RAJAF Cordyceps Sunshine Biotech Holdings Company Ltd (QB)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F/A

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(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, 2023

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

For the transition period from   to  

Commission file number: 333-269315

Cordyceps Sunshine Biotech Holdings Co., Ltd.

(Exact name of Registrant as specified in its charter)

Cayman Islands

(Jurisdiction of incorporation or organization)

6th Fl., No. 15, Lane 548, Ruiguang Road,

Neihu District, Taipei City, Taiwan

+886-2-27489091

(Address of principal executive offices)

Szu Hao Huang

+886-2-27489091

dalan@cordyceps-sunshine.com

6th Fl., No. 15, Lane 548, Ruiguang Road,

Neihu District, Taipei City, Taiwan

(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:

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

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: 111,120,000 Ordinary Shares issued and outstanding as of December 31, 2023.

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 on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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.

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. ☐

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. ☐

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:

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 Securities Exchange Act of 1934).

☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

☐ Yes  ☐ No

Explanatory Note

Table of Contents

INTRODUCTION

Professional terms in the annual report are defined as follows:

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Our business is conducted by Cordyceps Sunshine Taiwan Branch, our operating branch in Taiwan, using NTD, the currency of Taiwan, R.O.C. Our consolidated financial statements are presented in United States dollars. In this annual report, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of NTD to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions in this annual report. These statements are likely to address our growth strategy, financial results and product and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this annual report, whether as a result of new information, future events, changes in assumptions, or otherwise.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable for annual reports on Form 20-F.

Item 2. Offer Statistics and Expected Timetable

Not applicable for annual reports on Form 20-F.

Item 3. Key Information

3.A. [Reserved]

3.B. Capitalization and Indebtedness

Not applicable for annual reports on Form 20-F.

3.C. Reasons for the Offer and Use of Proceeds

Not applicable for annual reports on Form 20-F.

3.D. Risk Factors

Risk Factor Summary

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited to, risks related to:

Risks Relating to Doing Business in Taiwan

Risks and uncertainties record to doing business in Taiwan, beginning on page 4 of this annual report, include but are not limited to the following:

Risks Relating to Doing Business in China

Risks and uncertainties record to doing business in China, beginning on page 5 of this annual report, include but are not limited to the following:

Risks Relating to Our Business and Industry

Risks and uncertainties relating to our business and Industry, beginning on page 13 of this annual report, include but are not limited to the following:

Risks Relating Our Ordinary Shares

Risks and uncertainties relating to the offering our ordinary shares, beginning on page 16 of this annual report, include but are not limited to the following:

Risks Relating to Doing Business in Taiwan

We are subject to export regulations in Taiwan, and any adverse regulatory action may materially adversely affect our financial condition and business operations.

We export dietary supplements products outside Taiwan to Hong Kong and mainland China. Our business is subject to export regulations in Taiwan and other jurisdictions where our products are transported to. Any change in import and export laws and regulations in the pertinent jurisdictions may impose administrative and financial burdens to our operations. In addition, any adverse regulatory actions may delay our business transactions, divert our management attention to ordinary operations and therefore materially and adversely affect our financial condition and performance results.

Instability in international markets, or foreign currency fluctuations could adversely affect our results of operations.

We generate a significant amount of our revenue from outside the United States. As a result, we face currency and other risks associated with our international sales. We are exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in NTD, which may potentially reduce the U.S. dollars we receive for sales denominated in any of these foreign currencies, and/or increase the U.S. dollars we report as expenses in these currencies, thereby affecting our consolidated results of operations. Fluctuations between the currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses. We cannot predict the effects of currency exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures, and the volatility of currency exchange rates.

In addition to foreign currency exchange rate fluctuations, there are a number of additional risks associated with our international operations, including those related to:

We depend on single-source suppliers for some of the products we sell.

Some of our products are currently provided by only one vendor, or a single-source supplier. In addition, we do not have long-term contracts with our third-party suppliers of some of the products we sell, and we do not carry a significant inventory of most of our products. Establishing additional or replacement suppliers for these products could take a substantial amount of time.

If we must switch to replacement suppliers, we will face delays, and the delivery of our products could be interrupted for an extended period. Our dependence upon others for the manufacture of our products may adversely affect our future profit margins.

Laws and regulations that could affect the business in which we operate may be enacted, which could result in a delay or cessation of our marketing and sales activities, or the imposition of additional costs that could hinder our ability to achieve and maintain profitable operations.

Current laws and regulations with respect to our business, and additional laws and regulations that may be enacted in the future, could impose new and/or unexpected operational considerations or constraints upon us. Complying with existing laws or regulations may require significant time and resource allocation. We must remain cognizant of the legislative and regulatory landscape in the countries in which we operate. Compliance with these regulations, when applicable, increases the research and development and production costs, and could make our proposed products and services less attractive to potential customers.

Because we sell and distribute all of our products outside of the U.S., the Company is subject to the risks of doing business internationally, including periodic foreign economic downturns and political instability, which may adversely affect the Company’s revenue and cost of doing business in Taiwan.

We sell and distribute all of our products outside the U.S. U.S. or Asian economic downturns may affect our results of operations in the future. Additionally, other facts relating to the operations of the Company’s business outside of the U.S. may have a material adverse effect on the Company’s business, financial condition and results of operations, including:

As the Company continues to operate its business globally, its success will depend in part, on its ability to anticipate and effectively manage these risks. The impact of any one or more of these factors could materially and adversely affect the Company’s business, financial condition and results of operations.

Risks Relating to Doing Business in China

There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.

We conduct substantially all of our business operations in China. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult to pursue as a matter of law or practicality in many emerging markets, including China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, the regulatory cooperation with the securities regulatory authorities in the United States has not been efficient in the absence of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no foreign securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to foreign securities regulators.

As a result, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and services and materially and adversely affect our competitive position.

Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions 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. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.

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. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

These government involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.

The uncertainty regarding the enforcement of laws and the risk that rules and regulations in China can change quickly with little advance notice, which could limit the legal protection available to you and us.

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 FIL Draft, which expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the FIL, which came into effect on January 1, 2020, repealing simultaneously the Law of the PRC on Sino-foreign Equity Joint Ventures, the Law of the PRC on Wholly Foreign-owned Enterprises and the Law of the PRC on Sino-foreign Cooperative Joint Ventures, together with their implementation rules and ancillary regulations. Pursuant to the FIL, foreign investment refers to any investment activity directly or indirectly carried out by foreign natural persons, enterprises, or other organizations, including investment in new construction project, establishment of foreign funded enterprise or increase of investment, merger and acquisition, and investment in any other way stipulated under laws, administrative regulations, or provisions of the State Council.

The PRC Foreign Investment Law also 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 PRC Foreign Investment Law.

In addition, the PRC Foreign Investment Law 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.

PRC regulation of loans to and direct investment by offshore holding companies in PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating companies, which could materially and adversely affect our liquidity and ability to fund and expand our business.

As an offshore holding company of PRC operating companies, we may make loans or additional capital contributions to our PRC operating companies. Any loans to our PRC operating companies are subject to PRC regulations. For example, loans to our operating companies in China to finance their activities may not exceed statutory limits and must be registered with SAFE. If we decide to make capital contributions to our operating entities in the PRC, the PRC Ministry of Commerce, or MOFCOM, (or MOFCOM’s local counterpart, depending on the amount involved) may need to approve these capital contributions. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to any such capital contributions. If we fail to receive such approvals, our ability to capitalize our PRC operations may be negatively affected, which could adversely affect our ability to fund and expand our business.

A failure by our stockholders or beneficial owners who are PRC residents to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition.

On July 14, 2014, SAFE promulgated the Circular Relating to Foreign Exchange Administration of Offshore Investment, Financing and Return Investment by Domestic Residents Utilizing Special Purpose Vehicles (“SAFE Circular 37”). SAFE Circular 37 simplifies the registration process for PRC residents (including PRC individuals and PRC corporate entities as well as overseas individuals who do not hold any Mainland legal identity document, but who have habitual residences within the territory of China due to relationship of economic interests) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. Also, for the first time overseas investments by Chinese individuals are formally legalized under SAFE Circular 37. SAFE Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions.

According to the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment related Foreign Exchange Administration Policies (“Circular 13”), the foreign exchange registration under domestic direct investment and the foreign exchange registration under overseas direct investment, including the registration of PRC residents who engage in overseas investment and financing and inbound investment via special purpose vehicles under the SAFE Circular 37, is directly reviewed and handled by banks, and the SAFE and its branches shall perform indirect regulation over the direct investment-related foreign exchange registration through local banks. The Circular 13 also simplified handling formalities for certain direct investment-related foreign exchange business, for example, simplifying the administration of the confirmation and registration of foreign investors’ contribution under domestic direct investment, cancelling the filing of overseas re-investment foreign exchange, and cancelling annual inspection of the direct investment-related foreign exchange.

None of our shareholders has permanent residences in PRC; they have not or currently do not hold any domestic rights and interests in domestic enterprises. They are not the PRC residents as specified in SAFE Circular 37. Therefore, there is no need to complete the required registrations for overseas investments with SAFE 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 shareholders 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 subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act (“FCPA”) and Chinese anti-corruption law.

We are subject to the FCPA and other laws that prohibit improper payments or offers of payments to foreign governments, foreign government officials and political parties by U.S. persons as defined by the statute for purposes of obtaining or retaining businesses. We are also subject to the Chinese anti-corruption law, which strictly prohibits bribes to government officials. We may have agreements with third parties who may make sales in China and U.S., during the process of which we may be exposed to corruption. Activities in China create the risk of unauthorized payments or offers of payments by an employee, consultant or agent of the Company, because these parties are not always subject to our control. 

Although we believe to date we have complied in all material aspects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective and any of our employees, consultants or agents may engage in corruptive conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions against the Company and individuals, and therefore could negatively affect our business, operating results and financial condition.

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matters. Any unfavorable results from the investigations could harm our business operations, this offering and our reputation.

Recently, U.S. public companies that have substantially all of their operations in China have been subjects 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, lack of effective internal control over financial accounting, inadequate corporate governance and ineffective implementation thereof and, in many cases, allegations of fraud. As a result of enhanced scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S. listed Chinese companies have sharply decreased in value and, in some cases, have become virtually worthless or illiquid. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effects the sector-wide investigations will have on our Company, our business and this offering. If we become a subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and defend the Company. If such allegations were not proven to be groundless, the Company and our business operations would be severely hampered and our stock price could decline substantially. If such allegations were proven to be groundless, the investigation might significantly distract our management’s attention.

We are exposed to currency exchange risk, and we cannot predict the effect of future exchange rate fluctuations on our business and operating results.

All of our business operations are in China. We have exposure to currency fluctuations because our sales and purchases are denominated in RMB. We cannot assure you that the effect of currency exchange fluctuations will not materially affect our revenues and net incomes in the future.

Under the PRC Enterprise Income Tax Law (the “EIT Law”), we may be classified as a PRC resident enterprise, which could result in unfavorable tax consequences to us and our shareholders, and adversely affect our results of operations and the value of your investment.

Under the PRC EIT Law, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. In 2009, the State Administration of Taxation, or the SAT, 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 SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise, that is incorporated offshore, is considered as located in China. Further to SAT Circular 82, the SAT issued the Administrative Measures for Enterprise Income Tax of PRC-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT.

Bulletin 45, effective in 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities’ procedures.

Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth may reflect the SAT’s general position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

In addition, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Determination of Resident Enterprises Based on the Standards of Actual Management Institutions in January 2014 to provide more guidance on the implementation of SAT Circular 82. This bulletin further provides that, among other things, an entity that is classified as a “resident enterprise” in accordance with the circular shall file the application for classifying its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity is determined to be a “resident enterprise,” any dividend, profit and other equity investment gain shall be taxed in accordance with the EIT Law and its implementing rules.

