Regencell Bioscience Holdings Ltd [RGC] Filings

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended June 30, 2023

OR

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

For the transition period from ____________to ____________

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

Commission file number: 001-40617

REGENCELL BIOSCIENCE HOLDINGS LIMITED

(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)

9/F Chinachem Leighton Plaza

29 Leighton Road

Causeway Bay, Hong Kong

Tel: 852 2155 0823

(Address of principal executive offices)

Yat-Gai Au

Chief Executive Officer

9/F Chinachem Leighton Plaza

29 Leighton Road

Causeway Bay, Hong Kong

Tel: 852 2155 0823

(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 June 30, 2023, the issuer had 13,012,866 ordinary shares issued and outstanding.

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

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

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

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

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

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

† 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. Yes ☐ No ☒

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 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

INTRODUCTION

Unless otherwise indicated, numerical figures included in this Annual Report on Form 20-F (the “Annual Report”) have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

For the sake of clarity, this Annual Report follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. Certain market data and other statistical information contained in this Annual Report are based on information from independent industry organizations, publications, surveys and forecasts. Some market data and statistical information contained in this Annual Report are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources listed above. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source.

Unless otherwise indicated or the context requires otherwise, references in this Annual Report to:

We listed our Ordinary Shares on the Nasdaq Capital Market under the symbol “RGC” on July 16, 2021.

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

A. Reserved

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report. Investment in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this Annual Report before making an investment decision. The risks and uncertainties described below represent our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, you may lose all or part of your investment.

Risks Related to Our Financial Position and Need for Capital

We are an early-stage TCM bioscience company with a limited operating history.

We are an early-stage TCM bioscience company with a limited operating history that focuses on the research, development and commercialization of TCM for the treatment of neurocognitive disorders and degenerations, specifically Attention Deficit Hyperactivity Disorder (“ADHD”) and Autism Spectrum Disorder (“ASD”), and infectious diseases affecting people’s immune system such as COVID-19 (“COVID”). We have incurred operating losses since our formation. We incurred total net losses of $6.06 million and $7.59 million, respectively, for the fiscal years ended June 30, 2023 and 2022. The likelihood of success of our business plan and growth strategy must be considered in light of the problems, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate.

Accordingly, you should consider our annual report in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially early-stage bioscience research companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that we cannot assure you that we will be able to, among other things:

If we cannot successfully execute any one of the foregoing, our business may fail and your investment will be adversely affected.

We have not generated revenue from any TCM formulae candidates or applied for any regulatory approvals, nor have distribution capabilities or experience or any granted patents or pending patent applications and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. As of the date of this Annual Report, we have not applied for any regulatory approvals, we have no granted or pending patent applications and we have no distribution capabilities or experience, and we have not generated any revenue from our development stage TCM formulae candidates and we do not know when, or if, we will generate any such revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval of our standardized TCM formulae candidates, produce and commercialize products based on such TCM formulae. Our ability to generate future revenue from sales of products based on our TCM formulae depends heavily on our success in many areas, including but not limited to:

We have limited sources of working capital and will need substantial additional financing.

The working capital required to implement our business plan will most likely be provided by funds obtained through offerings of our equity, debt, debt-linked securities, and/or equity-linked securities, and, in the future, revenues generated by us. No assurance can be given that we will have revenues sufficient to sustain our operations or that we would be able to obtain equity/debt financing in the current economic environment. If we do not have sufficient working capital or raise additional funds, we may delay the completion of or significantly reduce the scope of our current business plan; delay some of our research and development; postpone the hiring of new personnel; or, under certain dire financial circumstances, substantially curtail or cease our operations.

Our inability to obtain sufficient additional financing would have a material adverse effect on our ability to implement our business plan and, as a result, could require us to significantly curtail or potentially cease our operations. Our ability to complete additional financings is dependent on, among other things, the state of the capital markets at the time of any proposed offering, market reception of our company and the likelihood of the success of our business model and offering terms. There is no assurance that we will be able to obtain any such additional capital through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and to support our operations. If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations and the value of our Ordinary Shares and Ordinary Share equivalents would be materially negatively impacted and we may cease our operations.

Risks Related to Our Product Development, Regulatory Approval, Manufacturing and Commercialization

Our standardized TCM formulae candidates for mild, moderate and severe ADHD and ASD patients are still in development. If we are unable to obtain regulatory approval or ultimately commercialize our standardized TCM formulae and/or products based on our TCM formulae, or if we experience significant delays in doing so, our business, financial condition, results of operations, and prospects will be materially and adversely affected.

Currently, three standardized TCM formulae candidates for mild, moderate and severe ADHD and ASD patients are under research and development. None of the formulae candidates are currently in the process of the regulatory approval and commercialization. Our ability to generate revenues from our standardized TCM formulae candidates are dependent on the completion of our research and development, receipt of regulatory approval and successfully commercializing products based on such formulae, which may never occur. Each of our TCM formulae candidates will require additional research and development, regulatory approval in Hong Kong and other jurisdictions where we plan to sell, development of manufacturing supply and capacity, substantial investment, and significant marketing efforts before we generate any revenue from product sales. The success of our three standardized TCM formulae candidates for mild, moderate and severe patients will depend on several factors, including the following:

The success of our business is highly dependent upon our ability to develop and commercialize our standardized TCM formulae candidates for ADHD and ASD, of which research studies are currently on-going. As a result, our business is substantially dependent on our ability to complete the research and development of, obtain regulatory approval for, and successfully commercialize our standardized liquid-based TCM formulae treatment and other TCM formulae candidates for ADHD and ASD patients in a timely manner.

We cannot commercialize standardized TCM formulae candidates in Hong Kong, where we intend to launch our first standardized TCM formulae and products, without first obtaining regulatory approval from authorities concerned in Hong Kong. The process to develop, obtain regulatory approval for, and commercialize standardized TCM formulae candidates is long, complex, and costly and approval may not be granted. Obtaining regulatory approval in one jurisdiction does not mean that regulatory approval will be obtained in any other jurisdiction. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. No assurance can be given that we can obtain regulatory approval in Hong Kong, even if our TCM formulae candidates, which to be proved its efficiency, were to successfully obtain approval from the Hong Kong Chinese Medicines Board, we would still need to seek approval in other jurisdictions where we plan to market the product. Any safety issues, product recalls, or other incidents related to products approved and marketed in one jurisdiction may impact the approval of those products by another jurisdiction. If we are unable to obtain regulatory approval for our standardized TCM formulae candidates in one or more jurisdictions, or any approval contains significant limitations imposed on certain standardized TCM formulae candidates, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of our TCM formulae candidates or any other TCM formulae candidates that we may acquire or develop in the future.

Our research and development of TCM formulae candidates is at an early stage of development and all of our TCM formulae candidates may require significant interactions with regulatory authorities and investments before their respective commercial launches. If we are unable to advance our TCM formulae candidates to final development, meet regulatory requirements, including obtaining regulatory approval, where applicable, or ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.

Our research and development of TCM formulae is at an early stage and will require significant investment and regulatory approvals prior to commercialization. Each of our TCM formulae candidates will require additional research and development, obtaining regulatory approval, such as obtaining manufacturing supply, substantial investment and significant marketing efforts before it generates any revenue from product sales. We are not permitted to market or promote any of our standardized TCM formulae candidates before our receipt of regulatory approval from the Hong Kong Chinese Medicines Board, or comparable regulatory authorities, and we may never receive such regulatory approval for any such standardized TCM formulae candidates.

The success of our product candidates will depend on several factors, including but not limited to the following:

We cannot be certain that research and development of any of our TCM formulae candidates will be successful or that we will obtain regulatory approval or be able to successfully commercialize any product based on our TCM formulae and generate revenue. Success in our research studies does not ensure that application of regulatory approval will be successful. Our research studies may fail to demonstrate that our TCM formulae candidates are safe and effective for their proposed uses. Any such failure could cause us to abandon further development of any one or more of our TCM formulae candidates and may delay development of other TCM formulae candidates. Any delay in, or termination of, our development will delay and possibly preclude the filing with regulatory authorities and, ultimately, our ability to commercialize the TCM formulae candidates and generate revenue.

Although the assessment tools for the assessment of ADHD and ASD are globally recognized, the outcome of our efficacy trial may be subject to some biases of parents and caregivers of patients because we relied on the data provided by them.

The assessment tools we used in our efficacy trial include (i) Sik-Kee Au TCM Brain Theory® for ADHD/ASD Assessment (SKATBT-A³), which is a 48-item questionnaire developed by our research and development team, designed to assess patients’ conditions that are commonly observed by the TCM Practitioner. Items assessed are indicative of patients’ overall body and neurological conditions based on the TCM Practitioner’s brain theory and his over 30 years of experience in treating ADHD and ASD patients; (ii) Autism Treatment Evaluation Checklist (ATEC); (iii) Gilliam Autism Rating Scale (GARS); (iv) Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS); and (v) Swanson, Nolan, and Pelham (SNAP)-IV 26-item Parent Rating Scale (SNAP-IV-26). Most of these assessment tools are globally recognized and accepted methods of scoring severity levels of ADHD and ASD patients.

We believe that these assessment tools serve a useful purpose in helping us evaluate the effectiveness of our TCM formulae candidates. Based on the results of these assessments, we are then able to identify additional TCM formulae candidates, direct our resources efficiently, and provide data support for our future applications of proprietary Chinese medicine (“pCm”) registrations with the Hong Kong Chinese Medicine Council.

Notwithstanding the foregoing, we rely on parents or caregivers of patients to provide us with initial data which we cannot guarantee the accuracy. If the parents and caregivers of enrolled ADHD and ASD patients fail to observe and record accurately, then we will not only fail to realize any benefits from using these assessment tools, but may also be led to invest time and financial resources inefficiently in attempting to develop inappropriate TCM formulae candidates.

If we encounter difficulties enrolling patients in our research studies, our TCM formulae development could be delayed or otherwise adversely affected.

We conduct research studies involving TCM formulae candidates whose activity and specificity have been optimized by our TCM Practitioner in his prior ADHD and ASD treatments. Timely completion of research studies in accordance with the protocols depends, among other things, on our ability to enroll a sufficient number of patients who meet the efficacy trial criteria and remain in the study until the conclusion. We may experience difficulties enrolling and retaining appropriate patients in our efficacy trial for a variety of reasons, including but not limited to:

Even if we are able to enroll a sufficient number of patients in our efficacy trial, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned research studies, which could prevent completion of these studies and adversely affect our ability to advance the development of our TCM formulae candidates.

Results of our earlier studies on personalized TCM formulae may not be predictive of future efficacy trial results. Failure can occur at any stage of research and development.

The results of research studies of our personalized TCM formulae may not be predictive of the results of standardized TCM formulae candidates. Standardized TCM formulae candidates may fail to show the desired safety and efficacy despite positive results of personalized TCM formulae. Based upon negative or inconclusive results, we, along with our TCM Practitioner or any potential future collaborator may decide, or regulators may require us, to conduct additional research studies. In addition, data obtained from research studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit, or prevent regulatory approval.

As of the date of this Annual Report, we have started our second efficacy trial in ADHD and ASD in Hong Kong. However, there is no assurance that whether our second efficacy trial needs to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Research studies can be delayed or aborted for a variety of reasons, including delay or failure to:

Qualified patient enrollment is a significant factor in our research studies and is affected by many factors, including the size and nature of the patient population, the eligibility criteria for the studies, the design of the efficacy trial, competing research studies and patients’ perceptions as to the potential advantages of the TCM formulae being studied in relation to other available therapies.

If we experience delays in the start or completion of, or termination of, any research studies of our TCM formulae candidates, the commercial prospects of our TCM formulae candidates may be affected, and our ability to generate product revenues will be delayed. In addition, any delays in completing our research studies will increase our costs, slow down our TCM formulae candidates’ development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may negatively harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of research studies may also ultimately lead to the denial of regulatory approval of our TCM formulae candidates.

Our TCM formulae candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any.

Potential undesirable side effects caused by our TCM formulae candidates may cause it to interrupt, delay, or halt research studies or could cause regulatory authorities to interrupt, delay, or halt our research studies or could result in a more restrictive label or the delay or denial of regulatory approval by the Hong Kong Chinese Medicines Board, or other regulatory authorities. We may observe some potential side effects in future research studies that could affect patient recruitment or the ability of enrolled patients to complete the study or result in potential product liability claims. Any of these occurrences may harm our business, financial condition, and prospects significantly.

Our research studies assessed a sample of the potential patient population. With a limited number of patients and duration of exposure, rare and severe side effects of our TCM formulae candidates may only be uncovered with a large number of patients exposed to the TCM formulae treatment. If our TCM formulae candidates receive regulatory approval and we, our partners, or others identify undesirable side effects caused by such standardized liquid-based TCM formulae treatment after such approval, a number of potentially significant negative consequences could result, including:

Any of these events could prevent us from achieving or maintaining market acceptance of the affected TCM formulae treatment and could substantially increase the costs of commercializing our TCM formulae treatment, if approved, and significantly impact our ability to successfully commercialize our TCM formulae candidates and generate revenue.

If any of our TCM formulae candidates are approved for marketing and commercialization and we are unable to develop manufacture, sales, marketing and distribution capabilities on our own or enter into agreements with third parties to produce and sell our products on acceptable terms, we will be unable to successfully commercialize any such future therapeutics.

We currently have no sales and marketing, or distribution capabilities or experience. In order to commercialize our standardized TCM formulae candidates, if approved, we must build marketing and sales capabilities or decide to make arrangements with third parties to produce and sell products, and we may not be successful in doing so. Building the requisite sales, marketing or distribution capabilities will be expensive and time-consuming and will require significant attention of our leadership team to manage. Any failure or delay in the development of our sales, marketing or distribution capabilities would adversely impact the commercialization of our products. The competition for talented individuals experienced in selling and marketing TCM products is intense, and we cannot assure you that we can assemble an effective team. Additionally, we may choose to collaborate with third parties on the commercialization of our standardized TCM formulae candidates. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our standardized TCM formulae candidates if and when we receive regulatory approval, or any such commercialization may experience delays or limitations.

We may be subject to additional risks related to operating in foreign countries either ourselves or through a third-party, including:

If we fail to increase our brand recognition, we may face difficulty in obtaining new customers or patients.

We believe that developing, maintaining and enhancing our brand recognition in a cost-effective manner outside of that market is critical to achieving widespread acceptance of our future products and is an important element in our effort to build our customer or patient base. Successful promotion of our brand and products in the TCM and medical industry will depend largely on our ability to maintain a sizeable and active customer or patient base, our marketing efforts and ability to provide reliable and useful products and treatments at competitive prices. Brand promotion activities may not yield increased revenue in the near future, and even if they do, any increased revenue may not offset the expenses we will incur in building our brand. If we fail to successfully promote and maintain our brand during our commercialization period, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough customers or patients to the extent necessary to realize a sufficient return on our brand-building efforts, in which case our business, operating results and financial condition, would be materially adversely affected.

Our success depends on our ability to obtain and protect our intellectual property.

The TCM formulae are the core of our business operation and TCM research and development. We seek to protect the TCM formulae candidates and technology that we consider commercially important by filing patent applications in Hong Kong and abroad or rely on our trade secrets. Although we intend to file for patent applications with the authorities concerned in Hong Kong, there is no assurance that they will be granted, or that, if granted, any of our future patents will be held valid and enforceable against third-party infringement, or that our formulae will not infringe any third-party patent or intellectual property.

Any patents relating to our formulae, if granted, may not be sufficiently broad to protect them. In addition, our patents, if granted, may be challenged, potentially invalidated or potentially circumvented. Our patents, if granted, may not afford us protection against competitors with similar formulae or permit the commercialization of our products without infringing third-party patents or other intellectual property rights.

Further, we also rely on or intend to rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or will apply to register a number of these trademarks. We have received trademark certificates for “腦還原^®” (directly translates as “brain restoration”), “RGC Regencell^®”, “RGC^®”, “RGC-COV19^®” and “Sik-Kee Au TCM Brain Theory^®” from the Hong Kong Registrar of Trade Marks. However, third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. Further, our competitors may infringe our trademarks, or we may not have adequate resources to enforce our trademarks. Effective trademark protection may not be available or may not be sought in every country in which our products are made available in the future. In the event that our trademarks or applications are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing these new brands.

Third parties may make claims challenging the inventorship or ownership of our TCM formulae. In addition, we may face claims by third parties that our agreements with employees, contractors or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property or may lose our exclusive rights in that intellectual property. Either outcome could harm our business and competitive position.

We also rely on trade secrets, including unpatented know-how, technology and TCM related regulatory protection, to maintain our competitive position in our TCM research. While our current employment agreements with our employees contain provisions protecting our confidential information, including the knowledge of proprietary Chinese medicine, prescriptions, techniques, and skills, we may seek to protect, in part, by entering into separate confidentiality agreements with licensees, suppliers, employees and consultants in the future. These agreements may be breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Moreover, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect to products arising from research, we may not be able to maintain the confidentiality of information relating to these products.

Adverse publicity associated with our TCM formulae candidates, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results.

The results of our operations may be significantly affected by the public’s perception of our TCM formulae candidates and the overall TCM treatment industry. This perception is dependent upon opinions concerning:

Adverse publicity concerning any actual or purported failure to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing practices, or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on our goodwill and could negatively affect our sales and ability to generate revenue. In addition, our consumers’ perception of the safety and quality of products and ingredients as well as similar products and ingredients distributed by other companies can be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning our TCM formulae candidates or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers’ use or misuse of our TCM formulae treatment, that associates consumption of our TCM formulae treatment or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could negatively impact our reputation or the market demand for our TCM formulae treatment.

Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products.

As to the products we intend to manufacture, we must manage our supply chain for raw materials and delivery of our products. Our raw material used in efficacy trial is currently sourced by the TCM Practitioner from Hong Kong vendors under the Hong Kong Chinese Medicine Regulatory Office guideline. Local administrative bodies and physical infrastructure built to protect local interests pose transportation challenges for raw material transportation as well as product delivery in Hong Kong. In addition, profitability and volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events that could impact both supply and price. Any of these occurrences could cause significant disruptions to our supply chain, manufacturing capability and distribution system that could adversely impact our ability to produce and deliver some of our products.

Our raw materials are not sourced from endangered species of animals or plants. All of our raw materials are readily available in over 6,000 TCM stores, wholesalers, and other distribution channels in Hong Kong.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

We employ individuals who previously worked with other companies, including our competitors or potential competitors. Although we try to ensure that our employees, contractors, or consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in defending any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We face risks related to health epidemics and outbreaks, including the SARS-Cov-2 (or COVID-19) pandemic, which could significantly disrupt our ongoing research studies, and therefore our receipt of necessary regulatory approvals could be delayed or prevented.

We face risks related to health epidemics or outbreaks of communicable diseases, for example, the outbreak of COVID-19 and related resurgences. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries. In addition, COVID-19 and any related resurgences may have a severe effect on our ongoing and future research studies of many TCM formulae candidates. The extent to which COVID-19 and related resurgences may impact our research studies will depend on future developments, which are highly uncertain and cannot be predicted with confidence. Any significant resurgence of COVID-19 globally could adversely impact our efficacy trial operations, including our ability to recruit and retain patients. Disruptions or restrictions on our ability to travel to monitor data from our enrolled patients, or to conduct research studies, or the ability of patients enrolled in our studies to travel, as well as temporary closures of our facilities would negatively impact our efficacy trial activities. As a result, the expected timeline for data readouts of our research studies on enrolled patients and certain regulatory filings may be negatively impacted, which would adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses and have a material adverse effect on our financial results.

The global economic and geo-political conditions have been and continue to be challenging and have had, and may continue to have, an adverse effect on the financial markets and the economy in general, which has had, and may continue to have, a material adverse effect on our business, financial performance and results of operations and the prices of our Ordinary Shares.

The global outbreak and spread of COVID-19 caused a slowdown in growth of the global economy. The global economy has entered a pronounced slowdown since 2022 after having shown some momentums of growth in 2021. The global spread of COVID-19 created significant volatility and uncertainty and economic disruption. In addition, volatility in the domestic politics of major markets may lead to changes in the institutional framework of the international economy.

In February 2022, a military conflict arose between Russia and Ukraine, with the latter being supported by countries in the NATO alliance as well as others around the globe, including imposition of financial and trade sanctions against Russia. Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices, supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. In the event the conflict continues or extends beyond Ukraine, together with reduction or stoppage of energy exports from Russia, the global economy could face a recessionary downturn.

