SEC Form 20-F/A filed by Etao International Co. Ltd. (Amendment)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2 TO

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report__________

For the transition period from _________to________

Commission file number 001-41629

ETAO International Co., Ltd.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

1460 Broadway, 14^th Floor

New York, 10036, United States

(Address of principal executive offices)

Wensheng Liu

Chief Executive Officer

ETAO International Co., Ltd.

1460 Broadway, 14^th Floor

New York, 10036, United States 

Phone: +1(347) 306-5134

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of August 28, 2023, the registrant had 102,445,851 ordinary shares outstanding, which was the only class of its registered securities outstanding as of that date.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† 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.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

TABLE OF CONTENTS

Explanatory Note

INTRODUCTION

Conventions Used in this Annual Report

In this annual report, unless otherwise indicated or the context otherwise requires, references to:

Aaliance” means Aaliance Insurance Brokers Co., Ltd.

“Biohelix” means Baihui (Beijing) Biotech Co., Ltd.

“Chainworks” means Chain Workshop (Beijing) Co., Ltd.

“Changsha Zhenghe” means Changsha Zhenghe Orthopedics Hospital Co., Ltd.

“Changxing” means Changxing Zhizhou Hospital Co., Ltd.

“China” or the “PRC”, means the People’s Republic of China (including, for the avoidance of doubt, the Hong Kong Special Administrative Region and the Macau Special Administrative Region), and only in the context of describing the industry matters, and the PRC laws, rules, regulations, regulatory authorities, and any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes Taiwan, the Hong Kong Special Administrative Region and the Macau Special Administrative Region, unless otherwise specified herein;

“Consolidating VIEs” or “Consoldiated VIEs” refers to Aaliance, Biohelix, Chainworks, Changxing, DNurse, DTalks, Giuyang, Kangning, Mengzhou, Qianhu, and 6D Dental.

“Code” means the Internal Revenue Code of 1986, as amended.

“DILE” means Beijing Dile Technology Co., Ltd.

“DNurse” means Beijing Dnurse Technology Co., Ltd., a PRC company and one of the Consolidating VIEs.

“DNurse Cayman” means Dnurse Investment Co. Ltd.

“DTalks” means Zhichao Medical Technology (Hunan) Co., Ltd.

“ETAO,” “we,” “us,”, “company”, “our company,” or “our” refers to ETAO International Co., Ltd., its subsidiaries and its affiliated entities that were consolidated in the financial statements, including the Consolidated VIEs and their respective consolidated subsidiaries.

“ETAO China” refers to ETAO International Medical Technology Ltd.

“ETAO Global” means ETAO Global Holdings Ltd.

“ETAO Hong Kong” means ETAO International Group Co., Ltd.

“Guiyang” means Tianlun (Giuyang) Buyun Buyu Hospital Co., Ltd.

“Hong Kong” is to Hong Kong Special Administrative Region of China;

“Kangning” means Kang Ning (Heng Yang) Healthcare Management Co., Ltd.

“Macau” is to Macau Special Administrative Region of China;

“Mengzhou” means Civil Hospital (Mengzhou City) Co., Ltd.

“ETAO Ordinary Shares” means the ordinary shares of ETAO International Co., Ltd. a Cayman Islands exempted company.

“Subsidiaries” and “subsidiaries” shall refer to the subsidiaries of ETAO, including ETAO BVI, ETAO Hong Kong, ETAO Healthcare, Dnurse Cayman, Dnurse Holdings Co., Limited and DILE.

“VIEs” refers to Aaliance, Biohelix, Chainworks, Changsha Zhenghe, Changxing, DNurse, DTalks, Giuyang, Kangning, Mengzhou, Qianhu, and 6D Dental.

“ETAO Healthcare” refers to ETAO International Healthcare Technology Co., Ltd.

“WFOEs” shall refer to both ETAO Healthcare and DILE collectively.

“6D Dental” means Hangzhou Six Dimension Dental Medical Technology Co. Ltd.

“Ordinary shares” refer to our ordinary shares, par value US$0.0001 per share

“Renminbi” or “RMB” refers to the legal currency of China

“$,” “US$,” “dollar” or “U.S. dollar” refers to the legal currency of the United States

Our reporting and functional currency is U.S. dollar. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, 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. This annual report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of related assets and liabilities of Renminbi into U.S. dollars were made at the rate of RMB6.8972 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System in effect as of December 30, 2022, and all translations of related profit or loss and cash flow of Renminbi into U.S. dollars were made at the rate of RMB6.7290 to US$1.00, the exchange rate as set forth the annual average exchange rates for 2022 in the H.10 statistical release of the Board of Governors of the Federal Reserve System.

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about us and our industry. In some cases, these forward-looking statements can be identified by words or phrases such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “going forward,” “intend,” “ought to,” “plan,” “project,” “potential,” “seek,” “may,” “might,” “can,” “could,” “will,” “would,” “shall,” “should,” “is likely to” and the negative form of these words and other similar expressions. The forward-looking statements included in this annual report relate to, among others:

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations could later be found to be incorrect. Our actual results could be materially different from our expectations. You should thoroughly read this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This annual report contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry might not grow at the rate projected by market data, or at all. Failure of our industry to grow at the projected rate may have a material adverse effect on our business and the market price of our shares. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results could differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

ENFORCEABILITY OF CIVIL LIABILITIES

We are a Cayman Islands holding company without any material operations. The VIEs conduct all of our operations in China and substantially all of our assets are located in China. In addition, a majority of our directors and executive officers，including Biao Dai, our independent director, Tao Jin, ETAO China CEO, and Hui Wang, our Chief Financial Officer, reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult for a shareholder to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for a shareholder to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and these persons located in China.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between different jurisdictions, and PRC courts will not recognize or enforce these foreign judgments if PRC courts believe the foreign judgments violate the basic principles of PRC laws or national sovereignty, security or public interest after review. However, currently, China does not have treaties or reciprocity arrangement providing for recognition and enforcement of foreign judgments ruled by courts in the United States. Thus, we believe that it is uncertain whether and on what basis a PRC court would enforce a judgment ruled by a court in the United States. As such, there is uncertainty as to the cost and time constraints associated with seeking enforcement of such a judgement in PRC.

