of the
PRC operating entities' customers typically do not impose a minimum or maximum purchase amount and allow the PRC operating entities'
customers to place service orders from time to time at their discretion. Customers demand is varied and it may fall to zero or surge to
a level that the PRC operating entities cannot cost-effectively satisfy. Although the PRC operating entities try to use all commercially
reasonable efforts to accurately estimate service orders and resource requirements from their customers, we may overestimate or underestimate,
which may result in unexpected cost and strain or redundancy of their human capital and adversely effects on their utilization ability.
The PRC operating entities' ability to continually increase their productivity levels depends significantly on their ability to
recruit, train, develop and retain high-performing professionals, staff projects appropriately and optimize their mix of services and
delivery methods. If the PRC operating entities experience a slowdown or stoppage of work for any client or on any project for which they
have dedicated professionals or facilities, they may not be able to efficiently reallocate these professionals and facilities to other
customers and projects to keep their high utilization and productivity levels. If the PRC operating entities are not able to maintain
high resource utilization levels without corresponding cost reductions or price increases, their profitability will suffer.
17
Increases in wages for professionals in
China could prevent the PRC operating entities from sustaining their competitive advantage and could reduce our profit margins.
Part of the PRC operating entities'
most significant costs are the salaries and other compensation expenses for their medical professionals and other employees. Wage costs
for professionals in China are lower than those in more developed countries and India. However, because of rapid economic growth, increased
productivity levels, and increased competition for skilled employees and consultants in China, wages for highly skilled employees in China,
in particular middle- and senior-level managers, are increasing at a faster rate than in the past. The PRC operating entities may need
to increase the levels of employee and consultant compensation more rapidly than in the past to remain competitive in retaining the quality
and attracting number of employees that the PRC operating entities' business requires. Increases in the wages and other compensation
the PRC operating entities pay their employees and consultants in China could reduce their competitive advantage unless they are able
to increase the efficiency and productivity of their professionals as well as the prices the PRC operating entities can charge for their
services. In addition, any appreciation in the value of the Renminbi relative to U.S. dollar and other foreign currencies will cause an
increase in the relative wage levels in China, which could further reduce the PRC operating entities' competitive advantage and
adversely impact their profit margin.
The PRC operating entities must continue
to upgrade their technology infrastructure, or they will be unable to effectively meet demand for their services.
The PRC operating entities
must continue to add hardware and enhance software to accommodate the increasing content in their library and increasing use of their
websites, mobile apps, and WeChat accounts. In order to make timely decisions about hardware and software enhancements, the PRC operating
entities must be able to accurately forecast the growth in demand for their services. This growth in demand for their services could be
difficult to forecast and the potential audience of their services is large. If the PRC operating entities are unable to increase the
data storage and processing capacity of their systems at least as fast as the growth in demand, the PRC operating entities' systems
may become unstable and may fail to operate for unknown periods of time. Unscheduled downtime could harm the PRC operating entities'
business and also could discourage current and potential end users and reduce future revenues.
The PRC operating entities' data and
web server systems may stop working or work improperly due to natural disasters, failure of third-party services and other unexpected
problems.
An unexpected event like a
power or telecommunications outage, fire, flood or earthquake at the PRC operating entities' on-site data facility or at their Internet
service providers' facilities could cause the loss of critical data and prevent us from offering their services. Currently the PRC
operating entities don't have any business interruption insurance to compensate us for losses that may occur. In addition, the PRC
operating entities rely on third parties to securely store their archived data, house their Web server and network systems and connect
them to the Internet. The failure by any of these third parties to provide these services satisfactorily and the PRC operating entities'
inability to find suitable replacements would impair the PRC operating entities' ability to access archives and operate their systems.
The PRC operating entities' computer
networks may be vulnerable to security risks that could disrupt their services and adversely affect their results of operations.
The PRC operating entities'
computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems caused by unauthorized
access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate
proprietary information or cause interruptions or malfunctions in the PRC operating entities' operations. Although the PRC operating
entities intend to continue to implement security measures, computer attacks or disruptions may jeopardize the security of information
stored in and transmitted through the PRC operating entities' computer systems. Actual or perceived concerns that the PRC operating
entities' systems may be vulnerable to such attacks or disruptions may deter their customers from using their platforms or services.
As a result, the PRC operating entities may be required to expend significant resources to protect against the threat of these security
breaches or to alleviate problems caused by these breaches.
18
Data networks are also vulnerable
to attacks, unauthorized access and disruptions. For example, in a number of public networks, hackers have bypassed firewalls and misappropriated
confidential information. It is possible that, despite existing safeguards, an employee could misappropriate the PRC operating entities'
customers' proprietary information or data, exposing us to a risk of loss or litigation and possible liability. Losses or liabilities
that are incurred as a result of any of the foregoing could have a material adverse effect on the PRC operating entities' business.
The PRC operating entities may lose users
and lose revenues if their cyber security measures fail.
If the security measures that
the PRC operating entities use to protect personal information are ineffective, the PRC operating entities may lose users of their services,
which could reduce our revenues. The PRC operating entities rely on security and authentication technology licensed from third parties.
The PRC operating entities cannot predict whether these security measures could be circumvented by new technological developments. In
addition, the PRC operating entities' software, databases and servers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. The PRC operating entities may need to spend significant resources to protect against security breaches
or to alleviate problems caused by any breaches. We cannot assure you that the PRC operating entities can prevent all cyber security breaches.
We depend significantly on the strength
of the PRC operating entities' brand and reputation. Any failure to maintain and enhance, or any damage to, the PRC operating entities'
brand image or reputation could materially and adversely affect the PRC operating entities' business, results of operations, financial
condition and prospects.
The PRC operating entities'
reputation and brand recognition, which depend on cultivating awareness, trust and confidence among their current or potential users,
is critical to the success of the PRC operating entities' business. We believe a well-recognized brand is crucial to increasing
the PRC operating entities' user base and, in turn, facilitating the PRC operating entities' effort to monetize their services
and enhancing their attractiveness to their users and service providers. The PRC operating entities' reputation and brand are vulnerable
to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations,
lawsuits and other claims in the ordinary course of the PRC operating entities' business, perceptions of conflicts of interest and
rumors, including complaints made by the PRC operating entities' competitors, among other things, could substantially damage the
PRC operating entities' reputation, even if they are baseless or satisfactorily addressed.
In addition, any perception
that the quality of the PRC operating entities' healthcare information, education, and training services may not be the same as
or better than that of other healthcare information, education, and training service platforms can damage the PRC operating entities'
reputation. Any negative media publicity about any of the services available on the PRC operating entities' platform or product
or service quality problems at other healthcare training service platforms, including at the PRC operating entities' competitors,
may also negatively impact the PRC operating entities' reputation and brand. Negative perceptions of healthcare information, education,
and training solutions and services, or the industry in general, may reduce the number of users coming to the PRC operating entities'
platform and the number of transactions conducted through the PRC operating entities' platform, which would adversely impact our
revenues and liquidity position.
The PRC operating entities may not be able
to prevent others from unauthorized use of the PRC operating entities' intellectual property, which could cause a loss of customers,
reduce the PRC operating entities' revenues and harm their competitive position.
The PRC operating entities
rely on a combination of copyright, trademark, software registration, anti-unfair competition and trade secret laws, as well as confidentiality
agreements and other methods to protect their intellectual property rights. To protect the PRC operating entities' trade secrets
and other proprietary information, employees, customers, subcontractors, consultants, advisors and collaborators are required to enter
into confidentiality agreements. These agreements might not provide effective protection for the trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary
information. Implementation of intellectual property-related laws in China has historically been lacking, primarily because of ambiguities
in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may
not be as effective as those in the United States or other developed countries, and infringement of intellectual property rights continues
to pose a serious risk of doing business in China. Policing unauthorized use of proprietary technology is difficult and expensive. The
steps the PRC operating entities have taken may be inadequate to prevent the misappropriation of their proprietary technology. Unauthorized
copying, other misappropriation, or negligent or accidental leakage of the PRC operating entities' proprietary technologies could
enable third parties to benefit from the PRC operating entities' technologies without obtaining their consent or paying them for
doing so, which could harm the PRC operating entities' business and competitive position. Though the PRC operating entities are
not currently involved in any litigation with respect to intellectual property, they may need to enforce their intellectual property rights
through litigation. Litigation relating to the PRC operating entities' intellectual property may not prove successful and might
result in substantial costs and diversion of resources and management attention.
19
The PRC operating entities may face intellectual
property infringement claims that could be time-consuming and costly to defend. If the PRC operating entities fail to defend themselves
against such claims, they may lose significant intellectual property rights and may be unable to continue providing their existing services.
The PRC operating entities'
success largely depends on their ability to use and develop their technology and services without infringing the intellectual property
rights of third parties, including copyrights, trade secrets and trademarks. The PRC operating entities may be subject to risk related
to potential infringement claims of the copyrights, as the copyrights of the PRC operating entities' some medical education courses
developed by us belong to their customers or share with their customers based on agreements. For example, pursuant to the Copyright Law
of the PRC, providing the public with works by wired or wireless means, so as to make the public able to respectively obtain the works
at the individually selected time and place, without permission from the owner of the copyrights therein shall constitute infringements
of copyrights. The infringer shall, according to the circumstances of the case, undertake to cease the infringement, take remedial action,
and offer an apology, pay damages, etc. The PRC operating entities may be subject to litigation involving claims of violation of other
intellectual property rights of third parties. The PRC operating entities may be unaware of intellectual property registrations or applications
relating to their services that may give rise to potential infringement claims against us. There may also be technologies licensed to
and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties which may damage the
PRC operating entities' ability to rely on such technologies. The PRC operating entities are subject to additional risks as a result
of their hiring of new employees who may misappropriate intellectual property from their former employers. Parties making infringement
claims may be able to obtain an injunction to prevent us from delivering their services or using technology involving the allegedly infringing
intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management's attention
from the PRC operating entities' business. A successful infringement claim against us, whether with or without merit, could, among
others things, require us to pay substantial damages, develop non-infringing technology, or re-brand the PRC operating entities'
name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing
or using products that have infringed a third party's intellectual property rights. Protracted litigation could also result in existing
or potential customers deferring or limiting their purchase or use of the PRC operating entities' products until resolution of such
litigation, or could require us to indemnify their customers against infringement claims in certain instances. Any intellectual property
claim or litigation in this area, whether they ultimately win or lose, could damage their reputation and have a material adverse effect
on our business, results of operations or financial condition.
Disruptions in telecommunications or significant
failure in the PRC operating entities' IT systems could harm their service model, which could result in a reduction of our revenue.
A significant element of the
PRC operating entities' business strategy is to continue to leverage and expand their branches strategically located in China. We
believe that the use of a strategically located network of branches will provide us with cost advantages, the ability to attract highly
skilled personnel in various regions of the country and the world, and the ability to serve customers on a regional and global basis.
Part of the PRC operating entities' service model is to maintain active voice and data communications, financial control, accounting,
customer service and other data processing systems between the PRC operating entities' main offices in Shanghai, locations of the
PRC operating entities' customers, and other branches and support facilities of the PRC operating entities. The PRC operating entities'
business activities may be materially disrupted in the event of a partial or complete failure of any of these IT or communication systems,
which could be caused by, among other things, software malfunction, computer virus attacks, conversion errors due to system upgrading,
damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry or other events beyond their control. Loss of
all or part of the systems for a period of time could hinder the PRC operating entities' performance or their ability to complete
client projects on time which, in turn, could lead to a reduction of our revenue or otherwise have a material adverse effect on the PRC
operating entities' business and business reputation. The PRC operating entities may also be liable to their customers for breach
of contract for interruptions in service.
20
The PRC operating entities may be liable
to third parties for content that is available from their online library.
The PRC operating entities
may be liable to third parties for the content in the PRC operating entities' online library if the text, graphics, software or
other content in their library violates copyright, trademark, or other intellectual property rights, the PRC operating entities'
content partners violate their contractual obligations to others by providing content to the PRC operating entities' library or
the content does not conform to accepted standards of care in the healthcare profession. The PRC operating entities may also be liable
for anything that is accessible from their Website through links to other Websites. The PRC operating entities attempt to minimize these
types of liabilities by requiring representations and warranties relating to their content partners' ownership of, the rights to
distribute as well as the accuracy of their content. The PRC operating entities also take necessary measures to review this content themselves.
Although the PRC operating entities' agreements with their content partners contain provisions providing for indemnification by
the content providers in the event of inaccurate content, we cannot assure you that the PRC operating entities' content partners
will have the financial resources to meet this obligation. Alleged liability could harm the PRC operating entities' business by
damaging their reputation, requiring them to incur legal costs in defense, exposing them to awards of damages and costs and diverting
management's attention away from the PRC operating entities' business. See "Business -- Intellectual Property Rights"
for a more complete discussion of the potential effects of this liability on the PRC operating entities' business.
Any reduction in the regulation of continuing
education and training in the healthcare industry may adversely affect the PRC operating entities' business.
The PRC operating entities'
business model is dependent in part on required training and continuing education for healthcare professionals and other healthcare workers
resulting from regulations of Chinese Health Department. Any change in these regulations which reduce the demands for continuing education
and training for the healthcare industry could harm the PRC operating entities' business.
We may need additional capital and any failure
by us to raise additional capital on terms favorable to us, or at all, could limit the PRC operating entities' ability to grow their
business and develop or enhance their service offerings to respond to market demand or competitive challenges.
We believe that our current
cash, cash flow from operations and the proceeds from our initial public offering should be sufficient to meet our anticipated cash needs
for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash
requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities
could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could
require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital
on acceptable terms is subject to a variety of uncertainties, including:
●
investors' perception of, and demand for, securities of technology services outsourcing companies;
●
conditions of the U.S. and other capital markets in which we may seek to raise funds;
●
our future results of operations and financial condition;
●
PRC government regulation of foreign investment in China;
●
economic, political and other conditions in China; and
●
PRC government policies relating to the borrowing and remittance outside China of foreign currency.
21
Financing may not be available
in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could
limit the PRC operating entities' ability to grow their business and develop or enhance their product and service offerings to respond
to market demand or competitive challenges.
The impact of the continued outbreak of
COVID-19 on the Company's business operations is currently uncertain.
The business operations of
the PRC operating entities have been be adversely affected by the effects of a widespread outbreak of contagious disease, including the
recent outbreak of respiratory illness caused by a novel coronavirus known as COVID-19 which was first reported in
the City of Wuhan, Hubei, China. The PRC operating entities offices are located in Shanghai and Beijing, China, where any outbreak of
contagious diseases and other adverse public health developments could be adverse on the PRC operating entities' business operations.
The ongoing outbreak of the COVID-19
was first reported on December 31, 2019 in City of Wuhan, Hubei, China and was recognized as a pandemic by the World Health Organization
(WHO) on March 11, 2020. In late January 2020, the local governments of Beijing and Shanghai released a stop order on all activities that
involved public gatherings. In response to the COVID-19 outbreak, the PRC operating entities advised all employees to work from home from
mid-January to early April 2020, as such PRC operating entities were able to continue servicing its customers with minimum interruption.
All of the PRC operating entities' employees are well equipped and prepared for the remote work situations even before the outbreak.
Although the PRC operating entities were unable to adhere to original delivery timeliness of certain projects due to the strict movement
restrictions imposed by the government, the PRC operating entities have managed to convert certain onsite training and education programs
to online programs and timely deliver the updated training information to their customers and users.
In the wake of the COVID-19
sweeping across the world, the PRC operating entities have also been closely monitoring the fluid and rapidly evolving situation. Since
mid-January 2021, the Company, through its MDMOOC platform (www.MDMOOC.org), has successfully developed and launched coronavirus curriculum
(the "Curriculum") with over 60 courses covering a wide range of medical specialties. The Curriculum includes 1) free online
courses developed independently by the Company and 2) customized courses developed through partnership/sponsorship with leading pharmaceutical
companies and not-for-profit organizations (the "Partners and Sponsors"). The curriculum has been successively distributed
through the PRC operating entities' web portals, mobile APP, WeChat subscription accounts, as well as social media channels, providing
much-needed help to the medical workers who are at the forefront of the fight against the coronavirus.
With prevention and control
measures and vaccination, the COVID-19 was gradually controlled. In the struggle to prevent and control the pandemic, the vast number
of medical workers have taken on the responsibility of treating diseases, relieving pain and maintaining the health of the patients, all
of these strengthened their demand for new knowledge and skills. Under the pandemic situation, people's life and work are greatly
affected, and the desire for health knowledge is increasing day by day, which will stimulate the demand for medical education. Marketing
activities of pharmaceutical companies have also gradually resumed and increased investment in medical education.
Zhongchao generates a vast
majority of its revenues from medical and education training courses delivered through online portals. For the fiscal years ended December
31, 2022, 2021, and 2020, , we generated net revenues of $14,151,516, $16,296,770, and $17,989,788, respectively.
As it continues to spread globally,
the impact of COVID-19, including the effects of a subvariant of the Omicron variant of COVID-19, which may spread faster than the original
Omicron variant, as well as the effects of any new variants and subvariants which may develop, including any actions taken by governments, on
the economy environment, market condition, the financial position of the PRC operating entities' customers as well as Company's
operations, business and financial results is currently uncertain and could be adverse. In March 2022, due to the spread of new variants
and subvariants of COVID-19, which may spread faster than the original COVID-19 variant in Shanghai and some other cities in China,
some local government in China has imposed strict movement restrictions. In the mid-March 2022, the Shanghai authorities issued strict
lock-downs and shut-down orders in response to the pandemic. As a result, the employees of the PRC operating entities located in Shanghai
started to work from home. From March through June 2022, Shanghai was subject to a two-month lockdown policy, where retail stores were
closed, and people were required to stay at home. Starting on May 6, 2022, due to the new order from the Beijing authorities in response
to the COVID-19, the office of the PRC operating entities in Beijing started to limit the number of the employees at office to 10 people,
and the other employees started to work from home. As a result, businesses, including our customers were not able to conduct normal business
operations during the lock-down period. We witnessed a decrease of revenues during April through June 2022, and a delay of collection
of receivables from the PRC operating entities' NFP customers. In addition, in 2022, because of the COVID related restriction, the
PRC operating entities' customers were impacted to reduced their patient-aid projects, so the PRC operating entities' revenues
generated from patient management services decreased approximately $1,054,741 accordingly. As of the date of this Annual Report, the PRC
government lifted its restrictive measures and policies in China.
22
China
began to modify its zero-COVID policy in late 2022, and most of the travel restrictions and quarantine requirements were lifted in December
2022. As a result, there were significant surges of COVID-19 cases in many cities in China during this time from December
2022 to March 2023.
Further, there is also uncertainty if
the new variants and subvariants of COVID-19 will spread to other cities in China where the PRC operating entities' offices located
or what restrictive measures that local authorities may impose. However, based on the current situation, the Company does not expect a
significant impact on the Company's operations and financial results in the long run.
Fluctuation in the value of the Renminbi
and other currencies may have a material adverse effect on the value of your investment.
Our financial statements are
expressed in U.S. dollars. However, a majority of our revenues and expenses are denominated in Renminbi (RMB). Our exposure to foreign
exchange risk primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity. We
do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign
currencies or any other derivative financial instruments. However, the value of your investment in our Class A Ordinary Shares will be
affected by the foreign exchange rate between U.S. dollars and RMB because the primary value of the PRC operating entities' business
is effectively denominated in RMB, while the Class A Ordinary Shares will be traded in U.S. dollars.
The value of the RMB against
the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and
China's foreign exchange policies. The People's Bank of China regularly intervenes in the foreign exchange market to limit
fluctuations in RMB exchange rate and achieve certain exchange rate targets, and through such intervention kept the U.S. dollar-RMB exchange
rate relatively stable.
As we may rely on dividends
paid to us by our PRC subsidiaries and branches, any significant revaluation of the RMB may have a material adverse effect on our revenues
and financial condition, and the value of any dividends payable on our Class A Ordinary Shares in foreign currency terms. For example,
to the extent that we need to convert U.S. dollars we receive from our initial public offering into for our operations, appreciation of
the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide
to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our Class A Ordinary Share or for other business
purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Furthermore,
appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar
terms without giving effect to any underlying change in our business or results of operations. We cannot predict the impact of future
exchange rate fluctuations on our results of operations and may incur net foreign exchange losses in the future. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert into foreign currencies.
Fluctuations in exchange rates could adversely
affect our business and the value of our securities.
Changes in the value of the
RMB against the U.S. dollar, euro and other foreign currencies are affected by, among other things, changes in China political and economic
conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the
value of, and any dividends payable on our shares in the U.S. dollar terms. For example, to the extent that we need to convert U.S. dollar
we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an
adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollar for
the purpose of paying dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB
would have a negative effect on the U.S. dollar amount available to us.
23
Since July 2005, the RMB is
no longer pegged to the U.S. dollar, although the People's Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against
the U.S. dollar in the medium to long term. Moreover, it is possible that in future, PRC authorities may lift restrictions on fluctuations
in the RMB exchange rate and lessen intervention in the foreign exchange market.
Very limited hedging transactions
are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions.
While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and
we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC
exchange control regulations that restrict our ability to convert RMB into foreign currencies.
We have identified material weaknesses in
our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial
reporting, we may be unable to accurately report our financial results or prevent fraud.
In
connection with audits of our financial statements for the fiscal years ended December 31, 2022 and 2021,
our management identified below material weaknesses in the design and operation of our internal controls:
●
The Company lacked the key monitoring mechanisms such as an internal control department to oversee and monitor the Company's risk management, business strategies and financial reporting procedure. We also did not have adequately designed and documented management review controls to properly detect and prevent certain accounting errors and omitted disclosures in the footnotes to the consolidated financial statements; and
●
The Company lacked sufficient resources and expertise with US GAAP and the SEC reporting experiences in the accounting department to provide accurate information in a timely manner.
As defined under standards
established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's
annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
In addition, in order to address
the material weakness in internal control over financial reporting of the Company, we have: (a) hired an experienced outside consultant
with adequate experience with US GAAP and the SEC reporting and compliance requirements; (b) continued our efforts to provide ongoing
training courses in US GAAP to existing personnel, including our Chief Financial Officer; (c) continued our efforts to setup the internal
audit department, and enhance the effectiveness of the internal control system; and (d) continued our efforts to implement necessary review
and controls at related levels and the submission of all important documents and contracts to the office of our Chief Executive Officer
for retention.
All internal control systems,
no matter how well designed, have inherent limitations including the possibility of human error and the circumvention or overriding of
controls. Further, because of changes in conditions, the effectiveness of internal controls may vary over time. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation.
We cannot be certain that these
measures will successfully remediate the material weakness or that other material weaknesses will not be discovered in the future. If
our efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our
financial results accurately on a timely basis or help prevent fraud, which could cause our reported financial results to be materially
misstated and result in the loss of investor confidence or delisting and cause the market price of our ordinary shares to decline. In
addition, it could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price
of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse
of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil
or criminal sanctions. We may also be required to restate our financial statements from prior periods. Because of our status as an emerging
growth company, you will not be able to depend on any attestation from our independent registered public accountants as to our internal
control over financial reporting for the foreseeable future.
24
If major mobile application distribution
channels change their standard terms and conditions in a manner that is detrimental to us, or suspend or terminate their existing relationship
with us, the PRC operating entities' business, financial condition and results of operations may be materially and adversely affected.
The PRC operating entities
currently cooperate with Apple's app store and major PRC-based Android app stores to distribute their MDMOOC and
Sunshine Health Forum mobile application to users. As such, the promotion, distribution and operation of the PRC operating entities'
application are subject to such distribution platforms' standard terms and policies for application developers, which are subject
to the interpretation of, and frequent changes by, these distribution channels. If these third-party distribution platforms change their
terms and conditions in a manner that is detrimental to us, or refuse to distribute the PRC operating entities' application, or
if any other major distribution channel with which they would like to seek collaboration refuses to collaborate with us in the future
on commercially favorable terms, the PRC operating entities' business, financial condition and results of operations may be materially
and adversely affected.
The PRC operating entities' activities
may expose them to malpractice liability and other liability inherent in healthcare delivery.
The PRC operating entities
may be exposed to malpractice or other liability against which they may not be adequately insured, resulting in a decline in our financial
results. A court or government agency may take the position that the PRC operating entities' delivery of health information directly,
including through licensed physicians, or information delivered by a third-party site that a consumer accesses through the PRC operating
entities' Website, exposes us to malpractice or other personal injury liability for wrongful delivery of healthcare services or
erroneous health information. The amount of insurance the PRC operating entities maintain with insurance carriers may not be sufficient
to cover all of the losses they might incur from these claims and legal actions. In addition, insurance for some risks is difficult, impossible
or too costly to obtain, and as a result, the PRC operating entities may not be able to purchase insurance for some types of risks.
Healthcare reforms and the cost of regulatory
compliance could negatively affect the PRC operating entities' business.
The healthcare industry is
heavily regulated in China. Various laws, regulations and guidelines promulgated by government, industry and professional associations
affect, among other matters, the provision, licensing, labeling, marketing, promotion and reimbursement of healthcare services and products,
including pharmaceutical products. The PRC operating entities' failure or their customers' failure to comply with any applicable
regulatory requirements or industry guidelines could:
–
limit or prohibit business activities;
–
subject us or the PRC operating entities' customers to adverse publicity; or
–
increase the costs of regulatory compliance or subject us or their customers to monetary fines or other penalties.
Some of PRC laws have been
applied to the marketing and promotional practices of pharmaceutical manufacturers, to payments to physicians for services and to other
benefits to physicians, and could constrain the PRC operating entities' relationships, including financial, marketing and continuing
medical education relationships, with the PRC operating entities' sponsors and advertisers and with physicians, including any physicians
who perform services for us. It is possible that additional or changed laws, regulations or guidelines could be adopted in the future.
In addition, implementation
of government healthcare reform may adversely affect promotional and marketing expenditures by pharmaceutical enterprises, which could
decrease the business opportunities available to us.
25
The Internet is subject to many legal uncertainties
and potential government regulations that may decrease demand for the PRC operating entities' services, increase the PRC operating
entities' cost of doing business or otherwise have a material adverse effect on our financial results or prospects.
Any new law or regulation pertaining
to the Internet or online publication, or the application or interpretation of existing laws, could decrease demand for the PRC operating
entities' services, increase the PRC operating entities' cost of doing business or otherwise have a material adverse effect
on our financial results and prospects.
New laws and regulations or
the application or interpretation of existing laws and regulations pertaining to the Internet or online publication may be adopted by
PRC regulatory authorities in the future that address Internet-related issues, including online content, user privacy, pricing and quality
of products and services. For example, due to the ambiguity of the definition of "online publishing service," the online distribution
of content, including the PRC operating entities' online services, the courseware or audio-visual contents uploaded by the users
in MDMOOC platforms, through the PRC operating entities' website or mobile apps, may be regarded as "online publishing service"
and therefore the PRC operating entities may be required to obtain an Online Publishing License in the future.
The United States or foreign
nations may adopt legislation aimed at protecting Internet users' privacy. This legislation could increase the PRC operating entities'
cost of doing business and negatively affect our financial results. Moreover, it may take years to determine the extent to which existing
laws governing issues like property ownership, libel, negligence and personal privacy are applicable to the Internet. Currently, U.S.
privacy law consists of disparate state and federal statutes regulating specific industries that collect personal data. Most of them predate
and therefore do not specifically address online activities. In addition, a number of comprehensive legislative and regulatory privacy
proposals are now under consideration by federal, state and local governments in the United States.
The PRC operating entities' future
growth depends on the further acceptance of the Internet and particularly the mobile Internet as an effective platform for assessing healthcare
training services and content.
While the Internet and the
mobile Internet have gained increased popularity in China as platforms for online healthcare training and information sharing in recent
years, many users have limited experience in accessing healthcare training services or healthcare information online. For example, users
may not consider online content to be reliable sources of healthcare information. If the PRC operating entities fail to educate users
about the value of the PRC operating entities' content, platform and services, the PRC operating entities' growth may be limited
and their business, financial performance and prospects may be materially and adversely affected. The further acceptance of the internet
and the mobile internet as an effective and efficient platform for healthcare information sharing and training content is also affected
by factors beyond the PRC operating entities' control, including negative publicity around online healthcare training or information
sharing services and potential restrictive regulatory measures taken by the PRC government. If online and mobile networks do not achieve
adequate acceptance in the market, the PRC operating entities' growth prospects, results of operations and financial condition could
be harmed.
PRC laws that protect individual information
may limit our plans to collect, use and disclose that information.
If the PRC operating entities
fail to comply with current or future laws or regulations governing the collection, dissemination, use and confidentiality of users'
health information, this failure could have a material adverse effect on the PRC operating entities' business, operating results
and financial condition.
End users sometimes enter private
health information about themselves or their family members when using the PRC operating entities' services. Also, the PRC operating
entities' systems record use patterns when end users access the PRC operating entities' databases that may reveal health-related
information or other private information about the users. Certain PRC laws and regulations govern collection, dissemination, use and confidentiality
of users' private information. For example, General Provisions of the Civil Law of the PRC which stipulates that the personal information
of a natural person shall be protected by laws, any organization or individual that needs to obtain the personal information of others
shall obtain such information pursuant to the law and ensure information security, and may neither illegally collect, use, transmit the
personal information of others, nor illegally trade, provide or disclose the personal information of others.
26
The PRC government has been
considering proposed legislation that would establish a new standard for protection and use of health information. In addition, the laws
of other countries also govern the use of and disclosure of health information. The PRC operating entities' systems for safeguarding
users' health information from unauthorized disclosure or use may not preclude successful claims against us for violation of applicable
law. Other third-party sites that users access through the PRC operating entities' site also may not maintain systems to safeguard
this health information. In some cases, the PRC operating entities may place their content on computers that are under the physical control
of others, which may increase the risk of an inappropriate disclosure of health information. For example, the PRC operating entities may
contract out the hosting of their Website to a third party. In addition, future laws or changes in current laws may necessitate costly
adaptations to the PRC operating entities' systems.
The PRC operating entities
intend to develop medical information systems and market research services that they will use to collect, analyze and report aggregate
medical care, medical research, outcomes and financial data pertaining to items such as prescribing patterns and usage habits. Because
this area of the law is rapidly changing, the PRC operating entities' collection, analysis and reporting of aggregate healthcare
data maintained in the PRC operating entities' database may not at all times and in all respects comply with laws or regulations
governing the ownership, collection and use of this data. Future laws or changes in current laws governing the ownership, collection and
use of aggregate healthcare data may necessitate costly adaptations to the PRC operating entities' systems or limit their ability
to use this data.
If we are deemed to be an investment company
under the United States Investment Company Act, we may be required to institute burdensome compliance requirements and our activities
may be restricted, which may make it difficult for us to complete a business transaction.
If we are deemed to be an investment
company under the Investment Company Act of 1940, as amended, our activities may be restricted, including:
●
restrictions on the nature of our investments; and
●
restrictions on the issuance of securities, each of which may make it difficult for us to complete a business transaction.
In addition, we may have imposed
upon us burdensome requirements, including:
●
registration as an investment company;
●
adoption of a specific form of corporate structure; and
●
reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations.
In order not to be regulated
as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged
primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting,
owning, holding or trading "investment securities" constituting more than 40% of our assets (exclusive of U.S. government
securities and cash items) on an unconsolidated basis. We are a holding company no material operations of our own. All of our business
is conducted through Zhongchao Shanghai, whose principle business is to provide healthcare information, education, and training services
to healthcare professionals and the public in China. We do not plan to buy businesses or assets with a view to resale or profit from their
resale. We do not plan to buy unrelated businesses or assets or to be a passive investor. We do not believe that the PRC operating entities'
anticipated principal activities will subject us to the Investment Company Act. To this end, the investment by the VIE's subsidiary
Shanghai Jingyi is only in a private equity fund particularly investing in a certain biotech company in China with a limited capital subscription
and a limited investment period. By restricting the investment to such a certain instrument, we intend to avoid being deemed an "investment
company" within the meaning of the Investment Compact Act.
27
An investment in our securities
is not intended for persons who are seeking a return on investments in government securities or investment securities. Shanghai Jingyi
is primarily engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology,
market information consulting and investigating. If we continue to invest in other investment securities, we may be deemed to be subject
to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory
burdens would require additional expense for which we have not accounted.
RISKS RELATED TO OUR CORPORATE STRUCTURE
We will likely not pay dividends in the
foreseeable future.
Dividend policy is subject
to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements
and other factors. There is no assurance that our Board of Directors will declare dividends even if we are profitable. The payment of
dividends by entities organized in China is subject to limitations as described herein. Under Cayman Islands law, we may only pay dividends
from profits of the Company, or credits standing in the Company's share premium account, and we must be solvent before and after
the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business;
and the realizable value of assets of our Company will not be less than the sum of our total liabilities, other than deferred taxes as
shown on our books of account, and our capital. Pursuant to the Chinese enterprise income tax law, dividends payable by a foreign investment
entity to its foreign investors are subject to a withholding tax of 10%. Similarly, dividends payable by a foreign investment entity to
its Hong Kong investor who owns 25% or more of the equity of the foreign investment entity is subject to a withholding tax of 5%. The
payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in China currently
permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The transfer to this reserve must be made before distribution of any dividend to shareholders.
The dual class structure of our ordinary
shares has the effect of concentrating voting control with our CEO, directors and their affiliates.
Our Class B Ordinary Share has 15 votes per share, and our Class A
Ordinary Share has 1 vote per share. The shareholder who holds shares of Class B Ordinary Shares holds approximately 80.07%
of the voting power of our outstanding ordinary shares, assuming the exercise of the HF Warrant. Because of the fifteen-to-one voting
ratio between our Class B and Class A Ordinary Shares, the holder of our Class B Ordinary Shares will continue to control
a majority of the combined voting power of our ordinary share and therefore be able to control all matters submitted to our shareholders
for approval so long as the shares of Class B Ordinary Shares represent more than 6.25% of all outstanding shares of our Class A
and Class B Ordinary Shares, assuming the exercise of the HF Warrant. This concentrated control will limit your ability to influence
corporate matters for the foreseeable future.
Future transfers by the holder
of Class B Ordinary Shares will generally result in those shares converting to Class A Ordinary Shares, subject to limited exceptions,
such as certain transfers effected for estate planning purposes. The conversion of Class B Ordinary Shares to Class A Ordinary
Shares will have the effect, over time, of increasing the relative voting power of those holders of Class B Ordinary Shares who retain
their shares in the long term. If, for example, Mr. Weiguang Yang retains a significant portion of his holdings of Class B Ordinary
Share for an extended period of time, he could, in the future, continue to control a majority of the combined voting power of our Class A
Ordinary Shares and Class B Ordinary Shares.
Our CEO has control over key decision making
as a result of his control of a majority of our voting shares.
Our Founder, CEO, and our Chairman
of the Board, Mr. Weiguang Yang, and his affiliates which he deemed to have control and/or have substantial influence is able to exercise
full voting rights with respect to an aggregate of 5,497,715 Class B Ordinary Shares, representing a majority of the voting power of our
outstanding ordinary shares. As a result, Mr. Yang has the ability to control the outcome of matters submitted to our shareholders for
approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition,
Mr. Yang has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to
control the election of our directors. Additionally, in the event that Mr. Yang controls our company at the time of his death, control
may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr. Yang owes a fiduciary
duty to our shareholders and must act in good faith in a manner he reasonably believes to be in the best interests of our shareholders.
As a shareholder, even a controlling shareholder, Mr. Yang is entitled to vote his shares, and shares over which he has voting control
as a result of voting agreements, in his own interests, which may not always be in the interests of our shareholders generally.
28
As a "controlled company" under
the rules of the NASDAQ Capital Market, we may choose to exempt our company from certain corporate governance requirements that could
have an adverse effect on our public shareholders.
Our directors and officers
beneficially own a majority of the voting power of our outstanding Class A Ordinary Shares. Under the Rule 4350(c) of the NASDAQ Capital
Market, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled
company" and may elect
not
to comply with certain corporate governance requirements, including the requirement
that a majority of our directors be independent, as defined in the NASDAQ Capital Market Rules, and the requirement that our compensation
and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely on the
"controlled company" exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. If
we elect to rely on the "controlled company" exemption, a majority of the members of our board of directors might not be independent
directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors.
Accordingly, during any time while we remain a controlled company relying on the exemption and during any transition period
following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of
companies that are subject to all of the NASDAQ Capital Market corporate governance requirements. Our status as a controlled company could
cause our Class A Ordinary Share to look less attractive to certain investors or otherwise harm our trading price.
We depend upon the VIE Arrangements in consolidating
the financial results of the PRC operating entities, which may not be as effective as direct ownership.
Our affiliation with Zhongchao
Shanghai is managed through the VIE Arrangements, which agreements may not be as effective in providing us with control over Zhongchao
Shanghai as direct ownership. The VIE Arrangements are governed by and would be interpreted in accordance with the laws of the PRC. If
Zhongchao Shanghai fails to perform the obligations under the VIE Arrangements, we may have to rely on legal remedies under the laws of
the PRC, including seeking specific performance or injunctive relief, and claiming damages. There is a risk that we may be unable to obtain
any of these remedies. The legal environment in the PRC is not as developed as in other jurisdictions. As a result, uncertainties in the
PRC legal system could limit our ability to enforce the VIE Arrangements, or could affect the validity of the VIE Arrangements.
We may not be able to consolidate the financial
results of the PRC operating entities or such consolidation could materially adversely affect our operating results and financial condition.
We are not a Chinese operating
company, but a holding company incorporated in Cayman Islands. As a holding company with no material operations of our own, all of our
business is conducted through Zhongchao Shanghai, which is considered a VIE for accounting purposes, and we, through Zhongchao WFOE, are
considered the primary beneficiary, thus enabling us to consolidate the financial results of Zhongchao Shanghai and its subsidiaries in
our consolidated financial statements. In the event that in the future a company we hold as a VIE no longer meets the definition of a
VIE under applicable accounting rules, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by
line that entity's financial results in our consolidated financial statements for reporting purposes. Also, if in the future an
affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity's financial
results in our consolidated financial statements for accounting purposes. If such entity's financial results were negative, this
would have a corresponding negative impact on our operating results for reporting purposes.
Because we rely on the VIE Arrangements
for our revenue, the termination of these agreements would severely and detrimentally affect our continuing business viability under our
current corporate structure.
We are a holding company, and
all of our business operations are conducted through the VIE Arrangements. Zhongchao Shanghai may terminate the VIE Arrangements for any
or no reason at all. Because neither we, nor our subsidiaries, own equity interests of Zhongchao Shanghai, the termination of the VIE
Arrangements would sever our ability to receive payments from Zhongchao Shanghai under our current holding company structure. While we
are currently not aware of any event or reason that may cause the VIE Arrangements to terminate, we cannot assure you that such an event
or reason will not occur in the future. In the event that the VIE Arrangements are terminated, this would have a severe and detrimental
effect on our continuing business viability under our current corporate structure, which, in turn, may affect the value of your investment.
29
VIE Arrangements in relation to the PRC
operating entities may be subject to scrutiny by the PRC tax authorities and they may determine that we, the VIE, or its subsidiaries
owe additional taxes, which 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 within
ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC tax
authorities determine that the VIE Arrangements 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 adjust the income of the VIE and its subsidiaries
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 the VIE and its subsidiaries for PRC tax purposes, which could in turn increase its tax liabilities without reducing
our subsidiary's tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIE
and its subsidiaries for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially
and adversely affected if the VIE's or its subsidiaries' tax liabilities increase or if it is required to pay late payment
fees and other penalties.
We conduct our business through Zhongchao
Shanghai and its subsidiaries by means of VIE Arrangements. If the PRC courts or administrative authorities determine that these VIE Arrangements
do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition,
changes in such PRC laws and regulations may materially and adversely affect our business.
There are uncertainties regarding
the interpretation and application of PRC laws, rules and regulations, including the laws, rules and regulations governing the validity
and enforcement of the VIE Arrangements between Zhongchao WFOE and Zhongchao Shanghai. We have been advised by our PRC legal counsel,
Han Kun Law Offices, based on their understanding of the current PRC laws, rules and regulations, that (i) as of the date of this Annual
Report, the structure for operating our business in China (including our corporate structure and VIE Arrangements with Zhongchao Shanghai,
Zhongchao Shanghai and their shareholders) do not result in any violation of PRC laws or regulations currently in effect; and (ii) the
VIE Arrangements among Zhongchao WFOE and Zhongchao Shanghai and their shareholders governed by PRC law are valid, binding and enforceable
in accordance with the terms of each of the VIE Arrangements, and do not result in any violation of PRC laws or regulations currently
in effect. However, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and
regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability
of the VIE Arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals
may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel.
If any of our PRC entities
or the PRC operating entities or their ownership structure or the VIE Arrangements are determined to be in violation of any existing or
future PRC laws, rules or regulations, or any of our PRC entities or the PRC operating entities fail to obtain or maintain any of the
required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations,
including:
●
revoking the business and operating licenses;
●
discontinuing or restricting the operations;
●
imposing conditions or requirements with which the PRC entities may not be able to comply;
●
requiring us and the PRC operating entities to restructure the relevant ownership structure or operations;
30
●
restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China; or
●
imposing fines.
The imposition of any of these
penalties would severely disrupt the PRC operating entities' ability to conduct business and have a material adverse effect on our
financial condition, results of operations and prospects.
The shareholders of the VIE may have actual
or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
The shareholders of the VIE
may have actual or potential conflicts of interest with us. These shareholders may refuse to sign or breach, or cause the VIE to breach,
or refuse to renew, the existing VIE Arrangements we have with them and the VIE, which would have a material and adverse effect on our
ability to consolidate the financial results of the VIE and its subsidiaries. For example, the shareholders may be able to cause our agreements
with the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the VIE Arrangements
to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best
interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential
conflicts of interest between these shareholders and our company. If we cannot resolve any conflict of interest or dispute between us
and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to
substantial uncertainty as to the outcome of any such legal proceedings.
Our current corporate structure and business
operations may be affected by the Foreign Investment Law.
On March 15, 2019, the National
People's Congress approved the Foreign Investment Law, which became effect on January 1, 2020. Since it is relatively new, uncertainties
exist in relation to its interpretation and its implementation rules that are yet to be issued. The Foreign Investment Law does not explicitly
classify whether variable interest entities whose financial results are consolidated through VIE Arrangements would be deemed as foreign-invested
enterprises if they are ultimately "controlled" by foreign investors. However, it has a catch-all provision under definition
of "foreign investment" that includes investments made by foreign investors in China through other means as provided by laws,
administrative regulations or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions
of the State Council to provide for VIE Arrangements as a form of foreign investment. Therefore, there can be no assurance that our ability
to consolidate the financial results of the VIE and its subsidiaries through VIE Arrangements will not be deemed as foreign investment
in the future.
The Foreign Investment Law
grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified
as either "restricted" or "prohibited" from foreign investment in a "negative list" that is yet to
be published. It is unclear whether the "negative list" to be published will differ from the current Special Administrative
Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that foreign-invested entities operating
in "restricted" or "prohibited" industries will require market entry clearance and other approvals from relevant
PRC government authorities. If our ability to consolidate the financial results of the VIE and its subsidiaries through VIE Arrangements
are deemed as foreign investment in the future, and any business of the VIE and its subsidiaries is "restricted" or "prohibited"
from foreign investment under the "negative list" effective at the time, we may be deemed to be in violation of the Foreign
Investment Law, the VIE Arrangements that allow us to consolidate the financial results of the VIE and its subsidiaries may be deemed
as invalid and illegal, and we may be required to unwind such VIE Arrangements and/or restructure our business operations, any of which
may have a material adverse effect on our business operation.
Furthermore, if future laws,
administrative regulations or provisions mandate further actions to be taken by companies with respect to existing VIE Arrangements, we
may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current
corporate structure and business operations.
31
If any of our affiliated entities becomes
the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy assets held by such entity, which could
materially and adversely affect our business, financial condition and results of operations.
We currently conduct our operations
in China through our VIE Arrangements. As part of these arrangements, substantially all of our assets that are significant to the operation
of our business are held by our affiliated entities. If any of these entities becomes bankrupt and all or part of their assets become
subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could
materially and adversely affect our business, financial condition and results of operations. In addition, if any of our affiliated entities
undergoes a voluntary or involuntary liquidation proceeding, its equity owner or unrelated third-party creditors may claim rights relating
to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business,
our ability to generate revenue and the market price of our ordinary shares.
If the PRC operating entities fail to maintain
continuing compliance with the PRC state regulatory rules, policies and procedures applicable to their industry, the PRC operating entities
may risk losing certain preferential tax and other treatments which may adversely affect the viability of our current corporate structure,
corporate governance and business operations.
The State Council has promulgated
several notices since 2000 to launch favorable policies for IT services, such as preferential tax treatments and credit support. Under
rules and regulations promulgated by various Chinese government agencies, enterprises that have met specified criteria and are recognized
as software enterprises by the relevant government authorities in China are entitled to preferential treatment, including financing support,
preferential tax rates, export incentives, discretion and flexibility in determining employees' welfare benefits and remuneration.
Software enterprise qualifications are subject to annual examination. Enterprises that fail to meet the annual examination standards will
lose the favorable enterprise income tax treatment. Enterprises exporting software or producing software products that are registered
with the relevant government authorities are also entitled to preferential treatment including governmental financial support, preferential
import, export policies and preferential tax rates. Companies in China engaging in systems integration are required to obtain qualification
certificates from the Ministry of Industry and Information Technology. Companies planning to set up computer information systems may only
retain systems integration companies with appropriate qualification certificates. Currently the PRC operating entities do not engage in
information system integration business, therefore the PRC operating entities are not required to have such qualification certificates.
The qualification certificate is subject to review every two years and is renewable every four years. In 2003, the Ministry of Industry
and Information Technology promulgated the Amended Appraisal Condition for Qualification Grade of Systems Integration of Computer Information
to elaborate the conditions for appraising each of the four qualification grades of systems integration companies. Companies applying
for qualification are graded depending on the scale of the work they undertake. The grades range from Grade 1 (highest) to Grade 4 (lowest)
in the scale of the work the respective companies can undertake. Companies with Grade 3 qualification can independently undertake projects
at the medium-scale and small-scale enterprise level and undertake projects at the large-scale enterprise level in cooperation with other
entities. If and to the extent we fail to maintain compliance with such applicable rules and regulations, our operations and financial
results may be adversely affected.
RISKS RELATED TO DOING BUSINESS IN CHINA
Uncertainties regarding the enforcement
of laws, and changes in policies, laws and regulations could materially and adversely affect us.
In 1979, the PRC began to promulgate
a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past
three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. In particular, the
PRC legal system is a civil law system based on written statutes. Unlike some other law systems, prior court decisions under the civil
law system may be cited for reference but have limited precedential value. Our PRC subsidiaries, the PRC operating entities and their
subsidiaries are subject to laws and regulations applicable to foreign-invested enterprises as well as various Chinese laws and regulations
generally applicable to companies incorporated in China. Since these laws and regulations are relatively new and the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules and the enforcement of these laws, regulations and
rules involve uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce
our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited by third parties through unmerited or
frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, any administrative and court proceedings
in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
32
The regulatory authorities
have significant oversight over the business of the PRC operating entities and may influence our operations as the regulatory authorities
deem appropriate to further regulatory, political and societal goals. The regulatory authorities have recently published new policies
that affected our industry and our business, and we cannot rule out the possibility that it will in the future further release regulations
or policies regarding our industry that could further adversely affect our business, financial condition and results of operations. Furthermore,
the regulatory authorities have also recently published new regulations and guidance to exert more oversight and control over securities
offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any
such action, once taken by the regulatory authorities, 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.
We cannot assure you that we or the PRC operating entities will be able to comply with these new laws and regulations in all respects,
and we may be ordered to rectify, suspend or terminate any actions or services that are deemed illegal by the regulatory authorities and
become subject to material penalties, which may materially harm our business, financial condition, results of operations and prospects.
The PRC operating entities may face risks
and uncertainties with respect to the licensing requirement for internet audio-visual programs.
On December 20, 2007, the State
Administration of Radio, Film and Television ("SARFT") (currently known as the National Radio and Television Administration
of China, or the NRTA), and the Ministry of Industry and Information Technology ("MIIT"), jointly promulgated the Administrative
Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program Provisions, which became effective on January 31, 2008
and was last amended on August 28, 2015. Among other things, the Audio-Visual Program Provisions stipulated that no entities or individuals
may provide internet audio-visual program services without a License for Online Transmission of Audio-Visual Programs issued by SARFT
or its local bureaus or completing the relevant registration procedures with SARFT or its local bureaus, and only state-owned or state-controlled
entities are eligible to apply for a License for Online Transmission of Audio-Visual Programs. On March 17, 2010, SARFT promulgated the
Tentative Categories of Internet Audio-Visual Program Services, or the Categories, clarifying the scope of internet audio-visual programs
services, which was amended on March 10, 2017. The making and editing of certain specialized audio-visual programs concerning, among other
things, educational content, and broadcasting such content to the general public online is covered in the Categories. However, there are
still significant uncertainties relating to the interpretation and implementation of the Audio-Visual Program Provisions, in particular,
the scope of "internet audio-visual programs."
The PRC operating entities
offer short audio clips and the live course on their mobile apps or website for users to listen and learn, which can be repeatedly played
by the users. We believe the audio clips we offer and the live courses we transmit distinguish us from general providers of internet audio-visual
program services. However, we cannot assure you that the competent PRC government authorities will not take a view contrary to our opinion.
The Categories describe "internet
audio-visual program services" in a very broad, vague manner and are unclear as to whether the contents the PRC operating entities
offer or are available on their platforms fall into the definition of "internet audio-visual programs." The PRC government
may find that the PRC operating entities' activities mentioned above or any other content offered on their mobile apps or website
fall within the definition of "internet audio-visual programs" and thus are subject to the licensing requirement for internet
audio-visual programs. The PRC operating entities currently do not hold a License for Online Transmission of Audio-Visual Programs. If
the PRC government determines that the PRC operating entities' content should be considered as "internet audio-visual programs"
for the purpose of the Audio-Visual Program Provisions, the PRC operating entities may be required to obtain a License for Online Transmission
of Audio-Visual Programs. The PRC operating entities are, however, not eligible to apply for such license since they are not a state-owned
or state-controlled entity. If this were to occur, the PRC operating entities may be subject to penalties, fines, legal sanctions or an
order to suspend the provision of their relevant content.
33
We face risks associated with uncertainties
surrounding the PRC laws and regulations governing the education industry in general, and the online for-profit private training in particular.
The principal regulations governing
private education in China primarily consist of the PRC Education Law, the Law for Promoting Private Education, or Private Education Law,
the Implementation Rules for Private Education Law and the Implementation Rules on the Supervision and Administration of For-profit Private
Schools, or the Implementation Rules, as amended from time to time. These PRC laws and regulations on private education generally apply
to the establishment and operation of all private schools, including schools and other education institutions, and provide that, among
others, (i) the establishment of a for-profit private school shall be approved by the education authorities or the authorities in charge
of labor and social welfare, (ii) such for-profit private schools should be registered with the competent branch of the State Administration
for Industry and Commerce ("SAIC", currently known as the State Administration for Market Regulation), and (iii) a duly approved
private school will be granted a private school operating permit. The Implementation Rules further provide that the provisions contained
therein should be applicable to "for-profit private training institutions" in an analogous manner. Shanghai, has accordingly
promulgated specific local regulations to clarify the requirements and procedures for establishing and operating private schools in December
2017, however, it expressly provided that management measures and regulations applicable to private training institutions that only provide
online courses would be promulgated separately. As of the date of this Annual Report, no explicit local rules or guideline on regulation
of online private training institutions related to our operation have been promulgated in Shanghai, where the operating entity of the
online platform and the VIE, Zhongchao Shanghai, was incorporated.
The PRC operating entities
operate online platform that provides online training programs through the internet, and the PRC operating entities of the online platform
are registered with local counterparts of the competent PRC government authorities as for-profit enterprises. As there lacks clear and
consistent statutory interpretation regarding the implementation of the above laws and regulations, it is unclear how these regulatory
requirements shall be applied to us. During the PRC operating entities' previous consultation with relevant governmental authorities,
they were informed that they are not required to obtain a private school operating permit or other approval from education authorities
or the authorities in charge of labor and social welfare for their operation of online education platform. However, we cannot assure you
that the government authorities will not take a different view in the future. The PRC operating entities may be required to obtain the
above-mentioned, or any other approvals, licenses, permits or filings, or otherwise comply with additional regulatory requirements in
the future, due to clarification or change in interpretation or implementation of laws and regulations in education industry, or promulgation
of new regulations or guidelines regulating online education institutions.
Pursuant to the amended
Law for Promoting Private Education of the PRC (the "Amended Private Education Law"), private schools are required to obtain
a private school operating permit. On April 7, 2021, the State Council officially promulgated the revised Regulations on the Implementation
of the Law for Promoting Private Education of the PRC (the "2021 Revised Regulations"), which became effective on September
1, 2021. According to the 2021 Revised Regulations, private schools to carry out training and educational activities online using internet
technology shall obtain the corresponding private school operating permits. The 2021 Revised Regulations further stipulates that, private
schools that carry out training and educational activities online using internet technology shall establish and implement internet security
management systems and technical measures for security protection as required by law, and shall, upon discovery of the release or transmission
of any information prohibited by laws or administrative regulations from release or transmission, immediately have the transmission stopped
and remove or otherwise dispose of the information to prevent its dissemination, retain related records, and report the case to relevant
authorities. However, it remains unclear under the 2021 Revised Regulations as to whether and how a non-formal VET service provider like
the PRC operating entities, especially in relation to the PRC operating entities' online tutoring services, needs to comply with
the operating permit requirement. Moreover, as the 2021 Revised Regulations were recently promulgated and became effective, there are
still substantial uncertainties as to how it will be interpreted and enforced, and whether and how local governments would promulgate
rules related to the filing or licensing requirement applicable to non-formal VET service providers like the PRC operating entities.
If the PRC operating entities
fail to comply with any regulatory requirements, including obtaining any required licenses, approvals, permits or filings in a timely
manner or at all, the PRC operating entities' continued business operations may be disrupted and the PRC operating entities may
be subject to various penalties or be unable to continue their operations, all of which will materially and adversely affect our business,
financial condition and results of operations.
34
The Chinese government exerts substantial
influence over the manner in which the PRC operating entities must conduct their
business activities. We are currently
not required to obtain approval from Chinese authorities to list or continue to list on U.S. exchanges nor for the execution of VIE agreements,
however, if the VIE or the holding company were required to obtain approval and were denied permission from Chinese authorities to list
or continue to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange or continue to offer securities to investors,
which could materially affect the interest of the investors and cause the value of our Class A Ordinary Shares to significantly decline
or be worthless.
The Chinese government exerts
substantial influence over the manner in which the PRC operating entities must conduct their business activities. China's business
operations are comprehensively regulated. The PRC operating entities could be subject to regulation by various political and regulatory
entities, including various local and municipal agencies and government sub-divisions. The PRC operating entities may incur increased
costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In the event that
the PRC operating entities are not able to substantially comply with any existing or newly adopted laws and regulations, the business
operations of the PRC operating entities may be materially adversely affected and the value of our Ordinary Shares may significantly decrease
or become worthless.
On February 17, 2023, the CSRC
promulgated the Trial Measures, and five supporting guidelines, together with five supporting guidelines, which took effect on March 31,
2023. As the Trial Measures were newly published, there are substantial uncertainties as to the implementation and interpretation, and
how they will affect our current listing, and future offering or financing. If we are required by the Trial Measures for any future offering
or any other financing activities to file with the CSRC, we cannot assure you that we will be able to complete such filings in a timely
manner, or even at all. Any failure of us or the PRC operating entities to fully comply with new regulatory requirements may significantly
limit or completely hinder our ability to continue to offer our Class A Ordinary Shares, cause significant disruption to our business
operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations and cause
our Class A Ordinary Shares to significantly decline in value or become worthless.
Additionally, the PRC government
authorities may strengthen oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers
like us. Such actions taken by the PRC government authorities may intervene or influence the operations of the PRC operating entities
at any time, which are beyond our control. Therefore, any such action may adversely affect the operations of the PRC operating entities
and significantly limit or hinder our ability to offer or continue to offer securities to you and cause the value of such securities to
significantly decline or be worthless.
The Chinese government may
intervene or influence our operations at any time, which actions may impact our operations materially and adversely, significantly limit
or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our Class A Ordinary Shares
to significantly decline or be worthless.
The Chinese government has
exercised, and continues to exercise, substantial control over virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to online transmission
of audio-visual program, internet live streaming services, online publishing, private education, internet information security, privacy
protection and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations
of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations
or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms
and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have
a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest
we then hold in Chinese properties.
35
The PRC operating entities'
business is subject to various government and regulatory interference. The PRC operating entities could be subject to regulation by various
political and regulatory entities, including various local and municipal agencies and government sub-divisions. The PRC Operation entities
may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.
Our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business
or industry, which could result in further material changes in our operations and could adversely impact the value of our Class A Ordinary
Shares.
Furthermore, given recent
statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas,
including but not limited to the newly promulgated Trial Measures, although we are currently not required to obtain permission from any
of the PRC federal or local government, if we are required by the Trial Measures for any future offering or any other financing activities
to file with the CSRC we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure
of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to continue to offer
our Class A Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and
adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in
value or become worthless.
PRC laws and regulations governing our
current business operations are sometimes vague and uncertain and any changes in such laws and regulations may be quick with little impair
our ability to operate profitably.
There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations
are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty.
The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may
be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner
different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses
may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have
on our business.
The PRC legal system is a
civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited
for reference but have limited precedential value. Since these laws and regulations are relatively new and the PRC legal system continues
to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws,
regulations and rules involves uncertainties.
In 1979, the PRC government
began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation
over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However,
China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects
of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties.
Since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may
be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties
may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition,
the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments
or benefits from us.
Furthermore, the PRC legal
system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may
have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the
violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion
of resources and management attention.
36
From time to time, we may
have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore,
the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or
at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime
after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely
affect our business and impede our ability to continue our operations.
Recently, the General Office
of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the "Opinions
on Severely Cracking Down on Illegal Securities Activities According to Law," or the Opinions, which was made available to the
public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the
need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction
of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity
and data privacy protection requirements and similar matters. The Opinions and any related implementing rules to be enacted may subject
us to compliance requirement in the future.
New rules for China-based companies seeking
for securities offerings in foreign stock markets was released by the CSRC recently. The Chinese government may exert more oversight
and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our
ability to offer or continue to offer our Class A Ordinary Shares to investors and could cause the value of our Class A Ordinary Shares
to significantly decline or become worthless.
On February 17, 2023, the
CSRC promulgated the Trial Measures and five supporting guidelines, which became effective on March 31, 2023. According to the Trial
Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly,
should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure or conceals any material
fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties; (2) if
the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering
and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of
the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer's audited consolidated
financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business
are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled
in China; (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate
a major domestic operating entity responsible for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC
within three business days after the submission of the overseas offering and listing application; and (4) if the issuer issues securities
in the same overseas market after the initial issuance and listing, it shall submit filings with the CSRC within three business days
after the completion of the issuance. Further, at the press conference held for the Trial Measures on February 17, 2023, officials from
the CSRC clarified that the PRC domestic companies that have already been listed overseas on or before the effective date of the Trial
Measures (i.e., March 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures
immediately but shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that
require filing with the CSRC. The officials from the CSRC have also confirmed that for the PRC domestic companies that seek to list overseas
with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing
of companies with VIE structure which meet the compliance requirements..
37
On February 24, 2023, the
CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China
promulgated the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering
and Listing by Domestic Enterprises, or the Archives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic
companies that seek for overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and the Archives
Rules, enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality
and archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such
domestic companies shall not leak any state secret and working secret of government agencies, or harm national security and public interest.
Furthermore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to
relevant individuals or entities including securities companies, securities service providers and overseas regulators, any document and
materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities
according to law, and file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to,
either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities
companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental
to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The
Archives Rules also stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities
including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in
compliance with applicable national regulations.
As we have completed our
public offering before the effective date of the Trial Measures (i.e., March 31, 2023), we believe we are not required to complete the
filing procedures with the CSRC for our current listing. However, we may be required to file with the CSRC in connection with any future
offering and financing. As the Trial Measures and the Archives Rules were newly published, there are substantial uncertainties as to
the implementation and interpretation, and how they will affect our current listing, and future offering or financing. Especially, if
we are required by the Trial Measures for any future offering or financing to file with the CSRC, we cannot assure you that we will be
able to complete such filings in a timely manner, or even at all. Any failure of us to fully comply with new regulatory requirements
may significantly limit or completely hinder our ability to offer or continue to offer the Class A Ordinary Shares, cause significant
disruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results
of operations, and cause the Ordinary Shares to significantly decline in value or become worthless.
The recent joint statement by the SEC and
the PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more
stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S.
auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
U.S. public companies that
have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors,
financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered
on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud.
On April 21, 2020, the former
SEC Chairman Jay Clayton and Public Company Accounting Oversight Board (the "PCAOB") Chairman William D. Duhnke III, along
with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have
substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for
the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed
three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in "Restrictive Market",
(ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii)
apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company's auditors.
On May 20, 2020, the U.S.
Senate passed The Holding Foreign Companies Accountable Act, or the HFCA Act requiring a foreign company to certify it is not owned or
controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject
to PCAOB inspection. If the PCAOB is unable to inspect the company's auditors for three consecutive years, the issuer's securities
are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December
18, 2020, the HFCA Act was signed into law.
38
On March 24, 2021, the SEC
announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of
the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K,
20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and
that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction.
The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation
to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require
disclosure in the registrant's annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
Furthermore, the HFCA Act,
which requires that the PCAOB be permitted to inspect the issuer's public accounting firm within three years, may result in the
delisting of our Company in the future if the PCAOB is unable to inspect our accounting firm at such future time.
In addition, on June 22,
2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the "AHFCAA"), which, if signed
into law, would amend the HFCA Act and require 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 consecutive years. As a result, the time
period before our Class A Ordinary Shares may be prohibited from trading or delisted will be reduced.
On November 5, 2021, the
SEC approved the PCAOB's Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 provides
a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it 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, and (2) Hong Kong.
The lack of access to the
PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China.
As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections
of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms' audit procedures or quality
control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and
potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our
financial statements.
Our
current independent accounting firm, Prager Metis CPAs, LLC ("Prager Metis"), and our former independent accounting firm
Marcum Asia CPAs LLP ("MarcumAsia" formerly known as "Marcum Bernstein & Pinchuk LLP"), both of whose audit
report is included in this Annual Report on Form 20-F, are headquartered in New York, New York. Neither of them was included in the
list of PCAOB Identified Firms in the PCAOB December Release. However, given that all PCAOB-registered firms in China were included on
that list, our ability to retain an auditor subject to PCAOB inspection and investigation may depend on the relevant U.S. and PRC regulators
reaching an agreement to permit these inspections and investigations. Recent developments with respect to audits of China-based companies
create uncertainty about the ability of Prager Metis to fully cooperate with a PCAOB request for audit working papers without the approval
of the Chinese authorities. Prager Metis's audit working papers related to us are located in China.
More
broadly, the PCAOB entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance,
which established a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations
undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of Finance in the United States. The PCAOB continues to be in discussions
with the CSRC and the PRC Ministry of Finance to permit joint inspections of the PCAOB-registered audit firms that audit Chinese companies
that trade on U.S. exchanges. However, in the PCAOB December 2021 Release, the PCAOB identified problems in implementing these agreements
and a lack of cooperation. Accordingly, we can offer no assurance that we will be able to retain an auditor that would allow us to avoid
a trading prohibition for our securities under the HFCA Act.
39
In addition to the issues
under the HFCA Act discussed above, the PCAOB's inability to conduct inspections in China and Hong Kong prevented it from fully
evaluating the audits and quality control procedures of the independent registered public accounting firm. However, as noted above, recent
developments create uncertainty as to the PCAOB's continued ability to conduct inspections of our independent accounting firm.
On December 15, 2022, the
PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered
in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, whether the PCAOB will continue
to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong
Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor's, control. The PCAOB is continuing
to demand complete access in mainland China and Hong Kong moving forward and is already making plans to resume regular inspections in
early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has
indicated that it will act immediately to consider the need to issue new determinations with the HFCA Act if needed and does not have
to wait another year to reassess its determinations.
Our securities may be delisted
under the HFCA Act if the PCAOB is unable to inspect auditors with presence in China for three consecutive years. The delisting of our
securities, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the
inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.
The above recent developments
may have added uncertainties to our ability to continue to list on Nasdaq or to offer our securities and we cannot assure you whether
Nasdaq or regulatory authorities would apply additional and more stringent criteria to us since we are an emerging growth company and
substantial all of our operations are conducting in China.
The SEC may propose additional
rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President's
Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese
Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies
from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these
recommendations were implemented with the enactment of the HFCA Act. However, some of the recommendations were more stringent than the
HFCA Act. For example, if a company's auditor was not subject to PCAOB inspection, the report recommended that the transition period
before a company would be delisted would end on January 1, 2022.
The SEC has announced that
the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA Act and to address the recommendations
in the PWG report. It is unclear when the SEC will complete its rulemaking and when such rules will become effective and what, if any,
of the PWG recommendations will be adopted. The implications of this possible regulation in addition to the requirements of the HFCA
Act are uncertain. Such uncertainty could cause the market price of our ordinary shares to be materially and adversely affected, and
our securities could be delisted or prohibited from being traded on the national securities exchange earlier than would be required by
the HFCA Act.
Moreover, on December 29,
2022, legislation entitled "Consolidated Appropriations Act, 2023" (the "Consolidated Appropriations Act") was
signed into law by President Biden. The Consolidated Appropriations Act contained, among other things, an identical provision to the
AHFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from
three years to two.
If our Ordinary Shares are
unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase
our Ordinary Shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative
impact on the price of our Ordinary Shares.
40
In light of recent events indicating greater
oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange,
though such oversight is not applicable to us, we may be subject to a variety of PRC laws and other obligations regarding data protection
and any other rules, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business,
our listing on the Nasdaq Capital Market, financial condition, results of operations, and the offering.
Even though, currently, we
are not subject to PRC laws relating to the collection, use, sharing, retention, security, and transfer of confidential and private information,
such as personal information and other data, these laws continue to develop, and the PRC government may adopt other rules and restrictions
in the future. Non-compliance could result in penalties or other significant legal liabilities.
The Cybersecurity Law, which
was adopted by the National People's Congress on November 7, 2016 and came into force on June 1, 2017, and the Cybersecurity Review
Measures, or the "Review Measures," which were promulgated on April 13, 2020, provide that personal information and important
data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored
in China, and if a critical information infrastructure operator purchases internet products and services that affect or may affect national
security, it should be subject to cybersecurity review by the CAC. In addition, a cybersecurity review is required where critical information
infrastructure operators, or the "CIIOs," purchase network-related products and services, which products and services affect
or may affect national security. Due to the lack of further interpretations, the exact scope of what constitute a "CIIO"
remains unclear. Further, the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws.