The withdrawal of the UK from the EU in January 2020, commonly referred to as “Brexit,” has also created significant political and economic uncertainty regarding the future trading relationship between the UK and the EU as well as other countries, such as the United States, Australia, and New Zealand. In particular, the UK and the EU have ratified a trade and cooperation agreement governing their future relationship and the UK continues to negotiate agreements on specific areas of trade and economic arrangements with other countries. The UK-EU trade and cooperation agreement addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the UK and the EU as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and financial markets, and may significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets or restrict our access to capital. Any of these factors could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In many countries globally, there are concerns over rising inflation and potential economic recessions, including due to the impacts of the COVID-19 and related resurgences. In particular, any worsening of the ongoing labor shortage and ongoing rise in inflation could significantly weaken global economies. Globally, countries have required and may continue to require additional financial support, sovereign credit ratings have declined and may continue to decline, and there may be default on sovereign debt obligations of certain countries. In addition, the U.S. Federal Reserve System and other regulatory bodies around the world may raise, or may announce intentions to raise, interest rates. Any of these global economic conditions may increase the cost of borrowing and cause credit to become more limited, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. The global economic slowdown may be further prolonged by subsequent outbreaks of COVID-19 in countries which are taking, or which have taken, steps to ease lockdown measures; such outbreaks may require those countries to extend their lockdown measures or roll-back previous measures taken to facilitate the re-opening of their economies.

These economic and geo-political conditions have affected, and may continue to affect, our business in a number of ways. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. If these market conditions continue or worsen, they may further limit our ability to access financing or increase our cost of financing to meet liquidity needs, resulting in adverse effects on our financial condition and results of operations. The current global economic slowdown and uncertainty about the future global economic conditions could also continue to increase the volatility of the prices of our Ordinary Shares. We cannot predict the timing or duration of an economic slowdown or the timing or strength of a subsequent economic recovery generally or in our industry. If macroeconomic conditions worsen or the current global economic conditions continue for a prolonged period of time, we are not able to predict the impact that such conditions will have on our industry in general, and our results of operations specifically.

General Company Related Risks

We have a very limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We commenced our operations in Hong Kong through our wholly-owned subsidiary, Regencell Bioscience Limited in 2015. Our operations to date have been limited to organizing and staffing our company, partnering with the TCM Practitioner to conduct research studies, identifying potential partnerships and TCM formulae candidates, acquiring TCM raw materials, and conducting research and development activities for our TCM formulae candidates. We have not yet demonstrated the ability to successfully complete large-scale, pivotal research studies. We have also not yet applied for or obtained regulatory approval for, or demonstrated an ability to manufacture or commercialize, any of our TCM formulae candidates. Consequently, any predictions about our future success, performance, or viability may not be as accurate as they could be if it had a longer operating history or approved products on the market.

Our limited operating history, particularly in light of the evolving TCM formulae research and development industry in which we operate, may make it difficult to evaluate our current business and prospects for future performance. Our short history makes any assessment of our future performance or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in evolving fields as we seek to transition to a company capable of supporting commercial activities. In addition, as a new business, we may be more likely to encounter unforeseen expenses, difficulties, complications, and delays due to limited experience. If we do not address these risks and difficulties successfully, our business will suffer.

There is uncertainty regarding our ability to continue as a going concern, indicating the possibility that we may be required to curtail or discontinue our operations in the future. If we discontinue our operations, you may lose all of your investment.

We incurred total net losses of $6.06 million and $7.59 million, respectively, for the fiscal years ended June 30, 2023 and 2022, and have completed only the preliminary stages of our business plan. We anticipate incurring additional losses before realizing any revenues. We may need additional financing in order to meet our continuing obligations and ultimately, to attain profitability in the future. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business. If we are unable to obtain enough financing from outside sources before we produce enough revenues, we may be forced to sell our assets, or curtail or discontinue our operations. If this happens, you could lose all or part of your investment.

Our future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our Ordinary Shares.

Our limited research progress of our standardized TCM formulae candidates, together with our history of losses, make prediction of future operating results difficult. You should not rely on our past performance as any indication of future growth rates or operating results. Our valuation and the price of our securities likely will fall in the event our operating results do not meet the expectations of analysts and investors. Comparisons of our quarterly operating results are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:

Therefore, you should expect that our results of operations will be difficult to predict, which will make an investment in our company uncertain.

Future debt agreements may contain, restrictions that may limit our flexibility in operating our business.

Documents governing our future indebtedness, or in connection with additional capital raises, if any, may contain, numerous financial and operating covenants that limit the discretion of management with respect to certain business matters. Restrictive covenants included in the above-mentioned credit facility include restrictions on, among others, our ability to incur or permit additional indebtedness and change the nature of our business.

Our ability to comply with these and other provisions of the existing loan agreement is dependent on our future performance, which will be subject to many factors, some of which are beyond our control. The breach of any negative covenants in our current or future agreements could result in an event of default, as may be defined in such agreements, thereby leading to a potential default interest rate or immediate repayment of any borrowed amounts. These restrictive covenants which may be in place from time to time and a lack of compliance by us could limit our flexibility in operating our business.

We are wholly dependent on certain key personnel and our strategic partner, Mr. Sik-Kee Au, the father of our founder, director, and CEO, and loss of these individuals could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, and research and development expertise and potential sales and marketing of key personnel. We are dependent on the services of Mr. Yat-Gai Au, our founder, director and CEO, for the continued growth and operation of our company, and critical to our overall management, as well as the continued development of our strategic direction, due to their experience, personal and business contacts in Hong Kong and the US.

Our success of developing standardized TCM formulae candidates is wholly dependent upon our strategic partnership with Mr. Sik-Kee Au, the TCM Practitioner, the father of Mr. Yat-Gai Au, our founder, director and CEO, for the continued research and development of the formulae candidates for our company. The whole basis of our TCM research is the TCM formulae transferred by the TCM Practitioner, which was developed based on Sik-Kee Au TCM Brain Theory^®. We may not be able to retain our partnership with the TCM Practitioner for any given period of time. We are reliant upon the TCM Practitioner to provide these research services and have little control over his availability or expertise, except our Partnership Agreements with the TCM Practitioner. Although we have no reason to believe that he will terminate the partnership relationship with us, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our research on standardized TCM formulae candidates as well as our results of operations. The loss of any of these individuals could have a material adverse effect upon our business, financial condition, and results of operations. We do not carry key man life insurance for any of our key personnel, nor do we foresee purchasing such insurance to protect against the loss of key personnel.

We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.

We must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and personnel in Hong Kong is intense and the pool of qualified candidates in Hong Kong is very limited. We may not be able to retain the services of our senior executives or personnel, or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely affect our future growth and financial condition.

We have identified material weaknesses in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

In the course of auditing our consolidated financial statements as of and for the years ended June 30, 2023, and 2022, we and our independent registered public accounting firms identified three material weaknesses in our internal control over financial reporting as well as other control deficiencies. As defined in standards established by the Public Company Accounting Oversight Board (“PCAOB”), a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to (1) our lack of sufficient skilled staff with accounting principles generally accepted in the United States of America (“U.S. GAAP”) knowledge and the SEC reporting knowledge for the purpose of financial reporting as well as the lack in formal accounting policies and procedures manual to ensure proper financial reporting in accordance with U.S. GAAP and SEC reporting requirements; (2) our lack of internal audit function to establish formal risk assessment process and internal control framework; and (3) lack of segregation of duties for certain key functions due to limited staff and resources.

Our management identified material weaknesses in the design and operation of our internal controls because:

As defined under standards established by PCAOB, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As a result, we have already taken some steps and have continued to implement measures to remediate the material weaknesses identified, including but not limited to (i) continuing to recruit experienced personnel with relevant past experience working on U.S. GAAP and SEC reporting, (ii) improving our monitoring of and oversight controls for non-recurring transactions to ensure the accuracy and completeness of financial reporting and (iii) engaging external experts to assist with should there be non-recurring and complex transactions and continuing to implement measures to remediate our internal control deficiencies.

All internal control systems, no matter how well designed, have inherent limitations including the possibility of human error and the circumvention or overriding of controls. Further, because of changes in conditions, the effectiveness of internal controls may vary over time. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

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

We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). Section 404 of the Sarbanes-Oxley Act requires that we include a report of management on our internal control over financial reporting in this Annual Report. In addition, once we cease to be an “emerging growth company” as such term is defined under Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, and harm our results of operations. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.

We may not be able to compete effectively against our competitors.

We are at the early stage of the development of our liquid-based TCM formulae treatment and have not sold any products successfully. We expect to face competition in the future that may result in revenue reductions for the liquid-based TCM formulae treatment that we plan to deliver. We will be at a competitive disadvantage in obtaining the facilities, employees, financing and other resources required to provide services demanded by prospective customers. Our opportunity to obtain customers may be limited by our financial resources and other assets.

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

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market, and other applicable securities rules and regulations. Compliance with these rules and regulations will nonetheless increase our legal, accounting, financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” As a foreign private issuer, the Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results.

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

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

Our business model may not be sufficient to ensure our success in our intended market.

Our survival is currently dependent upon the success of our efforts to gain ADHD and ASD patients’ acceptance of liquid-based TCM formulae treatment that will ultimately represent a very small segment in our targeted industry when it is completed. Should our target market not be as responsive to our products as we anticipate, we may not have in place alternate products or services that we can offer to ensure our survival.

Our TCM formulae treatment may not be desired for purchase by patients, or potential competitors may develop services that imitate or compete with ours or prospective offers and take our targeted revenue stream away from us or reduce our ability to command profitable revenue streams for our products. If international pharmaceutical companies, develop more successful products to cure ADHD or ASD or offer competitive products at a lower price, our revenue, margins, and profitability will suffer.

Our TCM business is subject to inherent risks relating to product liability and personal injury claims.

TCM companies, similar to pharmaceutical companies, are exposed to risks inherent in the manufacturing and distribution of TCM products, such as with respect to improper filling of prescriptions, labeling of prescriptions, inadequacy of warnings, and unintentional distribution of counterfeit products. In addition, product liability claims may be asserted against us with respect to any of the products we sell and as a distributor, we are required to pay for damages for any successful product liability claim against us, although we may have the right under applicable Hong Kong laws, rules and regulations to recover from the relevant manufacturer for compensation we paid to our customers in connection with a product liability claim. We may also be obligated to recall affected products. If we are found liable for product liability claims, we could be required to pay substantial monetary damages. Furthermore, even if we successfully defend ourselves against this type of claim, we could be required to spend significant management, financial and other resources, which could disrupt our business, and our reputation as well as our brand name may also suffer.

We may be a passive foreign investment company for United States federal income tax purposes, in which case United States holders of our Ordinary Shares could be subject to adverse United States federal income tax consequences.

A non-U.S. corporation will be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes for any taxable year in which, after applying certain look- through rules, either:

For purposes of the above calculations, a non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other corporation in which it owns, directly or indirectly, 25% or more (by value) of the equity. Passive income generally includes dividends, interest, certain rents or royalties, foreign currency or other investment gains and certain other categories of income. We must make a separate determination each year as to whether we are a PFIC.

Based on the value of our assets for our taxable year ending June 30, 2023, including the value of our goodwill, and the composition of our income and assets in such taxable year, while there can be no assurances, we believe we were not a PFIC for our taxable year ending June 30, 2023. However, the application of the PFIC rules is subject to uncertainty in several respects. The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we may be or become a PFIC, may depend on the interpretation of certain United States Treasury regulations as well as certain U.S. Internal Revenue Service guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years. In particular, especially until we become revenue-generating, our PFIC status may depend, in part, on the receipt and treatment of other sources of income (including government grants) in excess of passive income from interest-bearing accounts or other investments.

Furthermore, for purposes of the asset test described above, goodwill is generally characterized as an active asset to the extent it is associated with business activities that produce active income, and the value of our assets, including goodwill, generally will be calculated using the market price of our Ordinary Shares, which may fluctuate considerably, especially in times of high market volatility. Accordingly, fluctuations in the market price of our Ordinary Shares may affect our PFIC status for any taxable year. In addition, cash is generally characterized as a passive asset for these purposes, so the composition of our income and assets will be affected by how, and how quickly, we spend the cash that we hold. Accordingly, we cannot assure you that we were not a PFIC for our taxable year ending June 30, 2023 or that we will not be a PFIC for our current taxable year or any future taxable year.

If we are a PFIC for any taxable year during which a United States person holds Ordinary Shares, certain adverse United States federal income tax consequences could apply to such United States person. See “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS ABOUT THE PFIC RULES, THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY AND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A PFIC.

For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.

In April 2012, President Obama signed into law the JOBS Act. We are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation required of larger public companies or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our Ordinary Shares to be less attractive as a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.

As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.

As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by Cayman Islands law requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our Ordinary Shares.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our Ordinary Shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq Stock Market listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.

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

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

The market price for our Ordinary Shares may be volatile.

Our Ordinary Shares may be very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our Ordinary Shares in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. The market price for our Ordinary Shares may be volatile and subject to wide fluctuations due to factors such as:

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

A possible “short squeeze” due to a sudden increase in demand of our Ordinary Shares that largely exceeds supply may lead to price volatility in our Ordinary Shares.

Investors may purchase our Ordinary Shares to hedge existing exposure in our Ordinary Shares or to speculate on the price of our Ordinary Shares. Speculation on the price of our Ordinary Shares may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our Ordinary Shares available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our Ordinary Shares for delivery to lenders of our Ordinary Shares. Those repurchases may in turn, dramatically increase the price of our Ordinary Shares until investors with short exposure are able to purchase additional common shares to cover their short position. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our Ordinary Shares that are not directly correlated to the performance or prospects of our company and once investors purchase our Ordinary Shares necessary to cover their short position the price of our Ordinary Shares may decline.

Our founder and CEO will continue to own a significant percentage of our Ordinary Shares and will be able to exert significant control over matters subject to shareholder approval.

Mr. Yat-Gai Au, our founder, director and CEO, currently beneficially owns 81.2% of our company through Regencell (BVI) Limited, and our company will continue to be controlled by him. Therefore, he has the ability to substantially influence us through this ownership position. For example, he may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. His interests may not always coincide with our corporate interests or the interests of other shareholders, and he may act in a manner with which you may not agree or that may not be in the best interests of our other shareholders. So long as he continues to own a significant amount of our equity, he will continue to be able to strongly influence or effectively control our decisions.

As a “controlled company” under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.

We are a “controlled company” as defined under the Nasdaq Stock Market listing rules because Mr. Yat-Gai Au, our founder, director and CEO, currently beneficially owns 81.2% of our Ordinary Shares. As long as our officers and directors, either individually or in the aggregate, own at least 50% of the voting power of our company, we are a “controlled company” as defined under Nasdaq Stock Market listing rules.

For so long as we are a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including:

As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

Cayman Islands law does not impose any fiduciary or other duties on a majority (or controlling) shareholder in respect of the company or any minority shareholders.

Although we do not intend to rely on the “controlled company” exemption under the Nasdaq Stock Market listing rules, we could elect to rely on this exemption in the future. If we elect to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our shares, the price and trading volume of our Ordinary Shares could decline.

The trading market for our Ordinary Shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. If no or few securities or industry analysts commence coverage of us, the trading price for our securities would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our share performance, or if our operating results fail to meet the expectations of analysts, the price of our securities would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our Ordinary Shares to decline.

Risks Related to Doing Business in Hong Kong

Our company currently does not have any operations in mainland China. Accordingly, the laws and regulations of the PRC do not currently have any material impact on our business, financial condition and results of operations. However, if certain PRC laws and regulations were to become applicable to a company such as us in the future, the application of such laws and regulations may have a material adverse impact on our business, financial condition and results of operations and our ability to offer or continue to offer securities to investors, any of which may cause the value of our Ordinary Shares, to significantly decline or become worthless. See the following risk factors of “Our business, financial condition and results of operations, and/or the value of our Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us” and “The PRC government exerts substantial influence and discretion over the manner in which companies incorporated under the laws of PRC must conduct their business activities. We are a Hong Kong-based company with no operations in mainland China. However, if we were to become subject to such direct influence or discretion, it may result in a material change in our operations and/or the value of your Ordinary Shares, which would materially affect the interests of investors.”

Political risks associated with conducting business in Hong Kong.

Our operations are based in Hong Kong. Accordingly, our business operation and financial conditions will be affected by the political and legal developments in Hong Kong. During the period covered by the financial information incorporated by reference into and included in this Annual Report, we maintain substantially most of our operations in Hong Kong and, specifically, from Regencell Bioscience Limited. Any adverse economic, social and/or political conditions, material social unrest, strike, riot, civil disturbance or disobedience, as well as significant natural disasters, may affect the market which in turn may adversely affect the business operations of Regencell Bioscience Limited. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law (the “Hong Kong Basic Law” or the “Basic Law”), namely, Hong Kong’s constitutional document, which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. Since our operation is based in Hong Kong, any change of such political arrangements may pose immediate threat to the stability of the economy in Hong Kong, thereby directly and adversely affecting our results of operations and financial positions.

Under the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, Hong Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory, Hong Kong maintains and develops relations with foreign states and regions. Based on certain recent development including the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region issued by the Standing Committee of the PRC National People’s Congress in June 2020, the U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China and President Trump signed an executive order and Hong Kong Autonomy Act (“HKAA”) to remove Hong Kong’s preferential trade status and to authorize the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The United States may impose the same tariffs and other trade restrictions on exports from Hong Kong that it places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions involving the U.S., China and Hong Kong, which could potentially harm our business.

Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effect on our business operations, which could in turn adversely and materially affect our business, results of operations and financial condition. It is difficult to predict the full impact of the HKAA on Hong Kong and companies with operations in Hong Kong like us. Furthermore, legislative or administrative actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price of our Ordinary Shares could be adversely affected.

Because our business is conducted in Hong Kong dollars and the price of our Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.

Our business is conducted in Hong Kong, our books and records are maintained in Hong Kong dollars, which is the currency of Hong Kong, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between Hong Kong dollar and U.S. dollar affect the value of our assets and the results of our operations in United States dollars. The value of Hong Kong dollar against United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the Hong Kong’s political and economic conditions and perceived changes in the economy of Hong Kong and the United States. Any significant revaluation of Hong Kong dollar may materially and adversely affect our cash flows, revenue and financial condition. Changes in the conversion rate between United States dollar and Hong Kong dollar will affect the amount of proceeds we will have available for our business.

Volatility in our Ordinary Shares price may subject us to securities litigation.

The market for our Ordinary Shares may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.

Recently, U.S. public companies that have substantially all of their operations in China, including Hong Kong, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company.

Our international operations involve special risks.

Our international operations involve financial and business risks that differ from or are in addition to those faced by our Hong Kong operations, including:

If we are not able to quickly adapt to or effectively manage our operations in geographic markets outside Hong Kong, our business prospects and results of operations could be negatively impacted.

Our business, financial condition and results of operations, and/or the value of our Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us.

We currently do not have or intend to have any subsidiary or any contractual arrangement to establish a variable interest entity structure with any entity in mainland China, and we have direct ownership of our operating entities, Regencell Bioscience Limited and Regencell Limited in Hong Kong. However, as our principal executive offices are located, and we operate, in Hong Kong, a special administrative region of China, there is no guarantee that if certain existing or future laws of the PRC become applicable to a company such as us, it will not have a material adverse impact on our business, financial condition and results of operations and/or our ability to offer or continue to offer securities to investors, any of which may cause the value of such securities to significantly decline or be worthless.

Except for the Basic Law, the national laws of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local legislation. National laws that may be listed in Annex III are currently limited under the Basic Law to those which fall within the scope of defense and foreign affairs as well as other matters outside the limits of the autonomy of Hong Kong. National laws and regulations relating to data protection, cybersecurity and anti-monopoly have not been listed in Annex III and so do not apply directly to Hong Kong.

The laws and regulations in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent any PRC laws and regulations become applicable to us, we may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice. We currently do not have plan to expand our operation or acquire any operation in the mainland China. However, we may also become subject to the laws and regulations of the PRC to the extent we commence business and customer facing operations in mainland China as a result of any future acquisition, expansion or organic growth.

The PRC government exerts substantial influence and discretion over the manner in which companies incorporated under the laws of PRC must conduct their business activities. We are a Hong Kong-based company with no operations in mainland China. However, if we were to become subject to such direct influence or discretion, it may result in a material change in our operations and/or the value of our Ordinary Shares, which would materially affect the interest of the investors.

The PRC legal system is evolving rapidly and the PRC laws, regulations, and rules may change quickly with little advance notice. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, the interpretation of these laws, rules and regulations may contain inconsistences, the enforcement of which involves uncertainties. The PRC government has exercised and continues to exercise substantial control over many sectors of the PRC economy through regulation and/or state ownership. Government actions have had, and may continue to have, a significant effect on economic conditions in the PRC and businesses which are subject to such government actions.

We are a Hong Kong-based company with no operations in mainland China, and we have direct ownership of our operating entities, Regencell Bioscience Limited and Regencell Limited in Hong Kong. Our principal executive offices are located, and we operate, in Hong Kong, a special administrative region of China. The PRC government currently does not exert direct influence and discretion over the manner in which we conduct our business activities outside of mainland China, however, there is no guarantee that we will not be subject to such direct influence or discretion in the future due to changes in laws or other unforeseeable reasons or as a result of our future expansion or acquisition of operations in mainland China. See “— Our business, financial condition and results of operations, and/or the value of our Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us.”