In addition, under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. We believe that it will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws by virtue only of holding securities, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Overview

ETAO is a holding company incorporated in the Cayman Islands with no material operations. It is not a Chinese operating company, and it conducts all of the operations in China through its subsidiaries and the VIEs. Our corporate structure involves unique risks to investors. ETAO International Group Co., Ltd., or ETAO Hong Kong, is domiciled in Hong Kong. The rest of our subsidiaries and the VIEs are domiciled in China.  The VIEs shareholders, the WFOE and the VIEs have entered into a series of contractual arrangement, which we referred to as the “VIE Agreements”. For accounting purposes, ETAO is deemed as the primary beneficiary of the consolidated VIEs’ business operations through the VIE Agreements and its ownership in the WFOE, which enables ETAO to consolidate the financial results of the consolidated VIEs into its consolidated financial statements under U.S. GAAP. Because we do not directly hold equity interests in the VIEs, we are subject to risks and uncertainties of the interpretations and applications of PRC laws and regulations, including but not limited to, regulatory review of overseas listing of PRC companies through special purpose vehicles and the validity and enforcement of the VIE Agreements. We are also subject to the risks and uncertainties about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations, and the value of our Ordinary Shares may depreciate significantly or become worthless. The VIE Agreements have not been tested in a court of law in China as of the date of this annual report. See “—D. Risk Factors—Risks Related to Our Corporate Structure,” “—D. Risk Factors—Risks Related to Doing Business in China”.

Risks Associated with our Corporate Structure and the VIE Agreements

The VIE Agreements cannot completely replicate a foreign investment in China-based companies, as neither the investors in the holding company nor the holding company itself have an equity ownership in, direct foreign investment in, or control of, through such ownership or investment, the VIEs.

Instead, the VIE Agreements provides contractual exposure to foreign investment in us. Because we do not directly hold equity interests in the VIEs, we are subject to risks and uncertainties of the interpretations and applications of PRC laws and regulations, including but not limited to, regulatory review of overseas listing of PRC companies through special purpose vehicles and the validity and enforcement of the VIE Agreements. We are also subject to the risks and uncertainties about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations, and the value of our Ordinary Shares may depreciate significantly or become worthless. The VIE Agreements have not been tested in a court of law in China as of the date of this annual report. See “—D. Risk Factors—Risks Related to Our Corporate Structure,” “—D. Risk Factors—Risks Related to Doing Business in China,” and “—D. Risk Factors—Risks Related to Our Ordinary Shares.”

For instance, the VIEs and VIEs’ shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. The VIEs’ shareholders may not act in the best interests of our Company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the VIE Agreements. In the event that the VIEs and VIEs’ shareholders fail to perform their respective obligations under the VIE Agreements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. In addition, even if legal actions are taken to enforce such arrangements, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state. See “—D. Risk Factors—Risks Related to Our Corporate Structure— ETAO’s contractual arrangements are governed by PRC law. Accordingly, these contracts would be interpreted in accordance with PRC law, and any disputes would be resolved in accordance with PRC legal procedures.”

Risks Associated with Doing Business in China

We are subject to certain legal and operational risks associated with having the majority of our operations in China, which could cause the value of our securities to significantly decline or become worthless. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and as a result these risks may result in material changes in the operations of the VIEs, significant depreciation or a complete loss of the value of our Ordinary Shares, or a complete hindrance of our ability to offer, or continue to offer, our securities to investors. Recently, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As of the date of this annual report, we, our PRC subsidiary, and the VIEs have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice, or sanction. As confirmed by our PRC counsel, we are not subject to cybersecurity review with the Cyberspace Administration of China (the “CAC”) under the Cybersecurity Review Measures that became effective on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures; we are also not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security Administration (Draft for Comments) (the “Security Administration Draft”) is enacted as proposed, since we currently do not have over one million users’ personal information and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Security Administration Draft. See “—D. Risk Factors—Risks Related to Doing Business in China— In light of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business, our listing on a US stock exchange, financial condition, results of operations, and the offering.”

Since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (i) establishing the National Anti-Monopoly Bureau; (ii) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law of the PRC (amended on June 24, 2022 and effective on August 1, 2022), the anti-monopoly guidelines for various industries, and the Detailed Rules for the Implementation of the Fair Competition Review System; and (iii) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this annual report, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our or the PRC operating entities’ ability to conduct business or our ability to accept foreign investments or issue our securities to foreign investors because neither we and our subsidiaries, nor our PRC subsidiary and the VIEs engage in monopolistic behaviors that are subject to these statements or regulatory actions.