On June 10, 2021, the Standing
Committee of the National People's Congress promulgated the Data Security Law which took effect on September 1, 2021. The Data
Security Law requires that data shall not be collected by theft or other illegal means, and it also provides that a data classification
and hierarchical protection system. The data classification and hierarchical protection system protects data according to its importance
in economic and social development, and the damages it may cause to national security, public interests, or the legitimate rights and
interests of individuals and organizations if the data is falsified, damaged, disclosed, illegally obtained or illegally used, which
protection system is expected to be built by the state for data security in the near future. In addition, the Office of the Central Cyberspace
Affairs Commission and the Office of Cybersecurity Review under the CAC, published the Cybersecurity Review Measures (Revised Draft for
Comments), or the "Review Measures Draft," on July 10, 2021, which provides that, aside from CIIOs that intend to purchase
internet products and services, data processing operators engaging in data processing activities that affect or may affect national security
must be subject to the cybersecurity review by the Cybersecurity Review Office. According to the Review Measures Draft, a cybersecurity
review is conducted by the CAC, to assess potential national security risks that may be brought about by any procurement, data processing,
or overseas listing. The Review Measures Draft further requires that critical information infrastructure operators and services and data
processing operators that possess personal data of at least one (1) million users must apply for a review by the Cybersecurity Review
Office of PRC, if they plan to conduct listings in foreign countries. The deadline for public comments to the Review Measures Draft was
July 25, 2021. While the Review Measures Draft has been released for consultation purpose, there is uncertainty about its final content,
its adoption timeline or effective date, its final interpretation and implementation, and various other implications. It also remains
uncertain whether any future regulatory changes would impose additional restrictions on companies like us.
As the PRC operating entities'
business do not involve the collection of personal data of at least 1,000,000 users, or implicate cybersecurity, as advised by our PRC
legal counsel, we believe that we, our subsidiaries, or the VIE are not subject to the cybersecurity review of the CAC, if the Review
Measures Draft becomes effective as they are currently published. As of the date of this prospectus, we have not received any notice
from any authorities identifying us as a CIIO or requiring us to undertake a cybersecurity review by the CAC. Further, we have not been
subject to any penalties, fines, suspensions, investigations from any competent authorities for violation of the regulations or policies
that have been issued by the CAC to date. If the Review Measures Draft is enacted as proposed, we believe we are not subject to the cybersecurity
review by the CAC for this offering, given that we are a CRF profile manufacturer and not engaged in any operation of information infrastructure.
However, there remains uncertainty as to how the Review Measures Draft 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 Review
Measures Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all
reasonable measures and actions to comply. We cannot assure you that PRC regulatory agencies, including the CAC, would take the same
view as we do, and there is no assurance that we can fully or timely comply with such laws should they be deemed applicable to our operations.
There is no certainty as to how such review or prescribed actions would impact our operations and we cannot guarantee that any clearance
can be obtained or any actions that may be required for our listing on the Nasdaq capital market and the offering as well can be taken
in a timely manner, or at all.
41
We may be liable for improper use or appropriation
of personal information provided by our customers.
The business of the PRC operating
entities involves collecting and retaining certain internal and customer data. We also maintain information about various aspects of
our operations as well as regarding our employees. The integrity and protection of the customer, employee and company data is critical
to our business. The customers and employees of the PRC operating entities expect that the PRC operating entities will adequately protect
their personal information. The PRC operating entities are required by applicable laws to keep strictly confidential the personal information
that they collect, and to take adequate security measures to safeguard such information.
The PRC Criminal Law, as
amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions,
companies and their employees from selling or otherwise illegally disclosing a citizen's personal information obtained in performing
duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the SCNPC issued
the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017. Pursuant to the Cyber Security Law,
network operators must not, without users' consent, collect their personal information, and may only collect users' personal
information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services
and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC
(issued by the PRC National People's Congress on May 28, 2020 and effective from January 1, 2021) provides legal basis for privacy
and personal information infringement claims under the Chinese civil laws. PRC regulators, including the CAC, the Ministry of Industry
and Information Technology, or MIIT, and the Ministry of Public Security, have been increasingly focused on regulation in data security
and data protection.
The PRC regulatory requirements
regarding cybersecurity are evolving. For instance, various regulatory bodies in China, including the CAC, the Ministry of Public Security
and the State Administration for Market Regulation, or the SAMR (formerly known as State Administration for Industry and Commerce, or
the SAIC), have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In
April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the
Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network
products and services which do or may affect national security.
According to the latest amended
Cybersecurity Review Measures, which was promulgated on December 28, 2021 and became effective on February 15, 2022, and replaced the
Cybersecurity Review Measures promulgated on April 13, 2020, online platform operator holding more than one million users/users'
individual information shall be subject to cybersecurity review before listing abroad. Cybersecurity Review Measures does not provide
a definition of "online platform operator", therefore, we cannot assure you that any PRC operating entities will not be deemed
as an "online platform operator." On November 14, 2021, the CAC released the Regulations on the Network Data Security Management
(Draft for Comments), or the Data Security Management Regulations Draft, to solicit public opinion and comments. Pursuant to the Data
Security Management Regulations Draft, data processor holding more than one million users/users' individual information shall be
subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the collection, retention,
use, processing, transmission, provision, disclosure, or deletion of data. As of the date of this Annual Report, the MDMOOC online platform
has more than 219,825 registered users and a database of more than 109,712 healthcare experts, and we currently do not hold more than
one million users/users' individual information. However, we may be deemed as a data processor under the Data Security Management
Regulations Draft.
The Cybersecurity Review
Measures also provide that if a critical information infrastructure operator, or a CIIO, purchases internet products and services that
affect or may affect national security, it should be subject to cybersecurity review by the CAC. We do not expect to be a CIIO, since
(i) we do not hold a large amount of individual information, and (ii) data processed in our business is less likely to have a bearing
on national security, thus it may not be classified as core or important data by the authorities. However, due to the lack of further
interpretations, the exact scope of what constitutes a "CIIO" remains unclear. As of the date of this prospectus, we have
not received any notice from any authorities identifying us as a CIIO or requiring us to undertake a cybersecurity review by the CAC.
Further, as of the date of this prospectus, we have not been subject to any penalties, fines, suspensions, or investigations from any
competent authorities for violation of the regulations or policies that have been issued by the CAC.
42
As of the date of this prospectus,
we have not been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. However, if we
are deemed to be a critical information infrastructure operator or a company that is engaged in data processing and holds personal information
of more than one million users, we could be subject to PRC cybersecurity review.
As of the date hereof, as
advised by our PRC legal counsel, we are of the view that we are in compliance with the applicable PRC laws and regulations governing
the data privacy and personal information in all material respects, including the data privacy and personal information requirements
of the Cyberspace Administration of China, and we have not received any complaints from any third party, or been investigated or punished
by any PRC competent authority in relation to data privacy and personal information protection. However, as there remains significant
uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could be subject to cybersecurity
review, and if so, we may not be able to pass such review in relation to this offering. In addition, we could become subject to enhanced
cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity
review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including
suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as
well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial
condition or results of operations.
On June 10, 2021, the SCNPC
promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy
obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection
system based on the importance of data in economic and social development, and the degree of harm it will cause to national security,
public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked,
illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that
may affect national security and imposes export restrictions on certain data an information.
As uncertainties remain regarding
the interpretation and implementation of these laws and regulations, we cannot assure you that we will comply with such regulations in
all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also
become subject to fines and/or other sanctions which may have material adverse effect on our business, operations and financial condition.
While we take various measures
to comply with all applicable data privacy and protection laws and regulations, our current security measures and those of our third-party
service providers may not always be adequate for the protection of our customer, employee or company data. We may be a target for computer
hackers, foreign governments or cyber terrorists in the future.
Unauthorized access to our
proprietary internal and customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party,
computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of our third party
service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage
our proprietary internal and customer data change frequently and may not be recognized until launched against a target, we may be unable
to anticipate these techniques.
Unauthorized access to our
proprietary internal and customer data may also be obtained through inadequate use of security controls. Any of such incidents may harm
our reputation and adversely affect our business and results of operations. In addition, we may be subject to negative publicity about
our security and privacy policies, systems, or measurements. Any failure to prevent or mitigate security breaches, cyber-attacks or other
unauthorized access to our systems or disclosure of our customers' data, including their personal information, could result in
loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust,
impairment of our technology infrastructure, and harm our reputation and business, resulting in significant legal and financial exposure
and potential lawsuits.
43
The PRC operating entities' failure
to obtain, maintain or renew other licenses, approvals, permits, registrations or filings necessary to conduct their operations in China
could have a material adverse impact on our business, financial conditions and results of operations.
A number of PRC regulatory
authorities oversee different aspects of the PRC operating entities' business operations, and the PRC operating entities are required
to obtain a wide range of licenses, approvals, permits, registrations and filings required for conducting their business in China, which
we cannot assure you that the PRC operating entities have obtained all of them or will continue to maintain or renew all of them.
The
PRC operating entities may be deemed as providing certain restricted services or conduct certain restricted activities and thus be subject
to certain licenses, approvals, permits, registrations and filings due to lack official interpretations on certain terms under internet
related PRC regulations and laws. For example, (i) certain business operated on the PRC operating entities' websites and mobile
apps, including providing platform for users to release, collect and process medial information, may be deemed as the internet information
services, thus they may be required to obtain a License for Value-added Telecommunications Services for provision of such services. Whoever
engages in the internet information services without obtaining such license may be ordered to make a rectification, be confiscated of
illegal gains, and be imposed a fine. If the circumstances are serious, it shall be ordered to suspend business for rectification; (ii)
certain content posted on the PRC operating entities' website or mobile apps, including the course materials, the courseware or
audio-visual content uploaded by the PRC operating entities
in
MDMOOC online platform, may be deemed as "internet cultural products," and the PRC operating entities' use of those
contents may be regarded as "internet cultural activities," thus they may be required to obtain an Internet Culture Business
Operating License for provision of those contents. If any entity engages in the activities without obtaining such licenses, the competent
administrative department shall order it to cease the operational internet cultural activities, give it a warning, and impose upon it
a fine of less than RMB 30,000; if it refuses to cease the operational activities, it shall be blacklisted in the cultural market, and
imposed upon it as a credit punishment; (iii) due to the ambiguity of the definition of "online publishing service," the
online distribution of content, including the PRC operating entities' course materials, the courseware or audio-visual contents
uploaded by the PRC operating entities
of MDMOOC online platform
may be regarded as "online publishing service" and therefore they may be required to obtain an Online Publishing License.
Where any entity or individual engages in online publishing services without approval, the competent departments shall ban such entity
or individual according to their statutory functions and powers, and the competent departments shall order them to close their websites
and delete all the relevant online publications, confiscate their illegal income and major equipment and tools used for engaging in the
activities, and impose fines; (iv) certain medial and drug-related contents posted on the PRC operating entities' website or mobile
apps may be deemed as internet drug information service, and the PRC operating entities' use of those contents may be required
to obtain a Qualification Certificate for Internet Drug Information Services for provision of those contents. In the case of any engagement
in the services without obtaining or making use of the License for Internet-based Drug Information Services beyond the period of validity
thereof, the authority shall issue a warning and order the parties concerned to suspend from engaging in internet -based drug information
services; if the circumstances are serious, punishments shall be given in accordance with relevant laws and regulations by the competent
authority; and (v) certain PRC operating entities producing and posting videos on their website or mobile apps may be required to obtain
a License for Production and Operation of Radio and TV Programs from the SARFT or its counterparts at the provincial level under the
Regulations on the Administration of Production and Operation of Radio and Television Programs. Some of the applicable PRC operating
entities have not obtained the above licenses or made such filings, and certain licenses that were obtained by the PRC operating entities
have expired and have not been successfully renewed yet, and such PRC operating entities may be punished accordingly.
In addition, under current
PRC laws and regulations, an information service provider that reposts news for internet publication shall first obtain license from
Cyberspace Administration of China ("CAC") or its local counterpart. Certain learning materials the PRC operating entities
provide on their platform are partly from foreign media. Due to the ambiguity of the definition of "news" under the current
PRC laws and regulations, we cannot assure you that the PRC operating entities' provision of such materials will not be deemed
by the relevant PRC government authorities as reposting "news" without proper license, which will subject us to various penalties,
including fines and suspension of such provision. Although we do not think the PRC operating entities are subject to any of these licenses
or filing requirements, and as of the date of this Annual Report, the PRC operating entities have not been subject to any fines or other
form of regulatory or administrative penalties or sanctions due to the lack of any the licenses, approvals, permits, registrations and
filings, we cannot assure you that the PRC government authorities will not take a different view or will not require us to obtain any
additional licenses, approvals, permits, registrations and filings in the future. If the PRC operating entities fail to do so, they may
be subject to various penalties, such as confiscation of illegal revenues, fines and discontinuation or restriction of business operations,
which may materially and adversely affect the PRC operating entities' business, financial condition and results of operations.
44
In addition, there can be
no assurance that the PRC operating entities will be able to maintain their existing licenses, approvals, registrations or permits necessary
to provide their current online services in China, renew any of them when their current term expires, or update existing licenses or
obtain additional licenses, approvals, permits, registrations or filings necessary for their business expansion from time to time. If
the PRC operating entities fail to do so, the PRC operating entities' business, financial conditions and operational results may
be materially and adversely affected.
Failure to comply with PRC regulations
in relation to lease property may subject us to penalty
Certain PRC operating entities'
actual operating addresses are different from their registered addresses. In accordance with applicable PRC laws and regulations, a market
entity may only register one domicile or principal place of business, otherwise it shall establish a branch at another address actually
used by it and apply to the registration authority for registration. Failure to comply with the aforesaid provisions may cause the registration
authorities to order a correction and confiscate the illegal income; if such PRC operating entities refuse to make correction, a fine
ranging from RMB10,000 to RMB100,000 shall be imposed; in serious cases, the PRC operating entities may be ordered to close down pursuant
to the law and a fine ranging from RMB100,000 to RMB500,000 shall be imposed.
In addition, the PRC operating
entities have not registered all of their lease agreements with the relevant regulatory authorities. The failure to register the lease
agreements for their leased properties will not affect the validity of these lease agreements, but the competent housing authorities
may order the PRC operating entities to register the lease agreements in a prescribed period of time and impose a fine ranging from RMB1,000
to RMB10,000 for each nonregistered lease agreement if such PRC operating entities fail to complete the registration within the prescribed
timeframe.
If the PRC operating entities fail to submit
their annual reports to SAMR in a timely manner or at all, the PRC operating entities may be recorded in the list of abnormal business
operation, which have adverse impact on our business operations.
PRC laws and regulations
require the PRC operating entities to submit their annual reports of the preceding year through the enterprise information disclosure
system to SAMR during 1 January to 30 June every year, and disclose to the public. If the PRC operating entities fail to submit their
annual reports to SAMR in a timely manner or at all, the PRC operating entities may be recorded in the list of abnormal business operation
and will be publicized through the enterprise credit information publicity system to remind them to perform the publicity obligations.
If the case is serious, the relevant competent department may impose an administrative penalty in accordance with the relevant laws and
administrative regulations; if any loss is caused, the PRC operating entities shall bear the liability for compensation according to
law; and if a crime is constituted, the PRC operating entities shall be subject to criminal liabilities according to law, which may have
adverse impact on our business operations. As of the date of this Annual Report, West Angel is on the list of abnormal business operation
for failure to submit their annual reports to SAMR, and it intends to apply for removal from such list after the change of registered
address is completed. Except as disclosed in this Annual Report the applicable PRC operating entities have timely submitted their annual
reports and are not listed in the list of abnormal business operation.
U.S. regulators' ability to conduct
investigations or enforce rules in China is limited.
The majority of the operations
of the PRC operating entities conducted outside of the U.S. In addition, our management consists of five officers who are all located
in China and three independent directors, among which two are located in the United States and one is located in China. As a result,
it may not be possible for the U.S. regulators to conduct investigations or inspections, or to effect service of process within the U.S.
or elsewhere outside the U.S. on us, our subsidiaries, the PRC operating entities, officers, directors (except two independent directors)
and shareholders, and others, including with respect to matters arising under U.S. federal or state securities laws. China does not have
treaties providing for reciprocal recognition and enforcement of judgments of courts with the U.S. and many other countries. As a result,
recognition and enforcement in China of these judgments in relation to any matter, including U.S. securities laws and the laws of the
Cayman Islands, may be difficult.
45
We face uncertainty regarding the PRC tax
reporting obligations and consequences for certain indirect transfers of the stock of the operating company.
Pursuant to the Notice on
Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration
of Taxation on December 10, 2009, or Circular 698, where a foreign investor transfers the equity interests of a PRC resident enterprise
indirectly by way of the sale of equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding
company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income
of its residents, the foreign investor should report such Indirect Transfer to the competent tax authority of the PRC resident enterprise.
The PRC tax authority will examine the true nature of the Indirect Transfer, and if the tax authority considers that the foreign investor
has adopted an abusive arrangement in order to avoid PRC tax, they will disregard the existence of the overseas holding company and re-characterize
the Indirect Transfer and as a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at the rate of
up to 10%. In addition, the PRC resident enterprise is supposed to provide necessary assistance to support the enforcement of Circular
698. At present, the PRC tax authorities will neither confirm nor deny that they would enforce Circular 698, in conjunction
with other tax collection and tax withholding rules, to make claims against our PRC subsidiary or the PRC operating entities as being indirectly
liable for unpaid taxes, if any, arising from Indirect Transfers by shareholders who did not obtain their shares in the
public offering of our shares.
We may be subject to any enforcement actions
brought by Chinese tax authorities if we fail to pay certain valued-added tax and income taxes in a timely manner.
In January 2008, the PRC
Enterprise Income Tax Law ("EIT Law") took effect, which was last amended by the Standing Committee of the National People's
Congress on December 29, 2018. The PRC Enterprise Income Tax Law applies a uniform 25 percent enterprise income tax rate to both FIEs
and domestic enterprises, except where tax incentives are granted to special industries and projects. The PRC Enterprise Income Tax Law
defines "resident enterprise" as an enterprise established outside of the territory of China but with its "de facto
management body" within China, which will also be subject to the 25% enterprise income tax rate. The implementation rules define
the term "de facto management body" as the body that exercises full and substantial control and overall management over the
business, productions, personnel, accounts, and properties of an enterprise. Enterprises qualified as "High and New Technology
Enterprises" are entitled to a 15% enterprises income tax rate rather than the 25% uniform statutory tax rate. The preferential
tax treatment continues as long as an enterprise can retain its "High and New Technology Enterprise" status. Under the PRC
Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January
1, 2008, and payable to its foreign investor may be subject to a withholding tax rate of 10 percent if the PRC tax authorities determine
that the foreign investor is a Non-resident Enterprise, unless there is a tax treaty with China that provides for a preferential withholding
tax rate. Distributions of earnings generated before January 1, 2008, are exempt from PRC withholding tax.
The State Administration
of Taxation ("SAT") has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent
years, including the Interim Measures for the Administration of Remittance of Income Tax for Non-Resident Enterprise Withheld at Source
(the "Interim Measures") which became effective on January 1, 2009, the Notice of the SAT on Strengthening the Administration
of Enterprise Income Tax on Gain Derived from Equity Transfer Made by Non-Resident Enterprise (the "Notice") which became
effective on January 1, 2008 and was amended on July 19, 2015, the Announcement of the SAT on Issues Concerning the Withholding of Non-resident
Enterprise Income Tax at Source (the "SAT Circular 37") which was promulgated on October 17, 2017, became effective on December
1, 2017 and was amended on June 15, 2018, and the Public Notice of the SAT Regarding Certain Enterprise Income Tax Matters on Indirect
Transfer of Properties by Non-Resident Enterprises (the "Public Notice 7") which became effective on February 3, 2015 and
was amended on December 1, 2017 and December 29, 2017.
46
The SAT Circular 37 amended
some provisions in Public Notice 7, repealed the Interim Measures and the Notice and simplifies procedures of withholding and payment
of income tax levied on non-resident enterprises. Pursuant to these rules and notices, where a non-resident enterprise investor transfers
equity interests or other taxable assets in a PRC resident enterprise indirectly by way of disposing of equity interests in an overseas
holding company, the non-resident enterprise investor, being the transferor, may be subject to PRC enterprise income tax if the indirect
transfer is considered to be an abusive use of company structure without reasonable commercial purposes. In addition, Public Notice 7
provides clear criteria on how to assess reasonable commercial purposes.
According to the Temporary
Regulations on Value-added Tax, which was most recently amended on November 19, 2017, and the Detailed Implementing Rules of the Temporary
Regulations on Value-added Tax, which was amended on October 28, 2011, and became effective on November 1, 2011, all taxpayers selling
goods, providing processing, repair or replacement services or importing goods within the PRC shall pay Value-Added Tax. The rate of
VAT is 17%, 11% or 6% in certain limited circumstances depending on the product type.
On April 4, 2018, the Ministry
of Finance and the SAT jointly issued the Notice of Adjustment of Value-added Tax Rates which declared that the VAT tax rate in regard
to the sale of goods, provision of processing, repairs and replacement services and importation of goods into China shall be reduced
from the previous 17% and 11% to 16% and 10% respectively from May 1, 2018.
According to the Announcement
of the MOF, the SAT and the General Administration of Customs on Relevant Policies for Deepening Value-added Tax Reform promulgated on
March 20, 2019 and became effective on April 1, 2019 (the "Announcement"), for the VAT taxable sales or imports by a general
taxpayer of VAT, the applicable tax rate shall be adjusted to 13% from the original 16% and to 9% from original 10%.
Furthermore, according to
the Trial Scheme for the Conversion of Business Tax to Value-added Tax, which was promulgated by the MOF and the SAT, the PRC began to
launch taxation reforms in a gradual manner in January 1, 2012, whereby the collection of value-added tax in lieu of business tax items
was implemented on a trial basis in regions showing significant radiating effects in economic development and providing outstanding reform
examples, beginning with production service industries such as transportation and certain modern service industries.
In accordance with Notice
of the Ministry of Finance and the State Administration of Taxation on Full Launch of the Pilot Scheme on Levying Value-added Tax in
Place of Business Tax, a SAT circular that took effect on May 1, 2016, amended on July 11, 2017 and April 1, 2019, upon approval of the
State Council, the pilot program of the collection of value-added tax in lieu of business tax shall be promoted nationwide in a comprehensive
manner starting May 1, 2016, and all taxpayers of business tax engaged in the building industry, the real estate industry, the financial
industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax
instead of business tax.
If we fail to timely pay
any value-added tax and income taxes in full as required by the applicable laws and regulations and the competent tax authorities in
China, the competent tax authorities may take any enforcement actions against us, which may adversely affect our business and results
of operations.
PRC regulations relating to the establishment
of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our
ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiary ability to distribute profits
to us, or otherwise materially and adversely affect us.
In July 2014, SAFE has promulgated
the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Offshore Investment and Financing and
Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign
Exchange Administration for Domestic Residents' Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or
SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including
PRC individuals and PRC corporate entities) to register with local branches of SAFE in connection with their direct or indirect offshore
investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore
acquisitions that we make in the future.
47
Under SAFE Circular 37, PRC
residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special
purpose vehicles, or SPVs, will be required to register such investments with the SAFE or its local branches. In addition, any PRC resident
who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE with respect
to that SPV, to reflect any material change. Moreover, any subsidiaries of such SPV in China is required to urge the PRC resident shareholders
to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration
or to update the previously filed registration, the subsidiaries of such SPV in China may be prohibited from distributing its profits
or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making
additional capital contribution into its subsidiary in China. On February 28, 2015, the SAFE promulgated a Notice on Further Simplifying
and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015.
Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investment and outbound overseas direct
investment, including those required under the SAFE Circular 37, will be filed with qualified banks instead of the SAFE. The qualified
banks will directly examine the applications and accept registrations under the supervision of the SAFE.
We have requested our shareholders
that we know are PRC residents and hold direct or indirect interests in us to make the necessary applications, filings and amendments
as required under SAFE Circular 37 and other related rules. To our knowledge, as the date hereof, all our current PRC resident beneficial
owners who has more than 5% of our voting power, including our founder Weiguang Yang, have filed the foreign exchange registration in
connection with their respective overseas shareholding in our company in accordance with the Circular 37. However, we may not at all
times be fully aware or informed of the identities of all our beneficial owners who are PRC residents, and we may not always be able
to compel our beneficial owners to comply with the SAFE Circular 37 requirements. As a result, we cannot assure you that all of our shareholders
or beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable registrations
or approvals required by, SAFE Circular 37 or other related regulations. Failure by any such shareholders or beneficial owners to comply
with SAFE Circular 37 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit
our PRC subsidiary's ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect
our business and prospects.
Furthermore, as the interpretation
and implementation of foreign exchange regulations has been constantly evolving, it is unclear how these regulations, and any future
regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant governmental
authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities,
such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results
of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company,
as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the
foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business
and prospects.
PRC regulation of loans and direct investment
by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the initial public offering or any subsequent
offerings to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity
and our ability to fund and expand our business.
Any transfer of funds by
us to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to PRC regulations. Capital
contributions to our PRC subsidiaries are subject to the approval of or filing with the MOFCOM in its local branches and registration
with a local bank authorized by the SAFE. Any foreign loan procured by our PRC subsidiaries is required to be registered or filed with
the SAFE or its local branches or satisfy relevant requirements as provided by SAFE. Any medium- or long-term loan to be provided by
us to the VIEs must be registered with the NDRC and the SAFE or its local branches. We may not be able to obtain these government approvals
or complete such registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our
PRC subsidiaries. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds of our
financing activities and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and
our ability to fund and expand our business. There is, in effect, no statutory limit on the amount of capital contribution that we can
make to our PRC subsidiaries, provided that the PRC subsidiaries complete the relevant filing and registration procedures. With respect
to loans to the PRC subsidiaries by us, (i) if the relevant PRC subsidiaries adopt the traditional foreign exchange administration mechanism,
or the Current Foreign Debt Mechanism, the outstanding amount of the loans shall not exceed the difference between the total investment
and the registered capital of the PRC subsidiaries; and (ii) if the relevant PRC subsidiaries adopt the mechanism as provided in the
PBOC Notice No. 9, or the Notice No. 9 Foreign Debt Mechanism, the outstanding amount of the loans shall not exceed 200% of the net asset
of the relevant PRC subsidiary.
48
In addition, on October 23,
2019, the SAFE promulgated the Circular on Further Promoting the Facilitation of Cross-Border Trade and Investment, or SAFE Circular
28, pursuant to which, our PRC subsidiaries established in the pilot regions, which refers to the Guangdong-Hong Kong-Macao Greater Bay
Area and Hainan province, are not required to register each of their foreign debts with the SAFE or its local branches but to complete
foreign debts registration with the SAFE or its local branches in the amount of 200% of the net asset of the relevant PRC subsidiary.
Upon such registrations, our relevant PRC subsidiaries will be allowed to procure foreign loans within the registered amount and complete
the formalities for inward and outward remittance of funds, purchase and settlement of foreign currency directly with a bank, and are
required to make declaration of international balance of payments pursuant to applicable regulations. However, since it is relatively
new, uncertainties still exist in relation to its interpretation and implementation.
According to the Notice of
the PBOC on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or PBOC Notice No. 9, after a
transition period of one year since the promulgation of PBOC Notice No. 9, the PBOC and the SAFE will determine the cross-border financing
administration mechanism for the foreign-invested enterprises after evaluating the overall implementation of PBOC Notice No. 9. As of
the date of this Annual Report, neither the PBOC nor the SAFE has promulgated and made public any further rules, regulations, notices
or circulars in this regard. It is uncertain which mechanism will be adopted by the PBOC and the SAFE in the future and what statutory
limits will be imposed on us when providing loans to our PRC subsidiaries. Currently, our PRC subsidiaries have the flexibility to choose
between the Current Foreign Debt Mechanism and the Notice No. 9 Foreign Debt Mechanism. However, if a more stringent foreign debt mechanism
becomes mandatory, our ability to provide loans to our PRC subsidiaries or the VIEs may be significantly limited, which may adversely
affect our business, financial condition and results of operations. Despite neither the Foreign Investment Law nor its Implementing Regulation
prescribes whether the certain concept "total investment amount" with respect to foreign-invested enterprises will still
be applicable, no PRC laws and regulations have been officially promulgated to abolish the Current Foreign Debt Mechanism.
The Circular on Reforming
the Administration of Foreign Exchange Settlement of Capital of Foreign- Invested Enterprises, or SAFE Circular 19, effective as of June
1, 2015, as amended by Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over
Foreign Exchange Settlement under the Capital Account, or SAFE Circular 16, effective on June 9, 2016, allows FIEs to settle their foreign
exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange
capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans to persons
other than affiliates unless otherwise permitted under its business scope. As a result, we are required to apply Renminbi funds converted
from the net proceeds we received from our financing activities within the business scopes of our PRC subsidiaries. SAFE Circular 19
and SAFE Circular 16 may significantly limit our ability to use Renminbi converted from the net proceeds of our financing activities
to fund the establishment of new entities in China by the VIEs or their respective subsidiaries, to invest in or acquire any other PRC
companies through our PRC subsidiaries, or to establish new consolidated VIEs in China, which may adversely affect our business, financial
condition and results of operations. Even though SAFE Circular 28 allows all FIEs (including those without an investment business scope)
to utilize and convert their foreign exchange capital for making equity investment in China if certain requirements prescribed therein
are satisfied, uncertainties still exist in relation to its interpretation and implementation.
Governmental control of currency conversion
may limit our ability to use our revenues effectively and the ability of our PRC subsidiaries to obtain financing.
The PRC government imposes
control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive
a majority of our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion imposed
by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies
or our business activities outside China. Under China's existing foreign exchange regulations, Renminbi may be freely converted
into foreign currency for payments relating to current account transactions, which include among other things dividend payments and payments
for the import of goods and services, by complying with certain procedural requirements. Our PRC subsidiaries are able to pay dividends
in foreign currencies to us without prior approval from SAFE, by complying with certain procedural requirements. Our PRC subsidiaries
may also retain foreign currency in their respective current account bank accounts for use in payment of international current account
transactions. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign
currencies for current account transactions.
49
Conversion of Renminbi into
foreign currencies, and of foreign currencies into Renminbi, for payments relating to capital account transactions, which principally
includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions
on the convertibility of the Renminbi for capital account transactions could affect the ability of our PRC subsidiaries to make investments
overseas or to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from us.
We cannot assure you that the registration process will not delay or prevent our conversion of Renminbi for use outside of China.
We may be classified as a "resident
enterprise" for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and
our non-PRC shareholders.
The Enterprise Income Tax
Law provides that enterprises established outside of China whose "de facto management bodies" are located in China are considered
PRC tax resident enterprises and will generally be subject to the uniform 25% PRC enterprise income tax rate on their global income.
In addition, a tax circular issued by the State Administration of Taxation on April 22, 2009 regarding the standards used to classify
certain Chinese-invested enterprises established outside of China as resident enterprises clarified that dividends and other income paid
by such resident enterprises will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%,
when recognized by non-PRC enterprise shareholders. This circular also subjects such resident enterprises to various reporting requirements
with the PRC tax authorities. Under the implementation rules to the Enterprise Income Tax Law, a de facto management body is defined
as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources,
finances and other assets of an enterprise. In addition, the tax circular mentioned above details that certain Chinese-invested enterprises
will be classified as resident enterprises if the following are located or resident in China: senior management personnel and departments
that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties,
accounting books, company seal, and minutes of board meetings and shareholders' meetings; and half or more of the senior management
or directors having voting rights.
Currently, there are no detailed
rules or precedents governing the procedures and specific criteria for determining de facto management bodies which are applicable to
our company or our overseas subsidiaries. We do not believe that Zhongchao meets all of the conditions required for PRC resident enterprise.
The Company is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries,
and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders)
are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises
either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain
with respect to the interpretation of the term "de facto management body." There can be no assurance that the PRC government
will ultimately take a view that is consistent with ours.
However, if the PRC tax authorities
determine that Zhongchao is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding
tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be reduced by applicable tax
treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the
benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In
addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of
ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders
would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined
to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless
a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would
be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is
treated as a PRC resident enterprise.
50
Provided that our Cayman
Islands holding company, Zhongchao, is not deemed to be a PRC resident enterprise, our shareholders who are not PRC residents will not
be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However,
under the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Circular 7,
where a non-resident enterprise conducts an "indirect transfer" by transferring taxable assets, including, in particular,
equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident
enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant
tax authority such indirect transfer. Using a "substance over form" principle, the PRC tax authority may disregard the existence
of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding
or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee
would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident
enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7,
and we may be required to expend valuable resources to comply with the Circular on Issues of Enterprise Income Tax on Indirect Transfers
of Assets by Non-PRC Resident Enterprises, or Bulletin 37, or to establish that we should not be taxed under Circular 7 and Bulletin
37.
In addition to the uncertainty
in how the new resident enterprise classification could apply, it is also possible that the rules may change in the future, possibly
with retroactive effect. If we are required under the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to
our foreign shareholders, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned
above, the value of your investment in our shares may be materially and adversely affected. These rates may be reduced by an applicable
tax treaty, but it is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would be able to claim the
benefit of income tax treaties or agreements entered into between China and other countries or areas. Any such tax may reduce the returns
on your investment in our shares.
The M&A Rules and certain other PRC
regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult
for us to pursue growth through acquisitions in China.
The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006
and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies
and controlled by PRC companies or individuals to obtain the approval of the CSRC, prior to the listing and trading of such special purpose
vehicle's securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website
specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas
listings. The application of the M&A Rules remains unclear. These M&A Rules and some other regulations and rules concerning mergers
and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors
more time consuming and complex, including requirements in some instances that the Ministry of Commerce ("MOC") be notified
in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the
Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered.
In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions
by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign
investors may acquire de facto control over domestic enterprises that raise "national security" concerns are subject to strict
review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction
through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying
with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming,
and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability
to complete such transactions, which could affect our ability to expand our business or maintain our market share.
51
Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other
legal or administrative sanctions.
In February 2012, SAFE
promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive
Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens
and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan
of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified
agent, which could be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas
entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or
sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for
a continuous period of not less than one year and who are granted options or other awards under the equity incentive plan are subject
to these regulations as our company is an overseas listed company. Failure to complete the SAFE registrations may subject them to fines
and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary'
ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive
plans for our directors, executive officers and employees under PRC law.
Failure to make adequate contributions
to various mandatory social security plans as required by PRC regulations may subject the PRC operating entities to penalties.
PRC laws and regulations
require us to pay several statutory social welfare benefits for our employees, including pensions, medical insurance, work-related injury
insurance, unemployment insurance, maternity insurance and housing provident fund contributions. Local governments usually implement
localized requirements as to mandatory social security plans considering differences in economic development in different regions. The
PRC operating entities failure in making contributions to various mandatory social security plans and in complying with applicable PRC
labor-related laws may subject us to late payment penalties. The PRC operating entities may be required to make up the contributions
for these plans as well as to pay late fees and fines. If the PRC operating entities are subject to late fees or fines in relation to
the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Failure to register with the competent
authorities with respect to social insurance and housing provident fund as required by PRC regulations may subject the PRC operating
entities to penalties.
PRC laws and regulations
require newly established employers to apply for social security registration with the local social security agency and housing provident
fund registration with housing provident fund management center within 30 days from the date of incorporation. As of the date of this
Annual Report, the PRC operating entities without any employees haven't made social security or housing provident fund registration with
the competent authorities, which may subject them to make correction within a stipulated period or a fine. If the PRC operating entities
are subject to fines, our financial condition and results of operations may be adversely affected.
If the number of dispatched workers of
the PRC operating entities exceeds statutory limit, the PRC operating entities may be subject to penalties.
The
PRC Labor Contract Law and the Interim Provisions on Labor Dispatch stipulate that an employer shall strictly control the number of dispatched
workers it employed, which shall not exceed 10% of the total number of employees. As of the date of this Annual Report, the number of
dispatched workers of certain PRC operating entities exceeds 10% of their total number of employees, which may subject them to make correction
within a stipulated period or a fine ranging from RMB5,000 to RMB10,000 per person. If the PRC operating entities are subject to fines,
our financial condition and results of operations may be adversely affected. The services agreements with certain dispatched workers
will terminate upon the completion of the projects they are working on, and the PRC operating entities plan to enter to full-time employment
agreements with all the staff in the future.
52
The PRC operating entities' current
employment practices may be restricted under the PRC Labor Contract Law and their labor costs may increase as a result.
The PRC Labor Contract Law
and its implementing rules impose requirements concerning contracts entered into between an employer and its employees and establish
time limits for probationary periods and for how long an employee can be placed in a fixed-term labor contract. Because the Labor Contract
Law and its implementing rules have not been in effect very long and because there is lack of clarity with respect to their implementation
and potential penalties and fines, it is uncertain how it will impact the PRC operating entities' current employment policies and
practices. We cannot assure you that the PRC operating entities' employment policies and practices do not, or will not, violate
the Labor Contract Law or its implementing rules and that the PRC operating entities will not be subject to related penalties, fines
or legal fees. If the PRC operating entities are subject to large penalties or fees related to the Labor Contract Law or its implementing
rules, our business, financial condition and results of operations may be materially and adversely affected. In addition, according to
the Labor Contract Law and its implementing rules, if the PRC operating entities intend to enforce the non-compete provision with an
employee in a labor contract or non-competition agreement, they have to compensate the employee on a monthly basis during the term of
the restriction period after the termination or ending of the labor contract, which may cause extra expenses to us. Furthermore, the
Labor Contract Law and its implementation rules require certain terminations to be based upon seniority rather than merit, which significantly
affects the cost of reducing workforce for employers. In the event the PRC operating entities decide to significantly change or decrease
the PRC operating entities' workforce in the PRC, the Labor Contract Law could adversely affect the PRC operating entities'
ability to enact such changes in a manner that is most advantageous to their circumstances or in a timely and cost effective manner,
thus our results of operations could be adversely affected.
If the chops of the PRC operating entities
and branches are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance
of these entities could be severely and adversely compromised.
In China, a company chop
or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally
registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In
addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of
the PRC operating entities are generally held securely by personnel designated or approved by us in accordance with their internal control
procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes,
the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide
by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to
do so. In addition, if the chops are misused by unauthorized persons, the PRC operating entities could experience disruption to their
normal business operations. The PRC operating entities may have to take corporate or legal action, which could involve significant time
and resources to resolve while distracting management from our operations.
Item 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
Our Corporate History and Structure
We are a holding company
incorporated on April 16, 2019, under the laws of the Cayman Islands, or Zhongchao Cayman. We have no substantive operations other than
holding all of the issued and outstanding shares of Zhongchao Group Inc., or Zhongchao BVI, established under the laws of the British
Virgin Islands on April 23, 2019.
Zhongchao BVI is also a holding
company holding all of the outstanding equity of Zhongchao Group Limited, or Zhongchao HK, which was established in Hong Kong on May
14, 2019. Zhongchao HK is also a holding company holding all of the outstanding equity of Beijing Zhongchao Zhongxing Technology Limited,
or Zhongchao WFOE, which was established on May 29, 2019 under the laws of the PRC.
53
We conduct our business through
the VIE, Zhongchao Medical Technology (Shanghai) Corp., or Zhongchao Shanghai, a PRC company, and through 12 subsidiaries of Zhongchao
Shanghai, including Shanghai Maidemu, Shanghai Zhongxun, Shanghai Zhongxin, Beijing Boya, Shanghai Xinyuan, Hainan Zhongteng, Hainan
Muxin, Shanghai Huijing, Xinjiang Pharmaceutical, Beijing Yisuizhen, West Angel and Liaoning Zhixun, each a PRC company. They commenced
their operations under the name Zhongchao Medical Consulting (Shanghai) Limited, or Shanghai Zhongchao Limited, a limited liability company
established under the laws of the PRC, to provide medical online and offline training services. Zhongchao Shanghai was incorporated on
August 17, 2012 by Juru Guo and Baorong Xue, who held 60% and 40% equity interests in Zhongchao Shanghai respectively. On May 25, 2015,
the two shareholders transferred all equity interests to Weiguang Yang who held 100% equity interests in Zhongchao Shanghai after the
transfer. On January 15, 2016, the name was changed to Zhongchao Medical Technology (Shanghai) Co., Ltd. On February 5, 2016, the management
completed its registration with the State Administration for Industry and Commerce, or SAIC, to convert Shanghai Zhongchao Limited into
a company limited by shares, or Zhongchao Shanghai. Through direct ownership, Zhongchao Shanghai has established subsidiaries and branch
offices in various cities in PRC, including Beijing, Shanghai, Hainan, Liaoning and Chongqing.
On June 27, 2016, Zhongchao
Shanghai was listed on the National Equities Exchange and Quotations Co., Ltd., or the NEEQ. At the time of listing, Weiguang Yang directly
held 54.60% equity interests in Zhongchao Shanghai and Shanghai Xingzhong Investment Management LP. Ltd., a limited partnership incorporated
under the PRC laws ("Shanghai Xingzhong"), directly held 17.90% equity interests in Zhongchao Shanghai. Shanghai Xingzhong
was incorporated on September 22, 2015 by management of Zhongchao Shanghai as a platform for certain officers and employees holding founder
shares. Pursuant to its partner agreement, Weiguan Yang is the general partner of Shanghai Xingzhong; and manages and operates Shanghai
Xingzhong. He has the right, among others, to possess, manage, maintain and dispose the assets of Shanghai Xingzhong including its equity
interest in Zhongchao Shanghai. As a result, Weiguang Yang controlled 72.50% equity interests in Zhongchao Shanghai upon listing on NEEQ.
To facilitate our initial
public offering in the United States, Zhongchao Shanghai was delisted from NEEQ in February 2019. At the time of delisting, Weiguang
Yang controlled 57.29% equity interests in Zhongchao Shanghai (43.41% of which was directly held and 13.88% of which was controlled through
Shanghai Xingzhong). After the delisting, a minority shareholder of Zhongchao Shanghai transferred his shares to Mr. Yang. At the time
of our restructure in August 2019, Mr. Yang controlled 58.78% equity interests in Zhongchao Shanghai (44.90% of which was directly held
and 13.88% of which was controlled through Shanghai Xingzhong). To conclude, Zhongchao Shanghai has been under the control of Weiguan
Yang since its initial listing on NEEQ in June 2016.
On June 24, 2019, Zhongchao
Shanghai changed its name to Zhongchao Medical Technology (Shanghai) Limited. Zhongchao Shanghai engages in technology development, technology
transfer, and technical services in the field of medical technology, technical consulting in the field of network technology, and medical
information consulting.
On March 12, 2015, Zhongchao
Shanghai established its wholly owned subsidiary, Shanghai Maidemu. Shanghai Maidemu engages in planning for cultural and artistic exchanges,
designing, producing, acting for and publishing various kinds of advertisements, and medical consultation.
On May 27, 2017, Zhongchao
Shanghai established its wholly owned subsidiary, Shanghai Zhongxun. Shanghai Zhongxun engages in technology development, transfer, service
and consulting in the fields of medical technology and computer technology.
On September 12, 2017, Zhongchao
Shanghai established its wholly owned subsidiary, Horgos Zhongchao Medical Technology Limited Company ("Horgos Zhongchao Medical").
Horgos Zhongchao Medical engages in technology development, transfer, service and consulting in the fields of medical technology and
computer technology. On March 26, 2020, due to business adjustment, Horgos Zhongchao Medical started its dissolution and intends to apply
to the registration authority for cancellation registration. The application for cancellation registration was approved by the registration
authority on May 11, 2020.Horgos Zhongchao Zhongxing took over the business of Horgos Zhongchao Medical after it completes its dissolution
registration.
54
On September 28, 2016, Shanghai
Maidemu formed a joint venture with Ms. Hongxia Zhang and Ms. Shuhua Gao, contributing a 55% equity interest in Shanghai Huijing Information
Technology Co., Ltd., or Shanghai Huijing, a PRC company. On January 21, 2019, Shanghai Huijing was 100% owned by Shanghai Maidemu. Shanghai
Huijing engages in technology development, transfer, service and consulting in the fields of computer technology, graphic designing,
website page designing, planning cultural and artistic exchanges.
On April 16, 2019, Zhongchao
Cayman was incorporated in the Cayman Islands and issued 5,497,715 Class B Ordinary Shares at 0.0001 par value as founder shares to More
Healthy Holding Limited, representing 80.94% of total voting power of the Company, on converted basis, given that each Class B Ordinary
Share is entitled to 15 votes and each Class A Ordinary Share is entitled to 1 vote and assuming the exercise of the HF Warrant. More
Healthy Holding Limited is a BVI company 100% owned by Weiguang Yang ("More Healthy").
On July 29, 2019, Zhongchao
Shanghai established its wholly owned subsidiary, Horgos Zhongchao Zhongxing. Horgos Zhongchao Zhongxing engages in technology development,
transfer, service and consulting in the fields of medical technology and computer technology.
On August 14, 2019, Zhongchao
Cayman completed a reorganization of entities under common control of Weiguang Yang, who owned a majority of the voting power of Zhongchao
Cayman prior to the reorganization. Zhongchao Cayman, Zhongchao BVI, and Zhongchao HK were established as the holding companies of Zhongchao
WFOE. Zhongchao WFOE is the primary beneficiary of Zhongchao Shanghai and its subsidiaries, and all of these entities included in Zhongchao
Cayman are under common control which results in the consolidation of Zhongchao Shanghai and subsidiaries which have been accounted for
as a reorganization of entities under common control at carrying value. The consolidated financial statements are prepared on the basis
as if the reorganization became effective as of the beginning of the first period presented in the consolidated financial statements.
As part of the Company's
organization for the purpose of the initial public offering and listing on Nasdaq, on August 1, 2019, the Company and HF Capital Management
Delta, Inc., a company incorporated under the laws of the Cayman Islands ("HF Capital") entered into a certain warrant agreement
to purchase Class A Ordinary Shares of the Company (the "HF Warrant"). At the issuance of the HF Warrant, Yantai Hanfujingfei
Investment Centre (LP), a limited partnership incorporated under PRC laws ("Yantai HF", whose managing partner, Hanfor Capital
Management Co., Ltd., is the sole member of HF Capital, and together with "HF Capital" hereinafter collectively referred
to as "HF") was a 6.25% shareholder of Zhongchao Shanghai (which represented 1,350,068 shares in Zhongchao Shanghai, among
which 675,068 shares were issued by Zhongchao Shanghai and the remaining 675,000 shares were purchased from two pre-existing shareholders)
and planned to withdraw its capital contribution in Zhongchao Shanghai but to contribute the same amount of capital to Zhongchao Cayman
directly via HF Capital. As HF Capital needs to complete necessary administrative registration required under Chinese regulations of
outbound direct investments (ODI) to hold equity interest in Zhongchao Cayman, the HF Warrant entitles HF Capital to purchase 1,350,068
Class A Ordinary Shares, representing 1.34% of the voting ownership interest of the Company as of the date of this Annual Report, from
the Company, if the following conditions are met:
1)
All PRC
    governmental consent and approval required for HF Capital to exercise the warrant and payment of the capital contribution have been
    obtained, including without limitation, any approval or filing with respect to HF Capital's investment into the Company, and
    payment by HF Capital of the capital contribution to the Company, and reasonable evidence thereof shall have been provided to the
    Company;
2)
HF Capital has fully paid
    the capital contribution to Zhongchao Cayman; and
3)
The Company released the
    paid-in capital of Yantai HF from Zhongchao Shanghai.
The HF Warrant was issued
in connection with a framework agreement among Zhongchao Shanghai, Mr. Weiguang Yang, and Yantai HF dated August 1, 2019 (the "Framework
Agreement"), pursuant to which Zhongchao Shanghai has agreed to complete Yantai HF's withdrawal of capital contribution in
Zhongchao Shanghai no later than one month following the completion of HF Capital's ODI and HF has agreed to invest the same amount
of fund in U.S. dollars in Zhongchao Cayman upon the completion of its ODI registration. In addition, the parties have agreed to, once
the ODI registration of HF Capital is completed, deposit Yantai HF's capital contribution into a bank account mutually controlled
by Zhongchao Shanghai and Yantai HF, to be used as HF Capital's capital contribution in Zhongchao Cayman. The foregoing is a brief
description of the material terms and conditions of the Framework Agreement, a copy of which is attached as Exhibit 10.18 to this Annual
Report and incorporated herein by reference.
55
As of the date of this Annual
Report, the registration of Yantai HF's withdrawal of its capital contribution in Zhongchao Shanghai has been completed with local
State Administration for Industry and Commerce. The paid-in capital of Yantai HF in an amount of RMB20 million (approximately US$2.9 million)
is currently being held in the corporate bank account of Zhongchao Shanghai and is to be deposited in a designated bank account mutually
controlled by Zhongchao Shanghai and Yantai HF after the completion of HF Capital's ODI procedures and to be released as HF Capital's
capital contribution in Zhongchao Cayman as provided in the Framework Agreement. According to the Administrative Measures for the Outbound
Investment by Enterprises promulgated by the NDRC on December 26, 2017 which became effective on March 1, 2018, the Administrative Measures
on Outbound Investments promulgated by the MOFCOM on September 6, 2014 which became effective on October 6, 2014, and the Notice of the
SAFE on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment promulgated by the SAFE on 13
February 2015 which became effective on June 1, 2015, the procedures of ODI include obtaining the Filing Notice of Outbound Direct Investment
Projects issued by the competent branch of the NDRC, the Certificate of Outbound Direct Investment of Enterprises issued by the competent
branch of the MOFCOM, and completing the foreign exchange registration of outbound direct investments. HF Capital is currently in the
process of completing its ODI procedures. HF has further committed that in any event if it cannot complete its ODI procedures, HF shall
make such capital contribution to Zhongchao Shanghai in an amount of RMB20 million (approximately US$2.9 million) or to Zhongchao Cayman
in the same amount of fund in U.S. dollars, subject to certain condition.
On March 26, 2020, the board
of Horgos Zhongchao Medical, one of the wholly-owned subsidiaries of Zhongchao Shanghai, approved its dissolution. The application for
cancellation registration was approved by the registration authority on May 11, 2020.
On November19, 2020, Shanghai
Jingyi, a subsidiary of Zhongchao Shanghai changed its name to Shanghai Zhongxin Medical Technology Co., Ltd. ("Shanghai Zhongxin").
On September 16, 2020, Horgos
Zhongchao Zhongxing, one of the wholly-owned subsidiaries of Zhongchao Shanghai, cancelled its registration.
In addition, on April 27,
2020, Beijing Boya was incorporated under the PRC laws, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its equity
was entrusted to Zhongchao Shanghai by the other shareholder Shanghai Lingzhong through a certain share entrustment agreement on December
1, 2021. Beijing Boya is primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare
management services, healthcare consultation services, sales of medical appliances and other medical products.
On October 12, 2020, two shareholders
of Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr. Weiguang Yang holds 49% of Shanghai
Jingyi's equity and Zhongchao Shanghai holds 51% of its equity. Through a certain entrustment agreement on November 1, 2020, Mr.
Weiguang Yang agreed to hold his equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun.
On October 30, 2020, Zhongchao
Japan was incorporated under the laws of Japan as a wholly owned subsidiary of Zhongchao USA.
On October 23, 2020, Shanghai
Jingyi changed its name to Shanghai Zhongxin Medical Technology Co., Ltd., or Shanghai Zhongxin.
On December 16, 2020, Mr.
Weiguang Yang transferred certain parts of his shares to Zhongchao Yixin and Zhongren Yixin. As a result, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin holds 19%, 20% and 10% of the equity interest of Shanghai Zhongxin, respectively.
Through a certain entrustment
agreement on December 25, 2020, Mr. Weiguang Yang, Zhongchao Yixin, and Zhongren Yixin agreed to hold their equity interest of Shanghai
Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai Zhongxun owns 100% of Shanghai Zhongxin's equity interest.
56
On July 6, 2020, Zhixun Internet
Hospital (Liaoning) Co., Ltd., or Liaoning Zhixun was incorporated under the PRC laws and wholly owned by Shanghai Zhongxun. Liaoning
Zhixun primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services,
healthcare consultation services, sales of medical appliances and other medical products. On January 11, 2021, Shanghai Zhongxun transferred
its whole equity ownership of Liaoning Zhixun to Shanghai Zhonxin, and as a result, Shanghai Zhongxin becomes the sole shareholder of
Liaoning Zhixun.
On January 13, 2021, Shanghai
Xinyuan Human Resources Co., Ltd., or Shanghai Xinyuan, was incorporated under the PRC laws, as the wholly owned subsidiary of Shanghai
Zhongxin. Shanghai Xinyuan is primarily engaged in human resources services and information consulting services. On May 18, 2021, Ningxia
Zhongxin Internet Hospital Co., Ltd., or Ningxia Zhongxin, was incorporated under the PRC laws, whose sole shareholder is Shanghai Zhongxin.
Ningxia Zhongxin will be engaged in operating an online hospital to provide online medical service, including online consultation, prescription
information services, and medication retails. On July 16, 2021, Hainan Zhongteng Medical Technology Co., Ltd., or Hainan Zhongteng, was
incorporated under the PRC laws, as the wholly owned subsidiary of Beijing Boya. Hainan Zhongteng is primarily engaged in healthcare consulting
services. On July 21, 2021, Hainan Muxin Medical Technology Co., Ltd., or Hainan Muxin, was incorporated under the PRC laws, as the wholly
owned subsidiary of Shanghai Zhongxin. Hainan Muxin is primarily engaged in healthcare consulting services.
On August 19, 2021 pursuant
to an equity transfer agreement, Shanghai Zhongxin agrees to transfer all of its equity interest of Liaoning Zhixun to Beijing Boya. As
a result, Liaoning Zhixun is wholly owned by Beijing Boya.
On August 31, 2021, Shanghai
Xingzhong transferred all of its equity interest, equal to 23.6% of the total equity interest of Zhongchao Shanghai, to Shanghai Xingban
Enterprise Management Partnership (Limited Partnership), a PRC limited partnership, or Shanghai Xingban. The general partner of Shanghai
Xingban is Weiguang Yang, and its limited partner is Pei Xu. As a result, Mr. Yang is the 76.4% shareholder of Zhongchao Shanghai with
the remaining equity interests held by Shanghai Xingban.  As a result,  Zhongchao WFOE, Zhongchao Shanghai, Mr. Weiguang Yang
and Shanghai Xingban entered in to a series of VIE agreement. See "Our Corporate History and Structure—2021 VIE Agreements".
On November 8, 2021, Hainan
Muxin Medical Technology Co., Ltd., or Hainan Muxin, a wholly owned subsidiary of Shanghai Zhongxin, together with another two shareholders,
established Beijing Yisuizhen Technology Co., Ltd., or Beijing Yisuizhen, where Hainan Muxin hold 47% of the equity interest. Beijing
Yisuizhen is primarily engaged in technology development, consulting, communication, transfer, and promotion, software services, and health
consulting services.
In January 2022, Chongqing
Xinjiang Pharmaceutical Co., Ltd. ("Xinjiang Pharmaceutical") was established was incorporated under the PRC laws, as a wholly
owned subsidiary of Shanghai Zhongxin. In August 2022, Shanghai Zhongxun and Shanghai Zhongxin entered into a share transfer agreement,
pursuant to which, Shanghai Zhongxin agreed to transfer all the share equity in Xinjiang Pharmaceutical to Shanghai Zhongxun with no consideration.
As a result, Xinjiang Pharmaceutical is wholly owned by Shanghai Zhongxun. Xinjiang Pharmaceutical was established aiming at realizing
medications accessibility and affordability for those patients.
On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel (Beijing) Health Technology Co., Ltd, or West Angel, a PRC company, and
nine shareholders of West Angel transferred all of their equity interest, equal to 49.44% of the total equity interest of West Angel to
Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity interest of West Angel.
On August 2, 2022, Mr. Weiguang Yang transferred certain parts of his
shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of the equity interest of Shanghai Zhongxin.
Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao Yixin, and Zhongren Yixin agreed to hold their
equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin's
equity interest.
On August 16, 2022, two shareholders
of Beijing Yisuizhen transferred all of their equity interest, equal to 53% of the total equity interest of Beijing Yisuizhen to Hainan
Muxin. As a result, Hainan Muxin holds 100% of the equity interest of Beijing Yisuizhen.
On October 9, 2022, Ningxia
Zhongxin submitted the application for cancellation registration to SAMR and the application was approved on the same day.
57
The following charts summarize
our corporate legal structure and identify our subsidiaries, the VIE and its subsidiaries as of the date hereto. For more details on
our corporate history, please refer to "
Our Corporate History and Structure
".
Notes: All percentages reflect the voting ownership
interests instead of the equity interests held by each one of the shareholder of the Company given that each Class B Ordinary Share will
be entitled to 15 votes as compared to Class A Ordinary Share, each one of which will be entitled to 1 vote.
58
(1)
Represents
(i) 5,497,715 Class B Ordinary Shares held by Mr. Weiguang Yang ("Yang"), the 100% owner of More Healthy Holding Limited
("More Healthy").
(2)
Represents
an aggregate of 3,973,605 Class A Ordinary Shares including 2,623,537 Class A Ordinary Shares held by 4 shareholders of Company, each
one of which holds less than 5% voting ownership interests of the Company, as of the date of this Annual Report and 1,350,068 Class A
Ordinary Shares to be issued upon exercise of the HF Warrant. See footnote 3 below.
(3)
In
order to directly hold equity interest in the Company, HF Capital Management Delta, Inc. ("HF Capital") has to complete certain
registration and obtain approval with local governmental authority in PRC. As a part of reorganization and due to the aforementioned
factor, HF Capital was granted a warrant to purchase 1,350,068 Class A Ordinary Shares of the Company at a price $0.0001 per share or
such other amount agreed by the Company and HF Capital at a grant price of RMB 20,000,000 (approximately USD$2.9 million) conditioned
upon (i) HF Capital completes necessary registration and obtains approval with local governmental authority in PRC for its direct investment
in the Company and (ii) Zhongchao Shanghai shall have paid HF Capital RMB 20,000,000 as returned capital contribution in Zhongchao Shanghai.
The above chart assumes that HF Capital has not exercised such warrant.
(4)
Represents RMB 9.70 million (approximately USD$1.4 million) subscribed capital contribution to Zhongchao Shanghai, as of the date of
this Annual Report.
(5)
Represents
RMB 3.00 million (approximately USD$0.4 million) subscribed capital contribution to Zhongchao Shanghai, as of the date of this Annual
Report. Shanghai Xingban Enterprise Management Partnership, a limited partnership incorporated under the PRC laws ("Shanghai Xingban"),
of which the general partner is Weiguang Yang and the limited partner is Pei Xu, the CFO of Zhongchao Cayman. As the general partner
of Shanghai Xingban, Weiguang Yang exercises the voting rights with respect to the shares held by Shanghai Xingban.
(6)
Beijing
Boya was incorporated under the PRC laws on April 27, 2020, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its
equity was entrusted to Zhongchao Shanghai by the other shareholder Shanghai Lingzhong through a certain share entrustment agreement
on December 1, 2021.
(7)
Shanghai Zhongxin, a PRC company, which was formerly known as Shanghai Jingyi, or Shanghai Jingyi
                                                    Medical Technology Co., Ltd., a PRC company and changed to its current name as Shanghai Zhongxin on November 19, 2020. On October
                                                    12, 2020, two shareholders of Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr.
                                                    Weiguang Yang holds 49% of Shanghai Jingyi's equity and Zhongchao Shanghai holds 51% of its equity. On December 16, 2020, Mr.
                                                    Weiguang Yang transferred certain parts of his shares to Zhongchao Yixin and Zhongren Yixin. As a result, Mr. Weiguang Yang,
                                                    Zhongchao Yixin, and Zhongren Yixin hold 19%, 20% and 10% of the equity interest of Shanghai Zhongxin, respectively. August 2, 2022,
                                                    Mr. Weiguang Yang transferred certain parts of his shares to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of
                                                    the equity interest of Shanghai Zhongxin. Through certain entrustment agreements, Mr. Weiguang Yang, Zhongchao Yixin and Zhongren
                                                    Yixin hold 12.33%, 20% and 10% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively.  As a
                                                    result, Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin's equity interest.
59
VIE Arrangements
Due to the restrictions imposed
by PRC laws and regulations on foreign ownership of companies engaged in value-added telecommunication services and certain other businesses,
we operate our businesses in which foreign investment is restricted or prohibited in the PRC through certain PRC domestic companies. As
such, we consolidate the financial results of Zhongchao Shanghai through VIE Arrangements as the primary beneficiary in lieu of direct
equity ownership by us or any of our subsidiaries. Such VIE Arrangements consist of a series of six agreements (collectively, the
"VIE Arrangements"), which were signed on August 14, 2019. For more details and risks related to the VIE structure, please
see "Our Corporate History and Structure—VIE Arrangements" and "Risk Factors—Risks Related to Our Corporate
Structure".
The significant terms of the
VIE Arrangements by and among our wholly-owned subsidiary, Zhongchao WFOE, the consolidated VIE, Zhongchao Shanghai, and the shareholders
of Zhongchao Shanghai are as follows:
Agreements that Allowed Us to Consolidate
the Financial Results of Zhongchao Shanghai
Our PRC Wholly Foreign Owned
Entity, Zhongchao WFOE, has entered into the following agreements with Zhongchao Shanghai and its shareholders.
Equity Interest Pledge
Agreement.
Pursuant to the equity interest
pledge agreement dated August 14, 2019, each shareholder of Zhongchao Shanghai has pledged all of its equity interest in Zhongchao Shanghai
to guarantee the shareholder's and the PRC operating entities' performance of their obligations under the master exclusive
service agreement, business cooperation agreement, exclusive option agreement and proxy agreement and power of attorney. If Zhongchao
Shanghai or any of its shareholders breaches their contractual obligations under these agreements, Zhongchao WFOE, as pledgee, will be
entitled to dispose the pledged equity interest entirely or partially. Each of the shareholders of Zhongchao Shanghai agrees that, during
the term of the equity interest pledge agreement, it will not dispose of the pledged equity interests or create or allow any encumbrance
on the pledged equity interests without the prior written consent of Zhongchao WFOE. In addition, Zhongchao WFOE has the right to collect
dividends generated by the pledged equity interest during the term of the pledge. The term of the initial equity interest pledge agreement
is 20 years. After the expiration of the term of initial pledge registration, Zhongchao WFOE may at its sole discretion require the Shareholders
to extend the term of the equity interest registration.
Proxy Agreement and Power
of Attorney.
Pursuant to the proxy agreement
and power of attorney dated August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably appointed Zhongchao WFOE to act as
such shareholder's exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters
of Zhongchao Shanghai requiring shareholder approval, disposing of all or part of the shareholder's equity interest in Zhongchao
Shanghai, oversee and review the PRC operating entities' operation and financial information. Zhongchao WFOE is entitled to designate
any person to act as such shareholder's exclusive attorney-in-fact without notifying or the approval of such shareholder, and if
required by PRC law, Zhongchao WFOE shall designate a PRC citizen to exercise such right. Each proxy agreement power of attorney will
remain in force for so long as the Zhongchao Shanghai exists. The shareholders of Zhongchao Shanghai do not have the right to terminate
this agreement or revoke the appointment of the Attorney-in-Fact without the prior written consent of Zhongchao WFOE.
Spouse Consent Letters.
Pursuant to the Spouse
Consent Letters dated August 14, 2019, the spouse of each married shareholder of Zhongchao Shanghai, unconditionally and irrevocably
agreed not to assert any rights over the equity interest in Zhongchao Shanghai held by and registered in the name of their spouse. In
addition, each of them agreed to be bound by the VIE Arrangements described here if the spouse obtains any equity interest in Zhongchao
Shanghai for any reason.
60
Agreement that allows us to Receive Economic
Benefits from Zhongchao Shanghai
Master Exclusive Service
Agreement.
Under the master exclusive
service agreement between Zhongchao WFOE and Zhongchao Shanghai dated August 14, 2019, Zhongchao WFOE has the exclusive right to provide
Zhongchao Shanghai with technical support, consulting services and other services. Zhongchao WFOE has the right to designate and appoint,
at its sole discretion, any entities affiliated with the Zhongchao WFOE to provide any and all services. The service fees are calculated
and paid on a yearly basis and at the amount that equals to 100% of the consolidated net profits of Zhongchao Shanghai. Zhongchao WFOE
may adjust the service fee at its discretion after taking into account multiple factors, such as the difficulty of the services provided,
the time consumed, the content and commercial value of services provided and the market price of comparable services. Zhongchao WFOE owns
the intellectual property rights arising out of the performance of this agreements. Zhongchao Shanghai shall seek approval from Zhongchao
WFOE prior to entering into any contracts obtaining the same or similar services as provided under the Master Exclusive Service Agreement.
This agreement will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written notice to Zhongchao Shanghai
and its shareholders or upon the transfer of all the equity interest held by the PRC operating entities' shareholders to Zhongchao
WFOE and/or a third party designated by Zhongchao WFOE.
Business Cooperation Agreement
Under the business cooperation
agreement dated August 14, 2019, without Zhongchao WFOE's prior written consent, Zhongchao Shanghai agrees not to engage in any
transaction which may materially affect its asset, obligation, right or operation, including but not limited to: any activities not within
its normal business scope, merger and acquisition, offering any loan to any third party and incurring any debt from any third party. Zhongchao
Shanghai shall seek approval from Zhongchao WFOE prior to entering into any material contract, except the contracts executed in the ordinary
course of business. Zhongchao Shanghai shall cause the persons designated by Zhongchao WFOE to be the directors and executive officers
of Zhongchao Shanghai. This agreement will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written
notice to Zhongchao Shanghai and its shareholders or upon the transfer of all the equity interest held by the PRC operating entities'
shareholders to Zhongchao WFOE and/or a third party designated by Zhongchao WFOE.
Agreements that Provide Us with the Option
to Purchase the Equity Interest in Zhongchao Shanghai
Exclusive Option Agreement.
Pursuant to the exclusive
option agreement dated August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably granted Zhongchao WFOE an exclusive option
to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part
of the shareholder's equity interests in Zhongchao Shanghai. The purchase price is equal to the lowest price allowable under PRC
laws and regulations at the time of the transfer. Zhongchao Shanghai has agreed that without Zhongchao WFOE's prior written consent,
Zhongchao Shanghai shall cause the persons designated by Zhongchao WFOE to be the directors and executive officers of Zhongchao Shanghai,
not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial
interest, create or allow any encumbrance on its assets or other beneficial interests, provide any loans to any third parties, enter into
any material contract, except the contracts executed in the ordinary course of business, merge with or acquire any other persons or make
any investments, or distribute dividends to the shareholders. The shareholders of Zhongchao Shanghai have agreed that, without Zhongchao
WFOE's prior written consent, they will not dispose of their equity interests in Zhongchao Shanghai or create or allow any encumbrance
on their equity interests. Moreover, without Zhongchao WFOE's prior written consent, no dividend will be distributed to the PRC
operating entities' shareholders, and if any of the shareholders receives any profit, interest, dividend or proceeds of share transfer
or liquidation, the shareholder must give such profit, interest, dividend and proceeds to Zhongchao WFOE. These agreements will remain
effective as long as Zhongchao Shanghai exists unless Zhongchao WFOE advance written notice to Zhongchao Shanghai and the shareholders
or upon the transfer of all the equity interest held by the shareholders to Zhongchao WFOE and/or its designee.
