Baird Medical Investment Warrant -28

Company Overview

Business Model: Baird Medical Investment Holdings Limited is a leading developer and provider of microwave ablation (MWA) medical devices in the People's Republic of China (PRC), specializing in minimally invasive treatments for benign and malignant tumors, including thyroid nodules, liver cancer, lung cancer, and breast lumps. The Company's core value proposition lies in offering proprietary medical devices that are designed to be safer, less invasive, and easier to operate, with faster recovery periods and lower complication rates compared to traditional treatments. Revenue is primarily generated from the design, development, manufacturing, and sale of these proprietary MWA medical devices, which include MWA therapeutic apparatus and MWA needles. In 2024, 100.0% of total revenue was derived from MWA devices, a significant increase from 89.1% in 2022, reflecting a strategic focus shift away from the distribution of other medical devices (which accounted for nil revenue in 2024, down from 10.9% in 2022). The Company also develops the system and monitoring software embedded in its MWA therapeutic apparatus, holding 28 registered software copyrights.

Market Position: Baird Medical Investment Holdings Limited holds a strong competitive position within the highly concentrated medical technology industry in China. According to the Frost & Sullivan Report, the Company ranked first among MWA medical device providers in the treatment of thyroid nodules and breast lumps in the PRC in terms of sales revenue and sales volume of MWA needles in 2022. Furthermore, it was the third largest MWA medical device provider in the PRC by sales revenue in 2022, operating in a market where the top four manufacturers collectively accounted for approximately 88.4% of sales. The Company distinguishes itself as the first to have proprietary MWA medical devices specifically approved for the treatment of thyroid nodules registered as Class III medical devices in China, providing a first-mover advantage.

Recent Strategic Developments:

• Business Combination: Completed a business combination with ExcelFin Acquisition Corp. on October 1, 2024, accounted for as a reverse recapitalization.
• Product Portfolio Expansion: Focused on developing additional MWA medical devices to meet market demand, with a pipeline of five product types. Plans to expand indications on its Class III medical device registration certificate to include breast lumps, pulmonary nodules, varicose veins, bone tumors, and uterine fibroids by 2026.
• Regulatory Approvals: Obtained FDA and Indonesia Drug Administration approvals for soft tissue ablation for its MWA apparatus and needles. Secured multiple Class III medical device registration certificates in China for MWA therapeutic apparatus (February 6, 2023) and various MWA needles (February 6, 2023, July 13, 2023, December 4, 2023, March 19, 2024). Also obtained a Class II registration certificate for disposable sterile biopsy needles (August 30, 2023).
• Strategic Investments: Received a PIPE investment of $2.9 million from Grand Fortune Capital (H.K.) Company Limited for 290,000 Series A convertible preferred shares concurrently with the Business Combination closing.
• R&D Focus: Intensifying efforts in research and development, including the future development of AI surgical machines and other minimally invasive medical devices for surgical procedures.

Geographic Footprint: Baird Medical Investment Holdings Limited conducts its operations primarily through its wholly-owned PRC subsidiaries in China, where substantially all of its revenue is generated and all of its long-lived assets are located. The Company's products are sold to hospitals across 24 provinces, municipalities, and autonomous regions in China. In 2024, its products were procured by approximately 579 hospitals, including approximately 310 Grade III hospitals (the highest tier). The Company has also established eight local sales representatives in the United States and collaborates with reputable higher education institutions in the United States, indicating an intent to establish a global market presence.

Cross-Border Operations: The Company operates under a holding company structure, with Baird Medical Investment Holdings Limited incorporated in the Cayman Islands. Its principal subsidiaries include Tycoon Choice Global Limited (British Virgin Islands), Baide Medical Investment Company Limited (Hong Kong), and numerous operating subsidiaries in the PRC. Additionally, it has US subsidiaries including Baird Medical LLC, Betters Medical NewCo, LLC, and ExcelFin Acquisition Corp. While there were no cash or asset transfers within the organization in 2022, 2023, and 2024, the Company's ability to transfer cash or assets between its entities, particularly from its PRC subsidiaries, is subject to PRC laws and regulations, including those governing foreign exchange and dividend distributions. The Company's MWA apparatus and needles have received approvals from the FDA and Indonesia Drug Administration for soft tissue ablation, facilitating international market access.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 88.2% (2024)
• Operating Margin: 41.4% (2024)
• Net Margin: 34.0% (2024)