If the PRC tax authorities determine that we or our non-PRC subsidiary is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such non-PRC subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially affect our financial performance. In addition, we will also be subject to PRC enterprise income tax reporting obligations. If the PRC tax authorities determine that the Company is a PRC resident enterprise for PRC enterprise income tax purposes, gains realized on the sale or other disposition of ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. Any such tax may reduce the returns on your investment.

The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our ordinary shares.

Additionally, the governmental and regulatory interference 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.

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. 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.

For example, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores.

As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. The Company’s operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. Given that the Chinese government may intervene or influence our operations at any time, it could result in a material change in our operation and the value of our ordinary shares. Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, any such action 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.

It is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.

It is unclear whether we will be subject to the oversight of the Cyberspace Administration of China (CAC) and how such oversight may impact us. Our business could be interrupted or we could be subject to liabilities which may materially and adversely affect the results of our operation and the value of your investment.

Pursuant to the PRC Cybersecurity Law and the Measures for Cybersecurity Censorship (the “Cybersecurity Review Measures”), 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. Any internet product or service that affects or may affect national security as deemed by the cybersecurity review authorities may be subject to cybersecurity review. According to the Cybersecurity Review Measures, a critical information infrastructure operator refers to any operator identified by an authority for the protection of critical information infrastructures. As of the date hereof, we have not received any notice from such authorities identifying us as a critical information infrastructure operator or requiring us to going through cybersecurity review by the CAC.

On July 10, 2021, the CAC publicly issued the Measures for Cybersecurity Censorship (Revised Draft for Comments) (“Draft Measures”) to collect public comments. The deadline for collecting comments was July 25, 2021. According to the Draft Measures, the scope of cybersecurity reviews is extended to data processing operators engaging in data processing activities that affect or may affect national security. The Draft Measures further require that any operator applying for listing on a foreign exchange must go through cybersecurity review if it possesses personal information of more than one million users. According to the Draft Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The review focuses on several factors, including, among others, (i) the risk of theft, leakage, corruption, illegal use or export of any core or important data, or a large amount of personal information, and (ii) the risk of any critical information infrastructure, core or important data, or a large amount of personal information being affected, controlled or maliciously exploited by a foreign government after a company is listed overseas. While the Draft Measures had been released for consultation purposes, there is still uncertainty regarding the Draft Measures as to the final content, adoption timeline or effective date, final interpretation and implementation, and other aspects. On November 14, 2021, the Cyberspace Administration of China released the Regulations on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations on Network Data Security provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. If a data processor that processes personal data of more than one million users intends to list overseas, it shall apply for a cybersecurity review. In addition, data processors that process important data or are listed overseas shall carry out an annual data security assessment on their own or by engaging a data security services institution, and the data security assessment report for the prior year should be submitted to the local cyberspace affairs administration department before January 31 of each year.

On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures (the “new Cybersecurity Review Measures”) which took effect on February 15, 2022, and replaced the original Cybersecurity Review Measures. Pursuant to the new Cybersecurity Review Measures, if critical information infrastructure operators purchase network products and services, or network platform operators conduct data processing activities that affect or may affect national security, they will be subject to cybersecurity review. A network platform operator holding more than one million users/users’ individual information also shall be subject to cybersecurity review before listing abroad. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and risk of network data security after going public overseas.

As the new Cybersecurity Review Measures took effect on February 15, 2022, we believe we are not subject to the cybersecurity review by the CAC for this offering, given that: (i) we are not a network platform operator holding more than one million users’ individual information; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities and we will not be required to obtain any permission from the CAC. We believe that we are compliant with the regulations or policies that have been issued by the CAC to date. However, there remains uncertainty as to how the new Cybersecurity Review Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the new Cybersecurity Review Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we expect to take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. 

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. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.

Our ordinary shares may be prohibited from trading on the OTC Markets as a result of the recent enactment of the Holding Foreign Companies Accountable Act.

Over the past decade, U.S. SEC and PCAOB and the Chinese counterparts, namely, the China Securities Regulatory Commission, or the CSRC, and PRC Ministry of Finance have been in an impasse over the ability of the PCAOB to have access to the audit work papers and inspect the audit work of China based accounting firms.

In May 2013, the PCAOB entered into a Memorandum of Understanding on Enforcement Cooperation (the “MOU”) with the CSRC, and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. Despite the MOU, on December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China.

On April 21, 2020, the SEC and the PCAOB reiterated in another joint statement the greater risk associated with the PCAOB’s inability to inspect audit work paper and practices of accounting firms in China, with respect to their audit work of U.S. reporting companies.

On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable 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 securities exchange or in the over the counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.

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.

On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCAA by requiring 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, thus reducing the time period for triggering the prohibition on trading.

On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB 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 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.

On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.

On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “SOP”) with the China Securities Regulatory Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations (together, the “SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. 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 uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is 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 also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.

Our auditor, Keith K Zhen CPA, the independent registered public accounting firm that issues the audit report included in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess Keith K Zhen, CPA’s compliance with applicable professional standards. Keith K Zhen CPA is headquartered in Brooklyn, New York and has been inspected by the PCAOB on a regular basis, with the last inspection in May 2022. Therefore, we believe that, as of the date of this annual report, our auditor is not subject to the determinations as to the inability to inspect or investigate registered firms completely announced by the PCAOB on December 16, 2021.

The approval of the China Securities Regulatory Commission or other PRC regulatory agencies may be required in connection with this offering under PRC law.

The Regulations on Mergers of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear. If CSRC approval is required, it is uncertain how long it will take for us to obtain such approval, and any failure to obtain or a delay in obtaining CSRC approval for this offering may subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.

Our PRC legal advisor has advised us that, based on its understanding of the current PRC laws and regulations, we may not be required to submit an application to the CSRC for its approval of this offering and the listing and trading of the ordinary shares on the OTC Markets under the M&A Rules because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this annual report are subject to this regulation; (ii) Chengdu Skyherb is no longer a subsidiary to the Company. However, our PRC legal advisor has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal advisor.

Notwithstanding the foregoing, as of the date of this annual report, there are no PRC laws and regulations in force explicitly requiring that we obtain any permission from PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction or any regulatory objection to this offering from the CSRC or any other PRC authorities that have jurisdiction over our operations. Our PRC legal advisor has advised us that, based on the above and its understanding of the current PRC laws and regulations, as of the date of this annual report, we are not required to submit an application to the CSRC for the approval of this offering and the trading of the ordinary shares on the OTC Markets.

However, on February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant guidelines, which became effective on March 31, 2023.  According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.

The Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business activities are conducted in China, or its main place(s) of business are located in China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in China. Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business days after such application is submitted. In addition, the Overseas Listing Trial Measures provide that the direct or indirect overseas listings of the assets of domestic companies through one or more acquisitions, share swaps, transfers or other transaction arrangements shall be subject to filing procedures in accordance with the Overseas Listing Trial Measures. The Overseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.

At a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file with the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas Listing Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and listing before March 31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities issuance and listing. However, from the effective date of the regulation, any of our subsequent securities offering in the same overseas market or subsequent securities offering and listing in other overseas markets shall be subject to the filing requirement with the CSRC within three working days after the offering is completed or after the relevant application is submitted to the relevant overseas authorities, respectively. If it is determined that any approval, filing or other administrative procedures from other PRC governmental authorities is required for any future offering or listing, we cannot assure you that we can obtain the required approval or accomplish the required filings or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing procedure as stipulated by the Trial Measures or offer and list securities in an overseas market in violation of the Trial Measures, the CSRC may order rectification, issue warnings to us, and impose a fine of between RMB1,000,000 and RMB10,000,000. Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling persons of us that organize or instruct such violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.

On February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives Administration”), which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration requires that, in the process of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative departments for determination. However, there remain uncertainties regarding the further interpretation and implementation of the Provisions on Confidentiality and Archives Administration.

We and our then PRC subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our then PRC subsidiaries. In addition, as of the date of this annual report, we and our then PRC subsidiaries are not required to obtain approval or permission from the CSRC or the CAC or any other entity that is required to approve our then PRC subsidiaries’ operations or required for us to offer securities to foreign investors under any currently effective PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing requirements imposed by the CSRC under the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including the cybersecurity review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain whether we can or how long it will take us to complete such procedures or obtain such approval and any such approval could be rescinded. Any failure to obtain or delay in completing such procedures or obtaining such approval for our offshore offerings, or a rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to file with the CSRC or failure to seek approval from other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our Ordinary Shares. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our Ordinary Shares. 

If the CSRC, CAC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals and we may face sanctions by the CSRC, CAC or other PRC regulatory agencies for failure to seek their approval which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless.

Risks Relating to Our Business and Industry

Our current business is significantly based on a few products, which currently accounts for most of our revenues, and we may not be able to generate significant revenue if this product fails.

Most of our sales for the fiscal years ended December 31, 2023 and 2022, and approximately 100 % of our sales for the fiscal year ended December 31, 2021 came from a few products, the Cattle camphor mushroom and the Cordyceps, and our business may suffer a material adverse impact if our manufacture and sale of the Cattle camphor mushroom is disrupted due to supply chain disruption, extreme weather conditions, change in demand, heightened regulatory requirements. If we experience difficulties or obstacles in the manufacture and sale of the Cattle camphor mushroom, we may not be able to generate significant revenues or any revenue at all, our business may fail, and you may lose all or part of your investment in our company.

We may not be able to grow and harvest sufficient Cattle camphor mushroom to satisfy our production requirements.

Our Cattle camphor mushroom business and financial results significantly depend on maintaining a consistent and cost-effective supply of Cattle camphor mushroom. While we have implemented measures to mitigate risks, the availability, size and quality of Cattle camphor mushroom for the production of our products are subject to risks inherent to growing, such as size, quality, and yield fluctuation caused by technical problems of growing, pest and disease problems, and other factors beyond our control. Although our cattle camphor carriers can be reused, and we can independently manage nutrient solutions and strains, unforeseen disruptions or damage could still impact our supply. We may not be able to find in a timely manner any third party suppliers who could provide us with sufficient materials to meet our production needs if we are not able to grow and harvest sufficient Cattle camphor mushroom. Any interruptions to or decline in the amount or quality of our Cattle camphor mushroom supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects.

The regulations on Cattle camphor mushroom in Taiwan may be changed in the future.

Cattle camphor mushroom falls under the category of food products in Taiwan, which is governed by the Food Safety and Hygiene Management Act, last amended on June 12, 2019. According to this act, specific labeling requirements for product packaging include: (i) a warning message in Chinese stating, “For infants, pregnant women, and breastfeeding mothers, please consult a physician or medical professional before consuming this product,” and (ii) clear indication on the packaging of the parts of the Cattle camphor mushroom used as raw materials, whether they are the fruiting body or mycelium, and their cultivation method. We are not required to obtain special licenses from the Taiwan government to distribute Cattle camphor mushroom.

Notwithstanding the above, it is uncertain when and whether the Company will be required to obtain license from the Taiwan government to distribute Cattle camphor mushroom in the future, and even when such license is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain license from any of the Taiwan government and has not received any denial to distribute our products, our operations could be adversely affected, directly or indirectly, by future laws and regulations.

Our sales and reputation may be affected by product liability claims, product recalls, pests contamination risks, or adverse publicity in relation to our products.

The sale of products for human consumption involves an inherent risk of injury to consumers. We face risks associated with product liability claims, litigation, or product recalls, if our products cause injury, or become adulterated or misbranded. Our products are subject to product tampering, and to contamination risks, such as mold, bacteria, insects, and other pests, and off-flavor contamination during the various stages of the procurement, production, transportation and storage processes. If any of our products were to be tampered with, or become tainted in any of these respects and we were unable to detect this, our products could be subject to product liability claims or product recalls. We cannot predict what impact such product liability claims or resulting negative publicity would have on our business or on our brand image. The successful assertion of product liability claims against us could result in potentially significant monetary damages, diversion of management resources and require us to make significant payments and incur substantial legal expenses.

