SXTC 20-F
China SXT Pharmaceuticals, Inc. (SXTC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For the fiscal year ended
OR
For the transition period from _________ to _________.
OR
Date of event requiring this shell company report:
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(Exact name of Registrant as Specified in its Charter)
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Jiangsu,
(Address of Principal Executive Offices)
Jiangsu,
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange On Which Registered | |
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(Title of Class)
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issuer’s classes of capital or common stock as of March 31, 2025 was:
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| Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company |
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| ☒ | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ Other |
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CHINA SXT PHARMACEUTICALS, INC.
FORM 20-F ANNUAL REPORT
TABLE OF CONTENTS
i
PART I
CERTAIN INFORMATION
In this annual report on Form 20-F, unless otherwise indicated, “we,” “us,” “our company” and “our” refer to China SXT Pharmaceuticals, Inc. and its consolidated subsidiaries and the VIE; we conduct operations in China through our subsidiaries and the VIE. “China SXT” or “the Company” refers to China SXT Pharmaceuticals, Inc., a company organized in the British Virgin Islands. “SXT HK” refers to China SXT Group Limited, a Hong Kong Corporation. “WFOE” refers to Taizhou Suxuantang Biotechnology Co. Ltd., a limited liability company organized under the laws of the PRC. “Taizhou Suxuantang” or “the VIE” refers to Jiangsu Suxuantang Pharmaceutical Co., Ltd., a limited liability company organized under the laws of the PRC.
We are a holding company incorporated in the British Virgin Islands and not a Chinese operating company. As a holding company with no material operations of our own, we conduct our operations through our subsidiaries in China and the VIE in China. For accounting purposes, we are deemed as the primary beneficiary of the VIE pursuant to the certain contractual arrangements (the “VIE Agreements”), and can consolidate the financial results of the VIE in our consolidated financial statements under generally accepted accounting principles in the U.S. (“U.S. GAAP”), and the structure involves unique risks to investors. Our shareholders hold equity interest in China SXT, the offshore holding company in the British Virgin Islands, instead of equity interest in our subsidiaries or the VIE in China, The VIE structure provides contractual exposure to foreign investment in China-based companies. Chinese law, however, does not prohibit direct foreign investment in the VIE. See “Item 3. Key Information-D. Risk Factors-Risks Related to Our Corporate Structure” and “Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China.”
Because we do not directly hold equity interests in the VIE, we are subject to risks and uncertainties of the interpretations and applications of PRC laws and regulations, including but not limited to, regulatory review of overseas listing of PRC companies through special purpose vehicles and the validity and enforcement of the VIE Agreements. We are also subject to the risks and uncertainties about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations, and the value of our ordinary shares (“Ordinary Shares”) may depreciate significantly or become worthless. The VIE Agreements have not been tested in a court of law in China as of the date of this annual report. See “Item 3. Key Information-D. Risk Factors-Risks Related to Our Corporate Structure” and “Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China.”
Unless the context indicates otherwise, all references to “China” and the “PRC” refer to the People’s Republic of China, all references to “Renminbi” or “RMB” are to the legal currency of the People’s Republic of China, all references to “U.S. dollars,” “dollars” and “$” are to the legal currency of the United States. This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. We make no representation that the Renminbi or U.S. dollar amounts referred to in this report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On March 31, 2025, the cash buying rate announced by the People’s Bank of China was RMB 7.2567 to $1.00.
On September 11, 2023, the Company’s board of directors approved an amended and restated memorandum and articles of association to (i) alter the par value of its ordinary shares from $0.08 per share to no par value each; and (ii) effectuate a one-for-twenty-five (1-for-25) reverse split for its ordinary shares (the “2023 Reverse Split”). The market effective date of 2023 Reverse Split was October 5, 2023, which was the first day when the Company’s ordinary shares begin trading on a split-adjusted basis. In addition, on February 25, 2025, the Company has further effectuated a one-for-eight (1:8) reverse split for its ordinary shares (the “2025 Reverse Split”). On September 29, 2023, the Company’s board of directors approved the elimination of par value for its ordinary shares, and thereafter, no par value is assigned to the ordinary shares. Accordingly, the reverse stock splits effected on October 5, 2023 and February 25, 2025 did not involve any change in par value for its ordinary shares. The 2023 Reverse Split and the 2025 Reverse Split did not change the number of the Company’s authorized preferred and ordinary shares, which remain as unlimited. As a result of the 2023 Reverse Split, the shareholders received one new ordinary share of the Company, no par value each, for every twenty-five (25) shares they hold, and as a result of the 2025 Reverse Split, the shareholders received one new ordinary share of the Company, no par value each, for every eight (8) shares they hold. No fractional ordinary shares were issued to any shareholders in connection with the reverse stock split. Each shareholder was entitled to receive one ordinary share in lieu of the fractional share that would have resulted from the reverse stock split. The share numbers in this annual report are all presented on a post-split basis unless otherwise noted.
1
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are “forward-looking statements,” including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as “may”, “will”, “should”, “could”, “would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”, “future”, “intends”, “plans”, “believes”, “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.
These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, and the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based on the success of our business.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings “D. Risk Factors”, “Item 5. Operating and Financial Review and Prospects,” and elsewhere in this report.
2
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
3.A. [Reserved]
3.B. Capitalization and Indebtedness
Not Applicable.
3.C. Reasons For The Offer And Use Of Proceeds
Not Applicable.
3.D. Risk Factors
An investment in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other information contained in this annual report, including the matters discussed under the headings “Forward-Looking Statements” and “Item 5. Operating and Financial Review and Prospects” before you decide to invest in our ordinary shares. We are a holding company with substantial operations in China and are subject to a legal and regulatory environment that in many respects differs from the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable to us, actually occur, our business, financial condition, results of operations, liquidity and our future growth prospects could be materially and adversely affected.
Summary of Risk Factors
Risks Related to Our Business
Risks and uncertainties related to our business include, but are not limited to, the following:
| ● | We face risks related to natural disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, in particular, the current coronavirus pandemic, terrorist acts and global political events, all of which could result in adverse effects to our business and financial performance. See a more detailed discussion of this risk factor on page 5 of this annual report. |
| ● | Our significant business lines have a limited operating history, which makes it difficult to evaluate our future prospects and results of operations. See a more detailed discussion of this risk factor on page 6 of this annual report. |
| ● | Our dependence on a small number of customers could adversely affect our business or results of operations. See a more detailed discussion of this risk factor on page 7 of this annual report. |
| ● | Our business requires a number of permits and licenses in order to carry on their business. See a more detailed discussion of this risk factor on page 9 of this annual report. |
| ● | Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products. See a more detailed discussion of this risk factor on page 8 of this annual report. |
| ● | Price control regulations in the PRC may decrease our profitability. See a more detailed discussion of this risk factor on page 9 of this annual report. |
3
Risks Related to Our Corporate Structure
We are also subject to risks and uncertainties related to our corporate structure, including, but are not limited to, the following:
| ● | We do not have direct ownership of our operating entities in China and rely on VIE Agreements with the VIE for our business operations, which may not be as effective in providing operational control or enabling us to derive benefits as through ownership of controlling equity interests. See a more detailed discussion of this risk factor on page 10 of this annual report. |
| ● | Contractual arrangements in relation to our variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC variable interest entity owe additional taxes, which could negatively affect our results of operations and the value of your investment. See a more detailed discussion of this risk factor on page 11 of this annual report. |
| ● | The approval of the China Securities Regulatory Commission and other compliance procedures may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect our financial performance and the enforceability of the VIE Agreements. See a more detailed discussion of this risk factor on page 12 of this annual report. |
| ● | PRC laws and regulations governing our current business operations are sometimes vague and uncertain. See a more detailed discussion of this risk factor on page 13 of this annual report. |
| ● | Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations. See a more detailed discussion of this risk factor on page 14 of this annual report. |
| ● | We have not received or been denied any permission from the PRC authorities to list on U.S. stock exchanges. However, we face uncertainty about future actions by the PRC government that could significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements. See a more detailed discussion of this risk factor on page 12 of this annual report. |
| ● | Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations. See a more detailed discussion of this risk factor on page 14 of this annual report. |
Risks Related to Doing Business in China
We face risks and uncertainties relating to doing business in the PRC in general, including, but not limited to, the following:
| ● | Joint statement by the SEC and the PCAOB, rule changes by Nasdaq, and the HFCA Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offerings. See a more detailed discussion of this risk factor on page 18 of this annual report. |
| ● | The PRC government has significant authority to intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to such oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the ordinary shares to significantly decline in value or become worthless. See a more detailed discussion of this risk factor on page 22 of this annual report. |
| ● | The uncertainties with respect to the Chinese legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us. See a more detailed discussion of this risk factor on page 21 of this annual report. |
| ● | We may have difficulty in enforcing any rights we may have under the VIE Agreements in PRC. See a more detailed discussion of this risk factor on page 22 of this annual report. |
| ● | It may be difficult for overseas shareholders and/or regulators to conduct investigation or collect evidence within China. See a more detailed discussion of this risk factor on page 22 of this annual report. |
| ● | We face exposure to foreign currency exchange rate fluctuations. See a more detailed discussion of this risk factor on page 23 of this annual report. |
4
Risks Related to Our Ordinary Shares
In addition to the risks described above, we are subject to general risks and uncertainties relating to our ordinary shares, including, but not limited to, the following:
| ● | The market price for our ordinary shares may be volatile. See a more detailed discussion of this risk factor on page 15 of this annual report. |
| ● | If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. See a more detailed discussion of this risk factor on page 16 of this annual report. |
| ● | As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, and are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NASDAQ Stock Market corporate governance listing standards. See a more detailed discussion of this risk factor on page 16 of this annual report. |
| ● | We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses. See a more detailed discussion of this risk factor on page 17 of this annual report. |
| ● | We do not intend to pay dividends for the foreseeable future. See a more detailed discussion of this risk factor on page 18 of this annual report. |
Risks Related to Our Business
We face risks related to natural disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, in particular, the current coronavirus pandemic, terrorist acts and global political events, all of which could result in adverse effects to our business and financial performance.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), COVID-19, Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, and avian flu, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could disrupt our business operations, reduce or restrict our supply of products, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Actual or threatened war, terrorist activities, political unrest, civil strife, and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations. Any one or more of these events may impede our production and delivery efforts and adversely affect our sales results, whether short-term or for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.