We are subject to certain legal and operational risks associated with being based in China. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and as a result these risks may result in material changes in the operations of the VIEs and their subsidiaries, significant depreciation of the value of our ordinary shares, or a complete hindrance of our ability to conduct our business, accept foreign investments, or continue to list on a U.S. or other foreign exchange. Recently, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As of the date of this prospectus, our Company, the VIEs and their subsidiaries have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice or sanction. As of the date of this annual report, there are currently no relevant laws or regulations in the PRC that prohibit companies whose entity interests are within the PRC from listing on overseas stock exchanges. However, since these statements and regulatory actions are newly published, official guidance and related implementation rules have not been issued. It is highly uncertain what the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and our ability to continue our listing on an U.S. exchange. See “Item 3. Key Information — D. Risk Factors — Risks Related to Government Regulations — The approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval. ” and other risk factors disclosed in “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China”.

On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which came into effect on March 31, 2023. As our registration statement on Form F-1 was declared effective on March 29, 2023 and we have completed our initial public offering and listing prior to September 30, 2023, we are currently not required to complete the filing procedures pursuant to the Trial Measures. However, in the event that we undertake new offerings or fundraising activities in the future, we may be required to complete the filing procedures. See “—D. Risk Factors—Risks Related to Doing Business in China —The Opinions, the Trial Measures, and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.” Other than the foregoing, as of the date of this annual report, no relevant PRC laws or regulations in effect require that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to our offerings from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations. Since these statements and regulatory actions are newly published, however, official guidance and related implementation rules have not been issued. It is highly uncertain what the potential impact such modified or new laws and regulations will have on the daily business operations of our subsidiaries and the VIEs, our ability to accept foreign investments, and our listing on a U.S. exchange. The Standing Committee of the National People’s Congress (the “SCNPC”) or PRC regulatory authorities may in the future promulgate additional laws, regulations, or implementing rules that require us, our subsidiaries, or the VIEs to obtain regulatory approval from Chinese authorities before listing in the U.S. If we do not receive or maintain such approval, or inadvertently conclude that such approval is not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations and the value of our Ordinary Shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.

In addition, our Ordinary Shares may be prohibited from trading on a national exchange or over-the-counter under the Holding Foreign Companies Accountable Act (the “HFCA Act”) if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is unable to inspect our auditors for three consecutive years beginning in 2021. Our auditor, WWC, P.C, which is headquartered in San Mateo, California, has been inspected by the PCAOB on a regular basis. It is not subject to the determinations announced by the PCAOB on December 16, 2021. If trading in our Ordinary Shares is prohibited under the HFCA Act in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, Nasdaq may determine to delist Ordinary Shares and trading in our Ordinary Shares could be prohibited. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCA Act by requiring the U.S. Securities and Exchange Commission (the “SEC”) to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed a Statement of Protocol (the “Protocol”) governing inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — The newly enacted “Holding Foreign Companies Accountable Act” and proposed “Accelerating Holding Foreign Companies Accountable Act” both call for additional and more stringent criteria to be applied to restrictive market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our ordinary shares and if our auditors fail to permit the Public Company Accounting Oversight Board (“PCAOB”) to inspect the auditing firm, our ordinary shares may be subject to delisting”.

Our ability to pay dividends depends upon dividends paid by our subsidiaries, the VIEs and their subsidiaries. If the PRC subsidiaries or any newly formed PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, the PRC subsidiaries are permitted to pay dividends to us only out of their respective retained earnings, if any, as determined in accordance with Chinese accounting standards and regulations. Under the applicable PRC laws and regulations, the PRC subsidiaries are required to set aside a portion of their after tax profits each year to fund certain statutory reserves, and funds from such reserves may not be distributed to us as cash dividends except in the event of liquidation of such subsidiaries. These statutory limitations affect, and future covenant debt limitations might affect, the PRC subsidiaries’ ability to pay dividends to us. We have not declared or paid dividends in the past, nor any dividends or distributions were made by a subsidiary to our holding company. We do not intend to distribute dividends in the foreseeable future, but we do not have a fixed dividend policy. Our board of directors have complete discretion on whether to distribute dividends, subject to applicable laws. See “Item 3. Key Information — Our Corporate Structure — Cash Transfers and Dividend Distribution”.

Permission Required from PRC Authorities

The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies, cybersecurity, data privacy protection requirements, and similar matters. The Opinions and any related implementing rules to be enacted may subject us to compliance requirements in the future.

On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing application. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Mergers & Acquisitions and Overseas Listings.”

According to the Notice on the Administrative Arrangements for the Filing of the Overseas Securities Offering and Listing by Domestic Companies from the CSRC, or “the CSRC Notice,” the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as existing issuers (the “Existing Issuers”). Existing Issuers are not required to complete the filing procedures immediately, and they shall be required to file with the CSRC for any subsequent offerings. Further, according to the CSRC Notice, domestic companies that have obtained approval from overseas regulatory authorities or securities exchanges (for example, the effectiveness of a registration statement for offering and listing in the U.S. has been obtained) for their indirect overseas offering and listing prior to March 31, 2023 but have not yet completed their indirect overseas issuance and listing, are granted a six-month transition period from March 31, 2023 to September 30, 2023. Those that complete their indirect overseas offering and listing within such six-month period are deemed as Existing Issuers and are not required to file with the CSRC for their indirect overseas offerings and listings. Within such six-month transition period, however, if such domestic companies fail to complete their indirect overseas issuance and listing, they shall complete the filing procedures with the CSRC.

Based on the foregoing, we have completed our initial public offering and listing prior to September 30, 2023, we are currently not required to complete the filing procedures pursuant to the Trial Measures. However, in the event that we undertake new offerings or fundraising activities in the future, we may be required to complete the filing procedures.

On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions on Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing, which were issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009, or the “Provisions.” The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company, our subsidiaries, or the VIEs to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.

