{"url_path":"/sec/sxtc/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-07-01","source_url":"https://www.sec.gov/Archives/edgar/data/1723980/0001213900-26-074310-index.html","accession_number":"0001213900-26-074310","cik":"0001723980","ticker":"SXTC","issuer_name":"China SXT Pharmaceuticals, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1723980/0001213900-26-074310-index.html","primary_entity_key":"0001723980","primary_entity_name":"China SXT Pharmaceuticals, Inc."},"word_count":5087,"has_tables":true,"body_markdown":"ITEM 5. OPERATING AND\nFINANCIAL REVIEW AND PROSPECTS\n\n \n\n*The following discussion\nand analysis of our results of operations and financial condition should be read together with our consolidated financial statements\nand the notes thereto and other financial information, which are included elsewhere in this Form 20-F. Our financial statements have\nbeen prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In addition, our financial\nstatements and the financial information included in this Form 20-F reflect our organizational transactions and have been prepared as\nif our current corporate structure had been in place throughout the relevant periods.*\n\n \n\n*This section contains\nforward-looking statements. These forward-looking statements are subject to various factors, risks and uncertainties that could cause\nactual results to differ materially from those reflected in these forward-looking statements. Further, as a result of these factors,\nrisks and uncertainties, the forward-looking events may not occur. Relevant factors, risks and uncertainties include, but are not limited\nto, those discussed in the section entitled “Business,” “Risk Factors” and elsewhere in this Form 20-F. Readers\nare cautioned not to place undue reliance on forward-looking statements, which reflect management’s beliefs and opinions as of\nthe date of this annual report on Form 20-F. We are not obligated to publicly update or revise any forward-looking statements, whether\nas a result of new Information, future events or otherwise. See “Forward-Looking Statements”.*\n\n \n\n52\n\n \n\n \n\nKey Factors Affecting Our Results of Operation\n\n \n\nWe are an offshore holding\ncompany incorporated in British Virgin Islands and we conduct all of our business through our subsidiaries and the consolidated variable\ninterest entity, Taizhou Suxuantang, in China. Neither we nor our subsidiaries own any share in Taizhou Suxuantang. Instead, WFOE, Taizhou\nSuxuantang and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, pursuant to which, we\nare regarded as the primary beneficiary of Taizhou Suxuantang for accounting purpose, and, therefore, we are able to consolidate the\nfinancial results of Taizhou Suxuantang in our consolidated financial statements in accordance with U.S. GAAP.\n\n \n\nOur past operating results\nare not an accurate indication of the lines of business we are principally engaged in currently. Thus, you should consider our future\nprospects in light of the risks and uncertainties experienced by early-stage companies in evolving markets rather than typical companies\nof our age. Some of these risks and uncertainties relate to our ability to:\n\n \n\n●attract\nadditional customers and increased spending per customer;\n\n \n\n●increase\nawareness of our brand and develop customer loyalty;\n\n \n\n●respond\nto competitive market conditions;\n\n \n\n●respond\nto changes in our regulatory environment;\n\n \n\n●manage\nrisks associated with intellectual property rights;\n\n \n\n●maintain\neffective control of our costs and expenses;\n\n \n\n●raise\nsufficient capital to sustain and expand our business;\n\n \n\n●attract,\nretain and motivate qualified personnel; and\n\n \n\n●upgrade\nour technology to support additional research and development of new products.\n\n \n\n*Results of Operations for the Year Ended\nMarch 31, 2026 Compared to the Year Ended March 31, 2025*\n\n* *\n\n  \nFor the Years Ended\nMarch 31,  \nChange \n\n  \n2026  \n2025  \nAmount  \n% \n\nRevenues \n$1,138,052  \n$1,740,907  \n$(602,855) \n (35)\n\nCost of revenues \n (889,350) \n (1,373,480) \n 484,130  \n (35)\n\nGross profit \n 248,702  \n 367,427  \n (118,725) \n (32)\n\n  \n    \n    \n    \n   \n\nSelling and marketing expenses \n (244,185) \n (289,859) \n 45,674  \n (16)\n\nGeneral and administrative expenses \n (7,127,450) \n (2,758,047) \n (4,369,403) \n 158 \n\nTotal operating expenses \n (7,371,635) \n (3,047,906) \n (4,323,729) \n 142 \n\n  \n    \n    \n    \n   \n\nLoss from operations \n (7,122,933) \n (2,680,479) \n (4,442,454) \n 166 \n\n  \n    \n    \n    \n   \n\nInterest expense, net \n (62,965) \n (648,221) \n 585,256  \n (90)\n\nOther income (expenses), net \n 980,813  \n 25,048  \n 955,765  \n 3,816 \n\nTotal other income (expense), net \n 917,848  \n (623,173) \n 1,541,021  \n (247)\n\n  \n    \n    \n    \n   \n\nLoss before income taxes expense \n (6,205,085) \n (3,303,652) \n (2,901,433) \n 88 \n\nIncome tax expenses \n -  \n -  \n    \n - \n\nNet Loss \n$(6,205,085) \n$(3,303,652) \n$(2,901,433) \n 88 \n\n* *\n\n53\n\n \n\n* *\n\n*Revenues*\n\n \n\nWe generated revenues primarily\nfrom manufacture and sales of the following products: three types of TCMP products, consisting of Advanced TCMP, and Regular\nTCMP, and others. As compared with the year ended March 31, 2025, our total revenues decreased by $602,855,\nor 35%, for the year ended March 31, 2026.\n\n \n\nThe following table sets\nforth the breakdown of revenues by revenue source for each period presented:\n\n \n\n \n \nFor\nthe Years Ended\n\nMarch 31,\n \n \nChange\n \n\n \n \n2026\n \n \n2025\n \n \nAmount\n \n \n%\n \n\nAdvanced TCMP\n \n$\n49,516\n \n \n \n258,416\n \n \n$\n(208,900\n)\n \n \n(81\n)\n\nRegular TCMP\n \n \n1,081,400\n \n \n \n1,442,466\n \n \n \n(361,066\n) \n \n \n(25\n) \n\nOthers\n \n \n7,136\n \n \n \n40,025\n \n \n \n(32,889\n) \n \n \n(82\n) \n\nTotal revenues\n \n$\n1,138,052\n \n \n$\n1,740,907\n \n \n$\n(602,855\n)\n \n \n(35\n)\n\n \n\n*Advanced TCMP*\n\n \n\nAdvanced TCMP is comprised\nof seven Directly-Oral-TCMP products and four After-Soaking-Oral-TCMP products. Both Directly Oral TCMP and After-soaking-oral TCMP are\nnew types of Advanced TCMP.\n\n \n\nRevenue from Advanced TCMP\naccounted for 4% and 15% of the revenue recognized during the years ended March 31, 2026 and 2025, respectively. As compared with the\nyear ended March 31, 2025, our revenue from Advanced TCMP decreased by $208,900, or 81%, for the year ended March 31, 2026. The decrease\nwas primarily the decreased market demand for our Advanced TCMP.\n\n \n\n*Regular TCMP*\n\n \n\nWe currently manufacture 200\nRegular TCMP products listed on China Pharmacopoeia (version 2020) Parts I and IV for hospitals and drug stores in treatment of various\ndiseases or serving as dietary supplements.\n\n \n\nRevenue from Regular TCMP\naccounted for 95% and 83% of the revenue recognized during the years ended March 31, 2026 and 2025, respectively. Revenue from Regular\nTCMP products decreased by $361,066, or 25%, to $1,081,400 for the year ended March 31, 2026 from $1,442,466 for the year ended March\n31, 2025. The decrease in revenue from Regular TCMP products is due to the decreased market demand for our Regular TCMP during the year\nended March 31, 2026.\n\n \n\n54\n\n \n\n \n\n*Others*\n\n \n\nFor the years ended March\n31, 2026 and 2025, we also generated revenue of $7,136 and $40,025, which represented 1% and 2% of our total revenue, respectively. For\nthe year ended March 31, 2026, the Company generated revenue of $7,136 from sales of raw medicinal materials.\n\n \n\n*Cost of Revenues*\n\n \n\nCost of revenues primarily\nincludes cost of materials, direct labors, overhead, and other related incidental expenses that are directly attributable to the Company’s\nprincipal operations. Total cost of revenue decreased by $484,130, to $889,350 for the year ended March 31, 2026 from $1,373,480 for\nthe year ended March 31, 2025.The decrease was in line with the decline in revenue.\n\n \n\n*Gross Profit*\n\n \n\nGross profit decreased by\n$118,725, or 32%, to $ 248,702 for the year ended March 31, 2026 from $367,427 for the year ended March 31, 2025. Gross margin was 21.9%\nfor the year ended March 31, 2026, compared to 21.1% for the year ended March 31, 2025. The slight increase in our gross margin is mainly\ndue to the modest improvement in gross margin of our Regular TCMP products, compared with the prior fiscal year ended March 31, 2025.\n\n \n\n*Selling and Marketing Expenses*\n\n \n\nSelling and marketing expenses\nprimarily consisted of sales staff payroll and welfare expenses, travelling expenses, market development and advertising fees, distribution\nand promotion expenses. The selling and marketing expenses decreased from $289,859 for the year ended March 31, 2025 to $244,185 for\nthe year ended March 31, 2026, representing an decrease of $45,674, or 16%. The decrease in selling and marketing expenses was mainly\ndue to :(i)the decrease market development and advertising fee from $108,822 for the year ended March 31, 2025 to $89,488 for the year\nended March 31, 2026;(ii) Distribution and transportation expenses from $25,184 for the year ended March 31, 2025 to $6,958 for the year\nended March 31, 2026.