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Baikang Biological Group Holdings Ltd – ‘DRS’ from 12/17/18

On:  Monday, 12/17/18, at 3:09pm ET   ·   Private-to-Public:  Filing ¶  –  Release Delayed to:  5/24/19   ·   Accession #:  1144204-18-64874   ·   File #:  377-02420

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

12/17/18  Baikang Biological Gp Holdin… Ltd DRS¶        5/24/19    2:3.8M                                   Toppan Vintage/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DRS         Draft Registration Statement by an Emerging Growth  HTML   1.00M 
                Company or a Foreign Private Issuer                              
 2: EX-21.1     Subsidiaries                                        HTML      5K 

As confidentially submitted to the Securities and Exchange Commission on December 17, 2018. This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.

Registration No. 333-          

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM F-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

Baikang Biological Group Holdings Limited

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s Name into English)

Copies to:

Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this Registration Statement.

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company x

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 7(a)(2)(B) of the Securities Act. ¨

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

CALCULATION OF REGISTRATION FEE ​

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We will not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated December 17, 2018

Baikang Biological Group Holdings Limited

Minimum Offering: ● Common Shares

Maximum Offering: ● Common Shares

This is the initial public offering of Baikang Biological Group Holdings Limited, a British Virgin Islands company. We are offering a minimum of ● and a maximum of ● of our Common Shares. None of our officers, directors or affiliates may purchase Common Shares in this offering.

We expect that the offering price will be between $● and $● per share. No public market currently exists for our Common Shares. We have applied to have our common stock listed on The NASDAQ Capital Market under the symbol “BKSW.” If the application is approved, trading of our Common Shares is expected to begin within 5 days after the date of initial issuance of the Common Shares. We cannot assure you that our application will be approved; however, we will not complete this offering without a listing approval letter from The NASDAQ Capital Market.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, and, as such, we have elected to take advantage of certain reduced reporting requirements for this prospectus and may elect to comply with certain reduced public company reporting requirements for future filings.

Investing in these shares of common stock involves significant risks. See “Risk Factors” beginning on page 14 of this prospectus.

⁽¹⁾       Minimum and maximum offering amounts for underwriter- and company-introduced investors assume sale of 100% of shares at each respective commission rate. Assumed proceeds presumes the sale of half of offered shares at 4% commission and half at 6% commission rates. See “Plan of Distribution” beginning on page 164 of this prospectus for additional information regarding underwriting compensation.

In addition to the fees discussed above, we have agreed to issue to the underwriters or their designees Underwriter Warrants to purchase shares of common stock equal to 5.0% of the total shares of common stock sold in this offering. The registration statement of which this prospectus is a part also covers the Underwriter Warrants and the shares of common stock issuable upon the exercise thereof. We also have agreed to reimburse the underwriters for certain of their out-of-pocket expenses. See “Plan of Distribution” on page 164 for a description of these arrangements.

We expect our total cash expenses for this offering to be approximately $●. The underwriter, Spartan Securities Group, Ltd., must sell the minimum number of securities offered (●) if any are sold. The underwriter is only required to use their best efforts to sell the maximum number of securities offered (●). The offering will terminate upon the earlier of: (i) a date mutually acceptable to us and our underwriters after which at least ● shares of our common stock are sold assuming an offering price of $● per share (the minimum offering); (ii) such time as ● shares of our common stock are sold assuming an offering price of $● per share (the maximum offering) or (iii) ●, 2019. If we do not sell at least ● shares by ●, 2019, all funds will be promptly returned to investors (within one business day) without interest or deduction. If we complete this offering, net proceeds will be delivered to our Company on the closing date. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China. If we complete this offering, then on the closing date, we will issue shares of common stock to investors in the offering and Underwriter Warrants to our underwriters exercisable at a rate of one warrant per share to purchase ●% of the aggregate number of shares of common stock sold in this offering at an exercise price equal to ●% of the price at which we sell our shares of common stock in this offering.

The underwriters expect to deliver the shares against payment in New York, New York, on or about ●, 2019.

These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Spartan Securities Group, Ltd.

The date of this prospectus is ●, 2019.

Table of Contents

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, Common Shares only in jurisdictions where offers and sales are permitted.

The information in this preliminary prospectus is not complete and is subject to change. No person should rely on the information contained in this document for any purpose other than participating in our proposed initial public offering, and only the preliminary prospectus issued ●, 2018 is authorized by us to be used in connection with our proposed initial public offering. The preliminary prospectus will only be distributed by us and the underwriters named herein and no other person has been authorized by us to use this document to offer or sell any of our securities.

Until ●, 2019 (25 days after the commencement of our initial public offering), all dealers that buy, sell, or trade our Common Shares, whether or not participating in our initial public offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Risk Factors

Before you decide to purchase our Common Shares, you should understand the high degree of risk involved. You should consider carefully the following risks and other information in this prospectus, including our consolidated financial statements and related notes. If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our Common Shares could decline, perhaps significantly.

Risks Related to Our Business and Industry

We operate in a highly competitive industry. Our failure to compete effectively could adversely affect our market share, revenues, and growth prospects.

The health food and dietary supplement industry is intensely competitive and highly fragmented. Participants include large scale and well-funded manufacturers and other smaller participants. We believe that the market is also highly sensitive to the introduction of new products, including the ever-growing list of new dietary supplements and health foods, which may rapidly capture a significant share of the market. Presently our business operations and product distribution are exclusively conducted in China, and we expect to expand our product sales into the international markets in the near future. In China, we compete for sales with heavily advertised national and international brands manufactured by large pharmaceutical and food companies, as well as other small manufacturers. Our competitors mainly include large Chinese nutritional supplement product manufacturers and foreign-based companies with international operations. We may not be able to compete effectively and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, revenues, and growth prospects.

We are subject to risks related to product recalls, and our operation results and financial condition would suffer if we fail to adequately manage such risks.

We have implemented measures in our manufacturing process that are designed to prevent and detect defects and contaminants in our products. Such measures, however, may not prevent, reveal or detect defects or contaminants in our products, and such defects may not become apparent until after our products have been sold into the market. Consequently, there is a risk that product defects may occur and such defects or contaminants will require a product recall. Any product recalls and related remedial actions can be costly to our operations and could have a material adverse effect on our business, results of operations and financial condition. Additionally, our third-party suppliers may be reluctant to implement these stringent measures or may refuse to manufacture our products. These additional measures may strain our relationships with those suppliers or may increase our cost of goods sold. Furthermore, product recalls could result in negative publicity and public concerns regarding the safety of our products, which could harm the reputation of our products and our business and could cause the market value of our Common Shares to decline.

Product liability claims could hurt our business.

Our products consist of ginkgo, other herbs, vitamins, minerals and other ingredients that are classified as foods or dietary supplements and, unlike prescription medication, our product formulas are not subject to pre-market regulatory approval with respect to medical efforts in China in which our products are distributed. With the exception of ginkgo oil, we do not conduct or sponsor clinical studies of our products. As a manufacturer of ginkgo edible oil, ginkgo liquor and ginkgo powered drink that are ingested by consumers or applied to their bodies, we may be subjected to various product liability claims, including that: (i) our products contain defects or contaminants; (ii) our products include inadequate instructions as to their uses; or (iii) our products include inadequate warnings concerning side effects and interactions with other substances. Any product liability claims and the resulting adverse publicity could negatively affect our business or we could be required to pay substantial monetary damages which could harm our business in the future.

Because we cannot exert the same level of influence or control over our independent distributors as we could were they our own employees, our distributors could fail to comply with our distributor policies and procedures, which could result in claims against us that could harm our financial condition and operating results.

Our distributors are independent and, accordingly, we are not in a position to directly provide the same direction, motivation and oversight as we would if distributors were our own employees. As a result, there can be no assurance that our distributors will participate in our marketing strategies or plans, accept our introduction of new products, or comply with our distributor policies and procedures.

Extensive national and local laws regulate our business and products. Although we have implemented distributor policies and procedures designed to govern distributor conduct and to protect the goodwill associated with our trademarks and tradenames, it can be difficult to enforce these policies and procedures because of the large number of distributors and their independent status. Violations by our independent licensed distributors of applicable law or of our policies and procedures in dealing with customers could reflect negatively on our products and operations and harm our business reputation.

Because of our dependence on consumer perceptions, adverse publicity associated with harmful effects resulting from the consumption of our productions, or any similar products distributed by other companies, could have a material adverse effect on us.

We are highly dependent upon consumer perception of the safety and quality of our products and the ingredients they contain, as well as that of similar products distributed by other companies. Consumer perception of products and the ingredients they contain can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products or the ingredients they contain and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that questions earlier research or publicity could have a material adverse effect on our ability to generate revenues. As such, period-to-period comparisons of our results should not be relied upon as a measure of our future performance. Adverse publicity in the form of published scientific research or otherwise, whether or not accurate, that associates consumption of our products or the ingredients they contain or any other similar products distributed by other companies with illness or other adverse effects, that questions the benefits of our or similar products, or that claims that such products are ineffective could have a material adverse effect on our reputation, the demand for our products, our ability to generate revenues and the market price of our Common Shares.

Our failure to appropriately respond to changing consumer preferences and demand for new products could significantly harm our customer relationships and product sales.

Our business is particularly subject to changing consumer trends and preferences. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not be able to respond in a timely or commercially appropriate manner to these changes. If we are unable to do so, our customer relationships and product sales could be harmed significantly.

Furthermore, the nutritional supplements industry in particular is characterized by rapid and frequent changes in demand for products and new product introductions. Our failure to accurately predict these trends could negatively impact consumer opinion with respect to the products we distribute. This could harm our customer relationships and cause losses to our market share. The success of our new product offerings depends upon a number of factors, including our ability to: accurately anticipate customer needs; innovate and develop new products; successfully commercialize new products in a timely manner; price our products competitively; manufacture and deliver our products in sufficient volumes and in a timely manner; and differentiate our product offerings from those of our competitors.

If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could become obsolete, which could have a material adverse effect on our revenues and operating results.

Our manufacturing activity is subject to certain risks.

We manufacture a portion of the products sold at our manufacturing facility located in Pizhou, China. As a result, we are dependent upon the uninterrupted and efficient operation of our manufacturing facility. Our manufacturing facilities and warehouses are subject to the risk of catastrophic loss due to, among other things, fire, flood, earthquake, or other natural or man-made disasters, as well as occurrence of significant equipment failures. If any of these facilities were to experience a catastrophic loss, we would be expected to disrupt our operations and could have a material adverse effect on our Company’s results of operations and financial condition.

As the manufacturer of our own products, we are subject to a variety of PRC laws and regulations, including, among others, the Food Safety Law of the PRC, as amended in 2015, (the “Food Safety Law”) and its Implementation Regulations, as amended in 2016, Administrative Measures for Food Production Licensing, as Amended in 2017, and Administrative Measures for Food Business Licensing, as amended in 2017. These law and regulations require us to (1) obtain the corresponding food production permit pursuant to the law; (2) organize staff to attend training in food safety knowledge to study food safety laws, regulations, rules, standards and other food safety knowledge; (3) establish and implement the employee health examination system and health record system; (4) establish an incoming goods examination and logging system and food exit inspection and logging system, faithfully record items that are required by law to be recorded, or retain incoming goods documents or sales documents that bear relevant information; (5) establish and implement such food safety management systems as ingredient inspection and acceptance, production process safety management, storage management, equipment management, and substandard product management systems. Compliance with these regulations has increased and may further increase the cost of manufacturing our products. Our results of operations and financial condition could be materially adversely affected if regulatory authorities determine that our Company is not in compliance with PRC regulations on food, drink, dietary supplements or other products we sell to our customers. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain products, which could have a material adverse effect on our Company’s results of operations and financial condition.

We are exposed to substantial risks associated with the distribution of products manufactured by third parties.

In addition to selling products we produce, we contract with third-parties, such as Shandong Senjian Biotechnology Development Co., Ltd., Jiangsu Baiziya Cosmetics Co., Ltd. and Qingzhi (Shanghai) Daily Necessities Co., Ltd., to produce or supply some of our products. We do not have full control over the manufacturing activities of the manufacturers which produce these products. Significant delays and defects in our products resulting from the activities of our contract manufacturers may have a material adverse effect on our Company’s results of operations and financial condition.

