Business Performance - Newegg Commerce, Inc. processed over 176 million orders and recognized GMV of approximately $39 billion since 2005, with 3.5 million buyers purchasing over 675,000 items in 2021 [172]. - In 2021, Newegg's Marketplace business generated $742.4 million in gross merchandise value from approximately 1.7 million active customers [178]. - The B2B operations generated GMV of $537.6 million in 2021, up from $349.8 million in 2020, indicating significant growth in the business segment [203]. - As of December 31, 2021, the B2C operations generated GMV of $2.4 billion, compared to $2.3 billion in 2020, reflecting a steady increase in consumer sales [202]. - Newegg's GMV for 2021 was $3.03 billion, with direct sales revenues contributing $2.24 billion, accounting for 94.4% of total net sales [303][305]. - Newegg Marketplace generated GMV of $742.4 million in 2021, representing approximately 24.5% of total GMV, and net sales of $63.5 million, accounting for 2.7% of total net sales [295][305]. - Total visits to Newegg's online platforms decreased to 305.1 million in 2021 from 382.2 million in 2020, while the number of customers increased to 40.3 million [290][289]. - The average order value increased to $442 in 2021, up from $301 in 2020 [290]. - Newegg's repeat purchase rate was 31.9% in 2021, a decrease from 32.5% in 2020 [290]. Customer Engagement and Satisfaction - Newegg's Net Promoter Score is 79%, indicating strong customer satisfaction compared to competitors like Amazon and BestBuy [186]. - The company aims to increase customer retention and repeat purchase rates through enhanced customer engagement and marketing strategies [195]. - Newegg has been recognized as the No. 1 "Electronics Online Marketplaces" by Web Retailer in 2021, with 32.6 million visits per month [278]. Product Offering and Expansion - As of December 31, 2021, Newegg had over 3.5 million active customers and offered approximately 38.7 million SKUs across 1,808 categories [176]. - The company plans to introduce new product categories including 3D printers, IoT devices, and automotive accessories to expand its product assortment [190]. - Private label products represented 7.6% of total GMV in 2021, up from 2.6% in 2020, indicating growth in this segment [192]. - The company intends to expand its Rosewill brand offerings in categories such as DIY components, gaming accessories, and IoT devices, aiming for strong growth potential and higher margins [193]. - The company has established partnerships with over 3,250 brand partners, featuring products from well-known brands like AMD, Intel, and Microsoft [179]. - The company sourced merchandise from at least 3,250 brand partners, including major tech brands like AMD, Intel, and Samsung, ensuring competitive pricing and access to sought-after products [280]. Logistics and Fulfillment - Newegg's logistics network achieved over 99.9% average accuracy rate for orders directly fulfilled, with a 98.9% one-business day fulfillment rate in the U.S. and Canada [176]. - The company fulfilled over 27,962 parcels per day on average with a fulfillment accuracy rate of over 99.9% as of December 31, 2021 [231]. - The company operated nine fulfillment centers covering more than 2 million square feet as of December 31, 2021, enabling it to reach approximately 96% of the North American population in two business days [231]. - Virtual fulfillment accounted for approximately 6.1% of direct sales for the year ended December 31, 2021, broadening product assortment [231]. Financial Performance - Net sales increased by 12.4% from $2,114.9 million in 2020 to $2,376.2 million in 2021, driven by growth in GMV from direct sales and marketplace businesses [314]. - Cost of sales rose by 11.4% from $1,841.2 million in 2020 to $2,050.2 million in 2021, reflecting the increase in net sales [317]. - Gross profit increased by 19.1% from $273.7 million in 2020 to $326.0 million in 2021, with a profit margin improvement to 13.7% from 12.9% [317]. - Net income for 2021 was $36.3 million, up from $30.4 million in 2020, attributed to increased net sales and improved gross margin [325]. Marketing and Customer Acquisition - The company aims to enhance its brand recognition through marketing campaigns across online and offline channels to drive growth [189]. - In 2021, 84% of the company's traffic was free, compared to 79% in 2020, indicating a significant increase in organic customer acquisition [242]. - The company's spending on paid search engine marketing represented approximately 68% of total marketing spending for the year ended December 31, 2021 [244]. Technology and Infrastructure - The company has a technology infrastructure capable of processing up to 0.75 million orders per day and supporting over 130 million page views daily [250]. - The global research and development team consists of more than 600 IT professionals and engineers focused on innovation and platform upgrades [253]. - The company maintains approximately 1,500 servers and 300 network devices across its data centers to ensure redundancy and reliability [250]. Compliance and Risk Management - The company has implemented a zero-tolerance policy on counterfeit products, ensuring compliance among Marketplace sellers [236]. - The company has adopted a detailed privacy policy to protect customer data and requires user acknowledgment upon registration [255]. - The company recognizes vendor incentives as an offset to marketing expenses or as a reduction of cost of sales, depending on the nature of the reimbursement [364]. Future Outlook - The company intends to pursue strategic partnerships and acquisitions, particularly focusing on expanding its presence in Southeast Asia [198]. - The company plans to finance future working capital requirements through cash generated from operations and financing activities, but may seek additional financing if necessary [346].

[PART I](index=10&type=section&id=PART%20I) [Key Information](index=10&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data showing consistent net losses and declining health, detailing significant risks including COVID-19 impact and delisting risk [Selected Financial Data](index=10&type=section&id=A.%20Selected%20Financial%20Data) The company experienced a significant five-year financial decline, with sharply falling revenues, persistent net losses, and a substantial decrease in total assets and shareholders' equity Selected Consolidated Financial Data (2018-2019) | Financial Metric | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | **Income Statement Data** | | | | Revenues | 383,458 | 559,386 | | Gross Loss | (360,286) | (198,515) | | Operating Loss | (3,802,375) | (9,260,817) | | Net Loss Attributable to Lianluo Smart | (4,450,994) | (8,910,002) | | Net Loss Per Share (Basic and Diluted) | (0.25) | (0.51) | | **Balance Sheet Data (End of Period)** | | | | Cash and cash equivalents | 22,834 | 477,309 | | Total Assets | 2,333,953 | 5,698,670 | | Total Lianluo Smart Limited shareholders' (deficit) equity | (1,288,789) | 3,116,620 | [Risk Factors](index=12&type=section&id=D.%20Risk%20Factors) The company faces significant business, China-related, and share-related risks, including COVID-19 impact, restructuring challenges, and NASDAQ delisting concerns - The **COVID-19 outbreak** materially and adversely affected business, causing a plunge in service and product revenue in early 2020 due to operational shutdowns, with uncertain long-term impact[23](index=23&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) - The company is undergoing business restructuring to overcome a downturn, focusing on brand strengthening and new product development, where failure could materially harm prospects[49](index=49&type=chunk)[50](index=50&type=chunk) - A **material weakness in internal control over financial reporting** exists due to a lack of qualified accounting personnel with U.S. GAAP and SEC reporting knowledge, potentially leading to material misstatements[82](index=82&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) - The company faces **Nasdaq Capital Market delisting risk** for failing to meet the **$1.00 minimum bid price**, which would limit the public market and impair future capital raising ability[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - A **dual-class share structure** grants Hangzhou Lianluo, holding Class B shares, approximately **86.3% of voting power**, enabling control over shareholder matters and limiting Class A shareholder influence[150](index=150&type=chunk) [Information on the Company](index=36&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Lianluo Smart Limited, a BVI holding company, operates in China, restructuring from traditional medical equipment to focus on sleep respiratory analysis and CPR devices with an outsourced manufacturing model [History and Development of the Company](index=36&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Incorporated in BVI in 2003, the company underwent a pivotal name change and restructuring in 2016 following a **$20 million investment** from Hangzhou Lianluo, focusing on wearable medical devices and raising capital in early 2020 - In 2016, the company changed its name to Lianluo Smart Limited and ticker to LLIT following a **$20 million investment** from Hangzhou Lianluo[175](index=175&type=chunk)[178](index=178&type=chunk) - The company discontinued unprofitable businesses like X-ray and anesthesia machines to focus on wearable medical devices and mobile health products via its 2016 subsidiary, Lianluo Connection[173](index=173&type=chunk)[174](index=174&type=chunk) - In February and March 2020, the company raised capital through three registered direct offerings of Class A Common Shares and concurrent private placements of warrants[180](index=180&type=chunk) [Business Overview](index=40&type=section&id=B.