Dear Shareholders,

• OVERVIEW OF THE INDUSTRY WHERE THE GROUP OPERATED DURING THE REPORTING PERIOD — INDUSTRY POLICIES AND DEVELOPMENT

  1. Overview of the industry where the Group operated

  The Group was principally engaged in the production of health food and sales of food products and medicines.

  In broad terms, health food refers to the food, drugs and other devices and supplies that people need in their daily life and have the protection and health benefits for human body. Health product is a colloquial term in China for health food. According to China Healthcare Association and the Interpretations of the Food Safety Law of the People’s Republic of China, health food is defined as food that have specific health functions or supplement vitamins and minerals intake, which is suitable for consumption by specific groups of people and regulates human body functions, but is not used for the purpose of treating diseases, and should not pose any acute, sub-acute or chronic hazard to the human body.

  2. Policies of the health food industry

  During the “12th Five-Year” period (2011–2015), the “nutrition and health food manufacturing industry” was included in the national development plan for the first time. In June 2017, the State Council issued the National Nutrition Plan (2017–2030), which proposed to focus on the development of new nutrition and health food such as health food, nutrient-fortified food and double protein food. The “14th Five- Year” Plan for the Development of Traditional Chinese Medicine was issued in 2022, which proposed to vigorously develop the Chinese medicine health products, and advocated to vigorously develop the Chinese medicine health products at the national level.

  In April 2020, seven ministries and commissions including the State Administration for Market Regulation jointly issued the Special Action Plan for Clean-up and Rectification of Health Food Industry (2020–2021).

  On 17 January 2022, the State Administration for Market Regulation issued public solicitation documents such as the Announcement on the Publication of Non-nutrient Supplements in the Catalog of Healthcare Functions that Health Foods Are Permitted to Claim to Possess (2022 Edition) and Supporting Documents (Draft for Comments), and the Interpretations of Function Claims for Health Foods (2022 Edition) (Draft for Comments).

  On 28 August 2023, the State Administration for Market Regulation issued the Implementation Rules for Technical Evaluation of New Functions and Products of Health Foods (Trial), and on 31 August 2023, three ministries and commissions, namely the State Administration for Market Regulation, the National Health Commission and the National Administration of Traditional Chinese Medicine, issued the Non-nutrient Supplements in the Catalog of Healthcare Functions that Health Foods Are Permitted to Claim to Possess (2023 Edition) and the supporting documents. Seeing that the market supervision becomes more stringent in the context of stricter regulation, the brand reputation and product quality of enterprises will become the key to competition. Enterprises need to win the trust of consumers by improving product quality, strengthening brand building and improving marketing strategies, and the development of the entire industry will be more standardized and orderly.

  On 29 November 2023, the National Health Commission issued the Administrative Measures for Food Safety Standards (Order No. 10 of the National Health Commission), which came into effect on 1 December 2023. The Administrative Measures for Food Safety Standards have adjusted the purpose and scope of formulation, emphasized the implementation of the “most stringent standards”, and clarified that food safety standards include national food safety standards and local food safety standards.

  On 15 June 2023, the State Administration for Market Regulation issued the Measures for the Administration of Food Trade Licensing and Recordation (Order No. 78 of the State Administration for Market Regulation), which came into effect on 1 December 2023. The measures further clarified the scope of food trade permit and the specific circumstances under which a food trade permit is not required. In particular, a trade enterprise that only sells prepackaged food is not required to obtain a food trade permit.

  On 22 December 2023, the State Administration for Market Regulation issued the Guidelines for Normative Labeling of Health Food Logo, aiming to guide health food producers and operators to further standardize the labeling of health food logos, correctly guide consumption, and create a fairer and more orderly market.

  Published in December 2023, the Notice of the General Office of the National Health Commission on the Issuance of the Guiding Principles on Weight Management (2024 Edition) further implemented the “Weight Management Year” Activity Implementation Plan, advocating a civilized and healthy lifestyle, guiding medical and health personnel to carry out weight management work scientifically, further strengthening the earlier prevention and control of chronic diseases, enhancing the standardization level of weight management, especially the prevention and control of overweight and obesity, strengthening health education and promotion on chronic diseases and related risk factors, guiding the public to improve awareness and skills in weight management, and continuously improving the health literacy level of the people.

  On 27 December 2023, the State Administration for Market Regulation issued a public solicitation announcement on the Key Points for the Centralized Renewal Review of Health Food Products with No Expiry Date and No Product Technical Requirements in Production and Sale (Draft for Comments). On 1 November 2024, the State Administration for Market Regulation issued the Announcement on Key Points for the Centralized Renewal Review of Health Food Products with No Expiry Date and No Product Technical Requirements in Production and Sale [2024 No. 49], which stated a 5-year transition period for renewal application starting from 31 August 2023.