\n\n \n\n*General and Administrative Expenses*\n\n \n\nGeneral and administrative\nexpenses primarily consisted of staff payroll and welfare expenses, research and development expenses, professional consulting expense,\nexpected credit loss provision on doubtful accounts, entertainment expenses, travelling expenses, depreciation and amortization expenses\nfor administrative purposes, office supply expenses, credit loss provision and impairment expenses.\n\n \n\nFor the year ended March\n31, 2026, general and administrative expenses increased $4,369,403, or 158%, compared to the year ended March 31, 2025. The increase\nin our general and administrative expenses is mainly due to the employee incentive of $5,305,739 incurred in the year ended March 31,\n2026.\n\n \n\n55\n\n \n\n \n\n*Other Income (Expenses), Net*\n\n \n\nInterest expenses, net for\nthe year ended March 31, 2025 mainly consisted of accretion of finance cost and interest expense related to the Convertible Note and\ninterest expenses from our borrowings from banks and various individuals. For the year ended March 31, 2025, we recorded amortization\nof issuance cost and debt discount of $520,787 and interest expenses of $106,238 for the Convertible Notes. For the year ended March\n31, 2025, we recorded interest expenses of $21,239 for the other borrowings from banks and individuals. For the year ended March 31,\n2026, we recorded interest expenses of $53,307 for the other borrowings from banks and individuals.\n\n \n\nOther income for the year\nended March 31, 2026 mainly consisted of non-cash gain on forgiveness of income tax payable of $1,053,365, other non-operating income\nof $4,392 and other non-operating expenses of $76,294. Other expenses for the year ended March 31, 2025 mainly consisted of other non-operating\nincome of $193,639 and other non-operating expenses of $168,591.\n\n \n\n*Income Tax Expenses*\n\n \n\nIncome tax expenses represented\ncurrent and deferred income tax expenses derived from income before taxes generated by Suxuantang, the variable interest entity of the\nCompany. Current income tax expenses for the years ended March 31, 2026 and 2025 were Nil and Nil, respectively. Deferred income tax\nexpenses for the years ended March 31, 2026 and 2025 were Nil and Nil, respectively.\n\n \n\n*Net Loss*\n\n \n\nAs a result of the foregoing,\nnet loss for the year ended March 31, 2026 was $6,205,085, representing an increase of $2,901,433, or 88%, from net loss of $3,303,652,\nfor the year ended March 31, 2025. The increase in net loss was mainly due to the increase in general and administrative expenses. \n\n \n\n*Results of Operations for the Year Ended\nMarch 31, 2025 Compared to the Year Ended March 31, 2024*\n\n* *\n\n  \nFor the Years Ended\nMarch 31,  \nChange \n\n  \n2025  \n2024  \nAmount  \n% \n\nRevenues \n$1,740,907  \n$1,928,497  \n$(187,590) \n (10)\n\nCost of revenues \n (1,373,480) \n (1,374,526) \n 1,046  \n (0)\n\nGross profit \n 367,427  \n 553,971  \n (186,544) \n (34)\n\n  \n    \n    \n    \n   \n\nSelling and marketing expenses \n (289,859) \n (433,566) \n 143,707  \n (33)\n\nGeneral and administrative expenses \n (2,758,047) \n (2,635,622) \n (122,425) \n 5 \n\nTotal operating expenses \n (3,047,906) \n (3,069,188) \n 21,282  \n (1)\n\n  \n    \n    \n    \n   \n\nLoss from operations \n (2,680,479) \n (2,515,217) \n (165,262) \n 7 \n\n  \n    \n    \n    \n   \n\nInterest expense, net \n (648,221) \n (544,279) \n (103,942) \n 19 \n\nOther income (expenses), net \n 25,048  \n (39,036) \n 64,084  \n (164)\n\nTotal other expenses, net \n (623,173) \n (583,315) \n (39,858) \n 7 \n\n  \n    \n    \n    \n   \n\nLoss before income taxes expense \n (3,303,652) \n (3,098,532) \n (205,120) \n 7 \n\nIncome tax expenses \n -  \n -  \n -  \n - \n\nNet Loss \n$(3,303,652) \n$(3,098,532) \n$(205,120) \n 7 \n\n* *\n\n56\n\n \n\n \n\n*Revenues*\n\n \n\nWe generated revenues primarily\nfrom manufacture and sales of the following products: three types of TCMP products, consisting of Advanced TCMP, and Regular\nTCMP, and others. As compared with the year ended March 31, 2024, our total revenues decreased by $187,590,\nor 10%, for the year ended March 31, 2025.