%20Business%20Overview) The company focuses on developing and marketing its OSAS sleep respiratory analysis system and CPR devices, outsourcing manufacturing, with revenue from product sales and OSAS detection services, facing intense competition - The company shifted focus to developing, producing, and marketing its **sleep respiratory analysis system and CPR devices**, discontinuing unprofitable traditional medical equipment[183](index=183&type=chunk) - The company provides **OSAS examination services** to hospitals and medical centers using wearable devices and cloud-based services, charging a fixed technical service fee per user[184](index=184&type=chunk)[197](index=197&type=chunk)[199](index=199&type=chunk) - All manufacturing is **outsourced to third-party producers in China**, lowering operating costs but reducing direct control over production quality and quantity[190](index=190&type=chunk) - In 2019, **two largest customers accounted for 36% of total revenues**, and **two largest suppliers accounted for 100% of total purchases**, indicating significant concentration risk[205](index=205&type=chunk) [Property, Plant and Equipment](index=55&type=section&id=D.%20Property,%20Plant%20and%20Equipment) The company operates from leased properties in Beijing, China, including its principal executive office and storage facilities, with leases expiring in late 2020, and believes current facilities are adequate Leased Properties | Use | Lessee | Location | Expiration | Area (sq. ft) | | :--- | :--- | :--- | :--- | :--- | | Principal Executive Office | Lianluo Smart Limited | Beijing, China | Nov 30, 2020 | 1,172 | | Storage Facility | Lianluo Connection | Beijing, China | Dec 16, 2020 | 323 | | Offices | Lianluo Connection | Beijing, China | Nov 30, 2020 | 4,689 | | Storage Facility | Beijing Dehaier | Beijing, China | Nov 19, 2020 | 6,148 | [Operating and Financial Review and Prospects](index=57&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) The company's financial performance declined in 2019 with falling revenues and a net loss, impacted by COVID-19, facing significant liquidity concerns and a going concern doubt, despite recent equity financing [Operating Results](index=57&type=section&id=A.%20Operating%20Results) In 2019, total revenues decreased by **31% to $0.38 million**, resulting in a **net loss of $4.45 million**, an improvement from 2018 due to reduced expenses and no impairment, though early 2020 was impacted by COVID-19 and management changes Comparison of Operating Results (2018 vs. 2019) | Item | 2019 (USD) | 2018 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 383,458 | 559,386 | -31% | | Gross Loss | (360,286) | (198,515) | +81% | | Selling Expenses | (835,270) | (2,082,829) | -60% | | General & Administrative Expenses | (2,593,808) | (3,675,465) | -29% | | Impairment loss for intangible assets | - | (3,281,779) | -100% | | Operating Loss | (3,802,375) | (9,260,817) | -59% | | Net Loss Attributable to Lianluo Smart | (4,450,994) | (8,910,002) | -50% | - The **COVID-19 pandemic** caused a sharp decrease in revenue from January to February 2020 due to operational suspensions, with operations resuming below normal levels[291](index=291&type=chunk) - In April 2020, Mr. Ping Chen resigned as CEO, replaced by Mr. Zhitao He, the existing Chairman, alongside other board and committee changes[292](index=292&type=chunk)[293](index=293&type=chunk) Revenue by Category (2017-2019) | Category | 2019 (USD) | 2018 (USD) | 2017 (USD) | | :--- | :--- | :--- | :--- | | Product Sales (Medical Devices) | 58,750 | 221,414 | 827,032 | | Product Sales (Mobile Medicine) | 153,644 | 120,930 | 54,979 | | OSAS service (analysis and detection) | 171,064 | 217,042 | - | | **Total Revenues** | **383,458** | **559,386** | **882,011** | [Liquidity and Capital Resources](index=72&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company faces critical liquidity with a **$1.56 million working capital deficiency** and going concern doubt as of December 31, 2019, relying on related-party loans, though **$7.2 million in 2020 equity financing** is expected to provide sufficient working capital - As of December 31, 2019, the company reported a **net loss of $4.45 million**, used **$1.67 million cash in operations**, and had a **working capital deficiency of $1.56 million**, raising substantial doubt about its ability to continue as a going concern[357](index=357&type=chunk) - In February and March 2020, the company raised approximately **$7.2 million in net proceeds** from equity financings, which management believes will be sufficient for the next 12 months' working capital requirements[357](index=357&type=chunk)[732](index=732&type=chunk) Summary of Cash Flows (2018-2019) | Cash Flow Activity | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | (1,670,903) | (3,629,567) | | Net cash provided by (used in) investing activities | 23,016 | (6,225,827) | | Net cash provided by financing activities | 1,362,681 | 3,700,493 | - Financing activities in 2019 were primarily driven by short-term loans of **$0.94 million** from controlling shareholder Hangzhou Lianluo and **$0.24 million** from former CEO Mr. Ping Chen[364](index=364&type=chunk) [Research and Development](index=76&type=section&id=C.