As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we will be able to comply with new regulatory requirements relating to our future overseas capital-raising activities and we may become subject to more stringent requirements with respect to matters such as cross-border investigation, data privacy, and enforcement of legal claims. See “—D. Risk Factors—Risks Related to Doing Business in China—The Opinions, the Trial Measures, and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.”

Other than the foregoing, as of the date of this annual report, we are not aware of any PRC laws or regulations in effect requiring that we obtain permission or approval from any PRC authorities for our subsidiaries or the VIEs’ operations and to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to our offerings from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations.

Cash and Asset Transfers Between Our Company, Our Subsidiaries, and the VIEs

As of the date of this annual report, our Company, our subsidiaries, and the VIEs have not distributed any earnings or settled any amounts owed under the VIE Agreements. Our Company, our subsidiaries, and the VIEs do not have any plan to distribute earnings or settle amounts owed under the VIE Agreements in the foreseeable future.

Our management is directly supervising cash management. Our finance department is responsible for establishing the cash management policies and procedures among our departments and the operating entities. Each department or operating entity initiates a cash request by putting forward a cash demand plan, which explains the specific amount and timing of cash requested, and submitting it to designated management members of our Company, based on the amount and the use of cash requested. The designated management member examines and approves the allocation of cash based on the sources of cash and the priorities of the needs, and submit it to the cashier specialists of our finance department for a second review. Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred nor a written policy that addresses how we will handle any limitations on cash transfers due to PRC law.

ETAO is a Cayman Islands exempted company that was formed to on June 30, 2022 as a wholly owned subsidiary of Mountain Crest Acquisition Corp. III (“MCAE”). ETAO was formed to facilitate the two-step business combination transaction between MCAE and ETAO International Group (the “Business Combination”). As the first step of the business combination transaction, on February 17, 2023, MCAE merged with and into ETAO, with ETAO surviving as the surviving corporation in such merger, thereby consummating a change in MCAE’s domicile from a Delaware corporation to a Cayman Islands exempted company (the “Redomestication Merger”). ETAO Merger Sub, Inc. (“Merger Sub”) was a Cayman Islands exempted company that was wholly owned by ETAO. The Merger Sub was formed to facilitate the two-step Business Combination. As the second step of the Business Combination, on February 17, 2023, Merger Sub merged with and into ETAO International Group, with ETAO International Group surviving as the surviving corporation in such merger, thereby consummating ETAO’s acquisition, through its Merger Sub subsidiary, of ETAO International Group (the “Acquisition Merger”).

On January 27, 2022, MCAE, ETAO, the Merger Sub and Wensehng Liu, in his capacity as the ETAO’s shareholders’ representative, entered into an Agreement and Plan of Merger (the “Merger Agreement”). On February 17, 2023, the parties consummated the Business Combination in accordance with the Merger Agreement, resulting in ETAO International Group as a wholly-owned subsidiary of ETAO.

VIEs

In addition to its plans to build and expand its medical ecosystem in the U.S. and internationally, through series of agreements with each VIE, ETAO conducts substantial operations in the PRC, primarily in the following areas: tele-medicine platforms, insurance brokerage, biotechnology research and development, and healthcare services. The following sections shall summarize each VIE’s business and the VIE agreements by and among the WFOEs, each VIE and each VIE’s shareholders.

Neither we nor our subsidiaries own any equity interest in the VIEs.

On October 11, 2023, pursuant to the terms of the Exclusive Business Cooperation Agreements, ETao Healthcare, the Company’s indirectly subsidiary in China, notified Zhichao Medical Technology (Hunan) Co., Ltd., Beijing DNurse Technology Co., Ltd., Kang Ning (Heng Yang) Healthcare Management Co., Ltd., Tianlun (Guiyang) Buyun Buyu Hospital Co., Ltd., Qianhu Medical Management (Jiangxi) Co., Ltd., Chain Workshop (Beijing) Co., Ltd., Baihui (Beijing) Biotech Co., Ltd. and each of their respective equity holders of the immediate termination of the series of VIE Agreements with them, including the Exclusive Business Cooperation Agreements, the Exclusive Option Agreements, the Share Pledge Agreements, the Timely Reporting Agreements and the Powers of Attorney. ETao Healthcare is entitled to collect the accrued and unpaid Service Fee, which is 85% of the Monthly Net Income of each disposed VIE pursuant to the term of the Exclusive Business Cooperation Agreements.

None of the seven disposed VIEs had incurred any profit and have an aggregate net loss of $7.5 million for the fiscal year ended December 31, 2022. The disposition was made for the purpose of streamlining ETAO’s business activities to focus on its core competitiveness and accelerate the integration process.

Upon termination of the above-referenced VIE agreements, ETAO’s corporate structure contains five VIEs, namely, Changsha Zhenghe Orthopaedics Hospital Co., Ltd., Changxing Zhizhou Hospital Co., Ltd., Civil Hospital (Mengzhou City) Co., Ltd., Hangzhou Six Dimension Dental Medical Technology Co. Ltd. and Alliance Insurance Brokerage Co., Ltd.

The company announced in a Form 6-K filed on February 8, 2024, that four of five the Company’s VIE Agreements were terminated as of January 25, 2024. The only remaining entity is Hangzhou 6D dental.

The following financial information of the VIE and VIE’s subsidiaries were included in the accompanying consolidated financial statements as of December 31, 2022 and December 31, 2021, and for the year ended December 31, 2022 and 2021:

Condensed consolidated Statements of Operations Information

Condensed consolidated Balance Sheets Information

Condensed Consolidated Cash Flows Information

A. [RESEVED]

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Summary of Risk Factors

Risks Related to ETAO’s Business and Industry 

ETAO’s limited operating history makes it difficult to predict ETAO’s future prospects, business and financial performance. For further detail, please see page 16.