61
2020 VIE Agreements
On August 1, 2020, all shareholders
of Zhongchao Shanghai, except Mr. Yang and Shanghai Xingzhong, decided to withdraw their capital contribution from Zhongchao Shanghai
(the "Capital Reduction"). Given the effect of the Capital Reduction, Mr. Yang became the 76.4% shareholder of Zhongchao Shanghai
with the remaining equity interests held by Shanghai Xingzhong. On September 10, 2020, Zhongchao WFOE, and Zhongchao Shanghai, and its
shareholders signed a confirmation agreement to confirm that the original VIE Agreements entered on August 14, 2019 (the "Original
VIE Agreements") have been terminated because of the Capital Reduction.
Accordingly, on September
10, 2020, to clarify the legal effect of the Capital Reduction and to sustain our ability to consolidate the financial results of Zhongchao
Shanghai, Mr. Yang and Shanghai Xingzhong, as the shareholders of Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao
WFOE, the terms of which are substantially the same as those of the Original VIE Agreements except the number of shareholders of Zhongchao
Shanghai reduced to two (the "2020 VIE Agreements"). Upon entry into the 2020 VIE Agreements, the Original VIE Agreements,
except for the Master Exclusive Service Agreement dated August 14, 2020, were expired.
Our board of directors approved
and ratified the 2020 VIE Agreements. We did not expect any negative impact of these 2020 VIE Agreements on its operation. The 2020 VIE
Agreements enable Zhongchao Cayman to consolidate the financial results of Zhongchao Shanghai as primary beneficiary.
2021 VIE Agreements
On August 31, 2021, Shanghai
Xingzhong, one shareholder of Zhongchao Shanghai transferred all of its equity interest, equal to 23.6% of the total equity interest   of
Zhongchao Shanghai, to Shanghai Xingban Enterprise Management Partnership (Limited Partnership), a limited partnership incorporated in
China, or Shanghai Xingban. The general partner of Shanghai Xingban is Weiguang Yang, our CEO and Chairman, and its limited partner is
Pei Xu, our CFO. As a result, Mr. Yang is the 76.4% shareholder of Zhongchao Shanghai with the remaining equity interests held by Shanghai
Xingban.
Accordingly, on September
10, 2021, to clarify the legal effect of such share transfer and to sustain our ability to consolidate the financial results of Zhongchao
Shanghai, Mr. Yang and Shanghai Xingban, as all the shareholders of Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao
WFOE, the terms of which are substantially the same as those of the 2020 VIE Agreements except the one shareholder of Zhongchao Shanghai
was changed (the "2021 VIE Agreements"). Upon entry into the 2021 VIE Agreements, the 2020 VIE Agreements, except for the
Master Exclusive Service Agreement dated August 14, 2020, were expired.
Our board of directors approved
and ratified the 2021 VIE Agreements. We do not expect any negative impact of these 2021 VIE Agreements on its operation. The 2021 VIE
Agreements enable Zhongchao Cayman to consolidate the financial results of Zhongchao Shanghai as primary beneficiary.
Controlled Company
Our outstanding shares consist
of Class A Ordinary Shares and Class B Ordinary Shares, and we are be a "controlled company" as defined under the Nasdaq Stock
Market Rules because Mr. Weiguang Yang, our founder, chairman of the board of directors and chief executive officer, is beneficially own
all of our then issued Class B ordinary shares and is able to exercise 80.07% of the total voting power of our issued and outstanding
shares, assuming the exercise of the HF Warrant. Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except
for voting and conversion rights. Each Class A Ordinary Share is entitled to one vote, and each Class B Ordinary Share is entitled to
15 votes and is convertible into one Class A Ordinary Share at any time by the holders thereof. Class A Ordinary Shares are not convertible
into Class B Ordinary Shares under any circumstances.
62
Our directors, executive officers
and principal shareholders have substantial control over our company. Our affiliates are able to exercise 81.98% of the total voting power
of our issued and outstanding shares, assuming the exercise of the HF Warrant.
As long as our officers and
directors, either individually or in the aggregate, own at least 50% of the voting power of our Company, we are a "controlled company"
as defined under NASDAQ Marketplace Rules.
For so as we are a controlled
company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules,
including:
●
an exemption from the rule that a majority of our board of directors must be independent directors;
●
an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and
●
an exemption from the rule that our director nominees must be selected or recommended solely by independent directors.
As a result, you will not
have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Although we do not intend
to rely on the "controlled company" exemption under the NASDAQ listing rules, we could elect to rely on this exemption in
the future. If we elect to rely on the "controlled company" exemption, a majority of the members of our board of directors
might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely
of independent directors. (See – Risk Factor "As a "controlled company" under the rules of the NASDAQ Capital
Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public
shareholders.")
Compliance with Foreign Investment
All limited liability companies
formed and operating in the PRC are governed by the Company Law of the People's Republic of China, or the Company Law, which was
amended and promulgated by the Standing Committee of the National People's Congress on October 26, 2018 and came into effect on
the same day. Foreign invested enterprises must also comply with the Company Law, with exceptions as specified in the relevant foreign
investment laws. Under our corporate structure as of the date of this Annual Report, 100% of the equity interests of Zhongchao Shanghai
are entirely and indirectly held by our company through Beijing Zhongchao Zhongxing Technology Limited. Therefore, Beijing Zhongchao Zhongxing
Technology Limited, a wholly foreign-owned enterprise ("Zhongchao WFOE") of Zhongchao BVI which is a wholly-owned subsidiary
of Zhongchao Cayman, should be regarded as a foreign-invested enterprise and comply with both the Company Law and other applicable foreign
investment laws.
With respect to the establishment
and operation of Zhongchao WFOE, the Ministry of Commerce of the People's Republic of China (the "MOFCOM"), and the
National Development and Reform Commission (the "NDRC") promulgated the Catalogue of Industries for Guiding Foreign Investment,
or the Catalogue (2017 Version), as amended on June 28, 2017, which came into effect on August 28, 2017. The Catalogue divides industries
for foreign investment into three categories: encouraged, restricted and prohibited. Those industries not set out in the Catalogue shall
be classified as industries permitted for foreign investment. The Catalogue serves as the main basis for management and guidance for the
MOFCOM to manage and supervise foreign investments to PRC. In addition, in June 30, 2019, MOFCOM and NDRC promulgated the Special Management
Measures (Negative List) for the Access of Foreign Investment, or the Negative List, effective July 30, 2019. The currently effective
version of Negative List ("2021 Negative List") was promulgated on December 27, 2021 and became effective on January 1, 2022,
and the currently effective version of Encourage Catalog was promulgated on December 27, 2020 and became effective on January 27, 2021.The
Negative List expands the scope of permitted industries by foreign investment by reducing the number of industries that fall within the
Negative List where restrictions on the shareholding percentage or requirements on the composition of board or senior management still
exists. According to the Catalogue and the Negative List, the permitted foreign investment in value-added telecommunications service providers
may not be more than 50%, except for electronic commerce, domestic multi-party communication, storage and forwarding and call centers.
63
Emerging Growth Company Status
As a company with less than
$1.235 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart
Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise
applicable to public companies. These provisions include, but are not limited to:
●
being permitted to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations in our SEC filings;
●
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
●
reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and
●
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We may take advantage of these
provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities
pursuant to an effective registration statement under the Securities Act of 1933, as amended. However, if certain events occur before
the end of such five-year period, including if we become a "large accelerated filer," our annual gross revenues exceed $1.235
billion or we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company
before the end of such five-year period.
In addition, Section 107 of
the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended
transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section
107 of the JOBS Act.
Foreign Private Issuer Status
We are incorporated in the
Cayman Islands, and more than 50 percent of our outstanding voting securities are not directly or indirectly held by residents of the
United States. Therefore, we are a "foreign private issuer," as defined in Rule 405 under the Securities Act and Rule 3b-4(c)
under the Exchange Act. As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we
will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting
companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed
individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity
holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.
The Initial Public Offering
On February 26, 2020, the
Company completed its initial public offering of 3,000,000 Class A Ordinary Shares, $0.0001 par value per share (the "IPO").
The Class A Ordinary Shares were sold at an offering price of $4.00 per share, generating gross proceeds of approximately $12.0 million,
and net proceeds of approximately $9.97 million. The registration statement relating to the IPO also covered the underwriters' Class
A Ordinary Shares purchase warrants and the Class A Ordinary Shares issuable upon the exercise thereof in the total amount of 450,000
Class A Ordinary Shares. Each three-year warrant entitles the warrant holder to purchase the Company's shares at the exercise price
of $5.0 per share and is not be exercisable for a period of 180 days from February 21, 2020. Our Class A Ordinary Shares began trading
on the NASDAQ Capital Market on February 24, 2020 under the ticker symbol "ZCMD".
64
On February 28, 2020, the
Company closed on the partial exercise in the over-allotment option to purchase an additional 315,000 Class A Ordinary Shares of
the Company by Network 1 Financial Securities Inc., the lead underwriter in connection with the Company's U.S. firm commitment underwritten
IPO, at the IPO price of $4.00 per share. As a result, the Company has raised gross proceeds of approximately $1.26 million, in addition
to the IPO gross proceeds of $12.0 million, or combined gross proceeds in this IPO of approximately $13.26 million, before underwriting
discounts and commissions and offering expenses.
The "Shelf" Offering
On December 17, 2021, the
Company, entered into a Sales Agreement (the "Sales Agreement") with U.S. Tiger Securities, acting as the Company's
sales agent (the "Sales Agent"), pursuant to which the Company may offer and sell, from time to time, through the Sales Agent,
its Class A Ordinary Shares.
The Company is not obligated
to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, the Sales Agent will use commercially
reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and
the rules of Nasdaq to sell shares from time to time based upon the Company's instructions, including any price, time or size limits
specified by the Company. Upon delivery of a placement notice, and subject to the Company's instructions in that notice, and the
terms and conditions of the Sales Agreement generally, the Sales Agent may sell the Class A Ordinary Shares by any method permitted by
law deemed to be an "at the market offering" as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as
amended. The Company will pay the Sales Agent, in connection with the sale of the Class A Ordinary Shares through the Sales Agent in accordance
with the tiered fee schedule as set forth in the Sales Agreement, and has agreed to provide the Sales Agent with customary indemnification.
The Company has also agreed to reimburse the Sales Agent for certain specified expenses.
Class A Ordinary Shares will
be offered and sold pursuant to the prospectus supplement, dated December 17, 2021, to the Registration Statement on F-3 (File No. 333-256190)
(the "Form F-3") that forms a part of such Form F-3, for an aggregate offering price of up to $10,400,000.
Subsequent to December 31,
2021, the Sales Agent has sold an aggregate of 1,060,000 Class A Ordinary Shares at an offering price of $1.8 per share for a total of
$1,908,000 gross proceeds, out of which the Company has paid the Sales Agent $57,240 as the commission fee and other expenses and received
$1,850,743.77.
B.
Business Overview
Overview
Our Company
We are not a Chinese operating
company, but an offshore holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own,
we consolidate the financial results, through a series of the Contractual Arrangements, with Zhongchao Shanghai and its subsidiaries,
or collectively, "the PRC operating entities." Neither we nor our subsidiaries own any equity interests in the PRC operating
entities.
Our Class A Ordinary Shares
currently trading on Nasdaq are the shares of the offshore holding company, Zhongchao Cayman. You are not investing in the PRC operating
entities.   Instead, we consolidate financial results of Zhongchao Shanghai as primary beneficiary through the Contractual Arrangements.
65
Zhongchao Shanghai, together
with its subsidiaries, is a platform-based internet technology company offering services to patients with oncology and other major diseases
in China. The PRC operating entities address the needs along the patient journey of symptoms occurrence, medical consultations, medication
prescriptions, medication management, and treatment consultations. The PRC operating entities provide online healthcare information, professional
training and educational services to healthcare professionals, patient management services in the professional field of tumor and rare
diseases, internet healthcare services, and pharmaceutical services and operate an online information platform to general public. The
services, programs, and products that the PRC operating entities provide:
●
make it easier for healthcare professionals to access healthcare reference sources, stay abreast of the latest medical information, learn about new treatment options, earn continuing medical education credits and communicate with peers; and
●
enable the public to obtain health information on a particular disease or condition, offer content on topics of individual interest, improve public health consciousness, and promote people's lifestyle.
●
support patients with oncology or other major diseases with all-in-one patient management, including medication management and disease consultations.
The PRC operating entities
provide the healthcare information, education, and training services to the healthcare professionals under their "MDMOOC"
brand, which we believe is one of the leading consumer brands in China's healthcare training and education sector, as evidenced
by the Securities Research Report on online medical care industry by Essence Securities Co., Ltd., a company provides securities services
throughout China, where the PRC operating entities are considered as one of the main and typical public company proving medical training
with doctor interactive and online training platform and leading the Internet medical education industry. The PRC operating entities provide
their healthcare educational content to the public via their "Sunshine Health Forums", which, based on the amount of the registered
users and daily review volume, we believe is one of the largest platform in China, for general healthcare knowledge and information to
the public. The PRC operating entities provide focused patient management services, via their "Zhongxun" IT system and WeChat
mini program and Zhongxin Health WeChat mini program, to their pharmaceutical enterprises and NFP customers..
The PRC operating entities
commenced the operation, through Zhongchao Shanghai, in August 2012 with a vision to offer a wide range of accessible and immediate healthcare
information and continuous learning and training opportunities for Chinese healthcare professionals. Since inception, the PRC operating
entities have focused on developing their information, education, and training programs to address the needs in the healthcare industry
in China; and developing online platforms and onsite activities to deliver the PRC operating entities' information services, education
programs and training products.
MDMOOC-Healthcare Information, Education, and Training for Professionals
Online Platforms
The PRC operating entities
launched their first online platform in a form of website, www.mdmooc.org, under their "MDMOOC" brand in 2013 to provide information,
education, and training services to physicians and allied healthcare professionals, such as pharmacists and nurses primarily located in
China, via Internet-Plus solutions. Internet Plus refers to the applications of the internet and other information technology in conventional
industries, such as manufacturing, education and healthcare. It is an incomplete equation where various internet (mobile, cloud computing,
big data or Internet of Things) can be added to other traditional fields. The PRC operating entities further launched their MDMOOC WeChat
subscription account and MDMOOC mobile App in 2015 and 2016, respectively (together with the website, the "MDMOOC online platform").
Healthcare professionals in China can apply for registration with their healthcare qualification to get access to their MDMOOC online
platform.
The programs available on
the PRC operating entities' MDMOOC online platform enable their users to timely obtain extension knowledge of precedents, treatments,
and first-hand experiences of various disease and other healthcare related matters. In addition, the PRC operating entities' MDMOOC
online platform offers these professional users what we believe is one of the largest online libraries of continuing medical education
programs in China that are produced in association with entities accredited by the National Health Commission of the PRC, such as Chinese
Medical Association and Chinese Journal of Continuing Medical Education. From the convenience of their home or office computer and mobile
App, the PRC operating entities' professional users can access a variety of accredited editorial resources and programs including
online journal articles, medical conferences, and open classes and obtain continuing medical education credits which are required for
the healthcare qualification of doctors, nurses, and pharmacists.
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The PRC operating entities
believe MDMOOC online platform helps healthcare professionals improve their clinical knowledge and practice of medicine. Since launching
in 2013, the PRC operating entities have been continuously developing their MDMOOC online platform with new forms of Internet-based education
solutions. There are currently approximately 2,976 education and training programs available on the MDMOOC online platform and free to
their registered users. About 95% of all the PRC operating entities' programs are self-developed by their research and development
team. The original content of these programs, including daily medical thesis, commentary, conference coverage, expert columns, and activities
are written by the PRC operating entities' research and development team and authors from widely respected academic institutions,
and edited and managed by the PRC operating entities' in-house editorial staff. The remaining 5% of programs are created under the
purchase orders of the PRC operating entities' corporate or institution customers, where the PRC operating entities develop customized
programs with designated healthcare topics. Such 5% of programs are only available to certain registered users with program passcodes
provided by the PRC operating entities' corporate or institution customers. Our revenues are mainly sourced from these 5% of programs.
The PRC operating entities
currently provide their proprietary interactive programs via Practice Improvement (PI), a problem-based and case-based form of healthcare
course, which integrates state-of-the-art treatment information and clinical cases for particular diseases into interactive practice modules;
Community of Practice Share (COPS), an online and live clinical experience sharing platform that creates the most effective discussion
in a particular healthcare domain or medical area due to the common interests of the users; Continuing Professional Development (CPD),
a section of the platform that provides discussions and articles focusing on the future development and the differences between Continuing
Medical Education (CME) and Continuing Professional Development (CPD), and other general information of physician competency framework
and Meta-analysis. The PRC operating entities' original, exclusive and proprietary content includes innovative features such as
after-class quiz, key point summary and highlight during the courses, and peer-review and comments.
We believe that the PRC operating
entities' ability to create, source, edit and organize online healthcare-related content, interactive education services, and training
programs has made MDMOOC online platform one of the leading health destinations and most recognized information platform in healthcare
sector in China. As of the date of this Annual Report, the MDMOOC online platform has more than 219,825 registered users and a database
of approximately 109,721 healthcare experts including around 1,152 physicians, and 108,569 allied healthcare professionals in medical
academics, associations, and leading hospitals who constantly collaborate with the PRC operating entities to develop training programs
on needed basis.
Onsite Education Activities
In addition to healthcare
information, education, and training via Internet-Plus, the PRC operating entities organize onsite healthcare and medical training sessions
and academic conferences from time to time under the "MDMOOC" brand. For instance, in January 2019, the PRC operating entities
launched EWMA-certified (defined as below) wound-management collaboration training programs, covering the topics including but not limited
to basic concepts of acute and chronic wounds, management of different levels of surgical and non-surgical wounds, the construction of
different levels of wound centers, and medical staff collaboration in the process of wound management.
The PRC operating entities
cooperate with Beijing Chronic Disease Prevention and Health Education Research Association and Professor Yixin Zhang from the Ninth People's
Hospital of Shanghai Jiao Tong University School of Medicine to create courses titled "Essential Course for Wound Care Management"
and "Advanced Course for Surgical Wound Treatment". These courses have been certified and authorized by the European Wound
Management Association (EWMA), a European not-for-profit umbrella organization, linking national wound management organizations, individuals
and groups with interest in wound care. The PRC operating entities have successfully held four (4) training programs for Essential Course
for Wound Care Management and two (2) training programs for Advanced Course for Surgical Wound Treatment. Each program accepted no more
than twenty (20) applicants who shall hold academic credential above undergraduate. The PRC operating entities also required all applicants
to have more than six-year working experience in the field of wound repair. The PRC operating entities have issued a certificate to each
of the applicant upon completion of the training as their proof of achievement and ability in the wound management and treatment.
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The PRC operating entities
believe the combination of online and onsite services would provide their end-users the greatest convenience. With more choices of the
forms of healthcare education, the PRC operating entities enrich the learning experience of their end-users.
New Plug-in to Certain
Programs- Assistance in Patient-Aid Projects
Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through the platforms, the PRC operating entities have been engaged
by certain customers on a project basis to establish individual columns on the MDMOOC online platform to provide training and knowledge
of certain drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare disease-related.
The PRC operating entities establish online columns to facilitate qualified patients to obtain free drug treatment from not-for-profit
organizations ("NFPs") till the earlier of the expiration of contract period or the free drugs are completely delivered. For
each column, the PRC operating entities plug in features to manage the drug treatment including reviewing patients' applications,
tracking their usage of drugs, and collecting related information (such programs with new plug-in features are hereinafter referred as
the "patient-aid projects"). Those customers are existing customers of us. They provide those drugs sponsored by pharmaceutical
companies without charge to qualified patients and the PRC operating entities charge those customers on the services in connection with
the online columns and related training and management. In this way, the PRC operating entities believe not only can they facilitate the
clinical application of those drugs, but also benefit patients.
As of the date of this Annual
Report, we have established nearly 22 columns for cancer-related drug treatment, including drug treatment for lung cancer, liver cancer,
and extended blood cancer, and 4 columns for drug treatment of rare diseases, including drug treatment for pulmonary fibrosis, multiple
sclerosis, and systemic lupus erythematosus. The total number of patients covered under these patient-aid projects has reached nearly
108,514 by the end of 2022. We expect the numbers of columns for both cancer-related treatment and treatment of rare diseases to increase
by the end of 2023, covering an aggregate of nearly 120,000 patients.
Sunshine Health Forums-Healthcare Information
and Education for the Public
The PRC operating entities'
goal is not only provide continuing education and training to healthcare professionals but to promote healthy lifestyle and provide healthcare
knowledge to the public. In order to achieve that, the PRC operating entities develop and operate the Sunshine Health Forums, online education-for-all
platforms that disseminate articles and features related to healthcare and wellness education, medical behavior intervention, and newly
developed health technology and application. The PRC operating entities launched the Sunshine Health Forums in a form of website, www.ygjkclass.com,
in May 2016 followed by WeChat subscription account in August 2016, and mobile App in 2017. The PRC operating entities establish one forum
for each category of diseases for the convenience of the public. The PRC operating entities cooperate with certain well-known we-media
platforms in China, including but not limited Toutiao.com, Yidianzixun.com, Douyin.com, CN-Healthcare.com, iQiyi, Youku, and Huoshan.com
to streamline the PRC operating entities' articles co-produced by healthcare professionals and us.
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Recent Developments
In mid-January 2020, the PRC
operating entities launched a COVID-19 ("coronavirus") curriculum (the "Curriculum") on its MDMOOC platform (www.MDMOOC.org).
The Curriculum provides over 60 courses covering a wide range of medical specialties including anesthesiology, surgery, oncology, obstetrics
and gynecology, pediatrics, infectious disease, respirology, critical medicine and psychiatry. The Curriculum includes both free online
courses developed independently by the PRC operating entities and customized courses developed through partnership/sponsorship with leading
pharmaceutical companies and not-for-profit organizations (the "Partners and Sponsors"). The Curriculum has been successively
distributed through the PRC operating entities web portals, mobile APP, WeChat subscription accounts, as well as social media channels,
providing much-needed help to the medical workers who are at the forefront of the fight against the coronavirus.
On April 24, 2020, the PRC
operating entities launched the virtual seminar series (the "Virtual Seminar Series") aiming to connect global healthcare
professionals through knowledge and experience sharing in their fight against the coronavirus pandemic which has swept the world, infecting
more than 2.6 million people in 210 countries and territories. The Virtual Seminar Series are jointly hosted by the Beijing Medical and
Health Foundation and sponsored by Chiesi Pharmaceutical (Shanghai) Co., Ltd. The first panel session on neonatology (the "Session")
was scheduled on Friday, April 24, 2020 and was jointly moderated by Dr. Lizhong Du, a renowned neonatologist and professor at Zhejiang
University of China, and Dr. Anna Lavizzari, professor of Neonatal and Perinatology at University of Milan of Italy, with panelists from
7 countries including Brazil, China, Italy, Norway, Poland, Spain and Turkey. Live streaming of the Session was available free for global
neonatologists at www.mdmooc.org.
In
July 2020, the PRC operating entities joined hands with China Health Promotion Association ("CHPA"), the Liver Cancer Committee
of Chinese Anti-Cancer Association ("CACA"), and 9 leading pharmaceutical companies, including Roche (China) Co., Ltd., Bayer
(China) Limited, Eisai China Inc., Merck (China) Ltd., Jiangsu Hengrui Medicine Co., Ltd., Innovent Biologics, Inc., Junshi Biosciences,
Gilead Sciences Shanghai Pharmaceutical Technology Co., Ltd., and BeiGene, Ltd., to carry out a multi-year online education project on
the diagnosis and treatment of primary liver cancer (the "Project"). The Project aims to promote and implement "the
Specifications for the Diagnosis and Treatment of Primary Liver Cancer in China (2019 Edition)" (the "Specifications"),
a national guideline promulgated by the National Health Commission (the "NHC"), and is available on the MDMOOC platform at
www.MDMOOC.org. The Project will be carried out in multi-year, multi-phase. Since the Project's launch in March 2020, a total of
over 145,000 liver surgeons, oncologists, hepatologists, interventional radiologists, and diagnostic radiologists have participated in
the 12 sessions that have been completed as of the date of this Annual Report.
In July 2020, the PRC operating
entities launched patient management services as their third major line of business, in addition to MDMOOC, its online professional
training and education platform for healthcare professionals, and Sunshine Health Forums, the online information platform catering to
the general public. The patient management services is branded as "Zhongxun" (众寻) and carried out through the
wholly-owned subsidiary of Zhongchao Shanghai, Shanghai Zhongxun.
In May 2021, Zhongchao Shanghai
launched patient management services focusing on the professional field of tumor and rare disease operated through its subsidiary Shanghai
Zhongxin, together with Shanghai Zhongxun, provide patient management services, branded as "Zhongxin Health" (众芯健康).
As of now, as Zhongxin Health provides comprehensive disease education and management services for tumor patients receiving treatment,
in September 2022, Zhongchao announced its new strategic extension of the business model from "Medical-Pharmaceutical" to
"Medical-Pharmaceutical-Patient." The establishment of Shanghai Zhongxin was the important first step of Zhongchao's
transformation.
On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel and nine shareholders of West Angel transferred all of their equity interest,
equal to 49.44% of the total equity interest of West Angel to Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity
interest of West Angel. It has well established healthcare CRM (HCRM), a system specially designated to track patient data to provide insight
for understanding patient behaviors and habits for patient care, relationship management and experience, hospital marketing and services
,
which may contribute in expanding our source of hospital customers and developing HCRM for hospitals. In addition, West Angel's
customers include high ranking hospitals and reputable medical professionals. Having those customers would provide competitive advantage
for us in attracting pharmaceutical enterprise customers and NFP for training and services provided by us.
On August 2, 2022, Mr. Weiguang Yang transferred certain parts of his
shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33% of the equity interest of Shanghai Zhongxin.
Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao Yixin and Zhongren Yixin hold 12.33%, 20% and
10% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. As a result, Shanghai Zhongxun owns 93.33%
of Shanghai Zhongxin's equity interest.
In September 2022,
Liaoning
Zhixun
launched Zhixun Internet Hospital to provide standardized Internet healthcare services for patients with oncology or other
major diseases. The establishment of Zhixun Internet Hospital will enable Zhongchao to form an all-in-one patient management service (the
"All-in-One Service") from patient education, online follow-up consultation, treatment compliance management, to living quality
improvement , creating comprehensive services for both out-of-hospital and in-hospital patients.
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Followed by the launch of
Zhixun Internet Hospital to provide standardized internet healthcare services for patients with oncology or other major diseases, Zhongchao
established Xinjiang Pharmaceutical, aiming at realizing medications accessibility and affordability for those patients. In January 2022,
Xinjiang Pharmaceutical was incorporated under the PRC laws, as a wholly owned subsidiary of Shanghai Zhongxin. In August 2022, Shanghai
Zhongxun and Shanghai Zhongxin entered into a share transfer agreement, pursuant to which, Shanghai Zhongxin agreed to transfer all the
share equity in Xinjiang Pharmaceutical to Shanghai Zhongxun with no consideration. As a result, Xinjiang Pharmaceutical is wholly owned
by Shanghai Zhongxun. Xinjiang Pharmaceutical plans to cooperate with Zhixun Internet Hospital and other internet hospitals to build a
2B2C (to business and to customer) pharmaceutical procurement platform, aiming to streamline the delivery of medicines from pharmaceutical
factories to retail ends. Xinjiang Pharmaceutical has obtained Pharmaceutical Trade License, Medical Device Trade License, Qualification
Certificate for Drug Information Service over the Internet and other related licenses. Xinjiang Pharmaceutical plans to engage in pharmaceutical
import and export trade, OME (original equipment manufacturer) production, medical consumables operation, and pharmaceutical internet
services, aiming to continuously expand the industry chain and supply chain of the pharmaceutical market in China. Meanwhile, it remains
committed to becoming a competitive technology-based pharmaceutical service enterprise.
In November 2022, MDMOOC online
platform established a "Surgical-Interventional-Drug" ("SID") platform for liver cancer comprehensive-disciplinary
physician education ("SID Platform"), providing physicians with knowledge and techniques in comprehensive-disciplinary comprehensive
management of patients with liver cancer. As of the date of this report, Zhongchao VIE has established nearly 22 columns for cancer-related
drug treatment, including drug treatment for lung cancer, liver cancer, and extended blood cancer, and 4 columns for drug treatment of
rare diseases, including drug treatment for pulmonary fibrosis, multiple sclerosis, and systemic lupus erythematosus.
In January 2023, Xinjiang
Pharmaceutical entered into certain agreements with Natco Pharma Limited ("NPL"), a vertically integrated and R&D focused
pharmaceutical company in India, pursuant to which Xinjiang Pharmaceutical will act as the drug distribution agent of certain drugs produced
by within mainland China. Xinjiang Pharmaceutical will introduce different products from NPL based on the needs of patients in China,
for example, anti-influenza drugs during the flu season, and high demand anti-tumor and anti-rare diseases products. Both parties will
work together to apply registration certificate of imported drugs and submit filings of sales agent, and will fully leverage their advantages
and resources to effectively shorten the clinical trial approval and other processes and accelerate the progress of introducing quality
drugs to the patients in China.
Private Equity Fund Arrangements
In November 2020, Shanghai
Jingyi formed private equity fund arrangements (the "Private Equity Fund Arrangements") among another twelve individuals (each,
a "Limited Partner", collective, the "Limited Partners") and Shenzhen Suizi Wealth Management Co., Ltd. or Shenzhen
Suizi, and such Private Equity Fund Arrangement consist of a series of three agreements. For more details and risks related to Shanghai
Jingyi's private equity fund investment, please see "Risk Factors—Risks Related to the Business and Industry of the
PRC Operating Entities".
The significant terms of the
Private Equity Fund Arrangements are as follows:
Limited Partnership Agreement
Under the Limited Partnership
Agreement, Shenzhen Suizi, as the general partner (the "General Partner") among thirteen Limited Partners, inclusive of Shanghai
Jingyi, formed Ningbao Meishan Bonded Port Xinaishan Investment Partnership (Limited Partnership) (the "Xinaishan Investment Partnership").
The business scope of Xinaishan Investment Partnership is to conduct equity investment, capital investment, and management of equity investment.
(the "Private Equity Fund").
The Private Equity Fund will
remain effective of 5 years (the "Term") since November 2020, consisting of a four-year investment period (the "Lock-Up
Period") and the last year as the investment withdrawal period (the "Exit Period"). If there is any failure to exist
prior to the expiration of the Term due to force majuere, the Fund Manager (as defined below) has to submit a written request for any
extension to Limited Partners and the Term will be extended upon the consent of more than two thirds of the Limited Partners that has
voting power. If no such consent is obtained, the Funder Manager should start the liquidation procedure and carry out the liquation as
the liquidator of the Xinaishan Investment Partnership.
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Pursuant to the Limited Partnership
Agreement, the paid-up capital should be no less than RMB10,000,000 (the "Paid-Up Capital"). Shanghai Jingyi subscribed and
paid RMB 8,400,000 and The General Partner subscribed RMB 8,100,000. Under the Limited Partnership Agreement, the management fee is paid
annually to a Fund Manager and equals 2% of the cumulative Paid-Up Capital of each year (the "Management Fee") when the Private
Equity Fund is established, the Management Fee is withdrawn for the first two year, which is 4% of the cumulative Paid-Up Capital and
is paid as 2% of the cumulative Paid-Up Capital annual from the third year. Each Limited Partner pays the Management Fee pro rata of
its Paid-Up Capital. If the Paid-Up Capital is less than the prepaid Management Fee of a certain year, the remaining Management Fee,
deducting the amount already paid from the paid-up capital, will be paid additionally by each Limited Partner pays pro rata, or be paid
by the investment revenues of Private Equity Fund.
Under the Limited Partnership
Agreement, all the partners, Limited Partners and General Partner (each, a "Partner", together, the "Partners"),
hold partner meetings (the "Partner Meeting"), whereas no less than 50% of Partners constitute a quorum at a Partner Meeting
and each Partner has voting powers equals to the percentage of their paid-up capital interest.
All the capital in Private
Equity Fund will be invested in Heyuan Biotech (Tianjin) Com., Ltd., or Heyuan Biotech in a way of increasing Heyuan Biotech's capital.
Heyuan Biotech's primary product is immune cell treatments, which at the beginning to blood tumor, in the mid-term to solid tumor,
and in the later period to general treatment. The idle fund will be invested low risk financial product with a certain term and/or a certain
liquidity, including but not limited to, cash, currency fund, monetary fund, bank deposit, bank wealth management product and another
other cash management product under the management of the financial institutions.
The entrusted management agency
has the right to determine the exit plan, including exit method, exit time, exit price, and other matters. A project management team determined
by the entrusted management agency will submit a project exit application report to the investment committee for review. Once the project
exist application report is approved by the investment committee, the entrusted management agency is responsible for the implementation
of such exit plan.
The General Partner has the
right to accept new partner join in until the paid-up capital reaches to the maximum. No Partner can withdraw from the Xinaishan Investment
Partnership during the Term without the consent of the Partner Meeting. General Partner and Limited Partner cannot convert into each other
during the Term.
Subscription Agreement
In November 2020, Shanghai
Jingyi and the General Partner entered into a subscription agreement (the "Subscription Agreement"). Pursuant to the Subscription
Agreement, the General Partner subscribes RMB8.1 million of the Private Equity Fund and Shanghai Jingyi, as a Limited Partner, subscribes
and paid RMB8.4 million of the Private Equity Fund.
Entrusted Management Agreement
In November 2020, Xinaishan
Investment Partnership, Shanghai Jingyi, and the General Partner entered into an entrusted management agreement. Pursuant to the entrusted
management agreement, the General Partner is entrusted as the manager of Private Equity Fund (the "Fund Manager") to manage
the investment to Heyuan Biotech and to provide consultation service to Xinaishan Investment Partnership. The Funder Manager cannot transfer
its obligations under the agreement hereof without the prior written consent of Xinaishan Investment Partnership.
Pursuant to the entrusted
management agreement, the Fund Manager shall not invest the Private Equity Fund in securities, future transactions, real estate, or any
other high risk areas; further, shall not use the capital in the Private Equity Fund or the equity of the invested company held by Xinaishan
Investment Partnership to provide guarantee or financing, except of the following: i) the bank instruments necessary for the cash management
of the Private Equity Fund; ii) investment in bonds products or insurance products, with investment cycle no more than 6 months since
the determination date of such investment, and invest the amount no more than 10% of the subscribed capital of Xinaishan Investment Partnership.
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Under the entrusted management
agreement, Xinaishan Investment Partnership will pay the Management Fee to the Fund Manager annually and, additionally, commission fee
for the amount of 20% of Xinaishan Investment Partnership's investment income.
The entrusted management agreement
will remain effective till the expiration of Xinaishan Investment Partnership's Term or till the termination of Xinaishan Investment
Partnership in case of any other dissolution situations. The entrusted management agreement may be terminated by Xinaishan Investment
Partnership pursuant to the agreement hereof or upon the unanimous consent of Shanghai Jingyi together with other Partners.
Change of Corporate Structure
On March 26, 2020, the board
of Horgos Zhongchao Medical, one of the wholly-owned subsidiaries of Zhongchao Shanghai, approved its dissolution. The application for
cancellation registration was approved by the registration authority on May 11, 2020.
On September 16, 2020, Horgos
Zhongchao Zhongxing, one of the wholly-owned subsidiaries of Zhongchao Shanghai, cancelled its registration.
In addition, on April 27,
2020, Beijing Boya was incorporated under the PRC laws, of which 70% of its equity was owned by Zhongchao Shanghai and 30% of its equity
was entrusted to Zhongchao Shanghai by the other shareholder Shanghai Lingzhong through a certain share entrustment agreement on December
1, 2021. Beijing Boya is primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare
management services, healthcare consulting services, sales of medical appliances and other medical products.
On October 12, 2020, two shareholders
of Shanghai Jingyi, Li Dai and Hegang Ma, transferred their shares to Mr. Weiguang Yang. As a result, Mr. Weiguang Yang holds 49% of Shanghai
Jingyi's equity and Zhongchao Shanghai holds 51% of its equity. Through a certain entrustment agreement on November 1, 2020, Mr.
Weiguang Yang agreed to hold his equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun.
On October 23, 2020, Shanghai
Jingyi changed its name to Shanghai Zhongxin Medical Technology Co., Ltd., or Shanghai Zhongxin.
On December 16, 2020, Mr.
Weiguang Yang transferred certain parts of his shares to Zhongchao Yixin and Zhongren Yixin. As a result, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin holds 19%, 20% and 10% of the equity interest of Shanghai Zhongxin, respectively.
Through a certain entrustment
agreement on December 25, 2020, Mr. Weiguang Yang, Zhongchao Yixin and Zhongren Yixin hold 19%, 20% and 10% of the equity interest of
Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. As a result, Shanghai Zhongxun owns 100% of Shanghai Zhongxin's
equity interest.
On July 6, 2020, Zhixun Internet
Hospital (Liaoning) Co., Ltd., or Liaoning Zhixun was incorporated under the PRC laws and wholly owned by Shanghai Zhongxun. Liaoning
Zhixun primarily engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services,
healthcare consultation services, sales of medical appliances and other medical products. On January 11, 2021, Shanghai Zhongxun transferred
its whole equity ownership of Liaoning Zhixun to Shanghai Zhonxin, and as a result, Shanghai Zhongxin becomes the sole shareholder of
Liaoning Zhixun.
On October 30, 2020, Zhongchao
Japan was incorporated under the laws of Japan as a wholly owned subsidiary of Zhongchao USA. Zhongchao Japan was acquired from the Zhongchao
Cayman's controlling shareholder in December 2021, and such acquisition was accounted for as acquisition under common control, and
historical financial statement of Zhongchao Japan was included in the consolidated financial statement as if the acquisition was since
its incorporation.   On January 13, 2021, Shanghai Xinyuan, was incorporated under the PRC laws, as the wholly owned subsidiary
of Shanghai Zhongxin. Shanghai Xinyuan is primarily engaged in human resources services and information consulting services. On May 18,
2021, Ningxia Zhongxin, was incorporated under the PRC laws, whose sole shareholder is Shanghai Zhongxin. Ningxia Zhongxin was engaged
in operating an online hospital to provide online medical service, including online consultation, prescription information services, and
medication retails. On July 16, 2021, Hainan Zhongteng, was incorporated under the PRC laws, as the wholly owned subsidiary of Beijing
Boya. Hainan Zhongteng is primarily engaged in healthcare consulting services. On July 21, 2021, Hainan Muxin, was incorporated under
the PRC laws, as the wholly owned subsidiary of Shanghai Zhongxin. Hainan Muxin is primarily engaged in healthcare consulting services.
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On August 19, 2021 pursuant
to an equity transfer agreement, Shanghai Zhongxin agrees to transfer all of its equity interest of Liaoning Zhixun to Beijing Boya. As
a result, Liaoning Zhixun is wholly owned by Beijing Boya.
On August 31, 2021, Shanghai
Xingzhong transferred all of its equity interest, equal to 23.6% of the total equity interest of Zhongchao Shanghai, to Shanghai Xingban
Enterprise Management Partnership (Limited Partnership), a PRC limited partnership, or Shanghai Xingban. The general partner of Shanghai
Xingban is Weiguang Yang, and its limited partner is Pei Xu. As a result, Mr. Yang is the 76.4% shareholder of Zhongchao Shanghai with
the remaining equity interests held by Shanghai Xingban.  As a result,  Zhongchao WFOE, Zhongchao Shanghai, Mr. Weiguang Yang
and Shanghai Xingban entered in to a series of VIE agreement. See "Our Corporate History and Structure—2021 VIE Agreements".
On November 8, 2021, Hainan
Muxin Medical Technology Co., Ltd., or Hainan Muxin, a wholly owned subsidiary of Shanghai Zhongxin, together with another two shareholders,
established Beijing Yisuizhen Technology Co., Ltd., or Beijing Yisuizhen, where Hainan Muxin hold 47% of the equity interest. Beijing
Yisuizhen is primarily engaged in technology development, consulting, communication, transfer, and promotion, software services, and health
consulting services.
On November 24, 2021, Mr.
Weiguang Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds
12.33% of the equity interest of Shanghai Zhongxin.
In January 2022, Xinjiang
Pharmaceutical was established was incorporated under the PRC laws, as a wholly owned subsidiary of Shanghai Zhongxin. In August 2022,
Shanghai Zhongxun and Shanghai Zhongxin entered into a share transfer agreement, pursuant to which, Shanghai Zhongxin agreed to transfer
all the share equity in Chongqing Pharmaceutical to Shanghai Zhongxun with no consideration. As a result, Xinjiang Pharmaceutical is wholly
owned by Shanghai Zhongxun.
On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel and nine shareholders of West Angel transferred all of their equity interest,
equal to 49.44% of the total equity interest of West Angel to Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity
interest of West Angel.
On August 2, 2022, Mr. Weiguang
Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33%
of the equity interest of Shanghai Zhongxin. Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao Yixin
and Zhongren Yixin hold 12.33%, 20% and 10% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively.
As a result, Shanghai Zhongxun owns 93.33% of Shanghai Zhongxin's equity interest.
On August 16, 2022, two shareholders of Beijing Yisuizhen transferred
all of their equity interest, equal to 53% of the total equity interest of Beijing Yisuizhen to Hainan Muxin. As a result, Hainan Muxin
holds 100% of the equity interest of Beijing Yisuizhen.
On October 9, 2022, Ningxia
Zhongxin submitted the application for cancellation registration to SAMR and the application was approved on the same day.
The Customers and End Users of the PRC operating
entities
MDMOOC's Customers
and End Users
The PRC operating entities'
customers are enterprises, NFP, and medical journals, primarily located in China. The PRC operating entities' terminal customers
and end-users are healthcare professionals, nurses, doctors and other healthcare workers.
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The PRC operating entities'
enterprise customers are pharmaceutical enterprises, healthcare enterprises engaged in researches and develops pharmaceuticals, vaccines,
and consumer healthcare products, pharmaceutical enterprises that engages in drug innovation, manufacturing, and marketing, and medical
journals.
The PRC operating entities'
NFP customers, most of whom are sponsored by pharmaceutical enterprises to produce training courses for specific healthcare topics, are
charity organizations, national public foundations, and nonprofit non-governmental association, that are governed by provincial and regional
government agencies and commissions. Government agencies include the National Health and Family Planning Commission (NHFPC) and Ministry
of Civil Affairs.
The PRC operating entities
maintain good relationship with their customers and some of them have long term relationship with us. The PRC operating entities generate
the revenue on a case-by-case or project-by-project basis and by providing their customers with healthcare information, education, and
training services, including the production of online medical training materials, the arrangement of onsite training programs or academic
conferences, and the development of medical education software to their targeted end users.
For
the fiscal year ended December 31, 2022, we generated revenue of MDMOOC business from a total of 76 customers, of which 34 customers
were NFP and 42 customers were pharmaceutical enterprises.
For
the fiscal year ended December 31, 2021, we generated revenue from a total of 78 customers, of which 30 customers were NFP and 35
customers were pharmaceutical enterprises. For the fiscal year ended December 31, 2020, we generated revenue from a total of 77
customers, of which 28 customers were NFP and 49 customers were pharmaceutical enterprises.
We
generate the revenues from a relatively small number of customers. For the fiscal years ended December 31, 2022, 2021, and 2020, the
PRC operating entities' pharmaceutical enterprise customers accounted for 33.1%, 11.7%, and 10.5% of our total revenues,
respectively. For the fiscal years ended December 31, 2022, 2021, and 2020, the PRC operating entities' NFP customers
accounted for 58.0%,  86.2%, and 87.2%, of our total revenues, respectively.
Sunshine Health Forums'
Users
Unlike MDMOOC online platform
which require the users to register with their healthcare qualification and some of the PRC operating entities' programs are limited
to certain registered users of the platform, the Sunshine Health Forums is accessible to the public without limitation.
Zhongxin Health's
Customers and Users
Zhongxin Health's customers
are primarily pharmaceutical enterprises and NFPs including charity organizations, national public foundations, and nonprofit non-governmental
association.
Zhongxin Health provides
patient management services through its Zhongxun IT system and WeChat mini program and its Zhongxin Health WeChat mini program. The users
are patients with cancer, rare disease or other major diseases. Users need to register on Zhongxun IT system and WeChat mini program
or log in their WeChat before accessing their portals for tailored patient management services.
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Source of Revenues
We
currently derive our revenues from 3 sources: (1) revenue generated from the information, education, and training programs,
services, and products under the PRC operating entities' "MDMOOC" brand, including but not limited to (a) revenue
from designing and producing healthcare training products as requested by the PRC operating entities' customers; (b) revenue
from the PRC operating entities' onsite education, including organizing medical training sessions and academic conferences;
and (c) revenue from the healthcare consulting services the PRC operating entities provide to their customers; (2) revenues
generated from providing patient management services by Zhongxin Health; and (3) sales of patented drugs by Xinjiang Pharmaceutical.
The PRC operating entities do not charge user fees for access to the MDMOOC online platform or attend some of the PRC operating
entities' onsite conferences. The MDMOOC online platform and onsite education activities enable customers to reach, educate
and inform target audiences of healthcare professionals. The PRC operating entities work closely with their customers to develop
programs to reach specific groups of healthcare professionals and give them placement on the most relevant areas on the MDMOOC
online platform.
For
the
fiscal years ended December 31, 2022, 2021, and 2020, our revenues were $14,151,516, $16,296,770, and $17,989,788, respectively, and
our net (loss) income were $(2,822,319), $238,665, and $4,457,097, respectively.  We currently generate most of our revenues from
MDMOOC.
Industry and Market Background
The Internet
The Internet has emerged as
a global medium for communications, news, information and commerce. China Internet Network Information Center (CNNIC) released the 51st
"Statistical Report on China's Internet Development Status" report, indicating that as of December 2022, the number
of Chinese netizens was 1,067 million, an increase of 3.5 million from the end of 2021. In 2022, the average weekly online time spent
by Chinese netizens is 26.7 hours, which is 0.6 hours lower than the same period in 2021. A number of factors drive the Internet's
continued growth, including the large and growing installed base of personal computers, a rapidly expanding and improving Internet delivery
infrastructure and an explosion of content and commerce offerings on the Web.
The Internet allows content
delivery in a manner not possible through traditional broadcast and print media. These traditional media can have large audiences but
generally are limited to a specific geographic area, can deliver only limited content and are not effective for distributing detailed
information quickly. The Internet is distinct from traditional media in that it offers immediate access to dynamic and interactive content
and enables instantaneous communication among users. As a result, the Internet has become an important alternative to traditional media,
enabling users to seek current information and to communicate with one another. These characteristics, combined with the fast growth of
the Internet, have created a powerful, rapidly expanding direct marketing and sales channel. Advertisers can target very specific demographic
groups, measure the effectiveness of advertising campaigns and quickly revise them in response to the prompt feedback allowed by the Internet's
technology.
As users hardly don't
rely on the Internet for their information needs, they have sought more detailed content on a wide variety of specific subjects. Utilizing
subject-specific sites, users can find information on selected topics quickly, easily and cost effectively, making these sites a very
attractive resource for users. In addition to offering detailed and comprehensive content, many of these subject-specific sites have developed
online communities that allow users to communicate with each other and to engage in other interactive activities. We believe these community
features are attractive to users who want to express themselves and who seek to interact with other users who have similar interests.
Relevant Dynamics In The Healthcare Industry
Healthcare is the largest
sector of the Chinese economy. The 2018 Statistical Communique on the Development of Nationwide Basic Medical Care shows that in 2018,
the total revenue of the national basic medical insurance fund was RMB2.1384 trillion, an increase of 19.3% as compared to that in the
previous year, which accounts for about 2.4% of the GDP in 2018. The total expenditure on national basic medical insurance funds was RMB1782.2
billion, an increase of 23.6% as compared to that in the previous year, which accounts for about 2.0% of the GDP in 2018. The 2018 medical
expenses for in-service employees totaled RMB 423.9 billion, an increase of 10.8% over the previous year. The medical expenditure per
capita was RMB 3,313, an increase of 5.0% over the previous year. In addition, the 2018 medical expenses for residents reached RMB 106.13
billion, an increase of 20.5% over the previous year. The medical expenditure per capita was RMB 1,183, an increase of 17.2% over the
previous year (
Resource: http://www.nhsa.gov.cn/art/2019/6/30/art_7_1477.html
).
The need of healthcare in
China is still on the rise. According to 2021 Statistical Bulletin on the Development of China's Health and Wellness Industry, by
the end of 2021, there are 1,030,935 healthcare institutions in China, with an increase of 8,013 over the previous year. In 2021, the
total number of healthcare services is 8.47 billion with an increase of 730 million over 2020.
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The healthcare industry is
continuing to change. According to the China Big Health Industry Development Report 2018, there are three trends in the development of
China's healthcare industry: (1) the need for integrated services for the prevention and treatment of chronic diseases and the need
to maintain people's health in all aspects and full cycles; (2) the total amount of medical and health resources is insufficient,
the structure of the industry is unreasonable, the basic service capacity is still a prominent weak link, and the technical level needs
to be improved; (3) with the change of disease spectrum of Chinese residents, the number of patients with chronic non-communicable diseases
is increasing year by year, which has become the primary problem that threatens the health of the residents. Healthcare services will
shift from treatment-centered to health-promoting centered mode.
Government is guiding an active
and healthy lifestyle for the public. According to the Healthy China Action (2019-2030), by 2030, the health awareness of the general
public will be greatly improved, healthy lifestyles will be broadly adopted, the main factors having impact on people's health will
be effectively controlled, and the average healthy life expectancy will be greatly increased. Also, the level of population's main
health indicators will enter the ranks of high-income countries.
The healthcare industry in
China will continue to develop. According to a report from Prospective Industry Research Institute, by 2020 the scale of China's
healthcare industry will exceed RMB 10 trillion.    The annual compound annual growth rate in the next five years (2019-2023)
is about 12.55%, and the scale of china's healthcare industry can be expected to reach RMB 14.09 trillion in 2023.
Convergence Of The Internet And The Healthcare
Industry
China has the largest group
of healthcare professionals in the whole world, providing a solid foundation for the development of the healthcare education market. According
to the 2018 Statistical Bulletin on the Development of China's Health and Wellness Industry, China currently has more than 12 million
healthcare professionals, including more than 3.6 million doctors, reflecting a huge demand on knowledge learning and professional training.
With long working hours and
heavy workloads, it is very difficult for healthcare professionals in China to spare time and energy to participate in offline academic
conferences or training sessions. Continuing changes in the healthcare industry, including the increasing adoption of managed care plans
and the need to keep informed about rapidly emerging medical and pharmaceutical therapies are also placing increasing pressures on healthcare
professionals' time. Healthcare professionals must keep abreast of the latest developments within their medical specialty to provide
their patients with the best possible care and to meet continuing medical education requirements. There is a vast flow of information
from many sources, including traditional medical journals, medical textbooks, academic conferences and other training literature. The
sheer volume of medical information and the time constraints that physicians face make it extremely difficult for them to stay current
and to quickly and efficiently access the information most relevant to their practice. We believe online healthcare professionals education
services will allow them to easily find and manage the information they are seeking.
Internet Plus training model
emerged with the growth of technologies, internet and the needs for convenient and reliable source of information. Specifically, Internet
plus will optimize the traditional mode of education and training for healthcare professionals with real-time services anytime, anywhere,
based on users' demands. Through the Internet, the latest medical information and online training courses can be obtained from the
mobile terminal and healthcare professionals can make full use of their spare time to get the information most related to them. Gradually,
the Internet plus education model has been accepted by healthcare professionals. A Chinese Internet Doctors Insights Report (DIR) released
by United States Medical Scientific in November 2018 provides that more than 90% of doctors in China obtained medical information through
professional online platform, 46.7% of doctors in China obtained medical information through offline meetings, and 58.5% of doctors in
China obtained information of pharmaceutical enterprises and drugs through professional websites.
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In 2019, Internet plus healthcare
education has become the education model guided and supported by the Chinese government. The Opinion Concerning the Promotion of the Development
of Internet Plus Medical and Health promulgated and implemented on April 25, 2018 by the General Office of the State Council (the "Opinion"),
states its plan to enhance the Internet plus medical education model. The Opinion encourages the establishment of healthcare education
training cloud platform that provides a diverse range of medical online courses and healthcare information. The Opinion also encourages
the establishment of a networked, digital, personalized, and lifelong medical education and training system for the healthcare professionals
to carry out researches and discussions on incurable diseases and major diseases, and eventually improve their healthcare quality. The
Opinion further includes the implementation plan of the "Continuous Medical Education + Appropriate Technology Promotion"
policy, focusing on the needs of healthcare and poverty reduction, targeting the grass-root levels and deprived areas of the country,
to popularize practical and appropriate healthcare technologies via distance education. The Opinions further indicates to establish an
Internet-based science platform to provide accurate and up-to-date information on healthcare science knowledge and healthy lifestyles.
The Opinion aims to improve residents' health management ability and health literacy.
Healthcare education is a
large sector of the Chinese market with outstanding development prospects. According to the report released on December 24, 2018 by TrendForce
("TrendForce Report"), a global provider of market intelligence on the technology industries, driven by the large amount of
new drugs joining the market and the continuous increase in the use of new drug products, the 2018 market size of global pharmaceutical
is approximately USD 1.2 trillion, with a 3.8% annual growth rate. TrendForce Report indicates that the expected global drug market will
reach USD1.55 trillion in 2023 with a compound annual growth rate of 5.1% from 2018 to 2023. According to a 2018 report by The Economic
Observer, sales expenses in Chinese pharmaceutical industry account for more than 40% of the total revenue and the costs of market promotion
is a key part of sales expenses. We believe the need for Internet-based healthcare education will continue to grow, driven by the increasing
demand for healthcare services by Chinese people, the implementation of China's grading diagnosis and treatment policy, and the
establishment of doctors' multi-point practice system.
Policy Support, Huge and Growing Market of
Internet Healthcare in China
According to the Frost &
Sullivan report, total spending on healthcare in China in 2020 was RMB 7,230.6 billion, ranking the second in the world. It is expected
to reach RMB11,486 billion in 2025 and RMB16,642.5 billion in 2030, respectively. According to the report released by iResearch and Huaan
Securities Research Institute, it is expected that the scale of China's internet healthcare market will reach RMB 87.61 billion in 2023,
an increase of 25.1% year-on-year. With the change of residents' medical habits and the increase of disposable income, the scale of the
internet healthcare market will continue to grow.
Competition
The PRC operating entities
face competition from providers of traditional healthcare education programs and training services as well as the increasing competition
from existing competitors and new market entrants in the online healthcare education market and patient management service market,
including the following:
●
Chinese online education companies and institutions that also offer continuing healthcare education and other online courses and training programs. Examples of the PRC operating entities' competitors include 91huayi, a Chinese medical education website dedicated to improving medical service providers professional skills and public's healthcare knowledge; bbs.iivi.com, a Chinese medical bulletin board system allowing medical professionals in different specialties to share their views regarding their medical practice, career development and medical examinations; and www.ccmtv.cn, a Chinese website providing surgery education videos to medical professionals in different specialties.
●
Healthcare education companies or institutions organizing onsite healthcare workshop, academic conference, and other healthcare communication activities. This segment is the most significant competitor to the PRC operating entities' onsite education programs. Examples of the PRC operating entities' competition in this segment include Medcon, MEDLINK, and Beijing Medical Group 3 AD Ltd., all of which are Chinese company dedicated to promoting medical information and health knowledge via onsite activities.
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●
China-based digital service provider in the healthcare industry that also offer information sharing services and data accumulation and management in China. Examples of the PRC operating entities' competitors include DXY (丁香园), a Chinese medical knowledge sharing website, which is built as an academic article retrieving database. DXY has developed more functions to enrich the services it provides to healthcare professionals and the public, including but not limited to establishing online forum for physicians, launching a series of mobile applications such as Drug Assistant and Dingxiang Doctor, and opening its wholly-owned offline Family Clinics.
●
Education companies that targets the public and patients. This segment is the most significant competitor to the Sunshine Healthcare Forum. Examples of the PRC operating entities' competitors include CN-Healthcare, an internet-based healthcare education platform targeting patients. CN- Healthcare organizes content-partners, including healthcare professionals and medical associations to generate health-related news and information. CN-Healthcare currently has 1773 individual content-partners, 751 association partners, and 1.3 million subscribers.
●
China-based technology
companies providing medical health management services. Examples of the PRC operating entities' competitors include Sinohealth
Holdings Ltd. (HKG: 2361), a data insight solutions, data-driven publications and events and software providers. it's Zhongkang
Tong platform focuses on providing professional services for the operation of patient care projects.
The Growth Strategy of the PRC Operating Entities
The PRC operating entities'
objective is to address the needs along the patient journey of symptoms occurrence, medical consultations, medication prescriptions, medication
management, and treatment consultations. The PRC operating entities operate the premier healthcare destination Websites where physicians,
allied healthcare professionals and consumers can find reliable and comprehensive information that enables them to make better and more
informed medical and health decisions. We believe the PRC operating entities are positioned to become a preferred online advertising medium,
academic communication platform, and e-commerce partner in the PRC healthcare sector. The PRC operating entities intend to achieve this
objective by pursuing the following strategies:
●
Strengthening the PRC Operating Entities' Brands
. The PRC operating entities intend to build up MDMOOC as the leading single brand for healthcare information, education, and training for professionals and Sunshine Health Forums as the leading brand for online healthcare information forums. We believe that strengthening the PRC operating entities' brand awareness is critical to attracting and retaining users, advertisers, sponsors and strategic partners. The PRC operating entities plan to pursue a brand development strategy through online and offline advertising, promotions, media coverage and word-of-mouth support. We believe the PRC operating entities' brand visibility will significantly benefit from promotion on leading we-media and medical associations, such as China Association of Health Promotion and Education, Beijing Medical and Health Foundation, and China Primary Health Care Foundation, as well as the PRC operating entities' partnership with pharmaceutical enterprises and NFPs in various projects providing patient management services in China.
●
Improving and Enhancing the PRC Operating Entities' Products and Services
. The PRC operating entities intend to expand the content on both their healthcare programs for professionals and the public by adding new medical specialty areas, enlarging the PRC operating entities' editorial staff and utilizing the PRC operating entities' extensive relationships with leading medical experts. The PRC operating entities intend to enhance users' experience by adding general health and wellness information, community features and interactive programs that take advantage of the PRC operating entities' credibility with medical professionals and the PRC operating entities' existing professional medical specialty content and by providing different features and functions on Zhongxin Health to assist PRC operating entities' customers on patient management and facilitate and assist users' treatment and medication process.
●
Further Improving Patient Loop
. The PRC operating entities aim at forming a comprehensive "Medical-Pharmaceutical-Patient" business model for patients with oncology and other major diseases to meet patients' different medical health needs. Driven by the increased demands of "patient-oriented" healthcare in China, the PRC operating entities intend to provide medical services and disease management tailored to individual patient and allow patient to actively initiate and participate in health management and disease treatment, from patient education, online follow-up consultation, treatment compliance management, to living quality improvement.
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●
Developing Multiple Revenue Sources
. We believe the PRC operating entities' implementation y to extend to the "Medical-Pharmaceutical-Patient" model provide us with significant opportunities to develop multiple sources of revenue. In addition to advertising and sponsorships, the PRC operating entities plan to generate e-commerce revenues by building Sunshine Health Forums as a full-service online healthcare platform with functions of book selling and drug selling. The PRC operating entities also plan develop other research products that they expect will complement pharmaceutical enterprises' product detailing efforts. In addition, the PRC operating entities plan to introduce products and services that appeal directly to their international and allied healthcare users. The PRC operating entities, utilizing its accumulated experiences in medical education and innovation and self-developed patient management system,  partner with several pharmaceutical enterprises and NFPs to provide patient management services.
The Competitive Strengths of the PRC Operating Entities
We believe that the principal
competitive factors in the PRC operating entities' markets are industry expertise, breadth and depth of service offerings, quality
of the services offered, reputation and track record, marketing and selling skills, scalability of infrastructure and price.
We believe that there are
several key strengths that prevail the PRC operating entities from their competitors and will continue to contribute to the PRC operating
entities' growth and success.
We believe the following factors
drive the PRC operating entities' success:
●
Acknowledged by leading pharmaceutical enterprises
: the PRC operating entities' customers include leading pharmaceutical enterprises who position the MDMOOC as preeminent branded sources of consumer-oriented health and wellness information on the Internet. Almost all leading pharmaceutical enterprises have their own vendor lists regarding different types of service they request. It is an industry norm that it usually takes three to four years for a service provider to be accepted by the leading pharmaceutical enterprises to be included in the vendor list. The PRC operating entities are one of the prominent service providers in the category of course production services on the vendor lists of a few well-known pharmaceutical enterprises. Pursuant to the consultant agreements the PRC operating entities entered into with the pharmaceutical enterprises regarding the course production services, the PRC operating entities will create online training courses of specific medical topics and then post them on the MDMOOC platforms. The users need to obtain the passwords from the pharmaceutical enterprises or from us to get free access to the series of online courses. The PRC operating entities also entered into framework agreements with certain pharmaceutical enterprises. The terms of the agreements are usually one (1) years. Pursuant to the framework agreements, when the PRC operating entities' customers have a need for medical course production, they will reach out to the PRC operating entities by sending over formal purchase order. Such close connections with some of the leading pharmaceutical enterprises will also benefit PRC operating entities the development of new business, pharmaceutical services and patient management  services.
●
High-Quality, Timely and Original Medical Information:
The PRC operating entities provide high-quality, timely and original content on important healthcare trends and disease topics. Using the real-time publishing capabilities of the Internet, the PRC operating entities can deliver this content to their audience faster and more cost effectively than traditional print media and on-site training session, which is limited by publication schedules and physical distribution. Many of the PRC operating entities' articles are written by industry-leading medical experts and are peer-reviewed by other physicians to insure they meet the high standards of medical integrity. The PRC operating entities' experienced editorial staff has strong medical background, most of whom graduated from well-known medical universities and have more than ten-year work experience in relevant areas. The PRC operating entities' medical specialty areas are carefully designed and their features are regularly updated by the PRC operating entities' editorial and quality control staff. Such high-quality medical information also contributes to the PRC operating entities' patient management services on Zhongxin Health by providing tailored medical education information.
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●
Well Organized and Easy-To-Use Websites and
    Apps
: The PRC operating entities design their websites and mobile Apps to meet the needs of their users in a personalized and easy-to-use
    manner. The PRC operating entities organize their training products on MDMOOC online platform by healthcare specialty area. The PRC operating
    entities create different Sunshine Health Forums for different categories of diseases and healthcare matters. Currently, the PRC operating
    entities have more than 150 forums, covering healthcare topics such as the kidney disease, the liver disease, and diabetes. In addition
    to high-quality medical content, their consumer sites provide community features and interactive programs to encourage academic discussion
    and communication as well as information and experience sharing. The PRC operating entities have self-developed a patient management system
    applied to its Zhongxun IT system and WeChat mini program, Zhongxun, and its Zhongxin Health WeChat mini program. Patients are able to
    manage multiple issues during the medication and treatment processes, by utilizing various functions provided by Zhongxin Health, including
    automatic medication reminder, self-treatment information, adverse reactions treatment information, and self-management illustration and
    video education courses.
●
Cost-Effective Access to the PRC Operating Entities' Audience
: The PRC operating entities' users registration profiles give the ability to segment their audience based on their medical specialty or healthcare interest. In addition, the PRC operating entities' proprietary users' profile and traffic database enables us to provide advertising and sponsored content. MDMOOC online platform also offers online programs that complement many of the pharmaceutical enterprises' offline promotional and educational efforts. For example, the PRC operating entities expand the audience of sponsored medical conferences by making next-day summaries of the proceedings available to users who were unable to attend. In addition, we believe Sunshine Health Forums create an attractive e-commerce environment for health-related products, i.e., educational healthcare books, due to the size of the audience and the focus on relevant healthcare topics.
Risks and Challenges
Our prospects should be considered
in light of the risks, uncertainties, expenses and difficulties frequently encountered by similar companies. The PRC operating entities'
ability to realize their business objectives and execute their strategies is subject to risks and uncertainties, including, among others,
the following:
●
the PRC operating entities' inability to effectively manage their rapid growth, which could place significant strain on their management personnel, systems and resources;
●
adverse changes in the economic environment either in China or globally;
●
intense competition from onshore and offshore healthcare information, education, and training services companies;
●
the PRC operating entities' reliance on a relatively small number of major customers, one customers of the PRC operating entities accounted for 15.9% of our total revenue for fiscal year 2022, respectively; the top three customers of the PRC operating entities accounted for 23.4%, 21.9%, and 10.7% of our total revenue for fiscal year 2021, respectively; and two customers accounted for 26.9% and 19.7% of the total revenue for fiscal year 2020, respectively;
●
the PRC operating entities' ability to anticipate and develop new services and enhance existing services to keep pace with rapid changes in technology;
●
the PRC operating entities' ability to attract new customers for their services and/or growing revenues from existing customers;
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●
risks associated with having a long selling and implementation cycle for the PRC operating entities' services that require us to make significant resource commitments prior to realizing revenues for those services;
●
increases in wages for professionals in China;
●
the international nature of the PRC operating entities' business;
●
risks related to unauthorized disclosure of sensitive and confidential information;
●
risks related to intellectual property infringement claims;
●
risks related to material weakness in our internal control over financial reporting such that if we fail to develop and maintain an effective system of internal control over financial reporting, they may be unable to accurately report our financial results or prevent fraud;
●
business interruptions resulting from occurrence of natural disasters, health epidemics and other outbreaks or events;
●
fluctuation in the value of the Renminbi and other currencies;
●
disruptions in disruptive technologies or significant failure in the PRC operating entities' technology platform that could harm their service;
●
vulnerabilities to security risks that could disrupt the PRC operating entities' services and adversely affect their operations; and
●
possibilities to expose us to malpractice liability and other liability inherent in healthcare delivery.
In addition, the PRC operating
entities face other risks and uncertainties that may materially affect our business prospect, financial condition, and operations. You
should consider the risks discussed in "Risk Factors" and elsewhere in this Annual Report before investing in our Class A
Ordinary Shares.
The Business Model of the PRC Operating Entities
Zhongchao Shanghai, together
with its subsidiaries, is a platform-based internet technology company offering services to patients with oncology and other major diseases
in China. The PRC operating entities have been taking steps to for its strategic extension of its business model of "Medical-Pharmaceutical"
to "Medical-Pharmaceutical-Patient", focusing on oncology and other major disease management.
The PRC operating entities
provide healthcare information, education, and training services to the healthcare professionals under their "MDMOOC" brand
via MDMOOC website, mobile Apps, and WeChat subscription account (together, the "MDMOOC online platform"), and onsite education
activities. The PRC operating entities also offer healthcare educational content to the public via their online "Sunshine Health
Forums". Additionally, the PRC operating entities provide focused patient management services for their pharmaceutical enterprise
customers and NFPs customers via "Zhongxin Health." The PRC operating entities have also been developing its pharmaceutical
business via Xinjiang Pharmaceutical and online healthcare services via Zhixun Internet Hospital.