  3. Development of the health product industry

  China’s big health industry has an important position and potential globally, especially in the consumer health product industry. In October 2022, the 20th National Congress Report clearly stated that it is necessary to advance the Healthy China initiative, give strategic priority to ensuring the people’s health and improve policies on promoting people’s health. The big health industry was one of the important industries to advance the Healthy China initiative. China has attached great importance to people-oriented concept, and the government has proposed a feasible new medical reform proposal and the healthy development strategy of “Healthy China 2030”. This policy has lifted the basic national policy of being a “healthy strong country” to a national strategic level, in which the government will further increase its investment in medical health industry. Favorable policies have also become an important driving force for the development of the big health industry. People have increased health awareness which accelerated the growth of consumer demand for health products. This trend is prevalent globally, creating new growth opportunities for the consumer health product industry. It is forecasted that, by 2025, the size of China’s consumer health product industry will reach US$62.401 billion and will maintain at a growth rate of over 6%. This indicates that the Chinese market has great potential and will be an important growth point for the global health product industry.

  McKinsey’s latest Future of Wellness research surveyed more than 5,000 consumers across the United States, the United Kingdom, and China. In China, 62% of consumers consider wellness a top priority in their everyday lives, which is significantly higher than in the United States at 41% and in the United Kingdom at 29%. More Chinese consumers are prioritizing wellness more now than a year ago. More notably, when they are asked whether they would adjust health spending if overall consumption levels declined, 74% of consumers responded that they would rise or increase health-related spending. Gen-Z and millennial consumers are particularly concerned about health. They are now purchasing more wellness products and services than older generations, across health management, sleep improvement, diet and nutrition, physical fitness, scientific skin care, and mindfulness.

  According to the latest report by Technavio, the global health and wellness food market size is estimated to grow by USD627.6 billion at a compound annual growth rate of 9.8% between 2025 and 2029.

  4. Position of the Group’s principal activities in the industry

  The Group has focused on the research and development, production, sale and promotion of therapeutic teas for 25 years. Long-term focus and experience accumulation give the Company significant advantages in product development and market insight. The Company always adheres to the product strategy of “One Focus and Two Dimensions”, focusing on core products including the “Four Health Teas of Besunyen”, namely, Besunyen Detox Tea, Besunyen Slimming Tea, Besunyen Fit Tea, and Besunyen Relief Tea, and actively expanding the market of innovative products such as Orlistat capsules. Through continuous optimization of product structure, rapid upgrade of products and services, and continuous launch of products that meet diversified health needs, we have gained recognition and trust from consumers. According to the statistics of Tmall and JD.com platforms, the sales of Besunyen brand products ranked among the top of health food and weight-loss and slimming categories.

  The Company currently owns 25 approvals for health food (13 for teas, 7 for granules and 5 for capsules) with therapeutic functions covering weight loss, laxative relief, physical fatigue relief, sleep improvement, reduction of skin age spots, immunity enhancement, assistance in lowering blood sugar level and so on. As the largest therapeutic tea enterprise in China, the Company has eighteen health tea production lines equipped with the state-of-the-art IMA-C24 fully automatic tea bag machine from Italy, and it also has the strongest production capacity. All the products of the Company have passed the certifications of ISO9001, ISO22000 and HACCP.

  The business of the Company’s agency sales segment developed steadily and healthily. In 2024, the Company optimized the structure and variety of agent products, significantly reducing the variety and specification of the agent products. As a result, remarkable improvement was seen in operational quality, with Orlistat weight-loss medicine, collagen, minoxidil, and cross-border Vita Eslife WEIGHT HEALTH CAPSULE ranking among the top in sales within their respective categories.

• BUSINESS OPERATION AND MANAGEMENT REVIEW

  Since September 2023, the Company has carried out the reform of the business partnership system, and 2024 was the first year of the official operation of the partnership system reform, in which the business partnership system was fully implemented across the e-commerce and OTC business segments as well as the IT service support and logistics service departments. Experience over the past year has proved that the implementation of the business partnership system effectively stimulates the enthusiasm of all parties and achieves satisfactory operating results. In response to the dwindling chain terminals, the OTC business partners took proactive measures to strengthen cooperation with terminal stores, chain headquarters, and agents to optimize business relationships and achieve mutual benefits and win-win outcomes. After becoming partners, the employees of the e-commerce business shifted their business philosophy from pursuing scale to pursuing profit, actively expanding new retail in e-commerce, exploring a second growth curve, and nurturing new business lines on Douyin and Kuaishou. By optimizing the product structure, operating model, and marketing strategies, a flexible supply chain was established, achieving the best operational results since the establishment of the e-commerce business. The marketing department strengthened price and channel management, laying the foundation for stable development. In the fourth quarter of 2024, the remuneration mechanism for business partners was refined, providing a systemic guarantee for higher quality operations in the future. The IT and logistics departments also enhanced efficiency and service quality, all for the sake of the business.

  During the Reporting Period, the operation and management of the Group focused on the following aspects:

  1. Utilizing chain membership for precise promotion offline, conducting diversified cooperation and live-streaming promotion activities, strengthening channel and price management, and creating a favorable marketing environment

  The offline business is expanded and managed by a marketing company established through restructuring by four partners, acting as an agent for the offline operations of the OTC business. As a business partner of the Group, the marketing company’s main business cadres are shareholders of the sales company, significantly enhancing their work motivation and initiative. Business management has become more refined, and the service scope covered major cities nationwide. In response to the different characteristics of NKA, LKA and the like, effective development and management were conducted, focusing on the development of partnerships with the top 100 national chain stores, covering 300 thousand pharmacies and pharmaceutical third terminals in China. They supported each other in product training, business negotiation, terminal construction and marketing strategy formulation to ensure service quality and efficiency.