ETAO may not be able to retain existing registered users and customers or continue to attract new users and/or customers at a level necessary to sustain or grow ETAO’s business. For further detail, please see page 17.

ETAO has incurred losses historically, and ETAO may continue to experience significant losses in the future. For further detail, please see page 17.

ETAO has recorded negative cash flows from operating activities historically and may experience significant cash outflows or has net current liabilities in the future. For further detail please see page 17.

ETAO’s key operational metrics and other estimates may not accurately measure ETAO’s operating performance. For further detail, please see page 18.

ETAO requires a significant amount of capital to fund its operations and growth. If ETAO cannot obtain sufficient capital on acceptable terms, its business, financial condition and prospects may be materially and adversely affected. For further detail, please see page 18.

ETAO’s expansion into new regions, markets and business areas may pose increased risks. For further detail, please see page 18.

ETAO faces vigorous competition. If ETAO is not able to compete effectively with others, ETAO’s business, financial condition and results of operations may be materially and adversely affected. For further detail, please see page 19.

ETAO’s success depends on the continuing efforts of its key management and capable personnel as well as its ability to recruit new talent. If ETAO fails to hire, retain or motivate ETAO’s staff, ETAO’s business may suffer. For further detail, please see page 19.

ETAO has engaged in transactions with related parties, and such transactions present potential conflicts of interest that could have an adverse effect on our business and results of operations. For further detail, please see page 19.

Growth of ETAO’s business will partially depend on the recognition of ETAO’s brand. Failure to maintain, protect and enhance ETAO’s brand would limit ETAO’s ability to expand or retain ETAO’s user base, which would materially and adversely affect ETAO’s business, financial condition and results of operations. For further detail, please see page 20.

If ETAO’s promotional and marketing plans are not effective, ETAO’s business and prospects may be negatively affected. For further detail, please see page 20.

ETAO faces risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt its operations. For further detail, please see page 21.

ETAO may not effectively identify, pursue and consummate strategic alliances, investments or acquisitions. For further detail, please see page 21.

Certain industry data and information in this 20-F were obtained from third-party sources and were not independently verified by ETAO. For further detail, please see page 21.

ETAO may not be able to adequately protect its intellectual property from unauthorized use by others. For further detail, please see page 22.

The proper functioning of ETAO’s technology is essential to ETAO’s business, and any difficulty experienced by such system would materially and adversely affect ETAO. For further detail, please see page 22.

ETAO’s business generates, processes and stores a large amount of data; the improper use or disclosure of such data by unauthorized persons could subject ETAO to significant reputational, financial, legal and operational consequences. For further detail, please see page 23.

The wide variety of payment methods that ETAO accepts subject ETAO to third-party payment processing-related risks. For further detail, please see page 23.

A severe or prolonged downturn in the PRC or global economy could materially and adversely affect ETAO’s business and ETAO’s financial condition. For further detail, please see page 24.

ETAO has limited insurance coverage for its operations. For further detail, please see page 24.

Risk Related to ETAO’s Corporate Structure

The laws of the Cayman Islands may not provide ETAO’s shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States. For further detail, please see page 25.

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders. For further detail, please see page 25.

ETAO relies on contractual arrangements with the VIEs and their shareholders for a large portion of ETAO’s business operations. These arrangements may not be as effective as direct ownership in providing operational control. Any failure by the VIEs or their shareholders to perform their obligations under such contractual arrangements would have a material and adverse effect on ETAO’s business. For further detail, please see page 25.

The shareholders of the VIEs may have actual or potential conflicts of interest with ETAO, which may materially and adversely affect ETAO’s business and financial condition. For further detail, please see page 26.

ETAO’s contractual arrangements are governed by PRC law. Accordingly, these contracts would be interpreted in accordance with PRC law, and any disputes would be resolved in accordance with PRC legal procedures. For further detail, please see page 26.

Substantial uncertainties existing with the PRC foreign investment legal regime may have a significant impact on ETAO’s corporate structure and business operations. For further detail, please see page 27.

Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that ETAO or the VIEs owe additional taxes, which could negatively affect ETAO’s financial condition and the value of your investment. For further detail, please see page 27.

ETAO may lose the ability to use, or otherwise benefit from, the licenses, approvals and assets held by the VIEs, which could severely disrupt its business, render us unable to conduct some or all of its business operations and constrain its growth. For further detail, please see page 28.

ETAO is subject to significant challenges and risks involved in the VIE Arrangements and enforcing the VIE Agreements. For further detail, please see page 28.

Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of the operations and financial condition. For further detail, please see page 29.

Draft rules for China-based companies seeking for securities offerings in foreign stock markets was released by the CSRC for public consultation. While such rules have not yet come into effect, the Chinese government may exert more oversight and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to conduct our business, accept foreign investments, or continue to list on a U.S. or other foreign exchange and could cause the value of our common stock to significantly decline or become worthless. For further detail, please see page 29.

Because our business is dependent upon government policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair our ability to operate profitably, if at all. For further detail, please see page 31.

PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably. Changes and uncertainty in PRC laws and interpretation may materially and adversely affect our business performance and impede the operations in China. For further detail, please see page 31.

Risks Related to our Intellectual Property and Potential Litigation

If we are unable to obtain, maintain and enforce intellectual property protection for our technology or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize technology substantially similar to ours, and our ability to successfully commercialize our technology may be adversely affected. For further detail, please see page 31.