We are also vulnerable to natural disasters and other calamities. We cannot assure you that we are adequately protected from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks, or similar events. Any of the foregoing events may give rise to interruptions, damage to our place of business, delays in product deliveries, breakdowns, system failures, or internet failures, which could adversely affect our business, financial condition, and results of operations.
We have limited sources of working capital and will need substantial additional financing
The working capital required to implement our business plan will most likely be provided by funds obtained through offerings of our equity, debt, debt-linked securities, and/or equity-linked securities, and revenues generated by us. No assurance can be given that we will have revenues sufficient to sustain our operations or that we would be able to obtain equity/debt financing in the current economic environment. If we do not have sufficient working capital and are unable to generate sufficient revenues or raise additional funds, we may delay the completion of or significantly reduce the scope of our current business plan; delay some of our development and clinical or marketing efforts; postpone the hiring of new personnel; or, under certain dire financial circumstances, substantially curtail or cease our operations.
5
To date, we have relied almost exclusively on organically generated revenues and financing transactions to fund our operations. Our inability to obtain sufficient additional financing would have a material adverse effect on our ability to implement our business plan and, as a result, could require us to significantly curtail or potentially cease our operations. As of March 31, 2025, we had cash and cash equivalents and restricted cash of $18,129,432, total current assets of $21,296,491 and total current liabilities of $13,279,833. As of March 31, 2024, we had cash and cash equivalents and restricted cash of $12,077,187, total current assets of $14,233,359 and total current liabilities of $8,901,944. We will need to engage in capital-raising transactions in the near future. Such financing transactions may well cause substantial dilution to our shareholders and could involve the issuance of securities with rights senior to the outstanding shares. Our ability to complete additional financings is dependent on, among other things, the state of the capital markets at the time of any proposed offering, market reception of the Company and the likelihood of the success of its business model and offering terms. There is no assurance that we will be able to obtain any such additional capital through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and to support our operations. If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations and the value of our Ordinary Shares and Ordinary Share equivalents would be materially negatively impacted and we may cease our operations.
Although our operation began 20 years ago, our significant business lines have a limited operating history, which makes it difficult to evaluate our future prospects and results of operations.
We only started to produce Directly-Oral traditional Chinese medicine pieces products (the “Directly-Oral-TCMP”) and After-soaking-oral TCMP products (the “After-Soaking-Oral-TCMP”) as our principal products six years ago. As a result, our past operating results are not an accurate indication of the lines of business we are principally engaged in currently. Thus, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving markets rather than typical companies of our age. Some of these risks and uncertainties relate to our ability to:
| ● | attract additional customers and increased spending per customer; |
| ● | increase awareness of our brand and develop customer loyalty; |
| ● | respond to competitive market conditions; |
| ● | respond to changes in our regulatory environment; |
| ● | manage risks associated with intellectual property rights; |
| ● | maintain effective control of our costs and expenses; |
| ● | raise sufficient capital to sustain and expand our business; |
| ● | attract, retain and motivate qualified personnel; and |
| ● | upgrade our technology to support additional research and development of new products. |
If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.
Our failure to compete effectively may adversely affect our ability to generate revenue.
We compete with other companies, many of whom are developing or can be expected to develop products similar to ours. Many of our competitors are also more established than we are, and have significantly greater financial, technical, marketing and other resources than we presently possess. Some of our competitors, such as “Huichuntang” and “Tongrentang”, have greater name recognition and a larger customer base. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to customers, and adopt more aggressive pricing policies. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.
6
Our dependence on a small number of customers could adversely affect our business or results of operations.
We derive a substantial portion of our revenue from a relatively small number of customers. Suxuantang had one significant customer which accounted for 68.72% of our total revenue during the year ended March 31, 2025. Suxuantang had two significant customers which accounted for 45.65% and 16.92% of our total revenue during the year ended March 31, 2024, respectively. We expect that Suxuantang’s largest customers will continue to account for a substantial portion of its total net revenue for the foreseeable future. Suxuantang has long-standing relationships with many of its significant customers. However, because Suxuantang’s customers generally contract with a finite duration, Suxuantang may lose these customers if the contracts are not renewed or replaced. The loss or reduction of, or failure to renew or replace, any significant contracts with any of these customers could materially reduce Suxuantang’s revenue and cash flows. If Suxuantang does not replace them with other customers, the loss of business from any one of such customers could have a material adverse effect on our business or results of operations.
We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management, sales and marketing, and research and development expertise of key personnel. We are dependent upon the services of Mr. Zhou, our President, Co-Chief Executive Officer and Chairman of the Board, for the continued growth and operation of our Company, due to his industry experience, as well as his personal and business contacts in the PRC. We may not be able to retain Mr. Zhou for any given period of time. Although we have no reason to believe that Mr. Zhou will discontinue his services with us or Taizhou Suxuantang, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our business strategy as well as our results of operations. There can be no assurance that we will be able to retain these officers after the terms of their employment expire. The loss of these officers could have a material adverse effect upon our business, financial condition, and results of operations. We do not carry key man life insurance for any of our key personnel, nor do we foresee purchasing such insurance to protect against the loss of key personnel.
We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.
We must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and personnel in the PRC is intense and the pool of qualified candidates in the PRC is very limited. We may not be able to retain the services of our senior executives or personnel, or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely affect our future growth and financial condition.
If we fail to increase our brand recognition, we may face difficulty in obtaining new customers.
Although our brand is well-respected in traditional Chinese medicine pieces (the “TCMP”) industry, we still believe that maintaining and enhancing our brand recognition in a cost-effective manner outside of that market is critical to achieving widespread acceptance of our current and future products and services and is an important element in our effort to increase our customer base. Successful promotion of our other brands, or Suxuantang outside the TCMP industry, will depend largely on our ability to maintain a sizeable and active customer base, our marketing efforts and ability to provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we will incur in building our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, in which case our business, operating results and financial condition, would be materially adversely affected.
7
Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products.
As to the products we manufacture, we must manage our supply chain for raw materials and delivery of our products. Supply chain fragmentation and local protectionism within China further complicates supply chain disruption risks. Local administrative bodies and physical infrastructure built to protect local interests pose transportation challenges for raw material transportation as well as product delivery throughout China. In addition, profitability and volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events that could impact both supply and price. Any of these occurrences could cause significant disruptions to our supply chain, manufacturing capability and distribution system that could adversely impact our ability to produce and deliver some of our products.
Additionally, some of the raw materials we use are procured from farmers, who can be faced with environmental risks outside of their control. If these farmers are unable to control any environmental issues, they may not have the ability to supply continuously and stably.
Our success depends on our ability to protect our intellectual property.
Our success depends on our ability to obtain and maintain patent protection for products developed utilizing our technologies, in the PRC and in other countries, and to enforce these patents. There is no assurance that any of our existing and future patents will be held valid and enforceable against third-party infringement or that our products will not infringe any third-party patent or intellectual property. Although we have filed additional patent applications with the Patent Administration Department of the PRC, there is no assurance that they will be granted.
Any patents relating to our technologies may not be sufficiently broad to protect our products. In addition, our patents may be challenged, potentially invalidated or potentially circumvented. Our patents may not afford us protection against competitors with similar technology or permit the commercialization of our products without infringing third-party patents or other intellectual property rights.
We also rely on or intend to rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or will apply to register a number of these trademarks. However, third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing these new brands. Further, our competitors may infringe our trademarks, or we may not have adequate resources to enforce our trademarks.
In addition, we also have trade secrets, non-patented proprietary expertise and continuing technological innovation that we shall seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees and consultants. These agreements may be breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Moreover, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect to products arising from research, we may not be able to maintain the confidentiality of information relating to these products.
Our TCMP business is subject to inherent risks relating to product liability and personal injury claims.
TCMP companies, similar to pharmaceutical companies, are exposed to risks inherent in the manufacturing and distribution of TCMP products, such as with respect to improper filling of prescriptions, labeling of prescriptions, adequacy of warnings, and unintentional distribution of counterfeit drugs. In addition, product liability claims may be asserted against us with respect to any of the products we sell and as a distributor, we are required to pay for damages for any successful product liability claim against us, although we may have the right under applicable PRC laws, rules and regulations to recover from the relevant manufacturer for compensation we paid to our customers in connection with a product liability claim. We may also be obligated to recall affected products. If we are found liable for product liability claims, we could be required to pay substantial monetary damages. Furthermore, even if we successfully defend ourselves against this type of claim, we could be required to spend significant management, financial and other resources, which could disrupt our business, and our reputation as well as our brand name may also suffer. We, like many other similar companies in China, do not carry product liability insurance. As a result, any imposition of product liability could materially harm our business, financial condition and results of operations. In addition, we do not have any business interruption insurance due to the limited coverage of any available business interruption insurance in China, and as a result, any business disruption or natural disaster could severely disrupt our business and operations and significantly decrease our revenue and profitability.