We currently do not have plan to expand our operation or acquire any operation in the mainland China. However, if we were to become subject to the direct intervention or influence of the PRC government at any time due to changes in laws or other unforeseeable reasons or as a result of our future development, expansion or acquisition of operations in the PRC, it may require a material change in our operations and/or result in increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In addition, the market prices of our Ordinary Shares could be adversely affected as a result of anticipated negative impacts of any such government actions, as well as negative investor sentiment towards Hong Kong-based companies subject to direct PRC government oversight and regulation, regardless of our actual operating performance. There can be no assurance that the Chinese government would not intervene in or influence our operations at any time.

We were not required to obtain permission from the PRC government to list on a U.S. securities exchange, however there is no guarantee that this will continue to be the case in the future in relation to the continued listing of our securities on a securities exchange outside of the PRC, or even when such permission is obtained, it will not be subsequently denied or rescinded. Any actions by the PRC government to exert more oversight and control over offerings (including of businesses whose primary operations are in Hong Kong) that are conducted overseas and/or foreign investments in Hong Kong-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities, including our Ordinary Shares, to significantly decline or be worthless.

The enactment of Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security Law”) could impact our Hong Kong holding subsidiary.

On June 30, 2020, the Standing Committee of the PRC National People’s Congress adopted the Hong Kong National Security Law. This law defines the duties and government bodies of the Hong Kong National Security Law for safeguarding national security and four categories of offences — secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security — and their corresponding penalties. On July 14, 2020, the former U.S. President Donald Trump signed the Hong Kong Autonomy Act, or HKAA, into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. On August 7, 2020 the U.S. government imposed HKAA-authorized sanctions on eleven individuals, including former HKSAR chief executive Carrie Lam. On October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report required under HKAA, identifying persons materially contributing to “the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law.” The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction with foreign persons sanctioned under this authority. The imposition of sanctions may directly affect the foreign financial institutions as well as any third parties or customers dealing with any foreign financial institution that is targeted. It is difficult to predict the full impact of the Hong Kong National Security Law and HKAA on Hong Kong and companies located in Hong Kong. If our Hong Kong subsidiary is determined to be in violation of the Hong Kong National Security Law or the HKAA by competent authorities, our business operations, financial position and results of operations could be materially and adversely affected.

The Hong Kong legal system embodies uncertainties which could limit the availability of legal protections.

As one of the conditions for the handover of the sovereignty of Hong Kong to China, China accepted conditions such as Hong Kong’s Basic Law. The Basic Law ensured Hong Kong will retain its own currency (Hong Kong Dollar), legal system, parliamentary system and people’s rights and freedom for fifty years from 1997. This agreement has given Hong Kong the freedom to function with a high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic affairs including, but not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the English common law system.

However, if the PRC attempts to alter its agreement to allow Hong Kong to function autonomously, this could potentially impact Hong Kong’s common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and operations. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers.

Our Ordinary Shares may be prohibited from being trading on a national exchange under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors. The delisting of our Ordinary Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.

The Holding Foreign Companies Accountable Act (the “HFCAA”) was enacted on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit securities of any such company from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.

On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA and established procedures to identify registrants and prohibit the trading of the securities of certain registrants as required by the HFCAA. On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China, which the PCAOB believes represents the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S. law. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it was unable to inspect or investigate completely registered public accounting firms. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. Whether the PCAOB will continue to be able to conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our and our auditor’s control. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.

Our former auditor, Friedman LLP, and our current auditor, Marcum Asia CPAs LLP, the independent registered public accounting firm that issues the audit report included elsewhere in this Annual Report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Both Friedman LLP and Marcum Asia CPAs LLP are currently subject to PCAOB inspections and PCAOB is able to inspect our auditor.  However, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection.

Item 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our Corporate History and Structure

We, Regencell Bioscience Holdings Limited, are a holding company incorporated on October 30, 2014, under the laws of the Cayman Islands, which has no substantive operations other than holding all of the issued and outstanding shares of Regencell Bioscience Limited, Regencell Limited and Regencell Bioscience North America Limited. Our principal executive offices are located at 9/F Chinachem Leighton Plaza, 29 Leighton Road, Causeway Bay, Hong Kong. Our telephone at this address is +852 2155-0823. Our registered office in the Cayman Islands is at the offices of 1st Floor, Landmark Square, 64 Earth Clos, Grand Cayman KY1-1107, Cayman Islands. Our agent for service of process in the United States in connection with the registration statement on Form F-1 for our initial public offering is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711. Our corporate website is https://www.regencellbioscience.com.  The SEC maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding us that file electronically with the SEC. Our annual reports and some of the other information submitted by us to the SEC may be accessed through this web site.

On October 30, 2014, Mr. Yat-Gai Au, our founder, director and CEO, acquired 10,000 Ordinary Shares of Regencell Bioscience Holdings Limited in a private transaction. On September 28, 2020, Regencell (BVI) Limited, which was incorporated pursuant to the BVI Business Companies Act, 2004 on May 25, 2017, acquired all equity interests of Regencell Bioscience Holdings Limited from Mr. Yat-Gai Au. Mr. Yat-Gai Au has been the sole shareholder of Regencell (BVI) Limited since its inception. As a result, prior to the initial public offering of Regencell Bioscience Holdings Limited completed on July 20, 2021, Mr. Yat-Gai Au beneficially owned 100% of Regencell Bioscience Holdings Limited through Regencell (BVI) Limited.

We conduct our business through our wholly-owned subsidiaries, Regencell Bioscience Limited, a company incorporated in Hong Kong on May 12, 2015, Regencell Limited, a company incorporated in Hong Kong on November 20, 2014 and Regencell Bioscience North America Limited, a company incorporated in the British Virgin Islands on April 25, 2022, and a 60% joint venture, Regencell Bioscience Asia Limited, a company incorporated in Hong Kong on September 17, 2021. We are an early-stage bioscience company that focuses on research, development, and commercialization of TCM for the treatment of neurocognitive disorders and degeneration, specifically ADHD and ASD, and infectious diseases affecting people’s immune system such as COVID. Our goal is to save and improve the lives of patients, their families and caregivers and become a market leader for the best natural and holistic treatment globally.

Currently, we conduct research and development activities in the TCM industry through Regencell Bioscience Limited, which has entered a Strategic Partnership Agreement (defined below) and a Supplemental Agreement (defined below, and collectively with the Strategic Partnership Agreement, the “Partnership Agreements”) with the TCM Practitioner.

Regencell Bioscience Holdings Limited owns 100% equity interest of Regencell Limited, which was incorporated in Hong Kong on November 20, 2014. Currently, Regencell Limited has no operation and is reserved for future expansion needs.

On May 31, 2021, we effectuated a forward split at a ratio of 1,000-for-1 to increase our authorized capital shares from 100,000 Ordinary Shares with a par value of $0.01 per share to 100,000,000 Ordinary Shares with a par value of $0.00001 per share.

On September 2, 2021, our wholly-owned subsidiary, Regencell Bioscience Limited entered into a joint venture agreement with Honor Epic to form a joint venture, Regencell Bioscience Asia Limited, under the laws of Hong Kong. As of the date of this Annual Report, we have 60% equity interest in Regencell Bioscience Asia Limited.

On April 25, 2022, Regencell Bioscience North America Limited was incorporated in the British Virgin Islands. Regencell Bioscience North America Limited was wholly owned by us. Currently, Regencell Bioscience North America Limited has no operation and is reserved for future expansion needs.

Emerging Growth Company Status

As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”). However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.

Foreign Private Issuer Status

We are incorporated in the Cayman Islands, and more than 50 percent of our outstanding voting securities are not directly or indirectly held by residents of the United States. Therefore, we are a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under the Exchange Act. As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.

The Initial Public Offering

On July 20, 2021, we completed the initial public offering of 2,300,000 Ordinary Shares, $0.00001 par value per share (the “IPO”) at an offering price of $9.50 per share, generating gross proceeds of approximately $21.85 million. On August 17, 2021, the underwriter of the IPO exercised its option to purchase 325,000 additional Ordinary Shares of our company, par value $0.00001 per share, at a price of $9.50 per share (the “Over-allotment Shares”). The closing of the sale of the Over-allotment Shares took place on August 19, 2021. The net proceeds of the IPO, including proceeds from the sale of Over-allotment Shares, totaled approximately $22.67 million, after deducting underwriting discounts and other related expenses.

Public Offering Warrants

In connection with and upon closing of the IPO and over-allotment on July 20, 2021 and August 19, 2021 respectively, we issued warrants equal to 2.5% of the shares issued in the IPO, totaling 57,500 units and 8,125 units, respectively, to the placement agents for the offering (the “warrants”). The warrants carry a term of five years, and shall not be exercisable for a period of 180 days from the closing of the IPO and shall be exercisable at a price equal to $10.45 per share. All warrants were issued and exercised.

B. Business Overview

Our Business Plan

Our goal is to save and improve the lives of ADHD, ASD and COVID patients, their families and caregivers and become a market leader for the best natural and holistic treatment globally.  The TCM Practitioner has been treating ADHD and ASD patients for over 30 years, more recently, infectious diseases affecting people’s immune system such as COVID and we intend to commercialize the TCM formulae utilized in his treatment first in Hong Kong and subsequently globalize the use of such TCM formulae in order to address the unmet medical needs of the growing ADHD, ASD and COVID patient population in other countries such as the U.S. We aim to:

The projected timeline above is what we aim to achieve but there is no guarantee that any of the listed milestones will be met in the time noted or at all.

As of the date hereof, we have completed our first research study with the TCM Practitioner and have three standardized TCM formulae candidates under development targeting mild, moderate and severe ADHD and ASD patients. We also started our second efficacy trial using the three standardized TCM formulae candidates in the third quarter of 2021.  We intend to conduct further investigation and research on the application of the TCM base formula for other neurological illnesses, disorders and degeneration. We will also commercialize our standardized TCM formulae candidates by building our own specialized sales and marketing organization initially in Hong Kong after obtaining necessary approvals from Hong Kong regulatory agencies.

Our Research and Competitive Strengths

Our TCM Practitioner

We strategically partner with the TCM Practitioner, the father of Mr. Yat-Gai Au, our founder, director and CEO. Pursuant to the Strategic Partnership Agreement and the Supplemental Agreement (as defined below) (collectively, the “Partnership Agreements”) we have with the TCM Practitioner, we have exclusive rights and ownership of (1) all his TCM formulae and (2) the intellectual property rights of the TCM formulae, including research and development, trademark, copyright, patent and any other intellectual property rights in relation to the TCM formulae that the TCM Practitioner develops. Pursuant to the Partnership Agreements, the TCM Practitioner is responsible for research and development of TCM formulae for ADHD and ASD patients, however, any inventions, TCM formulae, utilities, improvements, research, discoveries, designs, processes, methods of manufacture and products conceived or made by the TCM Practitioner in relation to his TCM research shall be the sole and exclusive property of us. To support the TCM Practitioner’s continued research, we undertake to pay for all reasonable costs and expenses incurred by the TCM Practitioner in conducting research, testing, attending meetings/seminars, compiling records, or performing any similar acts in relation to the development of the TCM formulae. In furtherance of our research, development and commercialization of TCM formulae candidates, we have direct supervision and control over the TCM Practitioner’s TCM formulae research pursuant to the Partnership Agreements. We have full discretion to assign, refine, update, or redesign the TCM Practitioner’s research tasks from time-to-time pursuant to the Partnership Agreements.

The TCM Practitioner has been practicing TCM under the guidance of the HKCMO in his clinic in Hong Kong since 1999 and has accumulated in-depth experience of TCM research and clinical practice. For over 30 years the TCM Practitioner has focused his TCM study on TCM thesis of his father, who was a renowned TCM doctor in Hong Kong in the 1950s, and other traditional treatises of TCM. He is experienced in treating patients suffering from a wide range of neurocognitive disorders and degeneration. In particular, the TCM Practitioner has treated many children afflicted with ADHD and ASD during his practice. He has always been passionate about treating patients and giving back to society. He decided to dedicate all his efforts to treat people afflicted with incurable diseases, illnesses and disorders. Prior to starting his TCM clinical practice, the TCM Practitioner founded a successful technology and property business in California. The TCM Practitioner graduated from the University of California, Berkeley with Bachelor’s and Master’s Degrees in Electrical Engineering in Circuit Design and Network Theory. He was the pioneer who invented the prototype high-density recording drive on flexible media while working at IBM, which later became known as Iomega Corporation.

Our Strategic Partnership with TCM Practitioner

In January 2018, Regencell Bioscience Limited entered into a Deed of Rights Transfer, Strategic Partnership and Undertaking (the “Strategic Partnership Agreement”) with the TCM Practitioner, the father of our CEO and director. Pursuant to the Strategic Partnership Agreement we have with TCM Practitioner, we have exclusive rights and ownership of (1) all his TCM formulae and (2) the intellectual property rights of the TCM formulae, including research and development, trademark, copyright, patent and any other intellectual property rights in relation to the TCM formulae that the TCM Practitioner develops. Pursuant to Strategic Partnership Agreement, the TCM Practitioner is responsible for research and development of TCM formulae, while, any inventions, TCM formulae, utilities, improvements, research, discoveries, designs, processes, methods of manufacture and products conceived or made by the TCM Practitioner in relation to TCM shall be the sole and exclusive property of us.

Pursuant to the Strategic Partnership Agreement, in exchange for the rights, we are required to donate three percent (3.0%) of net revenue that Regencell Bioscience Limited generates in association with the use and/or commercialization of the TCM formulae treatment to any charitable institutions and/or trusts of a public character anywhere in the world at the sole and absolute choice of the TCM Practitioner, or his assignee, and in such proportion at the sole and absolute discretion of the TCM Practitioner on a yearly basis. We also undertake to pay for all reasonable costs and expenses incurred by the TCM Practitioner in conducting research, testing, attending meetings/seminars, compiling records, or performing any similar acts in relation to the development of the TCM formulae and TCM inventions.

On November 10, 2020, Regencell Bioscience Limited entered into a Supplemental Agreement of the Strategic Partnership Agreement (the “Supplemental Agreement”) with the TCM Practitioner. Under the Supplemental Agreement, the TCM Practitioner shall provide his research by using his best endeavors on his TCM formulae and TCM inventions under our direction and supervision. We have authorized the TCM Practitioner, his agents, subcontractors, development team, and affiliates to use TCM formulae and TCM Inventions to conduct research. However, they shall not directly or indirectly publish, disseminate or otherwise disclose, deliver or make available to any third party any confidential information, without our prior written notice. The TCM Practitioner also shall not be directly or indirectly concerned with or engaged or interested in any other business which is in any respect in competition with or similar to the TCM business conducted by our company for two years after the expiration or termination of the Supplemental Agreement.

We shall pay the TCM Practitioner for his expenses on his TCM research within 30 days upon the receipt of invoice. The Supplemental Agreement shall remain effective until the Strategic Partnership Agreement is expired or terminated. We can terminate the Supplemental Agreement without cause without any indemnity or damages being due to TCM Practitioner with 30 days prior written notice.

TCM Efficacy Trial and Standardized TCM Formulae Candidates

TCM Efficacy Trial

Seven (7) of the TCM Practitioner’s patients in Hong Kong, who were clinically diagnosed with ADHD or ASD by their healthcare professionals at different levels of severity, voluntarily consented through their parents or guardians to participate in our first research study in November 2018 and March 2019. In the first research study, the TCM Practitioner treated the enrolled patients with the use of the personalized TCM formulae. The personalized TCM formulae were comprised of two formula components, a base formula and an adjustable formula targeting different severity of symptoms. The base TCM formula is the product of Sik-Kee Au TCM Brain Theory^®, which is used to treat ADHD and ASD by the TCM Practitioner over his 30 years of practice. The adjustable formula is “personalized” to each patient for different severity of symptoms. The enrolled patients’ ages ranged from five to twelve years old. Six of the enrolled patients completed a three-month treatment and one completed a two-month treatment. Under the treatment by the TCM Practitioner, the enrolled patients consumed liquid-based TCM twice a day, which was prepared based on personalized TCM formulae by our TCM Practitioner, and temporarily stopped consuming any other medicines. All the enrolled patients and their parents were required to meet with the TCM Practitioner in his clinic weekly and provide regular reports to update the patients’ symptoms and conditions by phone.

We used globally accepted assessment tools such as Autism Treatment Evaluation Checklist (ATEC), Gilliam Autism Rating Scale (GARS), Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS) and Swanson, Nolan, and Pelham (SNAP)-IV 26-item Parent Rating Scale (SNAP-IV-26), together with additional assessments, written observations, photos, videos and parent testimonials to track the enrolled patients’ progress. Within three months of using our TCM formulae, our research showed that the enrolled patients had attained better speech, communication, sociability, cognition and behavioral abilities. The enrolled patients using the personalized TCM formulae prescribed by the TCM Practitioner also experienced better bowel movement, sweating and temporary fatigue as part of the improvement process.

Standardized TCM Formulae Candidates and Second Efficacy Trial

As of the date hereof, the TCM Practitioner has standardized the adjustable formula into three fixed formulae for mild, moderate and severe conditions. As a result, we have three standardized TCM formulae candidates under development targeting mild, moderate and severe ADHD and ASD patients, each consisting of a standard base formula and a fixed adjusted formula. We have commenced our second efficacy trial using the three standardized TCM formulae candidates in the third quarter of 2021.

The standardized TCM formulae candidates were developed on the premise of Sik-Kee Au TCM Brain Theory^®, which explains why a healthy brain is essential in restoring the body’s systems to normal from disorders and illnesses such as ADHD and ASD. The TCM brain theory is not recognized in general literature of TCM or elsewhere. However, the TCM Practitioner has prescribed the TCM base formulae based on his TCM brain theory for over 30 years to treat ADHD, ASD and many neurological illnesses, disorders and degeneration, and obtained satisfactory clinical treatment results. Such clinical treatment results are not supported by controlled clinical data or trials. According to the TCM brain theory, the blockage of or reduced blood flow, and damage of the interconnecting central nervous system, endocrine system and blood circulatory system disrupt the production of hormones and transmission of neurotransmitters, such as melatonin, dopamine and norepinephrine, leading to a defective encoding and decoding of functions and resulting in deficient or abnormal social behaviors that are the hallmarks of ADHD and ASD. Our standardized TCM formulae candidates aim to address the fundamental cause of the disorders to achieve an optimal outcome compared to available stimulant and non-stimulant medications currently available in the market. The fundamental properties and treatment process of TCM are different from the mainstream stimulant and non-stimulant medications. TCM takes a holistic approach, using natural ingredients to treat different elements within the body. Every bodily function is taken into consideration when preparing the TCM formulae for the patients so that the optimal results of the treatment could be reached. This explains the improvements in both their symptoms and overall health. As provided in the Partnership Agreements, we continue to work closely with the TCM Practitioner to include those treatments in our future development.

We seek to protect our standardized TCM formulae candidates, including the TCM base formula and the fixed adjusted TCM formulae, and technology that we consider commercially important by filing patent applications in Hong Kong and abroad. In addition, we also rely on trade secrets or TCM related regulatory protection to protect our intellectual property. Our trade secrets and confidential information include unpatented know-how, technology and other proprietary information, to maintain our competitive position and to protect our TCM formulae candidates. We seek to protect these trade secrets and confidential information, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to them. Further, we also rely on or intend to rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or will apply to register a number of these trademarks. We have received trademark certificates for “腦還原®” (directly translates as “brain restoration”), “RGC ®”, “RGC Regencell®”, “RGC-COV19®” and “Sik-Kee Au TCM Brain Theory®” from the Hong Kong Registrar of Trade Marks.

Recent Developments

Second Efficacy Trial

To further verify the standardized medicine efficacy, we worked with the TCM Practitioner on the second efficacy trial. A total of twenty-eight (28) patients in Hong Kong, who were clinically diagnosed with ADHD or ASD by their healthcare professionals at different levels of severity, voluntarily consented through their parents or guardians to participate in our second efficacy trial. Seven (7) of them started in August 2021 as the first group, fourteen (14) started in July 2022 as the second group and seven (7) started in October 2022 as the third group. In this second efficacy trial, the TCM Practitioner treated the enrolled patients with the use of the standardized TCM formulae. The enrolled patients’ ages ranged from five to thirteen years old. All enrolled patients completed a three-month treatment. Under the treatment by the TCM Practitioner, the enrolled patients consumed liquid-based TCM twice a day, which was prepared based on standardized TCM formulae by our TCM Practitioner, and temporarily stopped consuming any other medicines. All the enrolled patients and their parents were required to meet with the TCM Practitioner in his clinic weekly and provide regular reports to update the patients’ symptoms and conditions by phone.