  In terms of marketing model, the Company leveraged the membership resources of chain pharmacies to conduct joint activities with chains and deployed its advantages in online e-commerce live streaming to assist customers in developing live streaming businesses, and reaching multiple strategic collaborations and using prime resources. In terms of the new retail business, it strengthened the cooperation with terminal businesses and enhanced deep interaction with chains and businesses. Utilizing O2O, live streaming and other sales models, it conducted consumer education by utilizing customers’ own platforms and membership resources, and increased offline customer experience through online and offline interactive communication, etc., so as to attract customers and increase the number of new market channels.

  Starting from August 2024, the four marketing companies have concentrated all personnel to carry out visits and cooperation activities arrangements in major cities within each region, including headquarters chains, regional headquarters chains, regional chain organizations, and terminal pharmacies, and comprehensively penetrated the market. Through nearly half a year’s work, a thorough organization of terminal business was conducted, strengthening relationships with commercial institutions and terminal stores. Sales work was fostered through jointly organized promotional activities.

  To create a favorable marketing environment, the four marketing companies leveraged their self-management capabilities to formulate corresponding management measures and penalty regulations. The issue of bugsell of the Company’s related products through channels has been greatly improved, stabilizing the market pricing of the products and ensuring the stability of profit expectations for agents and terminals, as well as confidence in market operations.

  2. Further integrating business units and resources in the e-commerce food product line, promoting new customer recruitment hyperlinks, optimizing promotional tools and strategies, and enhancing sales scale and operations

  In 2024, the three agency operation companies established by e-commerce became the agency operators for the Group’s e-commerce business, as well as new retail businesses on platforms such as Douyin and Kuaishou. The agency operation of the e-commerce business aims at profitability, with refined operations continuously optimizing products, supply chain, channels, and logistics to reduce costs and enhance efficiency.

  In 2024, the non-pharmaceutical line Pinduoduo department was merged from its original standalone business unit into the non-pharmaceutical retail business unit, unifying the retail operations. The adjustment of the organizational structure has facilitated the advancement of business. During the initial phase of business adjustment, there was a temporary decline in sales after coordinating and modifying the resource position for the main product, Fit Tea 32 packs. This is an inevitable throe during business adjustment. In order to boost daily sales volume and successfully excel the Double 11 event, a comprehensive plan was developed from multiple perspectives, including promotion expenses and platform resource positions, to revamp the main Besunyen Fit Tea series. Pinduoduo platform’s daily sales exceeded50 thousand during the Double 11 period. The monthly sales revenue of Besunyen Healthcare Products Flagship Store increased from over RMB800 thousand in September-October to surpassing RMB1 million per store in November-December.

  Tmall U started the new customer recruitment promotion first to support new customers to our brand. In May 2024, the Besunyen Official Flagship Store and Tmall U attracted potential customers through the “Warehouse Entry Marketing Model” trial experience, reducing the logistics cost of new customer recruitment. The original solitary mode was changed, and we started to seek in-depth cooperation with platforms. This reduced the brand’s marketing costs and enhanced the brand’s market competitiveness, helping the brand stand out in fierce market competition. Tmall Supermarket integrated resources and advanced hyperlinks. Tmall Supermarket advances the Hyperlink Formation Project. After one year, hyperlink has been developed into a beloved product with monthly sales of one million, representing a year-on-year growth of approximately 100%. Through continuous efforts in the Hyperlink Project, the sales revenue of the Tmall Supermarket channel has increased year by year, and the operational results have also grown simultaneously.

  During the 2024 JD Double 11 event, the JD Besunyen flagship store successfully achieved the top sales position in the slimming and body shaping category with its high-quality slimming and body shaping products. During large-scale promotional events like Double 11, the series of marketing strategies and measures adopted by Besunyen enhanced the brand’s influence and sales performance.

  3. Restructuring the business operation model of the e-commerce pharmaceutical line, adjusting product strategies and promotion methods to enhance performance

  After the restructuring, Tmall Pharmaceuticals adjusted its sales strategy for pharmaceuticals to further enhance its market competitiveness. Among them, relaunching the new product Orlistat in a 6-pill package and capturing the internal market was one of the important initiatives. By signing a long-term cooperation agreement with online shoppers and leveraging their promotional capabilities, the market awareness and sales of Orlistat were rapidly increased, with the sales of a single product exceeding 1 million boxes. At the same time, Tmall Pharmaceuticals has also adopted comprehensive operational strategies such as optimizing product lines, strengthening brand building, and expanding sales channels to support the overall business development.

  In 2024, the Company promptly switched its JD pharmaceutical business from a self-operated model to a POP model, actively adjusting operational strategies to adapt to the new business model and ensure stable development of the business. The joint operation of POP and self-operated models was achieved, the space for development for the Company’s pharmaceutical business on the JD platform was expanded, and it is hopeful that the performance can be further enhanced.