\n\n \n\nThe following table sets\nforth the breakdown of revenues by revenue source for each period presented:\n\n \n\n  \nFor the Years Ended\nMarch 31,  \nChange \n\n  \n2025  \n2024  \nAmount  \n% \n\nAdvanced TCMP \n$258,416  \n 946,015  \n$(687,599) \n (73)\n\nRegular TCMP \n 1,442,466  \n 945,000  \n 497,466  \n 53 \n\nOthers \n 40,025  \n 37,482  \n 2,543  \n 7 \n\nTotal revenues \n$1,740,907  \n$1,928,497  \n$(187,590) \n (10)\n\n \n\n*Advanced TCMP*\n\n \n\nAdvanced TCMP is comprised\nof seven Directly-Oral-TCMP products and four After-Soaking-Oral-TCMP products. Both Directly Oral TCMP and After-soaking-oral TCMP are\nnew types of Advanced TCMP.\n\n \n\nRevenue from Advanced TCMP\naccounted for 15% and 49% of the revenue recognized during the years ended March 31, 2025 and 2024, respectively. As compared with the\nyear ended March 31, 2024, our revenue from Advanced TCMP decreased by $687,599, or 73%, for the year ended March 31, 2025. The decrease\nwas primarily the decreased market demand for our Regular TCMP.\n\n \n\n*Regular TCMP*\n\n \n\nWe currently manufacture 200\nRegular TCMP products listed on China Pharmacopoeia (version 2020) Parts I and IV for hospitals and drug stores in treatment of various\ndiseases or serving as dietary supplements.\n\n \n\nRevenue from Regular TCMP\naccounted for 83% and 49% of the revenue recognized during the years ended March 31, 2025 and 2024, respectively. Revenue from Regular\nTCMP products increased by $497,466, or 53%, to $1,442,466 for the year ended March 31, 2025 from $945,000 for the year ended March 31,\n2024. The increase in revenue from Regular TCMP products is due to the increased market demand for our Regular TCMP during the year ended\nMarch 31, 2025.\n\n \n\n57\n\n \n\n \n\n*Others*\n\n \n\nFor the years ended March\n31, 2025 and 2024, we also generated revenue of $40,025 and $37,482, which represented 2% and 2% of our total revenue, respectively.\nFor the year ended March 31, 2025, the Company generated of $38,264 from sales of a new health beverage product launched in 2024. For\nthe year ended March 31, 2024, the Company generated of $24,166 from sales of raw medicinal materials.\n\n \n\n*Cost of Revenues*\n\n \n\nCost of revenues primarily\nincludes cost of materials, direct labors, overhead, and other related incidental expenses that are directly attributable to the Company’s\nprincipal operations. Total cost of revenue slightly decreased by $1,046, to $1,373,480 for the year ended March 31, 2025 from $1,374,526\nfor the year ended March 31, 2024.\n\n \n\n*Gross Profit*\n\n \n\nGross profit decreased by\n$186,544, or 34%, to $ 367,427 for the year ended March 31, 2025 from $553,971 for the year ended March 31, 2024. Gross margin was 21.1%\nfor the year ended March 31, 2025, compared to 28.7% for the year ended March 31, 2024. The decrease in our gross margin is mainly due\nto the following reasons: (i) the sales in our Advanced TCMP products decreased significantly for the year ended March 31, 2025 compared\nto the year ended March 31, 2024, and Advanced TCMP products have relatively high margin; (ii) the sales of Regular TCMP products, which\nhave low margin, accounted for higher portion of our total revenue for the year ended March 31, 2025 compared to the year ended March\n31, 2024.\n\n \n\n*Selling and Marketing Expenses*\n\n \n\nSelling and marketing expenses\nprimarily consisted of sales staff payroll and welfare expenses, travelling expenses, market development and advertising fees, distribution\nand promotion expenses. The selling and marketing expenses increased from $433,566 for the year ended March 31, 2024 to $289,859 for\nthe year ended March 31, 2025, representing an decrease of $143,707, or 33%. The decrease in selling and marketing expenses was mainly\ndue to the decrease market development and advertising fee from $327,208 for the year ended March 31, 2024 to $108,822 for the year ended\nMarch 31, 2025.\n\n \n\n*General and Administrative Expenses*\n\n \n\nGeneral and administrative\nexpenses primarily consisted of staff payroll and welfare expenses, research and development expenses, professional fees, entertainment\nexpenses, travelling expenses, depreciation and amortization expenses for administrative purposes, office supply expenses, credit loss\nprovision and impairment expenses. General and administrative expenses of $2,758,047 for the year ended March 31, 2025 mainly consisted\nof payroll expenses of $273,580, professional fees of $643,053, credit loss for accounts receivable of $263,972 and impairment loss for\nlong-term deposit of $1,006,052. General and administrative expenses of $2,635,622 for the year ended March 31, 2024 mainly consisted\nof payroll expenses of $828,341, professional fees of $617,365, credit loss for accounts receivable of $283,234, and impairment expense\nfor property, plant and equipment of $422,924.