8
We face risks related to research and the ability to develop new TCMP products.
Our growth and survival depend on our ability to consistently discover, develop and commercialize new products and find new and improved technology and platforms. As such, if we fail to make sufficient investments in research, be attentive to consumer needs or focus on the most advanced technology, our current and future products could be surpassed by more effective or advanced products of other companies.
Our business requires a number of permits and licenses.
Pharmaceutical companies in China are required to obtain certain permits and licenses from various PRC governmental authorities, including passing Good Manufacturing Practice (“GMP”) compliance-inspection without notification. We are also required to obtain a Pharmaceutical Product Permit.
Also, we participate in the manufacture of Chinese medicine, which is subject to various PRC laws and regulations pertaining to the pharmaceutical industry. We have obtained certificates, permits, and licenses required for the operation of a pharmaceutical enterprise and the manufacturing of pharmaceutical products in the PRC. We are required to meet GMP standards in order to continue manufacturing pharmaceutical products. There is no guarantee we will always be able to pass the GMP compliance-inspection in the future.
We cannot assure you that we can maintain all required licenses, permits and pass the GMP compliance-inspection to carry on our business at all times, and in the past from time to time we may have not been in compliance with all such required licenses, permits and pass the GMP compliance-inspection. Moreover, these licenses, permits and pass the GMP compliance-inspection are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities and the standards of such renewal or reassessment may change from time to time. We intend to apply for the renewal of these licenses, permits and to pass the GMP compliance-inspection when required by then applicable laws and regulations. Any failure by us to obtain and maintain all licenses, permits and to pass the GMP compliance-inspection necessary to carry on our business at any time could have a material adverse effect on our business, financial condition and results of operations. In addition, any inability to renew these licenses, permits and to pass the GMP compliance-inspection could severely disrupt our business and prevent us from continuing to carry on our business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess our business licenses, permits and to pass the GMP compliance-inspection, as well as any enactment of new regulations that may restrict the conduct of our business, may also decrease our revenue and/or increase our costs and materially reduce our profitability and prospects. Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us to obtain any additional licenses, permits or pass any GMP compliance-inspection that were previously not required to operate our existing businesses, we cannot assure you that we will successfully obtain such licenses, permits or pass the GMP compliance-inspection.
Our innovative Directly-Oral-TCMP and After-Soaking-Oral-TCMP in China are subject to continuing regulation by the National Medical Products Administration (“NMPA”) of China. If the labeling or manufacturing process of an approved medicine is significantly modified, the NMPA requires that we obtain a new pre-market approval or pre-market approval supplement. Furthermore, there is no specific law or details of regulations that apply to our innovative Directly-Oral-TCMP and After-Soaking-Oral-TCMP, but we will be required to comply with all existing and new rules related to them.
Price control regulations in the PRC may decrease our profitability.
The laws of the PRC provide for the government to fix and adjust prices. The prices of certain TCMP products we distribute, including those listed in the Chinese government’s catalogue of medications that are reimbursable under the PRC’s social insurance program, or the Insurance Catalogue, are subject to control by the relevant state or provincial price administration authorities. The PRC establishes price levels for products based on market conditions, average industry cost, supply and demand and social responsibility. In practice, price control with respect to these medicines sets a ceiling on their retail price. The actual price of such medicines set by manufacturers, wholesalers and retailers cannot historically exceed the price ceiling imposed by applicable government price control regulations. Although, as a general matter, government price control regulations have resulted in lower drug prices over time, there has been no predictable pattern for such decreases. It is possible that additional products may be subject to price control, or that price controls may be increased in the future. To the extent that our products are subject to price control, our revenue, gross profit, gross margin and net income will be affected since the revenue we derive from our sales will be limited and we may face no limitation on our costs. Further, if price controls affect both our revenue and costs, our ability to be profitable and the extent of our profitability will be effectively subject to determination by the applicable regulatory authorities in the PRC. Since May 1998, the relevant PRC governmental authorities have ordered price reductions on thousands of pharmaceutical products. Such reductions, along with any future price controls or government mandated price reductions may have a material adverse effect on our financial condition and results of operations, including significantly reducing our revenue and profitability.
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If the TCMP products we produce are replaced by other medicines or are removed from the PRC’s insurance catalogue in the future, our revenue may suffer.
Under Chinese regulations, patients purchasing medicine listed by the central and/or provincial governments in the insurance catalogue may be reimbursed, in part or in whole, by a social medicine fund. Accordingly, pharmaceutical distributors prefer to engage in the distribution of medicine listed in the insurance catalogue. Currently, 95% of our TCMP products, including 18 Advanced TCMP products are listed in the insurance catalogue. The content of the insurance catalogue is subject to change by the PRC Ministry of Labor and Social Security, and new medicine may be added to the insurance catalogue by provincial level authorities as part of their limited ability to change certain medicines listed in the insurance catalogue. If the TCMP products we produce are replaced by other medicines or removed from the insurance catalogue in the future, our revenue may suffer.
Adverse publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results.
The results of our operations may be significantly affected by the public’s perception of our product and similar companies. This perception is dependent upon opinions concerning:
| ● | the safety and quality of our products and ingredients; |
| ● | the safety and quality of similar products and ingredients distributed by other companies; and |
| ● | our sales force. |
Adverse publicity concerning any actual or purported failure to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing practices, or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on our goodwill and could negatively affect our sales and ability to generate revenue. In addition, our consumers’ perception of the safety and quality of products and ingredients as well as similar products and ingredients distributed by other companies can be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning our products or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers’ use or misuse of our products, that associates consumption of our products or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could negatively impact our reputation or the market demand for our products.
Risks Related to Our Corporate Structure
We do not have direct ownership of our operating entities in China and rely on VIE Agreements with the VIE for our business operations, which may not be as effective in providing operational control or enabling us to derive benefits as through ownership of controlling equity interests.
We do not have direct ownership of Taizhou Suxuantang, or the VIE, in China and rely on and expect to continue to rely on the VIE Agreements with the VIE in China and its respective shareholders to operate business. Pursuant to the VIE Agreements, we are regarded as the primary beneficiary of the VIE for accounting purpose, and, therefore, we are able to consolidate the financial results of the VIE in our consolidated financial statements in accordance with U.S. GAAP. However, neither we nor our subsidiaries own any share in the VIE, and that the investors will not and may never directly hold equity interests in the VIE either. VIE Agreements may not be as effective as an ownership of controlling equity interests would be in providing us with control over the VIE, or in enabling us to derive economic benefits from the operations of the VIE. Under the current VIE Agreements, as a legal matter, if any of the affiliated consolidated entities or any of their shareholders fails to perform its, his or her respective obligations under the VIE Agreements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.
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If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity or its shareholders terminate the contractual arrangements or (iii) any variable interest entity or its shareholders fail to perform their obligations under these contractual arrangements, our business operations in China would be materially and adversely affected, and the value of your stock would substantially decrease. Further, if we fail to renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in China.
In addition, if any variable interest entity or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of the variable interest entity undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business and our ability to generate revenues.
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations.
Taizhou Suxuantang’s shareholders may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
The equity interests of Taizhou Suxuantang are held by Mr. Feng Zhou, who is our founder, director. His interests may differ from the interests of our Company as a whole. He may breach, or cause Taizhou Suxuantang to breach, or refuse to renew the existing contractual arrangements we have with Taizhou Suxuantang, which would have a material adverse effect on our ability to effectively control Taizhou Suxuantang and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with Taizhou Suxuantang to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise our purchase option under the exclusive option agreement with these shareholders to request them to transfer all of their equity interests in Taizhou Suxuantang to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Taizhou Suxuantang, we would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Contractual arrangements in relation to our variable interest entity may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC variable interest entity owe additional taxes, which could negatively affect our results of operations and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between our WFOE, our variable interest entity Taizhou Suxuantang and the shareholders of Taizhou Suxuantang were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Taizhou Suxuantang’s income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Taizhou Suxuantang for PRC tax purposes, which could in turn increase their tax liabilities without reducing WFOE’s tax expenses. In addition, if WFOE requests the shareholders of Taizhou Suxuantang to transfer their equity interests in Taizhou Suxuantang at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject WFOE to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on Taizhou Suxuantang for the adjusted but unpaid taxes according to the applicable regulations. Our results of operations could be materially and adversely affected if Taizhou Suxuantang’s tax liabilities increase or if they are required to pay late payment fees and other penalties.
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The approval of the China Securities Regulatory Commission and other compliance procedures may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval. As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”) requires an overseas special purpose vehicle that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies using shares of such special purpose vehicle or held by its shareholders as considerations to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval. Any failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.