  4. Continuously exploring the operation model of new retail businesses including Douyin, Kuaishou and cross-border e-commerce to seek new growth points

  With the rapid development of short video platforms such as Douyin and Kuaishou, a team was formed on the basis of traditional e-commerce business to actively explore new businesses on Douyin, Kuaishou, and cross-border e-commerce. The Douyin Supermarket business of Douyin E-commerce has developed rapidly. The Company has reached a business cooperation with Douyin Supermarket, establishing an authorized brand self-operated live streaming account for Douyin Supermarket. By leveraging the endorsement of Douyin Supermarket and Besunyen’s products, they achieved a win-win situation. Through the Douyin Supermarket channel, they expanded Besunyen’s growth in Douyin business, solved the issue of Douyin Supermarket connecting with KuaiMai ERP for delivery, and improved work efficiency and customer service experience.

  5. Changing the business model of cross-border e-commerce to create a new model of brand operation

  With the launch of the cross-border proprietary brand product, namely Besunyen Vita Eslife WEIGHT HEALTH CAPSULE, in April 2024, the previous model of low-price competition purely through product agency in cross-border e-commerce business was adjusted and improved, and gradually shifted towards the path of branded operation development. The transformation of the cross-border e-commerce business model has laid a solid foundation for the long-term development of the business.

  6. Strengthening self-broadcast businesses such as Douyin and achieving multi-scenario and extensive time coverage to adapt to the characteristics of the new media era

  The Company has placed great emphasis on online marketing, with a focus on strengthening its Douyin self-broadcast business. The new business line transitioned from outsourced live streaming to self-operated live streaming based on the operational status of Douyin, with plans for Douyin’s self-operation and live streaming room preparation starting from the end of October, including the selection of the park location for the live streaming site, the decoration of the office and live streaming room, the procurement of equipment, and the construction of the live streaming room. As real-scene live streaming was adapted, providing higher clarity in the live streaming room, the host could easily present the products in front of the camera and offer a sense of reality to customers. As for the setting up of a live streaming team, hosts and central control staff were recruited. In the official Besunyen live streaming room, there were four hosts and three central control staff, requiring more than 15 hours of live streaming every day, and non-stop live streaming during major promotions. Single-session sales exceeded RMB27 thousand on the first live broadcast date of 12 November, and the live broadcast sales of over RMB430 thousand and the accumulated live broadcast duration of over 180 hours were recorded in the first month. The Company is gradually setting up a self-broadcast team consisting of full-time and part-time hosts, such that it can control the hosts and profits and flexibly manage live streaming traffic.

  7. Using AI technology to empower content creation and enhance work efficiency

  The rapid development of AI technology has provided a powerful tool for enhancing content creation efficiency and reducing design costs. Besunyen is actively exploring the application of AI in content creation. In order to attract young users, AIGC was used to establish a unified brand online VIS visual system. Besides, the Company used AI to provide diverse design solutions, reduce communication trial-and-error costs, and improve design efficiency. Combined with business, AI was used to revolutionize content work models and improve creation efficiency and effectiveness. AI empowerment significantly enhanced content creation efficiency and quality, providing strong support for brand operations and product promotion.

  8. Continuously enhancing brand image offline and facilitating in-depth cooperation and win-win cooperation with marketing channels and platforms

  In 2024, the Group achieved channel expansion and upgrading through close cooperation with the top 100 domestic chains. Leveraging the extensive influence and reputation of these chains, the Group expanded the product’s influence and national coverage through their member’s days and live-streaming operations. At the same time, the Company launched large-scale annual activities such as “Detox and Control, Faster Weight Loss” (一排一控、減肥加速) which focused on the weight-loss market and attracted a large number of weight-watchers, thereby increasing the brand’s attention in the market.

  9. Further optimizing the operational mechanism and improving the performance-based remuneration mechanism to promote the long-term healthy development of the business

  The year 2024 marked the first full year operation of the Company’s partnership system reform, with the initial effects of the reform starting to crystallize. As shareholders of the Company, the partners have established a long-term business philosophy and set a profit-centered business objective. Consequently, the partnership enterprise has undertaken a reorganization of its business departments, optimized existing businesses and expanded new businesses, readjusted work assignments, optimized relationships with business partners, and reformed the supply chain. This has resulted in product structure optimization, improved supply efficiency and quality, ultimately enhancing profitability. However, the reformed OTC business still followed the compensation performance evaluation method used prior to the reform, which was mainly linked to sales volume. This method has become completely unsuitable for the post-reform requirements aimed at profitability. Starting from 2024, the chairman of the Company personally led the reform of the partner compensation mechanism, reducing the basic salary and linking the performance mainly to profit contribution. This has laid a solid mechanism foundation for higher quality operations in future years and will strongly facilitate long-term healthy business development.

  10. Establishing and improving the quality system to achieve quality objectives

  The CPC Central Committee attaches great importance to food safety, which adheres to the four strictest requirements in food safety, namely “the strictest standards, the strictest supervision, the strictest penalties and the strictest accountability”, to ensure the food safety of the general public. The Company attaches great importance to quality management, strives to establish and improve the quality management system, continuously improves quality management methods, and actively addresses quality risks to achieve high-quality development.

  Staff education and training were strengthened. By regularly participating in quality training organized by regulators and sharing the latest information, our staff enhanced their quality awareness and were equipped with more professional skills and knowledge to ensure the effective implementation and continuous improvement of the quality system. In strict adherence to the project improvement plan, the Company constantly identified issues, formulated improvement measures and tracked implementation effects to ensure continuous optimization of the entire system. In addition, through regular reviews, it promptly identified and corrected deficiencies in the system to gain the trust and recognition of customers and third parties.