%20Research%20and%20Development) The company significantly curtailed R&D efforts, reducing costs to **zero in 2019** from **$301,713 in 2018**, and downsizing the R&D team to a single engineer Research and Development Expenses (2017-2019) | Year | R&D Costs (USD) | | :--- | :--- | | 2019 | $0 | | 2018 | $301,713 | | 2017 | $344,575 | - As of December 31, 2019, the research and development team consisted of only **1 engineer**[370](index=370&type=chunk) [Directors, Senior Management and Employees](index=76&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) The company's leadership includes Chairman and CEO Zhitao He, with significant 2020 board changes, substantial workforce downsizing to **28 employees** by 2019-end leading to disputes, and highly concentrated share ownership by Hangzhou Lianluo - Mr. Zhitao He serves as Chairman and CEO, also chairing major shareholder Lianluo Interactive, while former CEO Mr. Ping Chen resigned in April 2020 but remains president of PRC subsidiaries[376](index=376&type=chunk)[383](index=383&type=chunk) - In 2019, the company laid off **over 50 employees** due to restructuring, resulting in **34 arbitration complaints** for unpaid salaries and compensation, leading to awards and settlements[401](index=401&type=chunk)[439](index=439&type=chunk) - As of May 14, 2020, Hangzhou Lianluo beneficially owned **100% of Class B Common Shares**, representing **86.64% of aggregate voting power**, granting concentrated control over the company[405](index=405&type=chunk)[407](index=407&type=chunk)[409](index=409&type=chunk) [Major Shareholders and Related Party Transactions](index=86&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Controlled by Hangzhou Lianluo, the company relies on significant related-party transactions, primarily short-term, non-interest-bearing loans from its controlling shareholder and affiliates to fund operations - During fiscal year 2019, the company borrowed **$942,500** from controlling shareholder Hangzhou Lianluo and **$33,000** from affiliate DGHKT, with these non-interest bearing loans crucial for operations[430](index=430&type=chunk)[432](index=432&type=chunk) - In 2018, a **$6 million loan** to affiliate DGHKT was settled via a debt offset agreement against loans owed by the company to Hangzhou Lianluo, clearing balances between the three parties by year-end 2018[431](index=431&type=chunk)[434](index=434&type=chunk)[435](index=435&type=chunk) - The company leases office premises from its controlling shareholder, Hangzhou Lianluo, incurring **$35,892 in rental expenses** in 2019[428](index=428&type=chunk) [Financial Information](index=88&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section details legal proceedings, including **34 employee arbitration complaints** and supplier disputes, and states the company has never paid cash dividends, intending to retain earnings for business development - In 2019, the company terminated **over 50 employees**, leading to **34 arbitration complaints** and recording liabilities of approximately **$140,393 in termination compensation** and **$428,467 in unpaid salaries**[439](index=439&type=chunk) - The company was involved in supplier arbitrations, settling with Shenzhen JustDo Display Technology for approximately **$53,000** and facing an award of approximately **$18,700** against it from Tianjin Wuqing Bohai Printing[438](index=438&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk) - The company has never paid cash dividends and does not anticipate paying any in the foreseeable future, intending to retain earnings to finance business growth[442](index=442&type=chunk) [Additional Information](index=91&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section outlines the company's BVI corporate structure, dual-class share system, significant PRC regulations impacting operations, and tax considerations for BVI, PRC, and U.S. federal income tax - The company has a **dual-class share structure** where Class A shares have one vote and Class B shares have ten votes, concentrating voting power with Class B holders[447](index=447&type=chunk)[448](index=448&type=chunk) - PRC regulations impose significant restrictions on currency conversion and capital accounts, requiring governmental approval for capital account items, which may limit funding for PRC subsidiaries[463](index=463&type=chunk)[466](index=466&type=chunk) - As a BVI entity with 'de facto management' in China, the company risks classification as a PRC resident enterprise, subjecting its worldwide income to a **25% PRC enterprise income tax** and potential withholding taxes for non-PRC shareholders[476](index=476&type=chunk)[479](index=479&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=102&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risks are foreign exchange risk due to RMB/USD fluctuations impacting reported results, with no current hedging, and minimal interest rate risk from low cash holdings and fixed-rate or non-interest-bearing related-party borrowings - The company's main market risk is **foreign exchange risk**, as RMB/USD fluctuations can affect reported net revenues, costs, and net income due to most transactions being in RMB while reporting is in USD[504](index=504&type=chunk)[506](index=506&type=chunk) - The