Under the PRC law, for the third party products that we distribute, the third party manufacturers are responsible for the quality of the products. We, however, may still be liable under certain circumstances. For example, product sellers bear tort liabilities for product defects as a result of the seller’s negligence which has caused the consumers’ damages or if the sellers are unable to specify the manufacturer of a defective product. In the event consumers suffer from damages caused by product defects, consumers may seek compensation either from the product manufacturer or from the seller of the products. If a product defect occurs during the manufacturing period and the compensation is paid by a seller, then the seller is entitled to recover losses from the manufacturer. However, if a defect occurs during the selling period and the compensation is paid by the manufacturer, then the manufacturer is entitled to recover losses from the seller. In the event that product defects are caused by the manufacturers, while we have the right to seek recourse against the manufacturers after we pay damages to the consumers, there can be no assurance that we could recover any of our compensation payments we will have made.

We may be unable to obtain, retain or renew required permits, licenses or approvals for our business operations.

We are required to maintain certain permits, licenses and approvals issued by relevant government agencies to operate business in the PRC. Our inability to secure any permits, licenses and approvals in the PRC in a timely manner or at all could result in operational delays or suspensions and/or administrative fines and penalties, which could have a material adverse effect on the manufacturing operations of our relevant facilities, as well as our overall business, results of operations and financial condition.

Based on the requirement of “one license for one enterprise,” Administrative Measures for Food Production Licensing, as amended in 2017, require an entity to obtain a Food Production License from the relevant government agency prior to engaging in food production activities within the territory of the PRC. In our operations, Baijiale holds a license to produce edible vegetable oil and has signed a long-term cooperation agreement with its direct parent company, Jiangsu Baikang, which has the manufacturing capacity and skilled production work force. Under the cooperation agreement, Baijiale entrusts Jiangsu Baikang to be responsible for edible oil production, and Jiangsu Baikang provides production equipment and technical personnel to produce edible oil at the designated site of Baijiale. We cannot be certain that such cooperation arrangement would not be a violation of the Administrative Measures for Food Production Licensing, although the relevant government agencies have not rendered an opinion in this aspect. Should the relevant administrative agencies deem the arrangement to be incompliant with PRC law, such a violation may subject these two subsidiaries to administrative penalties or suspension of the production license, and consequently could cause a material adverse effect on our business operations and financial condition.

Pursuant to the Food Safety Law of the PRC and the Administrative Measures on Registration and Filling of Health Food Products, a manufacturer must register or make the required filing with the CFDA for manufacturing and selling dietary supplement products. Prior to the enactment of the above law and regulations, we previously manufactured and distributed dietary supplements under our license for food manufacturing and distribution. However, we are no longer able to manufacture and sell dietary supplements and do not do so. We have submitted the required registration and filings. As of the date of the registration statement, however, we have not obtained the registration and filling certificates. We previously sold certain dietary supplement inventory which were manufactured before the above rules took effect. We cannot assure you that the relevant government agencies will not impose fines and penalties for the sale should they decide to enforce the above PRC law. Should we be required to pay fines or penalties, our results of operations and financial condition may be materially adversely affected.

In addition, there is no assurance that we will be able to renew any existing permits, licenses and approvals when they expire or that we will be able to obtain or renew future permits, licenses and approvals in a timely manner, or at all. Furthermore, there is no assurance that such permits, licenses or approvals will not be revoked for whatever reason by the relevant authorities in the future. Failure to obtain or renew such permits, licenses and approvals as planned could materially and adversely affect our business, results of operations and financial condition.

Our nutraceutical products constitute a significant portion of our sales, and our financial condition and operation results could be materially adversely affected if our sale of such products decreases significantly without suitable product replacement.

Our nutraceutical products has constituted a significant portion of our customer sales, accounting for approximately 79.6% and 99.1% of our total revenues in fiscal years 2018 and 2017, respectively. We are currently endeavoring to expand our production and sale to include products other than nutraceutical products, and for example, we plan to diversify our product offerings based on our current ginkgo oil series to include other innovative new products. However, there is no assurance that we will be successful in creating new demand for our products through such initiatives. If customer demand levels for the nutraceutical products decline significantly before we become successful in generating enough demand for new replacement products, our financial condition and results of operations may be materially and adversely affected. In addition, any adverse development relating to nutraceutical products, including the introduction of superior products by our competitors or the use of improved formulas or technologies that could replace the products we distribute, could have a material adverse effect on the results of our operations.

Price increases in raw materials and sourced products could harm the Company’s financial results.

Our principal raw materials are ginkgo nuts and extracts, certain herbs and plant extracts, most of which are extracted from plants or crops. These raw materials are subject to price volatility and inflationary pressures. Our success is dependent, in part, on our ability to reduce our exposure to increases in those costs through a variety of ways, while maintaining and improving margins and market share. We also rely on third-party manufacturers as a source for a portion of components for our products. These manufacturers are also subject to price volatility and labor cost and other inflationary pressures, which may, in turn, result in an increase in the amount we pay for sourced products. Raw material and sourced product price increases may offset our productivity gains and price increases and may adversely impact our financial results.

Unforeseen and severe weather can reduce cultivation activities and lead to a decrease in anticipated harvests.

Seasonal climate and weather variations such as levels of rainfall and temperature may, among other things, affect the quality, overall supply and availability of raw materials. Sustained adverse weather conditions in Jiangsu Province in general and in Pizhou in particular, such as rain, drought, extreme cold or extreme heat, could disrupt or curtail cultivation activities. This in turn could reduce anticipated harvest yields, cause delays, and negatively affect the quality of anticipated harvests. In addition, natural disasters such as fires, earthquakes, snowstorms, floods or droughts, or natural conditions such as crop disease, pests or soil erosion, may also negatively impact our cultivation and harvest.

In addition, the actual climatic conditions of Jiangsu Province and of Pizhou in particular may not conform to historical patterns and may be affected by variations in weather patterns. The effects of climate change may produce more unpredictable weather events that may adversely affect our suppliers’ ability to cultivate and harvest successfully. The occurrence of any of these may materially harm our business.

High quality materials for our products may be difficult to obtain or substantially increase our production costs.

Raw materials account for a portion of our manufacturing costs and we rely on third-party suppliers to provide almost all raw materials. Suppliers may be unable or unwilling to provide the raw materials we need in the quantities requested, at a price we are willing to pay, or that meet our quality standards. We are also subject to potential delays in the delivery of raw materials caused by events beyond our control, including transportation interruptions, delivery delays, labor disputes and changes in government regulations. Our business could be adversely affected if we are unable to obtain a reliable source of the raw materials used in the manufacturing of our products that meets our quality standards. Any significant delay in or disruption of the supply of raw materials could, among other things, substantially increase the cost of such materials, require reformulation or repackaging of products, require the qualification of new suppliers, or result in our inability to meet customer demands.

The toxic feature of ginkgo leaves and ginkgo fruits could have a material adverse effect on us.

Difference sources claim that ginkgo leaves and ginkgo fruits are poisonous if not treated appropriately. For example, the National Center for Complementary and Integrative Health has warned that, although ginkgo appears to be safe for many healthy adults when taken by mouth in moderate amounts, eating fresh (raw) or roasted ginkgo seeds can be poisonous and have serious side effects.

We purchase ginkgo nuts to extract ginkgo essence oil. Although we believe we process the ginkgo nuts appropriately to eliminate the toxic substance as much as possible, such as removing the toxic embryo from the ginkgo endosperm, we cannot assure the consumers of our products that our ginkgo essence oil and the remaining ginkgo nut powder after the oil is extracted contain no toxic substances, or contain so few toxic substances that they will not cause any adverse impact on consumers.

We purchase ginkgo nut powder and ginkgo spirit base as raw materials to produce ginkgo powdered drink and ginkgo-infused Baijiu. Both ginkgo nut powder and ginkgo spirit base are made from ginkgo nuts. Although we select our suppliers and third-party manufacturers very carefully and believe they have the qualifications and the ability to process ginkgo nuts appropriately, we cannot be certain that they comply with relevant rules at all times. Nor can we assure our consumers that the third-party manufacturers of the products that we sell comply with the relevant rules at all times, or purchase the qualified ginkgo leave extract as a raw material.

If any of the ginkgo-related products that we produce and/or sell causes any adverse health reactions for any of the consumers of our products, we could face significant litigation or administrative proceedings, which could adversely affect our business.

The loss of any of our key customers could reduce our revenues and our profitability.

Our key customers comprise primarily independent distributors and, to a lesser extent, specialty retail stores and individual consumers. For the fiscal year ended April 30, 2018, although we had a dozen different customers, we had one customer that accounted for approximately 13.7% of our total revenue. For the year ended April 30, 2017, sales to two customers, both independent distributors, accounted for approximately 18.5% and 13.2%, respectively, of our total revenue. While we have a five-year agreement with these distributors, we cannot guarantee that we will be able to maintain or improve the relationships with these customers, or that we will be able to obligate these customers to purchase our products at current levels or at all. Any failure to purchase at the current level or pay by these customers could have a material negative effect on our company’s business. If we cannot maintain long-term relationships with these major customers, the loss of our sales to them could have an adverse effect on our business, financial condition and results of operations.

If our largest customers reduce their orders with us, such revenues would be very difficult to replace.

Our largest customers are independent distributors in five provinces, including Jiangsu, Zhejiang, Liaoning, Shandong and Hebei, and each of them sells our products to their retail customers. For the fiscal year ended April 30, 2018, sales to one customer accounted for approximately 13.7% of our total revenue. For the fiscal year ended April 30, 2017, sales to two customers accounted for approximately 18.5% and 13.2%, respectively, of our total revenue. Those largest customers are all our independent distributors. There is no other customers that present the opportunity that these customers present to us. As a result, if these customers purchased less of our products in the future, it would be difficult to replace those lost revenues.

Most of our products are not as well-known as those of our competitors.

There are a variety of competitors that manufacture and distribute similar products to ours in China and some are more well-known than our products. We are aware of several dozen competitors to our products, some of which have been on the market for years. However, we do not believe that there is a single leader in our industry. Nevertheless, we face competition from well-known brands like Nutrilite or Puritan’s Pride, as well as products produced by well-established manufacturers such as Beijing Tong Ren Tang, Amway Health Products or Hansen Medical. If we are unable to achieve recognition for our brand or if consumers opt to use products from companies they recognize more than our company, our products may not be well accepted.

Our reliance on third party service providers may put us at risk of service failures for our customers.

We rely on third party service providers to deliver a portion of raw materials and products we purchase from the suppliers to our facility and to ship our products from our manufacturing facilities to some of our customers in China. We compete based on price, quality and reliability, and a failure to deliver our products on time to our customers could harm our reputation. A failure to deliver a substantial portion of supplies on time to us could cause delays in our production operations or product distribution to our customers. To the extent we are unable to meet the customer’s demand for products or do not deliver products on time, we stand a substantial risk of losing those customers. Because we rely on third parties for logistics services, we may be unable to avoid supply chain failures, even if we are able to meet our manufacturing obligations to customers.

If we fail to protect our intellectual property rights, it could harm our business and competitive position.

We rely on a combination of patent, trademark, domain name and trade secret laws and non-disclosure agreements and other methods to protect our intellectual property rights. Our Chinese subsidiaries own 2 patents and 16 trademarks in China, all of which have been properly registered with regulatory agencies such as the State Intellectual Property Office and Trademark Office of China’s State Administration for Industry and Commerce (“SAIC”). This intellectual property has allowed our products to earn market share in the health food and dietary supplement products industry.

In addition to owning two patents, we also hold the license to use a third party’s patent exclusively. If our patent licensor revokes the exclusive license granted to us, we may need to enforce our rights under the license through legal channels.

The process of seeking patent protection can be lengthy and expensive, our patent applications may fail to result in patents being issued, and our existing and future patents may be insufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications may also be challenged, invalidated or circumvented.

We also rely on trade secret rights to protect our business through non-disclosure agreements with certain employees. If any of our employees breach their non-disclosure obligations, we may not have adequate remedies in China, and our trade secrets may become known to our competitors.

In accordance with Chinese intellectual property laws and regulations, we will have to renew our trademarks once the terms expire. However, patents are not renewable. Our two invention patents issued in 2016 and 2017 have only 20 years of protection. Once these patents expire, our products may lose some market share if they are copied by our competitors. In addition, we have the exclusive license to use a patent owned by Jiangsu University until December 31, 2018. Although we plan to renew this license prior to its expiration, there is no guarantee we will be able to renew it. Then, our business revenue might suffer some loss as well.

Implementation of PRC intellectual property-related laws has historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive position.

Our Chinese patents and registered marks may not be protected outside of China due to territorial limitations on enforceability.