The business model of the
PRC operating entities has unique value propositions for its constituents. With reliable content and the function of Community of Practice
Share (COPS) on the platform, users seeking medical precedents or information can obtain comprehensive medical information on the medical
area most related to them by interacting among one another through the community functions. Also, once they complete certain online courses
study, the PRC operating entities' platform will issue them MDMOOC certificates with verified continuing professional credits if
they are taking one of the courses provided by the Continuing Professional Development (CPD) function. In addition, after end-users complete
their online training, the PRC operating entities' online platform encourages them to share their study experience through the Course
Uploading, rating, and review systems. This further enriches the PRC operating entities' content and drives more interaction within
their community.
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Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through their platforms, the PRC operating entities have been
engaged by certain customers on a project basis to establish individual columns on their MDMOOC online platform to provide training and
knowledge of certain drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare
disease-related. The PRC operating entities establish online courses to facilitate qualified patients to obtain free drug treatment from
not-for-profit organizations ("NFPs") till the earlier of the expiration of contract period or the free drugs are completely
delivered.
The PRC operating entities
also plug in supplemental features to manage the drug treatment including reviewing patients' applications, tracking their usage
of drugs, and collecting related information (such programs with new plug-in features are hereinafter referred as the "patient-aid
projects"). With the information collected during the period of treatment, we believe the PRC operating entities' features
courses generated for the assistance in these patient-aid projects are valuable in both theory and practice, as we aim to not only enhance
the clinical application and medical study of those drugs, but also benefit the patients.
The PRC operating entities'
pharmaceutical enterprises customers and NFPs customers with demands of course production and training organization benefit from the PRC
operating entities' business model when more end-users are drawn to the MDMOOC online platform because of their reliable self-developed
content offered in rich media formats and the PRC operating entities' reputation among healthcare professionals who are seeking
healthcare service improvements. The original content in the PRC operating entities' platform, as well as the ratings and reviews
on the content, can effectively and efficiently incentivize their content production to offer high-quality training programs. The PRC
operating entities' in-house editorial staff and research and development team responsible for content generation and management
can further increase their ability to create better courses in the most suitable forms to the healthcare professionals working in different
fields. The PRC operating entities' COPS function, in return, provides data insights on current user landscape and learning trends
that allow their customers to get a better understanding to the healthcare industry in the practical aspect.
As corporate and NFP customers,
end-users, and course production teams and providers are inexorably connected through the PRC operating entities' content, COPS,
and online course uploading function, the PRC operating entities' business model forms an overall virtuous cycle that fuels its
continued growth and expansion. In essence, end-users are attracted to the PRC operating entities' platform by the content and services
offered on the platform of the PRC operating entities', while corporate customers and NFP customers are attracted to the PRC operating
entities' platform by the access to the largest online healthcare professionals' community and the high-quality online programs
and courses. As the number of end-users grows, more corporate customers and NFP customers will want to join and get access to the PRC
operating entities' platform. More corporate customers and NFP customers will then lead to more tailored content production, as
well as more targeted content, and ultimately attract more end-users.
The PRC operating entities
provide focused patient management services for their pharmaceutical enterprise customers and NFPs customers via "Zhongxin Health."
The PRC operating entities utilize their accumulated experiences in medical education and innovation, offer self-developed patient management
system for customers and provide easily accessible channels to patients, including IT systemWeChat mini program. The PRC operating entities'
pharmaceutical enterprises customers and NFPs customers benefit from patient management services provided by the PRC operating entities
to optimize their management, provide patients with handful information of medications and treatment, facilitate their patients'
treatment and medication process, and improve the duration of treatment.
The PRC operating entities
have also been developing its pharmaceutical business via Xinjiang Pharmaceutical and its internet hospital business via Zhixun Internet
Hospital.
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MDMOOC-Healthcare Information, Education, and Training
for Professionals
The MDMOOC Online Platform of the PRC Operating Entities
The MDMOOC online platform
of the PRC operating entities' is realized through various products, including MDMOOC mobile App, MOOC Medical WeChat subscription
account, and MDMOOC website, where users can access our rich media content and engaging Community of Practice Share (COPS) on MDMOOC website.
MOOC Mobile App
The MOOC Medical mobile app
of the PRC operating entities serves as a one-stop destination where they offer users relevant healthcare knowledge and study insights,
assist them along their journey to obtain the knowledge and information they are searching for in a supportive community, and allow them
to review and test their understanding of courses by participating in the Practice Improvement (PI) system. The PRC operating entities
designed the interface of their platform in simple white and sky blue, signaling health and learning respectively, and creating a soft
and welcoming texture to their platform.
When users open the MOOC Medical
mobile app, they will immediately see the featured banners that display academic courses, open classes, case library, and practice improvement
courses. As users scroll down, courses that are most popular among the healthcare professionals, courses recommended by the PRC operating
entities' medical editors, and the latest healthcare news appear. Users can also explore various medical courses by medical specialty
and subject areas.
Below are screenshots of the PRC operating
entities' mobile app main entrance interface:
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Opening Course is a collection
of video courses of various medical fields and topics. The courses are often presented by medical experts. Most of the courses are free
to users.
The screenshots below illustrate
the content in the Opening Course:
Live Courses is a platform
providing real time lectures by medical experts for healthcare professionals, and users could watch the replay if they miss the live courses.
The screenshots below illustrate
the content in the Live Course:
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Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through the platforms, the PRC operating entities have been engaged
by certain customers on a project basis to establish individual columns on the MDMOOC online platform to provide training and knowledge
of certain drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare disease-related.
The PRC operating entities also plug in supplemental features, to manage the drug treatment including reviewing patients' applications,
tracking their usage of drugs, and collecting related information (such programs with new plug-in features are hereinafter referred as
the "patient-aid projects").
As of the date of this Annual
Report, we have established nearly 22 courses for cancer-related drug treatment, including drug treatment for lung cancer, liver cancer,
and extended blood cancer, and 4 columns for drug treatment of rare diseases, including drug treatment for pulmonary fibrosis, multiple
sclerosis, and systemic lupus erythematosus.
MDMOOC WeChat Subscription
Account
WeChat Subscription Account
provides a new means to propagate information for the media and individuals, building better communication with readers with a better
management. It also facilitates discovery and consumption of services and products. It is useful for discovery and quick actions, and
complements full-function native apps by increasing their traffic.
The PRC operating entities'
MDMOOC WeChat subscription account features similar interfaces and functions as their mobile app. It serves as additional access points
to the PRC operating entities' platform.
MDMOOC Website
Users can access online healthcare
information, education and training content and the services through the PRC operating entities' website MDMOOC.org. In 2018, MDMOOC
website recorded an aggregate of 2 million users' visits. As more internet users shift to mobile ends, the PRC operating entities'
website mainly serves a comprehensive knowledge base targeting users who are in the process of researching for specific medical courses,
articles, or news.
Below are screenshots of MDMOOC.org
website:
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The PRC operating entities
designed their professional website to meet the needs of their users in a personalized and easy-to-use manner. The PRC operating entities
currently organize their professional information by the following medical specialty and subject areas, including but not limited to:
●
Internal Medicine Department: cardiology, respiratory medicine, nephrology, neurology, gastroenterology, hematology, endocrinology
●
Surgery Department: general surgical, neurosurgery, breast surgery, urology, hepatobiliary surgery, cardiothoracic surgery, plastic surgery
●
Oncology Department: general oncology, surgical radiotherapy, oncology
●
Gynaecology Department: Gynecologic endocrine
●
Pediatrics Department: respiratory medicine, nephrology, neurology, gastroenterology, hematology, endocrinology
●
Oral Cavity Department: oral and maxillofacial surgery, Restorative Dentistry, orthodontics
●
Skin Beauty Department: Pharmacology, aesthetic health care
●
Mental Psychology Department: depression, sensory disturbance, schizophrenia
The PRC operating entities
plan to expand into new medical specialty areas that appeal to their current users base and attract new users. The PRC operating entities'
objective is to be the category leader in each of their medical specialty areas by delivering the highest quality specialty-based content
and selectively acquiring other high-quality medical specialty Websites. As part of this strategy, the PRC operating entities will (1)
work with more medical associations to produce programs and courses to meet the need of healthcare professionals; (2) expand their R&D
team and provide more support to their self-developed courses; (3) cooperate with international continuing medical education providers
to improve the quality and diversity of their courses.
The MDMOOC Onsite Activities of the PRC Operating Entities
In addition to their online
presence, the PRC operating entities also hold onsite activities to provide healthcare information and education services from time to
time under their "MDMOOC" brand. The PRC operating entities' onsite activities not only provide their healthcare professionals
with medical knowledge and clinical skills but also another career path which enhance their professional competitiveness. Also, many of
their onsite activities were accompanied with live steaming, which will be uploaded to the MDMOOC online platform.
For instance, in January 2019,
the PRC operating entities launched EWMA-certified (defined as below) wound-management collaboration training programs, covering the topics
including but not limited to basic concepts of acute and chronic wounds, management of different levels of surgical and non-surgical wounds,
the construction of different levels of wound centers, and medical staff collaboration in the process of wound management.
The PRC operating entities
cooperate with Beijing Chronic Disease Prevention and Health Education Research Association and Professor Yixin Zhang from the Ninth People's
Hospital of Shanghai Jiao Tong University School of Medicine to create courses titled "Essential Course for Wound Care Management"
and "Advanced Course for Surgical Wound Treatment". These courses have been certified and authorized by the European Wound
Management Association (EWMA), a European not-for-profit umbrella organization, linking national wound management organizations, individuals
and groups with interest in wound care. The PRC operating entities have successfully held four (4) training programs for Essential Course
for Wound Care Management and two (2) training programs for Advanced Course for Surgical Wound Treatment. Each program accepted no more
than twenty (20) applicants who shall hold academic credential above undergraduate. The PRC operating entities also required all applicants
to have more than six-year working experience in the field of wound repair. The PRC operating entities have issued a certificate to each
of the applicant upon completion of the training as their proof of achievement and ability in the wound management and treatment. The
PRC operating entities believe that after attending these programs, the participants would acquire the basic capacity to lead a wound-management
department in a hospital.
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Sunshine Health Forums-Healthcare Information
and Education for the Public
The PRC operating entities
developed Sunshine Health Forum, a WeChat subscription account, Sunshine Health Forum mobile app, and Sunshine Health Forum.org, the official
website providing links to download the mobile app for Android and IOS system and portals to leading we-media the PRC operating entities
have strategic relationships to improve the efficiency and effectiveness of the information acquisition for the PRC operating entities'
users. The official website and mobile app are organized by different types of medical disease. The PRC operating entities establish one
school for each disease to make it easier for the public to obtain information they would like to know. We have established their partnership
with the following we-media platforms, including but not limited Toutiao.com, WeChat official accounts platforms, Yidianzixun.com, Douyin.com,
CN-Healthcare.com, iQiyi, Youku, and Huoshan.com.
The Content of the PRC Operating
Entities
The PRC operating entities
strive to provide their users with the broad range of high-quality and engaging original content on different healthcare areas. The PRC
operating entities believe that reliable and well-crafted content provides the necessary information that users seek on the PRC operating
entities' platform and improve the medical professional community. The PRC operating entities' content is available in a variety
of rich media formats on their online platform, generated by users of all levels of experience and medical professionals, including short-form
videos, and featured articles.
●
Short-form Videos
-- We believe the PRC operating entities have established a proven approach to producing popular, original, short-form videos and have continually released popular original titles and series, covering different popular healthcare topics, such as Standardized Diagnosis and Treatment of Skin Infections in Primary Practice, Emergency Experience Anti-infection Treatment, and Knee Osteoarthritis Treatment. The PRC operating entities' experienced and large pool of in-house editors incubate original ideas and present them in video format and collaborate closely with medical professionals in the content creation process.
●
Featured Articles
-- The PRC operating entities' in-house content team and resources of well-known healthcare professionals bring the PRC operating entities' assessment and analysis of the latest medical theories and information to the PRC operating entities' users through featured articles. The PRC operating entities closely work with healthcare professionals to ensure the PRC operating entities' high-quality science content. With the PRC operating entities' self-generated resource library of healthcare professionals, the PRC operating entities can easily reach out to the relevant experts when an online course focusing on certain medical area is required. The PRC operating entities currently have 200 medical editors that are responsible for the quality of the PRC operating entities' daily post of articles for Sunshine Health Forum. In addition to healthcare content, the PRC operating entities' articles cover a wide spectrum of user interests, ranging from career development to continuing education. Users can conveniently access these informational articles via on the MOOC Medical mobile app. Also,
●
Integration with Major Social Media Networks in China
-- The PRC operating entities distribute their content through all major social network and media platforms in China, encouraging followers and readers to share and repost the content the PRC operating entities generate via Sunshine Health Forum, which amplifies the PRC operating entities' brand image and enables us to reach a larger audience. The PRC operating entities' comprehensive and rich content provides them with continuous monetization opportunities. Through advertisements embedded within the content on their platform and social media networks, the PRC operating entities get $1 with every view of their articles.
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MDMOOC offers
two distinct types of high-quality content to users:
1.
Original, exclusive and proprietary content.
The PRC operating entities'
original content is written exclusively for MDMOOC by medical experts, many of whom are nationally renowned in their specialties. This
content includes:
●
Practice Improvement (PI)
– a problem-based and case-based form of healthcare course, which integrates state-of-the-art treatment information and clinical cases for particular diseases into interactive practice modules.
●
Continuing Professional Development (CPD)
– discussions and articles focusing on the future development and the differences between Continuing Medical Education (CME) and Continuing Professional Development (CPD), also includes general information of physician competency framework and Meta-analysis.
●
Opening Courses --
an online healthcare video collection, including authoritative evaluations of significant new changes in therapies and highlights of selected presentations at major medical conferences;
●
Medical Journals Hypothesis --
peer-reviewed, electronic medical journals and hypothesis covering, cardiology, oncology, psychiatry, orthopedics, diabetes mellitus, amyotrophy, hepatology, gastroenterology.
2.
High-quality case library
MDMOOC provides its users
access to a clinical case-share library via Internet and mobile application. As of the date of this Annual Report, the PRC operating entities'
case library has more than 26,000 clinical cases elaborating general patient data, the diagnosis after admission, and academic discussions.
The PRC operating entities' users can easily locate the cases most related to them by searching the keywords and selecting the medical
fields while they encounter similar medical phenomenon in their practice.
The User Services of the PRC Operating Entities
The PRC operating entities
offer a number of services that complement their high-quality content offerings and make MDMOOC a preferred professional destination site.
Continuing Medical Education.
Pursuant to the Provisions on Continuing Medical Education issued by PRC Health Department, physicians and selected other medical
professionals are required to certify annually that they have accumulated a minimum number of continuing medical education hours to maintain
licensure. MDMOOC offers the professional users what the PRC operating entities believe is one of the largest online libraries of continuing
medical education programs. The PRC operating entities' extensive continuing medical education programs are produced in association
with entities accredited by the PRC Health Department, such as Chinese Medical Doctor Association and Chinese Journal of Continuing Medical
Education. From the convenience of their home or office computer and mobile application, the PRC operating entities' professional
users can obtain continuing medical education credits by accessing a variety of accredited editorial resources and programs including
online journal articles, medical conferences, and open classes.
Physician self-uploaded
courseware
. The PRC operating entities offer their users registered as physicians, nurses, medical technologists, and medical students
the opportunity to create courseware for their medical practices and upload them to MDMOOC that can be accessed by other healthcare professionals.
We believe these courseware sharing function will keep MDMOOC's high-quality medical information at the center of the communication
between healthcare professionals, and keep the healthcare professionals at the center of the healthcare dialogue.
Through the PRC operating
entities' warm and supportive social community, users are able to improve their healthcare skills through the communications with
each other. Moreover, filled with user experience and active healthcare experts interaction, the PRC operating entities' platform
enables their users to gain personal psychological support during the learning process, thereby further increasing the reliability of
the PRC operating entities' platform.
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Registered Users
To
utilize all of the features of MDMOOC online platforms, users must register.
This information enables the PRC operating entities to deliver targeted medical content based on their users' registration profiles.
MDMOOC website and mobile app share the same login information of one user. The PRC operating entities' WeChat subscription account
does not require registration.
To encourage initial use,
the PRC operating entities' consumer sites will allow visitors to access selected features without registering as users. Visitors,
however, will have to register as users to have access to all the features of the PRC operating entities' consumer sites, including
the interactive programs such as health diaries.
Registration information will
also enable the PRC operating entities to deliver targeted advertising messages to the specific audience profile their customers seek
to reach either through MDMOOC or their consumer sites, or both. For example, through MDMOOC, an oncologist in Beijing, China can be targeted
with different messages than a cardiologist in Shanghai, China. The same targeting capabilities will be offered on Sunshine Health Forum.org,
where a consumer interested in diabetes can be targeted with different messages than a consumer interested in cancer.
Editorial, Design And Production
The PRC operating entities'
editorial staff has strong medical background, most of whom graduated from well-known medical universities, such as Shanxi Medical University,
Beijing University of Chinese Medicine, Donghua University, and have more than ten-year work experience in relevant areas. As of December
31, 2022, the PRC operating entities' editorial, design and production staff consisted of 17 professionals who are all experienced
medical editors, writers and producers. The PRC operating entities intend to significantly increase their number of editors as they add
additional medical specialty areas.
The PRC operating entities
have an easy-to-use interface that incorporates original and proprietary content written by medical experts with an extensive library
of licensed content and medical databases. The PRC operating entities seek to be the premier online information resource in each of their
medical specialty areas. To support this effort, the PRC operating entities cover major medical conferences in many specialties and plan
to attend over 50 different conferences in China, with the PRC operating entities' editors and medical experts summarizing and reporting
on the breaking medical research and news delivered at these events.
Also, the PRC operating entities
communicate with their healthcare experts on a daily basis, which helps us timely receive their new ideas and thoughts from their clinical
practice and academic study.
Zhongxin Health Patient Management Services in Patient-aid Projects
The PRC operating
entities utilize its self-developed patient management system, branded as "Zhongxin Health" to provide patient management
services to their pharmaceutical enterprises and NFPs customers to assist their patient management for patients with cancer, rare disease
or other major diseases.
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During cancer treatment
processes, patients face various changes using one or more anti-tumor medications, including, among others, dosing punctuality, incorrect
dosage, missed dose, taking with other drugs and adverse reaction management. If such challenges cannot be solved, the treatment process
will be negatively affected, and patients' confidence in treatment could be undermined, ultimately affecting the curative effects. In
order to resolve medication-related challenges in a timely manner and promote the continuity of treatment, the PRC operating entities
developed and designed the Zhongxin Health mini program with several functions. The program can automatically remind patients to take
medications and precautions based on different types of cancers and medication consumption time. It can also provide general self-treatment
information based on the adverse reactions that patients might have taking such medications and timely provide corresponding self-treatment
information for such adverse reactions specifically encountered by patients during the medication administration process. Additionally,
the program could improve patients' self-management ability through various illustrations and video courses. Utilizing the program, patients
can customize and self-manage their medication process based on different cancers and medication consumption time, and such system could
help improve patients' confidence in their treatment.
As of the date hereof,
the PRC operating entities have participated in approximately 19 patient management projects for approximately 10 types of different medications,
serving approximately 108,500 patients. For the fiscal years ended December 31, 2022 and 2021, approximately 44.4% and 45.1% of our revenues
were generated from Zhongxin Health patient management services, respectively.
Zhongxin Health's
Customers
Based on the demands
of pharmaceutical enterprises and NFPs customers for each type of medications in each project, the PRC operating entities provide comprehensive
and tailored services, including but not limited to, project general management, patients qualification screening and information intake,
WeChat public account management, mobile application and WeChat mini program design, development and management, and medication distribution
management.
The PRC operating
entities' pharmaceutical enterprises customers and NFPs customers benefit from patient management services provided by the PRC operating
entities to optimize their management, provide patients with handful information of medications and treatment, facilitate their patients'
treatment and medication process, and improve the duration of treatment.
Zhongxin Health
Mini Program
Patients could access
Zhongxin Health's system through its WeChat mini program "Zhongxin Health." Patients need to register log in WeChat
by using their own accounts before accessing their portals for tailored patient management services. Tracing the design on MOOC Mobile
App, Zhongxin Health mini program use white and sky blue color on the interface of the program, signaling health and learning respectively,
and creating a soft and welcoming texture to their platform.
Zhongxin Health
mini program interface includes three main pages, main page, medication management and account page. The main page is open to the general
public with various sources without need to log in. It displays icons of medication management, hospital directory, medication directory,
cancer treatment knowledge library and online medical health consultation, that users could click and be directed to corresponding information
page. Scrolling down, it lists medical courses provided by physicians in China with a focus on lung cancer, liver cancer, other cancers
and other major disease. At the bottom are the latest medical articles written or recommended by the PRC operating entities' medical
editors, and the users are able to add bookmarks categorized by different types of cancers to the main page for easy access to relevant
articles in the future.
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The screenshot below
shows the main page of Zhongxin Health mini program:
Medication management
page primarily provides information of medication information and the PRC operating entities' patient management projects. On the
top, users are able search by different types of disease, medication names and patient management projects names to look for information
they need. Each patient management project has its separate page with detailed information, including but not limited to, name of medications,
provider information, target patient, project policy, term and project contact information, followed by relevant articles. Users could
check the projects status they applied for by providing their names and identification numbers to track their application status, prescription
amount, delivery status and other relevant matters.
The screenshot below
shows the main page of Zhongxin Health mini program:
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The users could
sign up and log in on the account page. Once logged in, the users are able to save articles, courses or other postings they are interested
in on the mini program.
Recent Development
The PRC operating entities
established Xinjiang Pharmaceutical, aiming at realizing medications accessibility and affordability for patients. Xinjiang Pharmaceutical
plans to cooperate with Zhixun Internet Hospital and other internet hospitals to build a 2B2C (to business and to customer) pharmaceutical
procurement platform and streamline the delivery of medications from pharmaceutical factories to retail ends. This approach will enable
Xinjiang Pharmaceutical to supply domestic and international high-quality and cost-effective drugs, improving drug accessibility and lowering
medication cost.
Since the beginning of 2022,
embracing the development opportunity of a series of investment promotion of pharmaceutical industry initiated by the Chongqing government,
Xinjiang Pharmaceutical has been able to develop rapidly. Xinjiang Pharmaceutical has obtained Pharmaceutical Trade License, Medical Device
Trade License, Qualification Certificate for Drug Information Service over the Internet and other related licenses. Xinjiang Pharmaceutical
plans to engage in pharmaceutical import and export trade, OME (original equipment manufacturer) production, medical consumables operation,
and pharmaceutical internet services, aiming to continuously expand the industry chain and supply chain of the pharmaceutical market in
China. Meanwhile, it remains committed to becoming a competitive technology-based pharmaceutical service enterprise.
Xinjiang Pharmaceutical obtained
the general distribution rights in Mainland China for anti-influenza drug from Natco Pharma Limited ("Natco"). Natco is a vertically
integrated and R&D focused pharmaceutical company in India.
On February 10, 2022, Beijing
Yisuizhen subscribed for 10.56% equity interest of West Angel (Beijing) Health Technology Co., Ltd, or West Angel, a PRC company, and
nine shareholders of West Angel transferred all of their equity interest, equal to 49.44% of the total equity interest of West Angel to
Beijing Yisuizhen. As a result, Beijing Yisuizhen holds 60% of the equity interest of West Angel.  West Angel is primarily engaged
in provision of online platform for communication between hospitals and patients. It has well established healthcare CRM (HCRM),
a system specially designated to track patient data to provide insight for understanding patient behaviors and habits for patient care,
relationship management and experience, hospital marketing and services, which may contribute in expanding our source of hospital customers
and developing HCRM for hospitals. In addition, West Angel's customers include high ranking hospitals and reputable medical professionals.
Having those customers would provide competitive advantage for us in attracting pharmaceutical enterprise customers and NFP for training
and services provided by us.
On August 2, 2022, Mr. Weiguang
Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33%
of the equity interest of Shanghai Zhongxin.  Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin agreed to hold their equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai
Zhongxun owns 93.33% of Shanghai Zhongxin's equity interest.
In September 2022,
Liaoning
Zhixun
launched Zhixun Internet Hospital to provide standardized Internet healthcare services for patients with oncology or other
major diseases. The establishment of Zhixun Internet Hospital will enable Zhongchao to form an All-in-One Service from patient education,
online follow-up consultation, treatment compliance management, to living quality improvement, creating comprehensive services for both
out-of-hospital and in-hospital patients.
The Customers of the PRC Operating Entities
The PRC operating entities'
customers are enterprises, non-for-profit organizations ("NFP"), and medical journals, primarily located in China. The PRC
operating entities' terminal customers and end-users are healthcare professionals, nurses, doctors and other healthcare workers.
The PRC operating entities'
enterprise customers are pharmaceutical enterprises, healthcare enterprises engaged in researches and develops pharmaceuticals, vaccines,
and consumer healthcare products, pharmaceutical enterprises that engages in drug innovation, manufacturing, and marketing, and medical
journals.
The PRC operating entities'
NFP customers, most of whom are sponsored by pharmaceutical enterprises for the production of the training courses for specific healthcare
topics, are charity organizations, national public foundations, and nonprofit national association, which are governed by provincial and
regional government agencies and commissions. Government agencies include the National Health and Family Planning Commission (NHFPC) and
Ministry of Civil Affairs.
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For the fiscal year ended December
31, 2022, we generated revenue of MDMOOC business from a total of 76 customers, of which 34 customers were NFP and 42 customers were pharmaceutical
enterprises. For the fiscal year ended December 31, 2021, we generated revenue from a total of 78 customers, of which 30 customers were
NFP and 35 customers were pharmaceutical enterprises.  For the fiscal year ended December 31, 2020, we generated revenue from a total
of 77 customers, of which 28 customers were NFP and 49 customers were pharmaceutical enterprises.
We generate our revenues from
a relatively small number of customers. For the fiscal years ended December 31, 2022, 2021, and 2020, the PRC operating entities'
pharmaceutical enterprise customers accounted for 33.1%, 11.7%, and 10.5% of our total revenues, respectively. For the fiscal years ended
December 31, 2022, 2021, and 2020, the PRC operating entities' NFP customers accounted for 58.0%, 86.2%, and 87.2%, of our total
revenues, respectively. As compared with the revenues in 2020, the decrease of revenues in 2022 and 2021 generated by pharmaceutical enterprises
customers as a percentage of total revenue was mainly because the pharmaceutical enterprises placed more orders through NFP to attract
more medical experts and professionals in the name of NFP.
The PRC operating entities
plan to expand their market coverage to international markets to service customers in different countries. They also intend to provide
their solutions and services to corporate and government customers in the markets they intend to target.
Branding and Marketing
The PRC operating entities
believe that their rich content and satisfactory user experience have contributed to the expansion of their user base and the increase
in user engagement, leading to a strong word-of-mouth effect that strengthens their brand awareness.
The PRC operating entities'
promote their platform and enhance brand awareness through a variety of online and offline marketing and brand promotion activities. The
PRC operating entities cooperate with third-party apps, popular search engines and social media platforms for online and mobile marketing.
These online apps and websites promote MDMOOC and Sunshine Health Forum to those website users who are potentially interested in the PRC
operating entities' contents. MDMOOC and Sunshine Health Forum gain a substantial growth of exposures in public and amounts of public
subscribers under such precise measure of online audience delivery. The PRC operating entities also conduct onsite marketing primarily
in the form of donation activities with hospitals to improve the PRC operating entities' brand awareness.
Zhongxin
Health mini program provides users with access to Zhixun Internet Hospital mini program, which could director the users who are interested
in internet healthcare to use the online medical consultation service.
Infrastructure, Operations and Technology
The success of the PRC operating
entities' business is supported by their strong technological capabilities that enable them to deliver superior user experience
and increase their operational efficiency. The PRC operating entities' technology team, coupled with the large volume of data generated
and collected on their platform each day, have created opportunities for continued improvements in their technology capabilities, empowering
reliability, scalability and flexibility.
As of the date of this Annual
Report, the PRC operating entities had a technology team with approximately 10 engineers, including those focusing on technology development
to support every aspect of their business operation and those focusing on underlying data and technology maintenance.
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Big Data
The PRC operating entities
build proprietary big data analysis framework on their platform to improve operating efficiencies and user satisfaction. The PRC operating
entities leverage big data analytics and artificial intelligence technologies to enhance the accuracy of user behavior predictions and
user profiling and optimize the PRC operating entities' operation, targeted content and user experience.
The seamless collaboration
among the PRC operating entities' technology and operational teams, together with the PRC operating entities' big data analytics
capability, result in improved operational efficiency for the PRC operating entities' and their healthcare training service providers.
The PRC operating entities' data engineers are involved in all critical operational areas. They have thorough understanding of the
computational needs from different business segments, and are therefore capable of providing technological support to address diversified
needs in operating the PRC operating entities' platform.
Security
and Data Privacy
The PRC operating entities
are committed to protecting information of all participants on our platform. The PRC operating entities collect basic personal information
and data, such as name, phone numbers, professional certificate code, and personal address, only with users' prior consent. The
PRC operating entities do not provide sensitive user data to their medical company customers, NFP customers or other third-parties. In
accordance with ISO27001 requirements, the PRC operating entities establish, implement, maintain and continuously improve the information
security management system.
The PRC operating entities
have a security team of engineers and technicians dedicated to protecting the security of the PRC operating entities' platform.
The PRC operating entities' back-end proprietary security system is capable of handling malicious attacks each day to
safeguard the security of their platform and to protect the privacy of their users and healthcare training service providers. The PRC
operating entities back up their user and certain other critical forms of data on a daily basis in separate and various secured data back-up systems
to minimize the risk of data lost. The PRC operating entities encrypt confidential personal information they gather from their platform.
To further ensure data security and avoid data leakage, the PRC operating entities have established internal protocols under which they
grant classified access to confidential personal data to limited employees with strictly defined and layered access authority. The PRC
operating entities strictly control and manage the use of data within their various teams.
Cloud Services
The PRC operating entities
have developed a secure, efficient and cost-effective cloud-based core system to operate their business. Cloud-based technology allows
us to process large amount of complex data in-house, which significantly reduces cost and improves operation efficiency. The
PRC operating entities utilize the system of a leading enterprise cloud service provider, Alibaba Cloud, in China so that the PRC operating
entities enjoy the instant scalability and robustness of cloud-based services.
Risk Management and Internal Control
The PRC operating entities
have adopted and implemented various policies and procedures to ensure rigorous risk management and internal control.
The PRC operating entities
are committed to complying with relevant laws and regulations on online content. The PRC operating entities have invested significant
resources in developing advanced content monitoring technologies, policies and procedures.
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The PRC operating entities
maintain content management and review procedures to monitor short-form videos, featured articles, chat messages and other content
on their platform to ensure that they are able to promptly identify content that may be deemed to be inappropriate, without scientific
support or proof, in violation of laws, regulations and government policies or infringing upon third-party rights. When any inappropriate
or illegal content is identified, the PRC operating entities promptly remove the content. Further actions may also be taken to hold relevant
content creators accountable.
The PRC operating entities
have an automated monitoring mechanism that serves as the first layer of defense in their content review system. This system automatically
flags and screens out content that duplicates other content, or involve in appropriate or illegal audio, video, comments or texts. Once
the content is processed by the automated monitoring mechanism, the PRC operating entities' system then extracts the content and
sends to their manual content screening team, their second layer of defense, for further review. The PRC operating entities have a dedicated
team reviewing and handling content on their platform for compliance with applicable laws and regulations, and ensuring the quality of
their content.
Research and Development ("R&D")
Research and Development ("R&D")
is an integral part of the PRC operating entities' continued growth. The PRC operating entities' R&D consists of product
development and technology support. The PRC operating entities' product development team is focused on market research and product
development. The PRC operating entities develop and update their products and services based on market conditions and government policies.
The PRC operating entities' product development team closely monitors the market to adjust and upgrade the PRC operating entities'
existing educational products, and designs new products based on customers' requests, The PRC operating entities' technology
team has experience in the development, design, operation and maintenance of platform products, servers and mobile apps, responsible for
monitoring the performance of the PRC operating entities' websites, mobile apps and technology infrastructure to enable us to respond
quickly to potential problems, updating and exploring new and advanced technologies and integrating them into the PRC operating entities'
existing and new services.
As of the date of this Annual
Report, we have 8 researchers in the product development team and 2 developers in our technology support team. Most of our R&D members
have no less than 5 years of working experience and 30% R&D staff have master or doctor degree.
The PRC operating entities'
product development team is focused on market research and product development. The PRC operating entities develop and update their products
and services based on market conditions and government policies. The PRC operating entities' product development team closely monitors
the market to adjust and upgrade their existing educational products, and designs new products based on customers' requests. The
PRC operating entities analysis the information about concepts and forms of medical education by searching medical articles from medical
journals, and attending medical conferences such as Global Alliance for Medical Education, or GAME annual meeting, and integrate the information
into the PRC operating entities' programs. Also, the PRC operating entities work with healthcare professionals to develop the PRC
operating entities' programs. When starting to create any programs, the PRC operating entities make face to face or telephone surveys
and get the learning needs from healthcare professionals, such as medical knowledge, clinical skills, case sharing, and the desire to
communicate with peers. The PRC operating entities incorporate such needs into their program design. When developing the PRC operating
entities' course module, the healthcare professionals, after review and test, may give us advice on the module to match the learning
and thinking habits of physicians and allied healthcare professionals. After the PRC operating entities complete the course production,
they invite these professionals to do final review on the content to assure its correctness.
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The PRC operating entities'
technology team are experienced in the development, design, operation and maintenance of platform products, servers and mobile apps. They
are responsible for monitoring the performance of the PRC operating entities' online platform, updating and exploring new and advanced
technologies and integrating them into the PRC operating entities' existing and new services.
During fiscal years 2022,
2021, and 2020, our R&D expenses were approximately $411,524, $758,878, and $816,553, respectively, representing 2.9%, 4.7%, and 4.5%,
of our total revenues for fiscal years 2022, 2021, and 2020, respectively.
Intellectual Property
The PRC has domestic laws
for the protection of rights in copyrights, trademarks and trade secrets. The PRC is also a signatory to all of the world's major
intellectual property conventions, including:
●
Convention establishing the World Intellectual Property Organization (June 3, 1980);
●
Paris Convention for the Protection of Industrial Property (March 19, 1985);
●
Patent Cooperation Treaty (January 1, 1994); and
●
Agreement on Trade-Related Aspects of Intellectual Property Rights (November 11, 2001).
The PRC Trademark Law, adopted
in 1982 and was most recently amended on April 23, 2019 and will become effective on November 1, 2019, with its implementation rules adopted
in 2014, protects registered trademarks. The Trademark Office of the State Administration of Industry and Commerce of the PRC, handles
trademark registrations and grants trademark registrations for a term of ten years.
The PRC operating entities'
intellectual property rights are important to their business. The PRC operating entities rely on a combination of trade secrets, confidentiality
procedures and contractual provisions to protect their intellectual property. They also rely on and protect unpatented proprietary expertise,
recipes and formulations, continuing innovation and other trade secrets to develop and maintain their competitive position. The PRC operating
entities enter into confidentiality agreements with most of their employees and consultants, and control access to and distribution of
the PRC operating entities' documentation and other licensed information. Despite these precautions, it may be possible for a third
party to copy or otherwise obtain and use the PRC operating entities' technology without authorization, or to develop similar technology
independently. Since the Chinese legal system in general, and the intellectual property regime in particular, is relatively weak, it is
often difficult to enforce intellectual property rights in China. Policing unauthorized use of the PRC operating entities' technology
is difficult and the steps they take may not prevent misappropriation or infringement of their proprietary technology. In addition, litigation
may be necessary in the future to enforce the PRC operating entities' intellectual property rights, to protect their trade secrets
or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of their
resources and could have a material adverse effect on their business, results of operations and financial condition. The PRC operating
entities require their employees to enter into non-disclosure agreements to limit access to and distribution of the PRC operating entities'
proprietary and confidential information. These agreements generally provide that any confidential or proprietary information developed
by the PRC operating entities or on their behalf must be kept confidential. These agreements also provide that any confidential or proprietary
information disclosed to third parties in the course of the PRC operating entities' business must be kept confidential by such third
parties. In the event of trademark infringement, the State Administration for Industry and Commerce has the authority to fine the infringer
and to confiscate or destroy the infringing products.
96
The PRC operating entities'
primary trademark portfolio consists of 16 registered trademarks. The PRC operating entities' trademarks are valuable assets that
reinforce the brand and their consumers' favorable perception of their products. The current registrations of these trademarks are
effective for varying periods of time and may be renewed periodically, provided that we, as the registered owner, comply with all applicable
renewal requirements including, where necessary, the continued use of the trademarks in connection with similar goods. In addition to
trademark protection, the PRC operating entities own 42 URL designations and domain names, including www.mdmooc.org, www.mdmooc.com, www.zhongxun.online,
ygjkclass.com, zxylmd.com, which are important to our business.
As of the date of this Annual
Report, we have registered 26 trademarks. The following is a list of trademarks we have registered that are important to our business:
No.
Current Owner
Mark
Registration
Number
Status
Class/Description
Expiration
Date
Country of
Registration
1
Zhongchao Medical Technology (Shanghai) Corp. Ltd
21587105
Approved
Category 5: Pharmaceutical preparations; Vaccines; Analgesics; Medical drugs; Medical tea; Medical ointments; Supplements; Medical nutrients; Glucose used as medical food additives; Medical nutritional food (cut-off)
2027.11.27
China
2
Zhongchao Medical Technology (Shanghai) Corp. Ltd
18418154
Approved
Category 9: Recorded computer programs (programs); computer software (recorded); recorded computer operating procedures; downloadable computer application software; electronic publications (downloadable software); computer programs (downloadable software); measuring devices; dosimeters; measuring instruments; inspection mirrors (cut-off)
2026.12.27
China
3
Zhongchao Medical Technology (Shanghai) Corp. Ltd
19719148
Approved
Category 38:Teleconference Services; Providing Internet Chat Room; Digital File Transfer; Video Conference Services; Providing Online Forum; Data Stream Transfer; Information Transfer; Television Broadcasting; Computer Aided Information and Image Transfer (Deadline)
2027.06.06
China
4
Zhongchao Medical Technology (Shanghai) Corp. Ltd
21587230
Approved
Category 44: health care; medical assistance; rental of medical equipment; treatment services; health counseling; dietary and nutritional guidance; dispensing; art therapy; massage; beauty services (deadline)
2027.11.27
China
97
No.
Current Owner
Mark
Registration
Number
Status
Class/Description
Expiration
Date
Country of
Registration
5
Zhongchao Medical Technology (Shanghai) Corp. Ltd
21587258
Approved
Category 5: Pharmaceutical preparations; Vaccines; Analgesics; Medical drugs; Medical tea; Medical ointments (cut-off)
2028.01.20
China
6
Shanghai Zhongxun Medical Technology Co., Ltd.
47286982
Approved
Category 41: Education; Providing of training, Providing of educational information; Arranging and conducting of conferences, congresses and symposiums; Organization of exhibitions for cultural or educational purposes; Arranging and conducting of training; Publication of books and texts (cut-off)
2031.02.12
China
7
Beijing Zhongchao Boya Medical Technology Co., Ltd.
59485462
Approved
Category 41: Providing of training, Arranging of experts conferences,
    Mobile libraries; text publishing (except advertising texts); E-books and magazines
publishing; Providing non-downloadable global computer network online
    publishing; Publishing electronic newspapers through global computer network; Providing global network network publishing
Editing website publishing; Publishing and distributing medical technology
    related scientific paper (cut-off)
2032.03.13
China
8
Beijing Zhongchao Boya Medical Technology Co., Ltd.
59474281
Approved
Category 44: Medical clinic services; Healthcare; Therapeutic services; Medical equipment rental; Health counseling; Diet nutrition guidance; Art therapy methods; Dispensing; Beauty services; Massage (cut-off)
2032.03.13
China
98
No.
Current Owner
Mark
Registration
Number
Status
Class/Description
Expiration
Date
Country of
Registration
9
Shanghai Zhongxun Medical Technology Co., Ltd.
47299361
Approved
Category 44: Hospitals; Healthcare; Dispensing Consulting; Telemedicine services; Health consulting; Therapeutic services; Diet nutrition guidance; Providing medication information for patient; Medical information; Medical counseling (cut-off)
2031.02.20
China
10
Shanghai Zhongxin Medical Technology Co., Ltd
59477566
Approved
Category 44: Medical clinic services; Medical assistance; Therapeutic services; Medical equipment rental; Health consulting; Diet nutrition guidance; Art therapy measures; Dispensing; Beauty services; Massage (cut-off)
2032.03.13
China
11
Chongqing Xinjiang Pharmaceutical Co., Ltd.
65011381
Approved
Category 5: Medical drugs; human drugs; Chinese patent medicines; medical nutrition products; dietary fiber; mineral dietary supplements; Medical ; Veterinary medications; Dental fillings; Tablets (cut-off)
2032.11,23
China
12
Chongqing Xinjiang Pharmaceutical Co., Ltd.
64995408
Approved
Category 42: Implementation of early evaluation in the field of new
    drugs; Drug evaluation; Pharmaceutical research; Computer software maintenance for Internet use; Medical planning
computer programming; Computer software design; Xomputer hardware design
    and development consulting; Computer system analysis; Provision of Internet search engines; Cloud
calculate(cut-off)
2032.11.13
China
13
Chongqing Xinjiang Pharmaceutical Co., Ltd.
64988009
Category 35: Displaying merchandise on communication media for retail purposes; Advertising; Commercial information offered through website; Franchising business management; Import and export agency; Promoting for others; Systemizing computer database information; Seeking sponsorship; Retail sale of pharmaceutical, veterinary, hygienic preparations and medical supplies (cut-off)
2033.01.20
China
99
The following is a list of our patent applications:
No.
Current Owner
Patent Name
Application
Number
Status
Number of Patent
Application
Registration
Date
Country of
Registration
1
Zhongchao Medical Technology (Shanghai) Corp. Ltd
Search-result optimization method, installation, computer equipment and storage media
201910274403.8
Pending
200942
May 31, 2019
China
As of the date of this Annual
Report, the PRC operating entities owns 40 copyrights that have been approved. The following is a list of the PRC operating entities'
copyrights that have been approved and important to the PRC operating entities' business:
No.
Registration
Number
Software Name and
Version Number
Copyright
Owner
Country of
Registration
Publication
Date
Registration
Date
1
2015SR138679
Clinical Thinking Training Platform Software of Zhongchao Medical Technology
Zhongchao Medical Technology (Shanghai) Corp. Ltd.
China
2015.04.30
2015.07.21
2
2017SR020431
Course Classification Query and Learning Application Software V1.0 of Zhongchao Medical Technology
Zhongchao Medical Technology (Shanghai) Corp. Ltd.
China
null
2017.01.20
3
2017SR018299
COPS Practice Community Sharing Course PC Platform Software of Zhongchao Medical Technology
Zhongchao Medical Technology (Shanghai) Corp. Ltd.
China
null
2017.01.19
4
2017SR023211
Application Software for Tracking and Effectiveness Analysis of Course Learning Report of Zhongchao Medical Technology
Zhongchao Medical Technology (Shanghai) Corp. Ltd.
China
null
2017.01.23
5
2019SR0192049
Multidisciplinary Continuing Medical Education Digital Software V2.1 of Zhongchao Medical Technology
Zhongchao Medical Technology (Shanghai) Corp. Ltd.
China
2018.8.12
2019.02.27
100
Facilities
Our
headquarter and executive office is located in Shanghai, China and consist of approximately 223.7 square meter of office space under one
lease which has been renewed and will expire on December 31, 2023. In addition to our headquarter, we lease space in other 5 cities, including
Beijing, Shijiazhuang, Changde, Chongqing, Tianjin, Wuhan, Shengyang. Rent expenses amounted to $498,166, $426,152, and $312,675 for the
years ended December 31, 2022, 2021, and 2020, respectively.
In
2021, as the PRC operating entities had been seeking business expansion countrywide, in consideration of cost, uncertainty of the COVID-19
development, and governmental restriction in response to COVID-19, the PRC operating entities established additional offices at shared
workspace in 7 cities (Chongqing, Tianjin, Wuhan, Shenyang, Chengdu, Shanghai, and Shijiazhuang) accommodating a total of 26 employees
as of the date of this Annual Report. The rent for these offices at shard workspace is payable monthly or semi-annually, and the leases
thereunder could be terminated with advance notice. In addition, we also purchased certain properties as offices for operations in Japan
in December 2020, January 2021, July 2022 for a total purchase price of approximately $1,093,226.
Due to the impact of COVID-19 pandemic, the properties in Japan are not in active use as offices. In October 2022, pursuant to a real
estate purchase agreement, we purchased a real estate property located in Tongzhou District for a total purchase price of approximately
$1.59 million.
We intend to procure additional
space as we add employees and expand geographically. We believe our facilities are adequate and suitable for our current needs and that,
should it be needed, suitable additional or alternative space will be available to accommodate any such expansion of our operations.
No.
Facility
Address
Space (m
2
)
1
Beijing Office
Floor 8, Wangjing Building A, No. 9, Zhonghuan South Road, Chaoyang District, Beijing, China
712.6 square meters
2
Shanghai Office
Nanxi Creative Center, Suite 218, 216 Yan'An Middle Road, Jing'An District, Shanghai, China
223.7 square meters
3
Tianjin Office
World Financial Center, Suite 3107, No. 2 North Dagu Road, Heping District, Tianjing, China
60 square meters
4
Chongqing Office
Suite 3306, Building 4, No. 7 Jiangnan Avenue, Nan'an  District, Chongqing, China
243.37 square meters
5
Shijiazhuang Office
Suite 6035, 6036, 6037, Jiuzhong Street, Xinhua District, Shijiazhuang,
132.41 square meters
6
Yinchuan Office
Suite 1102, Floor 11, Lidecaifu Building, Dalian Road, Jinfeng District, Yinchuan, China
202.53 square meters
Employees
As of the date of this Annual
Report, we had a total of 116 full-time employees, of which 10 are in research and development, 31 are in sales and marketing, 56 are
in technical and customer services, and 19 are in general administration.
The PRC operating entities
have standard employment, comprehensive confidentiality and non-compete agreements with their management and standard confidentiality
and non-compete terms with all other employees. As required by laws and regulations in China, the PRC operating entities participate in
various social security plans that are organized by municipal and provincial governments, including pension insurance, medical insurance,
unemployment insurance, maternity insurance, job-related injury insurance and housing fund. The PRC operating entities are required by
PRC laws to make contributions to employee social security plans at specified percentages of the salaries, bonuses and certain allowances
of their employees, up to a maximum amount specified by the local government from time to time.
It is believed that the PRC
operating entities maintain a good working relationship with their employees, and the PRC operating entities have not experienced any
labor disputes. None of their employee is represented by a labor union or covered by collective bargaining agreements. The PRC operating
entities have not experienced any work stoppages.
101
Legal
Proceedings
As
previously disclosed, Ms. Lirong Yang, the sister of Mr. Weiguang Yang filed a civil compliant on April 18, 2022, against a third-party
individual for unauthorized occupation of a property located in the Tongzhou District, Beijing in the Tongzhou People's Court in
Beijing (the "Tongzhou Court"). Shanghai Maidemu was considered as a beneficiary of the complaint as it was the ultimate owner/beneficiary
of the property pursuant to a certain real estate entrust agreement between Shanghai Maidemu and Ms. Yang; and the property was purchased
during a public judicial auction in May 2021 to be used as a Beijing office for Shanghai Maidemu. On October 18, 2022, pursuant to a real estate purchase
agreement, Ms. Lirong Yang sold such property to a third-party individual.
As
a result, on December 12, 2022, Ms. Lirong Yang filed a request for withdrawal of the compliant. As a result, the compliant was withdrawn
by Tongzhou Court on the same day.
Except as disclosed above,
from time to time we, our subsidiaries, and the PRC operating entities may become involved in legal proceedings or be subject to claims
arising in the ordinary course of our business. We, our subsidiaries, and the PRC operating entities are not currently a party to any
legal proceedings that in the opinion of the management, if determined adversely to us, would have a material adverse effect on our business,
financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of
defense and settlement costs, diversion of management resources and other factors.
Government Regulation
Regulation Related to Online Services
Regulation Related to Online Transmission of Audio-Visual Programs
The Measures for the Administration
of Publication of Audio-Visual Programs through Internet or Other Information Network, or the Audio-Visual Measures, promulgated by the
SARFT, on July 6, 2004 and put into effect on October 11, 2004, and ceased to be effect apply to the activities relating to the opening,
broadcasting, integration, transmission or download of audio-visual programs using internet or other information network. Under the Audio-Visual
Measures, to engage in the business of transmitting audio-visual programs, a license issued by the SARFT is required, and "audio-visual
programs (including audio-visual products of films and televisions)" is defined under the Audio-Visual Measures as the audio-visual
programs consisting of movable pictures or sounds that can be listened to continuously, which are shot and recorded using video cameras,
recorders and other audio-visual equipment for producing programs. Foreign invested enterprises are not allowed to carry out such business.
On April 13, 2005, the State Council promulgated the Certain Decisions on the Entry of the Non-state-owned Capital into the Cultural Industry.
On July 6, 2005, five PRC governmental authorities, including the SARFT, jointly adopted the Several Opinions on Canvassing Foreign Investment
into the Cultural Sector. According to these regulations, non-state-owned capital and foreign investors are not allowed to engage in the
business of transmitting audio-visual programs through information networks. However, the Audio-Visual Measures was repealed according
to the Administrative Provisions on Audio-Visual Program Service through Special Network and Directed Transmission that was promulgated
by the State Administration of Press, Publication, Radio, Film and Television, or the SAPPRFT (currently known as the National Radio and
Television Administration of China, or the NRTA), on April 25, 2016, effective as of June 1, 2016 and amend on March 23, 2021.
102
To further regulate the provision
of audio-visual program services to the public via the internet, including through mobile networks, within the territory of China, the
SARFT and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program
Provisions, on December 20, 2007, which came into effect on January 31, 2008 and was last amended on August 28, 2015. Under the Audio-Visual
Program Provisions, "internet audio-visual program services" is defined as activities of producing, redacting and integrating
audio-visual programs, providing them to the general public via internet, and providing service for other people to upload and transmit
audio-visual programs, and providers of internet audio-visual program services are required to obtain a License for Online Transmission
of Audio-Visual Programs issued by the SARFT, or complete certain record-filing procedures with the SARFT. In general, providers of internet
audio-visual program services must be either state-owned or state-controlled entities, and the business to be carried out by such providers
must satisfy the overall planning and guidance catalog for internet audio-visual program service determined by the SARFT. On May 21, 2008,
SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs,
as amended on August 28, 2015, which sets out detailed provisions concerning the application and approval process regarding the License
for Online Transmission of Audio-Visual Programs. According to the above regulations, providers of internet audio-visual program services
that engaged in such services prior to the promulgation of the Audio-Visual Program Provisions are eligible to apply for the license so
long as those providers did not violate the relevant laws and regulations in the past or their violation of the laws and regulations is
minor in scope and can be rectified in a timely manner and they have no records of violation during the last three months prior to the
promulgation of the Audio-Visual Program Provisions. Further, on March 30, 2009, SARFT promulgated the Notice on Strengthening the Administration
of the Content of Internet Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted
via the internet, including through mobile networks, where applicable, and prohibits certain types of internet audio-visual programs containing
violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements.
On March 17, 2010, the SARFT
promulgated Tentative Categories of Internet Audio-Visual Program Services, or the Categories, which clarified the scope of internet audio-visual
programs services, which was amended on March 10, 2017. According to the Categories, there are four categories of internet audio-visual
program services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making
and editing of certain specialized audio-visual programs concerning, among other things, educational content, and broadcasting such content
to the general public online. However, there are still significant uncertainties relating to the interpretation and implementation of
the Audio-Visual Program Provisions, in particular, the scope of "internet audio-visual programs."
On March 16, 2018, the SAPPRFT
promulgated the Notice on Further Regulating the Transmission Order of Internet Audio-Visual Program Services, providing that the classic
literary works, radio, film and television programs, internet original audio-visual programs shall not be re-edited, re-dubbed, re-subtitled
or partly captured and consolidated as a new program without authorizations and providers of internet audio-visual program services shall
strictly manage and supervise such re-edited programs uploaded by the internet users and shall not provide any transmission channel for
those internet audio-visual programs which have political orientation issues, copyright issues or content issues.
On November 18, 2019, the
CAC, the Ministry of Culture and Tourism and the NRTA jointly issued the Administrative Provisions on Internet Audio-Video Information
Services, or the Internet Audio-Video Information Services Provisions, which became effective on January 1, 2020. The Internet Audio-Video
Information Services Provisions defines the "Internet audio-video information services" as providing audio and video information
production, uploading and transmission to the public via Internet platforms such as websites and applications. Entities providing Internet
audio-video information services must obtain relevant licenses subject to applicable PRC laws and regulations and are required to authenticate
users' identities based on their organizational codes, PRC ID numbers, or mobile phone numbers etc.
103
Regulation Related to Internet Culture Activities
On May 10, 2003, Ministry
of Culture (currently known as the Ministry of Culture and Tourism, MOCT) MOCT promulgated the Interim Administrative Provisions on Internet
Culture, or the Internet Culture Provisions, which became effective on July 1, 2003 and was amended on February 17, 2011 and December
15, 2017. The Internet Culture Provisions require ICP services providers engaging in commercial "internet culture activities"
to obtain an Internet Culture Business Operating License from the MOCT. "Internet cultural activity" is defined in the Internet
Culture Provisions as an act of provision of internet cultural products and related services, which includes (i) the production, duplication,
importation, and broadcasting of the internet cultural products; (ii) the online dissemination whereby cultural products are posted on
the internet or transmitted via the internet to end-users, such as computers, fixed-line telephones, mobile phones, television sets and
games machines, for online users' browsing, use or downloading; and (iii) the exhibition and comparison of the internet cultural
products. In addition, "internet cultural products" is defined in the Internet Culture Provisions as cultural products produced,
broadcast and disseminated via the internet, which mainly include internet cultural products specially produced for the internet, such
as online music entertainment, online games, online shows and plays (programs), online performances, online works of art and online cartoons,
and internet cultural products produced from cultural products such as music entertainment, games, shows and plays (programs), performances,
works of art, and cartoons through certain techniques and duplicating those to internet for dissemination. In addition, foreign-invested
enterprises are not allowed to engage in the above-mentioned services except online music.
Regulation Related to Online Publishing
On June 27, 2002, the SAPPRFT
and the MIIT jointly promulgated the Tentative Internet Publishing Administrative Measures, or the Internet Publishing Measures, which
took effect on August 1, 2002. The Internet Publishing Measures require entities that engage in internet publishing to obtain an Internet
Publishing License for engaging in internet publishing from the SAPPRFT. Pursuant to the Internet Publishing Measures, the definition
of "internet publishing" is broad and refers to the act by ICP services providers to select, edit and process works created
by themselves or others and subsequently post such works on the internet or transmit such works to the users' end through internet
for the public to browse. The "works" as defined under the Internet Publishing Measures include (i) contents from books, newspapers,
periodicals, audio-visual products, electronic publications that have already been formally published or works that have been made public
in other media, and (ii) all other edited or processed works of literatures, art, natural science, social science, engineering technology,
etc.
On February 4, 2016, the SAPPRFT
and the MIIT jointly issued the Administrative Provisions on Online Publishing Services, or the Online Publishing Provisions. The Online
Publishing Provisions, taking effect on March 10, 2016, superseded the Internet Publishing Measures. Compared with the Internet Publishing
Measures, the Online Publishing Provisions set out more detailed provisions for online publishing activities, which mainly cover issues
such as defining online publishing services, licensing and approvals, the administrative and supervisory regime and legal liabilities.
According to the Online Publishing Provisions, all online publishing services provided within the territory of China are subject to the
Online Publishing Provisions, and an online publishing services permit shall be obtained to provide online publishing services. Pursuant
to the Online Publishing Provisions, "online publishing services" refer to providing online publications to the public through
information networks; and "online publications" refer to digital works with publishing features such as having been edited,
produced or processed and are made available to the public through information networks, including: (i) written works, pictures, maps,
games, cartoons, audio/video reading materials and other original digital works containing useful knowledge or ideas in the field of literature,
art, science or other fields; (ii) digital works of which the content is identical to that of any published book, newspaper, periodical,
audio/video product, electronic publication or the like; (iii) network literature databases or other digital works, derived from any of
the aforesaid works by selection, arrangement, collection or other means; and (iv) other types of digital works as may be determined by
the SAPPRFT. As the scope of online publication is broad, certain contents the PRC operating entities post on their website, such as video-audio
clips and course materials, may be deemed as online publications. In addition, foreign-invested enterprises are not allowed to engage
in the foregoing services. The Administrative Regulations on Publishing (2020 Revised), which was promulgated by the State Council and
became effective on November 29, 2020, specifies that entities and individually owned businesses engaging in retail of publications shall
obtain a publication business permit.
104
Regulations on Value-Added Telecommunication
Services and Internet Content Services
The Telecommunications Regulations
of the PRC, or the Telecom Regulations, promulgated on September 25, 2000 by the State Council and most recently amended on February 6,
2016, provide a regulatory framework for telecommunications services providers in the PRC. As required by the Telecom Regulations, a commercial
telecommunications services provider in the PRC shall obtain an operating license from the MIIT, or its counterparts at provincial level
prior to its commencement of operations.
The Telecom Regulations categorize
all telecommunication businesses in the PRC as either basic or value-added. The Catalog of Telecommunications Business, or the Telecom
Catalog, issued as an attachment to the Telecom Regulations and most recently updated on June 6, 2019, further categorizes value-added
telecommunication services into two classes: class I value-added telecommunication services and class II value-added telecommunication
services. Information services provided via cable networks, mobile networks, or internet fall within class II value-added telecommunications
services.
Pursuant to the Measures on
Telecommunications Business Operating Licenses, or the Telecom License Measures, promulgated by the MIIT on March 1, 2009 and last
amended on July 3, 2017, any approved telecommunications services provider shall conduct its business in accordance with the specifications
in its license for value-added telecommunications services, or VATS License. The Telecom License Measures further prescribes types of
VATS Licenses required for operation of different value-added telecommunications services together with qualifications and procedures
for obtaining such VATS Licenses.
Pursuant to the Administrative
Measures on Internet Information Services, promulgated on September 25, 2000 and amended on January 8, 2011 by the State Council,
commercial internet information services providers, which means providers of information or services to internet users with charge, shall
obtain a VATS License with the business scope of internet information services, namely the Internet Content Provider License or the ICP
License, from competent regulatory authorities before providing any commercial internet content services within the PRC.
Based on the Notice regarding
the Strengthening of Ongoing and Post Administration of Foreign Investment Telecommunication Enterprises issued by the MIIT in October
2020, the MIIT no longer issues Examination Letters for Foreign Investment in Telecommunication Business. Foreign-invested enterprises
would need to submit relevant foreign investment materials to MIIT for the establishment or change of telecommunication operating permits.
Restrictions on Foreign
Direct Investment in Value-Added Telecommunications Services
Foreign direct investment
in telecommunications companies in China is governed by the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises
(2016 Revision), which was promulgated on December 11, 2001 and amended on September 10, 2008 and February 6, 2016 by the
State Council. The regulations require that foreign-invested value-added telecommunications enterprises in China to be established as
Sino-foreign equity joint ventures and, with a few exceptions, the foreign investors may acquire up to 50% of the equity interests in
such joint ventures. In addition, the major foreign investor, as defined therein, is required to demonstrate a good track record and experience
in operating value-added telecommunications businesses. Moreover, foreign investors that meet these requirements must obtain approvals
from the MIIT and the MOFCOM, or their authorized local counterparts, which retain considerable discretion in granting such approvals.
On March 29, 2022, the Decision of the State Council on Revising and Repealing Certain Administrative Regulations, which took effect
on May 1, 2022, was promulgated to amend certain provisions of regulations including the Provisions on the Administration of Foreign-Invested
Telecommunications Enterprises (2016 Revision), the requirement for major foreign investor to demonstrate a good track record and experience
in operating value-added telecommunications businesses was deleted. However, as this promulgation is relatively new and no detailed guidance
or implementation measures have been issued, there remains uncertainty as to how it should be interpreted and implemented.
105
On July 13, 2006, the
Ministry of Information Industry (currently known as the MIIT), or the MII, released the Circular on Strengthening the Administration
of Foreign Investment in the Operation of Value-added Telecommunications Business, or the MII Circular. The MII Circular prohibits domestic
telecommunications enterprises from leasing, transferring or selling telecommunications business operation licenses to foreign investors
in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of telecommunications
business in China. Furthermore, under the MII Circular, the internet domain names and registered trademarks used by a value-added telecommunications
services operator shall be legally owned by that operator (or its shareholders). If a license holder fails to comply with the requirements
in the MII Circular and fails to cure such non-compliance within a time limit as required by the competent authority, the MII or its local
counterparts have the discretion to take measures against such license holders, including revoking their VATS Licenses.
Regulations
Relating To Drugs Retail Industry
In September 1984, the SCNPC
promulgated the Drug Administration Law of the PRC, which was amended in 2001, 2013, 2015 and 2019 respectively to regulate all entities
or individuals engaging in research, manufacture, operation, use, supervision and management of drugs within the PRC. According to the
Drug Administration Law, no pharmaceutical operation, including pharmaceutical whole sale and pharmaceutical retail business, is permitted
without obtaining the Pharmaceutical Operation License. Where the trading of drugs is conducted without a Pharmaceutical Operation License,
the illegal incomes by selling drugs shall be confiscated and the local Food and Drug Administration, or the FDA (currently known as the
Medical Products Administration, or the MPA) shall impose the fine ranging from 15 to 30 times of the value of the illegally sold drugs
(including sold or unsold drugs). The Implementation Rules for the Drug Administration Law of the PRC, was promulgated by the State Council
in August 2002 and amended in 2016 and 2019, which emphasized the detailed implementation rules of drugs administration. The China Food
and Drug Administration, or the CFDA (currently known as the National Medical Products Administration, or the NMPA) promulgated the Measures
for the Administration of Pharmaceutical Operation License in February 2004 as amended in 2017, which stipulates the procedures for applying
the Pharmaceutical Operation License and the requirements and qualifications for pharmaceutical wholesalers or pharmaceutical retailers
with respect to their management system, personnel, facilities and etc. The valid term of the Pharmaceutical Operation License is five
years and shall be renewed through application six months prior to its expiration date.
According to the Measures
on Prescription Drugs and OTC Drugs Classification Management (Trial) and the Interim Provisions on the Circulation of Prescription and
OTC Drugs, which were both promulgated by the State Drug Administration, which was restructured and integrated into the CFDA, and became
effective in January 2000, drugs are divided into prescription drugs and over-the-counter drugs, or OTC drugs. For prescription drugs,
the dispensing, purchase and use can only be based on the prescription issued by the certified medical practitioner or certified medical
assistant practitioner. In addition, the prescription drugs can only be advertised and promoted in professional medical magazines. OTC
drugs, on the other hand, are further divided into Class A and Class B and they both can be purchased and used without a prescription
and promoted in public upon approval by the relevant governmental authorities. The pharmaceutical wholesale enterprises distributing prescription
drugs and/or OTC drugs, as well as pharmaceutical retail enterprises selling prescription drugs and/or Class-A OTC drugs are required
to obtain the Pharmaceutical Operation License.
According to the Administrative
Measures for the Supervision and Administration of Circulation of Pharmaceuticals, promulgated by the CFDA in January 2007 and effective
in May 2007, pharmaceutical manufacture and operation enterprises and medical institutions shall be responsible for the quality of pharmaceuticals
they manufacture, provide or use. The operation of prescription drugs is highly regulated under these rules. Prescription drugs may not
be sold by pharmaceutical retail enterprises without valid prescriptions and an enterprise in violation of such restriction will be instructed
to rectify any violation, given a disciplinary warning, if it fails to do so or the circumstances are serious, it shall be imposed a fine
of no more than RMB1,000. In addition, a pharmaceutical manufacture or operation enterprise shall not sell prescription drugs directly
to the public by post or over Internet, and the enterprise in violation of such restriction shall be instructed to rectify, given a disciplinary
warning, and imposed a fine of not more than two times the value of the pharmaceuticals sold, but not more than RMB30,000. The newly revised
Drug Administration Law of the PRC in 2019 does not include restrictions on online sale of prescription drugs. Furthermore, according
to the Administrative Standard of Pharmaceutical Operating Quality, promulgated by the CFDA in April 2000 and amended in 2012, 2015 and
2016 respectively, the pharmaceutical operation enterprises shall take effective quality control measures over the process of procurement,
storage, transportation and sale of drugs in order to ensure their quality.
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On December 26, 2016, the
Medical Reform Office of the State Council, the NHFPC, the China Food and Drug Administration, and five other government authorities promulgated
the Notice on Issuing the Implementing Opinions on Promoting the "Two-invoice System" for the Drug Procurement by Public Medical
Institutions (Trial), which became effective on the same date. On January 24, 2017, the General Office of the State Council further promulgated
the Several Opinions on Further Reform and Improvement in Policies of Drug Production, Circulation and Use. According to these rules,
a two invoice system is encouraged to be gradually and fully adopted for drug procurement by 2018. The two-invoice system generally requires
a drug manufacturer to issue only one invoice to its distributor, followed by the distributor issuing a second invoice directly to the
end customer hospital. Only one distributor is permitted to distribute drug products between the manufacturer and the hospital. The system
also encourages manufacturers to sell drug products directly to hospitals. Pharmaceutical manufacturers and distributors who fail to implement
the two-invoice system may be disqualified from attending future bidding events or providing distribution for hospitals and blacklisted
for drug procurement practices.
According to the Circular
on Issuing the Opinions on Promoting the Drug Pricing Reform promulgated by the National Development and Reform Commission and other six
governmental authorities in 2015, except for narcotic drugs and Class I psychotropic drugs, the prices of drugs previously set by the
government were cancelled from June 1, 2015. Instead of direct price controls which were historically used in the PRC, the government
regulates prices mainly by establishing a centralized procurement mechanism, revising medical insurance reimbursement standards and strengthening
regulation of medical and pricing practices. In January 2019, the Notice of the General Office of the State Council on Issuance of the
Pilot Plan Regarding the Centralized Procurement and Use of the Drugs Organized by the State improved the pricing mechanism of drugs,
which also further regulates the scope and mode of centralized procurement. In February 2019, the National Healthcare Security Administration
issued the Opinions on Supporting Measures of Medical Insurance for the Pilot Program of Centralized Procurement and Use of Drugs Organized
by the State which provides supporting measures for the medical security department to implement the pilot work of the centralized procurement
and use of drugs organized by the State. In September 2019, National Healthcare Security Administration and other eight government authorities
issued the Implementation Opinions on Region Expansion of the Organization of Centralized Procurement and Use of Drugs by the State, which
expand the pilot program to wider areas, further reduce the medication burden of the masses and intensify reform and innovation. In January
2021, the General Office of the State Council has further published an updated policy Opinion on Promoting the Normalization and Institutionalization
of Centralized Volume-Based Procurement of Drugs to solidify the centralized procurement scheme, pursuant to which emphasis shall be placed
on including drugs that are listed in the Drug Catalog for Basic Medical Insurance with large consumption and high procurement price in
the procurement scope, and gradually covering various drugs which are clinically necessary and reliable. In principle, all holders registration
certificates of drugs falling under the scope of the centralized volume-based procurement and meet the requirements for the centralized
volume-based procurement in terms of quality standards, production capacity, and supply stability, may participate in such procurement.
All public medical institutions shall participate in the centralized volume-based drug procurement.