Based on the current PRC laws, regulations and rules that the CSRC’s approval may not be required for the listing and trading of our Ordinary Shares on the Nasdaq Capital Market in the context of this offering, given that: (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours in this annual report are subject to this regulation, (ii) we establish our WFOE by means of direct investment and acquiring equity interest or assets of an entity other than “PRC domestic company” as defined under the M&A Rules, and (iii) no explicit provision in the M&A Rules clearly classifies VIE Agreements as a type of transaction subject to such Rules.
However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, regulations and rules or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC regulatory agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel does. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to obtain or delay in obtaining CSRC approval for this offering. These sanctions may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse effect on our business, reputation, financial condition, results of operations, prospects, as well as the trading price of the Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the Ordinary Shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the Ordinary Shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements.
Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As of the date of this annual report, we have not received or been denied of any permission from the PRC authorities to list on U.S. stock exchanges. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all. We face uncertainty about future actions by the PRC government that could significantly affect the operating company’s financial performance and the enforceability of the VIE Agreements.
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Furthermore, on February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive determination of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle of “substance over form” and particularly, an issuer will be required to go through the filing procedures under the Trial Measures if the following criteria are met at the same time: a) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by PRC domestic companies, and b) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that a) have already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Measures, and b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas stock exchange, c) whose such overseas securities offering or listing shall be completed before September 30, 2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, such as (a) issuers whose listing or offering overseas have been recognized by the State Council of the PRC as possible threats to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation after offering or listing overseas to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation.
PRC laws and regulations governing our current business operations are sometimes vague and uncertain.
We are an offshore holding company conducting all of our business through our subsidiaries and variable interest entities in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries and the consolidated variable interest entities are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises.
The PRC legal system is based on the PRC Constitution and is made up of written laws, regulations, circulars and directives. The PRC government is still in the process of developing its legal system, so as to meet the needs of investors and to encourage foreign investment. As the PRC economy is generally developing at a faster pace than its legal system, some degree of uncertainty exists in connection with whether and how existing laws and regulations will apply to certain events or circumstances.
Some of the laws and regulations, and the interpretation, implementation and enforcement thereof, are still subject to policy changes. There is no assurance that the introduction of new laws, changes to existing laws and the interpretation or application thereof or the delays in obtaining approvals from the relevant authorities will not have an adverse impact on our PRC subsidiaries’ business, financial performance and prospects.
Further, precedents on the interpretation, implementation and enforcement of the PRC laws and regulations are limited, and unlike other common law countries such as the United States, decisions on precedent cases are not binding on lower courts. As such, the outcome of dispute resolutions may not be consistent or predictable as in the other more developed jurisdictions and it may be difficult to obtain swift or equitable enforcement of the laws in the PRC, or obtain enforcement of judgment by a court of another jurisdiction.
As an offshore holding company, we may make loans to our PRC subsidiaries and the consolidated VIE.
Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign invested entities (“FIEs”), to finance their activities cannot exceed statutory limits and must be registered with SAFE. On March 30, 2015, SAFE promulgated Hui Fa [2015] No.19, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB. The foreign exchange capital, for which the monetary contribution has been confirmed by the foreign exchange authorities (or for which the monetary contribution has been registered for account entry) in the capital account of a foreign-invested enterprise may be settled at a bank as required by the enterprise’s actual management needs. Foreign-invested enterprises with investment as their main business (including foreign-oriented companies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are allowed to, under the premise of authenticity and compliance of their domestic investment projects, carry out based on their actual investment scales direct settlement of foreign exchange capital or transfer the RMB funds in the foreign exchange settlement account for pending payment to the invested enterprises’ accounts.
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On May 10, 2013, SAFE released Circular 21, which came into effect on May 13, 2013. According to Circular 21, SAFE has simplified the foreign exchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as fund remittances. Circular 21 may significantly limit our ability to convert, transfer and use the net proceeds from our financing activities and any offering of additional equity securities in China, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by the MOF or its local counterpart, which usually takes no more than 30 working days to complete. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will not be able to capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business.
In addition, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. Since this document is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us.
Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations.
The National People’s Congress promulgated the Foreign Investment Law on March 15, 2019 and the State Council adopted the Regulation on Implementing the Foreign Investment Law (the “Implementation Regulations”) on December 12, 2019, effective from January 1, 2020, to replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation.
For instance, under the Foreign Investment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.
We are a holding company and we rely for funding on dividend payments from our variable interest entity, which are subject to restrictions under PRC laws.
We are a holding company incorporated in the British Virgin Islands, and we operate our core businesses through our subsidiaries in the PRC and through our variable interest entity, or VIE. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from these PRC subsidiaries and VIE. If our subsidiaries and VIE incur debt or losses, their ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that dividends be paid only out of the after-tax profit of our PRC subsidiaries calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.
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If we exercise the option to acquire equity ownership of Taizhou Suxuantang, the ownership transfer may subject us to certain limitation and substantial costs.
Pursuant to the contractual arrangements, WFOE has the exclusive right to purchase all or any part of the equity interests in Taizhou Suxuantang from Taizhou Suxuantang’s shareholders for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum price amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request. The shareholders of Taizhou Suxuantang will be subject to PRC individual income tax on the difference between the equity transfer price and the then current registered capital of Taizhou Suxuantang. Additionally, if such a transfer takes place, the competent tax authority may require WFOE to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could be substantial.
Risks Related to Our Ordinary Shares
Our ordinary shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Our ordinary shares may be “thinly-traded”, meaning that the number of persons interested in purchasing our ordinary shares at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for our ordinary shares may not develop or be sustained.
The market price for our ordinary shares may be volatile.
The market price for our Ordinary Shares may be volatile and subject to wide fluctuations due to factors such as:
| ● | the perception of U.S. investors and regulators of U.S. listed Chinese companies; |
| ● | our operating and financial performance; |
| ● | quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues; |
| ● | the public reaction to our press releases, our other public announcements and our filings with the SEC; |
| ● | strategic actions by our competitors; |
| ● | changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts; |
| ● | speculation in the press or investment community; |
| ● | the failure of research analysts to cover our Ordinary Shares; |
| ● | sales of our Ordinary Shares by us or other shareholders, or the perception that such sales may occur; |
| ● | changes in accounting principles, policies, guidance, interpretations or standards; |
| ● | additions or departures of key management personnel; |
| ● | actions by our shareholders; |
| ● | domestic and international economic, legal and regulatory factors unrelated to our performance; and |
| ● | the realization of any risks described under this “Risk Factors” section. |
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Ordinary Shares. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.
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If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management oversight to Section 404 compliance on an ongoing basis. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.
If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the Ordinary Shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the Ordinary Shares may not be able to remain listed on the NASDAQ Capital Market.
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by British Virgin Islands requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our Ordinary Shares.
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As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NASDAQ Stock Market corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As a foreign private issuer, we are permitted to take advantage of certain provisions in the NASDAQ Stock Market listing rules that allow us to follow British Virgin Islands law for certain governance matters. Certain corporate governance practices in the British Virgin Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, British Virgin Islands law has no corporate governance regime which prescribes specific corporate governance standards. When our Ordinary Shares are listed on the Nasdaq Capital Market, we intend to continue to follow British Virgin Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Stock Market in respect of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the NASDAQ Stock Market listing rules, (ii) the requirement under Section 5605(d) of the NASDAQ Stock Market listing rules that a compensation committee comprised solely of independent directors governed by a compensation committee charter oversee executive compensation, (iii) the requirement under Section 5605(e) of the NASDAQ Stock Market listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors and (iv) the requirement under Section 5605(b)(2) of the NASDAQ Stock Market listing rules that our independent directors hold regularly scheduled executive sessions. British Virgin Islands law does not impose a requirement that our board of directors consist of a majority of independent directors. Nor does British Virgin Islands law impose specific requirements on the establishment of a compensation committee or nominating committee or nominating process. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on September 30, 2025. We would lose our foreign private issuer status if, for example, more than 50% of our Ordinary Shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on January 1, 2026, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the NASDAQ Stock Market listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results as well as proxy statements.
As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
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We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary Shares if we are successfully listed and the market price of our Ordinary Shares increases.
The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
As a public company, we are required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our Company and shareholders. Although we may be able to attain confidential treatment of some of our developments, in some cases, we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our Company. Similarly, as a U.S. public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public Company status could affect our results of operations.
A sale or perceived sale of a substantial number of shares of our Ordinary Shares may cause the price of our Ordinary Shares to decline.
An aggregate of 116,027,758 Ordinary Shares are outstanding as of the date of July 23, 2025. If our existing shareholders sell, or indicate an intent to sell, substantial amounts of our Ordinary Shares in the public market, the market price of our Ordinary Shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short our ordinary shares, thus depress the market price of our shares. A decline in the price of our Ordinary Shares might impede our ability to raise capital through the issuance of additional Ordinary Shares or other equity securities in the future at a time and price that we deem reasonable or appropriate.
Risks Related to Doing Business in China
Joint statement by the SEC and the PCAOB, rule changes by Nasdaq, and the HFCA Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offerings.
On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December 18, 2020, the HFCA Act was signed into law.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the board of directors of a company is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions.
On August 26, 2022, the CSRC, China’s Ministry of Finance, and the PCAOB signed the SOP Agreements governing inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the SOP Agreements disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
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Our auditor, Enrome LLP, is headquartered in Singapore, not mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination. Therefore, our auditor was not subject to the determinations announced by the PCAOB on December 16, 2021, and it is currently subject to the PCAOB inspections.