In general, patent and trademark rights have territorial limitations in law and are valid only within the countries in which they are registered.

At present, Chinese enterprises may register their trademarks overseas through two methods. One is to file an application for trademark registration in each single country or region in which protection is desired, while the other is to apply via the Madrid system for international trademark registration. By the second way, under the provisions of the Madrid Agreement concerning the International Registration of Marks (the “Madrid Agreement”) or the Protocol Relating to the Madrid Agreement concerning the International Registration of Marks, applicants may designate their marks in one or more member countries via the Madrid system for international registration.

Similar to trademarks, Chinese enterprises may also register their patents overseas through two methods. One is to file an application for patent registration in each single country or region, and the other is to file international application with the China Intellectual Property Office or the International Bureau of World Intellectual Property Organization under the Patent Cooperation Treaty. However, such international application may relate to invention or utility model patents, but does not include industrial design patents.

Currently, we have registered 16 trademarks in China. All of our patents and trademarks are registered in China. If we do not register them in other jurisdictions, they may not be protected outside of China. As a result, our business and competitive position could be harmed.

We may be exposed to intellectual property infringement and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial condition and results of operations.

Our success depends, in large part, on our ability to use and develop our technology and know-how without infringing third party intellectual property rights. If we sell our branded products internationally, and as litigation becomes more common in China, we face a higher risk of being the subject of claims for intellectual property infringement, invalidity or indemnification relating to other parties’ proprietary rights. Our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our branded products in either China or other countries, including the United States and other countries in Asia. The validity and scope of claims relating to patents in our industry involve complex scientific, legal and factual questions and analysis and, as a result, may be highly uncertain. In addition, the defense of intellectual property suits, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become a party could cause us to:

each of which could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of our products, which could have a material adverse effect on our financial condition and results of operations.

We may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed.

We may need to obtain additional debt or equity financing to fund future capital expenditures. While we do not anticipate seeking additional financing in the immediate future, any additional equity may result in dilution to the holders of our outstanding shares of capital stock. Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that:

We cannot guarantee that we will be able to obtain any additional financing on terms that are acceptable to us, or at all.

Our bank accounts are not fully insured or protected against loss.

We maintain our cash with various banks located in mainland China. Our cash accounts in the PRC are not insured or otherwise protected. Should any bank holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank or trust company.

We are substantially dependent upon our senior management.

We are highly dependent on our senior management to manage our business and operations. In particular, we rely substantially on our Chief Executive Officer, Mr. Jinguo Li.

We do not maintain key person life insurance on any of our senior management or key personnel. The loss of any one of them would have a material adverse effect on our business and operations. Competition for senior management and our other key personnel is intense, and the pool of suitable candidates is limited. We may be unable to quickly locate a suitable replacement for any senior management or key personnel that we lose. In addition, if any member of our senior management or key personnel joins a competitor or forms a competing company, they may compete with us for customers, business partners and other key professionals and staff members of our company. Although each of our senior management and key personnel has signed a confidentiality and non-competition agreement in connection with his employment with us, we cannot assure you that we will be able to successfully enforce these provisions in the event of a dispute between us and any member of our senior management.

Our ability to develop and market new products or modify existing production methods may be adversely affected if we lose the services of or cannot replace certain employees knowledgeable in advanced scientific and other fields.

Our products are depend on proprietary formulas, production processes and methods founded on specialized knowledge, skills, and expertise. If the services of employees knowledgeable in these fields are lost and cannot be replaced in a timely fashion at reasonable costs, our ability to develop and market new products or modify existing products and production methods would be adversely impacted. Additionally, regulatory compliance with respect to our products and financial matters generally requires a certain level of knowledge and expertise related to production, quality assurance, and financial control. If we lose the services or cannot reasonably replace employees who have the necessary knowledge and expertise, our ability to remain in regulatory compliance could be adversely affected.

We rely on our information technology systems to manage numerous aspects of our business, and a disruption in these systems could adversely affect our business.

We rely on our information technology, or IT, systems to manage many aspects of our business. Our IT systems are an essential component of our business operations, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to damage or interruption from power outages, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses, or natural disasters. Any disruption could cause our business and competitive position to suffer and adversely affect our business and operating results.

Cyber security risks or other failures to maintain the security of data related to our Company, employees, suppliers, distributors and customers could expose us to data loss, litigation and liability, and our reputation could be significantly harmed.

We possess and manage large volumes of data relating to our business and from our employees, suppliers, independent distributors and end customers for business purposes, including for transactional and promotional purposes, and our information technology systems enter, process, summarize and report such data. The integrity and protection of this data is critical to our business. We are subject to security and privacy regulations, as well as customer protection requirements. Maintaining compliance with these evolving regulations and requirements could be difficult and may increase our expenses. In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent or unlawful use of data relating to our company, our employees, suppliers, independent distributors or customers, which could harm our reputation, disrupt our operations, or result in remedial and other costs, fines or lawsuits.

Failure to manage our growth could strain our management, operational and other resources, which could materially and adversely affect our business and prospects.

Our growth strategy includes increasing market penetration of our existing products, developing new products and increasing the number and size of customers we serve. Pursuing these strategies has resulted in, and will continue to result in substantial demands on management resources. In particular, the management of our growth will require, among other things:

If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected.

We may be subject to penalties under relevant PRC laws and regulations due to failure to make full social security and housing fund contributions for some of our employees.

In the past, contributions by our PRC subsidiaries for some of their employees to the social security and housing funds may not have been in compliance with relevant PRC regulations. Pursuant to the Regulation on the Administration of Housing Accumulation Funds, as amended in 2002, the relevant housing fund authority may order an enterprise to pay outstanding contributions within a prescribed time limit. Pursuant to the PRC Social Insurance Law promulgated in 2010, the social security authority may order an enterprise to pay the outstanding contributions within a prescribed time limit and may impose penalties if there is a failure to do so. To the extent the relevant authorities determine we have underpaid, our PRC subsidiaries may be required to pay outstanding contributions and penalties to the extent they did not make full contributions to the social security and housing funds.

In addition, in July 2018, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Reform Plan of the Taxation and Collection Systems of National Taxes and Local Taxes,” which states that, effective January 1, 2019, basic pension insurance premiums, basic medical insurance premiums, unemployment insurance premiums, injury insurance premiums and maternity insurance premiums shall be levied by the tax authorities. Under the new system, tax collection is likely to be stringently administrated and enforced. There can be no assurance that we will not be required to pay all of the previously delinquent social insurance and housing fund contribution amounts and associated administrative penalties.

We may not be able to obtain title certificates for our under-construction property.

Currently we have buildings that are under construction. However, we have not completed the preliminary administrative licensing procedures required for such construction in progress, including, but not limited to, a construction land planning permit, construction project planning permit and construction permit. As of the date of the registration statement, we have received a statement from the administrative agency that the relevant documents are being processed.

We may be involved from time to time in legal proceedings and commercial or contractual disputes, which could have a material adverse effect on our business, results of operations and financial condition.

From time to time, we may be involved in legal proceedings and commercial disputes. Such proceedings or disputes are typically claims that arise in the ordinary course of business, including, without limitation, commercial or contractual disputes, warranty claims and other disputes with customers and suppliers, intellectual property matters, environmental issues, tax matters and employment matters. There can be no assurance that such proceedings and claims, should they arise, will not have a material adverse effect on our business, results of operations and financial condition. At present, we are involved in two pending litigations, and the aggregated dispute amount is approximately RMB 580,000.

Risks Related to Our Corporate Structure and Operation

We will incur additional costs as a result of becoming a public company, which could negatively impact our net income and liquidity.

Upon completion of this offering, we will become a public company in the United States. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a foreign company not listed on a U.S. stock exchange. The Sarbanes-Oxley Act and rules and regulations implemented by the SEC and The NASDAQ Capital Market require significantly heightened corporate governance practices for public companies. We expect that these rules and regulations will increase our legal, accounting and financial compliance costs and will make many corporate activities more time-consuming and costly.

We do not expect to incur materially greater costs as a result of becoming a public company than those incurred by similarly sized foreign private issuers. If we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our Common Shares could decline.

We expect to make significant investment and capital expenditures to expand our business operations after our initial public offering and such investment, if not properly managed, could materially and adversely affect our financial condition and the results of operations.

To implement our post-IPO growth strategy, we plan to make significant investment in a number of areas, including but not limited to, product distribution channel increase and diversification, R&D, Pizhou Industrial Park buildings and human capital investment. While we currently plan to use proceeds from the IPO to finance such investment and capital expenditures, there can be no assurance that proceeds from the IPO could be sufficient to cover all the costs and expenditures associated with our business growth investment. Our expenditures could further increase as a result of, among other things, the cost of labor and materials, the cost of production equipment replacement and the cost to maintain or improve our existing facility. If we cannot properly manage the expected significant increase in our expenditures, our results of operations and financial condition could suffer.

The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.

Upon completion of this offering, we will be a publicly listed company in the United States. As a publicly listed company, we will be required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our company and shareholders. In some cases, we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our company. Similarly, as a U.S.-listed public company, we will be governed by U.S. laws that our non-publicly traded competitors are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations.

We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

We are a foreign private issuer and, as a result, we are not subject to the same requirements under the U.S. securities laws as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.

As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

As a foreign private issuer, we are permitted to rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. If we opt to rely on such exemptions in the future, such decision might afford less protection to holders of our Common Shares.

Section 5605(b)(1) of the Nasdaq Listing Rules requires listed companies to have, among other things, a majority of its board members to be independent, and Section 5605(d) and 5605(e) require listed companies to have independent director oversight of executive compensation and nomination of directors. As a foreign private issuer, however, we are permitted to follow home country practice in lieu of the above requirements. Our Board of Directors could make such a decision to depart from such requirements by ordinary resolution.

The corporate governance practice in our home country, the British Virgin Islands, does not require a majority of our board to consist of independent directors or the implementation of a nominating and corporate governance committee. If we relied on the foreign private issuer exemption, a majority of our board of directors would not consist of independent directors, and fewer board members would be exercising independent judgment and the level of board oversight on the management of our company might decrease as a result. In addition, we could opt to follow British Virgin Islands law instead of the Nasdaq requirements that mandate that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control, certain transactions other than a public offering involving issuances of 20% or greater interests in the company and certain acquisitions of the shares or assets of another company. For a description of the material corporate governance differences between the Nasdaq requirements and British Virgin Islands law, see “Description of Share Capital — Differences in Corporate Law.”

An insufficient amount of insurance could expose us to significant costs and business disruption.

While we have purchased insurance, including food safety liability and employer liability insurance, to cover certain assets and property of our business, the amounts and scope of coverage could leave our business inadequately protected from loss. For example, our subsidiaries do not have coverage of business interruption insurance. If we were to incur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations could be materially and adversely affected.

Risks Related to Doing Business in China

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 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 China claims that 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. 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.

Chinese economic growth slowdown may harm our business.

Since 2014, Chinese economic growth has been slowing down from double-digit GDP speed. The situation has impacted many industries and economic segments in China, such as restaurant, tourism and certain manufacturing industries. Our business operations in China mainly rely on health food, dietary supplements and skincare products, which are impacted by an economic downturn. If China’s economic growth continues to slow down, our products will be adversely affected due to the slow expansion or shrinkage of the food, nutrition and cosmetic products industry.

Global political uncertainties, and changes in government regulations and trade policies of China and other countries may adversely impact our business and operating results.

Our operations and performance depend substantially on global, regional and Chinese economic and geopolitical conditions. Our business is subject to risks associated with Chinese and foreign legislation and regulations relating to imports, including tariffs, quotas, duties or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to export products to foreign markets if our products are sold internationally in the future. For example, in the U.S., the change in the U.S. government administration has resulted in uncertainty regarding changes in regulations, domestic and foreign relations and international trade policies. The U.S. government has announced heightened tariffs on many Chinese exported products and restrictions on Chinese investment in the U.S. companies. We cannot predict whether and how those regulatory changes or additional changes or restrictions will impact our future costs of operations or product distributions in the international markets should we start to distribute products in the foreign market. Future government regulations and trade policies on tariffs and investment restrictions in the countries where we intend to distribute our products or have other operations may have a material adverse effect on our business, financial condition and results of operations.

Labor laws in the PRC may adversely affect our results of operations.