We do not have product liability insurance and have not made provisions for potential product liability claims. Therefore, we may not have adequate resources to satisfy a judgment if a successful claim is brought against us. Even if a product liability claim is not successfully pursued to judgment by a claimant, we may still incur substantial legal expenses defending against such a claim. Finally, serious product quality concerns could result in governmental action against us, which, among other things, could result in the suspension of production or distribution of our products, loss of certain licenses, or other governmental penalties. In addition, product liability claims could have a material adverse effect on the demand for our products and on our business goodwill and reputation.

We compete in an industry that is brand-conscious, and unless we are able to establish and maintain brand name recognition our sales may be negatively impacted.

Our business is substantially dependent upon awareness and market acceptance of our products and brand by our targeted consumers. Although we believe that we have made progress towards establishing market recognition for our brand “Kasaer” in the Cattle camphor mushroom products industry, it is too early to determine whether our products and brand will achieve and maintain satisfactory levels of acceptance by our customers.

Expansion of our business may put pressure on our management and operational infrastructure may impede our ability to meet any potential increased demand for our products and possibly hurting our future operating results.

Our business plan is to grow our operations to meet anticipated growth in demand for our products. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. The evolution of our business also presents numerous risks and challenges, including:

To accommodate any such growth and compete effectively, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.

Our past results may not be indicative of our future performance and evaluating our business and prospects may be difficult.

We have a limited operating history. We may not be able to sign long-term agreements with customers, and our past operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects.

We depend heavily on key personnel, and turnover of key employees and management could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions of our key technical and management personnel. The expertise of management and technical innovation of the company give it a strong competitive advantage. We do not maintain key person insurance on the individuals. The loss of any of the key employees’ services or any of our other management poses a risk to our business. We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry and as a result, our business could be adversely affected.

Our revenue for the fiscal years ended December 31, 2023, and 2022, was from only one major customer, respectively. The loss of any of the customers would reduce our revenues and our profitability.

We consider our major customers in each period to be those that accounted for more than 10% of our revenue in such period. We had one major customer, who accounted for 14.49% of our revenue for the fiscal year ended December 31, 2023, among which one related party customer accounted for 14.49% of the revenue. We had one major customer, who accounted for 100.00% of our revenue for the fiscal year ended December 31, 2022, among which one related party customers accounted for 100.00% of the revenue. We had no revenue for the fiscal year ended December 31, 2021. We sell Cordyceps products to these related party customers at the market price and deals with transaction disputes in the way of general industry practice.

There can be no assurance that we will maintain or improve the relationships with customers who do not have long-term contracts with us. If we cannot maintain long-term relationships with our major customers or replace major customers from period to period with equivalent customers, the loss of such sales would have an adverse effect on our business, financial condition and results of operations.

We may require substantial additional funding in the future for our ability to continue as a going concern. There is no assurance that additional financing will be available to us. If we were unable to meet our future funding requirements for working capital and for general business purposes, our business results and our financial position would be adversely affected.

The financial statements have been prepared by our auditor, TPS Thayer, LLC, “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

According to our auditor, TPS Thayer, LLC, the following factors among others raise substantial doubt about the ability to continue as a going concern for a reasonable period of time.

In order to continue as a going concern, we will need, among other things, additional capital resources. Our plan is to obtain capital from management to meet our minimal operating expenses and seek third party equity and/or debt financing. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans. There is no assurance that additional financing will be available to us. If we were unable to meet our future funding requirements for working capital and for general business purposes, we could experience operating losses and limit our marketing efforts as well as decrease or eliminate capital expenditures. If so, our operating results, our business results and our financial position would be adversely affected.

We had only one major supplier who supplied us the raw materials for our products for the fiscal year ended December 31, 2023 and 2022.

We consider our major suppliers in each period to be those that accounted for more than 10% of our purchase in such period. We had one major third party supplier, who accounted for 100.00% of our supply for the fiscal year ended December 31, 2023 and 2022. There is no revenue and cost of revenue for the year of 2021.

Our current sales and distribution arrangements, including payment terms, are determined on a case-by-case basis. Our sales policy treats related parties and third parties alike. As of today, we do not have long-term supply contracts with any of our suppliers. In case of disputes, the sales department will consider the requirements of the customers, combine our sales policies, and determine the resolutions which will be finally approved by the management. As of today, we have not had any disputes with the distributors and retailers. However, there can be no assurance that we will maintain or improve the relationship with the supplier. If we cannot maintain a long-term relationship with that supplier or replace such supplier from period to period with equivalent suppliers, there could be an adverse effect on our business, financial condition and results of operations.

Our inability to protect our intellectual property may prevent us from successfully marketing our products and competing effectively.

Failure to protect our intellectual property could harm our brands and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights could result in the expenditure of significant financial and managerial resources. We produce, market and sell our products using the brand “Kasaer”. We regard our intellectual property, particularly our trademark to be of considerable value and importance to our business and our success. There can be no assurance that the steps taken by us to protect the proprietary rights will be adequate or that third parties will not infringe or misappropriate our rights. In addition, there can be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly, and we may lack the resources required to defend against such claims. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or sell our brands, and profitably exploit our products.

We do not carry any business interruption insurance or third-party liability insurance for our production facilities.

Operation of our facilities involves many risks, including equipment failures, natural disasters, industrial accidents, power outages, labor disturbances and other business interruptions. Furthermore, if any of our products are faulty, then we may become subject to product liability claims or we may have to engage in a product recall. We do not carry any business interruption insurance, product recall or third-party liability insurance for our production facilities or with respect to our products to cover claims pertaining to personal injury or property or environmental damage arising from defects in our products, product recalls, accidents on our property or damage relating to our operations. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

Our business was not significantly impacted by the COVID-19 pandemic. However, due to the uncertainty surrounding the COVID-19 pandemic, we could be harmed.

The COVID-19 pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally. Given the uncertainty of the development of the COVID-19 pandemic, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by government authorities and other entities to contain the COVID-19 pandemic or mitigate its impact, almost all of which are beyond our control.

Risks Relating to Our Ordinary Shares

The highly concentrated ownership and voting power of the Company may impact shareholders’ interests in the Company.

As of the date of this annual report, Mr. Szu Hao Huang and Mr. Yenhung Liu, through Dalan Vincent Holdings Limited, indirectly owned approximately 59.3% of our ordinary shares and the voting power of the Company. It is anticipated that Mr. Szu Hao Huang and Mr. Yenhung Liu will continue to own a majority of ordinary shares of the Company and, correspondingly, will have the majority of the voting power of the Company. As such, you may not be able to influence the strategies, management or policies of the Company as you could at a company where the equity ownership is widely distributed.

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”

We will become a public company and incur significant legal, accounting and other expenses that we do not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, imposes various requirements on the corporate governance practices of public companies. As an “emerging growth company” pursuant to the JOBS Act, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costlier. After we are no longer an “emerging growth company,” we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with increased disclosure requirements.

Our ordinary shares may be considered a “penny stock” which is subject to restrictions on marketability, so you may not be able to sell your shares.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Although there has not been a public market for our ordinary shares and such a public market may never develop, our ordinary shares may have a market price of less than $5.00 per share and therefore will be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose some information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell the ordinary shares and may affect the ability of investors to sell their ordinary shares. These regulations may likely have the effect of limiting the trading activity of our ordinary shares and reducing the liquidity of an investment in our ordinary shares. In addition, investors may find it difficult to obtain accurate quotations of the ordinary shares and may experience a lack of buyers to purchase our ordinary shares or a lack of market makers to support the stock price.

If our ordinary shares become tradable in the secondary market, we will be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our ordinary shares, which in all likelihood would make it difficult for our shareholders to sell their shares.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the subsequent testing by our independent registered public accounting firm, if and when required, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. If in the future we identify new material weaknesses in our internal control over financial reporting, including at some of our acquired companies, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if and when applicable, our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our ordinary shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are then listed, the SEC, or other regulatory authorities, which could require additional financial and management resources. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our ordinary shares.

The market price for the ordinary shares may be volatile.

The market price for the ordinary shares may be volatile and subject to wide fluctuations in response to factors including the following:

In addition, the securities market has from time-to-time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ordinary shares.

We may need additional capital, and the sale of additional ordinary shares or other equity securities could result in additional dilution to the shareholders and the incurrence of indebtedness could increase our debt obligations.

We can give no assurance that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the foreseeable future. We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity securities or obtain a credit facility. The sale of additional equity and equity-linked securities could result in additional dilution to our shareholders. We currently plan to satisfy our cash requirements for the next 12 months through earning from our subsidiaries and borrowings from our related parties or companies affiliated with our related parties. We believe we can satisfy our cash requirements so long as it is able to obtain financing from these affiliated parties. The related parties and affiliates are as follows: (1) Mr. Szuhao Huang, Director and CEO of the Company, (2) Mr. Yenhung Liu, Director of the Company, and (3) Gasar Biotechnology Co., Ltd, a company which legal representative is Mr. Szuhao Huang.

The incurrence of indebtedness would cause increased debt service obligations and result in operating and financing covenants that could restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all, particularly in the aftermath of global economic crisis.

Future sales or issuances, or perceived future sales or issuances, of substantial amounts of our ordinary shares could adversely affect the price of the ordinary shares.

Sales, or perceived potential sales, by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities in the future at a time and place we deem appropriate. The ordinary shares that have been registered with the SEC are eligible for immediate resale in the public market without restrictions, and the remaining ordinary shares may also be sold in the public market in the future subject to the restrictions contained in Rule 144 and Rule 701 under the Securities Act. If any existing shareholders sell a substantial amount of ordinary shares in the future, the prevailing market price for the ordinary shares could be adversely affected.

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York Stock Exchange and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, requires the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and securities markets and apply to securities which are listed on those exchanges. Because we are not presently required to comply with many of the corporate governance provisions, we have not yet adopted these measures.

We do not currently have independent audit or compensation committees. As a result, our director has the ability, among other things, to determine the level of compensation. Until we comply with such corporate governance measures, the absence of such standards of corporate governance may leave our shareholders without protections against interested director transactions, conflicts of interest and similar matters, and investors may be reluctant to provide us with funds necessary to expand our operations.

The Company’s ordinary shares represent equity interests and are subordinate to the existing and future indebtedness.

Our ordinary shares represent equity interests in our Company and, as such, rank junior to any indebtedness of our Company, as well as to the rights of any preferred shares that may be issued in the future. In the future, we may incur substantial amounts of debt and other obligations that will rank senior to our ordinary shares or to which our ordinary shares will be structurally subordinated.

Item 4. Information on the Company

A. History and Development of the Company

Corporate History and Corporate Structure

Cordyceps Sunshine Biotech Holdings Co., Ltd. (“Cordyceps Sunshine Cayman”) was incorporated on May 4, 2020 under the laws of the Cayman Islands. On June 5, 2020, Cordyceps Sunshine Cayman established a wholly owned subsidiary, Cordyceps Sunshine Biotech Co., Ltd (“Cordyceps Sunshine HK”) in Hong Kong. On June 5, 2020, Cordyceps Sunshine HK established a wholly owned subsidiary, Chengdu Skyherb Biotechnology Co., Ltd (“Chengdu Skyherb” or “Cordyceps Sunshine WFOE”) in the People’s Republic of China. On November 3, 2021, Cordyceps Sunshine Cayman established a branch (“Cordyceps Sunshine Taiwan Branch”) in Taiwan, Republic of China. The Company specialize in cultivating and sales of Cattle camphor mushroom. Taiwanofungus Biotech Co. Ltd. was incorporated on August 17, 2023 under the laws of Hong Kong and is currently not actively engaging in any business.