Third parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations. For further detail, please see page 33.

We have been and may in the future become subject to litigation or regulatory investigation, which could harm our business. For further detail, please see page 33.

Risks Related to Doing Business In China

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on ETAO’s business and operations. For further detail, please see page 34.

Uncertainties with respect to the PRC legal system could adversely affect us, the rules and regulations in China can change quickly with little advance notice, the Chinese government may intervene or influence ETAO’s operations at any time, and such uncertainties materially and adversely affect our business and impede our ability to continue our operations in China and the value of your shares. For further detail, please see page 35.

Regulation and censorship of information disseminated over the internet in China may adversely affect ETAO’s business and reputation and subject MCAE to liability for information displayed on ETAO’s website. For further detail, please see page 35.

Fluctuations in exchange rates could have a material and adverse effect on ETAO’s results of operations and the value of your investment. For further detail, please see page 36.

Any lack of requisite approvals, licenses or permits applicable to ETAO’s business may have a material and adverse impact on ETAO’s business, financial condition and results of operations. For further detail, please see page 36.

ETAO’s operations depend on the performance of the mobile based systems, telecommunications networks and digital infrastructure in China. For further detail, please see page 37.

Governmental control of currency conversion and the ability to transfer cash may limit ETAO’s ability to utilize ETAO’s net revenue effectively and affect the value of your investment. For further detail, please see page 37.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject ETAO’s PRC resident beneficial owners or ETAO’s PRC subsidiaries to liability or penalties, limit ETAO’s ability to inject capital into ETAO’s PRC subsidiaries, limit ETAO’s PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us. For further detail, please see page 39.

ETAO faces uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies. For further detail, please see page 40.

Certain PRC regulations may make it more difficult for ETAO to pursue growth through acquisitions. For further detail, please see page 41.

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or ETAO to fines and other legal or administrative sanctions. For further detail, please see page 42.

ETAO may be subject to liability for placing advertisements with content that is deemed inappropriate or misleading under PRC laws. For further detail, please see page 42.

ETAO’s employment practices may be adversely impacted under the labor contract law of the PRC. For further detail, please see page 43.

ETAO may be subject to additional contributions of social insurance and housing fund and late payments and fines imposed by relevant governmental authorities. For further detail, please see page 43.

If ETAO is classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to ETAO and its non-PRC shareholders. For further detail, please see page 43.

The newly enacted “Holding Foreign Companies Accountable Act” and proposed “Accelerating Holding Foreign Companies Accountable Act” both call for additional and more stringent criteria to be applied to restrictive market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our common stock and if our auditors fail to permit the Public Company Accounting Oversight Board (“PCAOB”) to inspect the auditing firm, our common stock may be subject to delisting. For further detail, please see page 44.

Risks Related to Government Regulations

Recent Regulatory Developments. For further detail, please see page 45.

Our business is subject to complex and evolving Chinese and international laws and regulations, including those regarding data privacy and cybersecurity. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, penalties, changes to our business practices, increased cost of operations, damages to our reputation and brand, or declines in user growth or engagement, or otherwise harm our business. For further detail, please see page 47.

The approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval. For further detail, please see page 51.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from any Chinese authority to list our ordinary shares on a US stock exchange. However, if we were required to obtain any type of securities listing approval from the PRC government in the future and were denied such permission, we would not be able to continue listing on Nasdaq or offering securities to investors, and therefore our share price would significantly depreciate. For further detail, please see page 51.

In light of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business, our listing on a US stock exchange, financial condition, results of operations, and the offering. For further detail, please see page 52.

The Holding Foreign Companies Accountable Act. For further detail, please see page 53.

Risks related to Healthcare Laws and Regulation

We depend substantially on the success of the clinical development of our medicines and drug candidates. If we are unable to successfully complete clinical development, obtain regulatory approvals and commercialize our medicines and drug candidates, or experience significant delays in doing so, our business will be materially harmed. For further detail, please see page 54.

Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. For further detail, please see page 54.

We have limited experience in launching and marketing our internally developed and in-licensed medicines. If we are unable to further develop marketing and sales capabilities or enter into agreements with third parties to market and sell our medicines, we may not be able to generate substantial product sales revenue. For further detail, please see page 54.

Risks Factors Relating to the Insurance Industry

Because Aaliance Insurance’s industry is heavily regulated, any material changes in the regulatory environment could change the competitive landscape of our industry or require Aaliance Insurance to change the way it does business. The administration, interpretation and enforcement of the laws and regulations currently applicable to Insurance Law of the People’s Republic of China” “Regulations on the Supervision of Insurance Brokers” could change rapidly. If we fail to comply with applicable laws and regulations, we may be subject to civil and criminal penalties or lose our privilege to conduct insurance business, which could materially and adversely affect our business and results of operations. For further detail, please see page 55.

If Aaliance Insurance’s largest insurance company partners terminate or change the material terms of their contracts, it would be difficult for Aaliance Insurance to replace the lost commissions, which could adversely affect its business and operating results. For further detail, please see page 55.

Because the commission revenue Aaliance Insurance earns on the sale of insurance products is based on premiums and commissions and fee rates set by insurance companies, any decrease in these premiums, commission or fee rates may have an adverse effect on the results of operation. For further detail, please see page 56.

Competition in the insurance industry is intense and, if Aaliance Insurance is unable to compete effectively, it may lose customers and its financial results may be negatively affected. For further detail, please see page 56.

Quarterly and annual variations in Aaliance Insurance’s commission and fee revenue may have unexpected impacts on its results of operations. For further detail, please see page 56.