On June 29, 2007, the PRC government promulgated the Labor Contract Law of the PRC, which became effective on January 1, 2008 and was further amended on December 28, 2012 (effective July 1, 2013). The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations. The Labor Contract Law also mandates that employers provide social welfare packages to all employees, increasing our labor costs. Under the Regulations on the Administration of Housing Fund effective in 1999, as amended in 2002, PRC companies must register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank. Both PRC companies and their employees are required to contribute to the housing funds. To the extent competitors from outside China are not affected by such requirements, we could be at a comparative disadvantage.

Moreover, our Chinese subsidiaries’ practices do not strictly comply with Labor Contract Law, even though these practices are very common and popular in many labor-intensive companies of China. We are not paying social insurance for most of our employees and have not made a contribution to the housing accumulation fund. If a regulatory agency determined that our practice violated any of the labor laws and regulations, we may be required to pay additional compensation to affected employees and be subject to related fines and penalties. In addition, in July 2018, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Reform Plan of the Taxation and Collection Systems of National Taxes and Local Taxes,” which states that, effective January 1, 2019, basic pension insurance premiums, basic medical insurance premiums, unemployment insurance premiums, injury insurance premiums and maternity insurance premiums shall be levied by the tax authorities. Under the new system, tax collection is likely to be stringently administrated and enforced. There can be no assurance that we will not be required to pay all of the previously delinquent social insurance and associated administrative penalties.

Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.

China passed an Enterprise Income Tax Law (the “EIT Law”) and implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, resident enterprises pay income tax at the rate of 25% for their worldwide income while non-resident enterprises pay 20% for their income generated from China. As far as the definition of resident enterprises, according to the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise.” The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

On April 22, 2009, the State Administration of Taxation of China issued the Notification 82 Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of De Facto Management Bodies (“Notification 82”) further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notification 82 , an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if  (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management are often resident in China. A resident enterprise would have to pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders.

Baikang has a PRC individual who is our largest shareholder owning 40% of our equity interests. Although Notification 82 did not mention offshore companies incorporated by Chinese individuals, Notification 82 did mention that the facts-oriented recognition is more important than format in the case of recognizing de facto management. Therefore, it is highly likely that we will be classified as a Chinese-controlled offshore incorporated enterprise within the meaning of Notification 82, so we believe Notification 82 will likely apply to us.

As for our Hong Kong subsidiary, we do not believe that we meet some of the conditions outlined. The records of Jiaohao HK, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. Accordingly, we believe that Jiahao HK should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in Notification 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.

If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations should we derive any non-PRC sourced income in the future. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income.” Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC shareholders from transferring our shares.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.

In connection with this offering, we will become subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our company, because these parties are not always subject to our control. We are in process of implementing an anticorruption program, which prohibits the offering or giving of anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or retaining business. The anticorruption program also requires that clauses mandating compliance with our policy be included in all contracts with foreign sales agents, sales consultants and distributors and that they certify their compliance with our policy annually. It further requires that all hospitality involving promotion of sales to foreign governments and government-owned or controlled entities be in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption laws.

However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

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

In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may decide to finance our subsidiaries by means of capital contributions. These capital contributions must be registered with the Ministry of Commerce of China, or MOFCOM, or its local counterpart. Previously, for FIEs the increase of capital contribution shall be approved by MOFCOM. In 2016, the approval was changed to registration, which is much easier than approval, but the process is still not guaranteed.

We may also make loans to our PRC subsidiaries. Currently, any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are FIEs, to finance their activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE. Currently, China has a more open and tolerant attitude toward FIEs. More open rules and regulations are published in recent years to replace previous ones which are more restrictive. On March 30th, 2015, SAFE promulgated Circular 19 which is about Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises) and effective since June 1, 2015. Circular 19 has made some important changes in rules regarding the conversion of foreign exchanges to RMB, which are as follows in particular:

(1)      Instead of the payment-based exchange settlement system under previous Circular 142 and Circular 88, new rules of discretional foreign exchange settlement have been established, which means the foreign exchange capital in the capital account of foreign-invested enterprises for which the confirmation of rights and interests of monetary contribution by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks in accordance with Circular 13 as we mentioned in the comment below) has been handled can be settled at the banks based on the actual operation needs of the enterprises, and the proportion of foreign exchange which can be discretionally converted by each FIE is temporarily determined as 100% (SAFE may adjust such scale as necessary). So regulation-wise FIEs no longer needs to report the use of its RMB before or after a conversion which are required by previous Circular 142 and Circular 88.

(2)      Foreign currency-denominated capital no longer needs to be verified by an accounting firm before converting into RMB.

(3)      As stipulated in Circular 19, the use of capital by FIEs shall follow the principles of authenticity and self-use within the business scope of enterprises, shall not be used for the following purposes:

(a)       it shall not be directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by national laws and regulations;

(b)       it shall not be directly or indirectly used for investment in securities unless otherwise provided by laws and regulations;

(c)       it shall not be directly or indirectly used for granting the entrust loans in RMB (unless permitted by the scope of business), repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party; and

(d)       it shall not be used for paying the expenses related to the purchase of real estate not for self-use, except for the foreign-invested real estate enterprises.

On May 10, 2013, SAFE released Circular 21, which came into effect on May 13, 2013; also, on February 13, 2015 SAFE published Circular 13 (Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies) to update some measures stipulated in Circular 21. According to Circular 21, SAFE has significantly simplified the foreign exchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as fund remittances. Meanwhile, Circular 13 has further simplified foreign exchange administration procedures, most important among which is that SAFE delegated foreign exchange registration to the banks, meanwhile the related registration approval by SAFE has been annulled. Even with more and more open policy toward FDI and FIEs, Circulars mentioned above may still have some limit our ability to convert, transfer and use the net proceeds from this offering and any offering of additional equity securities in China, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially most of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.

We are a holding company and we rely for funding on dividend payments from our subsidiaries, which are subject to restrictions under PRC laws.

We are a holding company incorporated in the British Virgin Islands, and we operate our core businesses through our subsidiaries in the PRC. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from the PRC Subsidiaries. If the PRC Subsidiaries incur debt or losses, their ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that dividends be paid only out of the after-tax profit of the PRC Subsidiaries calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness. In addition, PRC law further imposes procedures to exchange Renminbi into foreign currencies, which process is neither automatic nor instantaneous.

Our business may be materially and adversely affected if any of the PRC Subsidiaries declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.

The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.

The PRC Subsidiaries hold certain assets that are important to our business operations. If any of the PRC Subsidiaries undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

According to the SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, effective on December 17, 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct Investment by Foreign Investors, effective May 13, 2013, if any of the PRC Subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from the SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

Changes in the value of the RMB against the U.S. dollar, Hong Kong dollar and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our Common Shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers.

Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Since almost all of our operations and assets are located in the PRC, shareholders may find it difficult to enforce a U.S. judgment against the assets of our company, our directors and executive officers.

Almost all of our operations and assets are located in the PRC. In addition, all of our executive officers and directors are non-residents of the U.S., and substantially all of the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S. or to enforce a judgment obtained in the U.S. against us or any of these persons.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct substantially all of our business through our subsidiaries in mainland China. Our operations in mainland China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value. Even so, there is still high uncertainties regarding the application of law toward foreign investments.

Basically, since 1979 when China started its reform and opening policy, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, the interpretation and enforcement of these laws and regulations involve uncertainties due to its ruling party’s political influence. As a result, laws and regulations may vary from time to time and especially some may be subject to political interpretation. So, this uncertainty may bring about laws and regulations changing toward unfavorable to foreign investment, which we do not at present.

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 matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our shares, especially if such matter cannot be addressed and resolved favorably.

Recently, U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. 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 effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and this offering. If we become the 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/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company and business operations will be severely hampered and your investment in our shares could be rendered worthless.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to penalties and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwise adversely affect us.

The SAFE promulgated the Notice on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Notice 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to material change of capitalization or structure of the PRC resident itself  (such as capital increase, capital reduction, share transfer or exchange, merger or spin off).

Of our current shareholders, one is an individual Chinese resident to whom Notice 37 applies. The remaining shareholders are enterprises, to whom Notice 37 does not apply; provided, however, that to the extent the shareholders of such enterprises are themselves Chinese residents, Notice 37 would apply to such individuals. We are aware one of our shareholders holds such shares directly and has submitted registration under Notice 37. Although such individual has promised to complete registration prior to completion of this offering, there can be no assurance such registration will be completed in a timely manner.

We have requested PRC residents whom we know hold direct or indirect interests in our company to make the necessary applications, filings and amendments as required under Notice 37 and other related rules. However, we cannot assure you that the registration will be duly and timely completed with the local SAFE branch or qualified banks. In addition, we may not be informed of the identities of all of the PRC residents holding direct or indirect interests in our company. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, 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.

Failure to comply with the Individual Foreign Exchange Rules relating to the overseas direct investment or the engagement in the issuance or trading of securities overseas by our PRC resident shareholders may subject such shareholders to fines or other liabilities.

Other than Notice 37, our ability to conduct foreign exchange activities in the PRC may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the ‘‘Individual Foreign Exchange Rules’’). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions. PRC individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.

We may not be fully informed of the identities of all our beneficial owners who are PRC residents. For example, because the investment in or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that we will know the identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over any of our future beneficial owners and we cannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures required by the Individual Foreign Exchange Rules.

It is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure by any of our PRC resident shareholders to make the required registration will subject our PRC subsidiaries to fines or legal sanctions on their operations, delay or restriction on repatriation of proceeds of this offering into the PRC, restriction on remittance of dividends or other punitive actions that would have a material adverse effect on our business, results of operations and financial condition.

China’s proposed foreign investment law may impose new burdens on our company.

On January 19, 2015, MOFCOM released the draft Foreign Investment Law for public comment (the “Draft FI Law”). The Draft FI Law proposed fundamental changes to the existing foreign investment legal regime in China. If implemented in its current status, the Draft FI Law, once effective, will require the PRC Subsidiaries to submit an annual report to the foreign investment authority. The information required by the annual report may be extensive and burdensome, such as the foreign invested company’s main products, import and export, employment, financial status, transactions with our affiliates and material disputes. If we fail to make such reporting timely or if there is any concealment in such reporting, we may be subject to fines or other regulatory sanctions.

Land-use rights policy may have material adverse effect to our operation.

China has a unique and conservative land ownership and land use policy. Land in China is owned either by the State if located in urban districts or collective units if in the rural areas (other than that owned by the State). Currently our subsidiary, Jiangsu Baikang, owns the land use rights to the land parcels on which we have built manufacturing plant and office buildings, and its subsidiaries, Baijiale and Baikang Purification, have signed the agreements with the local government to acquire the land use rights to two land parcels on which our Pizhou Industrial Park is under construction. Even after we complete our infrastructure building and obtain the title to all new and existing properties, we still do not own the land itself. Only when we own all the land use rights and buildings, will our development be sustainable. However, under PRC laws obtaining the land use rights is not an easy task and there is no guarantee that we will successively obtain the land use rights even if we have enough capitals or such land use right will not be revoked by the government in the future. In the event that we are unable to obtain or renew the land use rights in a timely manner or the land use right are revoked, we will have to face a situation of unstable development and our business operations and plans will be materially adversely affected.

If we were to lose our certification as a National High-Tech Enterprise, we could face higher tax rates than we currently pay for much of our revenues.

In July 2015, Jiangsu Baikang was approved as a National High Tech Enterprise. This certification entitles Jiangsu Baikang to a favorable corporate income tax rate of 15%, rather than the unified tax rate of 25% that Jiangsu Baikang would pay if it was not so certified. For the fiscal years ended April 30, 2018 and 2017, the total taxes payable by Jiangsu Baikang would have increased by approximately $1.8 million and $0.9 million, respectively, if Jiangsu Baikang was not certified as a National High Tech Enterprise. In September 2018, our National High Tech Enterprise status was renewed for additional three years and as a result, we are able to extend our tax benefits until 2021. In the event Jiangsu Baikang were to lose the benefit of the favorable tax rate in the future, we could see significant increases in the amount of taxes we pay, meaning that our operating results could be materially harmed, even in the absence of a decrease in our operations.

Risks Related to Our Initial Public Offering and Ownership of Our Common Shares

We are an “emerging growth company” and as a result, we cannot be certain whether the reduced reporting requirements applicable to emerging growth companies will make our Common Shares less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues reach $1.07 billion, if we issue more than $1 billion in non-convertible debt in the past three years, or if the market value of our Common Shares held by non-affiliates is $700 million as of the last business day of our most recently completed second fiscal quarter, in which case we would no longer be an emerging growth company as of the end of our fiscal year. We cannot predict if investors will find our Common Shares less attractive because we may rely on these exemptions. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and our share price may be more volatile. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company,” our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 107(b) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our Common Shares. We cannot predict if investors will find our Common Shares less attractive because we plan to rely on this exemption. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and our share price may be more volatile.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Shares may decline.

Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements as of and for the years ended April 30, 2017 and 2018, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, and other control deficiencies. One material weakness identified relates to a lack of accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements. Following the identification of the material weaknesses and control deficiencies, we have taken and plan to continue to take remedial measures. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, beginning with our 2019 annual report on Form 20-F to be filed in 2019, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation, which process is time consuming, costly, and complicated.

In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 20-F following the date on which we are no longer an “emerging growth company,” which may be up to five full years following the date of this offering. If we identify material weaknesses in our internal control over financial reporting, 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 our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financial and management resources.

Our management team lacks experience in managing a U.S.-listed public company and complying with laws applicable to such company, the failure of which may adversely affect our business, financial conditions and results of operations.

Our current management team lacks experience in managing a company publicly traded in the U.S., interacting with public company investors and complying with the increasingly complex laws pertaining to U.S.-listed public companies. Prior to the completion of this offering, we mainly operate our businesses as a private company in the PRC. As a result of this offering, our company will become subject to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the scrutiny of securities analysts and investors, and our management currently has no experience in complying with such laws, regulations and obligations. Our management team may not successfully or efficiently manage our transition to becoming a U.S.-listed public company. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial conditions and results of operations.

The requirements of being a public company may strain our resources and divert management’s attention.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results. In addition, as long as we are listed on The NASDAQ Capital Market, we are also required to file semi-annual financial statements.

We expect these new rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. While it is impossible to determine the amounts of such expenses in advance, we expect that we will incur expenses of between $500,000 and $1 million per year that we did not experience prior to commencement of this offering.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand, reputation and results of operations.

We also expect that being a public company and these rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

The market price of our Common Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The initial public offering price for our Common Shares will be determined through negotiations between the underwriters and us and may vary from the market price of our Common Shares following our initial public offering. If you purchase our Common Shares in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. We cannot assure you that the initial public offering price of our Common Shares, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our initial public offering. The market price of our Common Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have filed securities litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.

If this offering prices above the assumed price per share or if we increase the aggregate offering size with an immediately effective post-effective amendment, we could raise more funds than currently assumed. To the extent (i) we raise more money than required for the purposes explained in the section titled “Use of Proceeds” or (ii) we determine that the proposed uses set forth in that section are no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from our initial public offering. However, we will advise shareholders as required in our annual reports on Form 20-F of any changes in application of funds and will file a current report on Form 6-K to the extent we determine such changes in application must be disclosed more quickly.

Our management will have broad discretion in the application of such net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may not spend or invest these proceeds in a way with which our shareholders agree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Common Shares if the market price of our Common Shares increases.

There may not be an active, liquid trading market for our Common Shares.

Prior to this offering, there has been no public market for our Common Shares. An active trading market for our Common Shares may not develop or be sustained following this offering. You may not be able to sell your shares at the market price, if at all, if trading in our shares is not active. The initial public offering price was determined by negotiations between us and the underwriters based upon a number of factors which are described in the “Plan of Distribution” section. The initial public offering price may not be indicative of prices that will prevail in the trading market.

Investors risk loss of use of funds allocated for purchases, with no right of return, during the offering period.

We cannot assure you that all or any shares will be sold. Spartan Securities Group, Ltd., our underwriter, is offering our Common Shares on a “best efforts, minimum-maximum basis.” We have no firm commitment from anyone to purchase all or any of the Common Shares offered. If offers to purchase a minimum of ● Common Shares are not received on or before ●, escrow provisions require that all funds received be promptly refunded. If refunded, investors will receive no interest on their funds. During the offering period, investors will not have any use or right to return of the funds.

Shares eligible for future sale may adversely affect the market price of our Common Shares, as the future sale of a substantial amount of outstanding Common Shares in the public marketplace could reduce the price of our Common Shares.

The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Common Shares. An aggregate of 8,000,000 shares will be outstanding before the consummation of this offering and between ● and ● shares will be outstanding immediately after this offering, depending on whether the minimum or maximum offering is sold. All of the shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining shares will be “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See “Shares Eligible for Future Sale.”

Some of our pre-IPO shareholders will be able to sell their shares upon completion of this offering.

Holders of ●% of our outstanding shares prior to completion of this offering will not be subject to lock-up agreements. Our net tangible book value attributable to shareholders at ●, 2018 was $●, or approximately $● per Common Share outstanding as of ●, 2018. The shareholders not subject to lock-up agreements purchased their shares for prices ranging from $● to $● per share. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after ●, 2018, will be approximately $● or $● per Common Share if we complete the minimum offering, or approximately $● or $● per Common Share if we complete the maximum offering, assuming, in each case, that half of the shares are sold at 4% commission and half are sold at 6% commission. Because these shareholders have paid a lower price per share than participants in this offering, they may be more willing to accept a lower sales price than the IPO price. This fact could impact the trading price of the stock following completion of the offering, to the detriment of participants in this offering.

You will experience immediate and substantial dilution.

The initial public offering price of our shares is substantially higher than the pro forma net tangible book value per share of our Common Shares. Assuming completion of the minimum offering and the sale of half of the shares at a 4% commission and half at a 6% commission, if you purchase shares in this offering, you will incur immediate dilution of approximately $● or approximately ●% in the pro forma net tangible book value per share from the price per share that you pay for the Common Shares. Assuming completion of the maximum offering and the sale of half of the shares at a 4% commission and half at a 6% commission, if you purchase shares in this offering, you will incur immediate dilution of approximately $● or approximately ●% in the pro forma net tangible book value per share from the price per share that you pay for the Common Shares. Accordingly, if you purchase shares in this offering, you will incur immediate and substantial dilution of your investment. See “Dilution.”

We are subject to liability risks stemming from our foreign status, which could make it more difficult for investors to sue or enforce judgments against our company.

Almost all of our operations and assets are located in the PRC. In addition, all of our executive officers and directors are non-residents of the U.S., and substantially all of the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S. or to enforce a judgment obtained in the U.S. against us or any of these persons.

In addition, British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law, and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

Lastly, under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our Memorandum and Articles of Association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the Articles and Memorandum.

There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British Virgin Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s Memorandum and Articles of Association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

Our board of directors may decline to register transfers of Common Shares in certain circumstances.

Our board of directors may, in its sole discretion, decline to register any transfer of any Common Share which is not fully paid up or on which we have a lien. Our directors may also decline to register any transfer of any share unless (i) the instrument of transfer is lodged with us, accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (ii) the instrument of transfer is in respect of only one class of shares; (iii) the instrument of transfer is properly stamped, if required; (iv) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; (v) the shares conceded are free of any lien in favor of us; or (vi) a fee of such maximum sum as Nasdaq may determine to be payable, or such lesser sum as our board of directors may from time to time require, is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within one month after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.

You may be unable to present proposals before general meetings or extraordinary general meetings not called by shareholders.

British Virgin Islands law provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Articles of Association allow our shareholders holding shares representing in aggregate not less than 30% of our voting share capital in issue to requisition an extraordinary general meeting of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting.

Although our Articles of Association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders, any shareholder may submit a proposal to our Board of Directors for consideration of inclusion in a proxy statement. Advance notice of at least seven (7) calendar days is required for the convening of our annual general shareholders’ meeting and any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least one shareholder present in person or by proxy, representing not less than one-half of the total issued voting power of our company. In the event we do not have quorum at the time set for the meeting, we are required to adjourn the meeting until the following week, at which time quorum will be satisfied if shares representing at least one-third of the total issued voting power of our company are present in person or by proxy.

Special Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We do not undertake to update any of these forward-looking statements after the date of this prospectus or to conform these statements to actual results or revised expectations, other than required by the federal securities laws or other applicable laws.

Use of Proceeds

After deducting the estimated underwriting fee and offering expenses payable by us, we expect to receive net proceeds of approximately $● million from this offering if we complete the minimum offering, or approximately $● million if we complete the maximum offering, assuming we sell half of the shares at a 6% commission and half at a 4% commission. We intend to use the net proceeds of this offering as follows (as to such uses in China, after we complete the remittance process described below), and we have listed the specific uses of proceeds below. We do not expect that our priorities for fund allocation would change if the amount we raise in this offering exceeds the size of the minimum offering but is less than the maximum offering.

Approximately $● of the net proceeds (if we complete the minimum offering) and approximately $● of the net proceeds (if we complete the maximum offering) will be remitted to China before we are able to use those funds to expand our business. We are permitted under PRC laws and regulations to provide funding to Jiangsu Baikang and its two subsidiaries (the “PRC Subsidiaries”), through capital contributions or parent/subsidiary loans, subject to approvals from or registrations with relevant PRC government authorities. We plan to use the capital contribution to fund the PRC Subsidiaries. We expect that a properly submitted application will be approved in the ordinary course of business; however, we cannot guarantee such an approval will occur or be timely. If our application for a capital contribution is denied, we will use the parent/subsidiary loan method of funding the PRC Subsidiaries.

We currently anticipate financing our subsidiaries by means of capital contributions. We currently anticipate using a portion of the net proceeds from this offering (total net proceeds of approximately $● million if we complete the maximum offering) to increase the registered capital of the PRC Subsidiaries. The increase in registered capital will require (i) registration with MOFCOM to increase the PRC Subsidiaries’ registered capital, (ii) registration with SAIC to alter the PRC Subsidiaries’ business certificate to reflect the increase in registered capital and (iii) approval from SAFE to allow the PRC Subsidiaries’ bank to convert U.S. dollars into RMB in order to fund such increased registered capital, or each of the foregoing agencies’ respective local counterparts. This approval process typically takes 30 to 90 days in total, and sometimes longer, from the time MOFCOM or its local branches receive all the required application documents to begin the process.

We plan to remit money to China using the capital contribution method. The registration with MOFCOM is the key step in the capital contribution process, and we believe all other approvals are ministerial if MOFCOM registers such increase in registered capital. We have not initiated this process but intend to start the process immediately upon completion of the offering. We do not foresee any problem receiving necessary government approvals for a capital contribution. If we fund the PRC Subsidiaries through a capital contribution, the amount of our contribution is subject to increasing our registered capital, as described above, and applying to change the approved investment amount is not required.

Pending use of the net proceeds, we intend to invest our net proceeds in short-term, interest bearing, investment-grade obligations. These investments may have a material adverse effect on the U.S. federal income tax consequences of an investment in our Common Shares. It is possible that we may become a passive foreign investment company for U.S. federal income taxpayers, which could result in negative tax consequences to you. These consequences are discussed in more detail in “Material Tax Considerations.”

The foregoing represents our current intentions with respect of the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds of this offering. The occurrence of unforeseen events or changed business conditions may result in application of the proceeds of this offering in a manner other than as described in this prospectus.

Dividend Policy

We have not declared or paid any cash dividends in the last two years. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.

Under British Virgin Islands law, we may only pay dividends from surplus (the excess, if any, at the time of the determination of the total assets of our company over the sum of our liabilities, as shown in our books of account, plus our capital), and we must be solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value of assets of our company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital.

If we determine to pay dividends on any of our Common Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, Jiahao HK. Current PRC regulations permit the PRC Subsidiaries to pay dividends to Jiahao HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

In addition, pursuant to the EIT Law and its implementation rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries are subject to withholding tax at a rate of 10% unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from operations in China may be used to pay dividends to our company. The PRC Subsidiaries may go to a licensed bank to remit their after-tax profits out of China. Nevertheless, the bank will require the PRC Subsidiaries to produce the following documents for verification before they may transfer the dividends to an overseas bank account of their parent company, Jiahao HK, or indirect parent, Baikang: (1) tax payment statement and tax return; (2) auditor’s report issued by a Chinese certified public accounting firm confirming the availability of profits and dividends for distribution in the current year; (3) the Board minutes authorizing the distribution of dividends to its shareholders; (4) the foreign exchange registration certificate issued by SAFE; (5) the capital verification report issued by a Chinese certified public accounting firm; (6) if the declared dividends will be distributed out of accumulated profits earned in prior years, the PRC Subsidiaries must appoint a Chinese certified public accounting firm to issue an auditors’ report to the bank to certify the PRC Subsidiaries’ financial position during the years from which the profits arose; and (7) other information as required by SAFE.