company does not currently engage in currency hedging transactions to mitigate its exposure to foreign exchange rate fluctuations[297](index=297&type=chunk) - Interest rate risk is low, limited to interest income on small cash balances and interest expense on borrowings, which as of December 31, 2019, were primarily fixed-rate or interest-free loans from related parties[503](index=503&type=chunk) [Controls and Procedures](index=104&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) As of December 31, 2019, management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting, with no attestation report required as a non-accelerated filer - Management concluded that **disclosure controls and procedures were not effective** as of December 31, 2019[516](index=516&type=chunk) - A **material weakness** was identified in internal control over financial reporting due to insufficient qualified accounting personnel with U.S. GAAP and SEC reporting knowledge, and inadequate review functions[520](index=520&type=chunk) - The company plans to remediate the weakness by hiring additional staff familiar with US GAAP and providing training to existing accounting personnel[521](index=521&type=chunk) [Corporate Governance and Other Matters](index=106&type=section&id=ITEM%2016.%20Corporate%20Governance%20and%20Other%20Matters) This section covers corporate governance, including the audit committee financial expert, code of ethics, increased principal accountant fees to **$362,000 in 2019**, a change in certifying accountant to BDO China in January 2020, and adherence to BVI home country practices as a foreign private issuer Principal Accountant Fees (2018-2019) | Fee Type | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | Audit Fees | 362,000 | 183,200 | | Audit-related Fees | - | 55,000 | | Tax Fees | - | - | | **TOTAL** | **362,000** | **238,200** | - On January 20, 2020, the company engaged **BDO China Shu Lun Pan Certified Public Accountants LLP** as its new independent registered public accounting firm, dismissing Centurion[535](index=535&type=chunk) - As a foreign private issuer, the company follows its home country (BVI) practice and did not hold an annual shareholders' meeting in fiscal year 2019, an exemption from NASDAQ listing rules[537](index=537&type=chunk) [PART III](index=108&type=section&id=PART%20III) [Financial Statements](index=108&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) The consolidated financial statements for 2017-2019, prepared under U.S. GAAP, include a 'Going Concern' auditor's report, detailing the company's deteriorating financial position, significant related-party transactions, and material subsequent events like COVID-19 impact and 2020 equity financing - The auditor's report for the 2019 financial statements includes a **'Going Concern' paragraph**, citing negative operating cash flows and raising substantial doubt about the company's ability to continue[546](index=546&type=chunk)[577](index=577&type=chunk) Consolidated Balance Sheet Summary (As of Dec 31) | Item | 2019 (USD) | 2018 (USD) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | 22,834 | 477,309 | | Total Current Assets | 1,677,113 | 2,713,362 | | Total Assets | 2,333,953 | 5,698,670 | | **Liabilities & Equity** | | | | Total Current Liabilities | 3,233,112 | 1,452,804 | | Total Liabilities | 3,622,742 | 2,582,050 | | Total Equity (Deficit) | (1,288,789) | 3,116,620 | Consolidated Statement of Operations Summary (Year Ended Dec 31) | Item | 2019 (USD) | 2018 (USD) | 2017 (USD) | | :--- | :--- | :--- | :--- | | Revenues | 383,458 | 559,386 | 882,011 | | Gross loss | (360,286) | (198,515) | (773,959) | | Operating loss | (3,802,375) | (9,260,817) | (5,058,018) | | Net loss | (4,450,994) | (8,910,002) | (5,136,434) | - Subsequent to year-end 2019, the company raised approximately **$7.2 million in net proceeds** from three equity financings in February and March 2020, significantly improving its cash position and shareholders' equity on a pro forma basis[731](index=731&type=chunk)[732](index=732&type=chunk) - The company's business was significantly impacted by the **COVID-19 outbreak** starting in January 2020, leading to service suspensions and operational downsizing to preserve cash[733](index=733&type=chunk)[734](index=734&type=chunk)[735](index=735&type=chunk)