\n\n \n\nFor the year ended March\n31, 2025, general and administrative expenses increased $122,425, or 5%, compared to the year ended March 31, 2024. The increase in our\ngeneral and administrative expenses is mainly due to the following reasons: (i) credit loss for accounts receivable increased during\nthe year ended March 31, 2025 compared to the year ended March 31, 2024; (ii) impairment loss for long-term deposit of $1,006,052 recorded\nduring the year ended March 31, 2025.\n\n \n\n58\n\n \n\n* *\n\n*Other Income (Expenses), Net*\n\n \n\nInterest expenses, net for\nthe year ended March 31, 2024 mainly consisted of accretion of finance cost and interest expense related to the Convertible Note we issued\non December 19, 2022, December 13, 2023, March 27, 2024, May 9, 2024 and October 10, March 2024, and interest expenses from our borrowings\nfrom banks and various individuals. For the year ended March 31, 2025, we recorded amortization of issuance cost and debt discount of\n$520,787 and interest expenses of $106,238 for the Convertible Notes. For the year ended March 31, 2025, we recorded interest expenses\nof $21,688 for the other borrowings from banks and individuals.\n\n \n\nInterest expenses, net for\nthe year ended March 31, 2024 mainly consisted of accretion of finance cost and interest expense related to the Convertible Note we issued\non December 19, 2022, March 7, 2023, December 13, 2023 and March 27, 2024, and interest expenses from our borrowings from banks and various\nindividuals. For the year ended March 31, 2024, we recorded amortization of issuance cost and debt discount of $292,771 and interest\nexpenses of $231,583 for the Convertible Notes. For the year ended March 31, 2024, we recorded interest expenses of $29,022 for the other\nborrowings from banks and individuals.\n\n \n\nOther expenses for the year\nended March 31, 2025 mainly consisted of other non-operating income of $193,639 and other non-operating expenses of $166,628. Other expenses\nfor the year ended March 31, 2024 mainly consisted of other non-operating income of $53,853 and other non-operating expenses of $109,740.\n\n \n\n*Income Tax Expenses*\n\n \n\nIncome tax expenses represented\ncurrent and deferred income tax expenses derived from income before taxes generated by Suxuantang, the variable interest entity of the\nCompany. Current income tax expenses for the years ended March 31, 2025 and 2024 were Nil and Nil, respectively. Deferred income tax\nexpenses for the years ended March 31, 2025 and 2024 were Nil and Nil, respectively.\n\n \n\n*Net Loss*\n\n \n\nAs a result of the foregoing,\nnet loss for the year ended March 31, 2025 was $3,303,652, representing an increase of $205,120, or 7%, from net loss of $3,098,532,\nfor the year ended March 31, 2024. The increase in net loss was mainly due to the increase in general and administrative expenses.\n\n \n\n*Liquidity and Capital Resources*\n\n \n\n*Consolidation*\n\n \n\nThe Company provides all\nof its products in China via the VIE of the Company, due to PRC legal restrictions of foreign ownership on certain sectors. WFOE, shareholders\nof Taizhou Suxuantang and Taizhou Suxuantang entered into a series of contractual arrangements, also known as VIE Agreements, on October\n13, 2017. Pursuant to the VIE Agreements, WFOE is regarded as the primary beneficiary of Taizhou Suxuantang and we are able to consolidate\nthe financial statements of Taizhou Suxuantang in accordance with U.S. GAAP.\n\n \n\nTotal assets and liabilities\npresented on the Company’s consolidated balance sheets, along with the revenue, expenses, and net income shown on the consolidated\nstatement of operations and comprehensive income, as well as the cash flows from operating, investing and financing activities presented\non the consolidated statement of cash flows, all substantially present the financial position, operation and cash flow of the VIE. As\nof March 31, 2026, our VIE accounted for an aggregate of 42% and 96% of our total assets and total liabilities, respectively. As of March\n31, 2025, our VIE accounted for an aggregate of 90% and 91% of our total assets and total liabilities, respectively. As of March 31,\n2026 and 2025, $17,639,241 and $17,897,875 of cash and cash equivalents were denominated in RMB, respectively.\n\n \n\n59\n\n \n\n \n\nThe following is a selected\nconsolidating schedule depicting the financial position as of March 31, 2026 and 2025, cash flows and results of operations for the years\nended March 31, 2026 and 2025 for our Company, our subsidiaries, the VIE and corresponding eliminating adjustments.