Under the PCAOB’s rules, a reassessment of a determination under the HFCA Act may result in the PCAOB reaffirming, modifying or vacating the determination. However, recent developments with respect to audits of China-based companies create uncertainty about the ability of Enrome LLP to fully cooperate with the PCAOB’s request for audit work papers without the approval of the Chinese authorities. In the event it is later determined that the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA ultimately result in a determination by a securities exchange to delist the Company’s securities.
Changes in China’s economic, political, or social conditions could have a material adverse effect on our business and operations.
Substantially all of our assets and operations are currently located in China. Accordingly, our business, financial condition, results of operations, and prospects may be influenced to a significant degree by political, economic, and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, including the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government, or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, reduce demand for our services, and weaken our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustments, to control the pace of economic growth. These measures may cause decreased economic activities in China, which may adversely affect our business and operating results.
The PRC government has significant authority to intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to such oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the ordinary shares to significantly decline in value or become worthless.
Our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally. The PRC government has significant authority to intervene or influence the China operations of an offshore holding company at any time, which could result in a material adverse change to our operations and the value of the ordinary shares.
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Furthermore, given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently not required to obtain permission from any of the PRC federal or local government and has not received any denial to list on the U.S. exchange, it is uncertain whether or when we might be required to obtain permission from the PRC government to list on U.S. exchanges in the future. Even if such permission is obtained, it is uncertain whether it will be later denied or rescinded, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and result in a material adverse change to our business operations, and damage our reputation, therefore, cause the value of our shares to significantly decline or be worthless.
Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.
On December 28, 2021, the Cyberspace Administration of China, or the “CAC”, together with 12 other governmental departments of the PRC, jointly promulgated the “CAC Revised Measures” , which became effective on February 15, 2022. The Cybersecurity Review Measures provides that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, data processing operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures further requires that CIIOs and data processing operators that possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting listings in foreign countries.
On November 14, 2021, the CAC published the Security Administration Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. The deadline for public comments on the Security Administration Draft was December 13, 2021.
As of the date of this annual report, we have not received any notice from any authorities identifying our WFOE or the VIE as CIIOs or requiring us to go through cybersecurity review or network data security review by the CAC. As the Cybersecurity Review Measures became effective and if the Security Administration Draft is enacted as proposed, we believe that the operations of our WFOE and the VIE and our listing will not be affected and that we are not subject to cybersecurity review and network data security review by the CAC, given that: (i) as companies that focuses on the research, development, manufacture, marketing and sales of TCMP, our WFOE and the VIE are unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) our WFOE and the VIE do not possess personal data of more than one million individual customers in the business operations as of the date of this annual report; and (iii) since our WFOE and the VIE are in the TCMP industry, data processed in our business is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the authorities. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and network data security review in the future. During such reviews, we may be required to suspend our operation or experience other disruptions to our operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations.
The Opinions, the Trial Measures, and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. The Opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirements in the future. On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing application. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines.
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According to the CSRC Notice, the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as existing issuers (the “Existing Issuers”). Existing Issuers are not required to complete the filing procedures immediately, and they shall be required to file with the CSRC for any subsequent offerings.
Based on the foregoing, we are currently not required to complete the filing procedures and submit the relevant information to the CSRC.
On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company, our subsidiaries, or the VIE to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.
The Opinions, the Trial Measures, the revised Provisions and any related implementing rules to be enacted may subject us to additional compliance requirements in the future. As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we will be able to comply with all new regulatory requirements of the Opinions, the Trial Measures, the revised Provisions, or any future implementing rules on a timely basis, or at all.
The uncertainties with respect to the Chinese legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations, and rules may not be uniform and enforcement of these laws, regulations and rules involves uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
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If the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our Ordinary Shares may decline in value or become worthless.
Recently, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to VIE. There are currently no relevant laws or regulations in the PRC that prohibit companies whose entity interests are within the PRC from listing on overseas stock exchanges. The VIE Agreements have not been tested in a court of law in China as of the date of this annual report. Although we believe that our corporate structure and contractual arrangements comply with current applicable PRC laws and regulations, in the event that PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our Ordinary Shares may decline in value or become worthless.
We may have difficulty in enforcing any rights we may have under the VIE Agreements in PRC.
As all of the VIE Agreements with Taizhou Suxuantang are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these VIE Agreements. Furthermore, these VIE Agreements may not be enforceable in China if PRC government authorities or courts take a view that such VIE Agreements contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce these VIE Agreements, we may not be able to exert effective control over Taizhou Suxuantang, and our ability to conduct our business may be materially and adversely affected. Our Ordinary Shares may decline in value or become worthless if we are unable to assert your contractual control rights over the assets of the VIE that conduct all or substantially all of our operations
It may be difficult for overseas shareholders and/or regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
Our principal business operation is conducted in the PRC. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation or collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence collection directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities regulatory authority of the PRC.
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We face exposure to foreign currency exchange rate fluctuations, and such fluctuations could adversely affect our business, results of operations and financial condition.
The conversion of Renminbi into foreign currencies, including the USD, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the USD and other currencies, at times significantly and unpredictably. The value of Renminbi against the USD and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the USD and other currencies in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and USD in the future.
Significant revaluation of the Renminbi may have a material and adverse effect on your investment. For example, to the extent we need to convert USD we received from our IPO into Renminbi for our operations, appreciation of the Renminbi against the USD would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into USD for the purpose of making payments for dividends on our Ordinary Shares or for other business purposes, appreciation of the USD against the Renminbi would have a negative effect on the USD amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. As of the date of this annual report, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure, or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.
Substantially all of our revenues and costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into USD. To the extent that we need to convert USD we received from our IPO into Renminbi for our operations, appreciation of the Renminbi against the USD would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into USD for the purpose of making payments for dividends on our Ordinary Shares or for other business purposes, appreciation of the USD against the Renminbi would have a negative effect on the USD amount.
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries are subject to PRC regulations. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with China’s State Administration of Foreign Exchange (“SAFE”), or its local counterparts. Furthermore, any capital increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, shall be approved by the MOF, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
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Labor disputes could significantly affect our operations.
Labor disputes with our employees or labor disputes regarding social welfare could significantly disrupt operations or expansion plans. Delays caused by any such disruptions could materially affect projections for increased capacity, production and revenues, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.
Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.
Labor laws in the PRC may adversely affect our results of operations.
On December 28, 2012, the PRC government released the revision of the Labor Contract Law of the PRC, which became effective on July 1, 2013. The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.
Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.
China passed the Enterprise Income Tax Law, or the EIT Law, and it is implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China; and (iv) all of its directors with voting rights or senior management reside in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders. Because substantially all of our operations and senior management are located within the PRC and are expected to remain so for the foreseeable future, we may be considered a PRC resident enterprise for enterprise income tax purposes and therefore subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise controlled by a Chinese natural person. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.
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If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, as we conduct our sales, including export sales, in China. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to the clause 26 of the EIT Law. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our Ordinary Shares, or the gain our non-PRC stockholders may realize from the transfer of our Ordinary Shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC stockholders, or if non-PRC stockholders are required to pay PRC income tax on gains on the transfer of their shares of Ordinary Shares, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
In connection with our initial public offering, we became subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our Company, because these parties are not always subject to our control.
Although we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Governmental control of currency conversion may affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.
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Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.
The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.
Our PRC subsidiaries hold certain assets that are important to our business operations. If any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
According to SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, effective on 17 December 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct Investment by Foreign Investors, effective May 13, 2013, if any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering and/or other future financing activities into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our shares of Ordinary Shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.
Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, and our reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless.
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You may face difficulties in protecting your interests and exercising your rights as a stockholder since we conduct substantially all of our operations in China, and almost all of our officers and directors reside outside the U.S.
Although we are incorporated in the British Virgin Islands, we conduct substantially all of our operations in China. All of our current officers and almost all of our directors reside outside the U.S. and substantially all of the assets of those persons are located outside of the U.S. It may be difficult for you to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders meeting if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially in China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly within the U.S.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this annual report based on foreign laws.
We are a company incorporated under the laws of the British Virgin Islands, we conduct substantially all of our operations in China, and substantially all of our assets are located in China. In addition, all of our executive officers reside within China for a significant portion of the time and are PRC nationals. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside China. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the British Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
Shareholder claims that are common in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We were incorporated in the British Virgin Islands on July 4, 2017. Our wholly owned subsidiary SXT HK was incorporated in Hong Kong on July 21, 2017. SXT HK in turn holds all the capital stocks of WFOE, a wholly foreign owned enterprise incorporated in China on October 13, 2017. WFOE, shareholders of Taizhou Suxuantang and Taizhou Suxuantang entered into a series of contractual arrangements, also known as VIE Agreements, on October 13, 2017. Pursuant to the VIE Agreements, WFOE is regarded as the primary beneficiary of Taizhou Suxuantang and we are able to consolidate the financial statements of Taizhou Suxuantang in accordance with U.S. GAAP. See “-C. Organizational Structure Chart-Contractual Agreements between WFOE and Taizhou Suxuantang.”
Pursuant to PRC laws, each entity formed under PRC law shall have certain business scope approved by the Administration of Industry and Commerce or its local counterpart. As such, WFOE’s business scope is to primarily engage in technology development, provision of technology service, technology consulting; development of computer software and hardware, computer network technology, game software; provision of enterprise management and related consulting service, human resource consulting service and intellectual property consulting service. Since the sole business of WFOE is to provide Taizhou Suxuantang with technical support, consulting services and other management services relating to its day-to-day business operations and management in exchange for a service fee approximately equal to the net income of Taizhou Suxuantang, such business scope is necessary and appropriate under PRC laws.