We used globally accepted assessment tools such as the Autism Treatment Evaluation Checklist (ATEC) and Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS), together with in-house developed Sik-Kee Au TCM Brain Theory^® for ADHD/ASD Assessment (SKATBT-A³), and also written observations, photos, videos and parent testimonials to track the patients’ progress. Within three months of using our TCM formulae, our research showed that the patients had attained better speech, communication, sociability, cognition and behavioral abilities. Patients also experienced better sleep quality, improved appetite and improved bowel movement. Sweating and temporary fatigue are experienced as part of the improvement process.

Entry into Joint Venture Agreement

On September 2, 2021, Regencell Bioscience Limited entered into a joint venture agreement (the “JV Agreement”) with Honor Epic, a company incorporated in the British Virgin Islands, to form a joint venture under the laws of Hong Kong (the “Joint Venture”). Pursuant to the JV Agreement, among other things and subject to the terms and conditions contained therein, Regencell Bioscience Limited and Honor Epic agreed to establish Regencell Bioscience Asia Limited (the “JV”), a private company limited by shares in Hong Kong.

Pursuant to the JV Agreement, Regencell Bioscience Limited shall contribute 60% of the capital for the JV to fund its operations including trading, manufacturing, marketing and distribution of traditional Chinese medicine formulae products and to procure, enable, provide or support the treatment of COVID-19. In addition, Regencell Bioscience Limited will grant the JV exclusive rights to market and distribute its proprietary COVID-19 TCM treatment (“Regencell COVID Treatment Products”) in ASEAN countries: India, Japan, Australia and New Zealand (“Designated Markets”), for an initial term of two years, pursuant to a license agreement to be entered by and between Regencell Bioscience Limited and the JV. Honor Epic shall contribute 40% of the capital for the JV and shall use its best effort to market, promote, and distribute the Regencell COVID Treatment Products in the Designated Markets. Regencell Bioscience Limited may appoint two board members in the JV, and Honor Epic may appoint one board member in the JV. Sixty percent (60%) of the net profits or net loss of the JV will be distributed to or assigned to Regencell Bioscience Limited and the remaining forty percent (40%) being distributed to or assigned to Honor Epic. In the event that Regencell Bioscience Limited decides to dispose all of its shares in the JV, Regencell Bioscience Limited may require all other shareholders to sell and transfer all their shares in the JV to a proposed buyer, so long as Regencell Bioscience Limited is holding more than 50% of equity interest in the JV. Regencell Bioscience Limited is entitled to a right of first refusal if a shareholder receives a third-party offer to purchase the shares of the JV in accordance with the requirements specified in the JV Agreement.

Industry and Market Background

TCM Industry

TCM has a long history in Hong Kong. The TCM industry in Hong Kong is regulated by the Hong Kong Chinese Medicine Ordinance (the “HKCMO”), which was passed by the Legislative Council of Hong Kong in July 1999. The Chinese Medicine Council of Hong Kong, or the Council, is a statutory body established in September 1999 under the HKCMO. The Council is responsible for implementing regulatory measures for Chinese medicine. The Council implemented the licensing system of TCM traders and the registration system of proprietary Chinese medicine (“pCm”) by phases. The role of TCM is now well established and the dispensation, storage and labeling of Chinese herbal medicines have been regulated since 2003. The safety, efficacy and quality of pCm will be assessed by the Hong Kong Chinese Medicines Board, which was established in 1999 under the HKCMO, before the products being allowed to be registered.

As of June 2020, there were over 10,000 TCM practitioners in Hong Kong, compared with 14,600 doctors of western medicine. These TCM practitioners have an important role to contribute to Hong Kong’s health care system. Since the supportive initiatives were launched by the Hong Kong Government in 1997, the TCM industry has grown into one of the main industries in the healthcare sector. According to the list on the website of the Council, as of December 2020, there are over 6,000 TCM stores, wholesalers and other distribution channels in Hong Kong.

The Hong Kong Government is committed to promoting TCM, and has implemented measures including creation of a network of institutions of high standing for research and development work, development of new drugs for enhancement of the competitiveness of the Chinese medicine industry, and setting up of research funds for the support of research in Chinese medicine. Under the Hong Kong Government’s policy direction to promote the development of “evidence-based” TCM and out-patient TCM services in the public sector, as well as to provide training placements for local TCM degree graduates, the Hong Kong Hospital Authority was tasked to establish a total of 18 Chinese Medicine Centers for Training and Research (“CMCTRs”) in each of the 18 districts of Hong Kong since 2003. In 2018, the total number of attendances at the 18 CMCTRs was about 1.2 million. In the 2018-19 Hong Kong Government Budget, a Chinese Medicine Development Fund of HK$500 million was set up to facilitate applied research and Chinese medicine specialization.

Key Differences between Regulated Pharmaceutical Industry and TCM Industry in Hong Kong

Currently in Hong Kong, there are several U.S. Food and Drug Administration (“FDA”) and Hong Kong Pharmacy and Poisons Board approved drugs available to treat ADHD and ASD symptoms that are manufactured by global pharmaceutical companies. However, we are a TCM bioscience company focusing on natural and holistic treatments and do not compete directly with those pharmaceutical companies. Although both pharmaceutical drugs and TCM are regulated by the Import and Export Ordinance and the Undesirable Medical Advertisements Ordinance, there are several key differences between the regulated pharmaceutical drug industry and the TCM industry in Hong Kong. For example, pharmaceutical drugs are principally regulated under the Pharmacy and Poisons Ordinance (PPO) and the Antibiotics Ordinance and Dangerous Drugs Ordinance, while TCM is principally regulated by the HKCMO. Furthermore, all pharmaceutical manufacturers with manufacturing capability in Hong Kong must comply with the Hong Kong Good Manufacturing Practices (GMP), whereas TCM manufacturers are not required to have GMP certifications. In terms of registration, pharmaceutical drugs sold in the Hong Kong market must be registered with the Hong Kong Pharmacy and Poisons Board, while pCm formulae products are registered with the Hong Kong Chinese Medicines Board.

Based on research provided by Persistence Market Research, no large TCM companies are providing similar ADHD and ASD products in the Hong Kong market. As such, the TCM ADHD and ASD markets are highly fragmented and there is no large TCM competitor in our target market.

Regulatory Approvals Prior to Commercialization in Hong Kong

Subject to the outcome of further research and development, if we commercialize our TCM formulae candidates in Hong Kong, we will need to receive a manufacturer license issued by the Hong Kong Chinese Medicines Board. Once we receive the license and complete pCm registrations for our standardized TCM formulae candidates, our standardized pCm formulae products can be manufactured and sold over the counter without the supervision and prescription of a TCM practitioner in Hong Kong.

When applying for registration of pCm in Hong Kong, we will be required to provide sufficient documents to show the safety, stability, quality and efficacy of our pCm formulae products to the Hong Kong Chinese Medicines Board. To show the efficacy of our pCm formulae products, documents required include reference materials in which the claimed therapeutic functions are supported by research studies, interpretation and principle of formulating a prescription and a summary report on all the product efficacy documents. To prove the safety, stability and quality of our pCm formulae products, we will work with accredited laboratories, a list of which is provided by the Hong Kong Chinese Medicines Board, to conduct all the necessary tests, such as heavy metals and toxic element test and pesticide residues test. As for the application of manufacturer license, the major documents required are a brief floor plan of the premise and a list of manufacturing equipment. GMP certification is not required for the manufacturing of pCm in Hong Kong.

Competition and Competitive Advantages

We are an early-stage bioscience company that focuses on research, development and commercialization of our standardized TCM formulae candidates for patients afflicted with neurocognitive disorders and degeneration, such as ADHD and ASD, and infectious diseases affecting people’s immune system such as COVID. There are two main types of medication for ADHD: stimulants such as Ritalin and Adderall and non-stimulants. For ASD, there are only two antipsychotic drugs approved by the FDA for treating irritability and aggression symptoms: risperidone and aripiprazole, according to Autism Speaks, an organization in the U.S. dedicated to promoting solutions, across the spectrum and throughout the life span.

Competition

Currently in Hong Kong, there are several drugs approved by the FDA and Hong Kong Pharmacy and Poisons Board available to treat ADHD and ASD that are manufactured by global pharmaceutical companies. However, we are a TCM bioscience company focusing on TCM treatments and do not compete directly with those pharmaceutical companies. Although both pharmaceutical drugs and TCM are regulated by the Import and Export Ordinance and the Undesirable Medical Advertisements Ordinance, there are several key differences between the regulated pharmaceutical drug industry and the TCM industry in Hong Kong. For example, pharmaceutical drugs are regulated under the Pharmacy and Poisons Ordinance (PPO) and the Antibiotics and Dangerous Drugs Ordinance, while TCM is regulated by the HKCMO. Furthermore, all pharmaceutical manufacturers in Hong Kong must comply with the Hong Kong Good Manufacturing Practices (GMP), whereas TCM manufacturers are not required to have GMP certifications. In terms of registration, pharmaceutical drug must be registered with the Hong Kong Pharmacy and Poisons Board, while pCm formulae products registered with the Hong Kong Chinese Medicines Board.

Most medicines prescribed to ease ADHD and ASD symptoms are used “off-label,” meaning the medication is being used in a manner not specified in the FDA’s approved packaging label, or insert. Such off-label use is common in virtually all areas of medicine and is usually done to relieve significant suffering in the absence of sufficiently large and targeted studies. Further, due to the complexity of ADHD and ASD, the existing medications approved by the FDA for ADHD and ASD are used to treat a specific symptom while the comorbid conditions remain present and will persist if no direct medications are available for treatment.

ADHD Market Leaders

According to Market Research Future (MRFR), the global ADHD therapeutics market comprises a host of key players. This list includes Eli Lilly and Company, Concordia International Corp., NEOS Therapeutics Inc., Highland Therapeutics Inc., Pfizer Inc., Novartis AG, Noven Pharmaceuticals Inc., Janssen Global Services LLC, Shire, Teva Pharmaceutical and others. However, we are a TCM bioscience company focusing on TCM holistic treatments and do not compete directly with those pharmaceutical companies.

According to the ADHD Parents Medication Guide of the American Psychiatric Association, medication does not cure ADHD, but can alleviate the symptoms of ADHD when it is taken as prescribed. Ongoing care and treatment monitoring are important since those symptoms may come back once medication is halted.

Two main types of medication for ADHD approved by the FDA are stimulants and non-stimulants. Stimulants include methylphenidate and amphetamines. Non-stimulants which include atomoxetine and guanfacine, are alternatives for those who do not respond well to stimulants.

However, these two types of medication for ADHD have multiple side effects. Common side effects of stimulants include feeling restless and jittery, difficulty sleeping, loss of appetite, headaches, upset stomach, irritability, mood swings, depression, dizziness, racing heartbeat and tics. According to HelpGuide, an independently funded nonprofit organization in the U.S., these stimulant medications may also cause personality changes, such as becoming withdrawn, listless, rigid, or less spontaneous and talkative, others may develop obsessive-compulsive symptoms. Beyond the potential side effects, a number of safety concerns associated with the use of stimulant medications exist such as the effect on developing brain, heart-related problem, psychiatric problem and potential abuse, indicated by experts. Non-stimulants also have side effects including decreased appetite, nausea, vomiting, fatigue, indigestion, dizziness and mood swings.

ASD Market Leaders

According to Fortune Business Insights, players engaged in ASD drug therapy in the global market include AstraZeneca, Eli Lilly and Company, Fusion Autism Center, Pfizer Inc., Otsuka Holdings Co. Limited, and other prominent players. However, we do not compete with these players since they mainly focus on prescription or over the counter drugs while we focus on TCM. In addition, we will only consider expanding our market to other countries once we have successfully developed the Hong Kong market.

There are no medications that can cure ASD or treat the core symptoms, according to the Centers for Disease Control and Prevention (the “CDC”). However, there are medications that can help ASD patients with related symptoms like depression, anxiety, aggression, irritability, seizures, insomnia and trouble focusing and help them function better. Medicines for treating the three core symptoms of ASD, communication difficulties, social challenges and repetitive behavior, have long represented a huge area of unmet need. However, few drugs on the market today effectively relieve these symptoms and individual reaction to most commonly prescribed medicines can vary materially. Although the FDA has approved two antipsychotic drugs for treating irritability and aggression associated with autism (risperidone and aripiprazole), the prevalent behavioral problems associated with ASD have not been able to be improved by these medications.

Antidepressants are among the world’s most widely prescribed medications for ASD patients, such as selective serotonin reuptake inhibitors (SSRIs), according to an article in Harvard Health Publishing. The range of their uses has expanded from depression to anxiety, obsessive-compulsive disorder, eating disorders and many other psychiatric conditions. Side effects include insomnia, skin rashes, headaches, joint and muscle pain, stomach upset, nausea, or diarrhea. Anticonvulsants are most commonly prescribed when the patient also suffers from epilepsy, as about one-third of autism patients do, however, common side effects include confusion, fever, hair loss, paranoia, impaired judgment and memory, anxiety and depression.

Specialty of Our TCM Formulae

Our core competencies include the specialty of our TCM formulae which is a natural and holistic treatment that may provide progressive improvement over time and is used specifically for ADHD and ASD. Our standardized TCM formulae candidates were created specifically to address this unmet need in the market. We will explore various ways to gain entry into markets and countries around the world and will research the regulatory and operational requirements as needed. Depending on the regulatory environment of each country, our product can be sold as either a drug or a dietary supplement, either directly by us or through partnerships and distributions. We will review and analyze all options to ensure feasibility to meet the demands of the respective markets.

Our TCM formulae was created based on the Sik-Kee Au TCM Brain Theory^®. The TCM brain theory is not recognized in general literature of TCM or elsewhere. However, the TCM Practitioner has prescribed the personalized TCM formulae based on his TCM brain theory for over 30 years to treat ADHD, ASD and many neurological illnesses, disorders, degeneration and obtained satisfactory clinical treatment results. Such clinical treatment results are not supported by controlled clinical data or trials. Treatment using our personalized TCM formulae has shown reduced severity in ADHD and ASD core symptoms in the first research study. The interim results of our second efficacy trial using the standardized TCM formulae have shown to reduce ADHD and ASD symptoms, which further supports the efficacy of the TCM formulae. 

Existing ADHD and ASD medications on the market provide symptomatic relief, with various adverse side effects, such as, feeling restless and jittery, difficulty sleeping, loss of appetite, headaches, upset stomach, irritability, mood swings, depression, dizziness, racing heartbeat, tics, diarrhea and other stomach irritation, rashes, hives and itching, dry mouth, fatigue and weight loss. Some other side effects could be serious and some potentially fatal. Our three standardized TCM formulae candidates target to treat ADHD and ASD patients with fewer side effects. However, our standardized TCM formulae candidates have not been proven to be safe. We will conduct safety, quality and stability tests over our three standardized TCM formulae candidates.

We believe treatment using our TCM formulae can provide progressive improvements over time because it aims to correct the fundamental cause of diseases and disorders such as ADHD and ASD, whereas the effect of existing ADHD and ASD drugs wear off after a few hours. Short-acting stimulants peak after several hours and must be taken 2-3 times a day. Long-acting or extended-release stimulants last 8-12 hours and are usually taken just once a day, some patients may require an increase in dosage over time because the body builds up tolerance and resistance, according to HelpGuide, an independently funded nonprofit organization in the U.S.

All parents of the ADHD and ASD children in our efficacy trial have witnessed pronounced changes in their child’s symptoms in three months and have testified the benefits and effectiveness of our TCM Practitioner’s treatment and was preferred over their typical mainstream medication. During our study, all of the children stopped their existing medication and exclusively took our TMC treatment.

All our patients for both the first and second trial had sought other treatments and/or therapies prior to participating in our program. After the completion of our trial period, the parents were interviewed and asked to provide their evaluation of our TCM treatment versus other treatments, therapies or drugs. All of the parents advised us that they felt that their child’s temper was more stable, that their child was more attentive and that their awareness of the environment was higher after treatment with our TCM formulae.

Currently, according to the CDC, there is no cure for ADHD and ASD. Given the lack of effective conventional medicine, coupled with adverse side effects associated with current drugs and rapidly growing patient diagnosis, we are well-positioned to become the leader in providing the treatment for ADHD and ASD.

TCM Practitioner with Practicing Experiences Over 30 Years

Our TCM Practitioner has treated many children afflicted with ADHD and ASD and other patients suffering from a wide range of neurocognitive disorders and degeneration with the personalized TCM formulae. However, the treatment results of our TCM Practitioner are not supported by any controlled clinical data or trials. 

As of the date hereof, the TCM Practitioner has standardized the adjustable formula into three fixed formulae for mild, moderate and severe conditions. As a result, we have three standardized TCM formulae candidates under development targeting mild, moderate and severe ADHD and ASD patients, each consisting of a standard base formula and a fixed adjusted formula. We have commenced our second efficacy trial using the three standardized TCM formulae candidates in August 2021. Based on our TCM Practitioner’s practicing experiences, we do not anticipate high bio-pharmaceutical research and development costs relating to chemical drugs. Average research and development to marketplace cost for a new medicine is nearly $4 billion, and can sometimes exceed $10 billion. In comparison, our research and development cost were only $1.58 million and $2.51 million for the years ended June 30, 2023 and 2022, respectively.

Intellectual Property

The TCM formulae candidates are core of our business operation and TCM research and development. We seek to protect our standardized TCM formulae candidates, including the TCM base formula and the fixed adjusted TCM formulae, and technology that we consider commercially important by filing patent applications in Hong Kong and abroad. In addition, we also rely on trade secrets or TCM related regulatory protection to protect our intellectual property. Our trade secrets and confidential information include unpatented know-how, technology and other proprietary information, to maintain our competitive position and to protect our TCM formulae candidates. We seek to protect these trade secrets and confidential information, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to them. Further, we also rely on or intend to rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or will apply to register a number of these trademarks. We received trademark certificates for “腦還原®” (directly translates as “brain restoration”) and “RGC Regencell^®” in July 2020, “RGC^®” in March 2021, “Sik-Kee Au TCM Brain Theory^®” in September 2021 and “RGC-COV19^®” in June 2022 from the Hong Kong Registrar of Trade Marks.

Regulatory Approvals Prior to Commercialization in Hong Kong

Subject to the outcome of further research and development, if we commercialize our liquid-based standardized TCM formulae candidates in Hong Kong, we will need to receive a manufacturer license issued by the Hong Kong Chinese Medicines Board, which was established in 1999 under the HKCMO. Once we receive the licenses and complete pCm registrations for our standardized TCM formulae candidates, our pCm formulae products can be manufactured and sold over the counter without the supervision and prescription of a TCM practitioner in Hong Kong.

When applying for registration of pCm in Hong Kong, we will be required to provide sufficient documents to show safety, stability, quality and efficacy of our pCm formulae products to the Hong Kong Chinese Medicines Board. To show the efficacy of our pCm formulae products, documents required include reference materials in which the claimed therapeutic functions are supported by research studies, interpretation and principle of formulating a prescription and a summary report on all the product efficacy documents. To prove safety, stability and quality of our pCm formulae products, we will work with accredited laboratories, a list of which is provided by the Hong Kong Chinese Medicines Board, to conduct all the necessary tests, such as heavy metals and toxic element test and pesticide residues test. As for the application of manufacturer licenses, the major documents required are a brief floor plan of the premise and a list of manufacturing equipment. GMP certification is not required for the manufacturing of pCm in Hong Kong.

Our current primary roles include recruiting and arranging patients to be treated by the TCM Practitioner, collecting research data from patients, conducting analysis over research data and planning for commercialization of our standardized TCM formulae candidates.

Our Growth Strategy

We are still a start-up company at an early stage and are committed to developing standardized TCM formulae candidates for ADHD and ASD patients and infectious diseases affecting people’s immune system such as COVID. The growth of our business highly depends on our research and commercialization of our three liquid-based standardized TCM formulae candidates. Currently, we aim to conduct research in the effectiveness and safety of our three standardized TCM formulae candidates for mild, moderate and severe ADHD and ASD patients and commercialize these three liquid-based standardized TCM formulae candidates for ADHD and ASD patients in Hong Kong. After obtaining success of commercialization in the Hong Kong market, we may start to offer our pCm formulae products to other markets.

Showing in a quantifiable and systematic way that the personalized TCM formulae is effective for the treatment of ADHD and ASD in our first research study

We have completed our first research study in 2019 and started our second efficacy study in 2021.The results show that the TCM formulae reduced ADHD and ASD symptoms, the assessment scores of all participants in our studies decreased significantly, which indicates that their ADHD and ASD symptoms were less severe after three months of treatment.