September Transaction

On September 28, 2023, the Company entered into a share purchase agreement (the “Agreement”) with Mr. Xusheng Niu (“Mr. Niu”), Cordyceps Sunshine HK, and Chengdu Skyherb, a wholly-owned subsidiary of Cordyceps Sunshine HK. Pursuant to the Agreement, the Company agreed to sell, and Mr. Niu agreed to purchase, 100% equity interest in the Cordyceps Sunshine HK, in exchange for cancelling the debt (the “Transaction”) in a total amount of $1.152,328.5 (RMB8,411,156.95) (the “Debt”). The Debt was resulted from several loan agreements entered into by the Company and Mr. Niu since June 29, 2020. Pursuant to those loan agreement, Mr. Niu borrowed and made payments to fund the Company. Upon the closing of the Transaction, Mr. Niu agreed to release the Company from the obligation to repay the Debt and the Debt shall be deemed paid in full.

As a result of the September Transaction, the Company spin off its then subsidiaries, Cordyceps Sunshine HK and Chengdu Skyherb. The following diagram illustrates our current corporate structure:

Incorporated on May 4, 2020, Cordyceps Sunshine Cayman is an exempted company incorporated under the laws of the Cayman Islands with limited liability. Under our Memorandum and Article of Association, we are authorized to issue 500,000,000 ordinary shares of a single class, par value $0.0001 per ordinary share. In August 2021, we sold through a Regulation S offering a total of 11,120,000 ordinary shares to 65 shareholders, at a price of $0.02 per share for an aggregate purchase price of $222,400. Cordyceps Sunshine Cayman is currently not engaging in any active business and merely acting as a holding company.

Cordyceps Sunshine Biotech Holdings Co., Ltd. Taiwan Branch (“Cordyceps Sunshine Taiwan”) was incorporated on November 3, 2021, under the laws of Taiwan, with 100% of the equity interest held by Cordyceps Sunshine Cayman.

Corporate Information

Our principal executive office is located at 6^th Fl., No. 15, Lane 548, Ruiguang Road, Neihu District, Taipei City, Taiwan, and our phone number is +886-2-27489091. We maintain a corporate website at http://cordyceps-sunshine.com/. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report.

B. Business Overview

Cordyceps Sunshine Biotech Holdings Co., Ltd. (“Cordyceps Sunshine Cayman”) was incorporated on May 4, 2020 under the laws of the Cayman Islands. On June 5, 2020, Cordyceps Sunshine Cayman established a wholly owned subsidiary, Cordyceps Sunshine Biotech Co., Ltd (“Cordyceps Sunshine HK”) in Hong Kong. On June 5, 2020, Cordyceps Sunshine HK established a wholly owned subsidiary, Chengdu Skyherb Biotechnology Co., Ltd (“Chengdu Skyherb” or “Cordyceps Sunshine WFOE”) in the People’s Republic of China. On November 3, 2021, Cordyceps Sunshine Cayman established a branch (“Cordyceps Sunshine Taiwan Branch”) in Taiwan, Republic of China. Taiwanofungus Biotech Co. Ltd. was incorporated on August 17, 2023 under the laws of Hong Kong and is currently not actively engaging in any business.

On September 28, 2023, the Company entered into a share purchase agreement (the “Agreement”) with Mr. Xusheng Niu (“Mr. Niu”), Cordyceps Sunshine HK, and Chengdu Skyherb, a wholly-owned subsidiary of Cordyceps Sunshine HK. Pursuant to the Agreement, the Company agreed to sell, and Mr. Niu agreed to purchase, 100% equity interest in the Cordyceps Sunshine HK. As a result of the September Transaction, the Company spin off its then subsidiaries, Cordyceps Sunshine HK and Chengdu Skyherb, and thus the Cordyceps business has been ceased.

The Company specializes in cultivating Chinese rare medicinal herb, Cattle camphor mushroom raw material and sell of its finished products.

Cattle camphor mushroom, Antrodia Cinnamomum, also known as Taiwanofungus, is referred to as Taiwanofungus on product packaging for easier recognition.

For the year ended December 31, 2023, we generated revenue of $882,533 of Cattle camphor mushroom products sales.

Current Product Line

Taiwanofungus Oral Pill

Taiwanofungus Oral pill is a pill form dietary supplement. The pill’s primary ingredient is an extract from the fruiting body of Taiwanofungus, known as Antcins. Taiwanofungus Oral Pill is designed to potentially enhance the energy levels of those who consume them.

Taiwanofungus Oral Pill has not been approved for sale as a drug or food in Taiwan or elsewhere but has passed the Taiwan Standard Global Services testing with respect to certain harmful particles. Taiwanofungus Oral Pills is proven to be safe because it has shown that it does not cause any side effects or negative effects due to its long-term use, is not inclined to trigger addiction, form habits or cause allergic reactions, or cause rejections by the consumer’s organs.

Taiwanofungus Oral Pills is administered by taking 3-5 pills orally daily underneath the tongue for 3-5 minutes allowing the saliva to dissolve the pills. It is recommended to take it on an empty stomach for better absorption. Taiwanofungus should be taken at least one hour apart from both Chinese and Western medicine. Also, it is advised not to consume Taiwanofungus within 30 minutes after drinking tea to avoid reducing its effectiveness.

Taiwanofungus Double A Oral shot

Taiwanofungus Double A Oral shot is a liquid form dietary supplement. The key ingredients of the drink include extracts from Taiwanofungus fruiting bodies and Indian gooseberries. Taiwanofungus Double A Oral shots may boost energy level of its consumers.

Taiwanofungus Double A Oral shot has not been approved for sale as a drug or food in Taiwan or elsewhere but has passed the Taiwan Standard Global Services testing with respect to certain harmful particles. Taiwanofungus Double A Oral shot is proven to be safe because it has shown that it does not cause any side effects or negative effects due to its long-term use, is not inclined to trigger addiction, form habits or cause allergic reactions, or cause rejections by the consumer’s organs.

Taiwanofungus Double A Oral shot is administered by taking 1 bottle orally daily. It is recommended to take it on an empty stomach for better absorption. Taiwanofungus should be taken at least one hour apart from both Chinese and Western medicine. Also, it is advised not to consume Taiwanofungus within 30 minutes after drinking tea to avoid reducing its effectiveness.

TAIWANOFUNGUS x SALVIA MILTIORRHIZA ORAL Shot

TAIWANOFUNGUS x SALVIA MILTIORRHIZA ORAL Shot is a liquid form dietary supplement. The key ingredients of the drink include extract of Taiwanofungus fruiting body and Red Sage Tanshinone. TAIWANOFUNGUS x SALVIA MILTIORRHIZA ORAL Shot may boost energy level of its consumers.

TAIWANOFUNGUS x SALVIA MILTIORRHIZA ORAL Shot has not been approved for sale as a drug or food in Taiwan or elsewhere but has passed the Taiwan Standard Global Services testing with respect to certain harmful particles. TAIWANOFUNGUS x SALVIA MILTIORRHIZA ORAL Shot is proven to be safe because it has shown that it does not cause any side effects or negative effects due to its long-term use, is not inclined to trigger addiction, form habits or cause allergic reactions, or cause rejections by the consumer’s organs.

TAIWANOFUNGUS x SALVIA MILTIORRHIZA ORAL Shot is administered by taking 1 bottle orally daily. It is recommended to take it on an empty stomach for better absorption. Taiwanofungus should be taken at least one hour apart from both Chinese and Western medicine. Also, it is advised not to consume Taiwanofungus within 30 minutes after drinking tea to avoid reducing its effectiveness.

Collagen Max Drink

Collagen Max Drink is a liquid form dietary supplement. The key ingredients include 5000mg collagen, 80mg Sodium hyaluronate, 25mg of Proteoglycan, 18mg of Ceramide, and 100mg of Taiwanogunfus extract. Collagen Max Drink may boost energy level of its consumers. Collagen Max Drink is not proved to be used as a drug to treat any diseases.

Collagen Max Drink is administered by taking 1 packet orally daily.

Collagen Max Drink is proven to be safe because it has shown that it does not cause any side effects or negative effects due to its long-term use, is not inclined to trigger addiction, form habits or cause allergic reactions, or cause rejections by the consumer’s organs.

Barbie Coco

Barbie Coco is a chocolate product crafted with key ingredients such as Taiwanofungus fruiting body extract, monk fruit extract, and Chocamine® cocoa powder. Its sweetness is derived from Mogroside V, which provides sweetness and has been identified as an excellent alternative to sugar, making it a suitable choice for individuals with dietary restrictions, such as those managing diabetes.

Cattle camphor mushroom is the fungus that grows on the Cinnamomum kanehirae trees. It is a unique and precious medicinal mushroom found only in Taiwan, has a culinary history in Taiwanese culture spanning over a century.

In 2002, the Taiwanese government launched the “Two Trillion and Twin Star Development Program,” aimed at injecting funding to support specific industries in Taiwan. This initiative targeted sectors including semiconductors, display panels, digital content, and biotechnology and pharmaceuticals. Cattle camphor mushroom was identified as a pivotal research focus within the biotechnology and pharmaceutical category during that period.

However, due to the endangered status of the Cinnamomum kanehirae tree, it has been listed under Taiwan’s regulatory framework. This listing has imposed restrictions on the development of the Cattle camphor mushroom industry, making it difficult to expand and gain international recognition, resulting in slightly lower visibility in the market of Chinese rare medicinal herb.

Cultivating Process

Currently, all Cattle camphor mushroom products are manufactured by our supplier, Sin-Ding TW Co. Ltd (“Sin-Ding”). We procure the products directly from Sin-Ding and distribute to companies, pharmacies, and individual customers.

Background of the traditional method of cultivating Cattle camphor mushroom

Currently, the primary method for cultivating Cattle camphor mushroom in the market involves utilizing chopped and preserved logs from Cinnamomum camphora trees for cultivation in a regulated environment. The harvested Cattle camphor mushroom from the preserved logs closely resemble wild Cattle camphor mushroom in terms of their active ingredients and appearance. However, since Cinnamomum camphora trees are endangered conservation plants and grow slowly, they have been legislatively regulated by the Taiwanese government to prevent logging. Under various constraints, the cost of obtaining Cinnamomum camphora tree logs has become extremely high, exceeding what the academic and industrial sectors can afford. Consequently, this has impacted the supply of Cattle camphor mushroom raw materials in the market, leading to an unmet demand.

Our revolutionary change to the current cultivating situation

Our patented cultivation technology can replace the traditional method of cultivating Cattle camphor mushroom on Cinnamomum camphora tree logs. Our harvested Cattle camphor mushroom exhibits potency comparable to that of wild-grown Cattle camphor mushroom. Our cultivation technology reduced cultivation costs, increased production capacity, and the ability to be reused, thus possessing the capability to fill the market demand gap.

Cultivation materials and environmental conditions

Cultivation process of Cattle camphor mushroom:

Harvest period

Storage

We have entered into an agreement with Sin-Ding TW Co. Ltd. and acquired cultivation mediums which includes the Porous carrier with the Antrodia cinnamom strains, the liquid culture medium, and cultivating box for growing Cattle camphor mushroom. As of the date of this annual report, we have acquired 10,000 cultivation mediums from Sin-Ding and we are in the process actively cultivating and nurturing our own raw materials. We expect to harvest the Cattle camphor mushroom in 2025. Once those Cattle camphor mushroom are harvested, we will become the primary source of raw materials. Our future plan involves collaborating with Sin-Ding for OEM production for our products.

Sales and Marketing

Our current marketing channels include online e-commerce platforms and physical chain stores in Taiwan, collaboration with major retail brands in Hong Kong, and partnerships with large retail channels in China. Our physical chain stores include Taipei Zhongxiao Store, Taipei Dihua Store, and Kaohsiung Sanfeng Store in Taiwan. Currently, our main operations of the new business are in Taiwan. We plan to expand our product offerings with diversified Cattle camphor mushroom specialty items and establish an online presence in Hong Kong, China, Japan, and the United States through e-commerce platforms. Additionally, we aim to deepen collaboration with raw material agents, health food manufacturers, and biotech pharmaceutical companies to further penetrate the market and broaden our reach.