Investment in Growth:

• R&D Expenditure: $6.2 million (16.7% of revenue) in 2024, an increase from $4.3 million (13.6% of revenue) in 2023.
• Capital Expenditures: $2.9 million in 2024, primarily for the purchase of R&D equipment.
• Strategic Investments: A PIPE investment of $2.9 million from Grand Fortune Capital (H.K.) Company Limited for Series A convertible preferred shares was paid concurrently with the Business Combination closing.

Currency Impact Analysis:

• Foreign exchange impact on earnings: The Company reported foreign currency translation adjustments resulting in a loss of $1.1 million in 2024, compared to a loss of $0.7 million in 2023.
• Hedging strategies and effectiveness: The Company has not entered into any material hedging transactions to reduce its exposure to foreign currency exchange risk.
• Functional currency considerations: The functional currency for the Company's PRC operations is Renminbi (RMB), while the reporting currency is U.S. dollars. Fluctuations in the RMB/USD exchange rate can affect reported financial results.

Business Segment Analysis

Sales of MWA and Other Medical Devices

Financial Performance:

• Revenue: $37.0 million (+17.7% YoY) in 2024, $31.5 million (-10.4% YoY) in 2023, and $35.1 million in 2022.
• Operating Margin: 41.4% in 2024, 37.6% in 2023, and 38.8% in 2022.
• Key Growth Drivers: In 2024, revenue growth was primarily driven by an increase in sales volume of MWA needles and MWA therapeutic apparatus, strategic adjustments in the unit prices of MWA therapeutic apparatus, and the acquisition of Class III medical device certificates for MWA needles. The significant increase in MWA therapeutic apparatus revenue in 2023 (537% YoY) was attributed to strategic price adjustments and increased sales orders, as the Company transitioned away from discounted prices and benefited from its Class III certification. This growth in MWA products in 2023 partially offset a decrease in MWA needle sales volume and a substantial decline in sales of other medical devices.

Product Portfolio:

• Major product lines and services within segment:
  • Microwave Ablation Needles: Non-reusable consumables, with approximately 200,000 single-use needles sold to date.
  • Microwave Therapeutic Apparatus: Five proprietary models, with over 1,300 units sold to date. The Company develops the embedded system and monitoring software, holding 28 registered software copyrights.
  • Other Medical Devices: Historically included distribution of catheters, ventilators, operation tables, medical gloves, syringes, and large medical machines and systems. Sales in this category have significantly decreased, accounting for nil revenue in 2024.
• New product launches or major updates: The Company has five types of pipeline products and aims to expand indications on its Class III medical device registration certificate to include breast lumps, pulmonary nodules, varicose veins, bone tumors, and uterine fibroids by 2026.

Market Dynamics:

• Competitive positioning within segment: The Company is the third largest MWA medical device provider in the PRC by sales revenue in 2022, with a 19.0% market share. It holds a first-mover advantage as the first company to have proprietary MWA medical devices specifically approved for thyroid nodules registered as Class III medical devices in China. The market is highly concentrated, with the top four MWA manufacturers accounting for approximately 88.4% of sales in 2022. Key competitors include ECO Medical, Vison Medical, and Canyon Medical.
• Key customer types and regional market trends: Customers primarily include Grade II and Grade III hospitals across 24 provinces, municipalities, and autonomous regions in China. The number of hospitals procuring products increased from approximately 430 in 2022 to 579 in 2024, with Grade III hospitals increasing from approximately 250 to 310 over the same period.
• Regulatory environment by jurisdiction: Medical devices in China are classified into Class I, II, and III based on risk, requiring local filing or provincial/national registration (NMPA). Registration certificates have a five-year term. The Company's products are included in medical insurance reimbursement lists in ten provinces in China.

Geographic Revenue Distribution:

• China: $37.0 million (100% of segment revenue in 2024).
• Growth Markets: The Company is expanding its sales network within China and is establishing a presence in the global market, evidenced by eight local sales representatives in the United States and collaborations with U.S. higher education institutions.