 As of the date hereof, we have three standardized TCM formulae candidates under development targeting mild, moderate and severe ADHD and ASD patients, each consisting of a standard base formula and a fixed adjusted formula. We have commenced our second efficacy trial using the three standardized TCM formulae candidates in the third quarter of 2021.

Showing in a quantifiable and systematic way that the standardized TCM formulae is effective for the treatment of ADHD and ASD in our second efficacy trial

We have completed efficacy trial on twenty-eight (28) patients in our second efficacy trial in early 2023 with our TCM Practitioner. The results showed that VADRS total score in twenty-two (22) participants in our study dropped, which indicated that conditions of their ADHD symptoms were less severe after three months of treatment with our standardized TCM formulae. VADRS total score in three (3) participants did not change and three (3) participants increased. ATEC total score of all participants, except for two (2), in our study also dropped, which indicated that conditions of their ASD symptoms were less severe after three months of treatment with our standardized TCM formulae. SKATBT-A³ total score of all participants in our study have reduced, except for only one (1) whose score remained unchanged. Results in supplementary assessments also indicated a reduction in severity of symptoms of all patients. We believe the results, which corroborate effectiveness of our standardized TCM formulae, are significant. 

File patent applications in Hong Kong and abroad

In order to protect our intellectual properties, we will file patent application for our TCM formulae, including the TCM base formula and the three standardized TCM formulae candidates.

Verify the effectiveness of the standardized TCM formulae in our second efficacy trial

As of the date hereof, we have three liquid-based standardized TCM formulae candidates under development targeting mild, moderate and severe ADHD and ASD patients, each consisting of a standard base formula and a fixed adjusted formula. We have commenced our second efficacy trial using the three standardized TCM formulae candidates in the third quarter of 2021 in Hong Kong. We plan to arrange one hundred patients to be treated by TCM practitioner(s) with the use of our standardized TCM formulae candidates for a period of at least three months and up to twelve months.

Set up centralized production facilities

To further lower the cost of manufacturing of our standardized TCM formulae candidates together with the anticipated increase in demand and support our application for the approval and registration of our pCm formulae products, we have plans to set up a centralized production facility for mass production of our standardized TCM formulae candidates.

Brand and commercialize our standardized TCM formulae candidates

After our second efficacy trial, we will improve, refine and automate the production process to improve efficiency to scale up our production. We will also design new packaging and labeling, to comply with regulatory requirements and also for branding purposes. We will ensure that the improved production and packaging process will not compromise the effectiveness of our pCm formulae products. We will then apply for necessary permits from Hong Kong regulatory agencies. We intend to expand our marketing efforts locally and globally to gain brand recognition and favorable perception by our consumers in our target markets. Specifically, we will build a marketing team to develop a strong image that we are a TCM company specializing in the treatment of ADHD and ASD. We plan to market to those who are afflicted by these disorders, through advertisements in television, live radio stations, newspapers/magazines, online social media and banner advertising and in-person marketing in various healthcare events and seminars.

Expand to other locations globally

We will also consider expanding our market to other countries. Our plan is to market our pCm formulae products in the U.S. and abroad after obtaining success of commercialization in the Hong Kong market. Although we opened our California office in October 2020, we will only conduct preliminary market research but we are not currently actively developing the U.S. market.

Conduct further R&D on TCM base formula for other application

As the TCM base formula is developed based on Sik-Kee Au TCM Brain Theory^®, we believe that his TCM base formula potentially has a wider application. We intend to conduct further investigation and research on the application of the TCM base formula for other applications for other neurological illnesses, disorders and degeneration.

Our Products

Product Overview

Mainstream drugs and treatments available currently in the markets for ADHD and ASD aim to suppress or alleviate symptoms, whereas our TCM formulae aim to treat the fundamental cause of neurocognitive disorders. Our TCM formulae contain solely of natural ingredients without any synthetic components. The liquid-based and orally administered TCM formulae are currently personalized for each patient at different severities and symptoms of ADHD and ASD. According to Sik-Kee Au TCM Brain Theory^®, when our TCM formulae with their nutrients and medicinal properties are absorbed and circulated throughout the body, the TCM formulae can perform the mechanism of removing deposits, clots and toxins that have been built up in the body over time and provide better blood circulation to bring sufficient blood supply to the brain. According to the TCM brain theory, with sufficient blood supply and circulation, the brain and organs will regenerate and as a result brain activities and organ functions are normalized, metabolism boosted and endocrine system regulated, thereby correcting the neurocognitive disorders and related symptoms such as attention deficit, hyperactivity, cognitive and social impairment. The TCM brain theory is not recognized in general literature of TCM or elsewhere. However, the TCM Practitioner has prescribed the formulae based on his TCM brain theory for over 30 years to treat ADHD, ASD and many neurological illnesses, disorders and degeneration and obtained satisfactory clinical treatment results. Such clinical treatment results are not supported by controlled clinical data or trials.

Our TCM Practitioner prescribes the TCM formulae under the guidance of TCM fundamental principles in conjunction with his TCM brain theory. Although each herb can be identified by its function in TCM terms, such as blood circulation, tonifying and qi-regulating herbs, the combination of herbs in each formula also demands our TCM Practitioner to skillfully apply TCM fundamental principles of compatibility to ensure the roles of each individual herb do not counteract with each other or become collectively harmful. The resulting combination creates synergetic pharmacological properties to treat neurological illnesses, disorders and degeneration that disrupted the normal neurological functions in ADHD and ASD patients. According to the assessment of our first efficacy trial, patients have better eye contact, daily excretion, appetite, longer sleep duration, communication, sociability, cognition, awareness and attentiveness, complexion, mood and temper.

The ingredients which our TCM Practitioner uses are all listed in the Pharmacopoeia of the People’s Republic of China, tracing back to Compendium of Materia Medical, or Ben Cao Gang Mu (“本草綱目”), more than 400 years ago. All raw materials are sourced under the Hong Kong Chinese Medicine Regulatory Office guideline and are readily available in over 6,000 TCM stores, wholesalers, and other distribution channels in Hong Kong. Our TCM Practitioner carefully selects credible TCM herb vendors that have passed high standard TCM herb inspection. Some of the herbs include:

We intend to register our pCm formulae products with the Hong Kong Chinese Medicines Board, upon successful completion of our second efficacy trial, under group II of the non-established medicines category, a category of pCm that does not contain any newly discovered Chinese herb, new medicinal part(s) of Chinese herb, active group extracted from Chinese herb or set of active groups extracted from compound prescription.

Research and Development

Our First Research Study in ADHD and ASD

We have conducted an uncontrolled first research study, commenced in November 2018 and March 2019, to evaluate the effects of our personalized TCM formulae on seven patients, who were from five to twelve years old and were clinically diagnosed with ADHD or ASD by their healthcare professionals at different levels of severity, by arranging them to be treated by the TCM Practitioner with the use of our personalized TCM formulae for up to three months. We have commenced our second efficacy trial using the three standardized TCM formulae candidates in the third quarter of 2021.

To minimize the impacts of patients’ existing treatments to our assessment, four of the seven patients in our first research study had stopped their other medications for more than a year before they started receiving treatment using our personalized TCM formulae and the other three stopped about a week before they started receiving treatment using our personalized TCM formulae treatment in our study. Moreover, parents of the three patients in our first research study who stopped their medication only a week before our study had indicated that they had given those medications to their child only intermittently as needed, such as when attending class, because of the adverse side effects the child was experiencing. Parents also noted that the effect of the medication wore off after a few hours they have taken the medication and their condition would be the same as before they took the medication until they took another dose again.

Patient Voluntary Participation in the First Research Study

Seven of the TCM Practitioner’s patients in our first research study who were already diagnosed by a doctor or hospital with ADHD and/or ASD and age from five to twelve years old, voluntarily consented to provide their treatment data to us through their parents or guardians to participate in the first research study of the TCM Practitioner. Moreover, to isolate the treatment’s effectiveness, the parents or primary caretakers must agree that the children patients would stop all other medical treatments, including both mainstream and Chinese medicine for the duration of the treatment process, which was expected to last for three months. Children who failed to meet all of the above conditions were not included in our research study.

The seven enrolled patients in our first research study consumed liquid-based TCM twice a day, which were prepared based on the personalized TCM formulae by our TCM Practitioner and temporarily stopped consuming any other medicine. Six of the enrolled patients in our first research study completed a three-month treatment and one completed a two-month treatment. All the patients and their parents in our first research study were required to meet with the TCM Practitioner in his clinic weekly and provide regular reports to update the patients’ symptoms and conditions by phone. Quantitative assessments were also conducted using globally accepted assessment tools, described in the following, together with additional qualitative assessments, written observations, photos, videos and parent testimonials to document their progress. Within three months of receiving treatment using our personalized TCM formulae, our research showed that patients had attained better speech, communication, sociability, cognition and behavioral abilities. Their overall health had also improved. As part of the improvement process, patients had also experienced better bowel movement, sweating and temporary fatigue, which were expected by our TCM Practitioner.

Assessment Methodology

Each enrolled patient in our first research study stopped all his or her existing medical treatment for ADHD or ASD and was treated with a personalized TCM formulae for a period up to three months. Patient’s symptoms were assessed through parent interviews and using the globally accepted assessment tools, which were provided below. The parent’s qualitative and quantitative assessment scores on the patient’s behavior were compared before, during and after three months of treatment. The assessment tools used were the questionnaires filled in by the parents, which included (i) Sik-Kee Au TCM Brain Theory® for ADHD/ASD Assessment (SKATBT-A³); (ii) Autism Treatment Evaluation Checklist (ATEC); (iii) Gilliam Autism Rating Scale (GARS); (iv) Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS); and (v) Swanson, Nolan, and Pelham (SNAP)-IV 26-item Parent Rating Scale (SNAP-IV-26), which covered the first 26 items of the VADRS, for further analysis. The individual assessment method is explained in detail below. The assessment tools used in our research are globally recognized and accepted methods of scoring severity levels of ADHD and ASD patients.

The first research study was only the first phase of our research studies. Our uncontrolled first research study was designed with a small sample size to allow us to collect preliminary data, monitor the treatment progress, observe the effect of the treatment and note any adverse side effects in a cost-effective and systematic way. It has helped us better prepare for our second efficacy trial in which started in 2021, with a much larger sample size of at least 100 candidates and for a longer duration, between 3 and 12 months.

Although most of these are globally recognized assessment tools for the assessment of ADHD and ASD, the outcome of our efficacy trial may be subject to some biases of parents and caregivers of patients because we relied on the data provided by them, such biases may come from parental expectations, social desirability and recall bias. If our understanding and use of these assessment tools is flawed, or if the parents and caregivers of enrolled ADHD and ASD patients fail to observe and record accurately, then we will not only fail to realize any benefits from using these assessment tools, but may also be led to invest time and financial resources inefficiently in attempting to develop inappropriate TCM formulae candidates.

Sik-Kee Au TCM Brain Theory® for ADHD/ASD Assessment (SKATBT-A3)

SKATBT-A3 is a 48-item questionnaire developed by the research and development team of Regencell, designed to assess patients’ conditions that are commonly observed by the TCM Practitioner. Items assessed are indications of patients’ overall body and neurological conditions based on the TCM Practitioner’s brain theory and his over 30 years of experience in treating ADHD and ASD patients. SKATBT-A3 has a total score ranging from 0 to 122, the higher the score, the more problematic the symptoms. The severity of the patient’s condition is categorized into three groups of equal total score range: mild (total score 0-40), moderate (total score 41-80) and severe (total score ≥ 81).

Autism Treatment Evaluation Checklist (ATEC)

ATEC is specially designed to measure changes in autistic severity, making it useful in monitoring behaviors over time as well as tracking the efficacy of a treatment. ATEC comprises of four subscales: (1) Speech/Language/ Communication, (2) Sociability, (3) Sensory/Cognitive Awareness and (4) Health/Physical/Behavior. ATEC is a caregiver-administered questionnaire designed to measure changes in the severity of autism in response to treatment. The scores from each subscale are combined in order to calculate a Total Score. A lower score indicates a lower severity of autism symptoms and a higher score correlates with more severe symptoms of autism.

Gilliam Autism Rating Scale (GARS)

GARS is one of the most widely used instruments for the assessment of ASD in the world. It is a 42-item norm-referenced screening instrument used for the assessment of individuals ages 3-22 who have severe behavioral problems that may be indicative of autism. It gathers information about specific characteristics typically noted in children with ASD in three areas: stereotyped behaviors, communication and social interaction. It also contains a Developmental Disturbances section. As the questions included in the developmental disturbances section of GARS refer to the condition of the patient during the patient’s first 36 months of age, the total score is calculated by adding the sum of the raw scores of the three subscales of stereotyped behaviors, communications and social interaction, but excluding the scores of developmental disturbances. A lower score indicates a lower severity of autism symptoms and a higher score correlates with more severe symptoms of autism.

Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS)

VADRS is a psychological assessment tool for parents of children aged 6 to 12 designed to measure the severity of ADHD symptoms. Developed by Mark Wolraich at the Oklahoma Health Sciences Center, this rating scale also includes items related to other disorders which are frequently comorbid with ADHD. Similar to ATEC and GARS, a lower score indicates a lower severity of ADHD symptoms and a higher score correlates with more severe symptoms of ADHD.

Swanson, Nolan, and Pelham (SNAP)-IV 26-item Parent Rating Scale (SNAP-IV-26)

SNAP-IV-26, which is an abbreviated version of the SNAP Questionnaire (Swanson, 1992; Swanson et al., 1983) and the same as the first 26 items of the VADRS, was also used. Items from the DSM-IV criteria for ADHD are included in the two subsets of symptoms: Inattentive (items 1 – 9) (score range from 0 – 27) and Hyperactivity/Impulsivity (items 10 – 18) (score range from 0 – 27). Also, items from the DSM-IV criteria for oppositional defiant disorder (ODD) are included (items 19 – 26) (score range from 0 – 24) because ODD is often present in children with ADHD. The lower the SNAP-IV-26 score, the fewer the problems. The scores provide an interpretation for severe, moderate, mild and no clinically significant symptoms.

Our Second Efficacy Trial in ADHD and ASD

We have conducted an uncontrolled second efficacy trial, commenced in August 2021, to evaluate the effects of our standardized TCM formulae on our first group of seven patients, who were from six to twelve years old and were clinically diagnosed with ADHD or ASD by their healthcare professionals at different levels of severity, by arranging them to be treated by the TCM Practitioner with the use of our standardized TCM formulae for up to three months. Requirements for participants were the same as those in our first research study.

Our second efficacy trial on the first group of patients showed similar improvements in patients’ symptoms. Within three months of receiving treatment using our standardized TCM formulae, our research showed that patients had attained better speech, communication, sociability, cognition and behavioral abilities. Their overall health, sleep quality and appetite had also improved. As part of the improvement process, patients had also experienced better bowel movement, sweating and temporary fatigue, which were expected by our TCM Practitioner.

Assessment Methodology

Each enrolled patient in our second efficacy trial stopped all his or her existing medical treatment for ADHD or ASD and was treated with a standardized TCM formulae for a period of three months. Patient’s symptoms were assessed through parent interviews and using the globally accepted assessment tools. We adopted the Sik-Kee Au TCM Brain Theory® for ADHD/ASD Assessment (SKATBT-A³), which is a 48-item questionnaire developed by the R&D team of Regencell Bioscience, designed to assess patients’ conditions that are commonly observed by the TCM Practitioner. Items assessed are indications of patients’ overall body and neurological conditions based on the TCM Practitioner’s brain theory and his over 30 years of experience in treating ADHD and ASD patients. The Autism Treatment Evaluation Checklist (ATEC) and the Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS) questionnaire again as our assessment tools in our second efficacy trial. In addition, we had used additional assessment tools, which were also parents’ filled questionnaires, to obtain different measurements of patients’ condition for evaluation. The parent’s qualitative and quantitative assessment scores on the patient’s behavior were compared before, during and after three months of treatment.

Our Leases

We currently maintain offices at Office A & B on 11^th Floor, First Commercial Building, 33-35 Leighton Road, Hong Kong. We entered a five-year fixed term lease agreement for the office space on July 15, 2019. The lease expires on July 14, 2024.

We have a separate office rental agreement with Ace United International Limited, which is a company wholly-owned by our founder and CEO. The monthly rent is $4,103 for the premises located at 21^st Floor, EIB Tower, 4-6 Morrison Hill Road, Wan Chai, Hong Kong. The agreement is renewable on an annual basis. The rental payment is expensed as incurred. The agreement was terminated in December 2021.

We entered into a three-year lease agreement for an office space at 9^th floor, Chinachem Leighton Plaza, 29 Leighton, Causeway Bay, Hong Kong, on August 9, 2021.

During the years ended June 30, 2023 and 2022, we entered into agreements to lease usage of staff quarters with third parties. Each of the leases was for a two-year term.

Regulation Related to our Business Operation in Hong Kong

The Legislative Council of Hong Kong, Chinese Medicines Council, Chinese Medicines Board and Chinese Medicines Regulatory Office of Department of Health of Hong Kong are independent and separate entities from China. Whilst Hong Kong is part of the People’s Republic of China (“PRC”), Hong Kong and the PRC are regarded as two separate jurisdictions in law and markets. Under the “One Country, Two Systems”, Hong Kong retains its own systems and way of life after the handover of sovereignty to the PRC in 1997. The Hong Kong Basic Law, being Hong Kong’s constitutional document, gives legal effect to the “One Country, Two Systems” policy.

Pursuant to the Basic Law, the laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene the Basic Law, and subject to any amendment by the Legislative Council of Hong Kong. The socialist system and policies shall not be practiced in Hong Kong, and the previous capitalist system and way of life shall remain unchanged for 50 years. Further, Hong Kong residents and other persons in Hong Kong shall have the obligation to abide by the laws in force in Hong Kong.

As we operate in Hong Kong, we have no assets or operation in PRC, nor have plan to commence operation in PRC, we do not believe that PRC laws or regulations regarding the TCM industry apply to us. Hence, within Hong Kong’s legal system, the laws and regulations of the PRC do not apply.

Hong Kong Chinese Medicine Ordinance (HKCMO)

The HKCMO provides licensing requirements for the sale and distribution of our TCM formulae candidates, registration and licensing requirements of our Chinese healthcare products, and future operations of our Chinese medicine clinics in Hong Kong. The HKCMO was passed by the Legislative Council of Hong Kong on July 14, 1999. The HKCMO is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the HKCMO in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Food and Health Bureau, the Department of Health and etc., as well as the Chinese Medicine Council of Hong Kong, have the implementation rights of the HKCMO. The Chinese Medicine Council of Hong Kong is the main regulator of the HKCMO.

Registration of TCM products and Chinese Healthcare Products

Some of our TCM products and Chinese healthcare products are classified as proprietary Chinese medicine (pCm), defined below, and others are classified as non-pCm. The key differences between pCm and non-pCm lie on their ingredients, dosage forms and intended use. Under section 2 of the HKCMO, pCm is defined as any proprietary product, which is formulated in a finished dose form and is known or claimed to be used for the diagnosis, treatment, prevention or alleviation of any disease or any symptom of a disease in human beings, or for the regulation of the functional states of the human body, composed solely of (i) any Chinese herbal medicines; (ii) any materials of herbal, animal or mineral origin customarily used by the Chinese, which should be documented in Chinese medicine classics or bibliographies, including but not limited to Pharmacopeia; or (iii) any medicine and materials referred to above, which is formulated in a finished dose form and is generally known or claimed to be used for the diagnosis, treatment, prevention or alleviation of any disease or for the regulation of the functional states of human body.

Section 119 of the HKCMO provides that no person shall sell, import or possess any pCm unless the pCm is registered with the Chinese Medicines Board. Application for registration of a pCm shall be submitted to the Department of Health Chinese Medicines Board in the manner prescribed in section 121 of the HKCMO. Pursuant to section 120 of the HKCMO, the application for registration of any pCm shall be made by the manufacturer of the pCm manufactured in Hong Kong, or by the importer or local representative or agent of the manufacturer of pCm manufactured outside Hong Kong.

Any person who contravenes section 119 of the HKCMO commits an offense and is liable to a maximum fine of HK$100,000 and imprisonment for two years.

Manufacture, Sale and Distribution of TCM Products and Chinese Healthcare Products

The HKCMO provides that manufacturers and traders in pCm shall obtain a license issued by the Chinese Medicines Board. Section 131 of the HKCMO provides that no person shall manufacture any pCm, whether registered or not, without a manufacturer license, or at any place other than the premises specified in such license.

Any person who contravenes section 131 or 134 of the HKCMO commits an offense and is liable to a maximum fine of HK$100,000 and imprisonment for two years.

Labeling Requirements and Package Inserts for Chinese Healthcare Products

The Chinese Medicines Regulation is not a PRC legislation but is a Hong Kong legislation. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Chinese Medicines Regulation in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Food and Health Bureau, the Department of Health and etc., as well as the Chinese Medicine Council of Hong Kong, have the implementation rights of Chinese Medicines Regulation. The Chinese Medicine Council of Hong Kong is the main regulator of Chinese Medicines Regulation.