If Aaliance Insurance’s contracts with insurance companies are terminated or changed, its business and operating results could be adversely affected. For further detail, please see page 56.

Risks Related to ETAO’s Business and Industry

Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refer to ETAO, its subsidiaries and the eleven VIEs prior to the consummation of the Business Combination.

ETAO’s limited operating history makes it difficult to predict ETAO’s future prospects, business and financial performance.

ETAO formed on June 30, 2022 under the laws of the Cayman Islands. ETAO’s operating entities provide telemedicine, hospital care, primary care, pharmacy and health insurance covering all life stages of patients. ETAO’s short operating history may not serve as an adequate basis for evaluating ETAO’s prospects and future operating results, including ETAO’s key operating data, net revenue, cash flows and operating margins. In addition, the telehealth industry in China is at a relatively early stage of development and will continue to evolve. As a result, you may not be able to fully discern the market dynamics that ETAO is subject to and to assess ETAO’s business prospects.

ETAO has encountered, and may continue to encounter, risks, challenges and uncertainties frequently experienced by companies at an early stage, including those relating to ETAO’s ability to adapt to the industry, to create and maintain ETAO’s proposed comprehensive ecosystem of telemedicine, online insurance and pharmacy, biotech, and offline hospitals or specialty clinics. If ETAO is unable to successfully address these risks and uncertainties, ETAO’s business, financial condition and results of operations could be materially and adversely affected.

ETAO may not be able to retain existing registered users and customers or continue to attract new users and/or customers at a level necessary to sustain or grow ETAO’s business.

ETAO’s assets comprised of telemedicine and digital businesses constitute an important part of its net revenue, and ETAO depends on the enlargement of its user and customer base to build the ETAO ecosystem. Any failure to attract existing users or customers or bring new users or customers in adequate numbers or at adequate rates would materially and adversely affect ETAO’s business. To sustain ETAO’s growth, ETAO endeavors to retain ETAO’s existing members and continually add new customers to maintain or improve ETAO’s financial performance.

Because the telemedicine industry is relatively new and rapidly evolving, ETAO faces uncertainties and challenges in maintaining and growing its customer base. A significant number of ETAO’s existing and target customers consists of individuals who prefer cost-effective online medical care to expensive offline medical facilities. These members frequently have limited budgets and are more vulnerable to adverse economic conditions and unfavorable changes in the regulatory environment. If these users experience economic hardship, they may be unwilling or unable to use ETAO’s services, which would reduce demand for ETAO’s services, increase customer attrition and adversely affect ETAO’s business, financial condition and results of operations. In addition, ETAO may lose users or customers due to adverse changes in general economic conditions or the regulatory environment in the regions in which ETAO operates or the areas in which ETAO’s users and customers live and work.

Even if ETAO attracts new users and customers, these new users and customers may not maintain the same level of use of ETAO’s services and products For example, they may not use or continue to use app/services/hospitals.

ETAO has incurred losses historically, and ETAO may continue to experience significant losses in the future.

ETAO has incurred net losses since its inception in August 2020. For the years ended December 31, 2022 and 2021 ETAO incurred net loss 10.6 million and $896.7 million, respectively, ETAO expects that these costs and investments will [increase/decrease- described reason and purpose].   These expenditures may make it difficult for ETAO to achieve profitability, and ETAO cannot predict whether ETAO will achieve profitability in the near term or at all. Furthermore, the costs actually incurred could exceed its expectations, and the investments may be unsuccessful and therefore cannot generate adequate revenue and cash flow, if any at all.

ETAO has recorded negative cash flows from operating activities historically and may experience significant cash outflows or has net current liabilities in the future.

ETAO has experienced significant cash outflow from operating activities historically. ETAO had net cash used in operating activities of $0.3 million and net cash provided by operating activities $10.8 million for the years of 2021 and 2022, respectively. The cost of continuing operations could further reduce ETAO’s cash position, and an increase in ETAO’s net cash outflow from operating activities could adversely affect ETAO’s operations by reducing the amount of cash available for ETAO’s operations and business expansion.

Failure to generate positive cash flow from operations may adversely affect ETAO’s ability to raise capital for ETAO’s business on reasonable terms, if at all. It may also diminish the willingness of members or other parties to enter into transactions with ETAO, and have other adverse effects that harm ETAO’s long-term viability.

ETAO had net current liabilities of $38.5 and $34.4 million as of December 31, 2021, and December 31, 2022, respectively. Net current liabilities expose ETAO to liquidity risk. ETAO has satisfied its liquidity requirements primarily through equity financing activities and short-term/long-term borrowings. Such financing might not be available to ETAO in a timely manner or on terms that are acceptable, or at all.

ETAO’s business will require significant amount of working capital to support its growth. ETAO’s future liquidity and ability to make additional capital investments will depend primarily on its ability to maintain sufficient cash generated from operating activities and to obtain adequate external financing. There can be no assurance that ETAO will be able to renew existing bank facilities or obtain equity or other sources of financing.

ETAO’s key operational metrics and other estimates may not accurately measure ETAO’s operating performance.

ETAO continually reviews key operational metrics using established measures such as number of staff-to-patient ratio, room turnover rate, readmission rate, average length of stay, average patient wait time to measure its performance at its hospitals and clinics to make strategic decisions. These metrics are calculated using internal data and may not be indicative of ETAO’s future operating performance. While these numbers are based on what ETAO believes to be reasonable estimates for the applicable period of measurement, there are inherent challenges in doing so. For example, these metrics may be skewed by an uptick in COVID-19 cases where resources at medical institutions may be directed to treat COVID-19 cases, thereby decreasing patient demand and supply for non-COVID-19 related medical services (e.g., elective surgeries). If that were to occur, ETAO’s hospital and clinic operational metrics would not accurately reflect ETAO’s operating performance.