International Operations & Geographic Analysis

Revenue by Geography:

International Business Structure:

• Subsidiaries:
  • Baird Medical Investment Holdings Limited (Cayman Islands - holding company)
  • Tycoon Choice Global Limited (British Virgin Islands - wholly-owned subsidiary)
  • Baide Medical Investment Company Limited (Hong Kong - wholly-owned subsidiary of Tycoon Choice Global Limited)
  • Numerous PRC subsidiaries (e.g., Baide (Guangdong) Capital Management Company Limited, Nanjing Changcheng Medical Equipment Company Limited, Baide (Suzhou) Medical Company Limited, etc.)
  • US subsidiaries: Baird Medical LLC (Delaware), Betters Medical NewCo, LLC (Delaware), ExcelFin Acquisition Corp. (Delaware).
• Joint Ventures: Not explicitly disclosed in the filing.
• Licensing Agreements: Not explicitly disclosed in the filing.

Cross-Border Trade:

• Export Markets: The Company's MWA apparatus and needles have received approvals from the FDA and Indonesia Drug Administration for soft tissue ablation, indicating potential for export to these markets. The Company aims to establish a presence and increase sales in the global market.
• Import Dependencies: All raw materials for the Company's production of MWA medical devices are procured from suppliers in China.
• Transfer Pricing: The Company acknowledges transfer pricing as a risk in its international tax strategy, particularly regarding inter-company transactions and policies.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: Not disclosed in the filing.
• Dividend Payments: Baird Medical Investment Holdings Limited has not declared or paid any dividends and has no present plans to pay cash dividends in the foreseeable future, intending to retain most available funds and future earnings for business expansion. Series A convertible preferred shares issued to Grand Fortune Capital (H.K.) Company Limited and Wu Wenyuan are entitled to a 7% annual dividend, payable only if the Company's reported EBITDA for the year exceeds the calculated dividends.
• Dividend Yield: Not applicable, as no dividends have been paid.
• Future Capital Return Commitments: Not disclosed in the filing.

Balance Sheet Position:

• Cash and Equivalents: $3.0 million as of December 31, 2024, up from $1.5 million as of December 31, 2023.
• Total Debt: Approximately $20.5 million as of December 31, 2024, comprising $16.2 million in short-term bank loans, $0.9 million in current portion of long-term loans, and $3.4 million in non-current long-term loans. This is an increase from approximately $10.6 million in total debt as of December 31, 2023.
• Net Cash Position: Approximately -$17.5 million as of December 31, 2024, indicating a net debt position.
• Credit Rating: Not disclosed in the filing.
• Debt Maturity Profile: Short-term bank loans mature within one year. A long-term financial liability from a sale and leaseback agreement matures in September 2026, with quarterly payments. Long-term bank borrowings mature in December 2027.

Cash Flow Generation:

• Operating Cash Flow: -$6.3 million in 2024, compared to -$1.0 million in 2023 and $0.5 million in 2022.
• Free Cash Flow: Not explicitly calculated in the filing.
• Cash Conversion Metrics: Not explicitly disclosed in the filing.

Currency Management:

• Cash holdings by major currencies: Cash and cash equivalents are typically unsecured and concentrated in a few major financial institutions located in China, implying a significant portion is held in Renminbi.
• Natural hedging through operational diversification: Not explicitly disclosed in the filing.
• Financial hedging instruments and strategies: The Company has not entered into any material hedging transactions to reduce its exposure to foreign currency exchange risk.

Operational Excellence

Production & Service Model: Baird Medical Investment Holdings Limited's production process for MWA medical devices involves several stages: procurement and inspection of components from third parties, in-house or contracted third-party component processing, manual assembly and welding, third-party sterilization using ethylene oxide technology, and product testing on animal organs to ensure proper functioning. Quality inspections are conducted after each key step, with semi-finished products returned or scrapped if flaws are detected. The Company's in-house production team consisted of 51 members as of December 31, 2024. For direct sales and sales through deliverers, the Company is responsible for after-sales services, including technical support and customer services.