\n\n \n\nSelected Consolidation Schedule of Balance\nSheet\n\nAs of March 31, 2026\n\n \n\n  \nParent and\nHong Kong  \nWFOE  \nVIE  \nElimination\nand\nReclassification  \nConsolidated \n\nCash, cash equivalents and restricted cash \n$10,536,992  \n$9,933  \n$17,629,308  \n$-  \n$28,176,233 \n\nIntercompany receivables \n 19,479,854  \n 1,529,127  \n -  \n (21,008,981) \n - \n\nTotal Current Assets \n 30,451,015  \n 1,839,780  \n 23,227,908  \n (21,008,981) \n 34,509,722 \n\nInvestment in Subsidiaries \n 9,010,734  \n -  \n -  \n (9,010,734) \n - \n\nTotal Non-current Assets \n 9,010,734  \n -  \n 244,852  \n (9,010,734) \n 244,852 \n\nIntercompany payables \n -  \n -  \n 21,008,981  \n (21,008,981) \n - \n\nTotal Liabilities \n 682,346  \n 195,368  \n 25,178,419  \n (21,008,981) \n 5,047,152 \n\nTotal Shareholders’ Equity \n 38,779,403  \n 1,644,412  \n (1,705,659) \n (9,010,734) \n 29,707,422 \n\n \n\nSelected Consolidation Schedule of Operations\nand Comprehensive Loss\n\nFor the year ended March 31, 2026\n\n \n\n  \nParent and\n\nHong Kong  \nWFOE  \nVIE  \nElimination\n\nand\nReclassification  \nConsolidated \n\nRevenues \n$-  \n$-  \n$1,138,052  \n$        -  \n$1,138,052 \n\nCost of revenues \n    \n -  \n (889,350) \n     -  \n (889,350)\n\nGross profit \n \n-\n  \n \n-\n  \n 248,702  \n -  \n \n248,702\n \n\nTotal operating expenses \n (6,279,660) \n (11,597) \n (1,080,378) \n -  \n (7,371,635)\n\nLoss from operations \n (6,279,660) \n (11,597) \n (831,676) \n -  \n (7,122,933)\n\nNet (loss) income \n (6,279,660) \n (25,772) \n 100,347 \n -  \n (6,205,085)\n\nTotal Comprehensive Loss \n (6,279,660) \n (25,772) \n 977,991 \n -  \n (5,327,441)\n\n \n\nSelected Consolidation Schedule of Cash Flows\n\nFor the year ended March 31, 2026\n\n \n\n \n \nParent and\nHong Kong\n \n \nWFOE\n \n \nVIE\n \n \nElimination\nand\nReclassification\n \n \nConsolidated\n \n\nNet cash used in (provided by) operating activities\n \n$\n(3,983,927\n)\n \n$\n8,456\n \n \n$\n(41,985\n)\n \n$\n         -\n \n \n$\n(4,017,456\n)\n\nNet cash used in investing activities\n \n \n-\n \n \n \n-\n \n \n \n(1,250,921\n)\n \n \n-\n \n \n \n(1,250,921\n)\n\nNet cash provided by financing activities\n \n \n14,289,361\n \n \n \n-\n \n \n \n144,160\n \n \n \n-\n \n \n \n14,433,521\n \n\n \n\n60\n\n \n\n \n\nSelected Consolidation Schedule of Balance\nSheet\n\nAs of March 31, 2025\n\n \n\n  \nParent and\n\nHong Kong  \nWFOE  \nVIE  \nElimination\nand\nReclassification  \nConsolidated \n\nCash, cash equivalents and restricted cash \n$231,557  \n$1,058  \n$17,896,817  \n$-  \n$18,129,432 \n\nIntercompany receivables \n 16,479,854  \n 7,928,275  \n -  \n (24,408,129) \n - \n\nTotal Current Assets \n 16,875,580  \n 8,482,686  \n 20,346,354  \n (24,408,129) \n 21,296,491 \n\nInvestment in Subsidiaries \n 9,010,734  \n -  \n -  \n (9,010,734) \n - \n\nTotal Non-current Assets \n 9,010,734  \n -  \n 367,017  \n (9,010,734) \n 367,017 \n\nIntercompany payables \n -  \n -  \n 24,408,129  \n (24,408,129) \n - \n\nTotal Liabilities \n 410,433  \n 241,856  \n 29,979,586  \n (24,408,129) \n 6,223,746 \n\nTotal Shareholders’ Equity \n 25,475,881  \n 8,240,830  \n (9,266,215) \n (9,010,734) \n 15,439,762 \n\n \n\nSelected Consolidation Schedule of Operations\nand Comprehensive Loss\n\nFor the year ended March 31, 2025\n\n \n\n  \nParent and\nHong Kong  \nWFOE  \nVIE  \nElimination\nand\nReclassification  \nConsolidated \n\nRevenues \n$-  \n$38,264  \n$1,702,643  \n$    -  \n$1,740,907 \n\nCost of revenues \n -  \n (19,044) \n (1,354,436) \n -  \n (1,373,480)\n\nGross profit \n -  \n 19,220  \n 348,207  \n -  \n 367,427 \n\nTotal operating expenses \n (579,713) \n (3,745) \n (2,464,448) \n -  \n (3,047,906)\n\nLoss from operations \n (579,713) \n (3,745) \n (2,097,021) \n -  \n (2,680,479)\n\nNet (loss) income \n (1,209,263) \n 130,378  \n (2,224,767) \n -  \n (3,303,652)\n\nTotal Comprehensive Loss \n (1,209,263) \n 130,378  \n (2,274,494) \n -  \n (3,353,379)\n\n \n\nSelected Consolidation Schedule of Cash Flows\n\nFor the year ended March 31, 2025\n\n \n\n  \nParent and\nHong Kong  \nWFOE  \nVIE  \nElimination\nand\nReclassification  \nConsolidated \n\nNet cash used in operating activities \n$(436,238) \n$(299,847) \n$(1,609,248) \n$        -  \n$(2,345,333)\n\nNet cash provided by investing activities \n -  \n -  \n 63,516  \n -  \n 63,516 \n\nNet cash provided by financing activities \n 7,949,554  \n 297,851  \n 151,748  \n -  \n 8,399,153 \n\n \n\n61\n\n \n\n \n\nAs of the date of this annual\nreport, we have financed our operations primarily through shareholder capital contributions, and mainly cash used on operating activities.