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China SXT Pharmaceutical is a holding company with no business operation other than holding the shares in SXT HK; SXT HK is a pass-through entity with no business operation. WFOE is exclusively engaged in the business of managing the operation of Taizhou Suxuantang. Taizhou Suxuantang has become principally engaged in offering Advanced TCMP products since March, 2015. Before 2015, Taizhou Suxuantang specialized in manufacturing and selling Regular and Fine TCMP products.
On January 3, 2019, our Ordinary Shares commenced trading on the Nasdaq Capital Market under the symbol of “SXTC.”
Our principal executive offices are located at 178 Taidong Rd North, Taizhou, Jiangsu, PRC, and our phone number is +86-523-8629-8290. We maintain a corporate website at www.sxtchina.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report.
B. Business Overview
We are an offshore holding company conducting all of our business through our subsidiaries and variable interest entity, Taizhou Suxuantang in China. Neither we nor our subsidiaries own any share in Taizhou Suxuantang. Instead, WFOE, Taizhou Suxuantang and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, pursuant to which, we are regarded as the primary beneficiary of Taizhou Suxuantang for accounting purpose, and, therefore, we are able to consolidate the financial results of Taizhou Suxuantang in our consolidated financial statements in accordance with U.S. GAAP.
Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries and variable interest entities are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, and regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Agreements because they have not been tested in a court of law. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in providing control over our variable interest entities. We may also subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations.
Through our subsidiaries and variable interest entities in China, we are an innovative pharmaceutical company based in China that focuses on the research, development, manufacture, marketing and sales of TCMP. TCMP is a type of Chinese Traditional Medicine (“TCM”) products that has been widely accepted by Chinese people for thousands of years. Throughout the decades of years, TCMP products’ origin, identification, prepared process, quality standard, indication, dosage and administration, precautions, and storage have been well documented, listed and specified in “China Pharmacopoeia” a state-governmental issued guidance on manufacturing TCMP. In recent years, TCMP industry enjoyed more rapid growth than any other segments of the pharmaceutical industry primarily due to the favorable government policies for the TCMP industry. Because of the favorable government policies, TCMP products do not have to go through rigorous clinical trials before commercialization. We currently sell three types of TCMP products: Advanced TCMP, Fine TCMP and Regular TCMP. Although all of our TCMP products are generic TCMP drugs and we did not change the medical effects of these products in any significant way, these products are innovative in terms of their unconventional administration. The complexity of the manufacturing process is what differentiates these types of products. Advanced TCMP typically has the highest quality because it requires specialized equipment and prepared processes to manufacture and has to go through more manufacturing steps to produce than Fine TCMP and Regular TCMP. Fine TCMP is also manufactured with more refined ingredients than Regular TCMP.
As of the date of this annual report, we have developed and introduced a diverse range of products, which include 11 Advanced TCMPs that have been produced and marketed, 5 Fine TCMPs, 200 Regular TCMPs, and 200 raw medicinal materials. For the fiscal year ended March 31, 2025, Advanced TCMP accounted for 14.8% of the total revenue, whereas Regular TCMP contributed 82.9% of the total revenue, respectively. For the fiscal year ended March 31, 2024, Advanced TCMP accounted for 49.1% of the total revenue, whereas Regular TCMP contributed 49.0% of the total revenue, respectively. For the fiscal year ended March 31, 2023, Advanced TCMP accounted for 33.3% of the total revenue, whereas Fine TCMP and Regular TCMP contributed 5.8% and 35.4% of the total revenue, respectively. Our Advanced TCMP includes 11 products, which can be further divided into 7 Directly-Oral-TCMP products, and 4 After-Soaking-Oral-TCMP products. Directly-Oral-TCMP, as the name suggests, has the advantage of being taken orally. After-Soak-Oral TCMP comes as a small, porous, sealed bag that can be immersed in boiling water to make an infusion. Our major Directly-Oral-TCMP are SanQiFen, CuYanHuSuo, XiaTianWu and LuXueJing; our major After-Soaking-Oral-TCMP are ChenXiang, SuMu, ChaoSuanZaoRen, and JiangXiang. For each principal product’s indications and year of commercialization, see “-Our Products.”
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Taizhou Suxuantang, the VIE entity, was founded in 2005. Our revenues decreased from $1,928,497 in fiscal year ended March 31, 2024 to $1,740,907 in fiscal year ended March 31, 2025, representing a decrease of 10%. Our net loss decreased from $3,098,532 in fiscal year ended March 31, 2024 to $2,297,600 in fiscal year ended March 31, 2025, representing a decrease of 26% of net loss during this period. Our revenues decreased from $1,971,679 in fiscal year ended March 31, 2023 to $1,928,497 in fiscal year ended March 31, 2024, representing a decrease of 2%. Our net loss decreased from $5,934,772 in fiscal year ended March 31, 2023 to $3,098,532 in fiscal year ended March 31, 2024, representing a significant decrease of 48% of net loss during this period.
As of the date of this annual report, we own 12 Chinese registered trademarks related to our brand “Suxuantang.” In the near future, we plan to increase our efforts in cooperation with universities, research institutes, and R&D agents on joint R&D projects involving TCMP processing methods and quality standard, as well as the training of our researchers.
We have been focusing on the research and development of new Advanced TCMP products. As of the date of this annual report, there are four invention patent applications that have been submitted to the State Intellectual Property Office of PRC and are under the substantive examination stages.
Our major customers are hospitals, especially TCM hospitals, primarily in the Jiangsu province in China. Another substantial part of our sales is made to pharmaceutical distributors, which then sell our products to hospitals and other healthcare distributors. As of March 31, 2025, our end-customer base includes 57 pharmaceutical companies, 14 chain pharmacies and 16 hospitals in 5 provinces and municipalities in China including Jiangsu, Anhui, Jiangxi, Guangdong and Hubei.
Permissions or Approval Required from the PRC Authorities for Our Operations and Listing
In order to operate our business activities currently conducted in China, our WFOE and the VIE are required to obtain a business license from the State Administration for Market Regulation (the “SAMR”). As of the date of this annual report, our WFOE and the VIE have obtained all the permissions which are required to obtain for their operations. Each of our WFOE and the VIE has obtained a valid business license from the SAMR, and no application for any such license has been denied.
In China, the production of TCMP must comply with the “Pharmaceutical Administration Law of PRC (2020 Revision)”, “GMP for drugs”, and “Good Supply Practice (“GSP”) for drugs”. Companies manufacturing and selling TCMP products must have the License: “Pharmaceutical Manufacturing Permit” and “TCM an approval throughout GMP compliance-inspection”. TCMP production companies that met both of the License Requirements within the scope of production and approval throughout GMP compliance-inspection will not be required to obtain National Medical Products Administration (“NMPA”, in lieu of CFDA effective on December 1, 2019) or local MPA approval before manufacturing their TCMP products and TCMP products are categorically exempted from being tested clinically because the effect of TCMP products are impossible to be tested clinically. As a result, TCMP products do not have the NMPA approval registration number, which is typically found in western medicine products. For more details, please see “-Regulations.”
TCMP also needs to follow national drug reference standard codified in Pharmacopoeia of the PRC (“Guidance”). The Guidance supplies critical information to TCMP manufacturers regarding origin of ingredients, description, identification, processing, assay, property and flavor, meridian tropism, actions, indications, administration and dosage, precautions and warnings and storage. For more details, please see “Regulations.”
The VIE has obtained certificates, permits, and licenses required for the operation of a pharmaceutical enterprise and the manufacturing of pharmaceutical products in the PRC. We cannot assure you that the VIE can maintain all required licenses, permits and pass the GMP compliance-inspection to carry on its business at all times, and in the past from time to time it may have not been in compliance with all such required licenses, permits and pass the GMP compliance-inspection. For more details, please see “Item 3. Key Information-D. Risk Factors- Risks Related to Our Business-Our business requires a number of permits and licenses.”
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We are currently not required to obtain permission from any of the PRC authorities for the trading of Ordinary Shares in foreign stock exchanges. In addition, we, our subsidiaries, and the VIE are not required to obtain permission or approval relating to our Ordinary Shares from the PRC authorities, including the CSRC or CAC, for our subsidiaries or the VIE’s operations.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies, cybersecurity, data privacy protection requirements, and similar matters. The Opinions and any related implementing rules to be enacted may subject us to compliance requirements in the future.
Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. On July 30, 2021, the State Council issued Regulation on Protecting the Security of Critical Information Infrastructure, clarifying the definition of critical information infrastructure as “any of network facilities and information systems in important industries and fields—such as public communication and information services, energy, transportation, water conservancy, finance, public services, e-government, and science, technology and industry for national defense—that may seriously endanger national security, national economy and people’s livelihood, and public interests in the event that they are damaged or lose their functions or their data are leaked.” On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated CAC Revised Measures to replace the original Cybersecurity Review Measures. The CAC Revised Measures took effect on February 15, 2022. Pursuant to the CAC Revised Measures, if critical information infrastructure operators purchase network products and services, or network platform operators conduct data processing activities that affect or may affect national security, they will be subject to cybersecurity review. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and risk of network data security after going public overseas. As confirmed by our PRC counsel, Beijing W&H (Taizhou) Law Firm, we are not subject to cybersecurity review with the CAC in accordance with the CAC Revised Measures, because (i) we are not in possession of or otherwise holding personal information of over one million users and it is also very unlikely that it will reach such threshold in the near future; and (ii) as of the date of this annual report, we have not received any notice or determination from applicable PRC governmental authorities identifying it as a critical information infrastructure operator. However, since these statements and regulatory actions are new, it is uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. exchange.