Global Supply Chain Architecture: Key Suppliers & Partners:

• Direct Materials: All raw materials for MWA medical devices (e.g., metal, needles, plastic handles, coaxial cable, peristaltic pumps, monitors, computer components) are procured from suppliers in China.
• Supplier Concentration: In 2024, three suppliers accounted for 34.7%, 30.3%, and 10.1% of the Company's total purchase of inventories and equipment, respectively. In 2023, four suppliers contributed more than 10% of total cost of revenues.
• Contractual Terms: Supply agreements typically have a one-year term and are renewable.
• Sterilization Services: Outsourced to third-party service providers.

Facility Network:

• Manufacturing: Operates two leased manufacturing plants in Nanjing, China, with an aggregate floor area of approximately 6,502 square meters.
• Research & Development: Maintains an in-house R&D team of 30 members as of December 31, 2024, led by its chief technical officer, Mr. Rongjian Lu. Collaborates with external partners such as Nanjing Forestry University and Zhuhai People’s Hospital.
• Distribution: Leverages a network of qualified deliverers and third-party distributors across China.

Operational Metrics:

• Inventory Turnover Days: 102 days in 2024, 104 days in 2023, and 109 days in 2022.
• Number of Hospitals Procuring Products: Increased from approximately 430 in 2022 to 579 in 2024.
• Number of Grade III Hospitals: Increased from approximately 250 in 2022 to 310 in 2023 and remained stable at 310 in 2024.
• Single-use MWA Needles Sold: Approximately 200,000 units as of the filing date.
• MWA Therapeutic Apparatus Units Sold: Over 1,300 units as of the filing date.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: The Company directly markets products and manages tender submissions to hospitals, receiving direct orders and payments. This channel accounted for $19.8 million in revenue in 2024.
• Channel Partners (Deliverers): Engages qualified deliverers, often state-owned or publicly traded companies with extensive distribution networks, primarily for logistics. Hospitals place orders and make payments to deliverers, who then remit payment to the Company after deducting service fees. This channel generated $16.8 million in revenue in 2024.
• Channel Partners (Distributors): Utilizes third-party distributors, typically small and medium-sized businesses with large customer bases, for marketing and selling products to hospitals. Distributors place orders directly with the Company and are considered its direct customers. This channel contributed $17.2 million in revenue in 2024.
• Digital Platforms: Not explicitly disclosed in the filing.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: The Company's customer base primarily consists of Grade II and Grade III hospitals across 24 provinces, municipalities, and autonomous regions in China. The number of hospitals procuring products increased from approximately 430 in 2022 to 579 in 2024, with Grade III hospitals increasing from approximately 250 in 2022 to 310 in 2024.
• Customer Concentration: In 2024, the four largest customers (two deliverers and two distributors) accounted for 25.6%, 14.4%, 11.6%, and 10.2% of total revenue, respectively. In 2023, the two largest customers accounted for 14.3% and 10.4% of total revenue. In 2022, one customer accounted for 10.3% of total revenue.

Regional Market Penetration:

• China: The Company has a strong market penetration in China, with products sold to 579 hospitals in 2024.
• Growth Markets: The Company is actively expanding its sales and distribution network within China and has established eight local sales representatives in the United States, indicating efforts to penetrate international markets.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics: The medical technology industry, particularly the microwave ablation medical device sector in China, is characterized by intense competition and rapid technological change. The market exhibits high concentration, with the top four MWA manufacturers accounting for approximately 88.4% of sales in China in 2022. Microwave ablation treatments are positioned as minimally invasive, offering advantages such as improved safety, reduced invasiveness, ease of operation, faster recovery, and lower complication rates compared to traditional methods. These treatments are also noted for their potential to prevent cancer progression from benign to malignant tumors.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• ECO Medical: A primary competitor in China, holding Class III medical device registration certificates for MWA used in the treatment of liver cancer and thyroid nodules.
• Vison Medical: A primary competitor in China, holding a Class III medical device registration certificate for MWA used in the treatment of liver cancer.
• Canyon Medical: A primary competitor in China, holding Class III medical device registration certificates for MWA used in the treatment of liver cancer and thyroid nodules.

Regional Competitive Dynamics: Competition in the MWA medical device industry is multifaceted, driven by factors such as product quality and functionality, clinical outcomes, pricing strategies, sales and marketing capabilities, supply chain efficiency, brand recognition, research and development prowess, technical and manufacturing capabilities, human resources, and technical training support. New entrants face significant market barriers, including high research and development and technical hurdles, a lengthy commercialization process, and challenges in establishing brand recognition and sales channels.