Exchange Rate Information

Our financial information is presented in U.S. dollars. Our functional currency is Renminbi (“RMB”), the currency of the PRC. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China at the dates of the transactions. Exchange gains and losses resulting from transactions denominated in a currency other than the RMB are included in statements of operations as foreign currency transaction gains or losses. Our financial statements have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standard No. 52, “Foreign Currency Translation,” which was subsequently codified within ASC 830, “Foreign Currency Matters”. The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity. The relevant exchange rates are listed below:

We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. We do not currently engage in currency hedging transactions.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.

As of December 4, 2018, the exchange rate is RMB 6.8430 to $1.00.

Over the past several years, the RMB has moved from a period of being tightly linked to the U.S. dollar, to a period of revaluation and strengthening against the dollar and into a second period of current relative stability.

Capitalization

The following tables set forth our capitalization as of April 30, 2018 on a pro forma as adjusted basis giving effect to the sale of the minimum and maximum offering at a public offering price of $● per share and to reflect the application of the proceeds after deducting the estimated placement fees. You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Share Capital.”

Minimum Offering (● Common Shares)
U.S. Dollars

Maximum Offering (● Common Shares)
U.S. Dollars

Dilution

If you invest in our Common Shares, your interest will be diluted to the extent of the difference between the initial public offering price per Common Share and the pro forma net tangible book value per Common Share after the offering. Dilution results from the fact that the per Common Share offering price is substantially in excess of the book value per Common Share attributable to the existing shareholders for our presently outstanding Common Shares. Our net tangible book value attributable to shareholders at April 30, 2018 was $$7.6 million or approximately $0.95 per Common Share, based on 8,000,000 Common Shares outstanding as of April 30, 2018. Net tangible book value per Common Share as of April 30, 2018 represents the amount of total assets less intangible assets, total liabilities and non-controlling interests, divided by the number of Common Shares outstanding. We present such net tangible book value per Common Share based on 8,000,000 Common Shares as of April 30, 2018.

If the minimum offering is sold, we will have ● Common Shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after April 30, 2018, will be approximately $● or $● per Common Share. This would result in dilution to investors in this offering of approximately $● per Common Share or approximately ●% from the offering price of $● per Common Share. Net tangible book value per Common Share would increase to the benefit of present shareholders by $● per share attributable to the purchase of the Common Shares by investors in this offering.

If the maximum offering is sold, we will have ● Common Shares outstanding upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after April 30, 2018, will be approximately $● or $● per Common Share. This would result in dilution to investors in this offering of approximately $● per Common Share or approximately ●% from the offering price of $● per Common Share. Net tangible book value per Common Share would increase to the benefit of present shareholders by $● per share attributable to the purchase of the Common Shares by investors in this offering.

The following table sets forth the estimated net tangible book value per Common Share after the offering and the dilution to persons purchasing Common Shares based on the foregoing minimum and maximum offering assumptions.

Post-Offering Ownership

The following chart illustrates our pro forma proportionate ownership, upon completion of the offering under alternative minimum and maximum offering assumptions, by present shareholders and investors in this offering, compared to the relative amounts paid by each. The charts reflect payment by present shareholders as of the date the consideration was received and by investors in this offering at the offering price without deduction of commissions or expenses. The charts further assume no changes in net tangible book value other than those resulting from the offering.

Operating and Financial Review and Prospects

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview of Company

We provide a variety of proprietary natural health and nutrition products derived primarily from ginkgo in China. We sell four categories of products, including (a) edible oil, (b) liquor, (c) nutraceuticals, and (d) cosmetics and household essential products. Of the products we sell, we produce edible oils, liquor and powdered drinks from our nutraceutical category. Our nutraceutical products, cosmetic products, Baijiu products and blended edible oil products accounted for 99.1%, 0.3%, 0.6% and 0% of our total sales, respectively, for the fiscal year ended April 30, 2017 and accounted for 79.6%, 5.3%, 3.7% and 11.4% of the total sales, respectively, for the fiscal year ended April 30, 2018.

Baikang Biological Group Holdings Limited (“Baikang”), formerly known as Jiahao Biological Group Holdings Limited, is a limited liability company established under the laws of the British Virgin Islands (“BVI”) on November 2, 2017 as a holding company. Mr. Jinguo Li (“Mr. Li”), Chairman of the Board and CEO of the Company, is a 40% shareholder of Baikang after transferring 4,800,000 Common Shares he owned to seven unrelated shareholders.

Jiahao International (HK) Limited (“Jiahao HK”) is an investment holding company incorporated in accordance with laws and regulations of Hong Kong on January 10, 2018. Jiahao HK is a wholly-owned subsidiary of Baikang.

Jiangsu Baikang Bio-Tech Co., Ltd. (“Jiangsu Baikang”) was incorporated on July 26, 2006 under the laws of the People’s Republic of China (“China” or “PRC”) in Pizhou, China. Jiahao HK owns 99.86% of the equity interest of Jiangsu Baikang and two minority shareholders owns the remaining 0.14% equity interest of Jiangsu Baikang.

Jiangsu Baijiale Oil Crop Co., Ltd. (“Baijiale”) was incorporated in Pizhou City, Jiangsu Province, China on December 25, 2015 and is a wholly-owned subsidiary of Jiangsu Baikang.

Jiangsu Baikang Purification Engineering Equipment Co., Ltd (“Baikang Purification”) was incorporated in Pizhou City, Jiangsu Province, China on July 8, 2016 and is a wholly-owned subsidiary of Jiangsu Baikang.

In connection with the intended Initial Public Offering (“IPO,”), we undertook a reorganization of our legal structure.. On March 19, 2018, Mr. Li first transferred his ownership interest in Jiahao HK to Baikang. On March 11, 2018, Jiahao Pharmaceutical (China-Australia) Limited (“Jiahao Australia”) transferred 99.86% of its equity interest of Jiangsu Baikang to Jiahao HK. Jiahao Australia is a privately-held Australian corporation and controlled by Mr. Li. On August 2, 2018, Mr. Li transferred his ownership in Baikang Purification and Baijiale to Jiangsu Baikang. As a result, both Baikang Purification and Baijiale became wholly owned subsidiaries of Jiangsu Baikang.

Jiangsu Baikang, Baijiale, Baikang Purification, Jiahao HK and Baikang could be considered under common control since they are in effect controlled by our largest shareholder, Mr. Li. After the Reorganization, Baikang ultimately owns 100% equity interests of Jiahao HK, which further owns 99.86% equity interest of Jiangsu Baikang, Baijiale and Baikang Purification.

We are a provider of a variety of proprietary natural health and nutrition products derived primarily from ginkgo. We are dedicated to helping people improve their health and wellness through use of our products containing different ingredients extracted from ginkgo fruits and leaves. Our business operations and product distributions are primarily conducted in the People’s Republic of China (“PRC” or “China”). We sell our products mainly through our licensed independent distributors, and to a lesser extent, to other wholesalers and individual consumers directly. We expect to expand the distribution of our products into international markets in the future through new business and distribution models.

We engage in the provision of innovative ginkgo-focused natural edible and household products. We currently offer a total of approximately 24 products, and our product offerings have evolved over our company history. Our core lines of products include the following four categories:

We manufacture some of our products at our manufacturing facility in Pizhou, Jiangsu Province, a strategically located transportation hub bordering four provinces in the east-central China. Jiangsu Province is the fifth most populous and the most densely populated of the 23 provinces in China. Currently we possess the capabilities for ginkgo blended edible oil production, Baijiu spirit infusion, encapsulation, powders, finished goods packaging, laboratory testing, warehousing and distribution. In addition to production at our Pizhou manufacturing facility, we also contract with third parties to manufacture some products that we distribute.

Our product sales traditionally have been, and are expected to continue to be, made predominately through independent distributors in China. We believe our distribution model is the best suitable method for us for the marketing and sale of our products because it leverages the resources and personal contact among our licensed independent distributors and their retail customers, without incurring significant distribution costs on us. We actively support our distributors by providing marketing materials, a well-managed fulfillment system, and ginkgo-related health and wellness educational and training programs. We also make a relatively small percentage of sales to wholesalers and individual consumers.

Factors Affecting Our Results of Operations

We operate in a highly competitive industry. Our failure to compete effectively could adversely affect our market share, revenues, and growth prospects.

The health food and dietary supplement industry is intensely competitive and highly fragmented. Participants include large scale and well-funded manufacturers and other smaller participants. We believe that the market is also highly sensitive to the introduction of new products, including the ever-growing list of new dietary supplements and health foods, which may rapidly capture a significant share of the market. Presently our business operations and product distribution are exclusively conducted in China, and we expect to expand our product sales into the international markets in the near future. In China, we compete for sales with heavily advertised national and international brands manufactured by large pharmaceutical and food companies, as well as other small manufacturers. Our competitors mainly include large Chinese nutritional supplement product manufacturers and foreign-based companies with international operations. We may not be able to compete effectively and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, revenues, and growth prospects.

We are subject to risks related to product recalls, and our operation results and financial condition would suffer if we fail to adequately manage such risks.

We have implemented measures in our manufacturing process that are designed to prevent and detect defects and contaminants in our products. Such measures, however, may not prevent, reveal or detect defects or contaminants in our products, and such defects may not become apparent until after our products have been sold into the market. Consequently, there is a risk that product defects may occur and such defects or contaminants will require a product recall. Any product recalls and related remedial actions can be costly to our operations and could have a material adverse effect on our business, results of operations and financial condition. Additionally, our third-party suppliers may be reluctant to implement these stringent measures or may refuse to manufacture our products. These additional measures may strain our relationships with those suppliers or may increase our cost of goods sold. Furthermore, product recalls could result in negative publicity and public concerns regarding the safety of our products, which could harm the reputation of our products and our business and could cause the market value of our Common Shares to decline.

The ginkgo trees cultivated by our suppliers are subject to risks related to diseases, pests, and extreme weather events.

Ginkgo trees are exposed to diseases and pests. Pests and diseases during the cultivation process may significantly decrease the quantity of the qualified ginkgo nuts provided to us, which could lead us to defaulting on our contracts with our customers by not being able to supply enough products to them in accordance with our customer contracts and thus negatively materially impact our revenues.

Global warming is increasing the frequency and severity of extreme weather events around the world. Excessive rain and typhoon activities during the pollination period may cause pollen to be removed from the ginkgo flowers. As a result, the pollen available for pollination will be decreased, and the quantity of the ginkgo fruits in the harvest season could decrease significantly. Excessive rain and typhoon activities during the ginkgo fructification period may result in a loss of ginkgo fruits on trees before they can be timely harvested. As a result, the supply of the ginkgo nuts to us may be negatively affected and the purchase cost may materially increase.

Chinese economic growth slowdown or stock market turmoil may cause negative effect to our business.

Since 2014, Chinese economic growth has been slowing down from double-digit GDP speed. The situation has impacted many industries and economic segments in China, such as restaurant, tourism and certain manufacturing industries. Our business operations in China mainly rely on health food, dietary supplements and skincare products, which are impacted by an economic downturn. If China’s economic growth continues to slow down, our products will be adversely affected due to the slow expansion or shrinkage of the food, nutrition and cosmetic products industry.

As the Chinese economy is slowing, Chinese stock market has also showed signs of tremendous turbulence in the recent years caused mostly by concerns over the economic slowdown, unsustainable corporate debt level and the changes in the regional and global geopolitical conditions. The Chinese capital market, consisting primarily of the two Chinese stock exchanges, ranks as one of the largest share markets in the world. The Chinese shares have slid into bear market territory during the first half of 2018. If the Chinese stock market continues to plummet, it will adversely affect market participants’ and general public’s liquidity and financial conditions as share trading in China is dominated by millions of retail investors. A severe decline of the Chinese stock markets could have a material adverse effect on our business, financial condition or results of operations.

Results of Operations

Years Ended April 30, 2018 and 2017

The following table summarizes the results of our operations during the fiscal years ended April 30, 2018 and 2017, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such years.

Revenues.  Revenues increased by $12.1 million, or 82.3%, to approximately $26.8 million in 2018 from approximately $14.7 million in 2017. The increase in revenue was due to the increased sales volume of existing nutraceutical products, cosmetic products and Baijiu products, and also our newly developed blended oil products in fiscal 2018 generated approximately $3.1 million revenue, which accounted for 11.4% of our total revenue in fiscal 2018.