Sections 143 and 144 of the HKCMO provide that a pCm shall not be sold or possessed for the purpose of selling in Hong Kong unless the package of the product is labeled in the prescribed manner and contains a package insert which complies with the prescribed requirements. Pursuant to Regulations 26 and 28 of the Chinese Medicines Regulation (Chapter 549F of the Laws of Hong Kong) (the “Chinese Medicines Regulation”), all pCm shall be properly labeled and attached with package inserts. The label on a package of pCm shall include the following particulars: the name of the medicine; the name of each active ingredient used (if the pCm is composed of three or more kinds of active ingredients, the names of more than half of the active ingredients are required); the registration number on the certificate of registration; the holder of the registration certificate or the manufacturer (if the package is the outermost one, the name of the holder of the certificate of registration is necessary); the name of the country or territory in which the medicine is produced; the packing specification; dosage and method of usage; expiry date; and batch number. The package insert of the pCm shall include the following particulars: the name of the medicine; the name and quantity of each active ingredient used (if the pCm is composed of three or more kinds of active ingredients, the names and quantities of more than half of the active ingredients are required); the name of the holder of certificate of registration or the manufacturer; the dosage and method of usage; functions or pharmacological action; storage instructions; and packing specification. As for the indications, contra-indications, side effects, toxic effects and precautions, they should be included on the package insert as far as practicable.

Any person who contravenes section 143 or 144 of the HKCMO commits an offense and is liable to a maximum fine of HK$100,000 and imprisonment for two years. 

Food Safety Ordinance

Food Safety Ordinance (Chapter 612 of the Laws of Hong Kong) (the “Food Safety Ordinance”) establishes a registration scheme for food importers and food distributors, to require the keeping of records by persons who acquire, capture, import or supply food and to enable food import controls to be imposed. Food Safety Ordinance is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Food Safety Ordinance in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Food and Health Bureau, the Food and Environmental Hygiene Department and etc., has the implementation rights of the Food Safety Ordinance. The Food and Environmental Hygiene Department is the main regulator of the Food Safety Ordinance. As some of our Chinese healthcare products which are non-pCm fall within the definition of food, our company is subject to the regulations under the Food Safety Ordinance.

Food Safety Ordinance may be applicable since we cannot determine whether the ultimate product(s) to be commercialized would be classified by the regulatory body as Chinese herbal medicines, healthcare products, food for ordinary consumption, or otherwise. The precise content of the standardized TCM formulae candidates are subject to further changes and development along with our second efficacy trial. Accordingly, the precise ingredients of TCM products or product candidates will be determined at a later stage of our research and development.

Registration as Food Importer or Distributor

Sections 4 and 5 of the Food Safety Ordinance require any person who carries on a food importation business or food distribution business to register with the Food and Environmental Hygiene Department of Hong Kong as a food importer or food distributor. Any person who does not register but carries on a food importation or distribution business, without reasonable excuse, commits an offense and is liable to a maximum fine of HK$50,000 and imprisonment for six months.

Record-keeping Requirement relating to Supply of Food

Section 24 of the Food Safety Ordinance provides that a person who, in the course of business, supplies food in Hong Kong by wholesale must record the following information about the supply: (i) the date the food was supplied; (ii) the name and contact details of the person to whom the food was supplied; (iii) the total quantity of the food; and (iv) a description of the food. Such record shall be made under this section within 72 hours after the time the supply took place.

Any person, who fails to comply with the record-keeping requirement without reasonable excuse or knowingly or recklessly includes in the record information that is false in a material particular, commits an offense and is liable to a maximum fine of HK$10,000 and imprisonment for three months.

Import and Export Ordinance

The Import and Export Ordinance (Chapter 60 of the Laws of Hong Kong) (the “Import and Export Ordinance”) is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Import and Export Ordinance in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Customs and Excise Department, the Trade and Industry Department and etc., has the implementation rights of the Import and Export Ordinance. The Customs and Excise Department and the Trade and Industry Department are the main regulators of the Import and Export Ordinance.

Pursuant to sections 6C and 6D of the Import and Export Ordinance and Schedules 1 and 2 to the Import and Export (General) Regulations (Chapter 60A of the Laws of Hong Kong), any person who imports or exports any of the Chinese herbal medicines set out in Schedule 1 to the HKCMO and five specific types in Schedule 2 to the HKCMO (namely Flos Campsis (淩霄花), Processed Radix Aconiti (製川烏), Processed Radix Aconiti Kusnezoffii (製草烏), Radix Clematidis (威靈仙) and Radix Gentianae (龍膽)) as well as any pCm under the HKCMO shall apply for an import or export license.

Any person importing or exporting of the aforesaid Chinese herbal medicines and pCm without an import or export license commits an offense and is liable to a fine of HK$500,000 and imprisonment for two years, or on conviction on indictment to a fine of HK$2,000,000 and imprisonment for seven years.

Public Health and Municipal Services Ordinance

The Public Health and Municipal Services Ordinance (Chapter 132 of the Laws of Hong Kong) (the “Public Health Ordinance”) is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Public Health Ordinance in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Food and Health Bureau, the Home Affairs Bureau, the Drainage Services Department, the Food and Environmental Hygiene Department, the Leisure and Cultural Services Department, the Department of Health, the Lands Department, the Buildings Department, etc., has the implementation rights of the Public Health Ordinance. The Food and Environmental Hygiene Department is the main regulator of the Public Health Ordinance.

The legal framework for food safety control in Hong Kong is set out in Part V of the Public Health Ordinance and the relevant sub-legislations thereunder. The Public Health Ordinance requires the manufacturers and sellers of food to ensure that their products are fit for human consumption and comply with the requirements in respect of food safety, food standards and labeling. As some of our Chinese healthcare products which are non- pCm fall within the definition of food, our company is subject to the regulations under the Public Health Ordinance.

Section 50 of the Public Health Ordinance prohibits the manufacture, advertising and sale in Hong Kong of food or drugs that are injurious to health. Any person who fails to comply with this section commits an offence and is liable to a maximum fine of HK$10,000 and imprisonment for three months.

Pursuant to section 52 of the Public Health Ordinance, subject to the statutory defenses set out under section 53 of the Public Health Ordinance, where a seller sells to the prejudice of a purchaser any food or drug which is not of the nature, substance or quality of the food or drug demanded by the purchaser, the seller commits an offense and is liable to a maximum fine of HK$10,000 and imprisonment for three months.

Pursuant to section 54 of the Public Health Ordinance, any person who sells or offers for sale any food intended for, but unfit for, human consumption, or any drug intended for use by human but unfit for the purpose, commits an offense and is liable to a maximum fine of HK$50,000 and imprisonment for six months.

Section 61(1) of the Public Health Ordinance provides that it shall be an offense for any person who gives with any food or drug sold by him/her or displays with any food or drug exhibited for sale by him/her any label which falsely describes the food or drug or is calculated to mislead as to its nature, substance or quality. Furthermore, pursuant to section 61(2) of the Public Health Ordinance, it shall be an offense if any person publishes or is a party to the publication of an advertisement falsely describing any food or drug or is likely to mislead as to the nature, substance or quality of any food or drug. Any person who commits an offense under this section is liable to a maximum fine of HK$50,000 and imprisonment for six months.

Food and Drugs (Composition and Labelling) Regulations

Food and Drugs (Composition and Labelling) Regulations (Chapter 132W of the Laws of Hong Kong) (the “Food and Drugs Regulations”), a subsidiary legislation under the Public Health Ordinance, regulates the advertising and labeling of food. Food and Drugs Regulations is not a PRC legislation but is a Hong Kong legislation. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Food and Drugs Regulations in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Food and Environmental Hygiene Department, etc., has the implementation rights of the Food and Drugs Regulations. The Food and Environmental Hygiene Department is the main regulator of the Food and Drugs Regulations.

Regulation 3 of the Food and Drugs Regulations provides that the manufacturing of foods and drugs shall be up to the standards as specified under Schedule 1 to the Food and Drugs Regulations. Any person who advertises for sale, sells or manufactures for sale any food or drug which does not conform to the relevant requirements as to composition prescribed in Schedule 1 to the Food and Drugs Regulations commits an offense and is liable to a fine of HK$50,000 and imprisonment for six months.

Regulation 4A of the Food and Drugs Regulations demands all pre-packaged food and products sold by the Group (except for those listed in Schedule 4 to the Food and Drugs Regulations) to be marked and labeled in the manner prescribed in Schedule 3 to the Food and Drugs Regulations. Schedule 3 to the Food and Drugs Regulations contains labeling requirements in respect of stating the product’s name or designation, ingredients, “best before” or “use by” date, special conditions for storage or instruction for use, manufacturer’s or packer’s name and address, and quantity, weight or volume, and also includes requirements on the appropriate language or languages for marking or labeling of prepackaged food. Any person who contravenes such requirements commits an offense and is liable to a fine of HK$50,000 and imprisonment for six months.

Pursuant to regulation 4B of the Food and Drugs Regulations, prepackaged food sold by the Group should be marked or labeled with its energy value and nutrient content in the manner prescribed in Part 1 of Schedule 5 to the Food and Drugs Regulations, and nutrition claims, if any, made on the label of the product or in any advertisement for the product should comply with Part 2 of Schedule 5 to the Food and Drugs Regulations. Contravention of those requirements may result in a conviction liable to a maximum fine of HK$50,000 and imprisonment for six months.

Trade Marks Ordinance

Trade Marks Ordinance (Chapter 559 of the Laws of Hong Kong) (the “Trade Marks Ordinance”) provides for the registration of trademarks, the use of registered trademarks and related matters. As Hong Kong provides territorial protection for trademarks, trademarks registered in other countries or regions are not automatically entitled to protection in Hong Kong. In order to enjoy protection by the laws of Hong Kong, trademarks shall be registered with the Trade Marks Registry of the Intellectual Property Department under the Trade Marks Ordinance and the Trade Marks Rules (Chapter 599A of the Laws of Hong Kong) (the “Trade Marks Rules”).

Trade Marks Ordinance is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Trade Marks Ordinance in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Intellectual Property Department and etc., has the implementation rights of the Trade Marks Ordinance. The Intellectual Property Department is the main regulator of the Trade Marks Ordinance.

Section 10 of the Trade Marks Ordinance provides that a registered trademark is a property right acquired through due registration under the Trade Marks Ordinance, through which the owner of a registered trademark is entitled to the statutory rights provided thereunder.

By virtue of section 14 of the Trade Marks Ordinance, the owner of a registered trademark is conferred exclusive rights in the trademark. The rights of the owner in respect of the registered trademark come into existence from the date of the registration of the trademark. Pursuant to section 48 of the Trade Marks Ordinance, the registration date is the filing date of the application for registration.

Subject to the exceptions under sections 19 to 21 of the Trade Marks Ordinance, any use of the trademark by third parties without the consent of the owner is an infringement of the trademark. Section 18 of the Trade Marks Ordinance further specifies the conducts which amount to infringement of the registered trademark. In event that infringement by any third party occurs, the owner of the registered trademark is entitled to remedies under the Trade Marks Ordinance, such as infringement proceedings under sections 23 and 25 of the Trade Marks Ordinance.

Trademarks which are not registered under the Trade Marks Ordinance and the Trade Marks Rules may still be protected by the common law action of passing off, which requires proof of the owner’s reputation in the unregistered trademark and that use of the trademark by third parties will cause damage to the owner.

Sale of Goods Ordinance

Sale of Goods Ordinance (Chapter 26 of the Laws of Hong Kong) (the “Sale of Goods Ordinance”) provides, inter alia, that where a seller sells goods in the course of a business, there is an implied condition that (i) where the goods are purchased by description, the goods shall correspond with the description; (ii) the goods supplied are of merchantable quality; and (iii) the goods shall be fit for the purpose for which they are purchased. Otherwise, a buyer has the right to reject the defective goods unless he or she has a reasonable opportunity to examine the goods. A breach of the implied term may give rise to a civil action for breach of contract by the customers. However, no criminal liability arises from such breach of implied term.

Sale of Goods Ordinance is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Sale of Goods Ordinance in accordance with the provisions of the Hong Kong Basic Law and legal procedures. As the Sale of Goods Ordinance only provides for civil courses of action, there is no regulator or implementer for this ordinance.

Employment Ordinance (Chapter 57 of the Laws of Hong Kong)

The Employment Ordinance (Chapter 57of the Laws of Hong Kong) (the “Employment Ordinance” or the “EO”) is an ordinance enacted for, amongst other things, the protection of the wages of employees and the regulation of the general conditions of employment and employment agencies. Employment Ordinance is not a PRC legislation but is Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the Employment Ordinance in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Labor Department, the Department of Health, the Labor Tribunal, etc., has the implementation rights of the Employment Ordinance. The Labor Department is the main regulator of the Employment Ordinance.

Under the Employment Ordinance, an employee is generally entitled to, amongst other things, notice of termination of his or her employment contract; payment in lieu of notice; maternity protection in the case of a pregnant employee; not less than one rest day in every period of seven days; severance payments or long service payments; sickness allowance; statutory holidays or alternative holidays; and paid annual leave of up to 15 days depending on the period of employment.

Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong)

The Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) (the “ECO”), is an ordinance enacted for the purpose of providing for the payment of compensation to employees injured in the course of employment. The ECO is not a PRC legislation but is a Hong Kong ordinance. As with all other Hong Kong legislations, according to the laws of Hong Kong, the Legislative Council of Hong Kong has the power and function to amend the ECO in accordance with the provisions of the Hong Kong Basic Law and legal procedures. The Hong Kong Government, including but not limited to the Department of Justice, the Hong Kong Police Force, the Labor Department, the Department of Health and etc., has the implementation rights of the ECO. The Labor Department is the main regulator of the ECO.

As stipulated by the ECO, no employer shall employ any employee in any employment unless there is in force in relation to such employee a policy of insurance issued by an insurer for an amount not less than the applicable amount specified in the Fourth Schedule of the ECO in respect of the liability of the employer. According to the Fourth Schedule of the ECO, the insured amount shall be not less than HK$100,000,000 per event if a company has no more than 200 employees. Any employer who contravenes this requirement commits a criminal offense and is liable on conviction to a fine and imprisonment. An employer who has taken out an insurance policy under the ECO is required to display a prescribed notice of insurance in a conspicuous place on each of its premises where any employee is employed.

C. Organizational Structure

See “Item 4. Information on the Company – A. History and Development of the Company.”

D. Property, Plants and Equipment

See “Item 4. Information on the Company – B. Business Overview – Our Leases.”

Item 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this Annual Report on Form 20-F.

Overview

We are a holding company incorporated on October 30, 2014, under the laws of the Cayman Islands, and conduct our business in Hong Kong through our wholly-owned subsidiaries, Regencell Bioscience Limited, a company incorporated in Hong Kong on May 12, 2015, Regencell Limited, a company incorporated in Hong Kong on November 20, 2014, and Regencell Bioscience North America Limited, a company incorporated in the British Virgin Islands on April 25, 2022, and a 60% joint venture, Regencell Bioscience Asia Limited, a company incorporated in Hong Kong on September 17, 2021. We are an early-stage bioscience company that focuses on research, development, and commercialization of TCM for the treatment of neurocognitive disorders and degeneration, specifically ADHD and ASD. Our goal is to save and improve the lives of ADHD, ASD and COVID patients, their families and caregivers and become a market leader for the best natural and holistic treatment globally.

Our TCM formulae candidates are derived from a TCM base formula and an adjustable formula developed by our TCM Practitioner based on his TCM brain theory, known as “Sik-Kee Au TCM Brain Theory^®”, and has demonstrated reduced severity in patients’ ADHD and ASD conditions, as reflected in lower SKATBT-A³, ATEC, GARS, VADRS and SNAP-IV-26 assessment scores, using the personalized TCM formula in our first research study. The activity and specificity of the TCM base formula have been optimized by the TCM Practitioner in his prior ADHD and ASD treatments. As of the date hereof, the TCM Practitioner has standardized the adjustable formula into three Fixed Adjusted Formula for mild, moderate and severe ADHD and ASD conditions. The TCM brain theory is not recognized in general literature of TCM or elsewhere. However, the TCM Practitioner has prescribed the TCM formula based on his TCM brain theory for over 30 years to treat ADHD, ASD and many neurological illnesses, disorders and degeneration and obtained satisfactory clinical treatment results. Such clinical treatment results are not supported by controlled clinical data or trials.

We aim to launch three standardized liquid-based TCM formulae candidates for mild, moderate and severe ADHD and ASD patients in Hong Kong first and subsequently to other markets as we deem appropriate. We have been headquartered in Hong Kong since inception.

As COVID vaccination rates in the Asian region are low and COVID infections and death rates are rising rapidly, there is a pressing need for a COVID treatment that can be widely available and easily accessible. Since March 2020, Mr. Sik-Kee Au, Regencell’s strategic partner TCM practitioner, started to develop a TCM treatment formula targeting COVID patients. So far, 12 patients (suspected or confirmed COVID cases) have been treated, and their health records showed improvements after an average treatment period of 5 days.

On September 2, 2021, Regencell Bioscience Limited, a Hong Kong company and wholly-owned subsidiary of Regencell Bioscience Holdings Limited, entered into a joint venture agreement (the “JV Agreement”) with Honor Epic, a company incorporated in the British Virgin Islands, to form a joint venture, Regencell Bioscience Asia Limited (the “JV”), under the laws of Hong Kong (the “Joint Venture”). Regencell Bioscience Limited and Honor Epic plan to work together to make this treatment available in the ASEAN countries, India, Japan, Australia and New Zealand. The principal business of the JV shall be to trade, manufacture, market and distribute TCM formulae products, procure, enable, provide or support the treatment of COVID using TCM in the ASEAN countries, India, Japan, Australia and New Zealand.

The Initial Public Offering

On July 20, 2021, we completed our IPO of 2,300,000 Ordinary Shares, $0.00001 par value per share at an offering price of $9.50 per share, generating gross proceeds of approximately $21.85 million. On August 17, 2021, the underwriter of the IPO exercised its option to purchase 325,000 additional Over-allotment Shares at a price of $9.50 per share. The closing of the sale of the Over-allotment Shares took place on August 19, 2021. The net proceeds of the IPO, including proceeds from the sale of Over-allotment Shares, totaled approximately $22.67 million, after deducting underwriting discounts and other related expenses, of approximately of $2.26 million.

Public Offering Warrants

In connection with and upon closing of the IPO and over-allotment on July 20, 2021 and August 19, 2021, respectively, we issued warrants equal to 2.5% of the shares issued in the IPO, totaling 57,500 units and 8,125 units to the placement agents for the offering. The warrants carry a term of five years, and shall not be exercisable for a period of 180 days from the closing of the IPO and shall be exercisable at a price equal to $10.45 per share. All warrants were issued and exercised.

Recent Developments

Strategic Partnership Agreement with TCM Practitioner

In January 2018, Regencell Bioscience Limited entered into the Strategic Partnership Agreement with the TCM Practitioner, the father of our CEO and director. Pursuant to the Strategic Partnership Agreement we have with TCM Practitioner, we have exclusive rights and ownership of (1) all his TCM formulae and (2) the intellectual property rights of the TCM formulae, including research and development, trademark, copyright, patent and any other intellectual property rights in relation to the TCM formulae that the TCM Practitioner develops. Pursuant to the Strategic Partnership Agreement, the TCM Practitioner is responsible for research and development of TCM formulae, while, any inventions, TCM formulae, utilities, improvements, research, discoveries, designs, processes, methods of manufacture and products conceived or made by the TCM Practitioner in relation to TCM shall be the sole and exclusive property of us.

Pursuant to the Strategic Partnership Agreement, in exchange for the rights, we are required to donate three percent (3.0%) of net revenue that Regencell Bioscience Limited generates in association with the use and/or commercialization of the TCM formulae treatment to any charitable institutions and/or trusts of a public character anywhere in the world at the sole and absolute choice of the TCM Practitioner, or his assignee, and in such proportion at the sole and absolute discretion of the TCM Practitioner on a yearly basis. We also undertake to pay for all reasonable costs and expenses incurred by the TCM Practitioner in conducting research, testing, attending meetings/seminars, compiling records, or performing any similar acts in relation to the development of the TCM formulae and TCM inventions.

On November 10, 2020, Regencell Bioscience Limited entered into a Supplemental Agreement with the TCM Practitioner. Under the Supplemental Agreement, the TCM Practitioner shall provide his research by using his best endeavors on his TCM formulae and TCM inventions under our direction and supervision. We have authorized the TCM Practitioner, his agents, subcontractors, development team, and affiliates to use TCM formulae and TCM Inventions to conduct research. However, they shall not directly or indirectly publish, disseminate or otherwise disclose, deliver or make available to any third party any confidential information, without our prior written notice. The TCM Practitioner also shall not be directly or indirectly concerned with or engaged or interested in any other business which is in any respect in competition with or similar to the TCM business conducted by us for two years after the expiration or termination of the Supplemental Agreement.