Risk Assessment Framework

Strategic & Market Risks

• Global Market Dynamics: The Company's business is highly susceptible to economic, political, and social conditions in China, as well as global economic slowdowns. Changes in government policies, trade policies (e.g., US-China tariffs), and measures to control inflation or deflation could materially impact demand for its products and overall financial performance.
• Technology Disruption: Operating in a rapidly evolving and competitive medical technology field, the Company faces risks from new breakthroughs, treatments, or technologies that could render its MWA products obsolete. Failure to timely develop or successfully market new or improved products in response to market changes could adversely affect its market share and profitability.
• Customer Concentration: The Company faces significant customer concentration risk, with its four largest customers accounting for 25.6%, 14.4%, 11.6%, and 10.2% of total revenue in 2024. A decrease in orders from these key customers or an inability to identify suitable replacements could materially impact its business.

Operational & Execution Risks

• Global Supply Chain Vulnerabilities: The Company relies on third-party suppliers for all raw materials, all of which are procured in China. Any disruption in production, inability to obtain sufficient quantities or acceptable quality of materials, or increases in raw material costs could impair manufacturing and adversely affect business operations.
• Regional Disruptions: Operations are vulnerable to natural disasters (e.g., fires, floods, earthquakes), epidemics (e.g., COVID-19), acts of war or terrorism, and other factors beyond its control, particularly in China.
• Regulatory Approval & Compliance: The Company faces risks related to obtaining, maintaining, and renewing regulatory filings and registration certificates for its medical devices from the National Medical Products Administration (NMPA) in China. Delays or failures in product registration testing or clinical trials, or non-compliance with manufacturing and operation licenses (as evidenced by a past lapse in a manufacturing license resulting in fines), could prevent commercialization and significantly impact its business.
• Distribution Network Management: The Company has limited control over the operations and actions of its deliverers and distributors. Violations of agreements, sales guidelines, or applicable laws (e.g., anti-corruption) by these partners or their sub-distributors could harm the Company's business, reputation, and financial performance.
• Product Quality & Liability: The inherent risks in designing, manufacturing, and marketing medical devices expose the Company to potential product liability claims due to quality defects or safety issues. The Company does not maintain product liability insurance, which could lead to substantial costs and adverse financial impact in the event of claims.
• Intellectual Property: The Company's success depends on protecting its intellectual property (IP) rights, including 54 registered patents and 18 pending applications in China. Risks include potential infringement or misappropriation by third parties, challenges to patent validity, and disputes with R&D partners over jointly developed IP.
• Information Technology: Increasing dependence on sophisticated IT systems for products and infrastructure exposes the Company to risks of service interruptions, security breaches, cyber-attacks, and data loss, which could harm its business and reputation.
• Labor & Personnel: Future success depends on retaining key management and attracting/retaining qualified personnel. Labor shortages, increased labor costs, or labor disputes could significantly impact operating costs and business operations.
• Manufacturing Facilities: All manufacturing facilities are leased. Risks include potential lease terminations, challenges from third parties, urban renewal, or non-renewal upon expiration, which could lead to unexpected and significant relocation costs and operational disruptions.