  The Company has established a complete production quality management system in accordance with the laws and regulations including the Food Safety Law, the National Food Safety Standards — Good Manufacturing Practices for Health Food (GB17405), the Rules for the Examination of Production Permits for Health Food, the National Food Safety Standards — Health Food (GB16740), the Regulations on the Labeling of Health Food (Wei Jian Fa [1996] No. 38), and the Guidelines for Warning Words on the Labeling of Health Food. On this basis, the Company has passed the ISO9001 quality management system, ISO22000 food safety management system and HACCP key control point system certification, providing a strong guarantee for the Company’s high-quality products, and laying a solid foundation for products to gain full trust from consumers and enhance market competitiveness.

• ANALYSIS OF COMPETITIVENESS DURING THE REPORTING PERIOD

  1. Building a brand communication matrix to achieve the goal of integrated marketing, focusing on the needs of Gen-Z consumers, innovating communication content and methods, expanding communication platforms, enhancing brand influence, and attracting new customers

  In 2024, Besunyen made every effort to establish a brand communication matrix, focused on the habits of the younger generation of consumers, innovated communication content and methods, expanded the use of more communication platforms, conducted scene-based marketing, which enhanced brand influence and customer loyalty.

  (1) Continuing to build a brand communication matrix for market promotion to achieve the goal of integrated marketing

  By conducting an in-depth analysis of the competitive environment of the market and gaining insights into the needs of the target audience, a strategy was formulated to transition from single-point communication to a systematic brand communication matrix. Through integrating various channel resources, including advertising placement, social media promotion, and collaboration with influencers, a complete marketing chain has been established. Brand image and recognition were significantly enhanced, with a substantial increase in brand visibility, leading to a marked improvement in consumer awareness and favorability, thereby laying a solid foundation for product sales.

  (2) Adapting to the demand characteristics of young consumers and keeping up with marketing trends

  By analyzing the consumption needs and habits of Gen-Z consumers, precise content seeding focusing on products was conducted, with carefully designed content realization pathways to highlight the differentiation of product content selling points. High-quality images, videos, and other means were used for promotion on social media platforms like Douyin and Xiaohongshu, as well as e-commerce platforms, to enhance the product’s perception in the minds of consumers.

  (3) Adopting innovative marketing methods, actively exploring creative forms such as Douyin short dramas, AI content creativity, and trending topic marketing

  Leveraging popular events and topics to create brand-specific hotspots, and tailoring communication strategies to align with the brand’s tone, the Company has greatly accelerated the pace of marketing, significantly increased brand exposure and interaction on social media, and enhanced the brand image to be more youthful and fashionable, attracting numerous new users.

  (4) Enhancing brand visibility and traffic to drive product sales, integrating brand TVC with sales content, and deeply exploring user needs to enhance brand influence

  Creating from the user’s perspective to enhance communication effectiveness; conducting brand promotion, collaborating with multiple companies on proposals, and ultimately producing several brand promotional videos, such as the Profit Edition and Fishing Edition, so as to strengthen brand impression. A creative short film with the theme “Losing weight is actually not that hard,” was created using viral advertising methods that align with the logic of short video platforms, setting up reversal points, and coordinating with sales to establish a unified visual hammer. The brand influence has significantly increased, with significant growth in visibility and traffic, strongly driving product sales.

  (5) Expanding the brand’s influence on the Xiaohongshu platform, Besunyen established a Xiaohongshu operation team to define operational goals and strategies

  In mid-November 2024, the Xiaohongshu department was established, a 7+1 framework was constructed to define objectives and assessment indicators, and to conduct training for new personnel accordingly. Timelines and objectives were also formulated with work progress recorded, and the direction of content creation was clarified with emphasis on the value and sentiment of notes, providing consumers reasons to choose us. Our Xiaohongshu platform operations achieved phased results, and laid the foundation for the brand’s long-term development on the platform.

  (6) Continuously carrying out the theme activity of “Detox and Control, Faster Weight Loss” offline

  The Company continued to carry out the annual theme activity of “Detox and Control, Faster Weight Loss” which was planned by the marketing department of Besunyen in 2023. In order to better promote Besunyen products in the national OTC market and convey the concept of keeping fit healthily, Besunyen has carried out extensive publicity on major media platforms. Through on-site training activities, shop assistants could better understand the advantages and the correct use of products. In a few months, nearly a thousand training sessions were conducted across the country. This theme activity not only enhanced the influence of Besunyen brand, but also established a healthy and professional image among shop assistants and consumers, laying a solid foundation for the long-term development of the brand.

  2. Strengthening the internal driving force of innovation and research and development and accelerating the transformation of scientific and technological achievements

  (1) Deepening cooperation among the industry, universities and research institutes and successfully completing the special project under the key research and development plan of the Ministry of Science and Technology

  In 2024, the Company continued to carry out cooperation among the industry, universities and research institutes. As the responsible unit of the “Modernization of Chinese Medicine Project”, a key research and development plan of the Ministry of Science and Technology, the Company cooperated with well-known universities and research institutes in China for conducting collaborative research, and completed the building of platforms for “Demonstration Research Office for Trial Production and Research of Traditional Chinese Medicine and Compound Health Products”, “Demonstration Research Office for Mass Production of Traditional Chinese Medicine and Compound Health Products”, and “Demonstration Research Office for Comprehensive Evaluation of the Efficacy of Large Samples of Traditional Chinese Medicine and Compound Health Products”. Focusing on “Besunyen Detox Tea”, a demonstration research product with good modern research foundation and application prospect, the Company conducted research on functional ingredients, interpretation of modern scientific connotation, research on functional factors and large sample clinical trial and research, which fully demonstrated the scientificity, efficacy, safety and stability of the Besunyen Detox Tea. The successful acceptance of the project will provide a series of research and development and evaluation standards for the TCM health product industry and provide a scientific basis for the precise application and development of TCM health products.