We shall pay the TCM Practitioner for his expenses on his TCM research within 30 days upon the receipt of invoice. The Supplemental Agreement shall remain effective until the Strategic Partnership Agreement is expired or terminated. We can terminate the Supplemental Agreement without cause without any indemnity or damages being due to TCM Practitioner with 30 days prior written notice.

Establishment of a Joint Venture to offer COVID Treatment

On September 2, 2021, Regencell Bioscience Limited entered into a joint venture agreement Honor Epic to form a joint venture under the laws of Hong Kong. Regencell Bioscience Limited and Honor Epic plan to work together to make this treatment available in the ASEAN countries, India, Japan, Australia and New Zealand. The principal business of the JV shall be to trade, manufacture, market and distribute TCM formulae products, procure, enable, provide or support the treatment of COVID using TCM in the ASEAN countries, India, Japan, Australia and New Zealand.

As COVID vaccination rates in the Asian region are low and COVID infections and deaths rates are rising rapidly, there is a pressing need for a COVID treatment that can be widely available and easily accessible. Since March 2020, Mr. Sik-Kee Au, Regencell’s strategic partner TCM practitioner, started to develop a Traditional Chinese Medicine treatment formula targeting COVID patients. So far, 12 patients (suspected or confirmed COVID cases) have been treated, and their health records showed improvements after an average treatment period of five days.

Regencell Bioscience Limited and Honor Epic plan to work together to make this treatment available in the ASEAN countries, India, Japan, Australia and New Zealand. Regencell will own 60% of the JV with customary drag-along option. The principal business of the JV shall be to trade, manufacture, market and distribute TCM formulae products, procure, enable, provide or support the treatment of COVID using TCM in the ASEAN countries, India, Japan, Australia and New Zealand.

The research of JV in COVID treatment is highly uncertain and Regencell cannot guarantee timing of completion of this research and commercialization of COVID treatment in any countries. Regencell will be posting updates regarding treatments in the fight against COVID on its website soon.

Financial Operations Overview

Impact of COVID-19 on Our Business

The worldwide COVID-19 pandemic may affect our ability to initiate and complete research studies, delay the initiation of our future research studies, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to raise funds to support our operations.

To date, we have not experienced material business disruptions or impairments of any of our assets as a result of the pandemic. We are following and plan to continue to follow recommendations from local governments regarding workplace policies, practices and procedures. We expect to continue to monitor the situation and take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners. We are continuing to monitor the potential impact of the pandemic, but we cannot be certain what the overall impact will be on our business, financial condition, results of operations and prospects.

Revenue

We have not generated any revenue from the sale of any products, and we do not expect to generate any revenue until we commercialize our standardized TCM formulae products for ADHD and ASD patients in Hong Kong.

Selling and Marketing Expenses

Expenses in marketing were mainly for marketing initiatives and sponsorship with Non-Governmental Organizations (“NGOs”) and institutions that serves families with ADHD and ASD children, who voluntary sign up as qualified patients to be enrolled in our efficacy trial in the future. As we commercialize our TCM formulae products, we expect that we would incur increased selling and marketing expenses associated with hiring a sales and marketing team, engaging external sales and marketing professional services, and media coverage.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, compensation, legal and accounting fees, as well as office rental, computer equipment and software and utilities.

We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company including expenses related to services associated with maintaining compliance with Nasdaq Stock Market listing rules and SEC requirements and investor relations costs.

Research and Development Expenses

Since our inception, our operations have primarily been limited to the research studies of the proprietary TCM formulae. Our research and development expenses to date consist mainly of employee salaries and related benefits, office rental and depreciation.

Research and development activities will continue to be central to our business model and we expect to significantly increase our research and development efforts in the future. Future research and development expenses will include employee-related expenses, such as salaries, share-based compensation, benefits and travel expense for the research and development personnel that we plan to hire and treatment costs in connection with conducting research studies.

Results of Operations

Results of Operations for the Years Ended June 30, 2023 and 2022

The following table sets forth our results of operations for the year ended June 30, 2023 compared to the year ended June 30, 2022:

Revenue

We have not generated any revenue from the sale of any products for the years ended June 30, 2023 and 2022, respectively.

Selling and Marketing Expenses

Selling and marketing expenses were $0.3 million and $0.03 million for the years ended June 30, 2023 and 2022, respectively. The expenses were primarily attributable to marketing initiatives and sponsorship with Non-Governmental Organizations and institutions that serves families with ADHD and ASD children, who voluntary sign up as qualified patients to be enrolled in our efficacy trial in the future during those periods.

The increased expenses in selling and marketing expenses in the year ended June 30, 2023 compared with the year ended June 30, 2022 were mainly due to increase in the expenses through marketing initiatives.

General and Administrative Expenses

General and administrative expenses were $4.4 million and $5.1 million for the years ended June 30, 2023 and 2022, respectively, and were primarily attributable to employee salaries and related benefits, office rental, depreciation, legal, professional fees and consulting services associated with the formation of our company, corporate matters and certain direct and indirect costs associated with services obtained by our company.

The decreased general and administrative expenses in the year ended June 30, 2023 compared with the year ended June 30, 2022 were mainly attributable to (i) approximately $0.6 million decrease in amortization of share-based compensation for our general and administrative personnel, (ii) approximately $0.4 million decrease in professional fees, such as legal services and public relations services as we became a public company listed on the Nasdaq Capital Market, and offset by (iii) approximately $0.3 million increase in traveling, meetings and others mainly due to more business activities since our operation is expanding.

Research and Development Expenses

Research and development expenses were $1.6 million and $2.5 million for the years ended June 30, 2023 and 2022, respectively, and were primarily attributable to employee salaries and related benefits, office rental, depreciation, and other third-party services associated with efficacy trials.

The decreased research and development expenses in the year ended June 30, 2023 compared with the year ended June 30, 2022 were mainly attributable to (i) approximately $1.2 million decrease in amortization of share-based compensation for our research and development personnel and offset by (ii) approximately $0.1 million increase in salaries due to the increase in the salaries payments,  (iii) approximately $0.05 million increase in expenses from TCM formulae and materials for product development, (iv) approximately $0.05 million increase in rental expenses and building management fee for rental of office and staff quarters and (iv) approximately $0.1 million increase in services fee for research support, testing equipment and others mainly due to more research and development activities incurred during the year.

Other Income, Net

Other income, net was $0.2 million and $0.02 million for the year ended June 30, 2023 and 2022. The other income was primarily attributable to the receipt of government grants in respect of COVID-19-related subsidies, the Employment Support Scheme provided by the Hong Kong Government under the Anti-Epidemic Fund and the interest income generated from short-term investment. The increase in other income was mainly because (i) approximately $0.01 million increase in subsidies received and (ii) approximately $0.17 million increase in interest income received from short-term investment and bank deposits during the year ended June 30, 2023 when compared to the year ended June 30, 2022.

Provision for Income Taxes

We did not have any provision for income taxes for the years ended June 30, 2023 and 2022.

Net Loss

As a result of the foregoing, we had net loss of $6.1 million and $7.6 million for the years ended June 30, 2023 and 2022, respectively.

Results of Operations for the Years Ended June 30, 2022 and 2021

The following table sets forth our results of operations for the year ended June 30, 2022 compared to that of the year ended June 30, 2021:

Revenue

We have not generated any revenue from the sale of any products for the years ended June 30, 2022 and 2021, respectively.

Selling and Marketing Expenses

Selling and marketing expenses were $0.03 million and $0.002 million for the years ended June 30, 2022 and 2021, respectively. The expenses were primarily attributable to marketing initiatives and sponsorship with Non-Governmental Organizations and institutions that serves families with ADHD and ASD children, who voluntary sign up as qualified patients to be enrolled in our efficacy trial in the future during those periods.

The increased expenses in selling and marketing expenses in the year ended June 30, 2022 compared with the year ended June 30, 2021 were mainly due to increase in the expenses through marketing initiatives. 

General and Administrative Expenses

General and administrative expenses were $5.1 million and $0.9 million for the years ended June 30, 2022 and 2021, respectively, and were primarily attributable to employee salaries and related benefits, office rental, depreciation, legal, professional fees and consulting services associated with the formation of our company, corporate matters and certain direct and indirect costs associated with services obtained by our company.

The increased general and administrative expenses in the year ended June 30, 2022 compared with the year ended June 30, 2021 were mainly attributable to (i) approximately $1.5 million in amortization of share-based compensation for our general and administrative personnel, (ii) approximately $0.8 million increase in professional fees, such as legal services and public relations services as we became a public company listed on the Nasdaq Capital Market, (iii) approximately $0.8 million increase in salaries due to the increase in the number of staff and bonus payments, (iv) approximately $0.5 million increase in rental expenses due to the rental of new office and staff quarters, and (v) approximately $0.5 million increase in traveling, meetings and others mainly due to more business activities.

Research and Development Expenses

Research and development expenses were $2.5 million and $0.4 million for the years ended June 30, 2022 and 2021, respectively, and were primarily attributable to employee salaries and related benefits, office rental, depreciation, and other third-party services associated with efficacy trials.

The increased research and development expenses in the year ended June 30, 2022 compared with the year ended June 30, 2021 were mainly attributable to (i) approximately $1.2 million in amortization of share-based compensation for our research and development personnel, (ii) approximately $0.2 million increase in salaries due to the increase in the number of staff and bonus payments, (iii) approximately $0.3 million increase in rental expenses due to the rental of office and staff quarters and (iv) approximately $0.3 million in expenses from TCM formulae and materials for product development.

Other Income, Net

Other income, net was $0.02 million and $0.03 million for the year ended June 30, 2022 and 2021. The other income was primarily attributable to the receipt of government grants in respect of COVID-19-related subsidies, the Employment Support Scheme provided by the Hong Kong Government under the Anti-Epidemic Fund. The decrease in other income was mainly because less subsidies were received during the year ended June 30, 2022 when compared to the year ended June 30, 2021.

Provision for Income Taxes

We did not have any provision for income taxes for the year ended June 30, 2022 and 2021.

Net Loss

As a result of the foregoing, we had net loss of $7.6 million and $1.3 million for the years ended June 30, 2022 and 2021, respectively.

Taxation

Cayman Islands and British Virgin Islands (“BVI”)

We are incorporated in the Cayman Islands and our primary business operations are conducted through our subsidiaries. Under the current laws of the Cayman Islands and BVI, we are not subject to tax on income or capital gains.

Hong Kong Profits Taxation

Our subsidiaries incorporated in Hong Kong were subject to 16.5% Hong Kong profits tax on their taxable income assessable profits generated from operations arising in or derived from Hong Kong for the year of assessment of 2021/2022 and 2022/2023. As from year of assessment of 2020/2021 onwards, Hong Kong profits tax rates are 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000.

In December 2022, a refined Foreign-sourced Income Exemption (“FSIE”) regime was published in Hong Kong and took effect from January 1, 2023. Under the new FSIE regime, certain foreign sourced income would be deemed as being sourced from Hong Kong and chargeable to Hong Kong Profits Tax, if the recipient entity fails to meet the prescribed exception requirements. Certain dividends, interests, disposal gains and intellectual property income, if any, received by us and our Hong Kong subsidiaries will be subject to the new tax regime. Based on our preliminary analysis, we do not believe this legislation will have a material impact on our financial statements. We will monitor the regulatory developments and continue to evaluate the impact, if any. In addition, payments of dividends from our Hong Kong subsidiary to us are not subject to any withholding tax in Hong Kong.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

We have incurred recurring negative cash flows since inception and have funded our operations primarily from shareholder loans and proceeds from IPO, including over-allotments in the IPO. Prior to the completion of IPO, we received funding in the form of shareholder loans to support our operating needs, which was provided by our CEO.

On November 10, 2020, we entered into a loan agreement with Mr. Yat-Gai Au, our founder, director and CEO, to evidence the existing loan and document our oral agreements of the terms and conditions of such existing loan when such loan was initially generated. The loan agreement also sets forth that Mr. Yat-Gai Au will continue to make loans to us for operations and research activities. The maturity date of such loans was June 30, 2021, subject to indefinite extension if agreed by the parties in writing.

On February 2, 2021, a loan extension agreement was entered by Mr. Yat-Gai Au and Regencell Bioscience Limited, pursuant to which Mr. Yat-Gai Au agreed to provide up to $3 million in the form of loans or make payments on behalf of us during the period from January 1, 2021 to June 30, 2022 to support our operations and research activities for the period from January 1, 2021 to June 30, 2022 and further extend the maturity date of the existing loans from June 30, 2021 to December 31, 2022.

On March 18, 2021, a supplemental loan agreement was entered by and between Regencell Bioscience Limited and Mr. Yat-Gai Au, pursuant to which Mr. Yat-Gai Au will convert his shareholder loans in the amount of $3.25 million for the receipt of a convertible promissory note (the “Note”) issued by us in the principal amount of $3,250,000. On March 18, 2021, we issued the Note to Mr. Yat-Gai Au in the principal amount of $3,250,000, automatically convertible into our Ordinary Shares, upon the completion of our IPO at the same price as the offering price per Ordinary Shares to be issued in the IPO. The Note does not carry any interest. The Note, if not automatically converted, will mature and become payable twelve months after the issuance date of the Note.

With the completion of its IPO and debt conversion, our ability to continue as a going concern was greatly improved. As of June 30, 2023, we had a total of $11.6 million in cash and short-term investment. Our cash and short-term investment consist primarily of cash on hand and time deposits placed with banks, which are unrestricted as to withdrawal and use.

We believe that our current cash and short-term investments balance as of June 30, 2023 is sufficient to fund our operating activities, capital expenditures and other obligations for at least the next twelve months from the date the audited financial statements were issued. However, we may decide to enhance our liquidity position or increase our cash reserve for future expansions and acquisitions through additional capital and/or finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

The following summarizes the key components of our cash flows for the years ended June 30, 2023, 2022 and 2021.

Cash Flows

Operating Activities

Fiscal Years Ended June 30, 2023 and 2022

For the years ended June 30, 2023 and 2022, net cash used in operating activities were $4.96 million and $5.27 million, respectively. Net cash used in operating activities was primarily attributable to rental of offices and staff quarters, the hiring of our executive staff, research and development, ramped up marketing efforts and general and administrative activities.

Fiscal Years Ended June 30, 2022 and 2021

For the years ended June 30, 2022 and 2021, net cash used in operating activities were $5.27 million and $0.77 million, respectively. Net cash used in operating activities was primarily attributable to new offices and staff quarters, the hiring of our executive staff, research and development, ramped up marketing efforts and general and administrative activities.

Investing Activities

Fiscal Years Ended June 30, 2023 and 2022

For the years ended June 30, 2023 and 2022, net cash provided by (used in) investing activities were $0.06 million and $10.8 million, respectively. Net cash provided by investing activities during the year ended June 30, 2023 was primarily attributable to the mature of short-term investment. On the other hand, the net cash used in investing activities during the year ended June 30, 2022 was primarily attributable to placement of $10 million in a short-term investment; renovation of our new office space and purchase of property and equipment.

Fiscal Years Ended June 30, 2022 and 2021

For the years ended June 30, 2022 and 2021, net cash used in investing activities were $10.8 million and nil, respectively. Net cash used in investing activities was primarily attributable to the renovation of our new office space and purchase of property and equipment. Moreover, we had placed $10 million in a short-term investment which increased the cash used in investing activities for the year ended June 30, 2022.

Financing Activities

Fiscal Years Ended June 30, 2023 and 2022

For the years ended June 30, 2023 and 2022, net cash from financing activities were $0.1 million and $22.4 million, respectively. Net cash from financing activities was primarily attributable to capital contribution from non-controlling interest of subsidiary and net proceeds from initial public offerings.

Fiscal Years Ended June 30, 2022 and 2021

For the years ended June 30, 2022 and 2021, net cash from financing activities were $22.4 million and $0.44 million, respectively. Net cash from financing activities was primarily attributable to net proceeds from initial public offerings.

Contractual Obligations

The following table summarizes our minimum lease payments under operating lease in future periods as of June 30, 2023:

Capital Expenditures

For the years ended June 30, 2023, 2022 and 2021, we had capital expenditures of $0.03 million, $0.78 million and nil, respectively, in relation to our property and equipment. Subsequent to June 30, 2023 and as of the date of this Annual Report, we did not purchase any material equipment for operational use. We do not have any other material commitments to capital expenditures as of June 30, 2023.

Holding Company Structure

Regencell Bioscience Holdings Limited is a holding company incorporated on October 30, 2014 under the laws of the Cayman Islands and has no substantive operations other than holding all of the issued and outstanding shares of our subsidiaries, namely Regencell Bioscience Limited incorporated in Hong Kong, Regencell Limited incorporated in Hong Kong and Regencell Bioscience North America Limited incorporated in the British Virgin Islands. We conduct our operations primarily through our subsidiaries. As a result, our ability to pay dividends depends upon, among others, dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.

Off-Balance Sheet Arrangements

As of June 30, 2023, we did not have any off-balance sheet arrangements with unconsolidated entities or persons that had or were reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources; and we did not enter into any guarantees; retained or contingent interests in assets transferred; contractual arrangements that support the credit, liquidity or market risk for transferred assets; obligations that arise or could arise from variable interests held in an unconsolidated entity; or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.

Research and development expenses consist of costs incurred by our company for the discovery and development of our product candidates.  Research and development costs include, but not limited to, payroll and personnel expenses including stock-based compensation, research studies supplies, fees for efficacy trial services, consulting costs, and allocated overhead, including rent, equipment, and utilities.

Other than as disclosed elsewhere in this Annual Report on Form 20-F, for the year ended June 30, 2023, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

Our financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. While our significant accounting policies are more fully described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report, we believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Share-based compensation

We measure the cost of the share options based on the grant date fair value of the awards and recognizes compensation cost over the vesting period, which is generally the requisite service period as required by the option agreement. The grant date fair value is estimated using Black Scholes Model and/or the Binomial Model, which involves key assumptions of expected volatility, risk-free interest rate, exercise multiples, expected dividend yield, life of options, and fair value of underlying ordinary shares. For the years ended June 30, 2023, 2022 and 2021, the Company had share-based compensation expenses of approximately $0.9 million, $2.7 million, and nil, respectively.

Deferred tax assets

Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized.  In making such determination, our management considers all positive and negative evidence, including future reversals of projected future taxable income and results of recent operation. For the years ended June 30, 2023, 2022 and 2021, we provided valuation allowance of approximately $2.9 million, $1.9 million and $0.7 million against deferred tax assets.

Impairment of Long-Lived Assets

We will periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. For the years ended June 30, 2023, 2022 and 2021, no impairment was made for long-lived assets.

Use of Estimates and Assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our consolidated financial statements required to be made by management include, but not limited to, the useful lives of property and equipment, impairment of long-lived assets, valuation of share options, share-based compensation, allowance for deferred tax assets and uncertain tax position. Actual results could differ from these estimates.

Fair Value Measurement

Accounting Standards Codification (ASC) 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Unless otherwise disclosed, the fair value of our financial instruments including cash, prepayment, accrued expenses, other payables – related parties and shareholder’s loans approximates their recorded values due to their short-term maturities. The fair value of the long-term deposit approximates their carrying amounts because the deposit was paid in cash.

Related Parties

Parties, which can be a corporation or individual, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

Recent Accounting Pronouncements

See “Note 2 – Summary of Significant Accounting Policies – Recently issued accounting pronouncements” in the accompanying notes to consolidated financial statements included elsewhere in this Annual Report.

We are an “emerging growth company” as defined under the federal securities laws and, as such, will be subject to reduced public company reporting requirements. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act. As a result of our election, our financial statements may not be comparable to those of companies that comply with public company effective dates.

Safe Harbor

This Annual Report on Form 20-F contains forward-looking statements. These statements are made under the “safe harbor” provisions of Section 21E of the Exchange Act. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “may,” “intend,” “is currently reviewing,” “it is possible,” “subject to” and similar statements. Among other things, the sections titled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” in this Annual Report on Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make written or oral forward-looking statements in our filings with the SEC, in our Annual Report to shareholders, in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to change, and such change may be material and may have a material and adverse effect on our financial condition and results of operations for one or more prior periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in this Annual Report on Form 20-F. All information provided in this Annual Report on Form 20-F and in the exhibits is as of the date of this Annual Report on Form 20-F, and we do not undertake any obligation to update any such information, except as required under applicable law.