Revenue by Product Type

Nutraceutical products

Revenue from nutraceutical products increased by $6.8 million, or 46.5%, from approximately $14.5 million in 2017 to approximately $21.3 million in 2018. The increase in revenue was mainly because we expanded our production capacity and expanded sales channels of ginkgo-related health products, which resulted in the significant increase of our sales for the key health products. In addition, we also added six new products into the nutraceutical product line in fiscal 2017. These new products was sold at a much higher unit price than the transitional products, which contributed to the increased revenue in fiscal 2018.

Cosmetic products

Revenue from cosmetic products increased by $1.4 million or 2,960.7%, from approximately $0.05 million in 2017 to approximately $1.4 million in 2018. The increase in revenue was mainly due to that we developed and sold various ginkgo-related cosmetic products, such as liquid soap, detergent, shampoo, facial masks, etc. during the year ended April 30, 2018. For the year ended April 30, 2017, we only had one product related to cosmetic product line.

Baijiu products

Revenue from Baijiu products increased by $0.9 million or 950.2%, from approximately $0.09 million in 2017 to approximately $1.0 million in 2018. The increase in revenue was mainly because we increased the promoting efforts of these newly developed ginkgo-related Baijiu products during the year ended April 30, 2018, comparing to the year ended April 30, 2017.

Blended edible oil products

Revenue from blended oil products was approximately $3.1 million for the year ended April 30, 2018. We had no such sales from blended oil products in Fiscal 2017. The ginkgo-related bended oil products showed great success since we started the sales.

Gross profit. Our gross profit increased by $8.8 million, or 76%, to approximately $20.4 million in 2018 from approximately $11.6 million in 2017. Gross profit margin was 76.3% in 2018, as compared with 78.8% in 2017. The decrease of approximately 2.5% was primarily attributable to the lower gross profit margin for our newly developed bended oil products. 

Our cost and gross profit by product types are as follows:  

Cost of goods sold for nutraceutical products increased by approximately $1.2 million from approximately $3.0 million in 2017 to approximately $4.2 million in 2018, and gross profit increased by $5.6 million from approximately $11.5 million in 2017 to approximately $17.1 million in 2018, which was in line with the increase in revenue by $6.8 million because of the significant increase of the sales volume. Accordingly, gross profit margin increased from 79.0% in 2017 to 80.3% in 2018 largely due to the higher sales margin for those new health products.

Cost of goods sold for cosmetic products increased by $270,000 from approximately $13,000 in 2017 to approximately $283,000 in 2018, which was in line with the increase in sales volume. Gross profit margin increased by 8.3%, from 71.8% in 2017 to 80.1% in 2018. The higher gross margin variance is mainly due to that we added some higher margin cosmetic products in 2018, such as liquid soap, detergent, shampoo, facial masks, etc. We only had one cosmetic product in 2017.

Cost of goods sold for Baijiu products increased by $162,000 from approximately $41,000 in 2017 to approximately $203,000 in 2018, while gross profit margin increased by 22.7% from 56.5% in 2017 to 79.2% in 2018. The higher gross margin is mainly due to the larger scale of the production in 2018, which reduced fixed costs.

Cost of goods sold for blended oil products was $1.7 million in 2018. We had no costs of sales of blended oil products in 2017 because we had so such sales in 2017. The gross margin was 45.8% in 2018. The lower profit margin of blended oil products comparing to other product lines were mainly due to that more production processes are needed for blended oil products.

Selling expenses.  Our selling expenses primarily include expenses incurred for various sales activities, advertisings, payroll and sales commission expense paid to our sales personnel as well as shipping and delivery expenses. Selling expenses increased by $417,198 or 97.8% from $426,578 in 2017 to $843,776 in 2018. As a percentage of sales, our selling expenses were 3.2% of revenues in 2018 and 2.9% in 2017. The increase in selling expenses is consistent with the increase of revenues.

General and administrative expenses.  Our general and administrative expenses primarily include employee salary, welfare and insurance expenses, depreciation and bad debt expenses as well as professional service expense. General and administrative expenses slightly decreased by $164,760 or 7.1% from approximately $2.3 million in 2017 to approximately $2.2 million in 2018, mainly due to decreased professional service fees and rent expenses in 2018. As a percentage of revenues, general and administrative expenses were 8.1% and 15.8% of our revenue in 2018 and 2017, respectively.

Research and development expenses.  Our research and development expenses increased by $47,000, or 100.9% from $47,000 in 2017 to $94,000 in 2018, representing 0.4% and 0.3% of our total revenue for 2018 and 2017, respectively. The increase was mainly due to that we developed more products in 2018. We expect R&D expense to continue to increase, as we continue to conduct research and development activities, especially seek to increase the use of ginkgo-related products to meet customer demands.

Interest expense.  Our interest expense (net) decreased by $6,000, from $72,000 in 2017 to $66,000 in 2018 due to lower interest rate in 2018 as compared to 2017. Our outstanding bank loan was approximately $0.57 million as of April 30, 2017 as compared to approximately $0.62 million as of April 30, 2018. The average interest rates for our average outstanding loan in 2018 and 2017 were 8.83% and 10.05%, respectively.

Other income (expense).  We had other income (net) of $301,000 in 2018 comparing to other expense of $27,000 in 2017. The other income in 2018 was mainly due to the government subsidy of $347,782 received. We received no government subsidy in 2017.

Income before income taxes.  Our income before income taxes was approximately $17.6 million in 2018, an increase of approximately $8.9 million compared with approximately $8.7 million in 2017. The increase was primarily attributable to increased sales and gross margin, offset by the increased selling and research and development expenses as discussed above.

Provision for income taxes.  Our provision for income taxes was $2.6 million in 2018, an increase of $1.3 million from $1.3 million in 2017. The principal business of our subsidiaries, Jiangsu Baikang, Baijiale and Baikang Purification, is performed in the PRC, therefore is subject to PRC income tax, which is computed according to the relevant laws and regulations in the PRC.

Although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the PRC, potentially overturning the decision made by the local tax authority, the Company has not experienced any reevaluation of the income taxes for prior years. Management believes that the possibility of any reevaluation of income taxes is remote based on the fact that the Company has obtained the written tax clearance from the local tax authority. Thus, no additional taxes payable have been recorded for the difference between the taxes due based on taxable income calculated according to statutory taxable income method and the taxes due based on the fixed rate method. It is the Company’s policy that if such reevaluation of income taxes becomes probable and the amount of additional taxes due can be reasonably estimated, additional taxes shall be recorded in the period in which the amount can be reasonably estimated and shall not be charged retroactively to an earlier period.

B. Liquidity and Capital Resources

We are a holding company incorporated in the British Virgin Islands. Jiahao HK, our Hong Kong organized wholly owned subsidiary, owns Jiangsu Baikang, Baijiale and Baikang Purification and their assets in China. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries (which generate revenues), to meet our obligations to date.

As of April 30, 2018, we have outstanding loans of approximately $616,060 from one bank in China. Mr. Jinguo Li, Chairman of the Board, CEO and the largest shareholder of the Company, also periodically advanced funds to support the Company’s operations when needed. These advances were non-interest bearing and due upon demand. Mr. Li and an entity controlled by him also pledged their assets as collateral and signed guarantee agreements to provide guarantee to the bank loans.

As of April 30, 2018, we had cash and cash equivalents of approximately $742,563. We did not have any other short-term investments. Our current assets were approximately $3.7 million, and our current liabilities were approximately $8.6 million, which resulted in a negative working capital of $4.9 million. Total shareholders’ equity as of April 30, 2018 was approximately $8.7 million. The reason of negative working capital is because we are funding our production facilities using cash generated from our operations.

In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future and our operating and capital expenditure commitments. We plan to fund working capital through our operations, bank borrowings and additional capital contributions from our largest shareholder. We expect to be able to refinance all of our short term loans upon maturity based on past experience and our good credit history. In addition to the current borrowings, on September 28, 2018, the Company obtained an approval from Jiangsu Rural Bank for a Line of Credit of RMB 15 million (approximately $2.2 million). The Company has not drawn from the Line of Credit as of now. Our largest shareholder, Mr. Jinguo Li, has pledged to provide personal loans whenever necessary to the Company as working capital for the next twelve months. 

The following table sets forth summary of our cash flows for the periods indicated:

Operating Activities

Net cash provided by operating activities was approximately $21.1 million in 2018, compared to cash provided by operating activities of approximately $8.8 million in 2017. The increase in net cash provided by operating activities was primarily attributable to the following factors:

Investing Activities

Net cash used in investing activities was approximately $3.6 million in 2018, as compared to net cash used in investing activities of approximately $0.8 million in 2017. The increase in net cash used in investing activities in 2018 was primarily attributable to increased payments associated with the construction in progress of our facilities in 2018.

Financing Activities

Net cash used in financing activities was approximately $17.2 million in 2018, compared to net cash used in financing activities of approximately $7.5 million in 2017. The increase in net cash used in financing activities in 2018 was primarily attributable to (1) we borrowed $592,940 from the banks in 2018 as compared to $584,051 in 2017. On the other hand, we repaid $0.6 million loans upon maturity in 2018, as compared to $0.7 million repayment in 2017, and we also repaid $17.2 million related parties loans in 2018, as compared to $7.4 million repayment in 2017.

Our primary source of cash is currently generated from the sales of our products and bank borrowings in addition to proceeds from related party borrowings. In the coming years, we will be looking to other sources, such as raising additional capital by issuing shares of stock, to meet our cash needs. While facing uncertainties in regards to the size and timing of capital raises, we are confident that we can continue to meet operational needs solely by utilizing cash flows generated from our operating activities and bank borrowings, as necessary.

Loan Facilities

As of April 30, 2018, and 2017, the details of all our short-term bank loans and bank acceptance notes payable are as follows:

Although we currently do not have any material unused sources of liquidity, giving effect to the foregoing bank loans and other financing activities, we believe that our currently available working capital should be adequate to sustain our operations at our current levels through at least the next twelve months. We will consider additional borrowing based on our working capital needs and capital expenditure requirements. There is no seasonality of our borrowing activities. 

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there was no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

Revenue recognition

Revenue from product sales is recognized when the merchandise is shipped and title is transferred. Revenue is recognized when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists (sales agreements and customer purchase orders are used to determine the existence of an arrangement); (ii) delivery of goods has occurred and risks and benefits of ownership have been transferred, which is when the goods are received by the customer at its designated location in accordance with the sales terms; (iii) the sales price is both fixed and determinable, and (iv) collectability is reasonably assured. Revenue is reported net of all value added taxes (“VAT”). The Company does not routinely permit customers to return products and historically, customer returns have been immaterial.

Research and development expenses

Research and development expenses include costs directly attributable to the conduct of research and development projects, including the cost of salaries and other employee benefits, testing expenses, consumable equipment and consulting fees. All costs associated with research and development are expensed as incurred.

Income Tax

We account for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended April 30, 2018 and 2017. All of the tax returns of the Company remain subject to examination by the tax authorities for three years from the date of filing.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standard Board (the “FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), and for all other entities, ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes.

The Company will adopt ASC 606 on May 1, 2018, using the modified retrospective method where the cumulative effect is recognized at the date of initial application. The Company has evaluated the impact of ASC 606 and has determined that fixed-price contracts, which comprise substantially all of the Company’s revenue, will most often represent a single performance obligation. The Company determined that the adoption of this new guidance will not result in a cumulative catch-up adjustment to the opening balance sheet of retained earnings at the effective date.

The FASB has issued Accounting Standards Update (ASU) No. 2018-02, “Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income.” The ASU amends ASC 220, Income Statement — Reporting Comprehensive Income, to “allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.” In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company does not believe this guidance will have a material impact on its condensed consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international tax consequences for many companies that operate internationally. The Company does not believe this guidance will have a material impact on its condensed consolidated financial statements.

On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The new standard is effective for us on January 1, 2019. Early adoption is permitted, including in interim periods, and should be applied to all new awards granted after the date of adoption. The Company does not expect this guidance will have a material impact on its condensed consolidated financial statements.

Business

Overview

We are a provider of a variety of proprietary natural health and nutrition products derived primarily from ginkgo. We are dedicated to helping people improve their health and wellness through use of our products containing different ingredients extracted from ginkgo fruits and leaves. Our business operations and product distributions are primarily conducted in the People’s Republic of China (“PRC” or “China”). We sell our products mainly through our licensed independent distributors, and to a lesser extent, to other wholesalers and individual consumers directly. We expect to expand the distribution of our products into international markets in the future through new business and distribution models.