Regulations Relating To Online Drug Information Services
According to the Measures
Regarding the Administration of Drug Information Service over the Internet, promulgated by the CFDA on July 8, 2004 and amended on November
17, 2017, the Internet drug information service refers to the activities of providing medical information (including medical devices)
and other services to Internet users through the Internet, and where any website intends to provide Internet drug information services,
it shall, prior to applying for an operation permit or record-filing from the State Council's department in charge of information
industry or the telecom administrative authority at the provincial level, file an application with the provincial FDA, and shall be subject
to the examination and approval thereof for obtaining the qualifications for providing Internet drug information services. The validity
term for a Qualification Certificate for Internet Drug Information Services is five years and may be renewed at least six months prior
to its expiration date upon a re-examination by the relevant authority. Pursuant to the Measures Regarding the Administration of Drug
Information Service over the Internet, the Internet drug information services are classified into two categories, namely, profit-making
services and non-profit making services. Profit-making services refer to that of providing Internet users with drug information in return
for service fees whilst non-profit-making services refers to that of providing Internet users with drug information which is shared and
accessible by the public through the Internet free of charge. Furthermore, the information relating to drugs shall be accurate and scientific
in nature, and its provision shall comply with the relevant laws and regulations. No product information of stupefacient, psychotropic
drugs, medicinal toxic drugs, radiopharmaceutical, detoxification drugs and pharmaceutics made by medical institutes shall be distributed
on the website. In addition, advertisements relating to drugs (including medical devices) shall be approved by the NMPA or its competent
branches, and shall specify the approval document number.
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Regulations Relating To Operation Of Medical Devices
The Measures on the
Supervision and Administration of the Business Operations of Medical Devices, or the Measures on Medical Devices, which was
promulgated by CFDA on July 30, 2014 and amended on November 17, 2017, a proposed amendment was promulgated on March 10, 2022 and
took effect on May 1, 2022, applies to any business activities of medical devices as well as the supervision and administration
thereof conducted within the territory of the PRC. Pursuant to the Measures on Medical Devices, CFDA shall be responsible for the
supervision and administration of nationwide business operations concerning medical devices. Medical devices are divided into three
classes depending on the degree of risks of medical devices. Entities engaged in distribution of Class III medical devices shall
obtain a medical device operating license and entities engaged in distribution of Class II medical devices shall complete filings
with the competent local MPA, while entities engaged in distribution of medical devices of Class I are not required to conduct any
filing or obtain any license. In addition, in accordance with Regulations on Supervision and Administration of Medical Devices,
promulgated by the State Council on February 9, 2021 and effective as of June 1, 2021, Class II and Class III medical devices shall
be registered with the NMPA or its local branches, while Class I medical devices shall be filed with the competent local MPA. In the
event that the business operator in distribution of Class III medical devices without a medical device operating license or the
business operator in distribution of Class II or Class III medical devices that are not registered with the NMPA or its local
branches, the business operator may be imposed fine or be shut down by the authorities.
Regulations Relating To Healthcare Services
General Policies
According to the Guiding Opinions
of the State Council on Actively Propelling the "Internet Plus" Action Plan issued by the State Council on July 1, 2015, the
new mode of online medical treatment and public health shall be promoted. It is imperative to develop online medical treatment and public
health services based on the internet, support third-party institutions to build the service platforms for sharing medical information
such as medical images, health archives, testing reports, electronic medical records and other medical information, and gradually set
up the standard system for cross-hospital sharing and exchange of medical data. The mobile internet shall be vigorously used to provide
online appointments for diagnosis and treatment, reminder of waiting for diagnosis, pricing and payment, inquiry about diagnosis and treatment
reports, drug delivery and other services. Medical institutions shall be guided in providing basic-level examination, higher-level diagnosis
and other remote medical treatment to small and medium-sized cities and rural areas. Internet enterprises shall be encouraged to cooperate
with medical institutions in establishing online medical information platforms, strengthen the integration of regional medical treatment
and public health service resources, make full use of the internet, big data and other means, and improve the capability to prevent and
control major diseases and public health emergencies. Internet-extended doctor's advice, electronic prescription and other internet
medical service applications shall be vigorously explored. The qualified medical inspection institutions and medical service institutions
shall be encouraged to collaborate with internet enterprises to develop gene testing, disease prevention and other health service modes.
In April 2018, the Opinions
on Promoting the Development of "Internet Plus Health Care" issued by the General Office of the State Council encouraged medical
institutions to apply the internet and other information technologies to expand the space and content of medical services, developed an
online and offline integrated medical service model that covers the whole process of medical service. Internet hospitals under the support
of medical institutions shall be allowed. Medical institutions may use internet hospitals as their secondary name and, based on the physical
hospitals, use Internet technology to provide safe and appropriate medical services, allowing follow-up online diagnosis for some common
diseases and chronic diseases. After acquiring documents on the medical records of patients, physicians shall be allowed to prescribe
online for some common diseases and chronic diseases.
On July 17, 2018, the National
Health Commission and the National Administration of Traditional Chinese Medicine jointly promulgated three documents, including the Measures
for the Administration of Internet Diagnosis and Treatment (Trial), the Measures for the Administration of Internet Hospitals (Trial)
and the Specifications for the Administration of Remote Medical Services (Trial). Pursuant to the Measures for the Administration of Internet
Hospitals (Trial), "internet hospitals" include: (a) internet hospitals as the second name of physical medical institutions,
and (b) internet hospitals that are independently established on the support of physical medical institutions.
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Internet Hospital
According to the Measures
for the Administration of Internet Hospitals (Trial), the PRC implements access management for internet hospitals pursuant to the Administrative
Regulations on Medical Institutions and the Implementation Measures of the Administrative Regulations on Medical Institutions. Before
implementing access for internet hospitals, provincial health administrative departments shall establish provincial internet medical service
supervision platforms to connect with information platforms of internet hospitals to achieve real-time supervision. Establishing an internet
hospital is governed by the administrative approval process as stipulated in the Measures for the Administration of Internet Hospitals
(Trial). According to the Measures for the Administration of Internet Hospitals (Trial), applying for establishing an internet hospital
is required to submit an application to the practice registration authority of its supported physical medical institution, and submit
the application form, the feasibility study report on the establishment, the address of the supported physical medical institution, and
the agreement jointly signed by the applicant and the supported physical medical institution in relation to establishing an internet hospital
through cooperation. If an internet hospital information platform is set up through cooperation with a third-party institution, the relevant
cooperation agreement should be submitted. For an internet hospital sets up through cooperation, if the cooperation partner changes or
other factors exist that will invalidate the cooperation agreement, reapplication for establishing an internet hospital is required.
Such cooperation agreement
should be submitted. For an internet hospital sets up through cooperation, if the cooperation partner changes or other factors exist that
will invalidate the cooperation agreement, reapplication for establishing an internet hospital is required.
In terms of practicing rules
on Internet hospitals, the Measures for the Administration of Internet Hospitals (Trial) provides that where a third-party institution
jointly establishes an Internet hospital on the support of the physical medical institution, it shall provide the physical medical institution
with professional services such as physicians and pharmacists, and information technology support services, and clarify the responsibilities
and rights of all parties in respect of medical services, information security, and privacy protection through agreements and contracts.
In terms of supervision and management of Internet hospitals, the Measures for the Administration of Internet Hospitals (Trial) clarifies
that provincial health administrative departments and the registration authorities for Internet hospitals jointly implement supervision
on Internet hospitals through the provincial Internet medical service supervision platform, focusing on the supervision on Internet hospitals'
personnel, prescriptions, diagnosis and treatment behaviors, patients' privacy protection and information security. Administrative
Regulations on Medical Institutions and Implementation Measures of the Administrative Regulations on Medical Institutions set out the
regulatory framework for the management and operation of the medical institutions, and the operation of Internet hospitals shall comply
with Administrative Regulations on Medical Institutions and Implementation Measures of the Administrative Regulations on Medical Institutions
as well. Additionally, the Basic Standards for Internet Hospitals (Trial) as attached to the Measures for the Administration of Internet
Hospitals (Trial) sets forth specific requirements for diagnosis and treatment items, departments, personnel, buildings and device and
equipment, and rules and regulations of Internet hospitals.
On February 3, 2019, The Health
Commission of Guangdong and the Bureau of Traditional Chinese Medicine of Guangdong issued a notice on the forwarding of three documents
including The Construction Standards of Internet Hospitals (Trial), which states that articles 8 and 9 of the Measures for the Administration
of Internet Diagnosis and Treatment (Trial) shall apply when a physical medical institution newly applied for establishment or a physical
medical institution that has obtained the Practicing License for Medical Institutions applies for the establishment of an internet hospital.
Before above-mentioned medical institutions' application, the internet hospital information system must be connected to the provincial
internet medical service supervision platform to meet the needs of supervision over the whole process of internet diagnosis and treatment
and accept the supervision and administration by regulatory authorities. At the time of practice registration, the above-mentioned medical
institutions shall meet both the basic standards for medical institutions of relevant grades and categories and for internet hospitals.
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Medical Institutions
According to the Administrative
Regulations on Medical Institutions (the "Regulations"), promulgated by the State Council, effective on September 1, 1994,
revised on February 6, 2016 and March 29, 2022 (effective on May 1, 2022), hospitals, health centers, sanatoriums, out-patient departments,
clinics, health clinics, health posts (rooms) and first aid stations are medical institutions. The health administrative departments of
the local people's governments at or above the county level shall be responsible for the supervision and administration of the medical
institutions within their respective administrative regions. The establishment of medical institutions by entities or individuals shall
be subject to the examination and approval of the health administrative department of the local people's governments at or above
the county level and obtain the written approval for the establishment of medical institutions if required by the relevant provisions
of the State Council. Furthermore, according to the Regulations, the practice of medical institutions shall complete the registration
and obtain Practicing License for Medical Institution. Furthermore, pursuant to the Administrative Regulations on Medical Institutions
and Implementation Measures of the Administrative Regulations on Medical Institutions, where a medical institution intends to change its
name, address, legal representative or major person-in-charge, form of ownership, target of service, mode of service, registered fund
(capital), diagnosis and treatment subjects, or number of beds (dental chairs), it shall apply to the registration authority for registration
of such alteration.
Patient Diagnosis Service
According to the Measures
for the Administration of Internet Diagnosis and Treatment (Trial), internet diagnosis and treatment activities shall be provided by medical
institutions which have obtained a "Practicing License for a Medical Institution", and the Internet-based diagnosis services
provided by a medical institution shall be consistent with its diagnosis subjects. Physicians and nurses carrying out internet diagnosis
and treatment activities shall be able to be found in the national electronic registration system of physicians and nurses. A medical
institution shall conduct electronic real-name verification for the medical staff members carrying out internet diagnosis and treatment
activities.
According to the Measures
for the Administration of Internet Hospitals (Trial), internet hospitals must inform patients about risks of internet hospitals and obtain
their consents for internet diagnosis and treatment. When a patient receives medical treatment in a physical medical institution and the
attending physician consults other physicians through internet hospitals, the physicians providing consultation may issue diagnosis opinions
and a prescription; and when a patient does not receive medical treatment in a physical medical institution, a physician may only provide
follow-up diagnosis for a patient of some common diseases and chronic diseases through internet hospitals, internet hospitals may provide
signing service for contract of family doctors. When a patient's condition changes or there are other circumstances under which
online diagnosis and treatment services are inappropriate, the physician shall refer the patient to a physical medical institution. Internet
diagnosis and treatment activities shall not be allowed for any patient receiving initial diagnosis.
Management of Prescription and Medical Records
Internet hospitals who provide
internet diagnosis and treatment activities shall strictly comply with the Measures for the Administration of Prescriptions and other
provisions on the administration of prescriptions. Before issuing a prescription online, the physician shall have the patient's
medical records and issue a prescription online for the same disease diagnosed after confirming that the patient is specifically diagnosed
in a physical medical institution to have a common disease or chronic disease or several common diseases or chronic diseases. The physicians
are subject to making prescription recommendations to patients based on treatment standards and drug instructions. Under any of the following
circumstances, the health administrative department at or above the county level shall request the medical institutions to make corrections
within a grace period, and may impose a fine no more than RMB5,000; and under serious circumstances, Practice License for Medical Institutions
shall be revoked: (i) prescribing by a pharmacist who has not obtained the right to prescribe or whose prescription right has been canceled;
(ii) prescribing narcotic drugs and the psychotropic drugs of category I by pharmacists who have not obtained the prescription right for
such narcotic drugs and psychotropic drugs; (iii) employing persons who have not obtained the qualifications for the professional and
technical positions of pharmaceutical science to conduct the prescription adjustment. If the medical practitioners issue prescriptions
without obtaining prescription rights at a medical institution not registered in their licenses, during their practicing activities, they
will be given a warning or be ordered to suspend their practicing activities for a period of not less than six months but not more than
one year and under the serious circumstances, their Practice Certificates for Medical Practitioners will be revoked.
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Prescription Outflow
In March 2007, the National
Ministry of Health (currently the National Health Commission of the People's Republic of China) promulgated the Measures for the
Administration of Prescriptions, stipulating that doctors must use the common name of drugs when prescribing, and shall not restrict the
outflow of prescriptions. In April 2016, the General Office of the State Council issued the Notice on Printing and Distributing the Key
Tasks of Deepening the Reform of the Medical and Health System in 2016, proposing to promote the separation of dispensing from prescription
in various methods and prohibit public hospitals from restricting the outflow of prescriptions. In May 2021, the National Healthcare Security
Administration and National Health Commission issued the Guiding Opinions on Establishing and Improving the "Dual Channel"
Management Mechanism for National Healthcare Insurance Negotiated Drugs, proposing that the designated retail pharmacies should be connected
with the medical insurance information platform and the E-prescription circulation platform to ensure the smooth flow of E-prescriptions.
In particular, with regard to the zero-markup policy for drugs. In March 2012, the State Council promulgated the Plan and Implementation
for Deepening the Reform of the Medical and Health System During the 12th Five Year Plan Period, which proposes the abolishment of the
"compensation system for the medical cost through drug-selling profits" and the separation of dispensing from prescription.
The Plan initiated the gradual cancelation of the drug markups in public hospitals, which would prohibit public hospitals from selling
drugs to patients at a price higher than the actual purchase price, reducing the three sources of public hospital incomes that were government
subsidies, services charges and drug markups to government subsidies and services charges only. In September 2012, according to Notice
on promoting pharmaceutical price reform in county level public hospitals further released the NDRC, zero markup drug policy began to
be implemented in county level institutions. On May 6, 2015, the General Office of the State Council issued the Guiding Opinions on the
Pilot Programs of Comprehensive Reform of Urban Public Hospitals, launching the pilot programs on the separation of dispensing from prescription
in all urban public hospitals, and actively exploring a variety of effective ways to reform the compensation system for the medical cost
through drug-selling profits. On April 19,2017, the National Health and Family Planning Commission (currently the National Health Commission),
the Ministry of Finance, the Medical Reform Office of the State Council and other relevant government bodies issued the Notice on All-round
Promotion of the Comprehensive Reform of Public Hospitals, requiring that the comprehensive reform of public hospitals be fully promoted
by September 30, 2017, and that the drug markups (except for Chinese herbal medicine) be cancelled in all public hospitals.
Practicing Physicians
On August 20, 2021, the Standing
Committee of NPC (the "SCNPC") issued the Doctors Law of the PRC (the "Doctors Law"), effective on May 1, 1999,
and amended on August 27, 2009 and March 1, 2022. According to the Doctors Law, when taking medical, preventive or healthcare measures
and when signing relevant medical certificate, the practicing physicians shall conduct diagnosis and investigation personally and fill
out the medical files without delay as required. No practicing physicians may conceal, forge or destroy any medical files or the relevant
data. On November 5, 2014, the National Health and Family Planning Commission of PRC (the "NHFPC", now known as the National
Health Commission of PRC), the NDRC, the Ministry of Human Resources and Social Security, the State Administration of Traditional Chinese
Medicine, and the China Insurance Regulatory Commission (now known as the China Banking and Insurance Regulatory Commission), jointly
issued Several Opinions on Promoting and Standardizing Multi-Place Practice of Physicians, which puts forward to simplify the registration
procedure of the multiple place practice and proposes the feasibility of exploring the "record management." According to Administrative
Measures for the Registration of Practicing physicians, promulgated by the NHFPC on February 28, 2017, effective on April 1, 2017, practicing
physicians shall obtain the practice certificate for practicing physicians to practice upon registration. Person who fails to obtain the
practice certificate for practicing physicians shall not engage in medical treatment, prevention and healthcare activities. A medical
practitioner who practices for multiple institutions at the same place of practice shall determine one institution as the main practicing
institution where he or she practices, and apply for registration to the administrative department of health and family planning approving
the practice of such institution; and, for other institutions where the medical practitioner is to practice, respectively apply for recordation
to the administrative health and family planning authority.
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Protection of Patients' Information
Internet hospitals shall strictly
comply with the relevant laws and regulations in the PRC on information security and confidentiality of medical data, and appropriately
keep patients' information, and shall not illegally trade or disclose patients' information. When patients' information
and medical data are illegally or improperly disclosed, a medical institution shall report to the competent health administrative department
in a timely manner and immediately take effective rectification.
New Rules Governing Healthcare Industry
The PRC government recently
issued several policies to regulate participants in the healthcare industry, including pharmacies, physicians, hospitals, and health insurance
companies, such as the Guidance on Promoting Hospital Safety and Order Management, the Promotion Action of High-quality Development of
Public Hospitals (2021-2025), the Construction Plan of National Clinical Specialty, the Notice on Publicizing the 5G+ Healthcare Application
Pilot Project, the Notice on Promulgating Five Specifications Including the Specifications for Pharmaceutical Outpatient Service of Medical
Institutions, the Notice on National Medical Insurance Plan in the 14th Five-year Plan, and the Detailed Rules for the Supervision of
Internet Diagnosis and Treatment (Trial).
Detailed Rules for the Supervision
of Internet Diagnosis and Treatment (Trial) (the "Supervision Rules") stated that medical institutions' electronic prescriptions,
and prescription review records should be traceable, and the data interface should be opened to the provincial supervision platform. The
Supervision Rules also stated that prescription drug selling before a prescription is issued is strictly prohibited and that a medical
institution shall conduct electronic real-name verification for the medical staff members carrying out Internet diagnosis and treatment
activities. The Notice on Promulgating Five Specifications Including the Specifications for Pharmaceutical Outpatient Service of Medical
Institutions requires the pharmacist in outpatient services holds professional qualifications.
The Supervision Rules also
stated that for the internet hospitals that are affiliated to physical institutions, their electronic medical records should be integrated.
Moreover, the physician should collect the patient's medical diagnosis records before starting follow-up consultations. To fulfill
the requirements, hospitals need to operate an effective hospital information management system, these would require system upgrading
and platform rebuild. The Notice on Publicizing the 5G+ Healthcare Application Pilot Project encourages the application of 5G technology
in remote diagnosis, remote treatment, and hospital management.
The Guidance on Promoting
Hospital Safety and Order Management in the 14th Five-year Plan aims to further maintain normal medical order and protect the personal
safety of medical staff. The Promotion Action of High-quality Development of Public Hospitals (2021-2025) raises several main actions
so as to achieve high-quality development of public hospitals and further strengthen the public welfare feature of public hospitals, among
others, including the construction of key clinical specialist groups according to the Construction Plan of National Clinical Specialty
in the 14th Five-year Plan.
In addition, the National
Medical Insurance Plan in the 14th Five-year Plan, issued by the General Office of the State Council on September 23, 2021, intends to
take a series of measures to achieve the high-quality development of the basic medical insurance system, insecure people's health
and promote common wealth, including encouraging the innovation of insurance products, adjusting and optimizing the medical insurance
catalog on a dynamic basis, and improve direct settlement services for medical treatment in different places.
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Regulations Related to Internet Information Security and Privacy
Protection
PRC government authorities
have enacted laws and regulations with respect to internet information security and protection of personal information from any abuse
or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint. The Decisions
on Maintaining Internet Security which was enacted by the Standing Committee of the PRC National People's Congress ("SCNPC")
in December 2000 and amended in August 2009, may subject violators to criminal punishment in China for any effort to: (i) gain improper
entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets;
(iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated
measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially
destabilizing content. If an information service provider violates these measures, the Ministry of Public Security and the local security
bureaus may revoke its operating license and shut down its websites.
On December 29, 2011, the
MIIT promulgated the Several Provisions on Regulation of Order of Internet Information Service Market, which prohibit internet information
service providers from collecting personal information of any user without prior consent. Internet information service providers shall
explicitly inform the users of the means of collecting and processing personal information, the scope of contents, and purposes. In addition,
internet information service providers shall properly keep the personal information of users, if the preserved personal information of
users is divulged or may possibly be divulged, internet information service providers shall immediately take remedial measures and report
any material leak to the tele-communications regulatory authority.
Pursuant to the Decision on
Strengthening the Protection of Online Information issued by the SCNPC in December 2012, any collection and use of user personal information
must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and in accordance with the
specified purposes, methods and scopes. Any entity collecting personal information must also keep such information strictly confidential,
and is further prohibited from divulging, tampering or destroying any such information, or selling or providing such information to other
parties, and is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure,
damage or loss. Any violation of these laws and regulations may subject the entity collecting personal information to warnings, fines,
confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.
Pursuant to the Notice of
the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security on Legally Punishing Criminal
Activities Infringing upon the Personal Information of Citizens, issued in 2013, and the Interpretation of the Supreme People's
Court and the Supreme People's Procuratorate on Several Issues regarding Legal Application in Criminal Cases Infringing upon the
Personal Information of Citizens, which was issued on May 8, 2017 and took effect on June 1, 2017, the following activities may constitute
the crime of infringing upon a citizen's personal information: (i) providing a citizen's personal information to specified
persons or releasing a citizen's personal information online or through other methods in violation of relevant national provisions;
(ii) providing legitimately collected information relating to a citizen to others without such citizen's consent (unless the information
is processed, not traceable to a specific person and not recoverable); (iii) collecting a citizen's personal information in violation
of applicable rules and regulations when performing a duty or providing services; or (iv) collecting a citizen's personal information
by purchasing, accepting or exchanging such information in violation of applicable rules and regulations.
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Pursuant to the Order for
the Protection of Telecommunication and Internet User Personal Information issued by the MIIT on July 16, 2013, which became effective
from September 1, 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles
of legality, rationality and necessity and be within the specified purposes, methods and scopes. "Personal information" is
defined as information that identifies a citizen, the time or location for his/her use of telecommunication and internet services, or
involves privacy of any citizen such as his/her birth date, ID card number, and address. An internet information service provider must
also keep information collected strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information,
or selling or providing such information to other parties. Any violation of the above decision or order may subject the internet information
service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites
or even criminal liabilities.
Pursuant to the Ninth Amendment
to the Criminal Law issued by the SCNPC in August 2015, which became effective in November 2015, any person or entity that fails to fulfill
the obligations related to internet information security administration as required by applicable laws and refuses to rectify upon orders
is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due
to the leakage of the client's information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any
individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or
illegally obtain any personal information is subject to criminal penalty in severe situation.
Pursuant to the PRC Cyber
Security Law issued by the SCNPC in November 2016, effective June 2017, personal information refers to all kinds of information recorded
by electronic or otherwise that can be used to independently identify or be combined with other information to identify natural persons'
personal information including but not limited to: natural persons' names, dates of birth, ID numbers, biologically identified personal
information, addresses and telephone numbers, etc. The Cyber Security Law also provides that: (i) to collect and use personal information,
network operators shall follow the principles of legitimacy, rightfulness and necessity, disclose their rules of data collection and use,
clearly express the purposes, means and scope of collecting and using the information, and obtain the consent of the persons whose data
is gathered; (ii) network operators shall neither gather personal information unrelated to the services they provide, nor gather or use
personal information in violation of the provisions of laws and administrative regulations or the scopes of consent given by the persons
whose data is gathered; and shall dispose of personal information they have saved in accordance with the provisions of laws and administrative
regulations and agreements reached with users; (iii) network operators shall not divulge, tamper with or damage the personal information
they have collected, and shall not provide the personal information to others without the consent of the persons whose data is collected.
However, if the information has been processed and cannot be recovered and thus it is impossible to match such information with specific
persons, such circumstance is an exception.
On January 23, 2019, the Office
of the Central Cyberspace Affairs Commission and other three authorities jointly issued the Circular on the Special Campaign of Correcting
Unlawful Collection and Usage of Personal Information via Apps. Pursuant to this 2019 circular, (i) app operators are prohibited from
collecting any personal information irrelevant to the services provided by such operator; (ii) information collection and usage policy
should be presented in a simple and clear way, and such policy should be consented by the users voluntarily; (iii) authorization from
users should not be obtained by coercing users with default or bundling clauses or making consent a condition of a service. App operators
violating such rules can be ordered by authorities to correct its incompliance within a given period of time, be reported in public; or
even quit its operation or cancel its business license or operational permits. Furthermore, the Provisions on the Cyber Protection of
Children's Personal Information issued by the Office of the Central Cyberspace Affairs Commission came into effect on October 1,
2019, which requires, among others, that network operators who collect, store, use, transfer and disclose personal information of children
under the age of 14 establish special rules and user agreements for the protection of children's personal information, inform the
children's guardians in a noticeable and clear manner, and shall obtain the consent of the children's guardians. Furthermore,
the authorities issuing the circular has pledged to initiate a campaign to correct unlawful collection and usage of personal information
via apps from January 2019 through December 2019.
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Pursuant to the PRC Civil
Code which was approved by the National People's Congress on May 28, 2020, and came into effect on January 1, 2021, the personal
information of a natural person shall be protected by the law. Any organization or individual that needs to obtain personal information
of others shall obtain such information legally and ensure the safety of such information, and shall not illegally collect, use, process
or transmit personal information of others, or illegally purchase or sell, provide or make public personal information of others. Furthermore,
information processors shall not divulge or tamper with personal information collected or stored by them; without the consent of a natural
person, information processors shall not illegally provide personal information of such person to others, except for information that
has been processed so that specific persons cannot be identified and that cannot be restored. In addition, an information processor shall
take technical measures and other necessary measures to ensure the security of the personal information that is collected and stored and
to prevent the information from being divulged, tampered with or lost; where personal information has been or may be divulged, tampered
with or lost, the information processor shall take remedial measures in a timely manner, inform the natural person concerned in accordance
with the provisions and report the case to the relevant competent department.
On August 20, 2021, the Standing
Committee of the National People's Congress promulgated the Personal Information Protection Law of the PRC, or the Personal Information
Protection Law, which took effect on November 1, 2021. As the first systematic and comprehensive law specifically for the protection of
personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual's consent
shall be obtained to use sensitive personal information, (ii) personal information operators using sensitive personal information shall
notify individuals of the necessity of such use and impact on the individual's rights, and (iii) where it is necessary for personal
information to be provided by a personal information processor to a recipient outside the territory of the PRC due to any business need
or any other need, a security assessment organized by the national cyberspace authority shall be passed.
Regulation Related to Private Education
The laws and regulations governing
foreign investments in private education institutions in China are complex and have been developing. Pursuant to the Special Administrative
Measures for Entrance of Foreign Investment (Negative List) (2021 Version), or the Catalog, which is the principal regulation governing
foreign investment activities in China, foreign investments in pre-school education institutions, ordinary senior high schools and institutions
of higher education fall within the foreign restricted category (limited to the form of sino-foreign cooperative joint ventures), and
such joint ventures shall be led by the Chinese party, which means the principal or the key administrative person-in-charge shall be a
PRC national, the number of Chinese members of the council, board of directors or joint administrative committee shall account for at
least half of the total. In addition, the foreign investments in compulsory or religious education institutions are prohibited. The Catalog
does not provide specific restrictions on foreign investments in institutions like us that provide healthcare learning products and services
to the public. Besides, pursuant to the PRC Regulations on Sino-foreign Cooperative Education (2019 Revision) and other education-related
laws and regulations in China, foreign education institutions and other foreign organizations or individuals may not by themselves alone
establish schools or other education institutions within China which mainly enroll Chinese citizens, and sino-foreign cooperative education
institutions shall have corresponding qualifications and relatively high education quality.
Education Law of China
On March 18, 1995, the PRC
National People's Congress promulgated the PRC Education Law, or the Education Law. The Education Law stipulates that the government
formulates plans for the development of education, establishes and operates schools and other types of educational institutions, and in
principle, enterprises, institutions, social organizations and individuals are encouraged to operate schools and other types of educational
organizations. It is provided in the Education Law that no organization or individual may establish or operate a school or any other educational
institution for commercial purposes. On December 27, 2015, the SCNPC published the Decision on Amendment of the Education Law, which took
effect on June 1, 2016. The SCNPC narrowed the provision prohibiting the establishment or operation of schools or other educational institutions
for commercial purposes to only restricting a school or other educational institution founded with governmental funds or donated assets
in the amended Education Law. On April 29, 2021, the Education Law was further amended by SCNPC to emphasize the illegal acts in recruiting
students and replacing the admission qualifications obtained by others. Such amendments took effect on April 30, 2021.
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The Law for Promoting Private Education and its Implementing
Rules
On December 28, 2002, the
SCNPC promulgated the Law for Promoting Private Education, or the Private Education Law and was later amended on June 29, 2013, November
7, 2016 and December 29, 2018, the amendment of which took effect on December 29,2018. On March 5, 2004 and last amended on April 7, 2021,
the PRC State Council promulgated the Implementation Rules for the Law for Promoting Private Education, which became effective on April
1, 2004, or the Private Education Implementation Rules. The Private Education Law and the Private Education Implementation Rules provide
rules for social organizations or individuals, other than state-owned entities, to establish schools or other educational organizations
using non-government funds in China, such schools or educational organizations established using non-government funds are referred to
as "private schools."
According to the amended Private
Education Law, establishment of private schools for academic education, pre-school education, self-taught examination support and other
cultural education shall be subject to approval by the authorities in charge of education, while establishment of private schools for
vocational qualification training and vocational skill training shall be subject to approvals from the authorities in charge of labor
and social welfare. A duly approved private school will be granted a private school operating permit, and shall be registered with relevant
authority as an enterprise institution. Entities and individuals may choose to establish non-profit private schools or for-profit private
schools at their own discretion. Nonetheless, for-profit private schools that are engaged in compulsory education are not allowed.
On December 30, 2016, the
Ministry of Education ("MOE"), the SAIC and the Ministry of Human Resources and Social Security ("MOHRSS") jointly
issued the Implementation Rules on the Supervision and Administration of For-profit Private Schools. Pursuant such rules, the establishment,
division, merger and other material changes of a for-profit private school shall first be approved by the education authorities or the
authorities in charge of labor and social welfare, and then be registered with the competent branch of SAIC. In addition, it also provides
that for-profit private training institutes shall be analogically governed by these Implementation Rules on the Supervision and Administration
of For-profit Private Schools.
On August 31, 2017, SAIC and
MOE jointly promulgated the Notice of the State Administration for Industry and Commerce and the Ministry of Education on the Work Concerning
the Administration of the Name Registration for For-profit Private Schools, which came into effect on September 1, 2017. Such notice provides
that the industry expression in the name of the private culture education institutions shall typically include "training school
/center," such as "curriculum training school/center," "extra-class education school/center," "self-learning
school/center," "tutorship school/center," "extra tutoring for examinations school/center" and "extra
tutoring school/center" and such industry expression is allowed to embody the disciplines and characteristics of such education
institution.
In August 2018, the State
Council issued the Opinion on the Regulation of the Development of Extracurricular Training Institutions, or the New Opinion, which primarily
regulates extracurricular training institutions targeting K-12 students. The New Opinion reiterates prior guidance that extracurricular
training institutions must obtain a private school operating permit, and further requires such institutions to meet certain minimum requirements;
for example, extracurricular training institutions are required to (i) have a fixed training premise that conforms to specified safety
criteria, with an average area per student of no less than 3 square meters during the applicable training period; (ii) comply with relevant
fire safety, environmental protection, hygiene, food operation and other specified requirements; (iii) purchase personal safety insurance
for students to reduce safety risks; and (iv) not hire any teachers who are working concurrently in primary or secondary schools. Extracurricular
training institutions are prohibited from carrying out exam-oriented training, training that goes beyond the school syllabus, training
in advance of the corresponding school schedule and any training activities associated with student admission. The training content of
extracurricular training institutions is not to exceed the corresponding national curricular standards and training progress is not to
be more accelerated than the corresponding progress of local schools. According to the New Opinion, extracurricular training institutions
are also required to disclose relevant information regarding the institution, including their training content, schedule, targeted students
and school timetable to the relevant education authority, and their training classes may not end later than 20:30 each day. Tuition can
only be collected for courses in three months or a shorter installment. Additionally, the New Opinion requests that competent local authorities
formulate relevant local standards for extracurricular training institutions within their administrative area.
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Regulation Related to Online and Distance Education
Pursuant to the Interim Administrative
Regulations on Educational Websites and Online and Distance Education Schools issued by the MOE, on July 5, 2000, educational websites
may provide educational services in relation to higher education, elementary education, pre-school education, teaching education, occupational
education, adult education, other education and public educational information services. "Educational websites" refer to organizations
providing education or education-related information services to website visitors by means of a database or online education platform
connected via the internet or an educational television station through an internet service provider. Setting up education websites is
subject to approval from relevant education authorities, depending on the specific types of education. Any educational website shall,
upon the receipt of approval, indicate on its website such approval information as well as the approval date and file number.
On June 29, 2004, the State
Council promulgated the Decision on Setting Down Administrative Licenses for the Administrative Examination and Approval Items Really
Necessary to Be Retained, which was amended on January 29, 2009 and August 25, 2016, respectively. Pursuant to such decision, the administrative
license for "educational websites" was not retained.
On February 3, 2016, the State
Council promulgated the Decision on Cancelling the Second Batch of 152 Items Subject to Administrative Examination and Approval by Local
Governments Designated by the Central Government, further explicitly withdrew the approval requirements for operating educational websites
as provided by the Administrative Regulations on Educational Websites and Online Education Schools, and reiterated the principle that
administrative approval requirements may only be imposed in accordance with the PRC Administrative Licensing Law.
On March 13, 2017, the MOE
promulgate the Notice of the Ministry of Education on Strengthening Interim and Ex Post Regulation after Canceling the Examination and
Approval of Online Schools on Educational Websites, which accounted the repeal of the Interim Administrative Regulations on Educational
Websites and Online and Distance Education Schools.
In
December 2017, Shanghai Municipal Government promulgated the Management Methods of Classified Registration of Private Schools of Shanghai,
and circulated the Setting Standards for Private Training Institutions of Shanghai, the Management Measures for the For-profit Private
Training Institutions of Shanghai, and the Management Methods for the Non-Profit Private Training Institutions of Shanghai (collectively,
the "Shanghai Implementation Regulations"). Pursuant to the Shanghai Implementation Regulations, any management measures and
regulations applied to the institutions that provide training services only through internet will be further promulgated separately. However
no specific administration measures regarding the institutions offering training service only through internet have been promulgated by
Shanghai government as of the date of this Annual Report.
Regulations on Investments in Private Funds
On August 21, 2014, the SRC
promulgated the Interim Measures for the Supervision and Administration of Private Investment Funds which defines the accredited investors
of private funds as those entities and individuals with corresponding risk identification and risk-taking capabilities who invest in a
single private fund an amount not less than RMB 1 million and accord with the following standards: with respect to entities, their net
assets shall not be less than RMB 10 million; and with respect to individuals, their financial assets shall not be less than RMB 3 million
or their personal average annual income in the last three years shall not be less than RMB 0.5 million.
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Legal Regulations on Intellectual Property in the PRC
Copyright
Pursuant to the Copyright
Law of the PRC, which was first promulgated by the Standing Committee of the National People's Congress on September 7, 1990 and
became effective from June 1, 1993, and was last amended on November 11, 2020 and became effective as of June 1, 2021, copyrights include
personal rights such as the right of publication and that of attribution as well as property rights such as the right of production and
that of distribution. Reproducing, distributing, performing, projecting, broadcasting or compiling a work or communicating the same to
the public via an information network without permission from the owner of the copyright therein, unless otherwise provided in the Copyright
Law of the PRC, shall constitute infringements of copyrights. The infringer shall, according to the circumstances of the case, undertake
to cease the infringement, take remedial action, and offer an apology, pay damages, etc.
The Computer Software Copyright
Registration Measures, or the Software Copyright Measures, promulgated by the National Copyright Administration on February 20, 2002,
regulates registrations of software copyright, exclusive licensing contracts for software copyright and assignment agreements. The National
Copyright Administration administers software copyright registration, and the Copyright Protection Center of China is designated as the
software registration authority. The Copyright Protection Center of China shall grant registration certificates to the Computer Software
Copyright applicants which meet the requirements of both the Software Copyright Measures and the Computer Software Protection Regulations,
promulgated by the State Council on June 4, 1991 and last amended on January 30, 2013.
Trademark
Pursuant to the Trademark
Law of the PRC, which was promulgated by the Standing Committee of the National People's Congress on August 23, 1982 and became
effective from March 1, 1983, and was most recently amended on April 23, 2019 and became effective on November 1, 2019, the right to exclusive
use of a registered trademark shall be limited to trademarks which have been approved for registration and to goods for which the use
of such trademark has been approved. The period of validity of a registered trademark shall be ten years, counted from the day the registration
is approved. According to this law, using a trademark that is identical to or similar to a registered trademark in connection with the
same or similar goods without the authorization of the owner of the registered trademark constitutes an infringement of the exclusive
right to use a registered trademark. The infringer shall, in accordance with the regulations, undertake to cease the infringement, take
remedial action, and pay damages, etc.
Patent
Pursuant to the Patent Law
of the PRC, which was promulgated by the Standing Committee of the National People's Congress on September 4, 1992, and was most
recently amended on October 17, 2020and became effective on June 1, 2021, after the grant of the patent right for an invention or utility
model, except where otherwise provided for in the Patent Law, no entity or individual may, without the authorization of the patent owner,
exploit the patent, that is, make, use, offer to sell, sell or import the patented product, or use the patented process, or use, offer
to sell, sell or import any product which is a direct result of the use of the patented process, for production or business purposes.
And after a patent right is granted for a design, no entity or individual shall, without the permission of the patent owner, exploit the
patent, that is, for production or business purposes, manufacture, offer to sell, sell, or import any product containing the patented
design. Where the infringement of patent is decided, the infringer shall, in accordance with the regulations, undertake to cease the infringement,
take remedial action, and pay damages, etc.
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Domain Name
Pursuant to the Administrative
Measures for Internet Domain Names of China, which was recently amended by the Ministry of Industry and Information Technology on August
24, 2017 and became effective on November 1, 2017, "domain name" shall refer to the character mark of hierarchical structure,
which identifies and locates a computer on the internet and corresponds to the internet protocol (IP) address of that computer. And the
principle of "first come, first serve" is followed for the domain name registration service. After completing the domain name
registration, the applicant becomes the holder of the domain name registered by him/it. Furthermore, the holder shall pay operation fees
for registered domain names on schedule. If the domain name holder fails to pay the corresponding fees as required, the original domain
name registrar shall write it off and notify the holder of the domain name in written form.
Regulations on Labor Protection in
the PRC
According to the Labor Law
of the PRC, or the Labor Law, which was promulgated by the Standing Committee of the NPC on July 5, 1994, came into effect on January
1, 1995, and was most recently amended on December 29, 2018, an employer shall develop and improve its rules and regulations to safeguard
the rights of its workers. An employer shall develop and improve its labor safety and health system, stringently implement national protocols
and standards on labor safety and health, conduct labor safety and health education for workers, guard against labor accidents and reduce
occupational hazards. Labor safety and health facilities must comply with relevant national standards. An employer must provide workers
with the necessary labor protection gear that complies with labor safety and health conditions stipulated under national regulations,
as well as provide regular health checks for workers that are engaged in operations with occupational hazards. Laborers engaged in special
operations shall have received specialized training and have obtained the pertinent qualifications. An employer shall develop a vocational
training system. Vocational training funds shall be set aside and used in accordance with national regulations and vocational training
for workers shall be carried out systematically based on the actual conditions of the company.
The Labor Contract Law of
the PRC, which was promulgated by the SCNPC on June 29, 2007, came into effect on January 1, 2008, and was amended on December 28, 2012
and became effective as of July 1, 2013, and the Implementation Regulations on Labor Contract Law, which was promulgated on September
18, 2008, and became effective since the same day, regulate both parties through a labor contract, namely the employer and the employee,
and contain specific provisions involving the terms of the labor contract. It is stipulated under the Labor Contract Law and the Implementation
Regulations on Labor Contract Law that a labor contract must be made in writing. An employer and an employee may enter into a fixed-term
labor contract, an un-fixed term labor contract, or a labor contract that concludes upon the completion of certain work assignments, after
reaching agreement upon due negotiations. An employer may legally terminate a labor contract and dismiss its employees after reaching
agreement upon due negotiations with the employee or by fulfilling the statutory conditions. Labor contracts concluded prior to the enactment
of the Labor Law and subsisting within the validity period thereof shall continue to be honored. With respect to a circumstance where
a labor relationship has already been established but no formal written contract has been made, a written labor contract shall be entered
into within one month from the commencement date of the employment.
According to the Interim Regulations
on the Collection and Payment of Social Insurance Premiums, the Regulations on Work Injury Insurance, the Regulations on Unemployment
Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in the PRC shall provide benefit plans for
their employees, which include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical
insurance. An enterprise must provide social insurance by processing social insurance registration with local social insurance agencies,
and shall pay or withhold relevant social insurance premiums for or on behalf of employees. The Law on Social Insurance of the PRC, which
was promulgated by the Standing Committee of the National People's Congress on October 28, 2010, and became effective on July 1,
2011, and was most recently updated on December 29, 2018, has consolidated pertinent provisions for basic pension insurance, unemployment
insurance, maternity insurance, work injury insurance and basic medical insurance, and has elaborated in detail the legal obligations
and liabilities of employers who do not comply with relevant laws and regulations on social insurance.
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According to the Interim Measures
for Participation in the Social Insurance System by Foreigners Working within the Territory of China, which was promulgated by the Ministry
of Human Resources and Social Security on September 6, 2011, and became effective on October 15, 2011, employers who employ foreigners
shall participate in the basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, and
maternity leave insurance in accordance with the relevant law, with the social insurance premiums to be contributed respectively by the
employers and foreigner employees as required. In accordance with such Interim Measures, the social insurance administrative agencies
shall exercise their right to supervise and examine the legal compliance of foreign employees and employers and the employers who do not
pay social insurance premiums in conformity with the laws shall be subject to the administrative provisions provided in the Social Insurance
Law and the relevant regulations and rules mentioned above.
According to the Reform Plan
of the State Tax and Local Tax Collection Administration System ( the "Reform Plan"), which was issued by the General Office
of the Communist Party of China and the General Office of the State Council of the PRC On July 20, 2018. Under the Reform Plan, beginning
from January 1, 2019, tax authorities should be responsible for the collection of social insurance contributions in the PRC. Pursuant
to the Urgent Notice of the General Office of MOHRSS on Effectively Implementing the Spirit of the Standing Meeting of the State Council
and Effectively Conducting the Collection of Social Insurance Premiums in a Stable Manner (the "Urgent Notice"), which was
issued by the General Office of the MOHRSS on September 21, 2018, before the reform of the social insurance collection authorities being
in place, the relevant levying policies, including the base and rate of the social insurance premiums, shall remain unchanged. The Urgent
Notice also clarified that it is strictly prohibited for the local authorities themselves to organize and conduct centralized collection
of enterprises historical social insurance arrears. On April 1, 2019, the General Office of the State Council of the PRC issued the Comprehensive
Program on Reduction of Social Insurance Premiums, which generally reduced the social insurance contribution burden of enterprises, and
re-emphasized that local authorities shall not conduct centralized collection of enterprises historical social insurance arrears before
a uniform policy is published.
According to the Regulations
on the Administration of Housing Provident Fund, which was promulgated by the State Counsel and became effective on April 3, 1999, and
was amended on March 24, 2002 and March 24, 2019, housing provident fund contributions by an individual employee and housing provident
fund contributions by his or her employer shall belong to the individual employee. Registration by PRC companies at the applicable housing
provident fund management center is compulsory and a special housing provident fund account for each of the employees shall be opened
at an entrusted bank.
The employer shall timely
pay up and deposit housing provident fund contributions in full amount and late or insufficient payments shall be prohibited. The employer
shall process housing provident fund payment and deposit registrations with the housing provident fund administration center. With respect
to companies who violate the above regulations and fail to process housing provident fund payment and deposit registrations or open housing
provident fund accounts for their employees, such companies shall be ordered by the housing provident fund administration center to complete
such procedures within a designated period. Those who fail to process their registrations within the designated period shall be subject
to a fine ranging from RMB 10,000 to RMB 50,000. When companies breach these regulations and fail to pay up housing provident fund contributions
in full amount as due, the housing provident fund administration center shall order such companies to pay up within a designated period,
and may further apply to the People's Court for mandatory enforcement against those who still fail to comply after the expiry of
such period.
Regulations on
Tax in the PRC
Income Tax
In January 2008, the PRC Enterprise
Income Tax Law ("EIT Law") took effect, which was last amended by the Standing Committee of the National People's Congress
on December 29, 2018. The PRC Enterprise Income Tax Law applies a uniform 25 percent enterprise income tax rate to both FIEs and domestic
enterprises, except where tax incentives are granted to special industries and projects. The PRC Enterprise Income Tax Law defines "resident
enterprise" as an enterprise established outside of the territory of China but with its "de facto management body" within
China, which will also be subject to the 25% enterprise income tax rate. The implementation rules define the term "de facto management
body" as the body that exercises full and substantial control and overall management over the business, productions, personnel,
accounts, and properties of an enterprise. Enterprises qualified as "High and New Technology Enterprises" are entitled to
a 15% enterprises income tax rate rather than the 25% uniform statutory tax rate. The preferential tax treatment continues as long as
an enterprise can retain its "High and New Technology Enterprise" status. Under the PRC Enterprise Income Tax Law and its
implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008, and payable to its foreign
investor may be subject to a withholding tax rate of 10 percent if the PRC tax authorities determine that the foreign investor is a Non-resident
Enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated
before January 1, 2008, are exempt from PRC withholding tax.
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The State Administration of
Taxation ("SAT") has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent
years, including the Interim Measures for the Administration of Remittance of Income Tax for Non-Resident Enterprise Withheld at Source
(the "Interim Measures") which became effective on January 1, 2009, the Notice of the SAT on Strengthening the Administration
of Enterprise Income Tax on Gain Derived from Equity Transfer Made by Non-Resident Enterprise (the "Notice") which became
effective on January 1, 2008 and was amended on July 19, 2015, the Announcement of the SAT on Issues Concerning the Withholding of Non-resident
Enterprise Income Tax at Source (the "SAT Circular 37") which was promulgated on October 17, 2017, became effective on December
1, 2017 and was amended on June 15, 2018, and the Public Notice of the SAT Regarding Certain Enterprise Income Tax Matters on Indirect
Transfer of Properties by Non-Resident Enterprises (the "Public Notice 7") which became effective on February 3, 2015 and
was amended on December 1, 2017 and December 29, 2017.
The SAT Circular 37 amended
some provisions in Public Notice 7, repealed the Interim Measures and the Notice and simplifies procedures of withholding and payment
of income tax levied on non-resident enterprises. Pursuant to these rules and notices, where a non-resident enterprise investor transfers
equity interests or other taxable assets in a PRC resident enterprise indirectly by way of disposing of equity interests in an overseas
holding company, the non-resident enterprise investor, being the transferor, may be subject to PRC enterprise income tax if the indirect
transfer is considered to be an abusive use of company structure without reasonable commercial purposes. In addition, Public Notice 7
provides clear criteria on how to assess reasonable commercial purposes.
Value-Added Tax
According to the Temporary
Regulations on Value-added Tax, which was most recently amended on November 19, 2017, and the Detailed Implementing Rules of the Temporary
Regulations on Value-added Tax, which was amended on October 28, 2011, and became effective on November 1, 2011, all taxpayers selling
goods, providing processing, repair or replacement services or importing goods within the PRC shall pay Value-Added Tax. The rate of VAT
is 17%, 11% or 6% in certain limited circumstances depending on the product type.
On April 4, 2018, the Ministry
of Finance and the SAT jointly issued the Notice of Adjustment of Value-added Tax Rates which declared that the VAT tax rate in regard
to the sale of goods, provision of processing, repairs and replacement services and importation of goods into China shall be reduced from
the previous 17% and 11% to 16% and 10% respectively from May 1, 2018.
According to the Announcement
of the MOF, the SAT and the General Administration of Customs on Relevant Policies for Deepening Value-added Tax Reform promulgated on
March 20, 2019 and became effective on April 1, 2019 (the "Announcement"), for the VAT taxable sales or imports by a general
taxpayer of VAT, the applicable tax rate shall be adjusted to 13% from the original 16% and to 9% from original 10%.
Furthermore, according to
the Trial Scheme for the Conversion of Business Tax to Value-added Tax, which was promulgated by the MOF and the SAT, the PRC began to
launch taxation reforms in a gradual manner in January 1, 2012, whereby the collection of value-added tax in lieu of business tax items
was implemented on a trial basis in regions showing significant radiating effects in economic development and providing outstanding reform
examples, beginning with production service industries such as transportation and certain modern service industries.
In accordance with Notice
of the Ministry of Finance and the State Administration of Taxation on Full Launch of the Pilot Scheme on Levying Value-added Tax in Place
of Business Tax, a SAT circular that took effect on May 1, 2016, amended on July 11, 2017 and April 1, 2019, upon approval of the State
Council, the pilot program of the collection of value-added tax in lieu of business tax shall be promoted nationwide in a comprehensive
manner starting May 1, 2016, and all taxpayers of business tax engaged in the building industry, the real estate industry, the financial
industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax instead
of business tax.
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Regulation of Foreign Currency Exchange and
Dividend Distribution
Foreign Currency Exchange.
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as
amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Interim Measures
on Administration on Foreign Debts (2003). Under these regulations, Renminbi are freely convertible for current account items, including
the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account
items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval
of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise,
cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered
capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any
increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart.
The dividends paid by the
subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement,
Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to
a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under
the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental
authorities.
Dividend Distribution.
The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law of the PRC, which
was promulgated by SCNPC on December 29, 1993 and became effective on July 1, 1994 and subsequently amended on December 25,1999, August
28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018, the Foreign Investment Enterprise Law (1986) and its detailed rules,
Foreign Investment Law, which was promulgated by SCNPC on March 15, 2019 and became effective on January 1, 2020.
Under these regulations, wholly
foreign-owned investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with
PRC accounting standards and regulations. In addition, wholly foreign-owned investment enterprises in China are required to allocate at
least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50%
of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and a wholly foreign-owned enterprise
is not permitted to distribute any profits until losses from prior fiscal years have been offset.
Circular 37
. On July
4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE
and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic
assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required
if the registered overseas SPV's basic information such as domestic individual resident shareholder, name, operating period, or
major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division
has changed.
Moreover, Circular 37 applies
retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange
registration of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its
branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result
in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB 50,000
for an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed.
Pursuant to the Notice on
Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment (the "SAFE Circular 13"),
which was promulgated by SAFE on February 13, 2015, became effective on June 1, 2015 and partially repealed on December 30, 2019, the
power to accept foreign exchange registration was delegated from local foreign exchange bureau to local commercial banks where the assets
or interest in the domestic entity was located.
122
Regulation Related to M&A Regulations and
Overseas Listings
On August 8, 2006, six PRC
regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration
for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions
of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006 and was amended on June
22, 2009. The M&A Rules, among other things, require that (i) PRC entities or individuals obtain MOFCOM approval before they
establish or control an SPV overseas, provided that they intend to use the SPV to acquire their equity interests in a PRC company at the
consideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the PRC company overseas by listing
the SPV in an overseas market; (ii) the SPV obtains MOFCOM's approval before it acquires the equity interests held by the PRC
entities or PRC individual in the PRC company by Share Swap; and (iii) the SPV obtains CSRC approval before it lists overseas.
On
February 17,
2023,
CSRC promulgated the Trial Measures, and five supporting guidelines, which became effective on March 31, 2023. According to the
Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and
indirectly, should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure or
conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to
administrative penalties; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be
determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or
profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the
corresponding figure in the issuer's audited consolidated financial statements for the same period; (ii) its major operational
activities are carried out in China or its main places of business are located in China, or the senior managers in charge of
operation and management of the issuer are mostly Chinese citizens or are domiciled in China; (3) where a domestic company seeks to
indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible
for all filing procedures with the CSRC, and such filings shall be submitted to the CSRC within three business days after the
submission of the overseas offering and listing application; and (4) if the issuer issues securities in the same overseas market
after the initial issuance and listing, it shall submit filings with the CSRC within three business days after the completion of the
issuance. Further, at the press conference held for the Trial Measures on February 17, 2023, officials from the CSRC clarified that
the PRC domestic companies that have already been listed overseas on or before the effective date of the Trial Measures (i.e., March
31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete the filing
procedures immediately but shall carry out filing procedures as required if they conduct refinancing or are involved in other
circumstances that require filing with the CSRC. The officials from the CSRC have also confirmed that for the PRC domestic companies
that seek to list overseas with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the
filing of the overseas listing of companies with VIE structure which meet the compliance requirements.
On February 24, 2023, the
CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China
promulgated the Archives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic companies that seek for
overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and the Archives Rules, enhance legal
awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives administration
system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such domestic companies shall
not leak any state secret and working secret of government agencies, or harm national security and public interest. Furthermore, a domestic
company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or
entities including securities companies, securities service providers and overseas regulators, any document and materials that contain
state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and
file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to, either directly or through
its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities
service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security
or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also
stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities
companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable
national regulations.
123
Regulations on Offshore Parent Holding Companies'
Direct Investment in and Loans to Their PRC Subsidiaries
An offshore company may invest
equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment
is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Foreign
Investment Law, as amended from time to time, and its respective implementing rules; the Administrative Provisions on Foreign Exchange
in Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving
and Adjusting Foreign Exchange Administration Policies for Direct Investment. Under the aforesaid laws and regulations, the state adopts
the management system of pre-establishment national treatment and a negative list for foreign investment. In addition, the increase of
registered capital and total investment amount shall both be registered with SAIC and SAFE. Shareholder loans made by offshore parent
holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose, which is subject to a number
of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on
Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration
Rules on the Settlement, Sale and Payment of Foreign Exchange. Under these regulations, the shareholder loans made by offshore parent
holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be
borrowed by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount
and the registered capital amount of the PRC subsidiaries, both of which are subject to the governmental approval.
Regulations Relating to Foreign Investment
As
a provider of health information, healthcare education and training services to healthcare professionals and the public in China, the
PRC operating entities offer a wide range of online and onsite health information services, healthcare education programs, and healthcare
training products. As of the date of the Annual Report, the VIE holds the Internet Content Provider License, and it falls within the restricted
foreign investment for value-added telecommunications services that foreign ownership may not be more than 50%.
The
VIE also has the Radio and the TV Program Production and Business License and it falls within the prohibited foreign investment for making
and editing radio and TV programs. In addition, if the competent PRC government authorities determine that the PRC operating entities'
business operations of health information, healthcare education and training services are subject to the licensing requirements for internet
audio-visual programming, internet culture business operating and online publishing (See "Risk Factor—Risks Related to Doing
Business in China—
The PRC operating entities may face risks and uncertainties with respect to the licensing requirement for internet
audio-visual programs
", and "Risk Factors—Risks Related to Doing Business in China—
The PRC operating entities
failure to obtain, maintain or renew other licenses, approvals, permits, registrations or filings necessary to conduct their operations
in China could have a material adverse impact on our business, financial conditions and results of operations
."), the PRC operating
entities may be required to obtain the Online Transmission of Audio-Visual Programs License, Internet Culture Business Operating License
and Online Publishing License, which fall into the category of prohibited foreign investment. The PRC operating entities' business
activities other than the above mentioned are not set out in the Negative List or any encouraged catalogue.
The Foreign Investment Law
On March 15, 2019, the National
People's Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws on
foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned
Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC
regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment
Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view
of investment protection and fair competition.
124
According to the Foreign Investment
Law, "foreign investment" refers to investment activities directly or indirectly conducted by one or more natural persons,
business entities, or otherwise organizations of a foreign country (collectively referred to as "foreign investor") within
China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other
investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares
in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with
other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations,
or the State Council. Based on our understanding of the current PRC Laws, the Foreign Investment Law does not explicitly classify VIE
Arrangements as a form of foreign investment and our VIE Arrangements are valid and binding, and do not result in any violation of PRC
laws or regulations currently in effect. However, the Foreign Investment Law contains a catch-all provision under the definition of "foreign
investment", which includes investments made by foreign investors in China through means stipulated in laws or administrative regulations
or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions
promulgated by the Stale Council to provide for VIE Arrangements as a form of foreign investment, at which time it will be uncertain whether
our VIE Arrangements will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes,
how our VIE Arrangements should be dealt with. In addition, if future laws, administrative regulations or provisions prescribed by the
State Council mandate further actions to be taken by companies with respect to existing VIE Arrangements, the PRC operating entities may
face substantial uncertainties as to whether the PRC operating entities can complete such actions in a timely manner, or at all.
According to the Foreign Investment
Law, the State Council will publish or approve to publish the "negative list" for special administrative measures concerning
foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities ("FIEs"), except for
those FIEs that operate in industries deemed to be either "restricted" or "prohibited" in the "negative
list". The Foreign Investment Law provides that foreign investors shall not invest in any field with investment prohibited by the
Negative List for foreign investment access; while for any field with investment restricted by the Negative List for foreign investment
access, foreign-invested entities shall meet the investment conditions stipulated under the Negative List. If our consolidation of the
financial results of the VIE through VIE Arrangements as a primary beneficiary is deemed as foreign investment in the future, and any
business of the consolidated VIE is "restricted" or "prohibited" from foreign investment under the "negative
list" effective at the time, the PRC operating entities may be deemed to be in violation of the Foreign Investment Law, the VIE
Arrangements that allow us to consolidate the financial results of the VIE may be deemed as invalid and illegal, and the PRC operating
entities may be required to unwind such VIE Arrangements and/or restructure our business operations, any of which may have a material
adverse effect on our business operation.
Besides, the PRC government
has established a foreign investment information reporting system. According to Measures on Reporting of Foreign Investment Information,
which was released on December 30, 2020 and became effective on January 1, 2021, foreign investors or foreign-invested enterprises shall
submit investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise
credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment
affecting or likely affecting the state security.
Furthermore, the Foreign Investment
Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their
structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment
Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others,
that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital
gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and
income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments
at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations
and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit
conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case
statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition
of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
125
C.
Our Structure
See "Item 4. Information
on the Company – A. History and Development of the Company."
D.
Property, Plants and Equipment
See "Item 4. Information
on the Company – B. Business Overview – Facilities
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
You should read the following
discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements
and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements
based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors, including those set forth under "Item 3. Key Information—D.
Risk Factors" or in other parts of this annual report on Form 20-F.
A.
Operating results
Overview
We are not a Chinese operating
company but rather a holding company incorporated in Cayman Islands. As a holding company with no material operation of our own, we conduct
a substantial majority of our operation through our wholly owned subsidiary, Beijing Zhongchao Zhongxing Technology Limited, a PRC company
("Zhongchao WFOE") and a variable interest entity in China, Zhongchao Medical Technology (Shanghai) Co., Ltd. ("Zhongchao
VIE") and its subsidiaries (collectively, the "PRC operating entities"). Due to the existing VIE agreements between
Zhongchao WFOE and Zhongchao VIE, we are able to consolidate the financial results of Zhongchao VIE under the U.S. GAAP, however, we do
not hold equity interest in Zhongchao VIE.
Zhongchao VIE, together with
its subsidiaries, is a provider of healthcare information, education, and training services to healthcare professionals and the public
in China. They offer a wide range of online and onsite health information services, healthcare education programs, and healthcare training
products, consisting primarily of clinical practice training, open classes of popular medical topics, interactive case studies, academic
conference and workshops, continuing education courses, and articles and short videos with educational healthcare content to healthcare
professionals as well as the public. Zhongchao VIE, together with its subsidiaries, also has been engaged by certain customers on a project
basis to establish individual columns on its online platform to provide training and knowledge of certain drug treatment for healthcare
professionals and patients. Zhongchao VIE and its subsidiaries also plug in supplemental features, to manage the drug treatment including
reviewing patients' applications, tracking their usage of drugs, and collecting related information, or the patient-aid projects.
Zhongchao VIE commenced operation
in August 2012 with a vision to offer a wide range of accessible and immediate healthcare information and continuous learning and training
opportunities for Chinese healthcare professionals. Since its inception, Zhongchao VIE has been focused on developing information, education,
and training programs to address the needs in the healthcare industry in China; and developing online platforms and onsite activities
to deliver its information services, education programs and training products.
126
Zhongchao VIE provide healthcare
information, education, and training services to the healthcare professionals under "MDMOOC" brand. As of the date of this
report, its MDMOOC online platform has more than 219,825 registered users and a database of approximately 109,721healthcare experts including
around 1,152 physicians, and 108,569 allied healthcare professionals in medical academics, associations, and leading hospitals who
constantly collaborate with Zhongchao VIE to develop training programs on needed basis.
Zhongchao VIE provides its
healthcare educational content to the public via its "Sunshine Health Forums", which, based on the amount of the registered
users and daily review volume, we believe is one of the largest platform in China, for general healthcare knowledge and information to
the public. In July 2020, Zhongchao VIE launched   focused patient management services to hospitals, pharmacies, pharmaceutical
enterprises and non-profit organizations and insurance companies via "Zhongxun". In May 2021, Zhongchao VIE launched patient
management service on the professional field of tumor and rare diseases via "Zhongxin".
Commencing from the fourth
quarter of 2018, in addition to providing training and education courses through its platforms, Zhongchao VIE have been engaged by certain
customers on a project basis to establish individual columns on its MDMOOC online platform to provide training and knowledge of certain
drug treatment for healthcare professionals and patients. Most of the drug treatments are cancer-related or rare disease-related. Zhongchao
VIE establishes online columns to facilitate qualified patients to obtain free drug treatment from non-profit organizations ("NFPs")
till the earlier of the expiration of contract period or the free drugs are completely delivered. For each column, its plugs in features
to manage the drug treatment including reviewing patients' applications, tracking their usage of drugs, and collecting related information
(such programs with new plug-in features are hereinafter referred as the "patient-aid projects"). Those customers are its
existing customers. They provide those drugs sponsored by pharmaceutical companies without charge to qualified patients and Zhongchao
VIE charges those customers on its services in connection with the online columns and related training and management. In this way, Zhongchao
VIE can not only facilitate the clinical application of those drugs, but also can benefit patients.
As of the date of this report,
Zhongchao VIE has established nearly 22 columns for cancer-related drug treatment, including drug treatment for lung cancer, liver cancer,
and extended blood cancer, and 4 columns for drug treatment of rare diseases, including drug treatment for pulmonary fibrosis, multiple
sclerosis, and systemic lupus erythematosus.
In
May 2021, Zhongchao Shanghai launched patient management services focusing on the professional field of tumor and rare disease operated
through its subsidiary Shanghai Zhongxin, together with Shanghai Zhongxun, provide patient management services, branded as "Zhongxin
Health" (众芯健康). As of now, as Zhongxin Health provides comprehensive disease education and management
services for tumor patients receiving treatment, in September 2022, Zhongchao announced its new strategic extension of the business model
from "Medical-Pharmaceutical" to "Medical-Pharmaceutical-Patient." The establishment of Shanghai Zhongxin was
the important first step of Zhongchao's transformation.
127
Recent developments
On February 10, 2022, Beijing Yisuizhen subscribed for 10.56% equity interest
of West Angel (Beijing) Health Technology Co., Ltd, or West Angel, a PRC company, and nine shareholders of West Angel transferred all
of their equity interest, equal to 49.44% of the total equity interest of West Angel to Beijing Yisuizhen. As a result, Beijing Yisuizhen
holds 60% of the equity interest of West Angel.  West Angel is primarily engaged in provision of online platform for communication
between hospitals and patients. It has well established healthcare CRM (HCRM), a system specially designated to track patient data to
provide insight for understanding patient behaviors and habits for patient care, relationship management and experience, hospital marketing
and services, which may contribute in expanding our source of hospital customers and developing HCRM for hospitals. In addition, West
Angel's customers include high ranking hospitals and reputable medical professionals. Having those customers would provide competitive
advantage for us in attracting pharmaceutical enterprise customers and NFP for training and services provided by us.
On August 2, 2022, Mr. Weiguang
Yang transferred certain parts of his shares of Shanghai Zhongxin to several third parties. As a result, Mr. Weiguang Yang holds 12.33%
of the equity interest of Shanghai Zhongxin.  Through a certain entrustment agreement on August 3, 2022, Mr. Weiguang Yang, Zhongchao
Yixin, and Zhongren Yixin agreed to hold their equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun. As a result, Shanghai
Zhongxun owns 93.33% of Shanghai Zhongxin's equity interest.
In January 2023, Chongqing
Xinjiang Pharmaceutical Co., Ltd. ("Chongqing Xinjiang"), one of the China operating entities obtained the general
distribution rights in Mainland China for anti-influenza drug from Natco Pharma Limited ("Natco"). Natco is a vertically integrated
and R&D focused pharmaceutical company in India. The first batch of cargo has arrived at the port in Chongqing City,
and the drug will be introduced to the market for domestic treatment and prevention of Type A and Type B influenza viruses after the inspection
and quarantine.
In February 2023, the Company's
VIE renewed the partnership Johnson & Johnson (China) Investment Limited ("J&J"). The renewed partnership is expected
to further strengthen two parities' cooperation in the global advanced field of innovative medical and health.
In March 2023, the Company
launched "E-Class," a medical education intelligent content production platform developed by Zhongchao VIE. The "E-Class"
platform aims at enhancing the efficiency in creating health education courses, promoting doctors' health education capabilities,
and meeting patients' demands for medical and health knowledge and information.
Zhongchao VIE's business
operations could be adversely affected by the effects of a widespread outbreak of contagious disease, including the outbreak of respiratory
illness caused by a novel coronavirus known as COVID-19. Zhongchao VIE's corporate headquarter is located in Shanghai,
China, where any outbreak of contagious diseases and other adverse public health developments could be adverse on the Company's
business operations.
Key Factors that Affect Operating Results
We believe that the principal
competitive factors in our markets are industry expertise, breadth and depth of service offerings, quality of the services offered, reputation
and track record, marketing, scalability of infrastructure and price. The combination of our large user base, professional database and
high quality education content position us to be a leading provider of healthcare information, education, and training services to meet
the needs of healthcare organizations and professionals and will continue to contribute to our growth and success.
We believe the following factors
drive our success:
-
Acknowledged by leading pharmaceutical enterprises
-
Reliable Professional Content Production
-
Well Organized and Easy-To-Use Websites and Apps
128
Results of Operations
The following table sets forth
a summary of our consolidated results of operations for the periods presented. This information should be read together with our consolidated
financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily
indicative of our future trends.