Discontinued Business

As a result of the September Transaction, the Company spin off its then subsidiaries, Cordyceps Sunshine HK and Chengdu Skyherb, and thus the Cordyceps business has been ceased.

Our discontinued product is Cordyceps, Ophiocordyceps Sinensis, a valuable Chinese medicinal material with a long history of application in China. Based on some relevant documents and our own industry experience, we briefly introduce the product as follows:

Cordyceps is a species of parasitic fungus that is typically found in north-eastern mountainous China, and the Hepialidae, a kind of caterpillar. The base of the mushroom first originates from an insect larval host and ends at the club-like cap, including the stipe and stroma. The fruit body is dark brown to black, and the root of organism, the larval body pervaded by the mycelium, is yellowish to brown color. The immature larvae (host) on which Cordyceps grows usually lies about 6 inches below the surface of the ground. As the fungus approaches maturity, it consumes more than 90% of the infected insect effectively mummifying its host. Cordyceps contains various chemical compositions, such as nucleotide, polysaccharide, mannitol, superoxide dismutase and sterols, etc.

Some, but not all, of the precautions for taking Cordyceps are summarized as follows:

By fully analyzing the market, listening to the needs of customers, and considering the strategic development plan, our Company produces two kinds of Cordyceps — dry Cordyceps and fresh Cordyceps. The production of Cordyceps begins only after a confirmed customer order is received to ensure that every piece of fresh or dry Cordyceps received by customers is freshly produced.

Dry cordyceps has a long shelf life and is convenient to store and carry. It accounts for 90% of our Cordyceps products. Conversely, fresh Cordyceps has a short shelf life and is inconvenient to store and carry. It accounts for 10% of our cordyceps products.

Our Cordyceps products are cultivated in our breeding center, and is different from other wild Cordyceps in the market. Wild Cordyceps mainly grow in high altitude and cold areas in the wild, while our artificial Cordyceps are cultivated in indoor artificial simulated wild-like environment. Correspondingly, we adopt scientific breeding methods to cultivate Cordyceps, which is different from traditional breeding methods. Traditional breeding refers to the process of cultivating Cordyceps in a large container while scientific breeding refers to hatching larvae in the indoor artificial environment created by us.

We care about the quality of each batch of Cordyceps delivered from our factory. To ensure quality control, we commissioned Xi’an United Nations Quality Detection Technology Co., Ltd, a third party quality testing institution, to perform quality testing for our Cordyceps sample for each batch. The items of inspection included Cordyceps Properties, content of lead, cadmium, arsenic, mercury, copper.

As of the date of this annual report, regulatory bodies in China do not require Cordyceps that are cultivated to be assessed the safety or efficacy, and therefore our products are not required to be assessed the safety or efficacy. This third party professional quality assessment is a measure implemented by the company to ensure the quality of Cordyceps.

Manufacturing Process

Cordyceps is in insect form in winter and plant form in summer. Their spores can enter into a specific living insect — Hepialidae and kill the host by feeding. Their hyphae can grow from inside of the host. They can pass the winter inside the host, eventually forming fruiting bodies on the surface of host insect’s cadaver in the summer. Cultivation of Cordyceps at solid state with various insect pupae and larvae have been studied for commercial use. Especially, nutritional requirements, environmental conditions and inoculum preparation were investigated for the cultivation.

The production of Cordyceps is mainly divided into five steps:

Our Research and Breeding Center

This breeding center has the capacity to cultivate 4.5 million Cordyceps larvae per year currently. We cultivated 5 million, 1.08 million, and 2.70 million Cordyceps larvae for the year ended December 31, 2023, 2022 and 2021, respectively.

Our cultivation equipment and related functions for breeding center mainly includes:

Sales and Marketing

Before we spun off our then-subsidiaries Cordyceps Sunshine HK and Chengdu Skyherb, our sales heavily depended on our connections with Cordyceps distributors and retail customers in Mainland China. This is a relatively small network since there is not many distributors, dealers, and retail customers in the Cordyceps industry. As of December 31, 2023, 2022 and 2021, we had sixteen, three, and five Cordyceps distributors and more than three hundred, five, ten retail customers respectively, all of which are in Taiwan and Mainland China. Generally, distributors purchase larger quantities of products continuously, while retailers purchase smaller quantities. In September 2023, we spun off our then-subsidiaries Cordyceps Sunshine HK and Chengdu Skyherb as a result of a share purchase agreement, and thus, currently, we do not have any sales/revenues derived from Cordyceps.

The sales department is responsible for keeping in touch with Cordyceps distributors and retail customers on a regular basis, and actively exploring new distributors and retail customers through Internet platforms, peer recommendations, industry exhibitions, etc. Our management and sales department review and approve the quotations provided by distributors and retailers, and determine whether to sign sales contracts with them.

After the sales contracts are signed, the staff of the sales department will deal with the sales process according to the contracts, including handling customers’ instructions, arranging warehouse picking up and shipping, and coordinating payments from customers.

In case of disputes, the sales department will consider the requirements of the customers and determine the resolutions which are complied with our sales policies and will be finally approved by the management. As of the date of this annual report, we have not had any disputes with the distributors and retailers.

Before we start to cultivate Cordyceps, customers sign contracts with us for a total consideration. We then cultivate and produce the Cordyceps in the workshop, and conduct inspection before delivering to the customers. Full payment should be settled before each shipment.

Our current sales and distribution arrangements, including payment terms, are determined on a case-by-case basis. Our sales policy treats related parties and third parties alike.

Our Cordyceps is sold exclusively under our brand name and our product is in China. We understand the importance of branding and thus we conduct marketing activities to promote and enhance our image and brand name. Our marketing efforts are concentrated on interviews, news reports and roadshows.

The Company sold cordyceps products and Cattle camphor mushroom products to Gasar Biotechnology Co., Ltd, a related party of the Company, in the amounts of $121,811 and $53,304 for the years ended December 31, 2023 and 2022 respectively.

In the year ended December 31, 2022, we derived all our revenue from product sales of $448,785.

In the year ended December 31, 2022, the Company sold newly developed products processed with cordyceps of $53,304 to Gasar Biotechnology Co., Ltd, a related party of the Company.

In the year ended December 31, 2021, we derived all our revenue from product sales of $879,318.

The Company sold cordyceps of $182,775 to Chengdu Zangqingyuan Herb Co., Ltd., a related party of the Company, in the year ended December 31, 2021. The Company sold cordyceps of $93,012 to Foshan Xiongluyu Tea Co., Ltd., a related party of the Company, in the year ended December 31, 2021.

As a result, for the year ended December 31, 2023, and 2022, we derived sales of 13.8% and 100.0% from related parties, respectively. There is no sales for year of 2021.

Going Concern Matter

The financial statements have been prepared by our auditor, TPS Thayer, LLC, “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

According to our auditor, TPS Thayer, LLC, the following factors among others raise substantial doubt about the ability to continue as a going concern for a reasonable period of time.

In order to continue as a going concern, we will need, among other things, additional capital resources. Our plan is to obtain capital from management to meet our minimal operating expenses and seek third party equity and/or debt financing. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans. There is no assurance that additional financing will be available to us. If we were unable to meet our future funding requirements for working capital and for general business purposes, we could experience operating losses and limit our marketing efforts as well as decrease or eliminate capital expenditures. If so, our operating results, our business results and our financial position would be adversely affected. For more information, see “Risks Factors — Risks relating to our business and industry — We may require substantial additional funding in the future for our ability to continue as a going concern. There is no assurance that additional financing will be available to us. If we were unable to meet our future funding requirements for working capital and for general business purposes, our business results and our financial position would be adversely affected.”

Industry

Cordyceps is a kind of traditional and rare nourishment Chinese herbs. Modern clinic research has proved that the most active ingredients in Cordyceps are polysaccharides, mannitol, cordycepin adenosine and galactose. Because of the rarity and high prices of the wild collected variety, attempts have long been made to cultivate Cordyceps. Due to the development of modern biotechnology-based cultivation methods, the availability of this previously rare health supplement has greatly increased in the last 20 years.

The demand for Cordyceps has also compounded exponentially, partly because of the opening of China to trade with the West in the 1970s, exposing many more people around the world to the concepts and practices of traditional Chinese medicine. As Cordyceps has always been highly revered in traditional Chinese medicine, we believe that with increased exposure to traditional Chinese medicine, the demand for this plant has also increased. Such an increase has led to overharvesting of the wild stocks and a subsequent shortage of wild collected varieties of Cordyceps. International markets for Cordyceps are mainly in the United States, Canada, Japan, Korea, Hong Kong and Southeast Asia. The European and Australian markets are also emerging. According to the Industry Information Network Research Consulting Analysis of the Cordyceps Industry in 2020, the export volume from China to the international market is 1.6 tons and is expected to reach 3.6 tons by 2025. The Chinese domestic market demand is about 200 tons a year with an annual growth rate of over 10%. In China, there is an aggregate production capacity of only 159 tons a year, which is a big gap between supply and demand and therefore a great potential market for our product. Also, it is predicted that by 2025, the market scale of Cordyceps in China will reach RMB73.656 billion.

The Cattle camphor mushroom, a unique and prized medicinal fungus indigenous to Taiwan, boasts a culinary legacy deeply rooted in Taiwanese culture for over a century.

In 2002, the Taiwanese government introduced a subsidy initiative aimed at bolstering key industries, with a particular focus on funding research related to the Cattle camphor mushroom within the biotechnology sector.

The significance of the Cattle camphor mushroom industry in Taiwan parallels that of Korean ginseng and Chinese Cordyceps. However, the endangered status of the Cinnamomum kanehirae tree, essential for the mushroom’s growth, has led to its inclusion in Taiwan’s regulatory framework. Consequently, restrictions on its development have hindered its expansion and global recognition, resulting in relatively lower visibility compared to Korean ginseng and Chinese Cordyceps. In Taiwan, academic research on Cattle camphor mushroom is extensive and rich, as evidenced by the National Digital Library of Theses and Dissertations. Similarly, the United States’ PubMed database and China’s CNIPA database contain numerous research papers and patents related to Cattle camphor mushroom.

The demand for Cattle camphor mushroom has experienced remarkable growth, driven by various factors. With increasing globalization and the spread of traditional Chinese medicine practices, awareness of the medicinal benefits of Cattle camphor mushroom has expanded globally. As a revered component of traditional Chinese medicine, heightened exposure to these practices has spurred demand for Cattle camphor mushroom products.

This surge in demand has led to challenges such as overharvesting of wild stocks and subsequent shortages in supply. While the primary markets for Cattle camphor mushroom are in Taiwan and other Asian regions, emerging interest from international markets, including the United States, Europe, and Australia, is contributing to its growing demand worldwide.

According to industry reports by Chinese Association of Traditional Chinese Medicine, Analysis of the Cattle camphor mushroom Industry in 2023, the market demand within China is 2812.13 tons in 2023 and is expected to reach 4341.34 tons by 2027, with an annual growth rate of range from 9-12%. Despite this growth, there remains a considerable gap between supply and demand, highlighting the substantial market opportunity for Cattle camphor mushroom products.

Suppliers and Customers

Suppliers

The following table sets forth information as to the suppliers that accounted for 10% or more of the Company’s purchase for the periods presented.

Customers

The following table sets forth information as to the customers that accounted for 10% or more of the Company’s revenue for the periods presented.

C. Organizational structure.

The following is a list of our subsidiaries as of the date of this annual report.

Taiwanofungus Biotech Co. Ltd. was incorporated on August 17, 2023 under the laws of Hong Kong and is currently not actively engaging in any business.