  (2) Accelerating the cultivation of new products and stimulating the endogenous power of innovation and research and development

  In 2024, a series of new regulations for the health food industry were implemented to encourage enterprises to innovate and develop and stimulate the endogenous power of the industry. Focusing on the “One Focus and Two Dimensions” product development strategy, the research and development department accelerated the process of development of new health products, promoted the establishment of new product development projects, and completed a number of safety evaluation studies and registration inspections of new health products.

  (3) Strengthening the secondary development of products, and preparing for the centralized renewal of product certification to ensure the compliance of its products

  The Group deepened the collation of health food approvals, developed health food products for the second time, completed quality research and production review, and facilitated the successful completion of technical upgrade and conversion of the new health products, namely Besunyen Lingzhi Ginseng Granules (碧生源牌靈芝人參顆粒) and Besunyen Lingzhi Goji Berry Poria Tea (碧生源牌靈芝枸杞茯苓茶), effectively expanding the market of healthcare functions such as liver protection, sleep aid and immunity enhancement, so as to better meet the diversified health needs of consumers. It completed the renewal of registration of Besunyen Lingzhi Goji Berry Poria Tea, a health food product with the health function of “assisting in liver protection against toxicity”, hence the validity period of the approval was renewed successfully.

  On 1 November 2024, the State Administration for Market Regulation issued the Announcement on Key Points for the Centralized Renewal Review of Health Food Products with No Expiry Date and No Product Technical Requirements in Production and Sale [2024 No. 49], which stated a 5-year transition period for renewal application starting from 31 August 2023. The Company has made all the preparation works for the centralized renewal of certificates to ensure that the renewal is completed with high quality.

  (4) Deepening the layout of intellectual property rights

  In 2024, the Company actively facilitated the development and deepening of layout of intellectual property rights, and conducted the exploration and declaration of invention patents, utility model patents and design patents. The intellectual property management system was improved to comprehensively protect its knowledge and achievements. During the year, the Company applied for 2 invention patents and was granted 3 invention patents and 1 utility model patent authorisation. In particular, the invention patent declared to protect the technology of Besunyen Slimming Tea was granted successfully, which helps to enhance the technological content and increase the market recognition and consumer trust of the product.

  (5) Independently conducting academic research on products and publishing high-level academic articles

  In recent years, health food regulators have required health food products to strengthen scientific research and clinical validation, increasing registration requirements and market entry thresholds. In order to ensure the smooth declaration of the new healthcare product of slimming chewy bites, the R&D department independently carried out basic research and product efficacy validation, and successfully published two academic articles in core journals in July 2024. An academic article titled “Optimization of Extraction Process forα-AI from White Kidney Beans and Evaluation of Its Efficacy in Combination with L-carnitine” 《( 白蕓豆澱粉酶抑制劑提取工藝優化及與左旋肉堿復配物功效評價》) was published in the journal “Tianjin Agricultural Sciences”; and another academic article titled “Weight Loss and Blood Sugar Reduction Effects of L-carnitine and White Kidney Bean Extract Compound Preparation on Obese Rats” 《( 左旋肉堿與白蕓豆提取物複合製劑對肥胖大鼠的減重降糖功效 》) was published in the journal “Specialty Research”. The R&D department actively leveraged its expertise to design reasonable experimental plans, systematically assess the safety and effectiveness of products, and generate reliable data support while saving R&D costs for the Company.

  3. Continuously facilitating modern production management and creating high-quality products from the source

  The Company always adheres to the concept of innovation and excellence, and is committed to providing consumers with high-quality products and actively promoting modern production management. By continuously learning and introducing international advanced production management concepts and tools, the Company controlled the whole process of production, and continuously optimized the production and quality management process. It applied international advanced production processes and procedures according to product conditions, combined with self-developed technologies to ensure product uniqueness and superiority.

  (1) Implementing full life cycle management of products

  Before the product is launched, strict control is carried out in terms of process route design, supplier selection, acceptance of raw materials, production process control, product inspection, packaging label compliance, product storage and transportation, recycling and disposal, etc., to ensure that the production and quality management system can safeguard the safety and quality of the products produced.

  (2) Improving the intelligent technology route continuously

  The automated intelligent production workshop adopts advanced digital technology and industrial Internet technology to monitor the whole process of production in real time, and production data is collected and analyzed in real time to ensure that high-quality products are provided to consumers.

  (3) Controlling and improving product quality parameters

  The Company strictly controlled various quality parameters of products and adopted a combination of manual and equipment monitoring to control quality parameters. The product packing data can be collected and monitored in real time, and unqualified products will be automatically removed and alarmed. It established product quality files, controlled and analyzed various product quality data to ensure and continuously improve product quality.