For the Years Ended
December 31,
2022
2021
2020
Revenues
$
14,151,516
$
16,296,770
$
17,989,788
Cost of revenues
(7,794,852
)
(6,857,944
)
(6,117,640
)
Gross Profit
6,356,664
9,438,826
11,872,148
Operating Expenses
Selling and marketing expenses
(2,099,968
)
(3,137,316
)
(3,441,941
)
General and administrative expenses
(6,799,634
)
(5,863,373
)
(3,124,301
)
Research and development expenses
(411,524
)
(758,878
)
(816,553
)
Total Operating Expenses
(9,311,126
)
(9,759,567
)
(7,382,795
)
(Loss) Income from Operations
(2,954,462
)
(320,741
)
4,489,353
Interest income, net
142,014
175,987
146,965
Other income, net
262,442
34,001
305,566
(Loss) Income Before Income Taxes
(2,550,006
)
(110,753
)
4,941,884
Income tax benefits (expenses)
(272,313
)
349,418
(484,787
)
Net (Loss) Income
$
(2,822,319
)
$
238,665
$
4,457,097
Year ended December 31, 2022 compared to
year ended December 31, 2021
Revenues
We generate revenues from
pharmaceutical enterprise customers and NFP from design and production of online medical courses, organizing offline medical training
services, consulting and academic support services and patient management services for patient-aid projects.
Revenues decreased by $2,145,254, or 13.2% from $16,296,770 for the
fiscal year ended December 31, 2021 to $14,151,516 for the fiscal year ended December 31, 2022. The decrease was primarily caused by a
decrease of $2,149,633 in revenues from medical training and education services, which was attributable decreased orders from the PRC
operating entities' NFP customers as affected by governmental regulations against centralized purchase of medical related products,
a decrease of $1,054,741   in revenues from patient management services in patient-aid projects as the PRC operating entities'
customers reduced patient-aid projects as affected by lock-down policies under COVID-19 pandemic, partially offset by an increase of $1,216,096
from sales of patented drugs which was launched in the year of 2022.
For the fiscal years ended
December 31, 2022 and 2021, we earned a gross profit margin of 44.9% and 57.9%, respectively. Our gross profit margin decreased as a result
of decreased service orders from our NFP customers for patient-aid projects while the labor cost was stable over period. With China has
lifted its "zero-COVID" policy over COVID-19 pandemic, the Company expected to an increase in service orders from NFP
and maintain the high profit margin in the future.
129
Cost of revenues
Cost of revenues was comprised
of direct related costs incurred for preparation of online medical training courses and offline education seminars and patient management
services in patient-aid projects and cost of patented drugs.
Cost of revenues incurred
for preparation of online medical training courses and offline education seminars and patient management services in patient-aid projects
was comprised of direct related costs incurred for preparation of online medical training courses and offline education seminars and patient
management services in patient-aid projects, including expenses of travelling and accommodation, seminar site-rental, video production
and backdrop production, professional service fees charged by experts who provide online and offline seminars, and  salary and welfare
expenses incurred by the key members of the editorial, design and production team and patient-aid projects, as well as outsourced labor
cost in patient-aid projects. The travelling and accommodation expenses, including but not limited to the transportation expenses and
hotel accommodation expenses, represented the costs arising from lecturers' attendance and participation of the offline seminars.
Other travelling expenses were incurred by the Company's medical department for videos production, live streaming of the offline
seminars, and materials collection to create online courses. These travelling and accommodation expenses are well budgeted before any
agreements entered into by the Company and the customers. Therefore, such expenses are well covered by the customers under those agreements.
The Company is not reimbursed by the customers separately.
Cost of revenues incurred
for patented drugs was primarily comprised of purchase cost of drugs.
Cost of revenues
increased by $936,908, or 13.7%, from $6,857,944 for the fiscal year ended December 31, 2021 to $7,794,852 for the fiscal year ended
December 31, 2022. The increase was mainly attributable to an increase of $627,981 in cost of patented drugs as we commenced sales
of patented drugs in the year of 2022, and an increase of $308,927 in cost of revenues from our MDMOOC services primarily because
held more onsite medical training courses than ever which cost far higher than online courses.
Selling and marketing expenses
Selling and marketing expenses
decreased by $1,037,348, or 33.1%, from $3,137,316 for the fiscal year ended December 31, 2021 to $2,099,968 for the fiscal year ended
December 31, 2022. The decrease was mainly attributable to a decrease of $1,214,333 in advertising expenses as the Company gained reputation
in medical healthcare industry and decreased related expenditure, partially offset by an increase of $218,252 in salary and welfare
expenses as the PRC operating entities accrued  bonus for their sales persons so as to incentivize our sales persons to develop its business
and maintain current customers;
General and administrative expenses
General and administrative
expenses increased by $936,261, or 16.0%, from $5,863,373 for the fiscal year ended December 31, 2021 to $6,799,634 for the fiscal year
ended December 31, 2022. The increase was mainly attributable to an increase of $1,095,032 in salary and welfare expenses which was primarily
because the PRC operating entities accrued bonus for their employees and charged certain labor costs from cost of revenues to general
and administrative expenses with decrease orders from patient management services in patient-aid projects, and an increase of $577,767
in professional and consulting service expenses because the company closed an acquisition of subsidiaries in the year of 2022, partially
offset by a decrease of $696,380 in provision against doubtful accounts receivable.
Other income, net
For the fiscal year ended
December 31, 2022, other income, net was primarily consisted of government subsidies of $221,711, other income of $183,957 from provision
of consulting services, gain of $96,921 from sales of property and equipment, and rental income of $51,861 earned from leasing our properties
in Japan, partially offset by a decrease of $240,489 in fair value of short-term investments.
130
For the fiscal year ended
December 31, 2021, other income, net was primarily consisted of government subsidies of $55,807 and rental income of $50,543 earned from
leasing our properties in Japan, partially offset by loss of $13,758 from equity investment in a limited partnership and a decrease of
$58,412 in fair value of short-term investments.
Income tax expenses
We had income tax expenses
of $272,313 for the fiscal year ended December 31, 2022, as compared to tax benefits of $349,418 for the fiscal year ended December 31,
2021.
Current income tax expenses
decreased by $859,010 from $997,198 for the fiscal year ended December 31, 2021 to $138,188 for the fiscal year ended December 31, 2022.
The decrease was mainly due to combined effects of i) we incurred net operating losses in more of our subsidiaries leading to a decrease
of current income tax expenses, and ii) certain the VIE's subsidiaries qualified as Small and Micro-sized Enterprises ("SMEs")
in the year of 2022, which were entitled to preferential income tax rate, leading to a decrease of current income tax expenses.
Deferred income tax
benefits decreased from $1,346,616 for the fiscal year ended December 31, 2021 to deferred income tax expenses of $134,125 for the
fiscal year ended December 31, 2022. The change was mainly because certain of the VIE's subsidiaries, including those loss
making subsidiaries, qualified as SMEs which were entitled to preferential income tax rate, leading to a decrease of deferred tax
assets arising from net operating losses.
Net income
As a result of the foregoing,
we reported a net loss of $2,822,319 for the year ended December 31, 2022, as compared with a net income of $238,665 for the year ended
December 31, 2021.
Year ended December 31, 2021 compared to
year ended December 31, 2020
Revenues
We generate revenues from
pharmaceutical enterprise customers and NFP from design and production of online medical courses, organizing offline medical training
services, consulting and academic support services and assistance services for patient-aid projects.
Revenues decreased by $1,693,018,
or 9.4% from $17,989,788 for the fiscal year ended December 31, 2020 to $16,296,770 for the fiscal year ended December 31, 2021. The decrease
was primarily caused by decrease of $1,789,732 in revenues from medical training and education services, which was attributable decreased
orders from our NFP customers as affected by governmental regulations against centralized purchase of medical related products.
For the fiscal years ended
December 31, 2021 and 2020, we earned a high gross profit margin of 57.9% and 66.0%, respectively. The high gross profit margin was attributable
to our reputation acknowledgement among leading pharmaceutical enterprises and NFPs with our capability to design and produce of high-quality
professional content and organize assistance services for patient-aid projects. The Company expected to maintain the high profit
margin in the future.
131
Cost of revenues
Cost of revenues was comprised
of direct related costs incurred for preparation of online medical training courses and offline education seminars   and patient-aid
projects, including expenses of travelling and accommodation, seminar site-rental, video production and backdrop production, professional
service fees charged by experts who provide online and offline seminars, and  salary and welfare expenses incurred by the key members
of the editorial, design and production team and patient-aid projects, as well as outsourced labor cost in patient-aid projects. The travelling
and accommodation expenses, including but not limited to the air-ticket expenses and hotel accommodation expenses, represented the costs
arising from lecturers' attendance and participation of the offline seminars. Other travelling expenses were incurred by the Company's
medical department for videos production, live streaming of the offline seminars, and materials collection to create online courses. These
travelling and accommodation expenses are well budgeted before any agreements entered into by the Company and the customers. Therefore,
such expenses are well covered by the customers under those agreements. The Company is not reimbursed by the customers separately.
Cost of revenues increased
by $740,304, or 12.1%, from $6,117,640 for the fiscal year ended December 31, 2020 to $6,857,944 for the fiscal year ended December 31,
2021. The increase was mainly attributable to an increase of $964,170 in outsourced labor cost and an increase of $231,818 in salary and
welfare expenses as we employed increasing staff and outsourced staff to work for patient-aid projects, also as Company did not enjoy
the temporary social insurance contribution exemption as it did in 2020, partially offset by a decrease of $455,686 in connection with
medical training and education services, which was in line with the decrease of revenues from medical training and education services.
Selling and marketing expenses
Selling and marketing expenses
decreased by $304,625, or 8.9%, from $3,441,941 for the fiscal year ended December 31, 2020 to $3,137,316 for the fiscal year ended December
31, 2021. The decrease was mainly attributable to a decrease of $647,416 in advertising expenses as the Company gained reputation in medical healthcare
industry and decreased related expenditure, partially offset by an increase of $340,747 in salary and welfare expenses as the Company
did not enjoy the temporary social insurance contribution exemption as it did in 2020 as affected by COVID-19 and transferred part-time
sales staff to full-time employees so as to develop its business and maintain current customers;
General and administrative expenses
General and administrative
expenses increased by $2,739,072, or 87.7%, from $3,124,301 for the fiscal year ended December 31, 2020 to $5,863,373 for the fiscal year
ended December 31, 2021. The increase was mainly attributable to an increase of $1,113,460 in write-off doubtful accounts against accounts
receivable because of remote collection from certain NFPs, an increase of $791,019 in salary and welfare expenses as a result of
combining effects of an increase of headcounts in supporting functions in 2021 and Company did not enjoy the temporary social insurance
contribution exemption as it did in 2020, an increase of $342,517 in professional and consulting service expenses,   an increase
of $139,284 in depreciation and amortization expenses with purchase of properties and equipment, and an increase of $110,068 in rental
expenses as we leased new offices.
Other income, net
For the fiscal year ended
December 31, 2021, other income, net was primarily consisted of government subsidies of $55,807 and rental income of $50,543 earned from
leasing our properties in Japan, partially offset by loss of $13,758 from equity investment in a limited partnership and a decrease of
$58,412 in fair value of short-term investments.
For the fiscal year ended
December 31, 2020, other income, net was primarily consisted of government subsidies of $341,520, partially offset by loss of $25,622
from equity investment in a limited partnership and loss of $10,331 from short-term investments.
132
Income tax expenses
We had income tax benefits
of $349,418 for the fiscal year ended December 31, 2021, as compared to tax expense of $484,787 for the fiscal year ended December 31,
2020.
Current income tax expenses
increased by $453,987 from $543,211 for the fiscal year ended December 31, 2020 to $997,198 for the fiscal year ended December 31, 2021.
The increase was mainly because the taxable income of 2021 was primarily generated from Shanghai Zhongxun and Zhongxin which were subject
to the income tax rate of 25%, while the taxable income of 2020 was primarily generated from Shanghai Jingyi which was subject to a preferential
income tax rate of 10%.
Deferred income tax benefits
increased from $58,424 for the fiscal year ended December 31, 2020 to $1,346,616 for the fiscal year ended December 31, 2021. The change
was mainly caused by an increase of deferred tax benefit from net operating losses in Zhongchao Shanghai and its subsidiaries during the
year ended December 31, 2021. According  to PRC tax law, net operating losses can be carried forward for five years to
deduct taxable income.
Net income
As a result of the foregoing,
our net income decreased from $4,457,097 for the fiscal year ended December 31, 2020 to $238,665 for the fiscal year ended December 31,
2021.
Taxation
Cayman Islands
Under the current tax laws
of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders,
no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Under the current tax laws
of BVI, the Company's subsidiary incorporated in the BVI is not subject to tax on income or capital gains.
Hong Kong
Zhongchao HK is incorporated
in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted
in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and
assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from
the year of assessment 2018/2019. Before that, the applicable tax rate was 16.5% for corporations in Hong Kong. The Company did not make
any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under
Hong Kong tax laws, Zhongchao HK is exempted from income tax on its foreign-derived income and there are no withholding taxed in Hong
Kong on remittance of dividends.
USA
Zhongchao USA is incorporated
in the United States and is subject to a federal tax rate of 21%.
Japan
Under the current tax laws
of Japan, Zhongchao Japan is incorporated in Japan is subject to an income tax rate of 30%.
133
PRC
For the year ended December
31, 2022, Zhongchao Shanghai and Beijing Branch of Shanghai Zhongxun is subject to PRC Enterprise Income Tax ("EIT") on the
taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%. The Company's
other subsidiary and the VIE's subsidiaries that are located in the PRC were qualified as Small and Micro-sized Enterprises ("SMEs").
For the year ended December
31, 2021 and 2020, Zhongchao Shanghai, Shanghai Maidemu, Shanghai Zhongxun, Shanghai Zhongxin, Huijing are subject to EIT rate of 25%.
Hainan Zhongteng, located in Hainan Province, is subject to 15%. Beijing Boya, Shanghai Xinyuan and Hainan Muxin qualify as SMEs. Liaoning
Zhixun was not qualified as a SMEs until fiscal year 2021.
Qualified as a Software Development
Enterprise and a High and New Technology Enterprise, Zhongchao Shanghai applied a preferential income tax rate of 12.5% for the year ended
December 31, 2020. From January 1, 2021, Zhongchao Shanghai was subject to an EIT of 25%.
SMEs are entitled to a reduced
EIT rate of a reduced EIT rate of 20%, 87.5% reduction of taxable income for the first RMB1,000,000 taxable income and 75% reduction of
taxable income between RMB 1,000,000 and RMB 3,000,000, and no reduction for the remaining taxable income for the year ended December
31, 2022; 87.5% reduction of taxable income for the first RMB1,000,000 taxable income and 50% reduction of taxable income between RMB
1,000,000 and RMB 3,000,000, and no reduction for the remaining taxable income for the year ended December 31, 2021; and 75% reduction
of taxable income for the first RMB1,000,000 taxable income and 50% reduction of taxable income between RMB 1,000,000 and RMB 3,000,000,
and no reduction for the remaining taxable income for the years ended before December 31, 2020.
In September 2018, the State
Taxation Administration of the PRC announced a preferential tax treatment for research and development expenses. Qualified entities are
entitled to deduct 175% research and development expenses against income to reach a net operating income.
Critical Accounting Estimates
We prepare our consolidated
financial statements in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management
to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period. We continually evaluate these judgments and estimates based
on our own experience, knowledge and assessment of current business and other conditions.
Our expectations regarding
the future are based on available information and assumptions that we believe to be reasonable, which together form our basis for making
judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial
reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment
than others in their application. Out of our significant accounting policies, which are described in Note 2 – Summary of Significant
Accounting Policies of our consolidated financial statements included elsewhere in this Form 20-F, certain accounting policies are deemed
"critical," as they require management's highest degree of judgment, estimates and assumptions, including (i) revenue
recognition, (ii) accounts receivable, (iii) share-based compensation, and (iv) income tax.
We consider an accounting
estimate to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain
at the time such estimate is made and if different accounting estimates that reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe the following
accounting estimates involve the most significant judgments used in the preparation of our financial statements.
134
Allowance for doubtful accounts
We review the adequacy of the allowance for doubtful accounts on an ongoing
basis, using historical collection trends and aging of receivables. We also periodically evaluate individual customer's financial
condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
During the years ended December 31, 2022, 2021, and 2020, the Company wrote off $543,315, $1,449,827 and $336,367 against accounts receivable
due from certain customers. As affected by COVID-19, our customers had difficulties in repayment and the Company evaluated it is remote
to collect the balance. As of December 31, 2022 and 2021, the Company recorded allowance of $207,269 and $nil against doubtful
accounts receivable.
Share-based compensation
We measure the cost of the
employee share options based on the grant date fair value of the awards and recognizes compensation cost over the vesting period, which
is generally the requisite service period as required by the option agreement. The grant date fair value is estimated using binomial option
pricing model, which involves key assumptions of expected volatility, risk-free interest rate, exercise multiples, expected dividend yield,
life of options, and fair value of underlying ordinary shares. For the years ended December 31, 2022, 2021, and 2020, the Company had
stock-based compensation expenses of $160,777, $211,823, and $168,350, respectively.
Valuation of deferred tax assets
Deferred income taxes are
provided using assets and liabilities method, which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities
are determined on the basis of the differences between financial statements and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred tax assets are recognized
to the extent that these assets are more likely than not to be realized. In making such determination, our management considers all positive
and negative evidence, including future reversals of projected future taxable income and results of recent operation. For the years ended
December 31, 2022, 2021 and 2020, we provided valuation allowance of $339,495, $nil and $nil against deferred tax assets.
In order to assess uncertain
tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being
realized upon settlement. we recognize interest and penalties, if any, under accrued expenses and other current liabilities on our consolidated
balance sheet and under other expenses in our consolidated statement of operations and comprehensive (loss) income.
Recent Accounting Pronouncements
A list of recently issued
accounting pronouncements that are relevant to us is included in Footnote 2(cc) of our audited consolidated financial statements included
elsewhere in this annual report.
Inflation
To date, inflation in China
has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent
changes in the consumer price index for December 2020, 2021 and 2022 were increases of 2.5%, 0.9% respectively. Although we have
not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation
in China in the future.
135
B.
Liquidity and capital resources
In assessing our liquidity, we monitor and analyze our cash on-hand
and our operating and capital expenditure commitments. To date, we have financed our operations primarily through cash flows from operations,
and equity financing.
During the year ended December
31, 2022, 2021 and 2020, the Company generated net (loss) income of $(2,822,319), $238,665, and $4,457,097, respectively. In the year
of 2022, we raised proceeds of $1,850,744 from a shelf offering of 1,060,000 of our Class A ordinary shares.
As of December 31, 2022 and
2021, we had cash and cash equivalents of $11,520,453 and $13,914,982, and working capital of $18,539,125 and $23,665,269, respectively.
We intend to continue to use these funds to grow our business primarily by:
Strengthen our brand awareness
of MDMOOC and Sunshine Health School
●
Expand and enhancement of medical course content
●
Grow medical professional user community
●
Recruit more experienced editorial staff, and
●
Development of multiple revenues streams such as online bookstore
Although we consolidate the
results of the PRC operating entities and its subsidiaries, we only have access to cash balances or future earnings of the PRC operating
entities through our VIE Arrangements with the PRC operating entities.
Current foreign exchange and
other regulations in the PRC may restrict our PRC subsidiary, our VIE and VIE's subsidiaries in their ability to transfer their
net assets to the Company and its subsidiaries in Cayman Islands, and Hong Kong. However, these restrictions have no impact on the ability
of our PRC subsidiary to transfer funds to us as we have no present plans to declare dividend which we plan to retain our retained earnings
to continue to grow our business. In addition, these restrictions have no impact on the ability for us to meet our cash obligations as
all of our current cash obligations are due within the PRC.
To utilize the proceeds we
received from the IPO and over-allotment, we may make additional capital contributions to our PRC subsidiary, establish new PRC subsidiaries
and make capital contributions to these new PRC subsidiaries, or make loans to the PRC subsidiaries. However, most of these uses are subject
to PRC regulations.
A majority of our future revenues
are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into
foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange
transactions.
We expect that a substantial
majority of our future revenues will be denominated in Renminbi. Under existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made
in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC
subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural
requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted
into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.
136
Cash Flows
The following table sets forth
a summary of our cash flows for the fiscal years ended December 31, 2022, 2021, and 2020.
For the Years Ended
December 31,
2022
2021
2020
Net cash (used in) provided by operating activities
$
(661,740
)
$
2,861,848
$
(1,037,839
)
Net cash used in investing activities
(3,346,658
)
(4,017,284
)
(4,094,678
)
Net cash provided by financing activities
1,850,744
-
11,497,654
Effect of exchange rate changes on cash and cash equivalents
(236,875
)
(2,529
)
875,258
Net (decrease) increase in cash and cash equivalents
(2,394,529
)
(1,157,965
)
7,240,395
Cash and cash equivalents at beginning of year
13,914,982
15,072,947
7,832,552
Cash and cash equivalents at end of year
$
11,520,453
$
13,914,982
$
15,072,947
Operating activities
Fiscal Years Ended December 31, 2022 and
2021
Net cash used in operating
activities was $661,740 for the fiscal year ended December 31, 2022, a change of $3,523,588 from net cash provided by operating activities
of $2,861,848 for the fiscal year ended December 31, 2021. We incurred net loss of $2,822,319 for the fiscal year ended December 31,
2022, a change of $3,030,984, from net income of $238,665 for the fiscal year ended December 31, 2021. In addition to the change in profitability,
the change in net cash used in operating activities was the result of several factors, including:
●
An decrease of $1,076,292 in accounts receivable for the fiscal year ended December 31, 2022, as compared with an increase of $104,230 for the year ended December 31, 2021. The change was mainly caused by a decrease of $906,512 in writing off of accounts receivable in the year of 2022; and
●
A decrease of $66,148 in other current assets for the fiscal year ended December 31, 2022, as compared with a decrease of $1,302,009 in other current assets for the fiscal year ended December 31, 2021. During the year of 2022, the balance of other current assets kept stable. While during the year of 2021, the Company consumed prepaid advertising fee of $977,077, among which prepaid advertising expenses of $459,235 was refunded to the Company in January 2021 as the Company suspended cooperation with the vendor.
Fiscal Years Ended December 31, 2021 and
2020
Net cash provided by operating
activities was $2,861,848 for the fiscal year ended December 31, 2021, a change of $3,899,687 from net cash used in operating activities
of $1,037,839 for the fiscal year ended December 31, 2020. We made a net income of $238,665 for the fiscal year ended December 31, 2021,
a decrease of $4,218,432, from $4,457,097 for the fiscal year ended December 31, 2020. In addition to the change in profitability, the
change in net cash used in operating activities was the result of several factors, including:
●
An increase of $104,230 in accounts receivable for the fiscal year ended December 31, 2021, as compared with an increase of $5,486,914 for the year ended December 31, 2020. The change was mainly because the Company improved its collection from customers; and
●
A decrease of $1,302,009 in other current assets for the fiscal year ended December 31, 2021, as compared with an increase of $1,143,200 in other current assets for the fiscal year ended December 31, 2020. The change was mainly caused by consumption of prepaid advertising fee of $977,077 in the year of 2021, among which prepaid advertising expenses of $459,235 was refunded to the Company in January 2021 as the Company suspended cooperation with the vendor.
137
●
An increase of $905,733 in income tax payable for the fiscal year ended December 31, 2021, as compared with an increase of $535,981 for the fiscal year ended December 31, 2020. The change was mainly caused by increase of current income tax expenses as we generated taxable income from two subsidiaries which were subject to income tax rate of 25% in the year 2021, as compared with taxable income from one subsidiary which enjoy a preferential income tax rate of 10% in the year 2020.
Investing activities
For the fiscal year ended
December 31, 2022, we had net cash used in investing activities of $3,346,658 which was primarily attributable to purchase of properties
and equipment of $1,615,905, payment of $3,055,432 in acquisition of subsidiaries, investments of $996,638 in certain short-term
investments, and loans of $1,032,219 made to third parties, partially offset by proceeds of $1,112,440 from sales of one property, proceeds
of $533,891 from redemption of short-term investments, and collection of loans of $1,806,772 from third parties.
For the fiscal year ended
December 31, 2021, we had net cash used in investing activities of $4,017,284 which was primarily attributable to purchase of properties
and equipment of $1,799,860, investment in an equity method investee of $708,129, loan made to a related party of $387,549,
investment in an equity security of $150,000,   net loans made to third parties of $2,650,113, partially offset by redemption
of certain listed equity securities through open market of $1,678,367.
For the fiscal year ended
December 31, 2020, we had net cash used in investing activities of $4,094,678 which was primarily attributable to purchases of certain
listed equity securities through open market of $2,043,259, investment in a limited partnership of $1,217,039 and deposits of $688,267
paid for purchase of offices in Japan and foreclosure property in China.
Financing activities
For the fiscal year ended
December 31, 2022, we had net cash provided by financing activities of $1,850,744 from offering 1,060,000 Class A ordinary shares in a
shelf offering.
For the fiscal year ended
December 31, 2021, we had no cash provided by or used in financing activities.
For the fiscal year ended
December 31, 2020, we had net cash provided by financing activities of $11,497,654 representing net proceeds raised from initial public
offering in February 2020.
Based on the current operating
plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for us to meet our future liquidity
and capital requirement for at least 12 months from the date of this annual report.
Holding Company Structure
Zhongchao Inc. is a holding
company with no material operations of its own. We conduct our operations primarily through our PRC subsidiary and the PRC operating entities
in China. As a result, Zhongchao Inc.'s ability to pay dividends depends upon dividends paid by our PRC subsidiary. If our existing
PRC subsidiary or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict
their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us
only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each
of our subsidiaries and the PRC operating entities in China is required to set aside at least 10% of its after-tax profits each year,
if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our wholly
foreign-owned subsidiaries in China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise
expansion funds and staff bonus and welfare funds at their discretion, and the PRC operating entities may allocate a portion of its after-tax
profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds
are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination
by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate
accumulated profits and meet the requirements for statutory reserve funds.
138
C.
Research and development, Patents and License, etc.
Research and development expenses
consist primarily of salary and welfare expenses for IT department employees who work for development of the Company's platform
and database, and software and related intellectual property expenses which was used to develop an extensive library of licensed content
and medical database.
Our research and development
expenses were $411,524, $758,878, and $816,553 for the fiscal years ended December 31, 2022, 2021, and 2020, respectively.
We are continued to commit
to work on the development and maintenance in our platform and database as we intend to provide professionals and consumers with Internet-based
access to our courses and education software and enhance the consumer experience.
D.
Trend information
Other than as disclosed elsewhere
in this Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a
material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause reported
financial information not necessarily to be indicative of future operating results or financial condition.
E.
Off-balance Sheet Arrangements
We have not entered into any
derivative contracts that are indexed to our shares and classified as shareholders' equity or that are not reflected in our consolidated
financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development
services with us.
F.
Tabular Disclosure of Contractual Obligations
Commitments and Contingencies
From time to time, the Company
may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes
of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse
impact on its financial position, results of operations or liquidity.
Contractual obligations
As of December 31, 2022, our
contractual obligation primarily comprised of operating lease payments, which is presented in below table:
For the year ended December 31, 2023
$
550,915
For the year ended December 31, 2024
324,647
For the year ended December 31, 2025
317,927
For the year ended December 31, 2026
317,980
For the year ended December 31, 2027 and thereafter
397,475
Total lease payments
1,908,944
(1)
We lease offices which are classified as operating leases in accordance with ASC Topic 842. As of December 31, 2022, our future lease payments totaled $1,908,944.
139
G.
Safe Harbor
This annual report on Form
20-F contains forward-looking statements. These statements are made under the "safe harbor" provisions of Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as "will,"
"expects," "anticipates," "future," "intends," "plans," "believes,"
"estimates," "may," "intend," "is currently reviewing," "it is possible,"
"subject to" and similar statements. Among other things, the sections titled "Item 3. Key Information—D. Risk
Factors," "Item 4. Information on the Company," and "Item 5. Operating and Financial Review and Prospects"
in this annual report on Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make
written or oral forward-looking statements in our filings with the SEC, in our annual report to shareholders, in press releases and other
written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical
facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to change, and such change
may be material and may have a material and adverse effect on our financial condition and results of operations for one or more prior
periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results
to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in this annual report
on Form 20-F. All information provided in this annual report on Form 20-F and in the exhibits is as of the date of this annual
report on Form 20-F, and we do not undertake any obligation to update any such information, except as required under applicable law.
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
Below is a list of our directors,
senior management and any employees upon whose work we are dependent as of the date of this Annual Report, and a brief account of the
business experience of each of them. The business address for our directors and officers is Nanxi Creative Center, Suite 218, 841 Yan'An
Middle Road, Jing'An District, Shanghai, China 200040.
Name
Age
Position
Weiguang Yang
40
President, Chief Executive Officer, and Chairman of the Board
Pei Xu
40
Chief Financial Officer, Secretary, and Director
Xuejun Chen
44
Chief Medical Officer
Baoqian Tian
38
Chief Sales Officer
Shuang Wu
39
Chief Operating Officer
John C. General
(1)(4)
60
Independent director
Kevin Dean Vassily
(2)
56
Independent director
Dan Li
(3)
46
Independent director
(1)
Chair of the Audit Committee.
(2)
Chair of the Compensation Committee.
(3)
Chair of the Nominating Committee.
(4)
Audit Committee financial expert.
Weiguang Yang
is
the founder of Zhongchao Inc. and Zhongchao Shanghai. He has served as our general manager Zhongchao Shanghai since August 2012. Since
January 2021, Mr. Yang has served as the co-chief executive officer and director of TradeUp Acquisition Corp. (NASDAQ: UPTD), a special
purpose acquisition corporation. From June 2013 to June 2016, Mr. Yang served as the first Chinese board member on the Global Alliance
for Medical Education (GAME), a non-for-profit organization dedicated to the advancement of innovation in medical education throughout
the world. From October 2015 to July 2012, Mr. Yang was the general manager at Medwork, a continuing medical education company. Mr. Yang
obtained a bachelor degree in Clinical Medicine Science (traumatic surgery) from Gannan Medical University in 2005. Mr. Yang attended
the master course of Social Medicine and Health Management as continuing education from 2006 to 2008 in Capital Medical University of
China. From 2010 to 2012, Mr. Yang took part in the master course of Integrated Marketing Communication in Tsinghua University.
140
Pei Xu
is the
CFO of Zhongchao Inc. and Zhongchao Shanghai. She has been serving as our CFO of Zhongchao Shanghai since January 2016. From September
2013 to January 2016, Ms. Xu served as the financial director of Zhongchao Shanghai. From September 2008 to August 2013, Ms. Xu worked
for Otsuka (China) Investment Co., Ltd. as a financial director. Ms. Xu holds a bachelor degree in finance from Jiangxi University
of Finance and Economics.
Xuejun Chen
is
the Chief Medical Officer of Zhongchao Inc. and Deputy General Manager of Medicine of Zhongchao Shanghai. He has been serving as
our deputy general manager of medicine of Zhongchao Shanghai since March 2012, mainly responsible for designing PI and COPS courses on
our MDMOOC online platform. Mr. Chen also serves as medical Director at Medwork from January 2010 to February 2012. From September 2008
to December 2009, Mr. Chen served D&S, a Chinese public relation corporation, as medical director. Mr. Chen holds a bachelor degree
in Clinical Medicine Science from Shanxi Medical University and a master degree in pharmacology from Harbin University of Commerce.
Baoqian Tian
has
been serving as our Chief Sales Officer of Zhongchao Inc. and Deputy General Manager of Sales of Zhongchao Shanghai. He has been serving
as our deputy general manager of sales of Zhongchao Shanghai since November 2017. Prior to joining us, he served as the account director
in Beijing Think Marketing Consulting Co., Ltd., a provider of advertising and consulting services to pharmaceutical enterprises from
July 2010 to July 2016. From July 2007 to July 2010, Mr. Tian worked as a project manager of China International Exhibition Center Group
Corporation. Mr. Tian holds a bachelor degree in Tourism Management (Event Management) from Beijing International Studies University and
a master degree in Business Administration from University of Chinese Academy of Sciences.
Shuang Wu
is
the Chief Operating Officer of Zhongchao Inc. and Zhongchao Shanghai. She has been serving as our Chief Operating Officer of Zhongchao
Shanghai since March 2012. She is also the founder of Sunshine Health Forum. Ms. Wu holds a Bachelor of Management in healthcare management
from North China University of Science and Technology.
John C. General
is
an independent director of the Company. Mr. General serves as a Senior Manager of Global Revenue Assurance for Avaya, responsible for
the appropriate recognition of revenue under current accounting standards, and review of transactions for audit purposes from April 2013
to present. He served as a manager of financial operations for Bed Bath & Beyond, Value Services Inc., responsible for the controllership
and compliance reporting for the Company's gift card business for all retail concepts from July 2010 to April 2013. He served as
a director in the department of SOX Implementation for Virgin Mobile, responsible for ensuring SOX compliance from July 2004 to March
2009. From September 1986 to December 2003, he served in various positions at AT&T Corp., where he last served as a Financial Director
responsible for revenue assurance and billing operations. He holds a license as a Certified Public Accountant, a certificate in Senior
Executive Education from Columbia University, an MBA in Finance from Rutgers University, and bachelor's degrees in both economics
and accounting from Fairleigh Dickinson University.
Kevin Dean Vassily
is
an independent director of the Company. In January 2021, he was appointed Chief Financial Officer, and in March 2021, became a member
of the board of directors of iPower Inc. (NASDAQ: IPW), a leading online hydroponic equipment retailer and supplier. Prior to joining
iPower, from 2019 to January 2021, Mr. Vassily served as Vice President of Market Development for Facteus, a financial analytics company
focused on the Asset Management industry. From March 2019 through 2020, he served as an advisor at Woodseer, a financial technology firm
providing global dividend forecasts. He serves as an advisor at Go Capture, responsible to provide strategic, business development,
and product development advisory work for emerging "Data as a Service" platform from July 2018 to present. He also serves
as an advisor at Prometheus Fund, responsible to provide strategic, due diligence, and opportunity sourcing for Shanghai based merchant
bank/PE firm focused on the "green" economy from July 2018 to present. Mr. Vassily served as an associate director of research
at Keybanc Capital Markets, responsible for the KeyBanc Data Insights initiative and co-managed the Technology Research vertical from
January 2015 to June 2018. From December 2010 to December 2014, he served as the director of research at Pacific Epoch, responsible for
a complete overhaul of product and a complete business model restart post acquisition focusing on a "data-first" offering.
From May 2007 to December 2010, he served as Asia technology business development/senior analyst at Pacific Crest Securities, responsible
for establishing firm's presence and relevance covering Asia Technology. From June 2003 to September 2006, he served as senior research
analyst in the semiconductor technology group at Susquehanna International Group, responsible for research in semiconductor and related
technologies. From January 2001 to May 2003, he served as the vice president and senior research analyst for semiconductor capital equipment
at Thomas Weisel Partners, responsible for publishing research and maintaining financial models on each of the companies under coverage.
He holds a bachelor degree in liberal arts from Denison University and a master degree in business administration from the Tuck School
of Business at Dartmouth College. Mr. Vassily also serves as an independent director for three special
purpose acquisition companies listing on Nasdaq, including (i) Denali Capital Acquisition Corp. (NASDAQ: DECA), (ii) Feutune Light Acquisition
Corp. (NASDAQ: FLV), and (iii) Aimfinity Investment Corp. I (NASDAQ: AIMA), and an independent director nominee for Fortune Joy International
Acquisition Corp., a special purpose acquisition company to be listed on Nasdaq.
141
Dan Li
is an
independent director of the Company. Ms. Li works as the research assistant in Beijing Friendship Hospital - China Capital Medical University,
responsible for conducting research in tropical diseases and development of detection kit of pathogenic microorganism from June 2012 to
present. She served as a manager of the medicine management department in EPS Corporation, responsible for managing the importation of
medicines from Japan to China from October 2009 to November 2011. Ms. Li holds a bachelor degree in clinical medicine from the Medical
School of North China University of Science and Technology, a master degree in hemorheology from the Medical School of Peking University,
and a Ph.D. in biochemistry from the Medical School of Keio University.
None of the events listed
in Item 401(f) of Regulation S-K has occurred during the past ten years that is material to the evaluation of the ability or integrity
of any of our directors, director nominees or executive officers.
Limitation on Liability and Other Indemnification Matters
The Companies Law does not
limit the extent to which a company's memorandum and articles of association may provide for indemnification of officers and directors,
except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime. Our Amended and Restated Memorandum and Articles of Association permit
indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses
or damages arise from dishonesty of such directors or officers willful default of fraud.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing
provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
B.
Compensation of Directors and Executive Officers
Executive Compensation
Summary Compensation Table
The following table shows the annual compensation
paid by us for the years ended 2022.
Name/principal position
Year
Salary
Equity
Compensation
All Other
Compensation
Total Paid
Weiguang Yang/ CEO
(1)
2022
$
157,498
$
-
$
-
$
157,498
Pei Xu / CFO
(2)
2022
$
59,718
$
-
-
$
59,718
Xuejun Chen / Chief Medical Officer
(3)
2022
$
112,617
$
-
$
-
$
112,617
Baoqian Tian / Chief Sales Officer
(4)
2022
$
112,275
$
-
$
-
$
112,275
Shuang Wu / Chief Operating Officer
(5)
2022
$
57,240
$
-
$
-
$
57,240
(1)
Appointed Chairman and CEO effective as of August 2019.
(2)
Appointed CFO effective as of August 2019
(3)
Appointed Chief Medical Officer effective as of August 2019.
(4)
Appointed Chief Sales Officer effective as of August 2019.
(5)
Appointed Chief Operating Officer effective as of August 2019.
142
Under Chinese law, we may
only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date
on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement
in the absence of cause, then we are obligated to pay the employee one month's salary for each year we have employed the employee.
We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime
or the employee's actions or inactions have resulted in a material adverse effect to us.
Employment Agreements
Weiguang Yang Employment Agreement
On August 7, 2019, we entered
into an employment agreement with Weiguang Yang pursuant to which he agreed to serve as our Chief Executive Officer. The agreement provides
for an annual base salary of USD$69,593 payable in accordance with the Company's ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month' notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive's
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through
the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits
under the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 1-month'
advanced notice or payment of 1-month' salary in lieu of the notice. Weiguang Yang has agreed not to compete with us for 2 years
after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for
agreements of this nature.
Pei Xu Employment Agreement
On August 7, 2019, we entered
into an employment agreement with Pei Xu pursuant to which she agreed to serve as our Chief Financial Officer. The agreement provides
for an annual base salary of USD$34,796 payable in accordance with the Company's ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month' notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive's
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through
the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits
under the agreement. If her employment is terminated at our election without cause or by her, the Company shall provide 1-month'
advanced notice or payment of 1-month' salary in lieu of the notice. Pei Xu has agreed not to compete with us for 2 years after
the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements
of this nature.
Xuejun Chen Employment Agreement
On August 7, 2019, we entered
into an employment agreement with Xuejun Chen pursuant to which he agreed to serve as our Chief Medical Officer. The agreement provides
for an annual base salary of USD$40,016 payable in accordance with the Company's ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month' notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive's
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through
the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits
under the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 1-month'
advanced notice or payment of 1-month' salary in lieu of the notice. Xuejun Chen has agreed not to compete with us for 2 years after
the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements
of this nature.
143
Baoqian Tian Employment Agreement
On August 7, 2019, we entered
into an employment agreement with Baoqian Tian pursuant to which he agreed to serve as our Chief Sales Officer. The agreement provides
for an annual base salary of USD$52,195 payable in accordance with the Company's ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month' notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive's
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through
the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits
under the agreement. If his employment is terminated at our election without cause or by him, the Company shall provide 1-month'
advanced notice or payment of 1-month' salary in lieu of the notice. Baoqian Tian has agreed not to compete with us for 2 years
after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for
agreements of this nature.
Shuang Wu Employment Agreement
On August 7, 2019, we entered
into an employment agreement with Shuang Wu pursuant to which she agreed to serve as our Chief Operating Officer. The agreement provides
for an annual base salary of USD$33,056 payable in accordance with the Company's ordinary payroll practices. The term of the agreement
shall expire on August 6, 2022, which term will automatically extend for additional 3-year periods unless a party to the agreement terminates
it upon 1-month' notice or proposes to re-negotiate the terms of the employment with the other party within 3 months prior to the
expiration of the applicable term, or unless the employment is terminated earlier pursuant to the terms of the agreement. If the executive's
employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through
the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits
under the agreement. If her employment is terminated at our election without cause or by her, the Company shall provide 1-month'
advanced notice or payment of 1-month' salary in lieu of the notice. Shuang Wu has agreed not to compete with us for 2 years after
the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements
of this nature.
Director Compensation
The directors may receive
such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all
traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors
or committees of our board of directors or general meetings or separate meetings of any class of shares or of debenture of the Company
or otherwise in connection with the discharge of his or her duties as a director. Employee directors will not receive any additional remuneration
for serving as directors of the Company other than their remuneration as employees of the Company. Each of the non-employee directors
is entitled to receive annual cash compensation in the amount of $24,000, payable quarterly, and stock option to purchase certain amount
of Class A Ordinary Shares under Company's 2019 Equity Incentive Plan. On October 10, 2022, we compensated each of three independent
directors, John C. General, Kevin Dean Vassily, and Dan Li, 6,000 Class A Ordinary Shares for their services provided to the Company as
members of the Board and the Board's committees.
2019 Equity Incentive Plan (the "2019
Plan")
We have adopted a 2019 Equity
Incentive Plan (the "Plan"). The Plan provides for discretionary grants of Awards (as defined in the Plan) to key employees,
directors and consultants of the Company. The purpose of the Plan is to recognize contributions made to our company and its subsidiaries
by such individuals and to provide them with additional incentive to achieve the objectives of our Company. Except as otherwise disclosed
in this Annual Report, no grants have been made under the plan as of the date hereof. The following is a summary of the Plan and is qualified
by the full text of the Plan.
Administration
.
The Plan is administered by
our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the
Plan as the "Committee").
144
Number of Class A Ordinary Shares.
The number of Class A Ordinary
Shares that may be issued under the Plan is the maximum aggregate number of Class A Ordinary Shares reserved and available pursuant to
this Plan shall be the aggregate of (i) 970,871 Class A Ordinary Shares and (ii) on each January 1, starting with January 1, 2020 until
December 31, 2025, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of Class A Ordinary Shares (on
a fully-diluted basis) on the immediately preceding December 31, and (B) such lower number of Class A Ordinary Shares as may be determined
by the Committee, subject in all cases to adjustment as provided in. If an Award (or any portion thereof) terminates, expires or lapses
or is cancelled for any reason, any Class A Ordinary Shares subject to the Award (or such portion thereof) shall again be available for
the grant of an Award pursuant to the Plan (unless the Plan has terminated). If any Award (in whole or in part) is settled in cash or
other property in lieu of Class A Ordinary Shares, then the number of Class A Ordinary Shares subject to such Award (or such part) shall
again be available for grant pursuant to the Plan. Class A Ordinary Shares that have actually been issued under the Plan, pursuant to
Awards under the Plan shall not be returned to the Plan and shall not cause the number of Class A Ordinary Shares available to be subject
to Awards under the Plan to be increased. Subject to any required action by the shareholders of the Company, the number of Class A Ordinary
Shares covered by each outstanding Award, the number of Class A Ordinary Shares which have been authorized for issuance under the Plan
but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, and
the number of Class A Ordinary Shares subject to grant as Incentive Stock Options, as well as the price per Class A Ordinary Shares covered
by each such outstanding Award and any other affected terms of such Awards, shall be proportionally and equitably adjusted for any increase
or decrease in the number of issued Class A Ordinary Shares resulting from a subdivision or consolidation, share dividend, amalgamation,
spin-off, arrangement or consolidation, combination or reclassification of Class A Ordinary Shares. Except as the board of director or
the Committee determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.
Types of Awards
The 2019 Plan permits the granting of any or all
of the following types of awards to all grantees:
●
share options, including incentive share options, or ISOs;
●
share appreciation rights, or SARs;
●
restricted shares;
●
restricted share units; and
●
share payments
Awards granted under the 2019
Plan may, in the discretion of the Committee, be granted alone or in addition to, in tandem with or in substitution for, any other award
under the 2019 Plan. The material terms of each Award will be set forth in a written award agreement between the grantee and us.
Share Options and SARs
The Committee is authorized
to grant SARs and share options (including ISOs except that an ISO may only be granted to an employee of ours or one of our subsidiary
corporations). A share option allows a grantee to purchase a specified number of our Class A Ordinary Shares at a predetermined price
per share (the "exercise price") during a fixed period measured from the date of grant. An SAR entitles the grantee to receive
the excess of the fair market value of a specified number of Class A Ordinary Shares on the date of exercise over a predetermined exercise
price per share. The exercise price of an option or an SAR will be determined by the Committee and set forth in the award agreement but
the exercise price may not be less than the fair market value of a share on the grant date. The term of each option or SAR is determined
by the Committee and set forth in the award agreement, except that the term may not exceed 10 years. Options may be exercised by payment
of the purchase price through one or more of the following means: payment in cash, payment in check, payment in promissory note, with
the approval of the Committee, by delivery of our Class A Ordinary Shares acquired upon the exercise of such option; consideration received
by the Company under a broker-assisted or similar cashless exercise program implemented by the Company in connection with the Plan; payment
by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable laws; or any combination
of the foregoing methods of payment.
145
Restricted Shares
The Committee may award restricted
shares consisting of our Class A Ordinary Shares which remain subject to a risk of forfeiture and may not be disposed of by grantees until
certain restrictions established by the Committee lapse. A grantee receiving restricted shares will have all of the rights of a shareholder,
including the right to vote the shares and the right to receive any dividends, except as otherwise provided in the award agreement. If
the price for the restricted shares was paid in services, then upon termination as a service provider, the grantee shall no longer have
any right in the unvested restricted shares and such restricted shares shall be and thereupon either cancelled or surrendered to the Company
without consideration. If a purchase price was paid by the grantee for the restricted shares (other than in services), then upon the grantee's
termination as a service provider, the Company shall have the right to repurchase from the grantee the unvested restricted shares then
subject to restrictions at a cash price per share equal to the price paid by the grantee for such restricted shares or such other amount
as may be specified in the award agreement.
Restricted Share Units
The Committee may also grant
restricted share unit awards. A restricted share unit award is the grant of a right to receive a specified number of our Class A Ordinary
Shares upon lapse of a specified forfeiture condition. If the condition is not satisfied during the restriction period, the award will
lapse without the issuance of the Class A Ordinary Shares underlying such award.
Restricted share units carry
no voting or other rights associated with share ownership until the Class A Ordinary Shares underlying the award are delivered in settlement
of the award. The Company shall cause such Class A Ordinary Shares to be evidenced as issued by entry in the Company's register
of shareholders promptly after the restricted share unit vests.
Share Payments
The Committee may grant share
payments to any service provider in the manner determined from time to time by the Committee; provided, that unless otherwise determined
by the Committee such share payments shall be made in lieu of base salary, bonus, or other cash compensation otherwise payable to such
grantee, including any such compensation that has been deferred at the election of the grantee; provided, further, that not
less than the par value of any Class A Ordinary Share shall be received by the Company in connection with its issue pursuant to any such
share payment. In accordance with applicable law, such par value may be paid through the provision of services. The number of Class A
Ordinary Shares issuable as a share payment shall be determined by the Committee and may be based upon satisfaction of such specific criteria
as determined appropriate by the Committee, including specified dates for electing to receive such share payment at a later date and the
date on which such share payment is to be made.
Change in Control
If there is a merger or consolidation
of us with or into another corporation or a sale of substantially all of our ordinary shares, or, collectively, a Change in Control, the
Company as determined in the sole discretion of the Committee and without the consent of the grantee may take any of the following actions:
(i) accelerate or not accelerate
the vesting, in whole or in part, of any award, or some or all awards, of any grantee, some grantees or all grantees;
(ii) purchase any award for
an amount of cash or ordinary shares equal to the value that could have been attained upon the exercise of such award or realization of
the grantee's rights had such award been currently exercisable or payable or fully vested (and, for the avoidance of doubt, if as
of such date the Committee determines in good faith that no amount would have been attained upon the exercise of such award or realization
of the grantee's rights, then such award may be terminated by the Company without payment); or
(iii) provide for the assumption,
conversion or replacement of any award by the successor or surviving company or a parent or subsidiary of the successor or surviving company
with other rights (including cash) or property selected by the Committee in its sole discretion or the assumption or substitution of such
award by the successor or surviving company, or a parent or subsidiary thereof, with such appropriate adjustments as to the number and
kind of ordinary shares and prices as the Committee deems, in its sole discretion, reasonable, equitable and appropriate. In the event
the successor or surviving company refuses to assume, convert or replace outstanding awards, the awards shall fully vest and the grantee
shall have the right to exercise or receive payment as to all of the Class A Ordinary Shares subject to the award, including Class A Ordinary
Shares as to which it would not otherwise be vested, exercisable or otherwise issuable (including at the time of the Change in Control).
146
Amendment to and Termination of the 2019 Plan
The Board of Directors in
its sole discretion may terminate this 2019 Plan at any time. The Board of Directors may amend this 2019 Plan at any time in such respects
as the Board of Directors may deem advisable; provided, that, if required to comply with applicable laws or stock exchange rules or the
rules of any automated quotation systems (other than any requirement which may be disapplied by the Company following any available home
country exemption), the Company shall obtain shareholder approval of any 2019 Plan amendment in such a manner and to such a degree as
required.
In addition, subject to the
terms of the 2019 Plan, no amendment or termination of the 2019 Plan may materially and adversely affect the right of a grantee under
any award granted under the 2019 Plan.
C.
Board Practices
Composition of Board; Risk Oversight
Our Board of Directors consists
of five (5) directors as of this Annual Report. Pursuant to our Amended and Restated Memorandum and Articles of Association, our officers
will be elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such
time as they resign or are removed from office by resolution of our shareholders. The directors have been divided into two classes, being
the class I directors (the "Class I Directors") and the class II directors (the "Class II Directors"). The number
of directors in each class shall be as nearly equal as possible. The Class I Directors shall stand elected for a term expiring at the
Company's initial meeting after the adoption of the Amended and Restated Memorandum and Articles of Association and the Class II
Directors shall stand elected for a term expiring at the Company's third annual general meeting following the initial meeting. Directors
elected to succeed those Class I Directors whose terms expire shall be elected for a term of office to expire at the first annual general
meeting following their election and directors elected to succeed those Class II Directors whose terms expire shall be elected for a term
of office to expire at the third annual general meeting following their election. The initial members of Class I Directors are John C.
General, Kevin Dean Vassily, Dan Li. The initial members of Class II Directors are Weiguang Yang and Pei Xu. A director will be removed
from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors,
or becomes physically or mentally incapable of acting as director. Except as noted above, there are no family relationships between any
of our executive officers and directors. Officers are elected by, and serve at the discretion of, the board of directors. Our board of
directors shall hold meetings on at least a quarterly basis.
As a smaller reporting company
under the NASDAQ rules we are only required to maintain a board of directors comprised of at least 50% independent directors, and an audit
committee of at least two members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Securities
Exchange Act of 1934. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors
unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected
or nominated.
There is no formal requirement
under the Company's Amended and Restated Memorandum and Articles of Association mandating that we hold an annual meeting of our
shareholders. However, notwithstanding the foregoing, we intend to hold such meetings on our annual meeting to, among other things,
elect our directors.
Our board plays a significant
role in our risk oversight. The board makes all relevant Company decisions. As such, it is important for us to have our Chief Executive
Officer serve on the board as he plays key roles in the risk oversight or the Company. As a smaller reporting company with a small board
of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
147
Director Independence
Our board has reviewed the
independence of our directors, applying the NASDAQ independence standards. Based on this review, the board determined that each of John
C. General, Kevin Dean Vassily, and Dan Li is "independent" within the meaning of the NASDAQ rules. In making this determination,
our board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our
board deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent
directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive
session without the presence of non-independent directors and management.
Duties of Directors
Under Cayman Islands law,
our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to
exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances.
In fulfilling their duty of care to us, our directors must ensure compliance with our Amended and Restated Memorandum and Articles of
Association. A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Board Committees
Currently, three committees
have been established under the board: the Audit Committee, the Compensation Committee and the Nominating Committee.
The Audit Committee is responsible
for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company,
including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the board
of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation,
and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans).
The Nominating Committee of the board is responsible for the assessment of the performance of the board, considering and making recommendations
to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers
diversity of opinion and experience when nominating directors.
Audit Committee
The Audit Committee is responsible
for, among other matters:
●
appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;
●
discussing with our independent registered public accounting firm the independence of its members from its management;
●
reviewing with our independent registered public accounting firm the scope and results of their audit;
●
approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
●
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
●
reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;
●
coordinating the oversight by our board of directors of our code of business conduct and our disclosure controls and procedures
148
●
establishing procedures for the confidential and or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and
●
reviewing and approving related-party transactions.
Our Audit Committee consists
of John C. General, Kevin Dean Vassily, and Dan Li, with John C. General serving as chair of the Audit Committee. Our board has affirmatively
determined that each of the members of the Audit Committee meets the definition of "independent director" for purposes of
serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. In addition, our board has determined that John C.
General qualifies as an "audit committee financial expert" as such term is currently defined in Item 407(d)(5) of Regulation
S-K and meets the financial sophistication requirements of the NASDAQ rules.
Compensation Committee
The Compensation Committee
is responsible for, among other matters:
●
reviewing and approving, or recommending to the board of directors to approve the compensation of our CEO and other executive officers and directors;
●
reviewing key employee compensation goals, policies, plans and programs;
●
administering incentive and equity-based compensation;
●
reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and
●
appointing and overseeing any compensation consultants or advisors.
Our Compensation Committee
consists of John C. General, Kevin Dean Vassily, and Dan Li, with Kevin Dean Vassily serving as chair of the Compensation Committee. Our
board has affirmatively determined that each of the members of the Compensation Committee meets the definition of "independent director"
for purposes of serving on Compensation Committee under NASDAQ rules.
Nominating Committee
The Nominating Committee is
responsible for, among other matters:
●
selecting or recommending for selection candidates for directorships;
●
evaluating the independence of directors and director nominees;
●
reviewing and making recommendations regarding the structure and composition of our board and the board committees;
●
developing and recommending to the board corporate governance principles and practices;
●
reviewing and monitoring the Company's Code of Business Conduct and Ethics; and
●
overseeing the evaluation of the Company's management
Our Nominating Committee consists
of consists of John C. General, Kevin Dean Vassily, and Dan Li, with Dan Li serving as chair of the Nominating Committee. Our board has
affirmatively determined that each of the members of the Nominating Committee meets the definition of "independent director"
for purposes of serving on a Nominating Committee under NASDAQ rules.
149
Code of Business Conduct and Ethics
Our board has adopted a code
of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website.
We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business
Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller,
or persons performing similar functions.
Duties of Directors
Under Cayman Islands law,
our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise
the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of
care to us, our directors must ensure compliance with our Amended and Restated Memorandum and Articles of Association. We have the right
to seek damages if a duty owed by our directors is breached.
The functions and powers of
our board of directors include, among others:
●
appointing officers and determining the term of office of the officers;
●
authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable;
●
exercising the borrowing powers of the company and mortgaging the property of the company;
●
executing checks, promissory notes and other negotiable instruments on behalf of the company; and
●
maintaining or registering a register of mortgages, charges or other encumbrances of the company.
Interested Transactions
A director may vote, attend
a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director
must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction
we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting
or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any
specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure,
and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive
such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all
traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors
or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as
a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors.
Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property
or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt,
liability or obligation of the company or of any third party.
Board Diversity Matrix
Board
                                            Diversity Matrix (As of May 11, 2023)
Country of Principal Executive Offices
People's Republic of China
Foreign Private Issuer
Yes
Disclosure Prohibited Under Home Country Law
No
Total Number of Directors
5
Part I: Gender Identity
Female
Male
Non-Binary
Did Not Disclose Gender
Directors
2
3
0
0
Part II: Demographic Background
Underrepresented Individual in Home Country Jurisdiction
0
LGBTQ+
0
Did Not Disclose Demographic Background
0
150
D.
Employees
As of the date of this Annual
Report, we have a total of 116 full-time employees, of which 10 are in research and development, 31 are in sales and marketing, 56 are
in technical and customer services, and 19 are in general administration.
We have standard employment,
comprehensive confidentiality and non-compete agreements with our management and standard confidentiality and non-compete terms with all
other employees. As required by laws and regulations in China, we participate in various social security plans that are organized by municipal
and provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury
insurance and housing fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages
of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to
time.
In March 2022, in consideration of the business promotion purpose and
the uncertainty of the COVID-19 development and governmental restrictions in connection with the COVID-19, we leased a residential apartment
for an employee in Chongqing for a two-year term payable quarterly for a total of $892   (RMB 6,000) each rent payment.
We believe that we maintain
a good working relationship with our employees, and we have not experienced any labor disputes. None of our employee is represented by
a labor union or covered by collective bargaining agreements. We have not experienced any work stoppages.
E.
Share Ownership
See Item 7 below.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
The following tables set forth
certain information with respect to the beneficial ownership of our Class A Ordinary Shares (including Class A Ordinary Shares issuable
upon the conversion of outstanding Class B Ordinary Shares) for:
●
each shareholder known by us to be the beneficial owner of more than 5% of our outstanding Class A Ordinary Shares or Class B Ordinary Shares;
●
each of our directors;
●
each of our named executive officers; and
●
all of our directors and executive officers as a group.
The beneficial ownership of
our Class A Ordinary Shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person
exercises sole or shared voting or investment power, and includes the Class A Ordinary Shares issuable upon the conversion of the outstanding
Class B Ordinary Shares and the Class A Ordinary Shares issuable pursuant to share options that are exercisable within 60 days of the
date of this Annual Report. Class A Ordinary Shares issuable pursuant to share options are deemed outstanding for computing the percentage
of the person holding such options but are not outstanding for computing the percentage of any other person. As of the date of this Annual
Report, there were no Class A Ordinary Shares issuable pursuant to share options exercisable within 60 days thereof.
151
The percentage of beneficial
ownership owned is based on 20,531,423 Class A Ordinary Shares (including 1,350,068 Class A Ordinary Shares to be issued upon exercise
of the HF Warrant the Company issued to HF Capital. For more details of the HF Warrant, see "Our Corporate History and Structure"
on page 53).
For more details of the F-3, please see "Item 4. Information on the Company—The "Shelf" Offering" on page
65) and 5,497,715 Class B Ordinary Shares outstanding as of the date of this Annual Report.
Name and Address of Beneficial Owner
Class A
Ordinary Shares
Class B
Ordinary shares
% of
Voting
% of
Total Voting
Shares
Power
Shares
Power*
Directors, Named  Executive Officers, and 5% Beneficial Owner
Weiguang Yang
(1)(9)
-
-
5,497,715
80.07
%
Pei Xu
(2) (10)
371,628
*
-
-
Xuejun Chen
(3) (10)
689,310
*
-
-
Baoqian Tian
(4) (10)
199,879
*
-
-
Shuang Wu
(5) (10)
651,719
*
-
-
John C. General
(6)
18,000
*
Dan Li
(7)
18,000
*
Kevin Dean Vassily
(8)
18,000
*
More Healthy Holdings Limited
(9)
-
5,497,715
80.07
%
Worthy Health Limited Partnership
(10)
2,569,537
2.49
%
-
-
All directors and executive officers as a group (8 persons)
1,966,536
1.91
%
5,497,715
80.07
%
*
Represents less than 1%.
●
Represents
the voting power with respect to all of our Class A Ordinary Shares and Class B Ordinary Shares, voting as a single class. According
to our charter, each Class A Ordinary Shares entitles to 1 vote and each Class B Ordinary Share entitles to 15 votes.
●
Unless
otherwise indicated, the business address of each of the individuals is Zhongchao, Nanxi Creative Center, Suite 218, 841 Yan'An
Middle Road, Jing'An District, Shanghai, China 200040.
(1)
Mr. Weiguang Yang is the Chairman, Chief Executive Officer, and President of Zhongchao. Mr. Yang holds the shares through his control of More Healthy Holdings Limited.
(2)
Ms. Pei Xu is the Chief Financial Officer of Zhongchao.
(3)
Mr. Xuejun Chen is the Chief Medical Officer of Zhongchao.
(4)
Mr. Baoqian Tian is the Chief Sales Officer of Zhongchao.
(5)
Ms. Shuang Wu is the Chief Operating Officer of Zhongchao.
(6)
Mr. John C. General is the independent director, chair of the Audit Committee, and Audit Committee financial expert of Zhongchao.
(7)
Ms. Dan Li is the independent director and the chair of the Nominating Committee of Zhongchao.
152
(8)
Ms. Kevin Dean Vassily is the independent director and the chair of the Compensation Committee of Zhongchao.
(9)
More Healthy Holdings Limited is a company limited by shares incorporated under the laws of British Virgin Islands ("More Healthy"). The address of its business office is Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. The person having voting, dispositive or investment powers over More Healthy Holdings Limited is Mr. Weiguang Yang.
(10)
Worthy Health Limited Partnership is a limited partnership incorporated under the laws of British Virgin Islands ("Worthy Health"), the general partner of which is More Successful Group Limited, a company limited by shares incorporated under the laws of the British Virgin Islands ("More Successful"), which is controlled by Pei Xu who acts as the sole director of More Successful. The general partner exercises the voting rights with respect to the shares held by Worthy Health.  The general partner disclaims beneficial ownership of our shares except to the extent of its pecuniary interest in Worthy Health. As limited partners, Pei Xu, Xuejun Chen, Baoqian Tian, and Shuang Wu respectively own 11.4%, 23%, 6.67%, and 21.75% partnership interests of Worthy Health. The principal office address of Worthy Health is at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, VG 1110, British Virgin Islands.
As of the date of this Annual
Report, there were 5 holders of record entered in our Class A ordinary share register and 1 holder of record entered in our Class B ordinary
share register. The number of individual holders of record is based exclusively upon our share register and does not address whether a
share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial
owner of a share or shares in our company.
To our knowledge, no other
shareholder beneficially owns more than 5% of our shares. Our company is not owned or controlled directly or indirectly by any government
or by any corporation or by any other natural or legal person severally or jointly. Our major shareholders do not have any special voting
rights.
B.
Related Party Transactions
Name
Relationship with the Company
Yang Weiguang
Chairman of the Board, Chief Executive Officer
Beijing Ougaini Trading Co., Ltd ("Beijing Ougaini")
Controlled by an immediate family member of Mr. Yang Weiguang
Beijing Yisuizhen
The Company owned 47% and 100% equity interest before and after August 17, 2022, respectively
(1) Purchase from a related
party
For the Years Ended
December 31,
2022
2021
2020
Beijing Ougaini
$
19,696
$
-
$
-
During the year ended December 31, 2022, the Company
also prepaid $118,888 to Beijing Ougaini for purchase of products for employee welfare and marketing promotion.
(2) Balances with related
parties
As of December 31, 2022 and 2021, the
balances with related parties were as follows:
December 31,
2022
December 31,
2021
Prepayments
Beijing Ougaini
$
115,989
$
-
Due from related parties
Yang Weiguang (i)
226,178
-
Beijing Yisuizhen (ii)
-
392,305
$
226,178
$
392,305
153
(i)
As of December 31, 2022, the Company had a balance of $226,178
due from Mr. Yang Weiguang. The balance was comprised of the following:
-
A balance of $144,986 arising from transfer of 6.67% equity interest of Shanghai Zhongxin to four former
shareholders of West Angel, who paid consideration to Mr. Yang. (Note 4)
-
A balance of $81,192 as tuition paid on behalf of to Mr. Yang.
As of the date of this report,
Mr. Yang has repaid the above outstanding balances to the Company.
On
October 10, 2022, we compensated each of three independent directors, John C. General, Kevin Dean Vassily, and Dan Li, 6,000 Class A Ordinary
Shares for their services provided to the Company as members of the Board and the Board's committees. During the year ended December
31, 2022, the Company made short term interest-free loans to three
unaffiliated
third parties in the aggregated amount of approximately $1.03
million
and Mr. Weiguang Yang provides irrevocable guarantee over such outstanding loans. The Company received the full payment of the loans as
of the date of this report.
VIE Arrangements with the VIE and its Shareholders
See "Corporate History
and Structure— VIE Arrangements."
Policies and Procedures for Related Party Transactions
Our board of directors has
created an audit committee which will be tasked with review and approval of all related party transactions.
C.
Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial
Information
See Item 19 for our audited
consolidated financial statements.
Legal
Proceedings
As
previously disclosed, Ms. Lirong Yang, the sister of Mr. Weiguang Yang filed a civil compliant on April 18, 2022, against a third-party
individual for unauthorized occupation of a property located in the Tongzhou District, Beijing in the Tongzhou Court. Shanghai Maidemu
was considered as a beneficiary of the complaint as it was the ultimate owner/beneficiary of the property pursuant to a certain real estate
entrust agreement between Shanghai Maidemu and Ms. Yang; and the property was purchased during a public judicial auction in May 2021 to
be used as a Beijing office for Shanghai Maidemu. On October 18, 2022, pursuant to a real estate purchase agreement, Ms. Lirong Yang sold such property
to a third-party individual.
As a result, on December
12, 2022, Ms. Lirong Yang filed a request for withdrawal of the compliant. As a result, the compliant was withdrawn by Tongzhou Court
on the same day.
Except as disclose above,
from time to time, we are subject to legal proceedings, investigations and claims incidental to the conduct of our business. We are not
currently a party to any legal proceeding or investigation which, in the opinion of our management, is likely to have a material adverse
effect on our business, financial condition or results of operations.
154
Dividend Policy
The holders of our Class A
Ordinary Shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of
directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the
future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries may, from time
to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan
agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.
In the event of our liquidation, dissolution or winding up, holders of our Class A Ordinary Shares are entitled to receive, ratably, the
net assets available to shareholders after payment of all creditors.
B.
Significant Changes
Except as disclosed elsewhere
in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated financial statements
included in this Annual Report.
Item 9. THE OFFER AND LISTING
A.
Offering and Listing Details.
The Registration Statement
on Form F-1 (File No. 333-234807) became effective on February 21, 2020. Our Class A Ordinary Shares are currently listed on NASDAQ Capital
Market under the symbol ZCMD.
B.
Plan of Distribution
The Registration Statement
on Form F-3 (File No. 333-256190) became effective on May 24, 2021. We may offer and sell Class A ordinary shares, $0.0001 par value per
share, having an aggregate offering price of up to $10,400,000 from time to time through or to US Tiger Securities, Inc., acting as our
agent.
C.
Markets
Our Class A Ordinary Shares
are currently listed on NASDAQ Capital Market under the symbol ZCMD.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
155
B.
Amended and Restated Memorandum and Articles of Association
The information required by
Item 10.B of Form 20-F is included in the section titled "Description of Share Capital" in our Registration Statement, which
section is incorporated herein by reference. Our Amended and Restated Memorandum and Articles of Association were filed as Exhibit 3.1
to the Registration Statement filed on November 21, 2019 and are hereby incorporated by reference into this Annual Report.
C.
Material Contracts
The information required by
Item 10.C of Form 20-F is included in the sections titled "Our Business," "Directors and Executive Officers,"
"Related Party Transactions," and "Underwriting" in our Registration Statement, which sections are incorporated
herein by reference.