Financial & Regulatory Risks

• Currency & Financial Risks: Fluctuations in the value of the Renminbi against the U.S. dollar can materially affect reported financial results. Limited hedging options in China and restrictions on RMB convertibility exacerbate foreign exchange risk. The Company may require significant additional capital for future growth, which may not be available on acceptable terms, potentially leading to dilution or restrictive debt covenants.
• Regulatory & Compliance Risks (China-specific):
  • Governmental Control: The PRC government has significant authority to intervene in or influence the Company's operations, and changes in laws, regulations, or policies can occur quickly and unpredictably.
  • Data Security: Greater oversight by the Cyberspace Administration of China (CAC) over data security, particularly for companies seeking foreign listings, could impose stricter requirements (e.g., cybersecurity reviews for platforms with over one million users, cross-border data transfer assessments), increasing compliance costs or hindering capital raising.
  • Overseas Listing Regulations: The China Securities Regulatory Commission (CSRC) requires filing procedures for overseas securities offerings and listings by PRC domestic companies, which could be time-consuming and subject to uncertainties, potentially limiting future fundraising.
  • Taxation: The Company's PRC subsidiaries benefit from preferential tax treatments (e.g., 15% rate for High and New Technology Enterprises, R&D Super Deduction). Discontinuation or reduction of these benefits could reduce profitability. There is also a risk of being treated as a PRC resident enterprise for tax purposes, potentially subjecting dividends and gains for foreign investors to PRC tax.
  • HFCAA: Trading in the Company's securities on U.S. exchanges may be prohibited under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to inspect its auditors for two consecutive years, leading to delisting risk.
  • Labor Regulations: Non-compliance with PRC Labor Contract Law and social insurance/housing provident fund contribution requirements could result in penalties and increased costs.
  • Anti-Corruption: Risks of commercial bribery under the Anti-Unfair Competition Law.
  • Environmental Compliance: Failure to comply with environmental, health, and safety laws and regulations could result in fines or operational disruptions.
  • Centralized Procurement: Potential for price decreases if the Company's products become subject to China's centralized procurement pilot programs.
  • Two-Invoice System: Potential impact on distribution model if products are classified as high-value medical consumables in more regions.

Geopolitical & External Risks

• Country-Specific Risks: The Company's substantial operations in China expose it to risks related to political stability, economic instability, and regulatory changes specific to the PRC.
• Economic Risk: Global and Chinese economic slowdowns, as well as inflationary pressures, could adversely affect demand for medical devices and increase operating costs.

Innovation & Technology Leadership

Research & Development Focus: Global R&D Network: Baird Medical Investment Holdings Limited places significant emphasis on research and development, supported by an in-house R&D team of 30 members as of December 31, 2024, led by its chief technical officer, Mr. Rongjian Lu. The Company actively collaborates with external research partners, including Nanjing Forestry University and Zhuhai People’s Hospital, to gain insights into unmet clinical needs and user preferences. Innovation Pipeline: The Company has a pipeline of five types of products under development. Its strategic focus includes expanding the indications for its Class III medical device registration certificates to encompass breast lumps, pulmonary nodules, varicose veins, bone tumors, and uterine fibroids, with an expected completion by 2026. A key future initiative is the development of AI surgical machines and other minimally invasive medical devices for surgical procedures. R&D Expenditure: The Company's investment in R&D has been increasing, with expenditures of $6.2 million in 2024 (16.7% of revenue), $4.3 million in 2023 (13.6% of revenue), and $3.9 million in 2022 (11.0% of revenue).

Intellectual Property Portfolio:

• Patent Strategy: As of December 31, 2024, the Company possessed 54 registered patents in China, either as sole owner or co-owner, and had 18 additional patent applications pending in China. The Company's internal policies mandate confidentiality and non-competition obligations for employees to protect proprietary technologies.
• Licensing Programs: Not explicitly disclosed in the filing.
• IP Litigation: The Company is not aware of any material infringement of others' intellectual property rights by its operations. However, it acknowledges potential risks of claims from R&D partners or third parties regarding jointly developed intellectual property, particularly for agreements that do not explicitly define ownership.

Technology Partnerships:

• Strategic Alliances: The Company maintains strategic alliances and research collaborations with academic and medical institutions, including Nanjing Forestry University and Zhuhai People’s Hospital, to inform product design and solicit feedback.

Leadership & Governance

Executive Leadership Team

Board Composition: The board of directors consists of seven directors: Haimei Wu, Wei Hou, Quan Qiu, Joseph Douglas Ragan III, Michael Mingzhao Xing, Lijian Xu, and Gabrielle Bilciu-Wolfson. Four of these directors (Joseph Douglas Ragan III, Michael Mingzhao Xing, Lijian Xu, and Gabrielle Bilciu-Wolfson) are independent under Nasdaq Stock Market Rules.