We currently offer a total of approximately 24 products, and our product offerings have evolved over our company history. Our core lines of products include the following four categories:

We periodically refine our products and introduce new products and product categories. Our own R&D team has developed all of our products we manufacture. We hold an invention patent on ginkgo edible oil and an invention patent on ginkgo essence oil.

We manufacture some of our products at our manufacturing facility in Pizhou, Jiangsu Province, a strategically located transportation hub bordering four provinces in the east-central China. Jiangsu Province is the fifth most populous and the most densely populated of the 23 provinces in China. Currently we possess the capabilities for ginkgo blended edible oil production, Baijiu spirit infusion, encapsulation, powders, finished goods packaging, laboratory testing, warehousing and distribution. In addition to production at our Pizhou manufacturing facility, we also contract with third parties to manufacture some products that we distribute. There is no seasonality of our business.

Our product sales traditionally have been, and are expected to continue to be, made predominately through independent distributors in China. We believe our distribution model is the best suitable method for us for the marketing and sale of our products because it leverages the resources and personal contact among our licensed independent distributors and their retail customers, without incurring significant distribution costs on us. We actively support our distributors by providing marketing materials, a well-managed fulfillment system, and ginkgo-related health and wellness educational and training programs. We also make a relatively small percentage of sales to wholesalers and individual consumers.

We have achieved rapid growth since we launched our first production line in 2008, and our growth in the recent years has been especially significant. Our gross revenue increased by $12.1 million, or 82.3%, from approximately $14.7 million in fiscal year 2017 to approximately $26.8 million in fiscal year 2018. Our gross profit increased by $8.8 million, or 76%, from approximately $11.6 million in fiscal 2017 to $20.4 million in fiscal 2018. Our net income increased by $7.5 million, or 102.3%, from approximately $7.4 million in fiscal 2017 to $14.9 million in fiscal 2018.

Corporate Structure and Reorganization

Baikang Biological Group Holdings Limited (formerly Jiahao Biological Group Holdings Limited, “Baikang”) was incorporated as a British Virgin Islands company limited by shares under the BVI Business Companies Act of 2004 on November 2, 2017. Baikang was established to operate principally as a holding company. Baikang and its subsidiaries are collectively referred to as “we,” “our,” “us” or the “Company.” The authorized share capital of Baikang is US$1,000,000.00, divided into 100,000,000 Common Shares of par value US$0.01 each. In connection with the formation of Baikang, 8,000,000 Common Shares were issued to Jinguo Li, our founder, Chairman of the board of directors and Chief Executive Officer.

Jiahao International (HK) Limited (香港嘉豪国际有限公司) (“Jiahao HK”) was incorporated in Hong Kong on January 10, 2018 as a private company limited by shares. In a private company limited by shares — which is the most common way to establish a limited company in Hong Kong — the liability of members is limited by the articles of association to the amount unpaid on the shares held by such members.

Jiahao HK was first established as a holding company. The share capital of Jiahao HK is HKD 10,000, divided into 10,000 shares of HKD 1.00 each. We expect Jiahao HK will operate principally as a trading company in the near future and focus primarily on our product sales and distribution outside mainland China.

Jiangsu Baikang Bio-Tech Co., Ltd. (江苏佰康生物科技股份有限公司)(“Jiangsu Baikang”) was incorporated in China on August 10, 2006. Jiangsu Baikang was established as a ginkgo ingredient extraction and processing company and gradually transformed into a ginkgo product developer, manufacturer and marketer with diverse product offerings. Jiangsu Baikang has US$48 million in registered capital.

Jiangsu Baijiale Oil Crop Co., Ltd. (江苏佰嘉乐油脂有限公司) (“Baijiale”) was incorporated in China on December 25, 2015. Baijiale was established principally to develop and manufacture edible oil products containing ginkgo oil and peanut oil or walnut oil. Baijiale has RMB 10 million in registered capital.

Jiangsu Baikang Purification Engineering Equipment Co., Ltd. (江苏佰康净化工程设备有限公司) (“Baikang Purification”) was incorporated in China on July 8, 2016. Baikang Purification was established principally to manufacture, distribute, install and service purification equipment, and develop and promote purification equipment manufacturing technologies. Baikang Purification has RMB 10 million in registered capital.

The reorganization of the Company’s legal structure was completed in August 2018. The reorganization involved the incorporation of Baikang, a BVI holding company, and Jiahao HK, a Hong Kong holding company; a transfer of the equity interests in Jiangsu Baikang to Jiahao HK from Jiahao Pharmaceutical (China-Australia) Limited (嘉豪(中澳)药业股份有限公司) (“Jiahao Australia”); a transfer of the equity interests in Jiahao HK from our largest shareholder, Mr. Li, to Baikang; and a transfer of the equity interests in Baijiale and Baikang Purification from the largest shareholder to Jiangsu Baikang. Jiahao Australia is a privately-held Australian corporation and controlled by the largest shareholder.

In connection with the formation of Jiahao HK, all authorized 10,000 shares were issued to Shih-Chang Chen. Mr. Chen held his shares in Jiahao HK on behalf of the largest shareholder in preparation for the subsequent transfer to Baikang while Jinguo Li continued to exercise the actual control of such shares. After the interim transfer, the shares in Jiahao HK were transferred to Baikang on March 19, 2018.

Prior to the completion of the reorganization, Jiahao Australia and individual shareholders owned 99.86% and 0.14%, respectively, of the equity interests in Jiangsu Baikang, a majority foreign-owned joint venture company in PRC. In March 2018, Jiahao Australia transferred all of its equity interests to Jiahao HK such that Jiahao HK became the owner of 99.86% of the equity interests of Jiangsu Baikang and two individual shareholders hold the remaining 0.14% equity interests. On August 2, 2018, Mr. Li transferred his equity interests in Baijiale and Baikang Purification to Jiangsu Baikang. As a result, both Baijiale and Baikang Purification became wholly-owned subsidiaries of Jiangsu Baikang.

At the completion of these transactions, eight shareholders hold all of the issued and outstanding Common Shares of Baikang, and (i) Baikang holds 100% of the equity of Jiahao HK; (ii) Jiahao HK holds 99.86% of the equity of Jiangsu Baikang; and (iii) Jiangsu Baikang holds 100% of the equity of Baijiale and Baikang Purification. By virtue of these ownership relationships, Baikang is the parent, directly or indirectly, of each of Jiahao HK, Jiangsu Baikang, Baijiale and Baikang Purification, and the four entities’ financial results are consolidated with those of Baikang.

Below is a chart representing our current corporate structure:

Our registered office in the British Virgin Islands is at Vistra (BVI) Limited, Vistra Corporate Services Centre, Wickham's Cay II, Road Town, Tortola, British Virgin Islands, telephone +1 (284) 852-3810.

Our Competitive Strengths

We believe we possess the following strengths that are the keys to our past success and future growth:

Ginkgo-Focused Products and Health Science. All but a few of our products contain ginkgo ingredients. Built upon our extensive experience in producing high quality ginkgo extracts for pharmaceutical and nutraceutical companies in the early years of our operation, we utilize ginkgo-focused nutrition science and the traditional Chinese medicine theory as the bases for formulating our products. Our products focus on the health benefits of our basic ginkgo ingredients, balanced with vitamins, minerals and herbs from other types of plants.

In-House Production Capacity. We produce all of our ginkgo edible oil and ginkgo liquor, as well as ginkgo powdered drinks, all of which we consider our core products, at our operating facility in Pizhou. Among our self-produced products, ginkgo edible oil series have been recognized as a top ranking product in the ginkgo oil product segment in China’s competitive edible oil market for its advanced extraction technology and equipment, according to the ginkgo industry report published by the China Academy of Industry Economy Research (CIRN). We obtained two invention patents and a number of awards and recognition as the result of our development of the ginkgo oil products. We outsource production of dietary supplements and cosmetic products to better utilize third party manufacturers’ resources. We believe our in-house manufacturing capabilities enable us to leverage our strengths, maintain the control and enhancement of product formulas and ingredients, and optimally utilize our proprietary technology and manufacturing processes.

Effective Distribution Channels. We use a variety of distribution methods to sell our products in China. The vast majority of our sales have been made through independent distributors. We believe our distribution model is the best suitable method for us for the marketing and sale of our products because it utilizes the resources and personal contact among our licensed independent distributors and their retail customers. Such a sales model helps enhance the education of the health benefits of our products to consumers and collect feedback for us to improve our products. It is also an effective advertising channel for our products because of the distributors’ retail customer bases.

Experienced Management Team. Our management team is led by our founder, Chairman and CEO, Mr. Jinguo Li, an industry expert on ginkgo products. Mr. Li started our company and created the “Baikang” brand with the vision of building our Company into a prominent high-tech company in the health and wellness industry with diverse product offerings. Other members of our senior executive team are experienced in their areas of concentration, including manufacturing, marketing and sales, operations, financial management and cross-border business development.

Our Business Strategy

Our vision is to build our company as a health management platform focusing on health and wellness preservation and the prevention, control and medical treatment of the “three-high” chronic diseases (i.e., high blood pressure, high cholesterol and high glucose) through endogenous and episodic expansions in the mid to long term. Our objective in the mid-term for the next five years is to leverage our strengths in distribution channel and scale, science and technology, and operational management via synergistic business combinations to increase our brand value, profit-making capacity and cash flows.

Increase Existing Market Penetration, Expand into New Markets and Diversify Sales Models. We have historically focused, and expect to continue to focus, on our product distribution in the Chinese domestic market. We will increase the number of independent distributors and diversify our sales channels, as well as provide additional services and support to our independent distributors, in order to achieve a deeper market penetration. Meanwhile, we plan to expand our sales into the international markets, including the United States, in the mid-term. In addition to our offline sales through independent distributors, we will actively explore the online platform and promote sales on the leading e-commerce marketing and sales channels.

Increase Brand Recognition and Product Appeal to Broader Demographic. We believe Baikang is a well-recognized brand name in the ginkgo-based product industries in China. We expect to make additional marketing investment to increase our product and brand awareness among consumers in China. While today’s consumers may have access to a variety of information, many consumers remain inadequately informed of the potential health benefits of botanical-based food, personal care and household essential products, and ginkgo-focused health products are still unknown to most consumers. Our main customer base has been older individuals searching for healthier food and dietary supplement solutions. We plan to expand our core customer base by diversifying sales models, expanding e-commerce sales, and increasing investment in the development and distribution of products appealing to younger generations interested in a healthy lifestyle.

Substantially Increase R&D Investment, Introduce New Talents, and Further Diversify Production Offerings. Based on our current ginkgo health food and household essential products, we intend to diversify our future product offerings focusing on products with the chronic disease prevention and intervention effects. As a provider of natural health food, supplements and home essential products, we consider it important to continue to invest in the research and development of new products. We will focus our R&D efforts on new ginkgo oil product series, while continue to develop new products in the herbal liquor, herbal cosmetics and household essential product categories.

We plan to implement our mid-term operation strategy though a three-step plan. In step I, we aim our product development at new ginkgo oil series product quality enhancement and sales increase. In step II, we plan to increase recruitment of highly trained professionals and industry experts to increase our management and operational efficiency and resource utilization. Going forward, we expect to further diversify our product offerings with an emphasis on launching new function products. We may explore operational expansions through mergers and acquisitions or majority interest acquisitions of the assets with strong synergies and being compatible to our own growth strategy. In step III, we will complete the building of an integrated health management platform and achieve the transition of technicalization, management systemization, channelization and platform effect.

Our Industry

Ginkgo and Dietary Supplements

In 2017, the total sales revenue of all kinds of ginkgo drugs, ginkgo dietary supplements and ginkgo cosmetics in the world exceeded $10 billion. We are a company focused on ginkgo nuts and ginkgo leaf extract, a subset of China’s ginkgo industry. We produce and/or sell blended oil, liquor, nutraceutical products, and cosmetic products containing ginkgo ingredient. Accordingly, we provide below a brief overview of ginkgo and those elements of China’s ginkgo industry, insofar as they have an effect on the dietary supplement industry in general and our company’s business in particular, according to a news report.

Ginkgo

Ginkgo is also known as ginkgo biloba, the ginkgo tree or the maidenhair tree. The terms ginkgo biloba, ginkgo extract, or ginkgo biloba extract are often used by the public to mean ginkgo leaf extract. For purposes of this prospectus, we refer to “ginkgo” as the ginkgo tree and “ginkgo leaf extract” as the extract of ginkgo leaves.