D.
Exchange Controls
Under Cayman Islands law,
there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect
the remittance of dividends, interest or other payments to nonresident holders of our shares.
E.
Taxation
The following summary of
the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our Class A Ordinary Shares is based upon
laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change. This summary
does not deal with all possible tax consequences relating to an investment in our Class A Ordinary Shares, such as the tax consequences
under state, local and other tax laws.
Cayman Islands Taxation
The Cayman Islands currently
levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature
of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands.
The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by the Company. There are no
exchange control regulations or currency restrictions in the Cayman Islands.
Material PRC Income Tax Considerations
Under the new EIT Law and
the Implementing Rules, an enterprise established outside of the PRC with "de facto management bodies" within the PRC is considered
as a resident enterprise and will be subject to a PRC income tax rate of 25% on its global income. According to the Implementing Rules,
"de facto management bodies" refer to "establishments that carry out substantial and overall management and control
over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise." Accordingly, our holding
company may be considered a resident enterprise and may therefore be subject to a PRC income tax on our global income. The State Administration
of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident
Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria
for determining whether the "de facto management body" of a Chinese-controlled offshore incorporated enterprise is located
in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those invested in by individuals
or foreign enterprises, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation's general
position on how the "de facto management body" test should be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises or controlled by or invested in by individuals or foreign enterprises. If
we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, such PRC income tax on our global
income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.
We do not believe that Zhongchao
meets all of the conditions required for PRC resident enterprise. The Company is a company incorporated outside the PRC. As a holding
company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the
resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons,
we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise
is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de
facto management body." There can be no assurance that the PRC government will ultimately take a view that is consistent with ours.
156
However, if the PRC tax authorities
determine that Zhongchao is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding
tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be reduced by applicable tax
treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the
benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In
addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of Class
A Ordinary Shares, if such income is treated as sourced from within the PRC.
It is unclear whether our
non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders
in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally
apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC
shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC
in the event that the Company is treated as a PRC resident enterprise.
Provided that our Cayman Islands
holding company, Zhongchao, is not deemed to be a PRC resident enterprise, our shareholders who are not PRC residents will not be subject
to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under Circular
7, where a non-resident enterprise conducts an "indirect transfer" by transferring taxable assets, including, in particular,
equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident
enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant
tax authority such indirect transfer. Using a "substance over form" principle, the PRC tax authority may disregard the existence
of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding
or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee
would be obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident
enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7,
and we may be required to expend valuable resources to comply with Bulletin 37, or to establish that we should not be taxed under Circular
7 and Bulletin 37.
Prospective investors should
consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties,
and any available foreign tax credits.
Material U.S. Tax Considerations
The following is a summary
of the material U.S. federal income tax consequences of owning and disposing of our Class A Ordinary Shares. The discussion below of the
U.S. federal income tax consequences to "U.S. Holders" will apply to a beneficial owner of our shares that is for U.S. federal
income tax purposes:
●
an individual citizen or resident of the United States;
●
a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia;
●
an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or
●
a trust if (i) a U.S. court can exercise primary supervision over the trust's administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If a beneficial owner of our
shares is not described as a U.S. Holder in one of the four bullet points above and is not an entity treated as a partnership or other
pass-through entity for U.S. federal income tax purposes, such owner will be considered a "Non-U.S. Holder." The U.S. federal
income tax consequences applicable to Non-U.S. Holders is described below under the heading "Tax Consequences to Non-U.S. Holders
of Class A Ordinary Shares."
157
This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative history, existing Treasury regulations promulgated
thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations,
possibly on a retroactive basis.
This discussion does not address
all aspects of U.S. federal income taxation that may be relevant to us or to any particular holder of our shares based on such holder's
individual circumstances. In particular, this discussion considers only holders that own our shares as capital assets within the meaning
of Section 1221 of the Code. This discussion also does not address the potential application of the alternative minimum tax or the U.S.
federal income tax consequences to holders that are subject to special rules, including:
●
financial institutions or financial services entities;
●
broker-dealers;
●
taxpayers who have elected mark-to-market accounting;
●
tax-exempt entities;
●
governments or agencies or instrumentalities thereof;
●
insurance companies;
●
regulated investment companies;
●
real estate investment trusts;
●
certain expatriates or former long-term residents of the United States;
●
persons that actually or constructively own 5% or more of our voting shares;
●
persons that acquired our shares pursuant to the exercise of employee stock options, in connection with employee stock incentive plans or otherwise as compensation;
●
persons that hold our shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or
●
persons whose functional currency is not the U.S. dollar.
This discussion does not address
any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally, this
discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through
such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner
of our shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner
and the activities of the partnership. This discussion also assumes that any distribution made (or deemed made) in respect of our shares
and any consideration received (or deemed received) by a holder in connection with the sale or other disposition of such shares will be
in U.S. dollars.
We have not sought, and will
not seek, a ruling from the Internal Revenue Service (or "IRS"), or an opinion of counsel as to any U.S. federal income tax
consequence described herein. The IRS may disagree with one or more aspects of the discussion herein, and its determination may be upheld
by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not
adversely affect the accuracy of the statements in this discussion.
158
BECAUSE OF THE COMPLEXITY
OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN,
EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP
AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL
TAX LAWS AND APPLICABLE TAX TREATIES.
Tax Consequences to U.S. Holders of Class A
Ordinary Shares
Taxation of Distributions
Paid on Class A Ordinary Shares
Subject to the passive foreign
investment company (or "PFIC"), rules discussed below, a U.S. Holder generally will be required to include in gross income
as ordinary income the amount of any cash dividend paid on our Class A Ordinary Shares. A cash distribution on such shares will be treated
as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and
profits (as determined for U.S. federal income tax purposes). Any distributions in excess of such earnings and profits generally will
be applied against and reduce the U.S. Holder's basis in its Class A Ordinary Shares and, to the extent in excess of such basis,
will be treated as gain from the sale or exchange of such Class A Ordinary Shares. With respect to corporate U.S. Holders, dividends on
our shares will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends
received from other domestic corporations.
With respect to non-corporate
U.S. Holders, including individual U.S. Holders, dividends on our shares will be taxed at the lower long-term capital gains rate applicable
to qualified dividend income (see "Taxation on the Disposition of Class A Ordinary Shares" below), provided that (1) our Class
A Ordinary Shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a
Chinese "resident enterprise" under the EIT Law, we are eligible for the benefits of the Agreement between the Government
of the United States of America and the Government of the People's Republic of China for the Avoidance of Double Taxation and the
Prevention of Tax Evasion with Respect to Taxes on Income, or the "U.S.-PRC Tax Treaty," (2) we are not a PFIC, as discussed
below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements
are met. Under published IRS authority, shares are considered for purposes of clause (1) above to be readily tradable on an established
securities market in the United States only if they are listed on certain exchanges, which presently include the Nasdaq Stock Market.
U.S. Holders should consult their own tax advisors regarding the tax treatment of any dividends paid with respect to our Class A Ordinary
Shares, including the effects of any change in law after the date of this Annual Report.
If PRC taxes apply to dividends
paid to a U.S. Holder on our Class A Ordinary Shares, such U.S. Holder may be entitled to a reduced rate of PRC tax under the U.S-PRC
Tax Treaty. In addition, such PRC taxes may be treated as foreign taxes eligible for credit against such holder's U.S. federal income
tax liability (subject to certain limitations). U.S. Holders should consult their own tax advisors regarding the creditability of any
such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.
Taxation on the Disposition
of Class A Ordinary Shares
Upon a sale or other taxable
disposition of our Class A Ordinary Shares, and subject to the PFIC rules discussed below, a U.S. Holder will recognize capital gain or
loss in an amount equal to the difference between the amount realized in U.S. dollars and the U.S. Holder's adjusted tax basis in
the Class A Ordinary Shares. Capital gains recognized by U.S. Holders generally are subject to U.S. federal income tax at the same rate
as ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal
income tax at a maximum rate of 20%. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder's holding
period for the Class A Ordinary Shares exceeds one year. The deductibility of capital losses is subject to various limitations. If PRC
taxes would otherwise apply to any gain from the disposition of our Class A Ordinary Shares by a U.S. Holder, such U.S. Holder may be
entitled to a reduction in or elimination of such taxes under the U.S.-PRC Tax Treaty. Any PRC taxes that are paid by a U.S. Holder with
respect to such gain may be treated as foreign taxes eligible for credit against such holder's U.S. federal income tax liability
(subject to certain limitations that could reduce or eliminate the available tax credit). U.S. Holders should consult their own tax advisors
regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.
159
Passive Foreign Investment Company Rules
A foreign (i.e., non-U.S.)
corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share
of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively,
a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined
based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which
it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income
generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of
a trade or business) and gains from the disposition of passive assets.
Based on our current composition
and assets, we do not expect to be treated as a PFIC under the current PFIC rules. We must make a separate determination each year as
to whether we are a PFIC. As such, our PFIC status, will not be determinable until after the end of each taxable year. Accordingly, there
can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the amount
of cash we raise in the IPO, together with any other assets held for the production of passive income, it is possible that, for our 2019
taxable year or for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income.
We will make this determination following the end of any particular tax year. If we are determined to be a PFIC and a U.S. Holder did
not make either a timely qualified electing fund (or "QEF"), election for our first taxable year as a PFIC in which the U.S.
Holder held (or was deemed to hold) Class A Ordinary Shares, or a mark-to-market election, as described below, such holder generally will
be subject to special rules with respect to:
●
any gain recognized by the U.S. Holder on the sale or other disposition of its Class A Ordinary Shares; and
●
any "excess distribution" made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Class A Ordinary Shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder's holding period for the Class A Ordinary Shares).
Under these rules,
●
the U.S. Holder's gain or excess distribution will be allocated ratably over the U.S. Holder's holding period for the Class A Ordinary Shares;
●
the amount allocated to the U.S. Holder's taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder's holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income;
●
the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
●
the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year of the U.S. Holder.
In general, a U.S. Holder
may avoid the PFIC tax consequences described above in respect to our Class A Ordinary Shares by making a timely QEF election to include
in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income),
on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable
year ends. There can be no assurance, however, that we will pay current dividends or make other distributions sufficient for a U.S. Holder
who makes a QEF election to satisfy the tax liability attributable to income inclusions under the QEF rules, and the U.S. Holder may have
to pay the resulting tax from its other assets. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed
income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
The QEF election is made on
a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF
election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund), to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections
generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent
of the IRS. In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request
from a U.S. Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS
may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However,
there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.
160
If a U.S. Holder has made
a QEF election with respect to our Class A Ordinary Shares, and the special tax and interest charge rules do not apply to such shares
(because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares),
any gain recognized on the appreciation of our Class A Ordinary Shares generally will be taxable as capital gain and no interest charge
will be imposed. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of a PFIC's earnings and
profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included
in income generally should not be taxable as a dividend to those U.S. Holders who made a QEF election. The tax basis of a U.S. Holder's
shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends,
under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under
the applicable attribution rules as owning shares in a QEF.
Although a determination as
to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years
to a U.S. Holder who held Class A Ordinary Shares while we were a PFIC, whether or not we meet the test for PFIC status in those years.
A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed
to hold) our Class A Ordinary Shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect
to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable
year of ours that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF
election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our Class
A Ordinary Shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, and
pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.
Alternatively, if a U.S. Holder,
at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market
election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable
year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in us and for which we are determined to be a PFIC,
such holder generally will not be subject to the PFIC rules described above in respect to its Class A Ordinary Shares. Instead, in general,
the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its Class A Ordinary Shares
at the end of its taxable year over the adjusted basis in its Class A Ordinary Shares. The U.S. Holder also will be allowed to take an
ordinary loss in respect of the excess, if any, of the adjusted basis of its Class A Ordinary Shares over the fair market value of its
Class A Ordinary Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result
of the mark-to-market election). The U.S. Holder's basis in its Class A Ordinary Shares will be adjusted to reflect any such income
or loss amounts, and any further gain recognized on a sale or other taxable disposition of the Class A Ordinary Shares will be treated
as ordinary income.
The mark-to-market election
is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, or on a foreign
exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair
market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election
in respect to our Class A Ordinary Shares under their particular circumstances.
If we are a PFIC and, at any
time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of
such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution
from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to
provide to a U.S. Holder no later than 90 days after the request the information that may be required to make or maintain a QEF election
with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier
PFIC or will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax
advisors regarding the tax issues raised by lower-tier PFICs. If a U.S. Holder owns (or is deemed to own) shares during any year in a
PFIC, such holder may have to file an IRS Form 8621 (whether or not a QEF election or mark-to-market election is made). The rules dealing
with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described
above. Accordingly, U.S. Holders of our Class A Ordinary Shares should consult their own tax advisors concerning the application of the
PFIC rules to our Class A Ordinary Shares under their particular circumstances.
161
Tax Consequences to Non-U.S. Holders of Class
A Ordinary Shares
Dividends paid to a Non-U.S.
Holder in respect to its Class A Ordinary Shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively
connected with the Non-U.S. Holder's conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
In addition, a Non-U.S. Holder
generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our Class A Ordinary
Shares, unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an
applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States)
or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other
disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a
30% rate or a lower applicable tax treaty rate).
Dividends and gains that are
effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax
in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes,
may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
Backup Withholding and Information Reporting
In general, information reporting
for U.S. federal income tax purposes should apply to distributions made on our Class A Ordinary Shares within the United States to a non-corporate
U.S. Holder and to the proceeds from sales and other dispositions of our Class A Ordinary Shares by a non-corporate U.S. Holder to or
through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will
be subject to information reporting in limited circumstances. In addition, backup withholding of United States federal income tax, currently
at a rate of 24%, generally will apply to dividends paid on our Class A Ordinary Shares to a non-corporate U.S. Holder and the proceeds
from sales and other dispositions of shares by a non-corporate U.S. Holder, in each case who (a) fails to provide an accurate taxpayer
identification number; (b) is notified by the IRS that backup withholding is required; or (c) in certain circumstances, fails to comply
with applicable certification requirements. A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup
withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or
by otherwise establishing an exemption.
Backup withholding is not
an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder's or a Non-U.S.
Holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is
timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the
availability of and procedure for obtaining an exemption from backup withholding in their particular circumstances.
Individual U.S. Holders may
be required to report ownership of our Class A Ordinary Shares and certain related information on their individual federal income tax
returns in certain circumstances. Generally, this reporting requirement will apply if (1) the Class A Ordinary Shares are held in an account
of the individual U.S. Holder maintained with a "foreign financial institution" or (2) the Class A Ordinary Shares are not
held in an account maintained with a "financial institution," as such terms are defined in the Code. The reporting obligation
will not apply to an individual, however, unless the total aggregate value of the individual's foreign financial assets exceeds
US$50,000 during a taxable year. For avoidance of doubt, this reporting requirement should not apply to Class A Ordinary Shares held in
an account with a U.S. brokerage firm. Failure to comply with this reporting requirement, if it applies, will result in substantial penalties.
In certain circumstances, additional tax and other reporting requirements may apply, and U.S. Holders of our Class A Ordinary Shares are
advised to consult with their own tax advisors concerning all such reporting requirements.
162
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We have previously filed the
Registration Statement with the SEC.
Documents concerning us that
are referred to in this document may be inspected at c/o Nanxi Creative Center, Suite 218, 841 Yan'An Middle Road, Jing'An
District, Shanghai, China 200040, People's Republic of China. In addition, we file annual reports and other information with the
Securities and Exchange Commission. We file annual reports on Form 20-F and submit other information under cover of Form 6-K. As a foreign
private issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal
shareholders are exempt from the insider short-swing disclosure and profit recovery rules of Section 16 of the Exchange Act. Annual reports
and other information we file with the Commission may be inspected at the public reference facilities maintained by the Commission at
Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such offices upon payment
of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference
rooms and you can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In addition, the Commission
maintains a web site that contains reports and other information regarding registrants (including us) that file electronically with the
Commission which can be assessed at http://www.sec.gov.
I.
Subsidiary Information
For a listing of our subsidiaries,
see "Item 4. Information on the Company — A. History and Development of the Company."
J.
Annual Report to Security Holders
Not applicable.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate
risk primarily relates to interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. While interest-earning
instruments carry a degree of interest rate risk, we have not been exposed, nor do we anticipate being exposed, to material risks due
to changes in market interest rates.
Foreign Currency Risk
A majority of the Company's
expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries' assets and liabilities
are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required
by law to be transacted only by authorized financial institutions at exchange rates set by the People's Bank of China ("PBOC").
Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory
bodies which require certain supporting documentation in order to affect the remittance.
Our functional currency is
the RMB, and our financial statements are presented in U.S. dollars. The RMB depreciated by 8.2% in fiscal year 2022, and depreciated
by 2.5% in fiscal year 2021. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate
between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial
results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently,
our assets, liabilities, revenues and costs are denominated in RMB.
To the extent that the Company
needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against
U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides
to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business
purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
With the exception of Items
12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12 is not
applicable, as the Company does not have any American Depositary Shares.
163
Part II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
See "Item 10. Additional Information"
for a description of the rights of securities holders, which remain unchanged
Use of Proceeds
The following "Use of
Proceeds" information relates to the Registration Statement on Form F-1, in relation to our initial public offering of 3,000,000
Class A Ordinary Shares. The Class A Ordinary Shares were sold at an offering price of $4.00 per share, generating gross proceeds of approximately
$12.0 million, and net proceeds of approximately $9.97 million. The registration statement relating to the IPO also covered the underwriters'
common stock purchase warrants and the Ordinary Shares issuable upon the exercise thereof in the total amount of 315,000 Class A Ordinary
Shares.
We have earmarked and have
been using the proceeds of the initial public offering as follows: approximately $2.99 million for development of the online course content;
approximately $1.99 million for platform technology upgrade and system integration; and approximately $4.99 million for business expansion,
i.e., to expand our existing locations to develop new customers by hiring more qualified personnel, and marketing effort. We used a portion
of the proceeds from the IPO to accelerate our R&D in order to improve and broaden the online course content. We believe our online
and onsite education and training services, medical expertise and customer relationships will enable us to capture significant market
share with the services, programs, and products that we provide
.
In connection with the offering
under Form F-3, we intend to use the net proceeds from the sale of any securities offered under Form F-3 and the accompanying prospectus
for general corporate purposes. General corporate purposes may include but not limited to costs for research and development, sales and
marketing activities, funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company.
We may temporarily invest the net proceeds in a variety of capital preservation instruments, including investment grade instruments, certificates
of deposit or direct or guaranteed obligations of the U.S. government, or may hold such proceeds as cash, until they are used for their
stated purpose. We have not determined the amount of net proceeds to be used specifically for such purposes. As a result, management will
retain broad discretion over the allocation of net proceeds.
Item 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and
with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation
of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December
31, 2022. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2022 were
not effective at the reasonable assurance level due to the material weakness described below.
164
Internal Control over Financial Reporting
In
connection with the audit of our financial statements for the years ended December
31, 2022, we identified two material weakness in our internal control over financial reporting, as defined in the standards established
by the Public Company Accounting Oversight Board of the United States, as of December 31, 2022. The material weakness identified was the
lack of dedicated resources to take responsibility for the finance and accounting functions and for the preparation of financial statements
in compliance with generally accepted accounting principles in the United States, or U.S. GAAP.
We have already taken some
steps and have continued to implement measures to remediate the material weakness identified, including but not limited to providing trainings
to staff, changing to a new and well-established accounting system, and continue to monitor the internal control over financial reporting.
However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future. See
"Item 3. Key Information—D. Risk Factors—
We have identified material weaknesses in our internal control over financial
reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately
report our financial results or prevent fraud
."
Notwithstanding there are
material weaknesses identified as described above, we believe that our consolidated financial statements contained in this Annual Report
on Form 20-F fairly present our financial position, results of operations and cash flows for the years covered thereby in all material
respects.
Management's Annual Report on Internal
Control over Financial Reporting Attestation Report of the Registered Public Accounting Firm
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. Generally Accepted Accounting Principles
("U.S. GAAP"). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions or because the degree of compliance with policies or procedures may deteriorate. Under the supervision and with
the participation of our management, including our chief executive officer and chief financial officer, we conducted an assessment of
the effectiveness of our internal control over financial reporting as of December 31, 2022. The assessment was based on criteria established
in the framework Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management determined that, as of December 31, 2022, our internal control over financial reporting
was not effective due to the existence of the following significant deficiencies and material weaknesses:
●
The Company lacked key monitoring mechanisms such as an internal control department to oversee and monitor the Company's risk management, business strategies and financial reporting procedures. The Company also did not have adequately designed and documented management review controls to properly detect and prevent certain accounting errors and omitted disclosures in the footnotes to the consolidated financial statements; and
●
The Company lacked sufficient resources and expertise with US GAAP and SEC reporting in the accounting department to provide accurate information on a timely manner.
To remediate the material
weakness and significant deficiency described above, we have undertaken the following actions:
●
Hired an experienced outside consultant with adequate experience with US GAAP and the SEC reporting and compliance requirements
●
Continued our efforts to provide ongoing training courses in US GAAP to existing personnel, including our Chief Financial Officer
●
Continued our efforts to setup the internal audit department, and enhance the effectiveness of the internal control system
●
Continued our efforts to implement necessary review and controls at related levels and the submission of all important documents and contracts to the office of our Chief Executive Officer for retention
165
As defined under standards
established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's
annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
We did not include an attestation
report of the company's registered public accounting firm in this Annual Report on Form 20-F due to rules of the SEC where domestic
and foreign registrants that are non-accelerated filers, which we are, and "emerging growth companies" which we also are,
are not required to provide the auditor attestation report.
Changes in Internal Control over Financial
Reporting
Other than those disclosed
above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this Annual
Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item
16.
RESERVED
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has
determined that John C. General is an audit committee financial expert as that term is defined in Item 16A(b) of Form 20-F, and "independent"
as that term is defined in the NASDAQ listing standards.
Item 16B. CODE OF ETHICS
Our Board has adopted a code
of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website:
http://izcmd.com/.
Item 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table represents
the approximate aggregate fees for services rendered by Prager Metis CPAs, LLC for the year ended December 31, 2022 and by Marcum Bernstein
& Pinchuk LLP for the year ended December 31, 2021, respectively:
December 31,
2022
(1)
December 31,
2021
USD
USD
Audit Fees
$
350,000
$
240,000
Audit Related Fees
-
30,000
Tax Fees
-
-
All Other Fees
-
-
Total Fees
$
350,000
$
270,000
(1)
Upon the approval of the audit committee of the board of
directors of the Company and the board of directors of the Company, the Company appointed Prager Metis CPAs, LLC as the independent registered
public accounting firm. Prager Metis CPAs, LLC replaced Marcum Asia CPAs LLP ("MarcumAsia" formerly known as "Marcum
Bernstein & Pinchuk LLP"), the former independent registered public accounting firm of the Company, which the Company dismissed
effective as of September 27, 2022.
"Audit-related fees"
are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not
reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur
in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
166
"Tax fees" include
fees for professional services rendered by our independent registered public accounting firm for tax compliance and tax advice on actual
or contemplated transactions.
"Other fees" include
fees for services rendered by our independent registered public accounting firm with respect to government incentives and other matters.
The policy of our audit committee
is to pre-approve all audit and non-audit services provided by our independent auditor including audit services, audit-related services,
tax services and other services.
Our Audit Committee evaluated
and approved in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
Not applicable.
Item 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
Item 16G. CORPORATE GOVERNANCE
See "Item 6. Directors, Senior Management
and Employees" for more information.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
Not applicable.
Item 16J. INSIDER TRADING POLICIES
We have adopted an insider
trading policy to promote compliance with applicable securities laws and regulations, including those that prohibit insider trading. This
policy applies to all officers and directors of the Company, all other employees of the Company and its subsidiaries, all secretaries
and assistants supporting such directors, officers and employees, and consultants or advisors to the Company or its subsidiaries who have
or may have access to Material Nonpublic Information (as defined below) regarding the Company and members of the immediate family or household
of any such person. (each, an "Insider") and extends to all activities within and outside an individual's duties in
the Company.
167
The insider trading policy
establishes guidelines and procedures for the following:
1.
No Trading: With certain exceptions, no Insider can engage in any transaction involving a purchase or
sale of the Company's securities, including any offer to purchase or offer to sell, during any period commencing with the date that
he or she possesses Material Nonpublic Information concerning the Company, and ending at the close of business on the second trading day
following the date of public disclosure of that information, or at such time as such nonpublic information is no longer material.
2.
No Tipping: No Insider shall disclose ("tip") Material Nonpublic Information to any other
person (including family members) where such information may be used by such person to his or her profit by trading in the securities
of companies to which such information relates, nor shall such Insider or related person make recommendations or express opinions on the
basis of Material Nonpublic Information as to trading in the Company's securities.
3.
Confidentiality of Nonpublic Information. Nonpublic information relating to the Company is the property
of the Company and the unauthorized disclosure of such information (including, without limitation, via email or by posting on Internet
message boards or blogs, anonymously or otherwise) is strictly forbidden.
4.
Black-Out Period and Trading Window. The Insider shall not conduct any transactions involving the purchase
or sale of the Company's securities, other than during the period in any fiscal quarter commencing at the close of business on the
second trading day following the date of public disclosure of the financial results for the prior fiscal quarter or year and ending on
the twenty-fifth day of the third month of the fiscal quarter (the "Trading Window"). Notwithstanding the foregoing, persons
subject to the Insider Trading Policy may submit a request to the Company to purchase or sell the Company's securities outside the
Trading Window on the basis that they do not possess any Material Nonpublic Information. The compliance officer shall review all such
requests and may grant such requests on a case-by-case basis if he or she determines that the person making such request does not possess
any Material Nonpublic Information at that time.
5.
Duty to Report Inappropriate and Irregular Conduct. All Insiders have a responsibility for maintaining
financial integrity within the Company, consistent with generally accepted accounting principles and both federal and state securities
laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or irregularities, whether by witnessing
the incident or being told of it, must report it to their immediate supervisor and to the chairman of the Company's Audit Committee
of the Board (or to the Chairman of the Board, if an Audit Committee has not been established).
We are committed to maintaining
the highest standards of ethical conduct and have implemented these insider trading policies and procedures to ensure compliance with
applicable securities laws and to protect the interests of our shareholders.
168
Part III
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements
pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
The consolidated financial statements of Zhongchao
Inc., and its subsidiaries are included at the end of this Annual Report.
Item 19. EXHIBITS
EXHIBIT INDEX
Exhibit
Exhibit title
1.1***
Form of Underwriting Agreement
3.1**
Amended and Restated Memorandum and Articles of Association
4.1**
Specimen Class A Ordinary Share Certificate
4.2***
Form of Underwriter Warrant
4.3
Description of Securities
5.1***
Opinion of Conyers Dill & Pearman
5.2***
Opinion of Hunter Taubman Fischer & Li LLC
10.1**
Employment Agreement between Zhongchao Inc. and Weiguang Yang dated as of August 7, 2019
10.2**
Employment Agreement between Zhongchao Inc. and Pei Xu dated as of August 7, 2019
10.3**
Employment Agreement between Zhongchao Inc. and Xuejun Chen dated as of August 7, 2019
10.4**
Employment Agreement between Zhongchao Inc. and Baoqian Tian dated as of August 7, 2019
10.5**
Employment Agreement between Zhongchao Inc. and Shuang Wu dated as of August 7, 2019
10.6**
Equity Interest Pledge Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019
10.7**
Proxy Agreement and Power of Attorney among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019
10.8**
Spouse Consent Letters of the spouse of each married shareholder of Zhongchao Medical Technology (Shanghai) Corp. dated as of August 14, 2019
10.9**
Master Exclusive Service Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019
10.10**
Business Cooperation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019
10.11**
Exclusive Option Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of August 14, 2019
10.12**
Director Offer Letter between Zhongchao Inc. and Weiguang Yang dated as of November 17, 2019
10.13**
Director Offer Letter between Zhongchao Inc. and Pei Xu dated as of November 17, 2019
10.14**
Independent Director Offer Letter between Zhongchao Inc. and John C. General dated as of November 17, 2019
10.15**
Independent Director Offer Letter between Zhongchao Inc. and Kevin Dean Vassily dated as of November 17, 2019
10.16**
Independent Director Offer Letter between Zhongchao Inc. and Dan Li dated as of November 17, 2019
10.17**
Warrant to Purchase Class A Ordinary Shares between Zhongchao Inc. and HF Capital Management Delta, Inc. dated as of August 1, 2019
169
Exhibit
Exhibit title
10.18**
English translated copy of Framework Agreement among Zhongchao Medical Technology (Shanghai) Corp., Mr. Weiguang Yang, and Yantai Hanfujingfei Investment Center (LP) dated as of August 1, 2019
10.19****
Equity Interest Pledge Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.
10.20****
Proxy Agreement and Power of Attorney among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.
10.21****
Spouse Consent Letters of the spouse of each married shareholder of Zhongchao Medical Technology (Shanghai) Corp. dated as of September 10, 2020.
10.22****
Business Cooperation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.
10.23****
Exclusive Option Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2020.
10.24****
Confirmation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Shanghai and its shareholders dated as of September 10, 2020.
10.25*****
Sales Agreement by and between the Zhongchao Inc. and US Tiger Securities, Inc., as the sales agent dated as of December 17, 2021.
10.26^
Business Cooperation Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.
10.27^
Exclusive Option Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.
10.28^
Equity Interest Pledge Agreement among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.
10.29^
Proxy Agreement and Power of Attorney among Beijing Zhongchao Zhongxing Technology Limited and Zhongchao Medical Technology (Shanghai) Corp. and its shareholders dated as of September 10, 2021.
10.30^
Spouse Consent Letter of the spouse of Mr. Weiguang Yang, the shareholder of Zhongchao Medical Technology (Shanghai) Corp. dated as of September 10, 2021.
10.31^
Guarantee Agreement between Mr. Weiguang Yang and Zhongchao USA LLC dated as of April 26, 2022
10.32^
Guarantee Agreement between Mr. Weiguang Yang and Shanghai Maidemu Cultural Communication Corp. dated as of April 26, 2022.
12.1
Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
12.2
Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
13.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
14.1**
Code of Conduct and Ethics
15.1
Consent of Prager Metis CPAs, LLC
15.2
Consent of Marcum Bernstein & Pinchuk LLP
19.1
Insider Trading Policies
21.1
List of Subsidiaries and VIE of the Registrant
24.1*
Power of Attorney (included on signature page)
99.1**
Charter of the Audit Committee
99.2**
Charter of the Compensation Committee
99.3**
Charter of the Nominating and Corporate Governance Committee
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Previously filed; incorporated by reference to the identically named exhibit filed with the Annual Report on 20-F/A (File No. 001-39229) filed with the Securities and Exchange Commission on August 6, 2021
**
Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-234807) filed with the Securities and Exchange Commission on December 27, 2019
***
Previously filed; incorporated by reference to the identically named exhibit filed with the Registration Statement on Form F-1 (File No. 333-234807) filed with the Securities and Exchange Commission on January 10, 2020.
****
Previously filed; incorporated by reference to the identically named exhibit filed with Form 6-K (File No. 001-39229) filed with the Securities and Exchange Commission on September 16, 2020.
*****
Previously filed; incorporated by reference to the identically named exhibit filed with Form 6-K (File No. 001-39229) filed with the Securities and Exchange Commission on December 17, 2021.
^
Previously filed; incorporated by reference to the identically named exhibit
filed with the Annual Report on 20-F (File No. 001-39229) filed with the Securities and Exchange Commission on May 9, 2022.
170
SIGNATURES
The registrant hereby certifies
that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
Annual Report on its behalf.
Zhongchao Inc.
By:
/s/ Weiguang Yang
Name:
Weiguang Yang
Title:
Chief Executive Officer
(Principal Executive Officer)
Dated:
May 11, 2023
171
ZHONGCHAO INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 273)
F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID:
5395
)
F-3
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-4
Consolidated Statements of Operations and Comprehensive (Loss) Income for the Years Ended December 31, 2022, 2021, and 2020
F-5
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2022, 2021, and 2020
F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020
F-7
Notes to Consolidated Financial Statements
F-8
F-
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Zhongchao Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Zhongchao
Inc. (the "Company") as of December 31, 2022, and the related consolidated statements of operations and comprehensive (loss)
income, changes in equity and cash flows for the year ended December 31, 2022, and related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over
financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
/s/ Prager Metis CPAs, LLC
We have served as the Company's auditor since 2022.
Hackensack, New Jersey
May 11, 2023
PCAOB ID Number 273
F-
2
Report of Independent Registered Public Accounting
Firm
To
the Shareholders and Board of Directors of Zhongchao Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Zhongchao Inc. (the "Company") as of December 31, 2021, the related consolidated statements of income and
comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2021, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2021 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the
accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/
Marcum
Asia CPAs LLP
Marcum Asia CPAs LLP
(Formerly
known as "Marcum Bernstein & Pinchuk LLP")
We have served
as the Company's auditor from 2019 to 2022
New York, NY
May 6, 2022
F-
3
ZHONGCHAO INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollar, except for the number
of shares)
December 31,
2022
December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents
$
11,520,453
$
13,914,982
Short-term investments
518,416
296,158
Accounts receivable
6,772,988
9,218,883
Inventories
189,106
-
Prepayments
1,027,989
394,971
Prepayments – related party
115,989
-
Loans receivable
1,840,000
2,660,668
Due from a related party
226,179
392,305
Other current assets
493,040
375,709
Total Current Assets
22,704,160
27,253,676
Investment in equity method investees
1,179,300
1,993,285
Investment in an equity security
84,606
150,000
Goodwill
5,767,504
-
Property and equipment, net
3,890,947
3,923,086
Deposit for property
239,481
181,233
Prepayments for lease of land
304,787
353,347
Intangible assets, net
912,054
30,259
Right of use assets
1,666,777
205,824
Deferred tax assets
1,864,729
2,176,710
Total Assets
$
38,614,345
$
36,267,420
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
$
140,834
$
38,933
Advances from customers
395,263
7,432
Income tax payable
2,292,765
2,478,273
Operating lease liabilities, current portion
480,633
88,968
Accrued expenses and other liabilities
855,540
974,801
Total Current Liabilities
4,165,035
3,588,407
Operating lease liabilities, noncurrent portion
1,221,845
112,591
Deferred tax liabilities
208,200
-
Total Liabilities
5,595,080
3,700,998
Commitments and Contingencies
Equity
Class A Ordinary Share (par value $
0.0001
per share,
450,000,000
shares authorized;
20,531,423
and
19,453,423
shares issued and outstanding at December 31, 2022 and 2021, respectively)
2,054
1,946
Class B Ordinary Share (par value $
0.0001
per share,
50,000,000
shares authorized;
5,497,715
and
5,497,715
shares issued and outstanding at December 31, 2022 and 2021, respectively)
550
550
Additional paid-in capital
24,998,388
22,986,975
Statutory reserve
1,315,017
1,199,054
Retained earnings
4,124,037
7,180,891
Accumulated other comprehensive (loss)
    income
(
511,824
)
1,197,006
Total Zhongchao Inc. Shareholders' Equity
29,928,222
32,566,422
Non-controlling interests
3,091,043
-
Total Equity
33,019,265
32,566,422
Total Liabilities and
    Equity
$
38,614,345
$
36,267,420
The accompanying notes are an integral part
of the consolidated financial statements
F-
4
ZHONGCHAO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
(LOSS) INCOME
(Expressed in U.S. dollar, except for the number
of shares)
For the Years Ended
December
    31,
2022
2021
2020
Revenues
$
14,151,516
$
16,296,770
$
17,989,788
Cost of revenues
(
7,794,852
)
(
6,857,944
)
(
6,117,640
)
Gross Profit
6,356,664
9,438,826
11,872,148
Operating Expenses
Selling and marketing expenses
(
2,099,968
)
(
3,137,316
)
(
3,441,941
)
General and administrative expenses
(
6,799,634
)
(
5,863,373
)
(
3,124,301
)
Research and development expenses
(
411,524
)
(
758,878
)
(
816,553
)
Total Operating Expenses
(
9,311,126
)
(
9,759,567
)
(
7,382,795
)
(Loss) Income from Operations
(
2,954,462
)
(
320,741
)
4,489,353
Interest income, net
142,014
175,987
146,965
Other income, net
262,442
34,001
305,566
(Loss) Income Before Income Taxes
(
2,550,006
)
(
110,753
)
4,941,884
Income tax (expenses) benefits
(
272,313
)
349,418
(
484,787
)
Net (Loss) Income
(
2,822,319
)
238,665
4,457,097
Net (income) loss attributable to noncontrolling interests
(
118,572
)
-
1,283
Net (Loss) Income Attributable to Zhongchao Inc.'s shareholders
$
(
2,940,891
)
$
238,665
$
4,458,380
Other Comprehensive (Loss) Income
Foreign currency translation adjustment
(
1,715,262
)
281,793
1,259,984
Comprehensive (Loss) Income
(
4,537,581
)
520,458
5,717,081
Total comprehensive (income) loss attributable to noncontrolling interests
(
112,139
)
-
1,283
Total Comprehensive (Loss) Income Attributable to Zhongchao
    Inc.'s Shareholders
$
(
4,649,722
)
$
520,458
$
5,718,364
Weighted Average Number of Ordinary Share Outstanding
Basic and Diluted
25,997,757
24,938,513
24,425,637
(Loss) Earnings per Share
Basic and Diluted
$
(
0.113
)
$
0.010
$
0.183
The accompanying notes are an integral part of
the consolidated financial statements
F-
5
ZHONGCHAO INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollar, except for the number
of shares)
Ordinary share
Additional
Accumulated other comprehensive
Non-
Class A
Class B
paid-in
Statutory
Retained
(loss)
controlling
Total
Shares
Amount
Shares
Amount
capital
Reserve
earning
income
interest
equity
Balance as of January 1, 2020
16,102,420
$
1,610
5,497,715
$
550
$
12,044,855
$
415,813
$
3,267,087
$
(
344,771
)
$
(
46,617
)
$
15,338,527
Share-based compensation expenses
-
-
-
-
168,350
-
-
-
-
168,350
Issuance of Class A Ordinary Shares pursuant to initial public offering, net of issuance costs
3,315,003
332
-
-
10,609,851
-
-
-
-
10,610,183
Issuance of restricted Class A Ordinary Shares to non-executive directors
18,000
2
-
-
(
2
)
-
-
-
-
-
Net income (loss)
-
-
-
-
-
-
4,458,380
-
(
1,283
)
4,457,097
Appropriation of statutory reserve
-
-
-
-
-
385,689
(
385,689
)
-
-
-
Buy out of a non-controlling interests
-
-
-
-
(
47,900
)
-
-
-
47,900
-
Foreign currency translation adjustments
-
-
-
-
-
-
-
1,259,984
-
1,259,984
Balance as of December 31, 2020
19,435,423
$
1,944
5,497,715
$
550
$
22,775,154
$
801,502
$
7,339,778
$
915,213
$
-
$
31,834,141
Issuance of restricted Class A Ordinary Shares to non-executive directors
18,000
2
-
-
(
2
)
-
-
-
-
-
Share-based compensation expenses
-
-
-
-
211,823
-
-
-
-
211,823
Net income
-
-
-
-
-
-
238,665
-
-
238,665
Appropriation of statutory reserve
-
-
-
-
-
397,552
(
397,552
)
-
-
-
Foreign currency translation adjustments
-
-
-
-
-
-
-
281,793
-
281,793
Balance as of December 31, 2021
19,453,423
$
1,946
5,497,715
$
550
$
22,986,975
$
1,199,054
$
7,180,891
$
1,197,006
$
-
$
32,566,422
Issuance of Class A Ordinary Shares in connection with public offering
1,060,000
106
-
-
1,850,638
-
-
-
-
1,850,744
Share-based compensation expenses
18,000
2
-
-
160,775
-
-
-
-
160,777
Acquisition of subsidiaries
-
-
-
-
-
-
-
-
2,978,903
2,978,903
Net (loss) income
-
-
-
-
-
-
(
2,940,891
)
-
118,572
(
2,822,319
)
Appropriation of statutory reserve
-
-
-
-
-
115,963
(
115,963
)
-
-
-
Foreign currency translation adjustments
-
-
-
-
-
-
-
(
1,708,830
)
(
6,432
)
(
1,715,262
)
Balance as of December 31, 2022
20,531,423
$
2,054
5,497,715
$
550
$
24,998,388
$
1,315,017
$
4,124,037
$
(
511,824
)
$
3,091,043
$
33,019,265
The accompanying notes are an integral part of
the consolidated financial statements
F-
6
ZHONGCHAO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollar, except for the number
of shares)
For the Years Ended
December 31,
2022
2021
2020
Cash Flows from Operating Activities:
Net (loss) income
$
(
2,822,319
)
$
238,665
$
4,457,097
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Provision of doubtful accounts receivable
753,447
1,449,827
336,367
Depreciation and amortization expenses
383,286
341,608
202,325
Gain from disposal of property and equipment
(
96,921
)
-
-
Amortization of right of use assets
347,025
361,369
222,353
Share-based compensation expenses
160,777
211,823
168,350
Deferred tax expenses (benefits)
134,125
(
1,346,616
)
(
58,424
)
Changes in fair value of short-term investments
240,489
58,403
10,331
Downward adjustments in investments in an equity security
65,394
-
-
Equity investment loss
80
13,758
25,622
Changes in operating assets and liabilities:
Accounts receivable
1,076,292
(
104,230
)
(
5,486,914
)
Prepayments
(
659,496
)
171,144
(
197,402
)
Prepayments – related party
(
118,888
)
-
-
Inventories
(
193,833
)
-
-
Other current assets
66,148
1,302,009
(
1,143,200
)
Accounts payable
103,825
(
375,144
)
260,350
Advances from customers
369,249
496
6,398
Income tax payable
3,557
905,733
535,981
Accrued expenses and other liabilities
(
167,585
)
(
4,430
)
179,738
Lease liabilities
(
306,392
)
(
362,567
)
(
230,819
)
Deferred government grants
-
-
(
325,992
)
Net Cash (Used in) Provided by Operating Activities
(
661,740
)
2,861,848
(
1,037,839
)
Cash Flows from Investing Activities:
Purchases of property and equipment
(
1,615,905
)
(
1,799,860
)
(
160,602
)
Proceeds from disposal of property and equipment
1,112,440
-
-
Payments of deposits for property purchase
(
245,467
)
-
(
688,267
)
Investments in short-term investments
(
996,638
)
-
(
2,043,259
)
Release from short-term investments
533,891
1,678,367
-
Investment in a limited partnership
-
-
(
1,217,039
)
Investment in equity method investees
-
(
708,129
)
-
Investment in an equity security
-
(
150,000
)
-
Acquisition of a subsidiary
(
3,055,432
)
-
-
Loan (provided to) repayment from related parties
139,694
(
387,549
)
14,489
Loans provided to third parties
(
1,032,219
)
(
3,725,211
)
-
Loans repayment from third parties
1,806,772
1,075,098
-
Increase of cash in connection with acquisition of subsidiary
6,206
-
Net Cash Used in Investing Activities
(
3,346,658
)
(
4,017,284
)
(
4,094,678
)
Cash Flows from Financing Activities:
Proceeds from issuance of ordinary shares in connection with initial public offering, net of offering cost
-
-
11,886,363
Payment of expenses relating to initial public offerings
-
-
(
388,709
)
Proceeds from issuance of ordinary shares in connection with direct offering
1,850,744
-
-
Net Cash Provided by Financing Activities
1,850,744
-
11,497,654
Effect of exchange rate changes on cash and cash equivalents
(
236,875
)
(
2,529
)
875,258
Net (decrease) increase in cash and cash equivalents
(
2,394,529
)
(
1,157,965
)
7,240,395
Cash and cash equivalents at beginning of year
13,914,982
15,072,947
7,832,552
Cash and cash equivalents at end of year
$
11,520,453
$
13,914,982
$
15,072,947
Supplemental Cash Flow Information
Cash paid for interest expense
$
-
$
-
$
-
Cash paid for income tax
$
134,232
$
91,464
$
2,642
Noncash investing activities
Right of use assets obtained in exchange for operating lease obligations
$
1,774,723
$
555,639
$
37,919
Due from a third party for disposal of property and equipment
$
210,868
$
-
$
-
Acquisition of property and equipment by settlement of deposits for property and equipment
$
160,940
$
-
$
-
The accompanying notes are an integral part of
the consolidated financial statements
F-
7
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
Zhongchao Inc. ("Zhongchao Cayman",
or the "Company") is a holding company incorporated on April 16, 2019, under the laws of the Cayman Islands. The Company
commenced operations on August 17, 2012, through its variable interest entity ("VIE"), Zhongchao Medical Technology (Shanghai)
Limited ("Zhongchao Shanghai"), a limited liability company established under the laws of the PRC. The Company provides customized
medical courses and customized medical training services to pharmaceutical enterprises, and not-for-profit organizations ("NFPs")
including medical associations, medical institutions, medical journals, medical foundations, hospitals and etc. in the PRC.
The consolidated financial statements reflect
the activities of Zhongchao Shanghai and each of the following entities:
Name
Background
Ownership
Zhongchao Group Inc. ("Zhongchao BVI")
●
A BVI company
100% owned by Zhongchao Cayman
●
Incorporated on April 23, 2019
●
A holding company
Zhongchao USA LLC ("Zhongchao USA")
●
A United States company
100% owned by Zhongchao Cayman
●
Incorporated on 3 September, 2020
●
Engaged
in technology development, transfer, service and consulting in the fields of medical technology and computer technology (no medical diagnosis
and treatment activities allowed).
Zhongchao Japan ("Zhongchao Japan")
●
A Japan company
100% owned by Zhongchao USA since December 2021. Before December 2021, 10% owned by Zhongchao USA   and 90% owned by Mr. Weiguang Yang
●
Incorporated on 1 October, 2020
●
Engaged
in technology development, transfer, service and consulting in the fields of medical technology and computer technology (no medical diagnosis
and treatment activities allowed).
Zhongchao Group Limited ("Zhongchao HK")
●
A Hong Kong company
100% owned by Zhongchao BVI
●
Incorporated on May 14, 2019
●
A holding company
Beijing Zhongchao Zhongxing Technology Limited ("Zhongchao WFOE")
●
A PRC
company and deemed a wholly foreign owned enterprise
100% owned by Zhongchao HK
●
Incorporated on May 29, 2019
●
A holding company
Zhongchao Shanghai
●
A PRC limited liability company
VIE of Beijing Zhongchao Zhongxing Technology Limited
●
Incorporated on August 17, 2012
●
Engaged
in technology development, technology transfer, and technical services in the field of medical technology, technical consulting in the
field of network technology, and medical information consulting
Shanghai Maidemu Cultural Communication Corp. ("Shanghai Maidemu")
●
A PRC limited liability company
100% owned by Zhongchao Shanghai
●
Incorporated on March 12, 2015
●
Planning for cultural and artistic exchanges, designing, producing, acting for and publishing various kinds of advertisements, and medical consultation (no medical diagnosis and treatment activities allowed).
F-
8
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION
                                            AND PRINCIPAL ACTIVITIES (CONTINUED)
Shanghai Huijing Information
    Technology Co., Ltd., ("Shanghai Huijing")
●
A PRC limited liability company
100% owned by Shanghai Maidemu
●
Incorporated on September 28, 2016
●
Engaged in technology development, transfer, service and consulting in the fields of computer technology, graphic designing, website page designing, planning cultural and artistic exchanges.
Shanghai Zhongxun Medical Technology Co.,
    Ltd. ("Shanghai Zhongxun")
●
A PRC limited liability company
100% owned by Zhongchao Shanghai
●
Incorporated on May 27, 2017
●
Engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology (no medical diagnosis and treatment activities allowed).
Shanghai Zhongxin Medical Technology Co.,
    Ltd ("Shanghai Zhongxin")
●
A PRC limited liability company
93.33% owned by Shanghai Zhongxun*
●
Incorporated on October 10, 2018
●
Engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology, market information consulting and investigating.
Beijing Zhongchao Boya Medical Technology
    Co., Ltd. ("Beijing Boya")
●
A PRC limited liability company
70% owned by Zhongchao Shanghai, and 30% owned by Mr. Zhengbo Ma on behalf of Zhongchao Shangha before December 8, 2021, and 30% owned by Shanghai Lingzhong Enterprise Management LLP on behalf of Zhongchao Shanghai after December 8, 2021
●
Incorporated on April 27, 2020
●
Engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology, market information consulting and investigating.
Hainan Zhongteng Medical Technology Co.,
    Ltd. ("Hainan Zhongteng")
●
A PRC limited liability company
100% owned by Beijing Boya
●
Incorporated on July 16, 2021
●
Engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology, market information consulting and investigating.
Zhixun Internet Hospital (Liaoning)
    Co., Ltd. ("Liaoning Zhixun")
●
A PRC limited liability company
100% owned by Beijing Boya
●
Incorporated on July 6, 2020
●
Engaged in online hospital services, medical services, elderly nursing services, remote healthcare management services, healthcare consulting services, sales of medical appliances and other medical products.
Shanghai Xinyuan Human Resources Co., Ltd.
    ("Shanghai Xinyuan")
●
A PRC limited liability company
100% owned by Shanghai Zhongxin
●
Incorporated on January 13, 2021
●
Engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology, market information consulting and investigating.
F-
9
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION
                                            AND PRINCIPAL ACTIVITIES (CONTINUED)
Hainan Muxin Medical Technology Co., Ltd.
    ("Hainan Muxin")
●
A PRC limited liability company
100% owned by Shanghai Zhongxin
●
Incorporated on July 21, 2021
●
Engaged in technology development, transfer, service and consulting in the fields of medical technology and computer technology, market information consulting and investigating.
Ningxia Zhongxin Internet Hospital Co., Ltd. ("Ningxia Zhongxin")
●
A PRC limited liability company
100% owned by Shanghai Zhongxin
●
Incorporated
on May 18, 2021 and cancelled on September 1, 2022
●
Engaged in online hospital operation, provide online medical service, online consultation, prescription information services, and medication retails.
Chongqing Xinjiang Pharmaceutical Co.,
    Ltd. ("Chongqing Xinjiang")
●
A PRC limited liability company
100% owned by Shanghai Zhongxun
●
Incorporated on January 18, 2022
●
Engaged in trading of patented drugs
Beijing Yisuizhen Technology Co., Ltd.
    ("Beijing Yisuizhen")
●
A PRC limited liability company
100% owned by Hainan Muxin
●
Incorporated on November 8, 2021
●
Acquired by the Company on August 31, 2022
●
Provision of online platform for communication between hospitals and patients
West Angel (Beijing) Health Technology
    Co., Ltd. ("West Angel")
●
A PRC limited liability company
60% owned by Beijing Yisuizhen
●
Incorporated on July 1, 2003
●
Acquired by the Company on August 31, 2022
●
Provision of online platform for communication between hospitals and patients
*
51
% of the equity interest owned by Shanghai Zhongxun before November 2020. Through certain entrustment agreements signed in November 2020, Mr. Weiguang Yang, Beijing Zhongchao Yixin Management Consulting Partnership, LLP ("Zhongchao Yixin"), and Beijing Zhongren Yixin Management Consulting Partnership, LLP ("Zhongren Yixin"), hold
19
%,
20
% and
10
% of the equity interest of Shanghai Zhongxin on behalf of Shanghai Zhongxun, respectively. As a result, Shanghai Zhongxun owned
100
% of Shanghai Zhongxin's equity interest as of December 31, 2021.
In the year of 2022, Mr. Weiguang Yang transferred
6.67
% to four shareholders of West Angel, as a part of consideration to acquire
60
% equity interest in West Angel. Shanghai Zhongxun owns
93.33
% of Shanghai Zhongxin's equity interest as of December 31, 2022.
F-
10
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)
On
August 14, 2019, Zhongchao WFOE entered into a series of agreements (the "VIE Agreements") with Zhongchao Shanghai and the
shareholders of Zhongchao Shanghai. The VIE Agreements allows Zhongchao Cayman to consolidate the financial statements and received the
economic benefits of the operation results of Zhongchao Shanghai through the VIE Agreements. Under U.S. GAAP, for accounting purposes,
Zhongchao Cayman was deemed to have a controlling financial interest in, and be the primary beneficiary of Zhongchao Shanghai, because
pursuant to the VIE Agreements, the operations of Zhongchao Shanghai were solely for the benefit of Zhongchao WFOE and ultimately, Zhongchao
Cayman.
On August 14, 2019, Zhongchao Cayman completed
a reorganization of entities under common control of Weiguang Yang, who owned a majority of the voting power of Zhongchao Cayman prior
to the reorganization. Zhongchao Cayman, Zhongchao Group Inc. ("Zhongchao BVI"), and Zhongchao Group Limited ("Zhongchao
HK") were established as the holding companies of Zhongchao WFOE. Zhongchao WFOE is the primary beneficiary of Zhongchao Shanghai
and its subsidiaries, and all of these entities are under common control which results in the consolidation of Zhongchao Shanghai and
subsidiaries which have been accounted for as a reorganization of entities under common control at carrying value. The consolidated financial
statements are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the
consolidated financial statements. Total assets and liabilities presented on the Company's consolidated balance sheets and revenues,
expenses, net incomes presented on consolidated statements of operations as well as the cash flows from operating, investing and financing
activities presented on the consolidated statements of cash flows are substantially the financial positions, operations and cash flows
of Zhongchao Shanghai and its subsidiaries.
On August 15, 2019, Yantai Hanfujingfei Investment
Centre (LP) ("Yantai HF"), a
6.25
% shareholder of Zhongchao Shanghai, planned to withdraw its equity interest in Zhongchao
Shanghai (which is representative of
1,350,068
shares in Zhongchao Shanghai, among which
675,068
shares were issued by Zhongchao Shanghai
and the remaining
675,000
shares were purchased from two existing shareholders), and to contribute the same amount of capital to Zhongchao
Cayman directly. The Company and HF Capital Management Delta, Inc. ("HF Capital"), the sole member of which was the managing
partner of Yantai HF , entered into a certain warrant agreement to purchase ordinary shares of the Company, pursuant to which the Company
granted a warrant to HF Capital, who expects to exercise the warrant and receive the ordinary shares of the Company before the effective
date and closing of the offering because these conditions are considered to be administrative procedures and there are no uncertainties
of going through them. The warrant entitled HF Capital to purchase
1,350,068
Class A Ordinary Shares, representing
5.19
% economic beneficial
interest, or
1.31
% of the voting ownership interest of the Company as of December 31, 2022, from the Company, if the following conditions
are met:
1)
All PRC governmental consent
    and approval required for HF Capital to exercise the warrant and payment of the capital contribution have been obtained, including
    without limitation, any approval or filing with respect to HF Capital's investment into the Company, and payment by HF Capital
    of the capital contribution to the Company, and reasonable evidence thereof shall have been provided to the Company;
2)
HF Capital has fully paid
    the capital contribution to Zhongchao Cayman; and
3)
The Company released the
    paid-in capital of HF Capital from Zhongchao Shanghai
The practice is solely a result of tax planning
from HF Capital. As the warrant does not cause the Company to transfer or receive any assets, or exchange any other financial instruments
on potentially favorable or unfavorable terms with shareholder. The warrant does not meet the definition of a financial instrument as
defined in ASC 480
Distinguishing Liabilities from Equity
. The management believed the agreement between the Company and HF Capital
is a commitment rather than a financial instrument. As such, the warrant is not subject to accounting treatment. In addition, the management
expected that there is no circumstance under which the
1,350,068
Class A Ordinary Shares would not be issued, thus the
1,350,068
underlying
Class A Ordinary Shares should be included in the ordinary shares outstanding as of December 31, 2022 and 2021 and in the calculation
of the basic and diluted weighted average ordinary share issued and outstanding for calculating basic and diluted earnings per share.
F-
11
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)
On December 2, 2019, the registration of HF Capital's
withdrawal of its capital contribution in Zhongchao Shanghai was completed with local State Administration for Industry and Commerce.
The paid-in capital of HF Capital in an amount of RMB
20
million (approximately US$
2.9
million) is currently being held in the corporate
bank account of Zhongchao Shanghai and is to be deposited in a designated bank account mutually controlled by Zhongchao Shanghai and
HF Capital after the completion of HF Capital's ODI procedures and to be released as HF Capital's capital contribution in
Zhongchao Cayman.
Class A Ordinary Shares issued and outstanding
presented on the financial statements is reconciled with the number of shares legally as follows:
December 31,
2022
December 31,
2021
Number of Class A Ordinary Shares legally issued and outstanding
19,181,355
18,103,355
Class A Ordinary Shares committed to be issued to HF Capital
1,350,068
1,350,068
Number of Class A Ordinary Shares outstanding and issued presented on the financial statements
20,531,423
19,453,423
VIE Agreements with Zhongchao Shanghai
Due to the restrictions imposed by PRC laws and
regulations on foreign ownership of companies engaged in value-added telecommunication services and certain other businesses, the Company
operates its businesses in which foreign investment is restricted or prohibited in the PRC through certain PRC domestic companies. As
such, Zhongchao Cayman consolidated Zhongchao Shanghai's financial statements and received the economic benefits of the operation
results of Zhongchao Shanghai through VIE Arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such
VIE Arrangements consist of a series of six agreements (collectively, the "VIE Arrangements"), which were signed
on August 14, 2019.
On August 1, 2020, all shareholders of Zhongchao
Shanghai, except Mr. Yang and Shanghai Xingzhong Investment Management LP ("Shanghai Xingzhong,") decided to withdraw their
capital contribution from Zhongchao Shanghai (the "Capital Reduction"). Given the effect of the Capital Reduction, Mr. Yang
became the
76.4
% shareholder of Zhongchao Shanghai with the remaining equity interests held by Shanghai Xingzhong. On September 10, 2020,
Zhongchao WFOE, and Zhongchao Shanghai, and its shareholders signed a confirmation agreement to confirm that the VIE Agreements entered
on August 14, 2019 have been terminated because of the Capital Reduction.
Accordingly, on September 10, 2020, to clarify
the legal effect of the Capital Reduction and to sustain the effective control over Zhongchao Shanghai by the Company, Mr. Yang and Shanghai
Xingzhong, as the shareholders of Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao WFOE, the terms of which are substantially
the same as those of the VIE Agreements except the number of shareholders of Zhongchao Shanghai reduced to two (the "2020 VIE Agreements").
Upon entry into the 2020 VIE Agreements, the VIE Agreements, except for the Master Exclusive Service Agreement dated August 14, 2020,
were expired.
On September 9, 2021, Shanghai Xingzhong transferred
its equity interest in Zhongchao Shanghai to Shanghai Xingban Enterprises Management Partnership (Limited Partnership) ("Shanghai
Xingban"). On September 10, 2021, to clarify the legal effect of such share transfer and to sustain the Company's ability
to consolidate the financial results of Zhongchao Shanghai, Mr. Yang and Shanghai Xingban, as the shareholders collectively holding
100
%
equity interest in Zhongchao Shanghai, signed a series of VIE agreements with Zhongchao WFOE (the "2021 VIE Agreements").
Upon entry into the 2021 VIE Agreements, the 2020 VIE Agreements dated August 14, 2020, except for the Master Exclusive Service Agreement,
were expired.
The significant terms of the VIE Arrangements,
2020 VIE Arrangements and 2021 VIE Agreements by and among the Company's wholly-owned subsidiary, Zhongchao WFOE, its consolidated
variable interest entity, Zhongchao Shanghai, and the shareholders of Zhongchao Shanghai are as follows:
Agreements
that Provide Us Effective Control
over Zhongchao
Shanghai
The Company's wholly foreign owned entity,
Zhongchao WFOE, has entered into the following agreements with Zhongchao Shanghai and its shareholders.
F-
12
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)
VIE Agreements with Zhongchao Shanghai (continued)
Equity Interest Pledge Agreement
Pursuant to the equity interest pledge agreement
dated August 14, 2019, each shareholder of Zhongchao Shanghai (collectively "Shareholder") has pledged all of its equity
interest in Zhongchao Shanghai to guarantee the shareholder's and Zhongchao Shanghai's performance of their obligations under
the master exclusive service agreement, business cooperation agreement, exclusive option agreement and proxy agreement and power of attorney.
If Zhongchao Shanghai or any of its shareholders breaches their contractual obligations under these agreements, Zhongchao WFOE, as pledgee,
will be entitled to dispose the pledged equity interest entirely or partially. Each of the shareholders of Zhongchao Shanghai agrees
that, during the term of the equity interest pledge agreement, it will not dispose of the pledged equity interests or create or allow
any encumbrance on the pledged equity interests without the prior written consent of Zhongchao WFOE. In addition, Zhongchao WFOE has
the right to collect dividends generated by the pledged equity interest during the term of the pledge. The term of the initial equity
interest pledge agreement is
20
years. After the expiration of the term of initial pledge registration, Zhongchao WFOE may at its sole
discretion require the Shareholders to extend the term of the equity interest registration.
Proxy Agreement and Power of Attorney
Pursuant to the proxy agreement and power of
attorney dated August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably appointed Zhongchao WFOE to act as such shareholder's
exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of Zhongchao Shanghai
requiring shareholder approval, disposing of all or part of the shareholder's equity interest in Zhongchao Shanghai, oversee and
review Zhongchao Shanghai's operation and financial information. Zhongchao WFOE is entitled to designate any person to act as such
shareholder's exclusive attorney-in-fact without notifying or the approval of such shareholder, and if required by PRC law, Zhongchao
WFOE shall designate a PRC citizen to exercise such right. Each proxy agreement power of attorney will remain in force for so long as
the Zhongchao Shanghai exists. The shareholders of Zhongchao Shanghai do not have the right to terminate this agreement or revoke the
appointment of the attorney-in-fact without the prior written consent of Zhongchao WFOE
Spouse Consent Letters
Pursuant to the Spouse Consent Letters
dated August 14, 2019, the spouse of each married shareholder of Zhongchao Shanghai, unconditionally and irrevocably agreed not to assert
any rights over the equity interest in Zhongchao Shanghai held by and registered in the name of their spouse. In addition, each of them
agreed to be bound by the VIE Arrangements described here if the spouse obtains any equity interest in Zhongchao Shanghai for any reason.
Master Exclusive Service Agreement
Under the master exclusive service agreement
between Zhongchao WFOE and Zhongchao Shanghai dated August 14, 2019, Zhongchao WFOE has the exclusive right to provide Zhongchao Shanghai
with technical support, consulting services and other services. Zhongchao WFOE has the right to designate and appoint, at its sole discretion,
any entities affiliated with the Zhongchao WFOE to provide any and all services. The service fees are calculated and paid on a yearly
basis and at the amount that equals to
100
% of the consolidated net profits of Zhongchao Shanghai. Zhongchao WFOE may adjust the service
fee at its discretion after taking into account multiple factors, such as the difficulty of the services provided, the time consumed,
the content and commercial value of services provided and the market price of comparable services. Zhongchao WFOE owns the intellectual
property rights arising out of the performance of this agreements. Zhongchao Shanghai shall seek approval from Zhongchao WFOE prior to
entering into any contracts obtaining the same or similar services as provided under the Master Exclusive Service Agreement. This agreement
will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written notice to Zhongchao Shanghai and its
shareholders or upon the transfer of all the equity interest held by Zhongchao Shanghai's shareholders to Zhongchao WFOE and/or
a third party designated by Zhongchao WFOE.
F-
13
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND PRINCIPAL
    ACTIVITIES (CONTINUED)
VIE Agreements with Zhongchao Shanghai (continued)
Agreements that Provide Us with the Option
to Purchase the Equity Interest in Zhongchao Shanghai
Business Cooperation Agreement
Under the business cooperation agreement dated
August 14, 2019, without Zhongchao WFOE's prior written consent, Zhongchao Shanghai agrees not to engage in any transaction which
may materially affect its asset, obligation, right or operation, including but not limited to: any activities not within its normal business
scope, merger and acquisition, offering any loan to any third party and incurring any debt from any third party. Zhongchao Shanghai shall
seek approval from Zhongchao WFOE prior to entering into any material contract, except the contracts executed in the ordinary course
of business. Zhongchao Shanghai shall cause the persons designated by Zhongchao WFOE to be the directors and executive officers of Zhongchao
Shanghai. This agreement will remain effective as long as Zhongchao Shanghai exists, unless Zhongchao WFOE advance written notice to
Zhongchao Shanghai and its shareholders or upon the transfer of all the equity interest held by Zhongchao Shanghai's shareholders
to Zhongchao WFOE and/or a third party designated by Zhongchao WFOE.
Exclusive Option Agreement
Pursuant to the exclusive option agreement dated
August 14, 2019, each shareholder of Zhongchao Shanghai has irrevocably granted Zhongchao WFOE an exclusive option to purchase, or have
its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder's
equity interests in Zhongchao Shanghai. The purchase price is equal to the lowest price allowable under PRC laws and regulations at the
time of the transfer. Zhongchao Shanghai has agreed that without Zhongchao WFOE's prior written consent, Zhongchao Shanghai shall
cause the persons designated by Zhongchao WFOE to be the directors and executive officers of Zhongchao Shanghai, not amend its articles
of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or
allow any encumbrance on its assets or other beneficial interests, provide any loans to any third parties, enter into any material contract,
merge with or acquire any other persons or make any investments, or distribute dividends to the shareholders. The shareholders of Zhongchao
Shanghai have agreed that, without Zhongchao WFOE's prior written consent, they will not dispose of their equity interests in Zhongchao
Shanghai or create or allow any encumbrance on their equity interests. Moreover, without Zhongchao WFOE's prior written consent,
no dividend will be distributed to Zhongchao Shanghai's shareholders, and if any of the shareholders receives any profit, interest,
dividend or proceeds of share transfer or liquidation, the shareholder must give such profit, interest, dividend and proceeds to Zhongchao
WFOE. These agreements will remain effective as long as Zhongchao Shanghai exists unless Zhongchao WFOE advance written notice to Zhongchao
Shanghai and the shareholders or upon the transfer of all the equity interest held by the shareholders to Zhongchao WFOE and/or its designee.
The Company has concluded that the Company is
the primary beneficiary of Zhongchao Shanghai and its subsidiaries, and should consolidate their financial statements. The Company is
the primary beneficiary based on the Proxy Agreement and Power of Attorney entered into as part of the VIE Agreements that each equity
holder of Zhongchao Shanghai assigned their rights as a shareholder of Zhongchao Shanghai to Zhongchao WOFE. These rights include, but
are not limited to, voting on all matters of Zhongchao Shanghai requiring shareholder approval, disposing of all or part of the shareholder's
equity interest in Zhongchao Shanghai, oversee and review Zhongchao Shanghai's operation and financial information. As such, the
Company, through Zhongchao WOFE, is deemed to hold all of the voting equity interest in Zhongchao Shanghai and its subsidiaries. For
the periods presented, the Company has not provided any financial or other support to either Zhongchao Shanghai or its subsidiaries.
However, pursuant to the Master Exclusive Services Agreement, the Company may provide complete technical support, consulting services
and other services during the term of the VIE agreements. Though not explicit in the VIE agreements, the Company may provide financial
support to Zhongchao Shanghai and its subsidiaries to meet its working capital requirements and capitalization purposes. The terms of
the VIE Agreements and the Company's plan of financial support to the VIE were considered in determining that the Company is the
primary beneficiary of the VIE. Accordingly, the financial statements of the VIE are consolidated in the Company's consolidated
financial statements.