\nThis has resulted in a cash and cash equivalents and restricted cash balance of $28,176,233 as of March 31, 2026, as compared to $18,129,432\nas of March 31, 2025. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions.\n\n \n\n  \nFor the years ended\nMarch 31, \n\n  \n2026  \n2025  \n2024 \n\nNet cash used in operating activities \n$(4,017,456) \n$(2,345,333) \n (1,928,053)\n\nNet cash used in(provided by ) investing activities \n (1,250,921) \n 63,516  \n 26,423\n\nNet cash provided by (used in) financing activities \n 14,433,521  \n 8,399,153  \n (2,624,428)\n\nEffect of exchange rate changes on cash and cash equivalents \n 881,657  \n (65,091) \n (765,233)\n\nNet increase (decrease) in cash, cash equivalents\nand restricted cash \n 10,046,801  \n 6,052,245  \n (5,291,291)\n\nCash, cash equivalents and restricted cash at beginning of the\nyear \n 18,129,432  \n 12,077,187  \n 17,368,478 \n\nCash, cash equivalents and restricted cash\nat end of the year \n$28,176,233  \n$18,129,432  \n 12,077,187 \n\n \n\n*Cash Flow in Operating Activities* \n\n \n\nFor the year ended March\n31, 2026, net cash used in operating activities was $4,017,456, as compared to net cash used in operating activities of $2,345,333 for\nthe year ended March 31, 2025, representing an increase in cash outflow of $1,672,123. The increase in cash outflow in operating activities\nprimarily resulted from the change of the following accounts:\n\n \n\n \na)\nA net loss for the year\nended March 31, 2026 of $6,205,085, compared with a net loss of $3,303,652 for the year ended March 31, 2025. Excluding the adjustments\nof non-cash items, net loss for the year ended March 31, 2026 and 2025 were $1,627,272 and $1,373,598, respectively. This represents\na increase in cash outflow of $253,674 for the year ended March 31, 2026, compared with the year ended March 31, 2025.\n\n \n\n \nb)\nChange in accounts payable\nwas $0.69 million net cash outflow for the year ended March 31, 2026. For the year ended March 31, 2025, the change in accounts payable\nwas $0.11 million net cash outflow, which led to a $0.58 million increase in net cash outflow from operating activities.\n\n \n\n \nc)\nChange in advance to suppliers\nwas $0.55 million net cash outflow for the year ended March 31, 2026. For the year ended March 31, 2025, the change in advance to\nsuppliers was $0.3 million net cash inflow, which led to a $0.25 million increase in net cash outflow from operating activities.\n\n \n\n \nd)\nChange in accounts receivable\n was $0.30 million net cash inflow for the year ended March 31, 2026. For the year ended March 31, 2024, the change in accounts\nreceivable was $0.26 million net cash outflow, which offset a $0.55 million increase in net cash outflow from operating activities.\n\n \n\nFor the year ended March\n31, 2025, net cash used in operating activities was $2,345,333, as compared to net cash used in operating activities of $1,928,053 for\nthe year ended March 31, 2024, representing an increase in cash outflow of $417,280. The increase in cash outflow in operating activities\nprimarily resulted from the change of the following accounts:\n\n \n\n \na)\nA net loss for the year\nended March 31, 2025 of $3,303,652, compared with a net loss of $3,098,532 for the year ended March 31, 2024. Excluding the adjustments\nof non-cash items, net loss for the year ended March 31, 2025 and 2024 were $1,373,598 and $1,546,494, respectively. This represents\na decrease in cash outflow of $172,896 for the year ended March 31, 2025, compared with the year ended March 31, 2024.\n\n \n\n \nb)\nChange in inventory was\n$0.01 million net cash outflow for the year ended March 31, 2025. For the year ended March 31, 2024, the change in inventory was\n$0.22 million net cash outflow, which led to a $0.21 million decrease in net cash outflow from operating activities.\n\n \n\n \nc)\nChange in advance to suppliers\nwas $0.30 million net cash outflow for the year ended March 31, 2025. For the year ended March 31, 2024, the change in advance to\nsuppliers was $0.03 million net cash inflow, which led to a $0.33 million increase in net cash outflow from operating activities.\n\n \n\n62\n\n \n\n \n\n \nd)\nChange in other receivables\nand other current assets was $0.22 million net cash outflow for the year ended March 31, 2025. For the year ended March 31, 2024,\nthe change in other receivables and other current assets was $0.14 million net cash inflow, which led to a $0.36 million increase\nin net cash outflow from operating activities.