  4. Continuously upgrading data analysis capabilities and further optimizing the BI system, with AI systems and virtual humans widely applying in marketing and promotion

  Following the rapid growth of business data, the management department of the Group has carried out comprehensive function optimization and performance upgrade of the BI (business intelligence) system to further strengthen data security and ensure that data analysis tools can better cope with the increasing volume of data and provide more accurate real-time analysis results. At the same time, in order to better support business decisions, the Group continued to update and iterate various business analysis reports to provide comprehensive and in-depth data insights for business decisions and facilitate the efficient development of the Company’s various businesses.

  The rapid development of AI technology has provided excellent tools for enhancing the Company’s operational management. The marketing department extensively used AI technology in product packaging design, promotional content creation, event planning, video shooting, and copywriting editing and optimization. Virtual human technology was used in online live broadcasts. The adoption of these technologies has improved efficiency, saved labor, and enhanced work quality.

• FULFILMENT OF SOCIAL RESPONSIBILITIES DURING THE REPORTING PERIOD

  Since its establishment, the Group has been firmly fulfilling its social responsibilities and focusing on the win-win situation between economic benefits and social benefits while advancing production and operation. It carried out several special public welfare activities in environmental protection, poverty alleviation, education, youth entrepreneurship and other aspects.

  1. Social welfare activities

  In 2014, Besunyen partnered with Beijing Charity Association to establish the “Besunyen Special Charity Fund”. Such fund was connected to the platform of the Beijing Municipal Government and actively carried out social assistance activities to provide services to the underprivileged. In 2022, the “Besunyen Special Charity Fund” was applied in carrying out social assistance activities, providing various charity assistance to the underprivileged, and optimizing the path for the Group to participate in public welfare activities. It was an effective platform for Besunyen to participate in public welfare and charity undertakings in recent years.

  Since 2017, Besunyen has cooperated with environmental protection and public welfare organizations such as China Green Carbon Foundation and Beijing Green Sunshine Environmental Protection Public Welfare Foundation, and has donated more than RMB3.5 million in total to initiate the establishment of the “Special Fund for Combating Illegal Trade in Endangered Wildlife”, which has raised public awareness of and participation in the protection of wildlife.

  In 2023, Besunyen teamed up with Shanghai Charity Foundation to establish a special public welfare fund. With the objectives of “caring for the elderly and children and helping students and the needy”, it developed public welfare and charity undertakings and promoted social civilization and advancement. Since the establishment of the project fund, it has repeatedly contributed to charity activities such as target aids, caring for the elderly and children, and helping students and the needy. It has also participated in the “Zhengtong Xieli Love Special Fund” (政通協力愛心專項基金) set up by the Fangshan District Committee of the Chinese People’s Political Consultative Conference to solve the practical problems of people in need in the Beijing-Hebei region.

  In 2024, the Company participated in the pairing assistance organized by Fangshan District, Beijing, to support towns and villages in regions such as Hebei and Inner Mongolia, aiding local industrial development and addressing economic development and community difficulties in these regions. Besunyen places great importance on the protection of Chinese traditional cultural relics and art, funding the restoration, reconstruction, and protection work of Jixiang Temple in Pingyao County, Shanxi Province, and sponsoring emergency rescue training to enable more people to acquire first aid knowledge.

  In addition, Besunyen also participated in public welfare activities such as environmental protection and health promotion to advocate a healthy lifestyle.

  2. Contributing to rural revitalization and participating in poverty alleviation and agricultural assistance

  In terms of rural revitalization, Besunyen has participated in the “Ten Thousand Enterprises Revitalize Ten Thousand Villages“, “Ten Thousand Enterprises Help Ten Thousand Villages” and other special poverty alleviation public welfare activities for consecutive years. It supported rural development with the public welfare model of project entry into villages, product sales assistance and targeted education assistance. It has successively supported the construction of farmers’ breeding bases in Budaxiaheleke Village ( 布達夏合勒克村) and Kule’airike Village (庫勒艾日克村) in Karakax County, Xinjiang; the assistance for low-income people in Yangchanggou Village, Ulanhayesumu Town, Chayouzhongqi County, Inner Mongolia; and actively participated in special actions such as paired assistance in Putaokou Village, Fanjiazhuang Town, Quyang County, Baoding City, Hebei Province. It expanded the sales channels of agricultural sideline products and local specialties, solved urgent problems and worries, and encouraged and drove the enthusiasm and initiative of local farmers to carry out agricultural production.

  3. Adhering to the low-carbon economy and promoting energy saving and emission reduction

  Regarding the production process, Besunyen pragmatically fulfilled its corporate social responsibilities by actively carrying out technological transformation to improve the process, simplify packaging, reduce emissions, and promote the paperless office through system tools.

  Over the years, Besunyen was always dedicated to public welfare and charity undertakings, and pragmatically fulfilled its corporate social responsibilities.

• FUTURE DEVELOPMENT OUTLOOK

  The 20th National Congress Report of the CPC pointed out that it is necessary to adhere to the theme of promoting high-quality development, and organically combine the implementation of the strategy of expanding domestic demand with deepening the supply-side structural reform. The Outline of the “Healthy China 2030” Plan also emphasizes the establishment of a complete and optimized-structure health industry system.