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

Directors and Executive Officers

The following table sets forth our executive officers and directors, their ages and the positions held by them:

The following is a brief biography of each of our executive officers and directors:

Yat-Gai Au

Mr. Yat-Gai Au is our Chief Executive Officer and has been our director since 2014. He began his career in investment banking at Deutsche Bank and ING Barings and was one of the core team members that won Merger and Acquisitions deal of the year awards in Asia from 1998 to 1999 comprising over $4 billion worth of deals. He is an active property, technology and biotech investor. He funds and participates in several charity events for thousands of underprivileged families and elderlies in Hong Kong and the U.S. During the COVID-19 outbreak, he has donated over 200,000 masks to hospitals, elderlies and needy families. In September 2018, Mr. Au set up Regencell Foundation Limited to further his charitable endeavors. Mr. Yat-Gai Au is the son of the TCM Practitioner, Mr. Sik-Kee Au. Mr. Au graduated from University of California, Berkeley with a Bachelor of Science degree from the Haas School of Business.

James Wai Hong Chung

Mr. James Wai Hong Chung has been our Chief Operating Officer since August 2021 and Chief Strategy Officer since October 2020. He has joined Regencell Bioscience Limited as senior vice president since July 2015. He brings 15 years of experience in various leading roles. Prior to joining Regencell, Mr. Chung managed the Asia equities and derivatives electronic trading platform at Investment Technology Group, where he gained extensive banking and finance experience. Prior to that, he worked at Sungard Financial Systems, providing front to back trading and risk management software solutions for banks. He also gained experiences in different roles from sales and accounting management, project management, technology and business analyst when he worked at a startup hedge fund IT consulting business. Mr. Chung started his career as a telecommunication engineer at Hutchison Global Crossing and eventually led a small team of engineers. Mr. Chung is a graduate of Quantitative Finance from the Management Science and Engineering Department at Stanford University and Telecommunications Technology from British Columbia Institute of Technology.

Yat-Pui Au

Mr. Yat-Pui Au has been our Chief Business Officer since February 2023. He has joined Regencell Bioscience Limited as senior vice president since October 2021. He has more than 24 years of experience in strategic management and business operations. Prior to joining Regencell, he worked at various leading roles in the physical security and property management sectors, where he implemented digital and cloud-based CRM solutions, completed major technology projects for governmental/institutional/private sectors, and streamlined business operations across marketing, finance, IT, HR and operations departments. Mr. Au started his career as a consultant analyst for Computer Sciences Corporation for IT/MIS integrations and deployment. Mr. Au obtained his Bachelor’s degree in Legal Studies from UC Berkeley.

Dr. Yi-Chung Chao, Ph.D.

Dr. Yi-Chung Chao is our director since October 2020. He joined us as Chief Medical Officer of Regencell Bioscience Limited since November 2019 and resigned in December 2022. Since then, he is appointed as our Special Adviser and remain as one of our directors. He is a California board certified Chinese medicine doctor and acupuncturist, as well as a successful entrepreneur and a management leader in Silicon Valley. As the Chief Medical Officer of Regencell Bioscience Limited, he is responsible for including, but not limited to, managing research projects and preparing research reports; developing a methodology for data collection; collecting, recording data and presenting the findings. Dr. Chao’s journey in TCM started when his then 7-year-old son was diagnosed with ASD and subsequently received the TCM Practitioner’s treatment. Intrigued by the successful treatment using Chinese medicine, Dr. Chao started learning and eventually obtained a Master of Science in Traditional Chinese Medicine in Silicon Valley. After passing California board certified Chinese medicine and acupuncture exam in 2017, Dr. Chao has formally immersed himself in the research and development of the medical cases of our TCM Practitioner and continues to learn under his guidance at his clinical practice in Hong Kong. Prior to joining Regencell Bioscience Limited, Dr. Chao was a co-founder and Chief Technology Officer of Telenav, Inc. in Silicon Valley. Dr. Chao obtained his Bachelor’s degree in Mechanical Engineering at the National Taiwan University, a Master’s degree in Aerospace Engineering from University of Texas at Austin, and a Ph.D. in Aeronautics and Astronautics at Stanford University.

Evana Yee Wah Hui

Ms. Evana Yee Wah Hui has been our independent director and member of audit committee, compensation committee and nominating and corporate governance committee since July 2021. She has over 20 years of retail and brand management experience. Throughout her 18-year career at the Dairy Farm Company Limited, a leading pan-Asian retailer, she managed various segments of the business both at the regional and local level. She headed the regional category development team of the Health& Baby categories across the Greater China and Asian regions covering nine markets, implementing store layout/display, category development and management strategies. Furthermore, she was responsible for the sales and profitability of a diverse range of categories with experience in product creation and development, brand building, and customer loyalty. She also spearheaded the launch of both the GNC and Boots brands in Hong Kong. Prior to that, she spent three years developing and implementing market research at Nielsen, where her major clients included Unilever, Coca-Cola, HSBC, MSD, and L’Oreal. Ms. Hui participated in charitable endeavors, such as promoting mental health awareness in the community and holding workshops to promote self-awareness and reduce stigma in local high schools, co-organized by the HK Hospital Authority. She holds an MBA from University of Southern California and graduated with a Bachelor of Arts, Mathematics (Honors) from Mills College.

Paul J. Niewiadomski

Mr. Paul J. Niewiadomski has been our independent director and member of audit committee, compensation committee and nominating and corporate governance committee since July 2021. He is a partner in Lubin Olson& Niewiadomski LLP’s Business, Finance and Workouts Practice Groups. He represents clients in a broad range of business transactions. His practice encompasses acquisitions, dispositions, joint ventures, and financing. He has advised both publicly traded and private companies on business matters. Mr. Niewiadomski served on the boards of several non-profit, for profit and civic organizations and is a member of the Urban Land Institute (San Francisco) and NAIOP (San Francisco Bay Area). He has spoken at a wide range of seminars and conferences on business issues for Marcus & Millichap, California County Counsels’ Association, California Mortgage Association, and other organizations. Mr. Niewiadomski is recognized by Thomson Reuters as a Northern California “Super Lawyer” and was selected by his peers for the inclusion of the 2018, 2019 and 2020 Editions of The Best Lawyers in America. He is a Juris Doctor graduate from University of Michigan, Master of Laws from New York University and a Bachelor of Business Administration from Western Michigan University (Magna Cum Laude).

Dr. Wing Yan (William) Lo

Dr. Wing Yan (William) Lo has been our independent director and member of audit committee, compensation committee and nominating and corporate governance committee since December 2021. He has over three decades of biopharma, academic medicine, corporate governance, and strategic advisory experience. Dr. Lo graduated from Cambridge University with a Master of Philosophy Degree in Pharmacology and a Ph.D. Degree in Molecular Neuroscience. Dr. Lo started his career in McKinsey & Company Inc. as a management consultant and held senior positions in China Unicom, Hongkong Telecom, Citibank HK, I.T Limited, South China Media Group and Kidsland International Holdings Limited in the past. Dr. Lo currently serves as an independent non-executive director of a number of public companies listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKSE”); Dr. Lo is an independent non-executive director of Television Broadcasts Ltd (HKSE stock code: 511), OCI International Holdings Limited (HKSE stock code: 329), CSI Properties Limited (HKSE stock code: 497), Jingrui Holdings Limited (HKSE stock code: 1862), and Oshidori International Holdings Limited (HKSE stock code: 622). Dr. Lo was also an independent non-executive director of Nam Tai Property Inc. (NYSE stock code: NTP) which was formerly listed on the New York Stock Exchange (“NYSE”). Dr. Lo was appointed a Justice of Peace (JP) of the Government of the Hong Kong Special Administrative Region and is the founding governor of the Charles K. Kao Foundation for Alzheimer’s Disease and the ISF Academy as well as the present chairman of Junior Achievement HK.

Principal Financial Officer

In April 2022, Mr. Tien Hsiang Chau, resigned his position as our chief financial officer for family reasons. His resignation was not a result of any disagreements with us or any of our subsidiaries and affiliates on any matter related to the operations, policies, or practices of our company or any of our subsidiaries and affiliates. Mr. Chau will remain with us in an advisory role for a period of 24 months to assist with an orderly transition. We have initiated a search for Mr. Chau’s successor. The responsibilities of the chief financial officer are being assumed by Ms. Michelle Chan in her current role as our financial controller until a new chief financial officer is appointed.

Family Relationships

Except for the sibling relationship between Mr. Yat-Gai Au and Mr. Yat-Pui Au, there is no family relationship between any of our executive officers and directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.

B. Compensation

Executive Compensation

For the year ended June 30, 2023, we paid an aggregate of $0.77 million in cash to our directors and executive officers. We are not required under Cayman Islands law to disclose, and we have not otherwise disclosed, the compensation of our directors and executive officers on an individual basis. We have not set aside or accrued any amounts to provide pension, retirement or other similar benefits to our directors and executive officers. Our subsidiaries in Hong Kong are required by law to make contributions equal to certain percentages of each qualifying employee’s salary to the Mandatory Provident Fund Scheme.

During the year ended June 30, 2023 and 2022, we did not pay any salary and bonus to Mr. Yat-Gai Au, our CEO, for services rendered to us. Pursuant to the employment agreement, as amended and restated, we entered into with Mr. Yat-Gai Au, Mr. Au shall receive an annual base salary of $1, and such compensation is subject to annual review and adjustment by our board of directors. The CEO cannot draw his compensation more than $1 until we reach a market capitalization of $1 billion.

On June 9, 2021, each of Evana Yee Wah Hui and Paul J. Niewiadomski, and our former independent director accepted a letter agreement to act as our independent director and was awarded share options under the 2021 Share Option Plan (as defined below) to purchase 15,585 Ordinary Shares. The share options become effective upon the effectiveness of the registration statement for our IPO when the nominee’s directorship becomes effective. These options are exercisable at $9.50 per share, of which 25% vest on each anniversary over four years following the closing of our IPO and is valid for 10 years once vested.

On January 1, 2022, Dr. Lo accepted a letter agreement to act as our independent director and was awarded share options under the 2021 Share Option Plan to purchase 15,585 Ordinary Shares. These options are exercisable at $31.85 per share, of which 25% vest on each anniversary over four years following the closing of our IPO and is valid for 10 years once vested.

2021 Share Option Plan

We adopted a 2021 Share Option Plan (the “2021 Share Option Plan” or the “Plan”) on May 31, 2021. The Plan is a share-based compensation plan that provides for discretionary grants of share options to our key employees, directors and consultants. The purpose of the Plan is to recognize contributions made to our company and its subsidiaries by such individuals and to provide them with additional incentive to achieve our objectives. No grants have been made under the plan as of the date hereof. The following is a summary of the Plan and is qualified by the full text of the Plan.

Administration. The Plan will be administered by our CEO and Chairman of our board of directors.

Number of Ordinary Shares. The number of Ordinary Shares that may be issued under the Plan is the maximum aggregate number of Ordinary Shares reserved and available pursuant to this Plan shall be the aggregate of (i) 1,235,076 Ordinary Shares, and (ii) on each January 1, starting with January 1, 2022, an additional number of shares equal to the lesser of (A) 2% of the outstanding number of Ordinary Shares (on a fully-diluted basis) on the immediately preceding December 31, and (B) such lower number of Ordinary Shares as may be determined by our board of directors. If there is a forfeiture or termination without the delivery of Ordinary Shares or of other consideration of any option made under the Plan, the Ordinary Shares underlying such option, or the number of Ordinary Shares otherwise counted against the aggregate number of Ordinary Shares available under the Plan with respect to the option, to the extent of any such forfeiture or termination, shall again be, or shall become, available for granting options under the Plan. The number of Ordinary Shares issuable under the Plan is subject to adjustment, in the event of any reorganization, recapitalization, share split, share distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. As of the date of this Annual Report, a total of 1,250,661 Ordinary Shares were authorized for issuance under the Plan, options to purchase 1,250,661 Ordinary Shares have been granted, excluding, if any, awards that were forfeited or canceled after the relevant grant dates and awards that have been vested, and options to purchase 800,008 Ordinary Shares are outstanding.

Eligibility. All persons as the CEO and Chairman of our board of directors may select from among the employees, directors, and consultants of our company. The grant of options shall be approved by our board of directors.

Share Options. Our board of directors shall determine the provisions, terms, and conditions of each option including, but not limited to, the option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares, cashless settlement, or other consideration) upon settlement of the option, payment contingencies and the exercise price; each option will last for the term stated in the option agreement, provided, however that in the case of an option that is to qualify as an Incentive Share Option as such term is defined in Section 422 of the Code (as defined in the Plan), the term shall not exceed ten (10) years. It is intended that share options qualify as “performance-based compensation” under Section 162(m) of the Code and thus be fully deductible by us for federal income tax purposes, to the extent permitted by law.

Payment for Share Options and Withholding Taxes. Our board of directors may make one or more of the following methods available for payment of an option, including the exercise price of a share option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cheque; (iii) with respect to options, payment through a broker-dealer sale and remittance procedure pursuant to which the optionee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Ordinary Shares and remit to us sufficient funds to cover the aggregate exercise price payable for the purchased Ordinary Shares and (B) shall provide written directives to us to deliver the certificates for the purchased Ordinary Shares directly to such brokerage firm in order to complete the sale transaction; (iv) cashless election; or (v) any combination of the foregoing methods of payment.

Upon exercise of an option, we shall have the right, but not the obligation (except as required by applicable law), to withhold or collect from optionee an amount sufficient to satisfy such tax obligations. The optionee will be solely responsible for his/her own tax obligations.

Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. Our board of directors may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of our shareholders to the extent such approval is required by applicable laws, or if such amendment would adversely affect the right of any participant under any agreement in any material way without the written consent of the participant. No option may be granted during any suspension of the Plan or after termination of the Plan. No suspension or termination of the Plan shall adversely affect any rights under options already granted to an optionee. The Plan becomes effective upon the completion of our IPO on July 20, 2021. It shall continue in effect for a term of ten (10) years unless sooner terminated or unless renewed for another period not to exceed ten (10) years pursuant to shareholder approval.

On June 9, 2021, our board of directors granted 1,235,076 options to certain officers, directors and employees of our company under the 2021 Share Option Plan; provided that the grants of 46,755 options to the independent director nominees at that time will only become effective upon the effectiveness of the registration statement for our IPO when the nominee’s directorship becomes effective. These options will be exercisable at $9.50 per share, of which 25% vest on each anniversary over four years following the closing of our IPO and is valid for 10 years once vested.

On January 1, 2022, our board of directors granted 15,585 options to a director of our company, under the 2021 Share Option Plan. These options will be exercisable at $31.85 per share, of which 25% vest on each anniversary over four years following the closing of our IPO and is valid for 10 years once vested.

The following table summarizes, as of the date of this Annual Report, the number of Ordinary Shares underlying outstanding options granted to our directors and executive officers and to other individuals as a group under the 2021 Share Option Plan, excluding awards that were forfeited or cancelled after the relevant grant dates.

In May 2022, all directors and employees who were previously granted stock options upon our IPO agreed to a further lock-up undertaking for a period of six months after their stock options become vested. As their stock options are set to vest on July 16, 2022, their shares has remained lock-up until January 16, 2023. Subsequently, all directors and employees agreed to further lock-up undertakings until January 20, 2024.

Employment Agreements

We have entered into written employment agreements with each of our executive officers. Each of our executive officers is employed for a fixed term subject to automatic renewal or a continuous term unless either we or the executive officer gives prior notice to terminate such employment. These agreements provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive salary and benefits. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information, and has agreed to be bound by non-competition and non-solicitation restrictions set forth in their agreements. In addition, each executive officer has agreed to assign to us all his or her all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works and trade secrets.

C. Board Practices

Terms of Directors and Executive Officers

Our board of directors currently consists of five directors. Our directors may be elected by a resolution of our board of directors or by an ordinary resolution of our shareholders. Our directors are not subject to a term of office and hold office until the expiration of his or her term, as may be provided in a written agreement with our company, and his or her successor has been elected and qualified, until his or her resignation, until his or her office is otherwise vacated in accordance with our articles of association, or until such time as they are removed from office by ordinary resolution of the shareholders. If the director was appointed by our board of directors, such director holds office until the next following annual meeting of shareholders at which time such director is eligible for re-election. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be or becomes of unsound mind; (iii) resigned his or her office by notice in writing to our company; or (iv) without special leave of absence from our board of directors, is absent from three consecutive board meetings and our directors resolve that his office be vacated. There is no mandatory retirement age for directors. None of our directors has a service contract with us that provides for benefits upon termination of service, or an appropriate negative statement.

Our officers are elected by and serve at the discretion of our board of directors.

Duties of Directors

Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Companies Act (2020 Revision) of the Cayman Islands imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however, the courts of the Cayman Islands have held that a director owes the following fiduciary duties: (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended from time to time. We have the right to seek damages if a duty owed by any of our directors is breached.

Our Amended and Restated Memorandum and Articles of Association ( “Amended Articles”) provide that a director must disclose the nature and extent of any material interests in any contract or arrangement, provided that the required notice has been given and subject to any separate requirement for Audit Committee approval under applicable law or the Nasdaq Stock Market listing rules, and unless disqualified by the chairman of the relevant board meeting, a director may vote in respect of any contract or arrangement in which such director is interested and may be counted in the quorum at such meeting. However, even if a director discloses his interest and is therefore permitted to vote, he must still comply with his duty to act bona fide in the best interest of our company.

Our directors also owe to us a duty to exercise the powers for the purpose for which they were given and the duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, courts are moving towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

The functions and powers of our board of directors include, among others:

Interested Transactions

Subject to our memorandum and articles of association, as amended from time to time, our director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to our board of directors or otherwise contained in the minutes of a meeting or a written resolution of the board of directors or any committee of the board of directors that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction. Any such transaction that would reasonably be likely to affect a director’s status as an “Independent Director”, or that would constitute a “related party transaction” as defined by Item 7.B of Form 20-F promulgated by the SEC, shall require the approval of the Audit Committee.

Remuneration and Borrowing

The directors may receive such remuneration as our board of directors may determine from time to time and in accordance with the recommendations of the compensation committee of our board of directors and our corporate governance documents. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of our company to borrow money and to mortgage or charge our undertakings, property and assets both present and future an uncalled capital or any part thereof, and to issue debentures and other securities, whether outright or as collateral security for any of our debts, liabilities or obligations or any of our subsidiary undertaking or of any third party.

Qualification

There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting by ordinary resolution of our shareholders. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.

Committees of the Board of Directors

We have established an audit committee, a compensation committee and a nominating and corporate governance committee under our board of directors. We have adopted a charter for each of the three committees. Each of the committees of our board of directors shall have the composition and responsibilities described below.

Audit Committee

Evana Yee Wah Hui, Paul J. Niewiadomski and Dr. Wing Yan (William) Lo are the members of our Audit Committee, with Dr. Wing Yan (William) Lo serving as the chairperson. All members of our Audit Committee satisfy the independence requirements of Rule 5605(c)(2) of the Nasdaq Stock Market listing rules and meet the independence standards under Rule 10A-3 under the Exchange Act.

We have adopted Audit Committee Charter on December 3, 2020 and the Audit Committee Charter became effective on July 15, 2021. In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including:

Our board of directors has determined that Dr. Wing Yan (William) Lo possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC.

Compensation Committee

Evana Yee Wah Hui, Paul J. Niewiadomski and Dr. Wing Yan (William) Lo are the members of our Compensation Committee with Evana Yee Wah Hui serving as the chairperson. All members of our Compensation Committee satisfy the independence requirements of Rule 5605(a)(2) of the Nasdaq Stock Market listing rules. We have adopted Compensation Committee Charter on December 3, 2020 and the Compensation Committee Charter became effective on July 15, 2021. In accordance with the Compensation Committee’s Charter, the Compensation Committee shall be responsible for overseeing and making recommendations to our board of directors regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices, among other things.

Nominating and Corporate Governance Committee

Evana Yee Wah Hui, Paul J. Niewiadomski and Dr. Wing Yan (William) Lo are the members of our Nominating and Corporate Governance Committee with Paul J. Niewiadomski serving as the chairperson. All members of our Nominating and Corporate Governance Committee satisfy the independence requirements of Rule 5605(a)(2) of the Nasdaq Stock Market listing rules. We have adopted Nominating and Corporate Governance on December 3, 2020 and the Nominating and Corporate Governance Committee Charter became effective on July 15, 2021. In accordance with the Nominating and Corporate Governance Committee’s Charter, the Nominating and Corporate Governance Committee shall be responsible for identifying and proposing new potential director nominees to our board of directors for consideration and review our corporate governance policies, among other things.

Corporate Governance

As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq Stock Market’s corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. We have followed on home country practice exemption with respect to the requirement of holding an annual general meeting of shareholders no later than one year after the end of its fiscal year-end. We may choose to follow additional home country practices in the future.

Our board of directors has adopted a code of business conduct and ethics that applies to our directors, principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and employees.  A copy of our code of business conduct and ethics is available on our website at https://www.regencellbioscience.com.

Director Independence