The following diagram illustrates the corporate structure of Cordyceps Sunshine Biotech Holdings Co., Ltd. as of the date of this annual report:

D. Property, Plant and Equipment

Facilities

Cordyceps Sunshine Taiwan Branch currently has three leased properties:

Leased Properties

Intellectual Property

Trademarks

Company has obtained the trademark(s) as below.

No.

Trademark

Registration Code

Registered Country

Registered Date

Category

Owner

1

02164806

ROC

September 4, 2021

Class 5

Cordyceps Sunshine Biotech Holdings Co., Ltd.

2

02166572

ROC

September 4, 2021

Class 35

Cordyceps Sunshine Biotech Holdings Co., Ltd.

Class 5: medical and nutritional products; traditional Chinese medicine; herbal medicine; weight loss medicine; human medicin; protein nutritional supplements; plant fiber nutritional supplements; antioxidant nutritional supplements; vitamin and mineral supplements; fiber dietary supplements; general nutritional supplements; medical dietary products, drinks, and foods; plant extract supplements; herbal tea supplements; meal replacement supplements; by-products of food processing for medical use; enzyme supplements; and herbal nutritional supplements.

Class 35: Retail and wholesale distribution of medicines; retail and wholesale distribution of Western medicine; retail and wholesale distribution of traditional Chinese medicine; retail and wholesale distribution of nutritional supplements; retail and wholesale distribution of beverages; import and export agency services; quoting prices for various products from domestic and foreign manufacturers; bidding for various products from domestic and foreign manufacturers; marketing of various products from domestic and foreign manufacturers; providing consulting services for business franchising and chain store management.

Patents

Cordyceps Sunshine Taiwan Branch is licensed by Yen Hung Liu, one of our founders and directors, to use the following six patents.

On February 5, 2024, Cordyceps Sunshine Taiwan Branch entered into an exclusive licensing agreement with Mr. Yen Hung Liu, pursuant to which Mr. Liu agreed to grant Cordyceps Sunshine Taiwan Branch exclusive rights to use the six cultivation technologies that Mr. Liu developed as listed above. According to this licensing agreement, Cordyceps Sunshine Taiwan Branch is allowed to use these technologies globally beginning on February 5, 2024 until the expiration date of each patent. Cordyceps Sunshine Taiwan Branch agreed to pay a licensing fee to Mr. Liu under this agreement.

These four cultivation technologies reflect the four important processes of cultivation of Cattle camphor mushroom , which runs through the whole production process of cultivation of Cattle camphor mushroom.

Legal Proceedings

We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business. As of the date hereof, neither we nor any of our subsidiaries is a party to any pending legal proceedings, nor are we aware of any such proceedings threatened against us or our subsidiaries.

Seasonality

We believe our operation and sales of Cordyceps and Cattle camphor mushroom do not experience seasonality.

Insurance

We do not have any business liability, interruption or litigation insurance coverage for our operations in Taiwan. Therefore, we are subject to business and product liability exposure. See “Risk Factors — Risks Relating to Our Business and Industry — Our sales and reputation may be affected by product liability claims, litigation, product recalls, or adverse publicity in relation to our products.”

Regulations

Regulation in Taiwan

Regulation on Cattle camphor mushroom

In Taiwan, Cattle camphor mushroom falls under the category of food products. These products are governed by the Food Safety and Hygiene Management Act, last amended on June 12, 2019. According to this act, specific labeling requirements for product packaging include: (i) a warning message in Chinese stating, “For infants, pregnant women, and breastfeeding mothers, please consult a physician or medical professional before consuming this product,” and (ii) clear indication on the packaging of the parts of the Cattle camphor mushroom used as raw materials, whether they are the fruiting body or mycelium, and their cultivation method.

Regulation on Consumer Protection

The current primary regulation protecting consumers’ rights in Taiwan is Consumer Protection Law, latest amended on February 5, 2005 (the “CP Law”), with a view to better regulate the conduct of business operators and enforce consumer protection. The Industry Competent Authority at various levels of the administration is responsible for the enforcement and supervision on any consumer protection related matters with Consumer Protection Officer in place.

Pursuant to the CP Law, business operators providing goods and services shall prioritize consumer rights, particularly with regard to consumers’ health and safety, provide sufficient instruction on the goods and services offered, maintain fairness of the trade and take any other necessary precautions to protect consumers’ rights. In addition, business operators who design, produce and manufacture goods or provide services shall guarantee that the goods or services offered should meet the safety criteria which is reasonably expected from the technological and professional perspective at the time of launching such goods or offering services in the market. In case of intentionally wrongdoings of the business operators, punitive damages up to three times of the actual damage may be imposed against such business operators.

Regulation on Food Sanitation Management

The current primary regulation governing food sanitation in Taiwan is the Food Sanitation Management Act, latest amended on August 8, 2012 (the “FSM Act”). The Department of Health at various levels of the administration is responsible for the management and supervision on any food sanitation related matters.

Under this FSM Act, any business operators of food or food additives must obtain and maintain the proper licenses from relevant government authorities before they could manufacture, process, deploy, package, transform, store, sell, import and export food or food additives. The licenses generally have a valid duration from one year to five years. After receiving the application, the relevant government agency issues the licenses, and the application for extension must be filed for approval within three months before expiration. The FSM Act also set forth specific rules demanding the compliance with good hygienic practices and safety control system of food or food additives by the business operators.

Regulation on Company Administration

The current primary regulation governing companies in Taiwan is the Company Law, latest amended on December 29th, 2021, by Legislative Yuan, which provided the fundamental framework for regulating companies. The Ministry of Economic Affairs at various levels of the administration is responsible for the management and supervision on any companies related matters.

Under the Company Law, a company refers to any profit-driven juridical association, organized, registered and established in accordance with this Company Law. Under the Company Law, companies have been divided into four categories: unlimited liability company, limited liability company, joint liability company and company limited by shares.

Under the Company Law, a company cannot be established unless properly registered with Ministry of Economic Affairs, and prior to such registration, no business or other legal act can be conducted in the name of a company. In addition, the capital amount of a company must be fully contributed by its shareholders of their own fund at the time of its establishment, rather than paid by installment or through external financing. Furthermore, the capital contribution must be audited and certified by accountants.

A limited liability company is a company organized by more than one shareholder, where the shareholders are only liable to the extent of their contributed capital to the company. Director(s) of a limited liability company is responsible for the management and operation of the company and subject to duty of care and duty of loyalty while executing his business judgment with respect to the operation of the company.

Regulation on Foreign Exchange

Foreign exchange regulation in Taiwan is primarily governed by the Ordinance of Foreign Exchange Administration, latest amended on April 29, 2009 (the “Foreign Exchange Ordinance”). Under the Foreign Exchange Ordinance, foreign exchange refers to foreign currency, bills and marketable securities. The authority managing the administration of foreign exchange is Ministry of Finance of Republic of China, while the authority managing the practical operation of foreign exchange business is Central Bank of Republic of China. The Foreign Exchange Ordinance also specifies the allocated power of Ministry of Finance and Central Bank, respectively. To the extent that any foreign exchange receipts, payments or transactions reaches the threshold of $17,212 (NT$500,000) or equivalent in foreign currency, it must be reported to the Central Bank or its designated authorities. Upon incurrence of any of the following events, the State Council of Republic of China may determine and announce that for a period of time, to close the foreign exchange market, suspend or restrict all or partial foreign exchange payment, order a mandatory sale or deposit of all or partial foreign exchange into a designed bank, or dispose in any other manner as it deems necessary:

Regulation on Foreign Investment

The current principal regulation governing foreign investment is Foreign Investment Regulation latest amended on November 19, 1997 (the “Investment Regulation”). Under the Investment Regulation, investment refers to any activities involving (1) holding share capital of a company incorporated in Taiwan; (2) establishing branches, wholly-owned or partnership enterprises in Taiwan; or (3) providing more than one-year term loan to the above-mentioned investee enterprises. The authority in charge of foreign investment is Ministry of Economic Affairs of Republic of China. The industries in Taiwan are categorized into permitted, restricted and prohibited foreign investment areas. Investors may apply for settlement of exchange in accordance with the annual yield of their investment or the allocation of surplus.

With respect to foreign investment in the food industry, unless such investment is made from the People’s Republic of China, there’s no restriction under Investment Regulation. Since the Company falls into the food industry, the Company and prospective investors in this offering will not be affected by Investment Regulation.

Eminent domain

When the investment made by an investor constitutes less than 45% of the total amount of capital of the investee enterprise, and the investee enterprise has been expropriated or acquired by the government for the purpose of national defense, reasonable government compensation shall be paid to the investors. However, if the capital contribution made by the investor constitutes equal to or more than 45% of the total amount of capital of the investee enterprise and continues remaining above 45% for two decades since its establishment, then the government may not exercise its eminent domain power over such investee enterprise.

Regulations on Tax

The current principal regulations governing tax in Taiwan include the following:

Under the Income Tax Law, there are two kinds of income tax, comprehensive income tax for individuals and income tax for enterprises operating for profit, respectively.

Individuals who have income with a source within Taiwan must pay comprehensive income tax on their income sourced within Taiwan; while non-resident individuals having income with a source within Taiwan, except otherwise provided in the Income Tax Law, shall pay tax based on the amount attributable to the sources of their income.

The enterprise with head office located in Taiwan shall pay profit-seeking income tax on its global income both within and outside Taiwan; while the enterprises with head office outside Taiwan shall only pay profit-seeking income tax on its business income sourced from within Taiwan.

Regulations in PRC (Discontinued Business)

Regulation on Cordyceps

According to the Interim Measures for the Administration of the Trade of Cordyceps in the Tibet Autonomous Region became effective on October 1, 2009, Cordyceps sales refer to the transaction behavior of companies holding business licenses selling cordyceps to consumers. The purchase of Cordyceps refers to a transaction in which an enterprise that holds a business license and obtains a license for the purchase of Cordyceps directly purchases Cordyceps from the collector. Trading enterprises that have already applied for the “Drug Production License” and “Drug Distribution License” shall no longer apply for a license for the purchase of Cordyceps. Those who sell cordyceps should have a fixed business site and obtain a business license before they sell it.

According to the Notice of the State Food and Drug Administration on Stopping Cordyceps in the Pilot Work of Health Food the related application and approval work of health food containing Cordyceps is carried out in accordance with the relevant provisions of the Administrative Measures for the Registration and Record-filing of Health Food Products, and no production or sale is allowed without approval. According to the Administrative Measures for the Registration and Record-filing of Health Food Products promulgated on July 1, 2016, Health food products that use raw materials other than those included in the catalogue of raw materials for health food products shall apply for registration of health food products.

According to the Notice of the Ministry of Health on Further Regulating the Management of Health Food Raw Materials, Cordyceps does not fall in the List of items that can be used in Health Food Products and the List of prohibited items in Health Food Products.

According to the Drug Administration Law of the People’s Republic of China promulgated on August 26, 2019, the administration of the cultivation, collection and breeding of traditional Chinese medicinal materials shall be carried out according to provisions of the relevant laws and regulations. Before marketing a drug in China, it is imperative to obtain approval from the medical products administrative department under the State Council and the registration certificate for the drug, excluding traditional Chinese medicinal materials and traditional Chinese medicine decoction pieces which do not require examination and approval. Traditional Chinese medicinal materials shall be packaged for shipment. On each package, such information as the product name, place of origin, date, and supplier shall be indicated, along with a mark of acceptable quality.

According to the Reply of the State Food and Drug Administration on the legal application of non-drug counter sales of packaged gift box products with nourishing and health-care Chinese medicinal materials as the content promulgated and became effective on February 27, 2006, for non-pharmaceutical business units that sell nourishing and health care Chinese medicinal materials that have not yet been implemented for approval number management, no matter whether these nourishment and health care Chinese medicinal materials are packaged (packaged gift boxes), it does not need to obtain a “Drug Distribution License”.