Financial Performance - The net loss attributable to Lianluo Smart Limited for the period was $8,910,002, compared to $5,136,434 in the previous period, indicating a significant increase in losses [8]. - Comprehensive loss attributable to Lianluo Smart Limited was $9,425,479, up from $4,756,357 in the prior period, reflecting ongoing financial challenges [8]. - Revenues for the year were reported at $559,386, a decrease from $882,011 in the prior year, highlighting a decline in sales performance [11]. - The company reported a gross loss of $198,515, compared to a gross loss of $773,959 in the previous year, showing some improvement in cost management [11]. - The net loss per share of common stock was $0.51, compared to $0.30 in the previous year, indicating a worsening financial position on a per-share basis [12]. - Total equity for Lianluo Smart Limited shareholders decreased to $3,116,620 from $11,153,115, reflecting a significant erosion of shareholder value [13]. Assets and Liquidity - Total current assets decreased to $2,713,362 from $9,833,029 in the previous year, indicating a significant reduction in liquidity [13]. - Total assets fell to $5,698,670 from $15,563,108, reflecting a substantial decrease in the company's overall asset base [13]. Market and Competition - The sleep respiratory market is rapidly evolving, leading to frequent new product introductions and significant price competition, which may affect future revenue growth [21]. - Competition in the medical device and health wearables markets is intense, with both domestic and international competitors posing challenges across all product lines [35]. Business Operations and Strategy - The company relies heavily on distributors for product sales, with a significant majority of revenues coming from these channels, and any failure to maintain or expand this network could adversely impact financial results [24]. - The OSAS service business is dependent on reducing device production costs and establishing relationships with hospitals, which may take time and could affect financial performance [22]. - The company has entered into service agreements with public hospitals for 1 to 3 years, charging a fixed technical service fee per user for OSAS diagnostic services, which are still in early stages [25]. - A significant portion of the company's revenues is derived from a small number of key products, which are critical for financial stability and operational results [51]. - The company aims to expand its partnerships with more hospitals and check-up centers to enhance its OSAS diagnostic services and drive revenue growth [207]. Regulatory and Compliance Risks - Regulatory approvals are crucial for product sales in China, and delays in obtaining these could significantly disrupt business and affect profitability [49]. - The health care industry is highly regulated, and existing laws may not adequately address wearable medical products, leading to potential compliance challenges [118]. - The company may be deemed a resident enterprise for Chinese tax purposes, subjecting it to a 25% enterprise income tax rate on worldwide income, which could adversely affect its financial results [89]. - The company has not established required reserves under PRC law, which may lead to fines or other penalties if compliance is mandated [93]. Foreign Exchange and Economic Conditions - The company is exposed to foreign exchange rate fluctuations, which can impact revenues and profits when converting RMB to USD [99]. - Political and trade controversies between the United States and China could adversely affect the market price of the company's shares and access to U.S. capital markets [103]. - The company's operations are heavily influenced by economic and political conditions in China, which could materially affect overall business performance [77]. Internal Controls and Governance - As of December 31, 2018, the company's internal control over financial reporting was not effective, with identified material weaknesses due to insufficient qualified accounting personnel [81]. - The company is in the process of implementing measures to resolve identified material weaknesses in internal controls, but success is uncertain [82]. Shareholder and Capital Structure - The company does not expect to pay dividends, meaning shareholder returns depend solely on share price appreciation [126]. - The trading price of the company's shares has been volatile, influenced by various factors including operational results and market sentiment towards PRC companies [123]. - The company must comply with NASDAQ listing rules, including maintaining a minimum bid price of $1.00 to avoid delisting [131]. - If delisted, trading may shift to OTC Bulletin Board or Pink Sheets, complicating the disposal and valuation of securities, potentially leading to a further decline in share price [133]. Research and Development - Research and development costs from continuing operations were $301,713, $344,575, and $1,192,930 for the years ended December 31, 2018, 2017, and 2016, respectively [186]. - Lianluo Smart focuses on four business sectors: medical wearable devices, smart devices, smart ecosystem platform, and OSAS service [167]. - The company is currently researching new products and evaluating business opportunities in its smart devices and smart ecosystem platform sectors [173]. Product and Service Offerings - The company has developed medical wearable devices primarily for sleep respiratory solutions, providing medical-grade detection and monitoring [168]. - The company provides technical services related to the detection and analysis of Obstructive Sleep Apnea Syndrome (OSAS) since fiscal 2018 [204]. - Wearable sleep diagnostic products and cloud-based services are available in medical centers of Chinese private preventive healthcare companies [204].