Based on the foregoing VIE Agreements, Zhongchao
WFOE
consolidated the financial statements
of Zhongchao Shanghai and its subsidiaries,
which enables Zhongchao WFOE to receive all of their expected residual returns and absorb the expected losses of the VIE and its subsidiaries.
Accordingly, the Company consolidates the accounts of Zhongchao Shanghai and its subsidiaries for the periods presented herein, in accordance
with Accounting Standards Codification, or ASC, 810-10, Consolidation.
F-
14
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Principal of consolidation
Affiliates are entities controlled by the Company.
Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and
be exposed to the variable returns from its activities. The financial statements of affiliates are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
The consolidated financial statements include
the accounts of Zhongchao Cayman, its subsidiaries and VIE and VIE's subsidiaries, and Zhongchao Japan. These companies are
controlled by a common controlling shareholder. Zhongchao Japan was acquired from the Company's controlling shareholder in December
2021, such acquisition was accounted for as acquisition under common control and the Zhongchao Japan was consolidated from December 2021,
and the comparative financial statement were prepared on a consolidated basis retrospectively from the date Zhongchao Japan was incorporated
(i.e, October 30, 2020). In the consolidated financial statements, the assets and liabilities of Zhongchao Japan are presented at their
carrying amount. The Company recognizes in equity any difference between the consideration paid and the net assets recognized. No goodwill
or losses may be recognized on consolidation. The revenues, cost, operating expenses and other expenses are consolidated for the relevant
periods to be presented in the financial statements as if the combination occurred on October 1, 2020. Zhongchao Japan's historical
financial statements have immaterial impact to the consolidated financial statements of the Company.
All transactions and balances among the Company,
its subsidiaries, VIE and Zhongchao Japan have been eliminated upon consolidation.
Business combination and non-controlling
interests
The Company accounts for its business combinations
using the acquisition method of accounting in accordance with ASC 805 "Business Combinations." The cost of an acquisition
is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers, liabilities incurred by the
Company and equity instruments issued by the Company. Transaction costs directly attributable to the acquisition are expensed as incurred.
Identifiable assets acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective
of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests
and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the acquisition date amounts of the
identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the acquisition date amounts
of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and
comprehensive (loss) income. During the measurement period, which can be up to one year from the acquisition date, the Company may record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Subsequent to the conclusion of
the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any further
adjustments are recorded in the consolidated statements of operations and comprehensive (loss) income.
In a business combination achieved in stages,
the Company re-measures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition date
fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of operations and comprehensive
(loss) income.
F-
15
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Business combination and non-controlling interests
(continued)
For the Company's non-wholly owned subsidiaries,
a noncontrolling interest is recognized to reflect the portion of equity that is not attributable, directly or indirectly, to the Company.
Non-controlling interests represent the equity interests in the subsidiaries of the VIE that are not attributable, either directly or
indirectly, to the VIE. For the Company's consolidated financial statements, non-controlling interests represent minority shareholders'
6.67
% in Zhongxin and a minority shareholder's
40
% in West Angel, respectively, as of December 31, 2022.
Non-controlling interests are presented as a
separate line item in the equity section of the Company's consolidated balance sheets and have been separately disclosed in the
Company's consolidated statements of operations and comprehensive (loss) income to distinguish the interests from that of the Company,
its wholly-owned subsidiaries, VIE and VIE's subsidiaries.
Foreign currency translation
Transactions denominated in currencies other
than the functional currency are translated into the functional currency at the exchange rates prevailing on the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates on the date of the balance sheet. The resulting exchange differences are recorded in the consolidated
statements of operations and comprehensive (loss) income.
The reporting currency of the Company and its
subsidiaries is U.S. dollars ("US$") and the accompanying consolidated financial statements have been expressed in US$.
In general, for consolidation purposes, assets
and liabilities of the Company and its subsidiaries whose functional currency is not the US$, are translated into US$, using the exchange
rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of the Company and its subsidiaries are recorded as a separate component of accumulated
other comprehensive (loss) income within the statement of shareholders' equity.
Translation of amounts from RMB into US$ has
been made at the following exchange rates for the respective periods:
December 31,
2022
December 31,
2021
Balance sheet items, except for equity accounts
6.8972
6.3726
For the Years Ended
December 31,
2022
2021
2020
Items in the statements of operations and comprehensive (loss) income, and statements of cash flows
6.7290
6.4508
6.9020
No representation is made that the RMB amounts
could have been, or could be, converted into U.S. dollars at the rates used in translation.
F-
16
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Use of estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions
using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. The Company
bases its estimates on past experience and on various other assumptions that are believed to be reasonable, the results of which form
the basis for making judgments about the carrying values of assets and liabilities. Estimates are used when accounting for items and
matters including, but not limited to, fair value of the Company's ordinary shares, fair value of the Company's subsidiaries,
determinations of the useful lives and valuation of long-lived assets, valuation of goodwill, estimates of allowances for doubtful accounts,
valuation of deferred tax assets, and other provisions and contingencies.
Fair value of financial instruments
The Company's financial instruments are
accounted for at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of the fair value
hierarchy are described below:
Level 1 – inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology
include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability,
either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 – inputs to the valuation methodology
are unobservable and significant to the fair value.
As of December 31, 2022 and 2021, financial instruments
of the Company comprised primarily current assets and current liabilities including cash and cash equivalents, accounts receivable,  due
from a related party, other receivables, loans receivable, accounts payable and other payables, which approximate their fair values because
of the short-term nature of these instruments. Short-term investments are trading securities with observable market price in active market.
They are classified as level 1 investment and are measured at fair value as of December 31, 2022 and 2021.
Cash and cash equivalents
Cash and cash equivalents primarily consist of
bank deposits, as well as highly liquid investments, with original maturities of three months or less, which are unrestricted as to withdrawal
and use.
Short-term investments
Short-term investments comprised of certain listed
equity securities purchased through various open market transactions. Equity securities not measured by the equity method are carried
at fair value with unrealized gains and losses recorded in the consolidated statements of operations and comprehensive (loss) income,
according to ASC 321 "Investments — Equity Securities". During the years ended December 31, 2022 and 2021, the Company
purchased certain listed equity securities and accounted for such investments as "short-term investments" and subsequently
measure the investments at fair value in the account of "other income, net".
F-
17
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Accounts receivable
Accounts receivable are recorded at the gross
amount less an allowance for any uncollectible accounts and do not bear interest. The Company provides customers with credit term ranging
between one to six months, depending on credit assessment of customers. Management reviews the adequacy of the allowance for doubtful
accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual
customer's financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. During the years ended December 31, 2022, 2021 and 2020, the Company accrued provisions against doubtful accounts
of $
753,447
, $
1,449,827
and $
336,367
, respectively, among which $
543,315
, $
1,449,827
and $
336,367
were written off as the Company evaluated
it is remote to collect the balance. As of December 31, 2022 and 2021, allowances for doubtful accounts against accounts receivable were
$
207,269
and $
nil
, respectively.
Inventories
Inventories of the Company consist of patented
drugs. Inventories are stated at the lower of cost or net realizable value. Inventory costs include expenses that are directly or indirectly
incurred in the purchase of patented drugs. Cost of inventories is determined using the weighted average cost method. Inventories are
written down to estimated net realizable value, which could be impacted by certain factors including historical usage, expiration date,
expected demand, anticipated sales price, new product development schedules, product obsolescence, customer concentrations and other
factors.  The Company continually evaluate the recoverability, and inventory provisions are recorded in the consolidated statements
of operations and comprehensive (loss) income. For the years ended December 31, 2022, 2021 and 2020, the Company did not provide inventory
provisions against patented drugs.
Prepayments
Prepayments represent amounts advanced to suppliers
for providing services to the Company. The suppliers usually require advance payments when the Company orders service and the prepayments
will be utilized to offset the Company's future payments. These amounts are unsecured, non-interest bearing and generally short-term
in nature.
Investments in equity method investees
In addition to the investment of investees over
which the Company exercised significant influences, the Company also accounts for the investment in a limited partnership in which the
Company holds more than minor equity interest (
3
% -
5
%) in accordance with ASC 970-323-25-6 under the equity method of accounting.
The Company applies the equity method to account
for investment in a limited partnership and other investees, according to ASC 323 "Investments — Equity Method and Joint
Ventures", over which it has significant influence but does not own a controlling financial interest.
Under the equity method, the Company's share of the post-acquisition
profits or losses of the equity investee is recognized in the consolidated statements of operations and comprehensive (loss) income. The
Company records its share of the results of the equity investees on a one quarter in arrears basis. When the Company's share of
losses of 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.
F-
18
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Investments in equity method investees (continued)
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, including consideration of the impact of the COVID-19 pandemic; 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. No impairment of was recognized for the years ended December 31, 2022, 2021 and 2020.
Investments in an equity security
Equity securities not accounted for using the
equity method are carried at fair value with unrealized gains and losses recorded in the consolidated statements of operations and comprehensive
(loss) income, according to ASC 321 "Investments — Equity Securities", which the Company adopted beginning January
1, 2021.
As of December 31, 2022, the Company had investment
in one equity security. The Company elected to record an equity investment in privately held companies using the measurement alternative
at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical
or similar investments of the same issuer. As a practical expedient, the Company uses Net Asset Value ("NAV") or its equivalent
to measure the fair value of the investment in the fund. NAV is primarily determined based on information provided by financial institution.
The equity investment in privately held companies
accounted for using the measurement alternative are subject to periodic impairment reviews. The Company's impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security, including consideration
of the impact of the COVID-19 pandemic.
Property and equipment
Property and equipment primarily consist of buildings,
office equipment, and vehicle. Properties and equipment are stated at cost less accumulated depreciation less any provision required
for impairment in value. Depreciation is computed using the straight-line method with residual value rate of
5
% based on the estimated
useful lives as follows:
Land and buildings
7
-
21
years
Office equipment
3
years
Vehicle
4
years
Leasehold improvements
5
years
Costs of repairs and maintenance are expensed
as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed of or retired are
removed from the accounts, and any resulting gain or loss is recorded in other income, net in the consolidated statements of operations
and comprehensive (loss) income.
Prepayments for lease of land
Prepayments for lease of land represent prepayments
to the lessee for sub-lease of two land use rights. Prepayments for lease of land are carried at cost less accumulated amortization and
any impairment loss. Amortization is provided against the cost of lease prepayments on a straight-line basis over the period of the rights,
which are
16
years and
32
years, respectively.
F-
19
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Intangible assets, net
The Company acquired intangible assets through
either purchase or acquisition in the business combination.
Intangible assets acquired through business combinations
are recognized as assets separate from goodwill if they satisfy either the "contractual-legal" or "separability"
criterion. Intangible assets arising from business combinations are measured at fair value upon acquisition using valuation techniques
such as discounted cash flow analysis. Major assumptions used in determining the fair value of these intangible assets include future
growth rates and weighted average cost of capital. Separately identifiable intangible assets that have determinable lives continue to
be amortized over their estimated useful lives using the straight-line method as follows:
Purchased intangible assets are recognized and
measured at fair value upon acquisition.
Separately identifiable intangible assets that
have determinable lives continue to be amortized over their estimated useful lives using the straight-line method based on their estimated
useful lives as follows:
Trademarks
10
years
License
10
years
Software
3
-
10
years
Impairment of long-lived assets other than
goodwill
The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets was recognized for the years
ended December 31, 2022, 2021 and 2020.
Goodwill
Goodwill represents the excess of the purchase
consideration over the acquisition date amounts of the identifiable tangible and intangible assets acquired and liabilities assumed from
the acquired entity as a result of the Company's acquisitions of interests in its subsidiaries. Goodwill is not amortized but is
tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired.
The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.
In the qualitative assessment, the Company considers factors such as macroeconomic conditions, industry and market considerations, overall
financial performance of the reporting unit, and other specific information related to the operations, business plans and strategies
of the reporting unit, including consideration of the impact of the COVID-19 pandemic. Based on the qualitative assessment, if it is
more likely than not that the fair value of a reporting unit is less than the carrying amount, the quantitative impairment test is performed.
No impairment of goodwill was recognized for the years ended December 31, 2022.
F-
20
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
ASC 606 establishes principles for reporting
information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide
goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services
recognized as performance obligations are satisfied.
In accordance with ASC 606, revenues are recognized
when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to
be entitled to in exchange for those services.
The Company identified each distinct service,
or each series of distinct services that are substantially the same and that have the same pattern of transfer to the customer, as a
performance obligation. Transaction price is allocated among different performance obligations identified in one contract.
Timing of revenue recognition may differ from
the timing of invoicing to customers. Accounts receivable consisted of amounts invoiced and amounts for which revenue recognized prior
to invoicing when the Company has satisfied its performance obligation and has the unconditional right to payment.
Advances from customers consists of payments
received related to unsatisfied performance obligations at the end of the period.
The Company applied a practical expedient to
expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been
one year
or less.
The Company has no material incremental costs for obtaining contracts with customers that the Company expects the benefit of those costs
to be longer than one year.
Medical training and education services
The Company designs and provides medical training
and education courses in both online and offline formats to physicians and allied healthcare professionals (the "training and education
services"). The Company identifies a single performance obligation from contracts. The Company recognizes revenue at the point
when the service was rendered. Payments received in advance from customers are recorded as "advance from customers" in the
consolidated balance sheets. Advance from customers is recognized as revenue when the Company delivers the courses to its customers.
Such advance payment received are non-refundable. In cases where fees are collected after the sales, revenue and accounts receivable
are recognized upon delivery of medical training and education courses to the customers. The fees are fixed and determinable at the inception
of the services.
Offline medical training and education services
courses – though customers can benefit from each service commitment, including design, production and presentation of medical courses,
together with other readily available resources. The promises in the contracts with customers is integration of all of these service
commitments. The Company concludes that these service commitments are highly dependent with each other, in the context of the contract
term. Thus, these service commitments are not distinct from each other, and the Company combines all service commitments performed as
a single performance obligation. In cases where the Company engages third party experts to provide presentation in medical courses, as
the Company determines the contents and the participants, it has the ability to direct these experts to provide medical training services
for the Company. Therefore, the Company is primarily responsible for fulfilling the promise to provide the medial courses and has the
discretion in establishing the transaction price. The Company is a principal in the provision of services and recognizes revenues on
a gross basis.
F-
21
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Medical training and education services (continued)
Online medical training and education services
courses – the promises in the contracts with customers consist of provision of online courses and presentation of the courses online
for users to access for a period of time. The performance obligation of presentation of the courses online for users for a period of
time is immaterial in the context of the contract because presentation of each course incurred no significant additional cost, nor will
it occupy any significant resources of the Company, except for little digital space on the Company's server, which is inconsequential.
Therefore, the Company combines all service commitments performed as a single performance obligation.
Patient management services in patient-aid
projects
The Company is engaged by NFPs and pharmaceutical
enterprises to assist in the operation of patient-aid projects with a purpose to facilitate qualified patients to obtain free drug treatment
from NFPs. The Company is responsible to provide doctors with access to training courses or training materials in connection with the
drug treatment, review the completeness of application documents from patients, and other ad-hoc works (such programs with these plug-in
features are hereinafter referred as the "patient-aid projects"). The arrangements are structured as fixed price contracts.
The price is determined as stated in contracts and does not include any variable consideration. The Company identifies a single performance
obligation from contracts and recognizes revenue over a period of time during which the Company provides the assistance to the NFPs till
the earlier of the expiration of contract period or the free drugs are completely delivered. The Company uses an input-based method to
measure the progress, by reference to the cost incurred in performing the obligation.
The fees are fixed at the inception of the services
and are collected either in advance or after the services are provided.
Sales
of patented drugs
Starting from the year of 2022, the Company commenced
sales of patented drugs to customers. The Company identified one performance obligation in the contracts with customers, and the transaction
price is fixed. No sales incentives or return of goods is allowed only if there are quality issues. The Company recognized revenues upon
sales of patented drugs upon acceptance of goods by customers.
Other revenues
The Company also provides consulting services
to its customers, including drafting research papers and providing other academic supports, and facilitation services for hospitals and
patients through online platform.
The consulting services are accounted for as
a single performance obligation and was recognized as revenue when the Company delivers services to the customers. Fees are generally
collected after provision of services. The facilitation services are accounted for as a single performance obligation and was recognized
as revenue when the Company completed facilitation services to the customers.
For the years ended December 31, 2022, 2021,
and 2020, other revenues accounted for
0.3
%,
1.2
% and
0
% of consolidated revenues, respectively.
The following table identifies the disaggregation
of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
For the Years Ended
December 31,
2022
2021
2020
Medical training and education services
$
6,604,487
$
8,754,120
$
10,543,852
Patient management services in patient-aid projects
6,288,602
7,343,343
7,445,936
Sales of patented drugs
1,216,096
-
-
Other revenues
42,331
199,307
-
Total
$
14,151,516
$
16,296,770
$
17,989,788
F-
22
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Cost of revenues
Cost of revenues was comprised of direct related
costs incurred for preparation of online medical training courses and offline education seminars and patient-aid projects and cost of
patented drugs.
The cost of preparation of online medical training
courses and offline education seminars and patient management services in patient-aid projects includes expenses of travelling and accommodation,
seminar site-rental, video production and backdrop production, professional service fees charged by experts who provide online and offline
seminars, salary and welfare expenses incurred by the key members of the editorial, design and production team, and labor cost for patient-aid
projects. The travelling and accommodation expenses, including but not limited to the air-ticket expenses and hotel accommodation expenses,
represented the costs arising from lecturers' attendance and participation of the offline seminars. Other media expenses were incurred
by the Company's medical department for videos production, live streaming of the offline seminars, and materials collection to
create online courses. These travelling, accommodation and media expenses are well budgeted before any agreements entered into by the
Company and the customers. Therefore, such expenses are well covered by the customers under those agreements. The Company is not reimbursed
by the customers separately.
Employee benefits
The full-time employees of the Company are entitled
to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are
government mandated defined contribution plans. The Company is required to accrue for these benefits based on certain percentages of
the employees' respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash
contributions to the state-sponsored plans out of the amounts accrued. Total expenses for the plans were $
817,345
, $
804,730
, and $
310,637
for the years ended December 31, 2022, 2021 and 2020, respectively.
Research and development costs
Research and development costs are mainly comprised
of salary and welfare expenses for the Company's IT department employees who work for the development of the Company's platform
and database, and software and related intellectual property expenses which were used to develop an extensive library of licensed content
and medical database. For the years ended December 31, 2022, 2021, and 2020, the Company incurred research and development expenses of
$
411,524
, $
758,878
, and $
816,553
, respectively.
Advertising expenses
Advertising expenses primarily include advertisement
for the Company's platform for online medical courses. Advertising costs are expensed as incurred and the total amounts charged
to "selling and marketing expenses" in the consolidated statements of operations and comprehensive (loss) income were $
989,900
,
$
2,204,233
, and $
2,851,648
for the years ended December 31, 2022, 2021 and 2020, respectively.
F-
23
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Share-based compensation
Share-based awards granted to the Company's
employees and one non-employee are measured at fair value on grant date and measurement date, respectively, and share-based compensation
expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution
method, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference
to the fair value of the underlying shares.
At each date of measurement, the Company reviews
internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based
awards granted by the Company, including but not limited to the fair value of the Company ordinary shares, expected life, expected volatility
and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment.
If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation
expense may differ materially in the future from that recorded in the current reporting period. Moreover, the estimates of fair value
of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive
share-based awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the
Company for accounting purposes.
Value added tax
The Company is subject to value added tax ("VAT")
and related surcharges on the revenues earned for both sales of products and rendering of services in the PRC. The applicable rate of
value added tax is
6
% on services and
13
% on sales of products. The related surcharges for revenues derived from provision medical courses
are deducted from gross receipts to arrive at net revenues.
Income taxes
The Company accounts for income taxes in accordance
with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of
deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis
and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.
The charge for taxation is based on the results
for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance
sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is more likely
than not these items will be utilized against taxable income in the future. Deferred tax is calculated using tax rates that are expected
to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement,
except when it is related to items credited or charged directly to equity. 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 for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a
benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
50
% likely of being realized
on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period
incurred. As of December 31, 2022, income tax returns for the tax years ended December 31, 2017 through December 31, 2021 remain open
for statutory examination.
F-
24
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
(Loss) earnings per share
Basic (loss) earnings per ordinary share is computed
by dividing net (loss) income attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during
the period. Diluted (loss) earnings per share is computed by dividing net (loss) income attributable to ordinary shareholders by the
sum of the weighted average number of ordinary share outstanding and of potential ordinary share (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary
shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the
calculation of diluted earnings per share.
Comprehensive (loss) income
A Comprehensive (loss) income includes net (loss)
income and other comprehensive (loss) income arising from foreign currency adjustments. Comprehensive (loss) income is reported in the
consolidated statements of operations and comprehensive (loss) income.
Commitments and contingencies
In the normal course of business, the Company
is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters,
including, among others, government investigations and tax matters. In accordance with ASC No. 450-20, "Loss Contingencies",
the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss
can be reasonably estimated.
Operating lease
The Company leases its offices which are classified
as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with
the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee's obligation to make lease
payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee's
right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes
the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Company's incremental borrowing rate for the same term as the underlying lease.
The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any
initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets
are reviewed for impairment. No impairment for right-of-use lease assets as of December 31, 2022 and 2021.
Segment reporting
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating decision maker (the "CODM"), which is comprised of certain
members of the Company's management team.
The Company's organizational structure
is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to,
customer base, homogeneity of service and technology. The Group's operating segments are based on such organizational structure
and information reviewed by the Company's CODM to evaluate the operating segment results. Based on management's assessment,
the Company has determined that it has two operating segments: (i) provision of training and education services and assistance in
patient-aid projects (collectively "MDMOOC services"). (ii) sales of patented drugs.
Reclassification
Certain items in the financial statements of comparative
period have been reclassified to conform to the financial statements for the current period. The reclassification has no impact on the
total assets and total liabilities as of December 31, 2022 or on the statements of operations for the year ended December 31, 2022.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses
(Topic 326):
Measurement of Credit Losses on Financial Instruments
. This ASU
is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This
ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments
used in estimating credit losses, as well as the credit quality and underwriting standards of the Company's portfolio. These disclosures
include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.
The effective date was for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public
business entities that meet the definition of an SEC filer and eligible to be Smaller Reporting Companies, or SRC, as defined by the
SEC and all non-public business entities. As an "emerging growth company," or EGC, the Company has elected to take advantage
of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards
applicable to private companies. The Company will adopt ASU 2016-13 and its related amendments effective January 1, 2023, and the Company
does not expect material impact on adoption of this standard on its consolidated financial statements.
The Company does not believe other recently issued
but not yet effective accounting standards, if currently adopted, would have a material impact on its the consolidated financial position,
statements of operations and cash flows.
F-
25
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES (CONTINUED)
Significant risks and uncertainties
1)
Credit risk
Assets that potentially subject the Company to significant concentration
of credit risk primarily consist of cash and cash equivalents. The maximum exposure of such assets to credit risk is their carrying amount
as at the balance sheet dates. As of December 31, 2022, the Company held cash and cash equivalents of $
11,520,453
, among which were $
4,700,379
was deposited in financial institutions located in Mainland China, and each bank account is insured by the government authority with the
maximum limit of RMB
500,000
(equivalent to approximately $
72,500
). The Company also held cash of $
4,709,310
deposited in the financial
institutions in the United States, and each bank account is insured with the maximum limit of $
250,000
by Federal Deposit Insurance Corporation
("FDIC") insurance. In addition, the Company maintains certain bank accounts in Japan with cash balance of $
1,538,404
, which
are not insured by FDIC insurance or other insurance. To limit exposure to credit risk relating to deposits, the Company primarily place
cash and cash equivalent deposits with large financial institutions  which management believes are of high credit quality and the
Company also continually monitors their credit worthiness.
The Company's operations are carried out
in China. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political,
economic and legal environments in the PRC as well as by the general state of the PRC's economy. In addition, the Company's
business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, rates and methods of taxation among other factors.
2)
Foreign currency risk
Substantially all of the Company's operating
activities and 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.
3)
Other risk
The Company's business, financial condition
and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics
and other catastrophic incidents, such as the COVID-19 outbreak and spread, management is currently evaluating the impact of the COVID-19
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company's financial
position and results of its operations, the specific impact is not readily determinable as of the date of these financial statements.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
F-
26
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
VARIABLE INTEREST ENTITIES
    AND OTHER CONSOLIDATION MATTERS
On August 14, 2019, Zhongchao WFOE entered into
VIE Agreements with Zhongchao Shanghai and its shareholders. The key terms of these VIE Agreements are summarized in "Note 1 -
Organization and Principal Activities" above.
VIE is an entity that has either a total equity
investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or
whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive
the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder,
if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Zhongchao
WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Zhongchao Shanghai, because it has both of
the following characteristics:
1.
power to direct activities
    of Zhongchao Shanghai that most significantly impact its economic performance, and
2.
obligation to absorb losses
    of the entity that could potentially be significant to Zhongchao Shanghai or right to receive benefits from the entity that could
    potentially be significant to Zhongchao Shanghai.
In addition, as all of these VIE agreements are
governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance
with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed
as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company's
ability to enforce these VIE agreements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or
courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons.
In the event the Company is unable to enforce these VIE Agreements, it may not be able to consolidate the financial statements of Zhongchao
Shanghai and its ability to conduct its business may be materially and adversely affected.
The Company had no operations but to consolidate
the financial statements of Zhongchao Shanghai and its subsidiaries. Current regulations in China permit Zhongchao Shanghai to pay dividends
to the Company only out of its accumulated distributable profits, if any, determined in accordance with their articles of association
and PRC accounting standards and regulations. The ability of Zhongchao Shanghai to make dividends and other payments to the Company may
be restricted by factors including changes in applicable foreign exchange and other laws and regulations.
Risks
of variable interest entity structure
In
the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the
VIE Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii)
the business operations of WFOE and the VIE are in compliance with existing PRC laws and regulations in all material respects, except as disclosed in this Annual Report.
However, there
are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly,
the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its
management. If the current corporate structure of the Company or the VIE Arrangements is found to be in violation of any existing or
future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply
with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company's
current corporate structure or the VIE Arrangements is remote based on current facts and circumstances.
F-
27
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
VARIABLE INTEREST ENTITIES
    AND OTHER CONSOLIDATION MATTERS (CONTINUED)
The following significant amounts of Zhongchao
Shanghai and its subsidiaries are included in the accompanying consolidated financial statements as of December 31, 2022 and 2021, and
for the years ended December 31, 2022, 2021 and 2020:
December 31,
2022
December 31,
2021
ASSETS
Cash and cash equivalents
$
4,500,379
$
7,117,728
Accounts receivable
6,772,988
9,218,883
Inventories
189,106
-
Other current assets
1,840,182
2,029,794
Investment in a limited partnership and an equity investee
1,179,300
1,993,285
Property and equipment, net
3,111,717
3,168,441
Goodwill
5,767,504
-
Right of use assets
1,666,777
205,824
Deferred tax assets
1,800,493
2,025,043
Other noncurrent assets
1,456,322
414,105
Total Assets
$
28,284,768
$
26,173,103
LIABILITIES
Advances from customers
$
395,263
$
7,432
Income tax payable
2,292,765
2,478,273
Operating lease liabilities, current and non-current
1,702,478
201,559
Due to Zhongchao Inc.*
762,962
599,347
Other current liabilities
992,558
1,011,371
Deferred tax liabilities
208,200
-
Total Liabilities
$
6,354,226
$
4,297,982
For the years ended December 31,
2022
2021
2020
Revenues
$
14,151,516
$
16,096,769
$
17,989,788
(Loss) Income from Operations
$
(
1,716,154
)
$
418,235
$
4,525,855
Net (Loss) Income
$
(
1,427,296
)
$
838,838
$
4,484,029
*
The
balances due from/to Zhongchao Inc., are eliminated on consolidation.
As of December 31, 2022 and 2021, the VIE and
its subsidiaries did not collateralize their assets for the obligation. Moreover the beneficial interest holders of the VIE and its subsidiaries
had no recourse to the general credit of the Company or its subsidiaries.
F-
28
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
ACQUISITION OF BEIJING
    YISUIZHEN AND ITS SUBSIDIARY
In November 2021, Beijing
Yisuizhen was set up, over which the Company owned
47
% effective equity interest with capital contribution of $
708,129
(RMB
4,568,000
),and
accounted for the investment under equity method.
In February 2022, Beijing
Yisuizhen acquired
60
% equity interest in West Angel and exercised control over West Angel, at cash consideration of RMB
25
million and
a
6.67
% share consideration in Shanghai Zhongxin at discounted price. Both Beijing Yisuizhen and West Angel are primarily engaged in
technology development, consulting, communication, transfer, and promotion, software services, and health consulting services.
In
August 2022, the Company acquired additional equity interest in Beijing Yisuizhen and its subsidiary for a cash consideration of $
3.1
million
(RMB
20.6
million) and a
6.67
% share consideration
in Shanghai Zhongxin at discounted price. Upon the completion of the transaction, the Company owns
100
% equity interest in Beijing Yisuizhen
and Beijing Yisuizhen became a consolidated subsidiary of the Company.
The allocation of the
purchase price as of the date of acquisition is summarized as follows:
Net assets deficit assumed (i)
$
(
60,092
)
Software acquired in business combination (ii)
1,000,406
Goodwill
5,767,504
Deferred tax liabilities
(
234,225
)
Non-controlling interest (iii)
(
2,585,087
)
Foreign currency adjustments
120,261
$
4,008,767
Total purchase price is comprised of
Cash consideration
$
3,055,432
Fair value of previously held equity interests (iv)
708,129
Fair value of 6.67% equity interest in Zhongxin (v)
393,816
Less: cash from transfer of fair value of 6.67% equity interest in Zhongxin (v)
(
148,610
)
$
4,008,767
(i)
Net asset deficit assumed primarily included other current liabilities
for operating expenses.
(ii)
Software acquired in the business combination had estimated
useful life of
3
years.
(iii)
Fair value of the noncontrolling interests was estimated with
reference to the market price per share as of the acquisition date.
(iv)
A gain of $
850
in relation to the revaluation of the previously
held equity interests was recorded in other income, net in the consolidated statements of operations and comprehensive (loss) income
for the year ended December 31, 2022. The fair value of the previously held equity interests approximated the cost of investments as
Beijing Yisuizhen has not commenced operations since its setup.
(v)
In exchange for the equity interest in Beijing Yisuizhen and
West Angel, the Company also granted
6.67
% equity interest in Shanghai Zhongxin, with fair value of $
393,816
(RMB
2,713,000
), to four
shareholders of West Angel at cash consideration of $
148,610
(RMB
1,000,000
). The Company engaged a third party valuation team to estimate
the fair value of equity interest of Shanghai Zhongxin. As of December 31, 2022, the four shareholders paid the cash consideration to
Mr. Yang, the Chief Executive Officer of the Company. The Company recorded the outstanding balance in the account of due from related
parties (Note 16).
F-
29
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
SHORT-TERM INVESTMENTS
As of December 31, 2022 and 2021, the balance
of short-term investments represented certain listed equity securities purchased through various open market transactions. The short-term
investments are trading securities. They are initially recorded at cost, and subsequently measured at fair value with the changes in
fair value recorded in other income, net in the consolidated statements of operations and comprehensive (loss) income. Loss from such
short-term investment amounted to $
240,489
, $
58,403
and $
10,331
for the years ended December 31, 2022, 2021 and 2020, respectively.
6.
OTHER CURRENT ASSETS
Other current assets consist of the following:
December 31,
2022
December 31,
2021
Due from a third party (i)
$
205,726
$
-
Office rental deposit
128,194
203,896
Interest receivable
88,720
78,950
Prepaid rental fees
803
45,607
Others
69,597
47,256
$
493,040
$
375,709
(i)
During the year ended December 31, 2022, the Company sold one of its properties to a third party at cash consideration of $
1,323,308
(Note 8), among which the third party paid $
1,112,440
. The Company recorded the remaining balance as "due from a third party" in the account of other current assets.
7.
LOANS RECEIVABLE
Loans receivable consist of the following:
December 31,
2022
December 31,
2021
Borrower A
$
-
$
266,767
Borrower B
-
199,893
Borrower C
-
404,008
Borrower D
1,590,000
1,590,000
Borrower E
250,000
200,000
$
1,840,000
$
2,660,668
Borrower A, B and C
During the year ended December 31, 2021, the
Company made loans of RMB
6,700,000
(approximately $
1,038,631
), RMB
1,273,840
(approximately $
197,470
), RMB
2,574,580
(approximately $
399,110
)
to Borrowers A, B, and C, respectively. During the year ended December 31, 2021, the Company collected RMB
5,000,000
(approximately $
775,098
)
from Borrower A. These loans were interest free. During the year ended December 31, 2022, the Company fully collected the loans receivables
from Borrower A, B and C.
Borrower D and E
During the year ended December 31, 2021, the
Company made loans of $
1,890,000
and $
200,000
to Borrower D and E, respectively. During the year ended December 31, 2021, the Company
collected $
300,000
from Borrower D.
During the year ended December 31, 2022, the
Company made loans of $
200,000
to Borrower E. During the year ended December 31, 2022, the Company also collected $
150,000
from Borrower
E. These loans were interest free.
In April 2022, Mr. Yang, the Chief Executive Officer
of the Company, provided a guarantee on the borrowings to Borrower A, D and E, respectively, providing that Mr. Yang will repay the loans
on behalf of the Borrower A, D and E if any of them failed to repay the loan. In December 2022, the Company extended borrowings for another
six months and Mr. Yang provided an extended guarantee on the borrowings. As of the date of this report, the Company collected $
1,590,000
from Borrower D, and settled the balance of $
250,000
due from Borrower E with payables due to the borrower. As of the date of this report,
the balance of loan receivable was zero.
F-
30
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8.
PROPERTY AND EQUIPMENT,
    NET
Property and equipment, net consist of the following:
December 31,
2022
December 31,
2021
Land and buildings
$
4,105,956
$
4,063,587
Office equipment
79,082
460,525
Vehicle
32,535
35,213
Leasehold improvements
53,253
-
Less: accumulated depreciation
(
379,879
)
(
636,239
)
$
3,890,947
$
3,923,086
Depreciation expenses totaled $
241,842
, $
312,898
,
and $
176,111
for the years ended December 31, 2022, 2021 and 2020, respectively.
In May 2021, the Company, through Ms. Lirong
Yang, sister of the Company's CEO, purchased a property for a total purchase price of approximately $
1,397,317
in a public judicial
auction in May 2021 to be used as office for Shanghai Maidemu, one of subsidiaries of the VIE of the Company. Pursuant to a real estate
entrust agreement between Shanghai Maidemu and Ms. Yang, Shanghai Maidemu is considered ultimate ownership/beneficiary of this property.
As of December 31, 2021, the Company obtained
the property ownership certificate, but the property was illegally encroached by an outsider. Till March 2022, Jinan Intermediate People's
court has sent a letter to Beijing Higher People's court, hoping that the eviction order of this case would be implemented by the Tongzhou
District People's court, where the property is located. During the year ended December 31, 2022, the Company sold the property to a third
party for $
1,323,308
. The difference between the cash consideration and the net book value was recorded as "gain from disposal of
property and equipment" in the account of "other income, net" in the consolidated statements of operations and comprehensive
(loss) income.
9.
PREPAYMENTS FOR LEASE
    OF LAND
Prepayments for lease of land consist of the followings:
December 31,
2022
December 31,
2021
Prepayments for lease of land
$
401,031
$
434,045
Less: accumulated amortization
(
96,244
)
(
80,698
)
$
304,787
$
353,347
Amortization expenses totaled $
22,226
, $
23,185
,
and $
21,670
for the years ended December 31, 2022, 2021, and 2020, respectively.
F-
31
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10.
INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
December 31,
2022
December 31,
2021
Software
$
1,041,872
$
44,880
Trademark and license
11,133
12,050
Less: accumulated amortization
(
140,951
)
(
26,671
)
$
912,054
$
30,259
For the years ended December 31, 2022, 2021 and
2020, amortization expense totaled $
119,218
, $
5,525
, and $
4,544
, respectively.
The following is a schedule, by years, of amortization
of intangible assets as of December 31, 2022:
December 31,
2022
For the year ended December 31, 2023
$
338,636
For the year ended December 31, 2024
338,636
For the year ended December 31, 2025
227,492
For the year ended December 31, 2026
5,105
For the year ended December 31, 2027
2,185
$
912,054
11.
INVESTMENTS IN EQUITY
    METHOD INVESTEES
As of December 31, 2022 and 2021, the Company's
investments in equity investments were comprised of investment in one limited partnership and one equity investees were as the following:
December 31,
2022
December 31,
2021
Ningbo Meishan Xinaishan Equity Investment Limited Partnership ("limited partnership") (a)
$
1,179,300
$
1,276,466
Beijing Yisuizhen (b)
-
716,819
$
1,179,300
$
1,993,285
(a)
On November 5, 2020, the Company entered into a five-year partnership agreement to invest $
1,217,039
, for
28
% partnership interest in the limited partnership. The funds raised by the limited partnership are invested in one PRC private company engaged in immunotherapy. For the years ended December 31, 2022, 2021 and 2020, equity investment loss of $
80
, $
13,758
and $
25,622
have been recorded in other income, net for the Company's share of the operating loss of the limited partnership. As of December 31, 2022 and 2021, no significant impairment indicators have been noted in connection with the investment.
(b)
On November 8, 2021, the Company newly set up Beijing Yisuizhen with other investors and acquired
47
% equity interest at cash consideration of $
708,129
. In August 2022, the Company, through Hainan Muxin, acquired additional
53
% equity interest in Beijing Yisuizhen, which was consolidated in the Company's consolidated financial statements.
Beijing Yisuizhen has not commenced operations. In addition, the Company did not note significant impairment indicators in connection with the investment.
F-
32
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.
INVESTMENT IN AN EQUITY
    SECURITY
During the year ended December 31, 2021, the
Company made an investment of $
150,000
in Elite Ivy Investment LLC ("Elite Ivy"), accounting for
0.6
% of the investee. Elite
Ivy was mainly engaged in investments in equities, options, futures, debt securities and commodities, and interim investments in money
market or equivalent instruments. The Company can withdraw the investment after six months of the investment.
As a practical expedient, the Company uses Net
Asset Value ("NAV") or its equivalent to measure the fair value of the investment in the Elite Ivy. For the year ended December
31, 2022 and 2021, the Company recorded downward adjustments of $
65,394
and $
nil
on the investment.
The Company considers both qualitative and quantitative
factors that may have a significant effect on the fair value of the equity security. For the year ended December 31, 2022 and 2021, the
Company did not record impairment against the investment.
13.
ACCRUED EXPENSES AND
    OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
December 31,
2022
December 31,
2021
Other tax payable
$
379,712
$
616,356
Accrued payroll
296,866
301,260
Customer deposits payable
83,367
-
Other current liabilities
95,595
57,185
$
855,540
$
974,801
Other tax payable
Other tax payables consist of the following:
December 31,
2022
December 31,
2021
Value added tax payable
$
354,794
$
579,516
Local taxes payable
24,918
36,840
$
379,712
$
616,356
F-
33
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
INCOME
TAXES
Cayman Islands
Under the current tax laws of the Cayman Islands,
the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman
Islands withholding tax will be imposed.
British Virgin Islands
Under the current tax laws of BVI, the Company's
subsidiary incorporated in the BVI is not subject to tax on income or capital gains.
Hong Kong
Zhongchao HK is incorporated in Hong Kong and
is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with
relevant Hong Kong tax laws.
The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and assessable profits
above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from the year of assessment
2018/2019. Before that, the applicable tax rate was 16.5% for corporations in Hong Kong.
The Company did not make any provisions for
Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax laws,
Zhongchao HK is exempted from income tax on its foreign-derived income and there are no withholding taxed in Hong Kong on remittance
of dividends.
USA
Zhongchao USA is incorporated in the United States
and is subject to a federal tax rate of
21
%.
Japan
Under the current tax laws of Japan, Zhongchao
Japan is incorporated in Japan and is subject to an income tax rate of
30
%. For the year ended December 31, 2022, 2021 and 2020, Zhongchao
Japan did not have taxable income.
PRC
For the year ended December 31, 2022,
Zhongchao Shanghai and Beijing Branch of Shanghai Zhongxun is subject to PRC Enterprise Income Tax ("EIT") on the
taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is
25
%. The
Company's other subsidiary and the VIE's subsidiaries that are located in the PRC were qualified as Small and
Micro-sized Enterprises ("SMEs").
For the year ended December 31, 2021 and 2020,
Zhongchao Shanghai, Shanghai Maidemu, Shanghai Zhongxun, Shanghai Zhongxin, Huijing are subject to EIT rate of
25
%. Hainan Zhongteng,
located in Hainan Province, is subject to
15
%. Beijing Boya, Shanghai Xinyuan and Hainan Muxin qualify as SMEs. Liaoning Zhixun was not
qualified as a SMEs until fiscal year 2021.
Qualified as a Software Development Enterprise
and a High and New Technology Enterprise, Zhongchao Shanghai applied a preferential income tax rate of
12.5
% for the year ended December
31, 2020. From January 1, 2021, Zhongchao Shanghai was subject to an EIT of
25
%.
SMEs are entitled to a reduced EIT rate of a reduced
EIT rate of 20%, 87.5% reduction of taxable income for the first RMB1,000,000 taxable income and 75% reduction of taxable income between
RMB 1,000,000 and RMB 3,000,000, and no reduction for the remaining taxable income for the year ended December 31, 2022; 87.5% reduction
of taxable income for the first RMB1,000,000 taxable income and 50% reduction of taxable income between RMB 1,000,000 and RMB 3,000,000,
and no reduction for the remaining taxable income for the year ended December 31, 2021; and 75% reduction of taxable income for the first
RMB1,000,000 taxable income and 50% reduction of taxable income between RMB 1,000,000 and RMB 3,000,000, and no reduction for the remaining
taxable income for the years ended before December 31, 2020.
In September 2018, the State Taxation Administration
of the PRC announced a preferential tax treatment for research and development expenses. Qualified entities are entitled to deduct
175
%
research and development expenses against income to reach a net operating income.
F-
34
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
INCOME TAXES (CONTINUED)
The components of (loss) profit before income tax benefits (expenses)
are summarized as follows:
For the Years Ended
December 31,
2022
2021
2020
PRC
$
(
1,243,361
)
$
631,917
$
4,976,484
Non-PRC
(
1,306,645
)
(
742,670
)
(
34,600
)
Total
$
(
2,550,006
)
$
(
110,753
)
$
4,941,884
Income tax benefits (expenses) consist of the following:
For the Years Ended
December 31,
2022
2021
2020
Current income tax expenses
$
(
138,188
)
$
(
997,198
)
$
(
543,211
)
Deferred income tax benefits
(
134,125
)
1,346,616
58,424
Income tax benefits (expenses)
$
(
272,313
)
$
349,418
$
(
484,787
)
Below is a reconciliation of the statutory tax rate to the effective
tax rate:
For the Years Ended
December 31,
2022
2021
2020
PRC statutory income tax rate
25
%
25
%
25
%
Effect of different income tax rates in other jurisdictions
(
2.11
)%
(
34.11
)%
0
%
Effect of preferential tax benefits
12.72
%
167.36
%
(
13.96
)%
Effect of non-deductible expenses
(
1.22
)%
(
54.84
)%
0.35
%
Effect of research and development credits
3.06
%
104.55
%
(
1.47
)%
Effect of deferred tax rate change
(
34.22
)%
107.53
%
0
%
Effect of changes in valuation allowance
(
13.91
)%
0
%
0
%
Effective tax rate
(
10.68
)%
315.49
%
9.81
%
F-
35
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
INCOME TAXES (CONTINUED)
Deferred tax assets as of December 31, 2022 and 2021 consist of the
following:
December 31,
2022
December 31,
2021
Deferred tax assets:
Excess advertising expense
$
842,295
$
911,799
Deferred Intangible assets amortization
25,790
33,590
Net operating loss carrying forward
1,052,209
1,079,962
Share-based compensation
178,764
156,928
Doubtful allowance against accounts receivable
51,817
-
Changes in fair value of short-term investments
50,502
-
Downward adjustments in investments in an equity security
13,733
-
Lease liabilities
71,024
31,615
Less: Deferred tax liability - Right of use assets
(
81,910
)
(
37,184
)
Less: Valuation allowance on deferred tax assets
(
339,495
)
-
Deferred tax assets, net
$
1,864,729
$
2,176,710
Deferred tax liability
Software acquired in business combination
208,200
-
$
208,200
$
-
As
of December 31, 2022 and 2021, the Company had net operating loss carryforwards of $
7,166,560
and
$
4,435,381
, respectively. The net operating loss carryforwards $
1,512,756
from Unite States and Hong Kong at December 31, 2022 could
be carried forward indefinitely and shall not expire.
The Company also has net operating loss carryforwards from PRC of
$5,653,804 which expire starting in 2025 through 2027.
The Company reviews deferred tax assets for a valuation allowance based upon
whether it is more likely than not that the deferred tax asset will be fully realized. As of December 31, 2022 and 2021, the Company
recorded valuation allowance of $
339,495
and $
nil
against the deferred tax assets arising from net operating loss carrying forward
based upon management's assessment that it is more likely than not that part of deferred tax assets will not be realized.
The Company evaluates its valuation allowance
requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering whether,
based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management's judgement
about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in income
from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends on the existence
of sufficient taxable income of the appropriate character within the carryforward period available under applicable tax law.
Unrecognized tax benefits
The aggregate change in the balance of gross unrecognized
tax benefits for the years ended December 31, 2022 and 2021 is as follows:
December 31,
2022
December 31,
2021
Beginning balances
$
1,470,344
$
-
Increases related to tax positions change
(1,470,344
)
1,470,344
Ending balances
$
-
$
1,470,344
F-
36
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
INCOME TAXES (CONTINUED)
As of December 31, 2022 and 2021, there were $Nil
and $1,470,344 respectively of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The balance is
presented as a current liability in the consolidated financial statements as of December 31, 2021.
The Company recognizes interest and penalty charges
related to income tax payable as necessary in the provision for income taxes. For the years ended December 31, 2022 and 2021, no interest
expense or penalty was accrued in relation to the income tax payable. The Company has a liability for accrued interest and penalty of
$Nil as of December 31, 2022 and 2021, respectively.
ASC 740 states that a tax benefit from an uncertain
tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions
of any related appeals or litigation processes, on the basis of the technical merits. We record unrecognized tax benefits as liabilities
in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not
previously available. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution
of uncertain tax positions may result in liabilities which could be materially different from these estimates. In such an event, the Company
will record additional tax expense or tax benefit in the period in which such resolution occurs.
As a result of the Tax Act, the Company has evaluated
whether it has an additional tax liability from the Global Intangible Low Taxed Income ("GILTI") inclusion on current earnings
and profits of its foreign controlled corporations. The law also provides that corporate taxpayers may benefit from a
50
% reduction in
the GILTI inclusion, which effectively reduces the tax rate on the foreign income to
10.5
%. The GILTI inclusion further provides for
a foreign tax credit in connection with the foreign taxes paid. As of December 31, 2022 and 2021 the Company does not have any aggregated
positive tested income; and as such, did not record a liability for GILTI tax. With the effective date of January 1, 2018, the Tax Act
introduced a provision to tax global intangible low-taxed income ("GILTI"). The Company will account for future tax liability
arising from Global Intangible Low-Taxed Income, if any, as a period cost.
15.
(LOSS) EARNINGS PER
    SHARE
The following table sets forth the computation
of basic and diluted (loss) earnings per ordinary share for the years ended December 31, 2022, 2021 and 2020, respectively:
For the Years Ended
December 31,
2022
2021
2020
Net (Loss) Income Attributable to Zhongchao Inc.'s shareholders
$
(
2,940,891
)
$
238,665
$
4,458,380
Weighted average number of ordinary share outstanding
Basic and Diluted
25,997,757
24,938,513
24,425,637
(Loss) Earnings per share
Basic and Diluted
$
(
0.113
)
$
0.010
$
0.183
On August 14, 2019, Zhongchao Cayman completed
a reorganization of entities under common control of its then existing shareholders, who collectively owned a majority of the equity
interests of Zhongchao Cayman prior to the reorganization. All references to numbers of common shares and per-share data in the consolidated
financial statements have been adjusted to reflect such issuance of shares on a retrospective basis. In addition, the contingently issuable
ordinary shares of
1,350,068
shares of Class A ordinary share underlying the warrant (Note 1) issued to one existing shareholder of Zhongchao
Shanghai is included in calculation of basic and diluted weighted average number of ordinary share outstanding, as the Company does not
expect any circumstances under which those shares would not be issued.
Potential ordinary shares that have an anti-dilutive
effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted (loss) earnings
per share. For the years ended December 31, 2022, 2021 and 2020, the Company had no dilutive shares.
F-
37
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16.
RELATED PARTY TRANSACTIONS
    AND BALANCES
1)
Nature
of relationships with related parties
Name
Relationship
    with the Company
Yang Weiguang
Chairman of the Board, Chief Executive Officer
Beijing Ougaini Trading Co., Ltd ("Beijing Ougaini")
Controlled by an immediate family member of Mr. Yang Weiguang
Beijing Yisuizhen
The Company owned 47% and 100% equity interest before and after August 17, 2022, respectively
2)
Transactions
with related parties
Purchase from a related party
For the Years Ended
December 31,
2022
2021
2020
Beijing Ougaini
$
19,696
$
-
$
-
During the year ended December 31, 2022, the
Company also prepaid $
118,888
to Beijing Ougaini for purchase of products for employee welfare and marketing promotion.
3)
Balances with related parties
As of December 31, 2022 and 2021,
the balances with related parties were as follows:
December 31,
2022
December 31,
2021
Prepayments
Beijing Ougaini
$
115,989
$
-
Due from related parties
Yang Weiguang (i)
226,178
-
Beijing Yisuizhen (ii)
-
392,305
$
226,178
$
392,305
(i)
As of December 31, 2022, the Company had a balance of $
226,178
due from Mr. Yang Weiguang. The balance was comprised of the following:
-
A balance of $
144,986
arising from transfer of
6.67
% equity interest of Shanghai Zhongxin to
four
former shareholders of West Angel, who paid consideration to Mr. Yang. (Note 4)
-
A balance of $
81,192
as tuition paid on behalf of to Mr. Yang.
As of the date of this report,
Mr. Yang has repaid the above outstanding balances to the Company.
(ii)
As of December 31, 2021, the Company had a balance of $
392,305
due from Beijing Yisuizhen, over which the Company owned
47
% equity interest before August 17, 2022. The balance was a loan to the newly
set up equity investee to support its working capital. The outstanding balance was repaid by Beijing Yisuizhen before business combination
with the Company.
F-
38
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17.
EQUITY
Ordinary share
The Company's authorized share capital
is
500,000,000
ordinary shares consisting of
450,000,000
Class A Ordinary Shares and
50,000,000
Class B ordinary shares, par value $
0.0001
per share (each, a "Class B Ordinary Share"; collectively, "Class B Ordinary Shares"). On April 16, 2019, the
Company issued
10,000
Class B Ordinary Shares. On August 14, 2019, the Company issued
14,752,352
Class A Ordinary Shares and
5,497,715
Class B Ordinary Shares.
Holders of Class A Ordinary Shares and Class B Class A Ordinary Shares have the same rights except for voting
and conversion rights. In respect of matters requiring a shareholder vote, each Class A Ordinary Share will be entitled to 1 vote and
each Class B Ordinary Share will be entitled to 15 votes.
The Class A Ordinary Shares are not convertible into shares of any other class.
The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time after issuance at the option of the holder on a
one to one basis.
In addition, the Company was committed to issue
1,350,068
Class A Ordinary Shares to a
6.25
% shareholder of Zhongchao Shanghai, who is now in the progress of changing from a shareholder
of Zhongchao Shanghai to a direct investor of Zhongchao Cayman (Note 1). The
1,350,068
Class A Ordinary Shares, representing
5.19
% economic
beneficial interest, or
1.31
% of the voting ownership interest of the Company as of December 31, 2022, will be issued to the shareholder
upon its capital contribution in Zhongchao Cayman and the Company released its paid-in capital in Zhongchao Shanghai. Such ordinary shares
are included in the shares issued and outstanding as of December 31, 2022 and 2021 and in the calculation of earnings per share as such
commitment to issue the shares is considered to be part the reorganization, and the shares are considered to be in existence from the
time this shareholder made the investment.
On February 26, 2020, the Company closed its
initial public offering (IPO) on the Nasdaq Global Market. The Company offered
3,000,000
Class A Ordinary Shares in the IPO, par value
$
0.0001
per share, at $
4.00
per share. In addition, the underwriters of the Company's IPO have exercised in full their over-allotment
option to purchase additional
315,000
Class A Ordinary Shares, at $
4.00
per share.  Gross proceeds of the Company's IPO,
including the proceeds from the sale of the over-allotment shares, totaled $
13.26
million, before deducting underwriting discounts and
other related expenses.
On December 17, 2021, the Company, entered into
a Sales Agreement with U.S. Tiger Securities, acting as Sales Agent, pursuant to which the Company may offer and sell, from time to time,
through the Sales Agent, its Class A Ordinary Shares. Class A Ordinary Shares will be offered and sold pursuant to the prospectus supplement,
dated December 17, 2021, to the Registration Statement on Form F-3 (File No. 333-256190) that forms a part of such Form F-3, for an aggregate
offering price of up to $
10,400,000
. On January 6, 2022, the Sales Agent sold an aggregate of
1,060,000
Class A Ordinary Shares at an
offering price of $
1.8
per share for gross proceeds of $
1,908,000
.
On October 10, 2022, September 13, 2021, and
July 13, 2020, the Company granted an aggregation of
18,000
Class A Ordinary Shares to three non-executive directors as compensations
for one year from March 1, 2022, 2021 and 2020, respectively.
F-
39
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17.
EQUITY (CONTINUED)
Restricted net assets
The Company's ability to pay dividends
is primarily dependent on the Company receiving distributions of funds from its subsidiary or VIE. Relevant PRC statutory laws and regulations
permit payments of dividends by Zhongchao WFOE and its subsidiaries only out of its retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid
in capital of the PRC subsidiary and VIE and VIE's subsidiaries included in the Company's consolidated net assets are also
non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared
in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Zhongchao WFOE, Zhongchao Shanghai
and its subsidiaries. The Company is required to set aside at least
10
% of their after-tax profits each year, if any, to fund certain
statutory reserve funds until such reserve funds reach
50
% of its registered capital. In addition, the Company may allocate a portion
of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion.
The statutory reserve funds and the discretionary funds are not distributable as cash dividends.
During the year ended December 31, 2022, 2021
and 2020 the Company accrued statutory reserve funds of $
115,963
, $
397,552
, and $
385,689
, respectively, which is
10
% of the retained earnings
of profit-making PRC subsidiaries, VIE or VIE's subsidiaries as of December 31, 2022, 2021 and 2020, respectively. As of December 31,
2022 and 2021, the Company had statutory reserve of $
1,315,017
and $
1,199,054
, respectively.
As of December 31, 2022 and 2021, the Company
had net assets restricted in the aggregate, which include paid-in capital and statutory reserve of the Company's PRC subsidiary
and VIE and VIE's subsidiaries that are included in the Company's consolidated net assets, were approximately $
13,314,132
and $
13,198,169
, respectively.
The current PRC Enterprise Income Tax ("EIT")
Law also imposed a
10
% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company
outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction
of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a
5
% withholding tax rate, subject to
approval from the related PRC tax authorities.
The ability of the Company's PRC subsidiary
and VIE and VIE's subsidiaries to make dividends and other payments to the Company may also be restricted by changes in applicable
foreign exchange and other laws and regulations. Foreign currency exchange regulation in China is primarily governed by the following
rules:
●
Foreign Exchange Administration
    Rules (1996), as amended in August 2008, or the Exchange Rules;
●
Administration Rules of
    the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
F-
40
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17.
EQUITY (CONTINUED)
Restricted net assets (continued)
Currently, under the Administration Rules, Renminbi
is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related
foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and
investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the "SAFE")
is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange
for the distribution of profits to its shareholders may affect payment from their foreign exchange accounts or purchase and pay foreign
exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit
distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current
account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign
exchange at certain designated foreign exchange banks.
Although the current Exchange Rules allow the
convertibility of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange
for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority
of the People's Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. The
Company cannot be sure that it will be able to obtain all required conversion approvals for its operations or the Chinese regulatory
authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of the Company's
retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit the Company's ability to use
its retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities
outside China.
As of December 31, 2022 and 2021, there was $
nil
retained earnings in the aggregate, respectively, which was generated by the Company's VIE and its subsidiaries in Renminbi included
in the Company' consolidated net assets, aside from $
1,315,017
and $
1,199,054
statutory reserve funds as of December 31, 2022 and
2021, that may be affected by increased restrictions on currency exchanges in the future and accordingly may further limit the Company's
PRC subsidiary and VIE and VIE's subsidiaries' ability to make dividends or other payments in U.S. dollars to the Company,
in addition to $
13,314,132
and $
13,198,169
restricted net assets as of December 31, 2022 and 2021, respectively, as discussed above.
18.
CONCENTRATION RISK
The Company has a concentration of its account
receivables with specific customers. As of December 31, 2022, two customers accounted for
16.6
% and11
.6
% of net accounts receivable,
respectively. As of December 31, 2021, four customers accounted for
20.3
%,
12.0
%,
11.2
% and
10.8
% of net accounts receivable, respectively.
For the year ended December 31, 2022, one customer
accounted for approximately
15.9
% of the total revenue, respectively. For the year ended December 31, 2021, three customers accounted
for approximately
23.4
%,
21.9
% and
10.7
% of the total revenue, respectively. For the year ended December 31, 2020, two customers accounted
for approximately
26.9
% and
19.7
% of the total revenue, respectively.
As of December 31, 2022 and 2021, the Company
had insignificant balance of accounts payable and did not further assess the concentration risk of accounts payable.
For the year ended December 31, 2022, one supplier
accounted for approximately
22.9
% of the total cost of revenue. For the year ended December 31, 2021, two suppliers accounted for approximately
16.4
% and
10.2
% of the total cost of revenue, respectively. For the year ended December 31, 2020, no supplier accounted for more than
10
% of the total cost of revenue.
F-
41
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19.
SHARE BASED COMPENSATION
The following table summarizes our unvested restricted
share units:
Number of
shares
Weighted-
Average
Grant-Date
Fair Value
Unvested at December 31, 2020
427,076
$
2.54
Granted
18,000
$
1.64
Vested
(
18,000
)
$
1.77
Unvested at December 31, 2021
427,076
$
2.53
Granted
18,000
$
1.16
Vested
(
137,880
)
$
2.37
Unvested at December 31, 2022
307,196
$
2.52
Among the outstanding restricted share units
brought forward from December 31, 2020,
119,880
restricted shares were vest in May 2022. The remaining restricted share units will vest
in January 2024 through February 2029, upon fulfilment of requisite service period by the employees.
On September 13, 2021, the Company granted and
issued
18,000
shares of restricted Class A Ordinary Shares to three non-executive directors as their compensation for the year from March
1, 2021. The restricted shares were vested in a straight line method over the service period, and will be transferable after a lock-up
period of six months. As of December 31, 2021,
15,000
share were vested. The grant-date value of each restricted share units was $
1.64
by reference to the closing price on September 13, 2021, and the total fair value of these restricted Class A Ordinary Share units aggregated
$
29,520
.
On October 10, 2022, the Company granted and
issued
18,000
shares of restricted Class A Ordinary Shares to three non-executive directors as their compensation for the year from March
1, 2022. The restricted shares were vested in a straight line method over the service period, and will be transferable after a lock-up
period of six months. As of December 31, 2022,
15,000
share were vested. The grant-date value of each restricted share units was $
1.16
by reference to the closing price on October 10, 2022, and the total fair value of these restricted Class A Ordinary Share units aggregated
$
20,880
.
For the years ended December 31, 2022, 2021 and
2020, the Company had share-based compensation expenses of $
160,777
, $
211,832
, $
168,350
, respectively. As of December 31, 2022, the Company
expected to incur share-based compensation expenses of $
363,670
over a weighted average period of
3.9
years.
The following table summarizes share-based compensation expenses charged
to operating expenses:
For the Years Ended
December 31,
2022
2021
2020
Selling and marketing expenses
$
61,607
$
111,997
$
93,439
General and administrative expenses
99,170
99,826
74,911
Total share-based compensation expenses
$
160,777
$
211,823
$
168,350
F-
42
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20.
SEGMENT REPORTING
The Company's organizational structure
is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to,
customer base, homogeneity of service and technology. The Company's operating segments are based on such organizational structure
and information reviewed by the CODM to evaluate the operating segment results. Based on management's assessment, the Company has
determined that it has
two
operating segments for the year ended December 31, 2022: (i) MDMOOC services, and (ii) sales of
patented drugs. For the years ended December 31, 2021 and 2020, the Company determined that it had
one
reporting segment which is MDMOOC
services.
The following table presents major accounts of
statements of operations by segments for the year ended December 31, 2022.
MDMOOC Services
Sales of patented drugs
Total
Revenues
$
12,935,420
$
1,216,096
$
14,151,516
Cost of revenues
$
(
7,166,871
)
$
(
627,981
)
$
(
7,794,852
)
Total operating expenses
$
(
9,153,373
)
$
(
157,753
)
$
(
9,311,126
)
Net Loss
$
(
2,409,212
)
$
(
413,107
)
$
(
2,822,319
)
December 31,
2022
December 31,
2021
Total assets
MDMOOC services
$
37,183,491
$
36,267,420
Sales of patented drugs
1,430,854
-
$
38,614,345
$
36,267,420
Substantially all of the Company's revenues
are derived from China based on the geographical locations where services are provided to customers. In addition, the Company's
long-lived assets are substantially all located in and derived from China, and the amount of long-lived assets attributable to any individual
other country is not material. Therefore, no geographical segments are presented.
21.
COMMITMENTS AND CONTINGENCIES
Contingencies
From time to
time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although
the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have
a material adverse impact on its financial position, results of operations or liquidity.
Lease
commitment
As of December
31, 2022, the Company leases offices space under 12 non-cancelable operating lease arrangements, 9 of which had a term over 12 months.
The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease
term and initial measurement of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line
basis over the lease term.
The Company
determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria
of a finance or operating lease. When available, the Company discounted lease payments based on an estimate of its incremental borrowing
rate to present value.
F-
43
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21.
COMMITMENTS AND
    CONTINGENCIES (CONTINUED)
The Company's
lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below
presents the operating lease related assets and liabilities recorded on the balance sheet.
December 31,
2022
December 31,
2021
Rights of use lease assets
$
1,666,777
$
205,824
Operating lease liabilities, current
480,633
88,968
Operating lease liabilities, noncurrent
1,221,845
112,591
Total operating lease liabilities
$
1,702,478
$
201,559
As of December 31, 2022 and 2021, the weighted
average remaining lease term was
1.82
and
1.38
years, respectively, and discount rates were
4.75
% for all of the operating leases.
Rental expense for the years ended December 31,
2022, 2021, and 2020 were $
498,166
, $
426,152
, and $
312,675
, respectively. For the years ended December 31, 2022, 2021 and
2020,  the cash payment for amounts included in the measurement of lease liabilities was $
409,595
, $
480,636
, and $
350,934
,
respectively.
The following is a schedule, by years, of maturities of lease liabilities
as of December 31, 2022:
2023
$
550,915
2024
324,647
2025
317,927
2026
317,980
2027 and thereafter
397,475
Total lease payments
1,908,944
Less: imputed interest
(
206,466
)
Present value of lease liabilities
$
1,702,478
22.
SUBSEQUENT EVENTS
The Company has evaluated subsequent events through
the issuance of the consolidated financial statements and no other subsequent event is identified that would have required adjustment
or disclosure in the consolidated financial statements.
F-
44
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23.
CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY
The subsidiary did not pay any dividend to the
parent company for the periods presented. For the purpose of presenting parent only financial information, the parent company records
its investment in its subsidiary under the equity method of accounting. Such investment is presented on the separate condensed balance
sheets of the parent company as "Investment in subsidiaries and the income of the subsidiary is presented as "share of income
of subsidiary". Certain information and footnote disclosures generally included in financial statements prepared in accordance
with U.S. GAAP have been condensed and omitted.
The parent company did not have significant capital
and other commitments, long-term obligations, or guarantees as of December 31, 2022 and 2021.
PARENT COMPANY BALANCE SHEETS
December 31,
2022
December 31,
2021
ASSETS
Cash and cash equivalents
$
4,110,216
$
3,758,618
Due from subsidiaries
9,423,617
7,785,162
Investment in subsidiaries, VIE and VIE's subsidiaries
16,906,213
21,022,642
Total Assets
$
30,440,046
$
32,566,422
LIABILITIES AND EQUITY
Total Liabilities
$
-
$
-
Commitments and Contingencies
Shareholders' Equity
Class A Ordinary Share (par value $
0.0001
per share,
450,000,000
shares authorized;
20,531,423
and
19,453,423
shares issued and outstanding at December 31, 2022 and 2021, respectively)
2,054
1,946
Class B Ordinary Share (par value $
0.0001
per share,
50,000,000
shares authorized;
5,497,715
and
5,497,715
shares issued and outstanding at December 31, 2022 and 2021, respectively)
550
550
Additional paid-in capital
24,998,388
22,986,975
Retained earnings
5,439,054
8,379,945
Accumulated comprehensive  income
-
1,197,006
Total Shareholders' Equity
30,440,046
32,566,422
Total Liabilities and Shareholders' Equity
$
30,440,046
$
32,566,422
F-
45
ZHONGCHAO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23.
CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (CONTINUED)
PARENT COMPANY STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
2022
2021
2020
Equity in (loss) gain of subsidiaries
$
(
2,919,423
)
$
266,775
$
4,470,613
General and administrative expenses
(
23,193
)
(
32,273
)
(
12,233
)
Interest income
1,725
4,163
-
Net (Loss) Income
$
(
2,940,891
)
238,665
4,458,380
PARENT COMPANY STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2022
2021
2020
Cash Flows from Operating Activities:
Net Cash
    Provided by (Used in) Operating Activities
$
139,309
$
3,737
$
(
700,873
)
Cash Flows from Investing Activities:
Loans repaid from (made to) VIE and its subsidiaries
(
1,638,455
)
(
3,400,000
)
(
3,690,000
)
Net Cash Used in Investing Activities
(
1,638,455
)
(
3,400,000
)
(
3,690,000
)
Cash Flows from Financing Activities:
Proceeds from issuance of common stocks in connection with initial public offering, net off issuance cost
-
-
11,497,654
Proceeds from issuance of common stocks in connection with direct offering, net off issuance cost
1,850,744
-
-
Net Cash Provided by Financing Activities
1,850,744
-
11,497,654
Net increase (decrease) in cash and cash equivalents
351,598
(
3,396,263
)
7,106,781
Cash and cash equivalents at beginning of year
3,758,618
7,154,881
48,100
Cash and cash equivalents at end of year
$
4,110,216
$
3,758,618
$
7,154,881
F-46