According to the Law of the People’s Republic of China on Traditional Chinese Medicine, the collection and storage as well as the initial processing of Chinese medicinal materials shall be in line with the relevant technical specifications, standards and administration requirements.

Regulation on Product Liability

Manufacturers and vendors of defective products in the PRC may incur liability for losses and injuries caused by such products. Under the Civil Code of the PRC, which became effective on January 1, 2021, manufacturers or retailers of defective products that cause property damage or physical injury to any person will be subject to civil liability.

The principal legal provisions governing product liability are set out in the Product Quality Law of the PRC, which was amended on and became effective on December 29, 2018. The Product Quality Law is applicable to all activities of production and sale of any product within the territory of the PRC, and the producers and sellers shall be liable for product quality in accordance with the Product Quality Law. According to the Product Quality Law, consumers who suffer personal injury or property loss due to product defects may demand compensation from the producer as well as the seller. Violations of the Product Quality Law may result in the imposition of fines. In addition, the seller or the producer may be ordered to suspend operation and its business license may be revoked. Criminal liability may be incurred in serious cases.

Restriction on Foreign Ownership

According to the Foreign Investment Law the PRC adopted by the National People’s Congress of the PRC on March 15, 2019, the National People’s Congress adopted the Foreign Investment Law of the PRC, which became effective on January 1, 2020 and came into effective on January 1, 2020.

Under the Foreign Investment Law, the State shall implement the management systems of pre-establishment national treatment and negative list for foreign investment, according to which the treatment given to foreign investors and their investments during the investment access stage shall be not lower than that given to their domestic counterparts, and the State shall give national treatment to foreign investment beyond the negative list where special administrative measures for the access of foreign investment in specific fields is specified. Besides, the State shall protect foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China in accordance with the law. The State will take measures to prompt foreign investment such as ensuring fair completion for foreign-invested enterprises to participate in government procurement activities, and protection of intellectual property rights of foreign investors and foreign-invested enterprises. In respect of administration of foreign investment, foreign investment shall go through relevant verification and record-filing formalities if required by relevant state laws and regulations. While the organization form, institutional framework, and standard of conduct of a foreign-funded enterprise shall be subject to the provisions of the Company Law or the Partnership Enterprise Law of the PRC, if applicable.

On June 23, 2020, the Ministry of Commerce and the NDRC promulgated the Special Management Measures for the Market Entry of Foreign Investment (Negative List) (2020 Version), or the Negative List, which took effective from July23, 2020. The Negative List sets out the revised list of restricted foreign-invested industries and prohibited foreign-invested industries in lieu of that set out in the Catalogue. These restrictive measures include requirements for shareholding and senior officers, but do not include restrictive measures consistently applicable to domestic and foreign investments and restrictive measures irrelevant to access. According to the Negative List, no foreign investor may engage in prohibited items listed in the Negative List, and no foreign-invested partnership may be established for the engagement in prohibited items subject to limitations on proportion of foreign investment.

According to the Catalogue of Industries for Encouraging Foreign Investment (2020 Version), planting and cultivation of traditional Chinese medicine herbs falls within the Encouraging Catalogue. Our then PRC subsidiary was mainly engaged in cultivation and sales of Cordyceps, which fall into the “permitted” category under the Negative List and the Catalogue.

Regulation on Foreign Exchange Control

Foreign exchange in China is primarily regulated by:

Under the Foreign Currency Administration Regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such as, loans, investment in securities and repatriation of investments, however, remains subject to the registration of the SAFE or its local counterparts as required by law. Under the Administration Rules, foreign-invested enterprises may buy, sell and remit foreign currencies at banks authorized to conduct foreign exchange transactions for settlement of current account transactions after providing valid commercial documents and, in the case of capital account item transactions, only after registration with the SAFE and, as the case may be, other relevant PRC government authorities as required by law. Capital investments directed outside of China by foreign-invested enterprises are also subject to restrictions, which include registration filing with MOFCOM. If the investment is made to the sensitive countries, districts, or industries, it needs to be approved by MOFCOM.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. We receive a significant portion of our revenue in Renminbi, which is not a freely convertible currency.

Under the then corporate structure, our income may rely on dividend payments from our then PRC subsidiaries. Under existing PRC foreign exchange regulations, the distribution of dividends, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE if certain procedural requirements are complied with. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our then PRC subsidiaries in China may be used to pay dividends to our company. We cannot assure you whether fluctuations in RMB exchange rate may be a disadvantage to us.

Regulation on Wholly Foreign-owned Enterprises

According to the PRC Company Law, adopted on December 29, 1993 and last amended on October 26, 2018. Under the PRC Company Law, companies are generally classified into two categories, namely, limited liability companies and joint stock limited companies. The PRC Company Law also applies to foreign-invested limited liability companies. In accordance with the PRC Company Law, any stipulations by other PRC laws governing foreign investment shall prevail over the PRC Company Law.

Pursuant to the Measures for Foreign Investment Information Reporting which was promulgated on December 30, 2019 and became effective on January 1, 2020, where foreign investors carry out investment activities in Mainland China directly or indirectly, the foreign investors or foreign investment enterprises shall submit investment information to competent commerce departments. Foreign investors or foreign investment enterprises shall report investment information to competent commerce departments via the enterprise registration system and the national enterprise credit information disclosure system.

Regulation on Foreign Exchange Registration of Offshore Investment by PRC Residents

Pursuant to the Circular on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles (“Circular 37”) promulgated by the SAFE and became effective on July 4, 2014, a “special purpose vehicle “means an overseas enterprise directly established or indirectly controlled by a domestic resident (including domestic institution and domestic individual residents) for the purpose of engaging in investment and financing with the domestic enterprise assets or interests he legally holds, or with the overseas assets or interests he legally holds. And the registration for and the relevant foreign exchange administration over a special purpose vehicle established by a domestic resident shall be subject to the Circular 37.

According to the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment related Foreign Exchange Administration (“Circular 13”), the foreign exchange registration under domestic direct investment and the foreign exchange registration under overseas direct investment, including the registration of PRC residents who engage in overseas investment and financing and inbound investment via special purpose vehicles under the Circular 37, is directly reviewed and handled by banks, and the SAFE and its branches shall perform indirect regulation over the direct investment-related foreign exchange registration through local banks. The Circular 13 also simplified handling formalities for certain direct investment-related foreign exchange business, for example, simplifying the administration of the confirmation and registration of foreign investors’ contribution under Idirect investment, canceling the filing of overseasItment foreign exchange, and canceling annual inspection of the direct investment-related foreign exchange.

According to the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange Settlement (“Circular 16”) promulgated by SAFE and became effective on June 19, 2016, domestic enterprises may all settle their external debts in foreign currencies according to the method of voluntary foreign exchange settlement. A domestic institution may use its foreign exchange earnings under capital account and the RMB funds obtained from the settlement thereof for current account expenditure within the scope of its business, as well as for capital account expenditure permitted by laws and regulations.

According to the Regulations on Foreign Exchange Control of the PRC promulgated by the State Council on January 14, 1997 and amended and became effective on August 5, 2008, Renminbi is freely convertible without the approval from the SAFE of its local counterpart for current account transactions, including payment of dividends to foreign investors, payment of interests, international trade of goods, service-related foreign exchange transactions, on a basis of true and lawful transactions, while capital account transactions including direct investments and repayment of foreign currency loans are subject to significant foreign exchange control and require the prior approval of the SAFE or its local counterpart and/or registration with the authority.

Regulations on Trademarks

According to the Trademark Law of the PRC revised by the Standing Committee of the National People’s Congress (“SCNPC”)) on April 23, 2019 and taking effect on November 1, 2019, the registered trademark has a validity period of 10 years starting from the registration date. The trademark registrant enjoys the exclusive right to use the trademark.

Additionally, pursuant to the Trademark Law and other relevant PRC laws and regulations, in the event that a company uses trademarks in relation to production in the PRC without the required authorization, the company may be asked to cease the infringement. Any dispute in connection with the activities the infringe the exclusive right to use a registered trademark shall be resolved by the relevant parties through negotiation. If the relevant parties refuse to negotiate or the negotiation fails, the trademark registrant or the relevant stakeholders may file a lawsuit in the people’s court or turn to the industrial and commercial administrative department for handling. Meanwhile, we have successfully obtained two trademarks.

Regulations on Patents

According to the PRC Patent Law revised by the SCNPC on October 17, 2020 and taking effect on June 1, 2021, the PRC patent Law provides for patentable inventions, utility models and designs, which must meet three conditions: novelty, inventiveness and practical applicability. The State Intellectual Property Office is responsible for examining and approving patent applications. A patent is valid for a term of twenty years in the case of an invention patent and a term of ten years in the case of utility models and designs. We are licensed to use three utility models patents which are registered in Taiwan.

PRC Taxation and Foreign exchange

Under the Enterprise Income Tax Law or EIT Law amended on December 29, 2018, and the Implementation Regulations on the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. A uniform income tax rate of 25% will be applied to domestic enterprises, foreign-invested enterprises and foreign enterprises that have established production and operation facilities in the PRC.

The Notice of the State Administration of Taxation (“SAT”) on Issues Relevant to Foreign-registered Chinese-invested Holding Enterprises Determined as Resident Enterprises in Accordance with Actual Management Organization Standard (“Circular 82”) issued by the SAT in April 2009 provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Pursuant to the SAT Circular 82, a PRC- controlled offshore incorporated enterprise has its “de facto management body” in China only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. The Administrative Measures for Income Tax of Chinese-Controlled Resident Enterprises Registered Abroad (For Trial Implementation) (“Bulletin 45”) issued by the SAT on September 1, 2011, provides more guidance on the implementation of the SAT Circular 82 and provides for procedures and administration details on determining resident status and administration on post-determination matters.

According to Provisional Regulations on Value-added Tax of the PRC issued by the State Council on December 13, 1993 and taking effect on January 1, 1994 and amended respectively on November 5, 2008, February 6, 2016 and November 19, 2017 (“Provisional Regulations on VAT”), the Detailed Rules for the Implementation of the Interim Regulations of the People’s Republic of China on Value-Added Tax revised by SAT on October 28, 2011 and came into effect on November 1, 2011, all the entities and persons engaged in sales of goods or provision of processing, repair and maintenance labour, sales of services, intangible assets or real estate or import of goods in China shall be subject to value-added tax. The taxable value shall be calculated based on the output tax and input tax. Unless otherwise specified by the Provisional Regulations on VAT, for the sales of goods, labour, tangible asset lease services or import of goods by the taxpayer, the VAT rate shall be 17%; for the sales of transportation, postal, basic telecom, construction and real estate lease service, sales of real estate, transfer of land use right, sales and import of special goods listed in the Provisional Regulations on VAT by the tax payer, the VAT rate shall be 11%; for the sales of services and intangible assets by the tax payer, the VAT rate shall be 6%. Unless otherwise specified, the VAT rate for the export of goods by the taxpayer shall be zero; and the VAT rate for the cross-border sales of services and intangible assets within the scope as specified in the regulations of the State Council by the domestic institutions and individuals shall be zero.

On March 23, 2016, the Ministry of Finance and the SAT jointly issued the Circular on Full Implementation of Business Tax to Value-added Tax Reform which has been partially repealed on July 1, 2017 and January 1, 2018, confirms that business tax would be completely replaced by VAT from May 1, 2016.

On April 4, 2018, the SAT and the MOF jointly issued Circular on Adjusting Value-added Tax Rate to further adjust the VAT rate, including the change of tax rate from 17% and 11% to 16% and 10% respectively for the taxable sales or import of goods by the tax payer.

On March 20, 2019, the SAT, the General Administration of Customs of the PRC (“GACC”) and the MOF jointly issued Announcement on Policies Concerning Deepening the Reform of Value-added Tax which shall come into effect as of April 1, 2019 to further adjust the VAT rate, including the change of tax rate from 16% and 10% to 13% and 9% respectively for the taxable sales or import of goods by the tax payer.