• Audit Committee: Composed of Prof. Mingzhao Xing (Michael), Mr. Lijian Xu, and Ms. Gabrielle Bilciu-Wolfson (Chairwoman). Ms. Bilciu-Wolfson is designated as an "audit committee financial expert." All members are independent.
• Compensation Committee: Composed of Prof. Mingzhao Xing (Michael) (Chairman), Mr. Lijian Xu, and Ms. Gabrielle Bilciu-Wolfson. All members are independent.
• Nominating and Corporate Governance Committee: Composed of Prof. Mingzhao Xing (Michael), Mr. Lijian Xu (Chairperson), and Ms. Gabrielle Bilciu-Wolfson. All members are independent. As a Cayman Islands company listed on Nasdaq, the Company is permitted to follow certain home country corporate governance practices that may differ from Nasdaq standards, such as not being required to have a majority independent board or hold annual shareholder meetings.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments:

• People's Republic of China (PRC): The Company's operations are subject to a comprehensive and evolving regulatory framework for medical devices, including the 2021 Medical Device Regulations, Measures for Medical Devices Registration and Filing, and Measures for the Supervision and Administration of Medical Devices Production (2022). These regulations govern product classification (Class I, II, III), registration, manufacturing, quality management, clinical trials, and operational licenses. The Company's products are included in medical insurance reimbursement lists in ten provinces. Other relevant laws include the Anti-Unfair Competition Law, Production Safety Law, Occupational Disease Prevention Law, Product Quality Law, Environmental Protection Law, Foreign Investment Law, and Labor Contract Law. The Company is also subject to the Unique Medical Device Identification (UDI) System for Class III devices.
• United States: The Company's MWA apparatus and needles have received FDA approval for soft tissue ablation. As a public company, it is subject to SEC reporting requirements and Nasdaq listing standards.
• Indonesia: The Company's MWA apparatus and needles have received approval from the Indonesia Drug Administration for soft tissue ablation.
• Cayman Islands: Governed by the Companies Act (As Revised) for corporate affairs.
• British Virgin Islands: Subsidiaries incorporated here are exempt from income tax.
• Hong Kong: Subsidiaries incorporated here are subject to Hong Kong profits tax.

Cross-Border Compliance:

• Export Controls: The Company acknowledges risks related to export controls and trade restrictions.
• Sanctions Compliance: Not explicitly detailed in the filing.
• Anti-Corruption: The Company is exposed to risks of fraud, bribery, or other misconduct by employees, deliverers, distributors, customers, or suppliers, and maintains internal control policies to mitigate these.

International Tax Strategy:

• Transfer Pricing: The Company acknowledges transfer pricing as a risk, particularly regarding inter-company transactions and policies.
• Tax Treaties: The Company notes uncertainties regarding whether non-PRC shareholders can claim benefits of income tax treaties if the Company is deemed a PRC resident enterprise.
• BEPS Compliance: Not explicitly detailed in the filing.

Environmental & Social Impact

Global Sustainability Strategy: Not explicitly detailed in the filing.

Environmental Commitments: Not explicitly detailed in the filing.

Regional Sustainability Initiatives:

• China: The Company is subject to and complies with PRC environmental laws and regulations, including the Environmental Protection Law, Prevention and Control of Water Pollution Law, Prevention and Control of Environmental Pollution Caused by Solid Wastes, and Prevention and Treatment of Atmospheric Pollution. A past non-compliance event related to the management ledger of industrial solid waste at its Nanjing Plant and Taicang Plant was rectified, and no penalties were imposed.
• Supply Chain: Not explicitly detailed in the filing.

Social Impact by Region:

• Community Investment: Not explicitly detailed in the filing.
• Labor Standards: The Company complies with PRC labor laws and regulations, including the Labor Law of PRC, Labor Contract Law, and regulations on social security and housing funds. It participates in various statutory employee benefit plans (pension, medical, unemployment, work-related injury, maternity insurance, and housing provident fund) for its employees in China.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure:

Hedging Strategies:

• Transaction Hedging: Not explicitly detailed in the filing.
• Translation Hedging: Not explicitly detailed in the filing.
• Economic Hedging: Not explicitly detailed in the filing.
• The Company has not entered into any material hedging transactions to reduce its exposure to foreign currency exchange risk.
• Functional Currency: The functional currency for the Company's PRC subsidiaries is Renminbi, while the reporting currency is U.S. dollars. This exposes the Company to foreign currency translation adjustments, which resulted in a loss of $1.1 million in 2024.