On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing application. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. According to the Notice on the Administrative Arrangements for the Filing of the Overseas Securities Offering and Listing by Domestic Companies from the CSRC, or “the CSRC Notice,” the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures immediately, and they shall be required to file with the CSRC for any subsequent offerings. Based on the foregoing, if in the future we are going to conduct any offering or financing in the U.S., we will complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures. In addition, we have not received any formal inquiry, notice, warning, sanction, or objection from the CSRC with respect our listing on the Nasdaq Capital Market. However, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. See “Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-The Opinions, the Trial Measures, and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.” Other than the foregoing, as of the date of this annual report, we are not aware of any PRC laws or regulations in effect requiring that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to the listing and trading of our Ordinary Shares from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations.
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Transfers Between Our Company, Our Subsidiaries, and the VIE
As of the date of this annual report, our Company, SXT HK, WFOE, and the VIE have not distributed any earnings or settled any amounts owed under the VIE Agreements. Our Company, SXT HK, WFOE, and the VIE do not have any plan to distribute earnings or settle amounts owed under the VIE Agreements in the foreseeable future.
Our management is directly supervising cash management. Our finance department is responsible for establishing the cash management policies and procedures among our departments and the operating entities. Each department or operating entity initiates a cash request by putting forward a cash demand plan, which explains the specific amount and timing of cash requested, and submitting it to designated management members of our Company, based on the amount and the use of cash requested. The designated management member examines and approves the allocation of cash based on the sources of cash and the priorities of the needs, and submit it to the cashier specialists of our finance department for a second review. Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred nor a written policy that addresses how we will handle any limitations on cash transfers due to PRC law.
During the fiscal years ended March 31, 2025, 2024, and 2023cash transfers and transfers of other assets between our Company, SXT HK, WFOE, and the VIE were as follows:
| For the Year Ended March 31, 2025 | ||||||||||
| No. | Transfer From | Transfer To | Approximate Value ($) | Note | ||||||
| 1 | The Company | SXT HK | 580,000 | |||||||
| 2 | SXT HK | WFOE | 579,992 | |||||||
| 3 | SXT HK | VIE | 33,682 | |||||||
| 4 | WFOE | VIE | 458,016 | |||||||
| For the Year Ended March 31, 2024 | ||||||||||
| No. | Transfer From | Transfer To | Approximate Value ($) | Note | ||||||
| 1 | SXT HK | WFOE | 490,785 | |||||||
| 2 | WFOE | VIE | 648,587 | |||||||
| For the Year Ended March 31, 2023 | ||||||||||
| No. | Transfer From | Transfer To | Approximate Value ($) | Note | ||||||
| 1 | SXT HK | WFOE | 3,469,975 | |||||||
| 2 | The Company | VIE | 2,204,727 | |||||||
| 3 | WFOE | VIE | 452,323 | |||||||
Dividends or Distributions Made to our Company and U.S. Investors and Tax Consequences
As of the date of this annual report, none of our subsidiaries or the VIE have made any dividends or distributions to our Company and our Company has not made any dividends or distributions to our shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Subject to the passive foreign investment company (“PFIC”) rules, the gross amount of distributions we make to investors with respect to our Ordinary Shares (including the amount of any taxes withheld therefrom) will be taxable as a dividend, to the extent that the distribution is paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
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Subject to the BVI Act and our M&A, our directors may, by resolution, declare dividends at a time and amount as they think fit if they are satisfied, based on reasonable grounds, that, immediately after distribution of the dividend, the value of our assets will exceed our liabilities and we will be able to pay our debts as they fall due.
If we determine to pay dividends on our Ordinary Shares in the future, as a holding company, we will depend on receipt of funds from our WFOE and from the VIE to our WFOE in accordance with the VIE Agreements. Pursuant to the EIT Law and its implementation rules, any dividends paid by WFOE to SXT HK will be subject to a withholding tax rate of 10%. However, if SXT HK is determined by the relevant PRC tax authority to have satisfied the relevant conditions and requirements under the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the “Double Tax Avoidance Arrangement,” and other applicable laws, the 10% withholding tax on the dividends SXT HK receives from WFOE may be reduced to 5%.
Current PRC regulations permit WFOE, our indirect subsidiary, to pay dividends to SXT HK only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our WFOE is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in the PRC is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Furthermore, if our subsidiaries and the VIE in China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenue from our operations, we may be unable to pay dividends on our Ordinary Shares.
Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies, without prior approval of SAFE, by complying with certain procedural requirements. Specifically, without prior approval of SAFE, cash generated from the operations in PRC may be used to pay dividends to our Company. As of the date of this annual report, our WFOE has conducted the foreign exchange registration related to our Company under the existing PRC foreign exchange regulations, which enables our PRC subsidiary to legally distribute their earnings to our Company.
Our Company’s ability to settle amounts owed under the VIE Agreements relies upon payments made from Taizhou Suxuantang to WFOE in accordance with the VIE Agreements. For services rendered to Taizhou Suxuantang by WFOE under the Exclusive Business Cooperation Agreement, WFOE is entitled to collect a service fee approximately equal to the net income of Taizhou Suxuantang. Pursuant to the Exclusive Option Agreement, WFOE may at any time and under any circumstances, or have its designee, purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholders’ equity interest in Taizhou Suxuantang.
Our Products
We currently sell two types of TCMP products: Advanced TCMP and Regular TCMP for the year ended March 31, 2025, while for the year ended March 31, 2024 , we sold three types of TCMP products: Advanced TCMP, Fine TCMP and Regular TCMP and raw medicinal materials.
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Advanced TCMP
Advanced TCMP typically has the highest quality because it requires specialized equipment to manufacture and has to go through more manufacturing steps to produce than Fine TCMP and Regular TCMP. Although Advanced TCMP has the same medicinal effects as Fine and Regular TCMP and cannot be considered a new type of medicine, Advanced TCMP is much easier to be taken since it does not require decoction. We have two types of Advanced TCMP depending on the way it is consumed, Directly-Oral-TCMP and After-Soaking-Oral-TCMP products.
Directly-Oral-TCMP
Directly-Oral-TCMP is a novel Advanced TCMP recently cataloged on Pharmaceutical GMP (version 2010) and China Pharmacopoeia (version 2020) Parts I and IV. The products, unlike Regular TCMP, can be taken orally without decocting. Following the principle of Directly-Oral-TCMP, we have established a new scientific and technological strategy and methods for the research and development of the direct-oral pharmaceutical TCMP products. Our products comply with the regulations of the NMPA and provincial MPA, as well as keep the principles of TCM. Our R&D results indicated that the Directly-Oral-TCMP products, in contrast to Regular TCMPs, have significant advantages in terms of preserving the quality of the TCM original ingredients, and being safer and easier to use.
After-Soaking-Oral TCMP
After-Soaking-Oral TCMP is another new type of Advanced TCMP, which can be taken after soaking with hot water without decocting. It is defined on China Pharmacopoeia (version 2020) Parts I and IV. Like the Directly-Oral-TCMP, we also have built a new scientific and technological strategy and methods for the R&D of the after-soaking orally pharmaceutical TCMP products. The products comply with the regulations of the NMPA and local MPA, as well as retain the principles of TCM. Like Directly-Oral-TCMP, our After-Soaking-Oral-TCMP provide the special features of being non-decocting, such as keeping NMPA-recognized TCM theoretic fundamental principles, preserving the quality of TCM original ingredients, increasing aqueous extracts to improve bioavailability for bioactive constitutes, and being easy to use and store.
Fine TCMP
We have 5 Fine TCMP products for drug stores and hospitals. Our Fine TCMP products are manufactured manually from only high-quality authentic ingredients derived from their region of origin. During the year ended March 31, 2024, we decided to discontinue cooperation with major clients in the sales of Fine TCMP, and not to develop or sell Fine TCMP products in future.
Regular TCMP
We currently manufacture almost 200 Regular TCMP products listed on China Pharmacopoeia (version 2020) Parts I and IV for hospitals and drug stores for the treatment of various diseases or serving as dietary supplements.
We currently have a product-developed portfolio of 11 Advanced TCMP products which have been commercialized, 5 Fine TCMP products, 200 Regular TCMP products, and 200 raw medicinal materials that address a wide variety of diseases and medical indications. All of our products have complied with quality, dosage, safety and efficacy standards of Chinese Pharmacopoeia and have been granted permits issued by the Jiangsu MPA based on product manufacturing scope described in the Pharmaceutical Product Permit and GMP certification, and most of our products are sold on a prescription basis. The following table summarizes the approved indications for our marketed TCMP products and the year in which each such product was first marketed to our distributors.