Employment Laws

The Labor Law of the PRC, which was amended on December 29, 2018, provides that 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 systems, 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 equipment 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. Workers engaged in special operations shall have received specialized training and obtained the pertinent qualifications. An employer must develop a vocational training system. Vocational training funds must be set aside and used in accordance with national regulations and vocational training for workers must be carried out systematically based on the actual conditions of the company.

The Labor Contract Law of the PRC, which was amended on December 28, 2012, and came into effect on July 1, 2013, and the Implementation Regulations on Labor Contract Law, which was promulgated on September 18, 2008, and came into effect on the same day, regulate employer and the employee relations and contain specific provisions involving the terms of the labor contract. Labor contracts must be made in writing and may, after reaching agreement upon due negotiations, be for a fixed-term, an un-fixed term, or conclude upon the completion of certain work assignments. In the event that no written labor contract is concluded at the time when a labor relationship is established, such a contract shall be concluded within one month as of the date when the employing unit employs a worker. An employer may legally terminate a labor contract and dismiss its employees after reaching an agreement upon due negotiations with the employee or by fulfilling the statutory conditions.

According to the Social Insurance Law of the PRC, enterprises are obliged to provide their employees in the PRC with welfare schemes covering basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and medical insurance. If an enterprise fails to pay social insurance premiums in full within the time period specified by the authorities, a daily fine of 0.05% on any delinquent payments may be imposed on it. If an enterprise fails to make such payments on time, it may be liable to a fine equal to one to three times the overdue amount.

According to the Regulations on the Administration of Housing Provident Funds, enterprises should undertake registration at the competent managing center of housing fund and then, upon the examination by such managing center of housing fund, undergo the procedures of opening the account of housing fund for their employees at the relevant bank. Enterprises are also obliged to timely pay and deposit then housing fund in the full amount. In the event that an enterprise fails to pay housing provident fund within the time period according to the regulation, the PRC authorities may order it to pay the fund within a time limit. If the enterprise still fails to make overdue contributions, such relevant PRC authorities may apply to court for compulsory execution. If the enterprise fails to undertake registration of housing provident fund or fail to open housing fund account for its employees, the competent PRC authorities shall order the enterprise to complete such registration procedure regarding housing provident fund within a prescribed time limit. If the enterprise fails to do so within the prescribed time limit, a penalty ranging from RMB 10,000 to RMB 50,000 may be imposed.

Foreign trade and customs

According to the Foreign Trade Law of the PRC amended on April 2004 and became effective on July 1, 2004, and last amended on November 7, 2016, any foreign trade business operator that is engaged in the import and export of goods or technologies shall make registration for record with the administrative department of foreign trade of the State Council or the institution entrusted by it, but those that are exempted from registration for record by laws, administrative rules and rules of the department in charge of foreign trade under the State Council shall be excluded. If the foreign trade business operator fails to complete such registration for record, the customs will not process the procedures of declaration, inspection and release for the import or export of goods.

According to the Customs Law of the PRC last amended on April 29, 2021, and the Administrative Provisions of the Customs of the PRC on the Registration of Customs Declaration Entities effective as of July 1, 2018, the import and export of goods are subject to the customs ‘control. Consignees of import goods and consignors of export goods have the obligation to make true declarations to the customs. Duties shall be levied by the customs in respect of the goods allowed to be imported and exported. Consignees of import goods and consignors of export goods are required to be registered with the local customs.

Item 4A. Unresolved Staff Comments

None.

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 audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could 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 — 3.D. Risk Factors” and elsewhere in this annual report.

5.A. Operating Results.

We focus on the cultivating and sales of cordyceps products and Cattle camphor mushroom products. The results of operations are shown as follows.

Revenue

Revenue - third parties of $760,722 during the year ended December 31, 2023 was comprised of Cattle camphor mushroom products sales of $606,615 and cultivation training income of $154,107. Cattle camphor mushroom products mainly consist of Taiwanofungus Oral Pill and Taiwanofungus Double A Oral shot, of which the sales revenue amounted to $326,814 and $250,994, respectively. Total revenues from these major types of products accounted for approximately 95% of the total sales of Cattle camphor mushroom products. Cultivation training income was a one-time transaction, and the Company does not consider cultivation training service or office rent service a reportable segment.

The Company sold Cattle camphor mushroom products to Gasar Biotechnology Co., Ltd, a related party, in the amount of $121,811, $53,304 and $0 for the years ended December 31, 2023, 2022, and 2021, respectively. The related party sales increased by $68,507, or 128.52%, for the year ended December 31, 2023. The Cattle camphor mushroom products sold to the related party mainly consist of Taiwanofungus Oral Pill and Taiwanofungus Double A Oral shot for the years ended December 31, 2023 and 2022. 

The Company expanded and developed many third party company or individual customers, as third party sales accounted for 86.20% of the total sales for the current year, and no third party sales generated for the years ended December 31, 2022 or 2021.

The Company sold cordyceps products in the amount of $299,881, $395,481, and $879,318 for the years ended December 31, 2023, 2022, and 2021, respectively, which were reported in discontinued operations.

Cost of goods sold

Total cost of revenue of $116,146 and $13,746 for the years of 2023 and 2022 represents the goods purchasing cost from Taiwan Xinding Biological Research and Development Co., Ltd.

The related party cost of revenue increase by $16,160,or 117.56%, for the year ended December 31,2023.

Gross margin

Our gross margin for third party sales was $674,482, or 88.66% for the year ended December 31, 2023, and no third party revenue generated for the year ended December 31, 2022 and 2021.

Our gross margin for related party sales was $91,905, or 75.45%, and $39,558,or 74.21% for the year ended December 31, 2023 and 2022.

The higher gross margin for third party sales was due to the cultivation training service income in the amount of $154,107 generated in 2023, which had an higher gross margin.

Research and development

Research and development expenses decreased from $118,444 to $0 from the year ended December 31, 2022 to the year ended December 31, 2023. Research and development expenses for the year ended December 31, 2022 mainly consist of research and development expenses on cordyceps products, which were not recorded under Cordyceps Sunshine Biotech Co., Ltd. (Hong Kong).

In 2023, our products primarily consist of Cattle mushroom products. We did not incur research and development expenses on Cattle mushroom products in 2023 because Cattle mushroom products have been popular in Taiwan and worldwide. Therefore, we were able to enter the market of Cattle mushroom products in the year of 2023 without research and development activities.

Professional fees

Professional fees, representing the SEC lawyer fee, audit fee and accounting fee, increased from $80,558 for the year of 2021 to $165,202 for the year of 2022 and continued to &238,139 for the year 0f 2023, due to the need for more complex professional services.

We anticipate that our support personnel costs, professional fees, as well as public company filing compliance, will continue to increase as we are a reporting company in the United States.

Payroll and employee benefit

Payroll and employee benefit increased from $47,782 to $109,295, by $61,513, or 128.74% from year of 2022 to year of 2023. The increase was due to more employees hired for the year of 2023.

Other General and administrative expense

Our general and administrative expense increased continuously from $$13,777 for the year of 2021 to $123,251 for the year of 2022 and continued to $193,569 for the year of 2023, representing an increase of $109,474, or 794.61% and an increase of $70,318 or 57.05%. The increase was due to the larger operations scale for the past three years.

Net income (loss)

The Company generated net income of $241,536 and net loss of $415,111 and $119,380 from continued operations for the years ended December 31, 2023 ,2022 and 2021 respectively, representing an increase in net income of $656,647 and an increase in net loss of $295,731. The significant turnaround from loss to profit was mainly a result of an increase in gross margin of $726,829 for the year ended December 31, 2023.

Factors Affecting Our Results of Operations

Maintain our competitive advantages. Based on our strength in scale artificial cultivation of Cordyceps, we can provide Cordyceps products cultivated in our factory workshop, which give our customers a greater sense of satisfaction. We have formed our own unique and competitive advantages. If we fail to largely increase our sales scale, we will bear a lower gross margin and worse operating results.

Loss of key personnel. Our revenue was derived from our competitive advantages in our products. We rely heavily on the expertise and leadership of our senior management to maintain our core competence. The loss of the service of any of our key personnel could adversely affect our business.

Macro-economic conditions. Our business, financial condition and results of operations may be materially adversely affected by a challenging economic climate, including adverse changes in interest rates, volatile commodity markets and inflation, contraction in the availability of credit in the market and reductions in consumer spending. A macroeconomic downturn, which decreases the disposal personal income and reduces the need for luxury goods, may contribute to decreased sales of our Cordyceps products. Conversely, the economic growth may result in more sales of our Cordyceps products.

Price fluctuation of raw materials. The purchase of raw materials accounts for the majority of cost of goods sold. The price of raw materials is out of our control and the fluctuation of materials may significantly affect our operating results.

Depreciation. Our depreciation expenses are mainly driven by the net value of machinery equipment, motor vehicles, buildings and other items. Depreciation of property, plant and equipment is calculated based on cost, less their estimated residual value, if any, using the straight-line method over estimated useful life from 5 years to 50 years. Any change of the depreciation accounting policy or impairment of our property may affect our operating results.

Prevailing salary levels. Our cost of revenues is impacted by prevailing salary levels. Although we have not been subject to significant wage inflation in China, a significant increase in the market rate for wages could harm our operating results and our operating margin. Our ability to attract, retain, and expand our senior management and our professional and technical staff is an important factor in determining our future success. The market for qualified scientists and researchers is competitive. From time to time, it may be difficult to attract and retain qualified individuals with the required expertise at a fair wage. An increase in compensation of our scientists and researchers may increase our operating cost.

Impact of Covid-19

As a result of the COVID- 19 outbreak in December 2019 and continuing through 2020,2021 and 2022, the Company’s businesses, results of operations, financial position and cash flows were adversely affected in 2022 with potential continuing impacts on subsequent periods, including but not limited to the material adverse impact on the Company’s revenues as result of the suspension of operations and decline in demand by the Company’s customers.

The COVID-19 pandemic has led government and other authorities to impose measures intended to control its spread, including restrictions on freedom of movement, gatherings of large numbers of people, and temporary closure of business operations. With respect to our business, the primary adverse result of the COVID-19 pandemic has been a serious interruption from time to time of temporary closure of business operations. Without the COVID-19 pandemic, we expected our sales revenue for the year ended December 31, 2022 might have increased by 20% compared to the year ended December 31, 2021, but it actually decreased by approximately 55%.

Though the global outbreak and spread of the novel strain of coronavirus (COVID- 19) came to end in November 2022, we are still taking steps in an effort to identify and mitigate the adverse impacts on, and risks to, our business (including but not limited to our employees, customers, other business partners, our manufacturing capabilities and capacity and our distribution channels) posed by its spread and the governmental and community reactions thereto.

5.B. Liquidity and Capital Resources.

Other than our growing experience and skills in Cordyceps cultivation and the growing demand for our products and services for the domestic and oversea markets, both of which we believe may increase our liquidity if they continue, we are not aware of any trends or any demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way.

For 2024, we expect our main growth will be from our products sales in Taiwan. The demand for our products and services appears to be strengthening, from which we expect to generate more positive cash flow.

Our long-term future capital requirements will depend on many factors, including our level of revenue, the timing and extent of our spending to support the maintenance and growth of our operations, the expansion of our sales and the continued market acceptance of our products and services.

Cash flows

As of December 31, 2023, we had $330,973 in current assets and $2,928,920 in current liabilities and the working capital deficit is $2,597,947. In addition, we had total shareholders ’ deficit of $78,731 as of December 31, 2023.

As of December 31, 2022, we had $501,552 in current assets and $2,521,130 in current liabilities and the working capital deficit is $2,019,578. In addition, we had total shareholders ’ equity of negative $951,334 as of December 31, 2022.