\n\n \n\n \ne)\nChange in refund liabilities\nwas $0.16 million net cash outflow for the year ended March 31, 2025. For the year ended March 31, 2024, the change in refund liabilities\nwas $0.11 million net cash inflow, which led to a $0.27 million increase in net cash outflow from operating activities.\n\n \n\n*Cash Flow in Investing Activities* \n\n \n\nNet cash used in investing\nactivities totaled $1,250,921 for the year ended March 31, 2026, representing prepayments to suppliers for the acquisition of multiple\nsoftware copyrights related to AI pharmacy and intelligent business operation platforms.\n\n \n\nWe had net cash provided\nby investing activities of $63,516 for the year ended March 31, 2025, which primarily consisted of cash received from disposal of property,\nplant and equipment of $65,539, offset by cash paid for purchase of property, plant and equipment of $2,023.\n\n \n\nWe had net cash provided\nby investing activities of $26,423 for the year ended March 31, 2024, which primarily consisted of cash received from Huangshan Panjie\nInvestment Management Co., Ltd. of $33,486, offset by cash paid for purchase of property, plant and equipment of $7,063. \n\n* *\n\n*Cash Flow in Financing Activities* \n\n \n\nFor the year ended March\n31, 2026, net cash provided by financing activities totaled $14,433,521. This balance mainly consisted of $520,722 in proceeds from borrowings\nfrom individual lenders and $14,289,362 in net proceeds from shares purchase agreements, partially offset by $376,563 in repayments\nof amounts due to related parties.\n\n \n\nFor the year ended March\n31, 2025, the net cash provided by financing activities was $8,399,153, which was primarily attributable to net proceeds from due to\nrelated parties of $5,839,277, net proceeds from the issuance of convertible notes of $1,460,000 (gross proceeds of $1,595,000 and debt\nissuance cost of $135,000), net proceeds from shares purchase agreements of $2,759,991 (gross proceeds of $2,840,000 and issuance cost\nof $80,009) and proceeds from borrowing from banks and individuals of $258,003, offset by repayment of borrowing of $78,118 and repayment\nof convertible notes of $1,840,000.\n\n \n\nFor the year ended March\n31, 2024, the net cash used in financing activities was $2,624,428, which was primarily attributable to advances to related parties of\n$2,205,254, repayment to related parties of $1,727,418, repayment of principal and interest of bank loans of $78,654, offset by net proceeds\nfrom the issuance of convertible notes of $952,971(gross proceeds of $1,063,333 and debt issuance cost of $110,362) and proceeds from\nborrowing from banks and individuals of $433,927.\n\n \n\nOff-Balance Sheet Arrangements\n\n \n\nThe Company does not have\nany off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition,\nrevenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.\n\n \n\nCommitments related to the\nacquisition of software copyrights. See Note 20 of F page.\n\n \n\nRelated Parties and Material Related Party\nTransactions\n\n \n\nPlease refer to “Item\n7.B. Related Party Transactions” and Note 18 of our Consolidated Financial Statements included in this Form 20-F for details of\nrelated parties and material related party transactions.\n\n \n\nCritical Accounting Estimates\n\n \n\nThe preparation of consolidated\nfinancial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts\nof assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported\namounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management\nreviews these estimates and assumptions using the currently available information. The estimates include but are not limited to: determinations\nof the useful lives of long-lived assets, estimates of expected credit loss for doubtful accounts, sales return rate, abnormal capacity\nfor inventory production, valuation assumptions in performing asset impairment tests of long-lived assets, the discount rate used for\nright-of-use assets and lease liabilities calculation, determinations of fair value of convertible notes (liability component, etc.),\nwarrants and income taxes and assessments of unrecognized tax benefits.\n\n \n\nCritical accounting estimates\nare those estimates made in accordance with generally accepted accounting principles that i) involve a significant level of estimation\nuncertainty and ii) have had or are reasonably likely to have a material impact on the financial condition or results of operations.\nThe management determined there were no critical accounting estimates.\n\n \n\n63"}