  Besunyen will take consumers’ health needs as the driving force of innovation, adhere to the concept of “herbal, healthy, and quality functional tea”, deepen the fields of “weight loss and weight management” and “laxative and gastrointestinal health”, continue to build a parallel development pattern of multiple categories of “OTC drugs + health food + general food”, and realize the promotion of marketing strategy from selling products to building brand value.

  The Group believes that it will seize the opportunities of the development of the big health industry. In 2025, the Group will continue to adhere to the goal of profitability and positive cash flow, further optimize the product structure, continuously innovate marketing models, achieve high-quality development with its operating policy, consolidate the foundation and capability, and create a new pattern of high-quality development.

  We will implement the following tasks in order to achieve the Group’s business objectives for 2025.

  Firstly, leveraging the advantages in online operations and offline membership resources to achieve mutual benefits through in-depth cooperation

  After years of cultivation, the Group’s products have established a solid market foundation. As consumer habits change, offline business customers are also actively engaged in offline business transformation and activation of member resources. The Company has extensive experience in online business operations and can expand the influence and business development of Besunyen through deep cooperation with offline channels, utilizing models such as live streaming, membership marketing, private domain marketing, and B2B. Simultaneously, efforts should be increased in developing distributor channels and third-party terminals, leveraging merchant and platform resources, increasing advertising investment, and enhancing store activities to boost the sales of the Four Tea products. The Company will focus on market trends and identify new marketable products. Also, it will enhance the service system for terminals and distributors, creating innovations and upgrades including brand communication, deep consumer interaction, and optimization of product experience.

  Secondly, exerting the autonomy of partners, actively managing channels and prices through internal mechanisms and systems, and jointly creating a favorable operating environment

  After the reform of the partnership system, the Company has set up companies operating various online and offline channels and in various regions. These companies operate the same products, thus the management of channels and pricing not only affects the market order of the Company but also impacts the market order and development of other related companies. Therefore, standardized management of product channels and pricing is particularly important. Four OTC agency companies and heads of e-commerce business have established an independent management organization to formulate channel bugsell management and pricing management systems. This aims to enhance the control over sales channels, manage the pricing system across different channels and levels, continuously strengthen market supervision and terminal maintenance capabilities, and create a favorable sales environment.

  Thirdly, continuously advancing Douyin, Kuaishou and other new retail and cross-border businesses

  As the fastest-growing consumer market in the world, the big health industry has a large number of subcategories, and the consumption trend changes rapidly. With the increasing penetration rate of new marketing platforms such as Xiaohongshu, Douyin and Kuaishou, and the growing influence of KOLs on consumers’ purchasing decisions, the Group will continue to increase investment in exploring emerging marketing platforms represented by Douyin and Kuaishou, enhance channel cooperation and expand marketing activities, so as to expand its market share on Douyin and Kuaishou. The Company will continue to expand the number of stores on Douyin, improve the advertising efficiency on Douyin and other emerging marketing platforms, form a good interaction with Douyin and other emerging marketing platforms, and improve the closed loop of traffic and transactions to lay a solid foundation for long-term sustainable growth. Guided by a branded operating policy, the cross-border business will source quality products across the globe to meet the diversified needs of a wider range of consumers.

  Fourthly, consolidating the market position of the brand by leveraging the advantages of content marketing and brand penetration of Xiaohongshu

  During the year, the Group will continue to enhance the professionalism and attractiveness of the promotion content, and improve the effectiveness of communication through high-quality content. In terms of communication channels, it will make full use of media platforms such as elevator media to accurately reach target customer groups and consolidate the brand’s leading position in the weight loss and laxative fields. By giving full play to its brand influence and actively utilizing media resources, the Group will deeply cooperate with chain stores and other sales channels, and launch integrated brand promotion and promotional activities, in a bid to facilitate interaction with consumers and meet their increasing demand for healthy life. The Group will continuously develop the multi-faceted value of new media channels, incubate major distributors and social e-commerce platforms, and jointly promote brand influence through products and channels. It will strive to deepen and consolidate the market position of Besunyen brand in Xiaohongshu, serving as the main platform for cultivating and expanding new users.

  Fifthly, insisting on technological innovation and strengthening research and development of new products

  In 2025, the Company will persist in promoting process improvement, technological innovation, and development and research of new products. Through technological improvement, the unit cost of products will be reduced to a certain extent and the economic benefits of the Company will be improved. Meanwhile, the Company will pay close attention to the development of the big health industry, and focus on its own development and future according to market demand, technological research and development, company strategies, etc. The Company will actively expand new products and new channels, develop and explore core single major product, and continuously try new marketing models to provide subsequent products and operation capabilities for the future development of the Company.

  Sixthly, continuously facilitating cost reduction and efficiency improvement, and improving operation quality

  In 2025, the Company will continue to facilitate the gross margin management of products, reduce various costs and expenses, improve the turnover rate of inventories and accounts receivable, improve the input-output efficiency, and enhance its operation quality, thereby laying a solid foundation for the long-term development of the Company.

  Besunyen will continue to adhere to the brand concept to provide consumers with more diversified products and services, provide Besunyen wisdom for the development of the big health industry, and contribute Besunyen power to the China big health!

Chairman and CEO

Zhao Yihong

Hong Kong, 31 March 2025