As well as ETAO builds out its virtualized services model, these metrics, established for an earlier generation of healthcare services, may not accurately measure the synergies and efficiencies created by the virtualized services. ETAO is currently developing more appropriate operational metrics for its ecosystem.

ETAO requires a significant amount of capital to fund its operations and growth. If ETAO cannot obtain sufficient capital on acceptable terms, its business, financial condition and prospects may be materially and adversely affected.

ETAO requires a significant amount of capital and resources for its operations and continued growth. ETAO expects to make significant investments in the expansion and operations, which may significantly increase ETAO’s net cash used in operating activities. ETAO’s sales and marketing expenses may also continue to increase in order to keep attracting members and to attract new members. In addition, ETAO invests heavily in its technology systems, which are essential to ETAO’s expansion and operations. It may take a long time to realize returns on such investments, if at all.

To date, ETAO has historically funded its cash requirements primarily through capital contributions from its shareholders and short-term or long-term borrowings. If these resources are insufficient to satisfy ETAO’s cash requirements, ETAO may seek to raise funds through additional equity offerings or debt financing or additional bank facilities. ETAO’s ability to obtain additional capital in the future, however, is subject to a number of uncertainties, including those relating to its future business development, financial condition and results of operations, general market conditions for financing activities by companies in its industry, and macro-economic and other conditions in China and globally. If ETAO cannot obtain sufficient capital on acceptable terms to meet its capital needs, ETAO may not be able to execute its growth strategies, and ETAO’s business, financial condition and prospects may be materially and adversely affected.

ETAO’s expansion into new regions, markets and business areas may pose increased risks.

ETAO also plans to expand operations in China and overseas markets. Additionally, in order to provide superior services to its users and customers, ETAO intends to grow via a buy and build model, whereby investments are made in our existing operating entities while simultaneously making opportunistic acquisitions in high-growth market segments This expansion will incur significant costs, and it inherently involves uncertainties and risks as ETAO may encounter unexpected issues or situations for which ETAO is unprepared.

As ETAO’s business expands into new regions, ETAO plans to invest substantial resources and may face new operational risks and challenges associated with the business, economic and regulatory environment with which ETAO is not familiar. ETAO will be required, among other things, to understand and comply with the local regulations, to partner with local businesses or individuals, to hire, train, manage and retain local workforce, and to cope with members or potential members who have different preferences. Additionally, in launching in a new region, ETAO needs to negotiate satisfactory terms with local parties, to adapt the design and features of ETAO’s digital assets and services to accommodate local conventions, and to adjust ETAO’s pricing and marketing approaches as per factors such as local rental prices. All these adjustments ETAO makes may be ineffective and adversely affect ETAO’s business. For example, for the years of 2020 and 2021, ETAO recorded impairment loss on long-lived assets respectively. ETAO’s strategy of overseas expansion will further subject it, for instance, to different cultural norms and business practice, risks relating to fluctuations in currency exchange rates, and unpredictable disruptions as a result of security threats or political or social unrest and economic instability.

ETAO faces vigorous competition. If ETAO is not able to compete effectively with others, ETAO’s business, financial condition and results of operations may be materially and adversely affected.

The Chinese digital healthcare space is still in a relatively early stage of development with numerous opportunities. If new companies launch competing solutions in the markets in which ETAO operates, ETAO may face increased competition for members. ETAO’s existing competitors include global players, up-and-coming local companies and traditional workspace operators such as Teladoc Health, Waterdrop, Inc., and Hygeia. Some of ETAO’s competitors may have more resources, operate in more jurisdictions and be able to provide a better member experience at a more competitive price. ETAO may face heightened competition under certain operation models. For example, ETAO’s competitor may charge lower fees and ETAO may lose the client due to pricing or be forced to lower its fees. Further our competitors may have better developed technology and relationships with insurance companies. ETAO’s inability to compete effectively in securing new or repeat businesses could hinder its growth or adversely impact its operating results.

In addition, some of the services ETAO provides or plans to provide are served by companies established in their markets. Failure to compete in such services markets could damage ETAO’s ability to cultivate the vibrant community ETAO seeks to build.

ETAO’s success depends on the continuing efforts of its key management and capable personnel as well as its ability to recruit new talent. If ETAO fails to hire, retain or motivate ETAO’s staff, ETAO’s business may suffer.

ETAO’s future success depends in a large part on the continued service of ETAO’s key management. If ETAO loses the services of any member of ETAO’s key management, ETAO may not be able to hire suitable or qualified replacements, and may incur additional expenses to recruit and train new staff which could severely disrupt ETAO’s business and growth. If any member of ETAO’s key management joins a competitor or forms a competing business, ETAO may lose customers, know-how and key professionals and staff members.

ETAO’s rapid growth also requires it to continually hire, train, and retain a wide range of personnel that can adapt to a dynamic, competitive and challenging business environment and are capable of helping us conduct effective marketing, innovate new products and service offerings, and develop technological capabilities. ETAO may need to offer attractive compensation and other benefits package, including share-based compensation, to attract and retain them. ETAO also needs to provide ETAO’s employees with sufficient training to help them realize their career development and grow with ETAO. Any failure to attract, train, retain or motivate experienced and capable personnel could severely disrupt ETAO’s business and growth.

ETAO has engaged in transactions with related parties, and such transactions present potential conflicts of interest that could have an adverse effect on our business and results of operations.