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| Product | Ingredients | Indication | Year of Commercial Launch | |||
| SanQiFen (powders) | Powders of roots and rhizomes of Panax notoginseng containing ginsenoside and sanchinoside, dencichine, flavonoids, amino acids. | Coronary heart disease; high cholesterol; angina; hyperlipidemia; hemorrhage (bleeding); hepatobiliary diseases; intractable headache; and cancer. | 2015 | |||
| HongQi (pieces) | Dry roots of Hedysarum polybotrys containing flavonoids, saponins, polysaccharides. | Sweating; dizziness, palpitations; shortness of breath; chronic diarrhea archoptosis; dyspeptic fullness; indigestion; hemiplegia, arthralgia, numbness; chronic wound; diabetic nephropathy; low immunity; cancer; and liver disease. | 2015 | |||
| SuMu (powders) | Powders heartwoods of Caesalpinia sappan containing homeisoflavonoid, and triterpenoid compounds. | Digestive tract tumor; liver cancer; ovarian neoplasms; cervical cancer; chronic myeloid leukemia; fracture; traumatic injury; thoracic abdominal pain; carbuncle furuncle sore; immunosuppressive agent; and diabetes. | 2015 | |||
| JiangXiang (powders) | Powder of heartwoods of trunks and roots of Dalbergia odorifera containing flavonoid, terpenoid, volatile constituents. | Coronary heart disease; angina pectoris, arrhythmia; hypertension; hyperlipidemia; dizziness; vomiting blood, nose bleed, bleeding and injury; pain caused by ecchymoma; pediatric glomerulonephritis; and pediatric pneumonia. | 2015 | |||
| CuYanHuSuo (powders) | Powders of dry tubers of Corydalis yanhusuo W.T.Wang containing isoquinoline alkaloids. | Various pains (non-addictive analgesics); Paroxysmal atrial fibrillation; Rapid supraventricular arrhythmia; Superficial gastritis; Acute or chronic torsion and contusion | 2015 | |||
| XiaTianWu (powders) | Powders of tubers of Corydalis decumbens containing isoquinoline alkaloid constituents. | Hemiplegia; facial paralysis; cerebral infarction; waist intervertebral disc prominent sickness; cervical spondylopathy; shoulder periarthritis; sciatica; arthritic symptoms; cerebral apoplexy; and pseudomyopia. | 2016 | |||
| LuXueJing (crystal-like scales) | Dry blood of Cervus nippon or Cervus elaphus containing proteins. | Leukopenia; thrombocytopenia; or hypoimmunity; chronic anemia; aplastic anemia; erectile dysfunction; and postoperative rehabilitation. | 2016 |
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| Product | Ingredients | Indication | Year of Commercial Launch | |||
| XueJie (powders) | Powders of fruit resins of Daemonorops draco containing flavanoide, terpenoid, and phlobaphene constituents, and resins. | Myocardial infarction; coronary heart disease, angina pectoris; anorectal, gastrointestinal diseases; internal and external bleeding; chronic inflammatory colitis; chronic dermal ulcer; cervical erosion, diabetic foot ulcer; scrotal edema; and post-herpetic neuralgia. | 2016 | |||
| ChaoSuanZaoRen (powders) | Powders of slight flied seeds of Ziziphus jujuba containing flavonoid, saponin, alkaloid compounds. | Insomnia, upsetting; spontaneous sweating; night sweat; hyperhidrosis; cardiovascular atherosclerosis; hypertension; high blood lipids; epileptic; and hypoimmunity. | 2016 | |||
| HongQuMi (grains) | Dry rice fermented by fungi Monascus purpureus containing monacolins, monascus pigments, polysaccharides. | High blood lipids, high blood pressure; postpartum lochiorrhea; abdominal pain; dyspeptic fullness; indigestion; poor appetite; osteoporosis, climacteric syndrome; hypoimmunity; and diabetic nephropathy syndrome | 2016 | |||
| ChuanBeiMu (powders) | Powders of bulbus of Fritilaria cirrhosa or F. unibracteata or F. przezvalskii or F. delavayi or F. taipaiensis, or F. unibracteata containing alkaloid, sterol, nucleosides constituents. | Children with chronic irritating cough; difficultly in expectoration; sore throat; acute or chronic bronchitis; dry cough; epilepsy; mastitis; and hypertension. | 2017 | |||
| HuangShuKuiHua (powders) | Powders of corollas of Abelmoschus manihot containing flavonoid and flavone glycoside, polysaccharide constituents, volatile oil, proteins. | Chronic nephritis; hydremic nephritis; adiabatic nephropathy; oral ulcers; parotitis; edemas; cerebrovascular disease; cancer; and scalds or burns. | 2017 | |||
| WuWeiZi (Crude powders) | Ripe fruits of Schisandra chinensis (Turcz.) Baill. containing lignans, volatile constituents, organic acids, sterol, vitamin C, vitamin E. | Acute or chronic hepatitis; dizziness and vitreous opacification; neurasthenic and insomnia; asthma and bronchitis; angioneurotic headache; gallstones. | 2018 | |||
| DingXiang (powders) | Buds of Ewgewia caryophyllata Thunb. containing volatile oil, such aseugenol, beta-caryophyllene, humuleno, chavicol, eugenone; flavonoids, and triterpenoid constituents. | Abdominal pain; hiccup; nausea and vomiting; erectile dysfunctiona (ED); chronic gastritis and gastric ulcer; tooth pains. | 2018 | |||
| RenShen (powders) | Roots and rhizomes of Panax ginseng C. A. Mey. containing panaxosides, such as panaxoside Rg1, Re, Rb1, flavonoids, panax polysaccharides, organogermanium. | Cardiogenic shock, fatigue, diabetes, impotence, senility, and asthenic overstrain. | 2018 | |||
| QingGuo (crude powders) | Dry fruits of Canarium album Raeusch. containing flavonoids, triterpenes, lignans, polyphenols, organic acids, volatile oil, etc. | Sore throat, laryngopharyngitis, cough, allergic asthma, diabetes, and intoxication. | 2018 |
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| Product | Ingredients | Indication | Year of Commercial Launch | |||
| JueMingZi (powders) | Mature seeds of Cassia obtusifolia L. containing anthraquinones, naphthyl ketones, fatty acids, volatile constituents, daidzein, polysaccharides, amino acids. | High blood pressure; hyperlipidemia; cerebrovascular diseases; constipation; mastitis; ophthalmologic diseases. | 2018 | |||
| ShaRen (powders) | Ripe fruits of Amomom villosum Lour. or A. villosum var. xanthioides T. L. Wu et Senjen or A. longiligulare T. L. Wu containing volatile constituents and flavonoids. | Gastric and duodenal ulcer; enteritidis; pediatrics abdominal pain and chronic diarrhea; irritable bowel syndrome; threatened abortion; chronic renal failure; glomerulonephritis; Kidney stones; asthma; chronic myeloid leukemia; malignant lymphoma. | 2018 |
We believe we are well-positioned in a steadily growing industry in one of the fastest-growing economies in the world. We currently manufacture a number of advanced TCMP that were among the first to market in the PRC. Instead of requiring consumers that take TCMP to go through the rather complex decoction process before use, our advanced Chinese medicine products can be simply administered orally as tablets, capsules or liquids. We believe this innovative feature of our products has given us a competitive edge in the market. In addition, and unlike chemical entity medicines and Traditional Chinese Patent Medicine (“TCPM”, also known as “中成药” in Chinese) products which can only be sold to GSP-certified pharmaceutical distributors according to latest Guidelines on Perfecting Medicine Procurement of Public Hospitals in China, our TCMP products can also be sold directly to hospitals. We expect to continue to gain additional competitive advantages through the growing pipeline of new TCMP products. Our diverse portfolio of products and our new product pipelines include products for high-incidence and high-mortality conditions in the PRC, such as cardiovascular, central nervous system (“CNS”), infectious, and digestive diseases.
Our Suppliers, Customers and Distributors
We believe we have a well-functioning production and sales network. Our current Chinese medicine product portfolio is comprised of both prescription drugs and supplements. We have 5 major suppliers located in Anhui province in China, one of the largest TCM markets in China, and other major suppliers in provinces such as Jiangsu, Jiangxi, Sichuan and Hebei. We have long-term relationship with these suppliers, who supply raw materials of genuine TCM for our production process.
Our major customers are hospitals, especially TCM hospitals primarily in the Jiangsu provinces in China and pharmaceutical wholesalers. The wholesalers distribute our products to hospitals and other healthcare distributors such as Jiuzhoutong Pharmaceutical Co. Ltd. As of March 31, 2025, our end-customer base includes 57 pharmaceutical companies, 14 chain pharmacies and 16 hospitals in 5 provinces and municipalities in China including Jiangsu, Anhui, Jiangxi, Guangdong and Hubei.
We currently have 4 sales offices covering 12 of China’s major provinces/municipalities, including Jiangsu, Hubei, Shandong, Liaoning, Anhui, Henan, Jiangxi, Guangdong, Chongqing, Sichuan, Hebei and Fujian, and over 68 sales representatives who assist in managing our relationships with our existing distributors and developing future distributors. With relatively less intermediaries involved in distribution and sales compared to many other pharmaceutical companies in China, we are able to keep our selling cost lower than the industry average.
Research and Development
We devote substantial resources to the research and development of new products, which do not require additional approval from regulatory agencies unless the products are TCMPs. We have submitted 8 patent application and 4 invention patent applications with the State Intellectual Property Office of the PRC, all of which are under the substantive examination stage. All of these patents are preparation process patents, which do not involve new products.
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Our general R&D strategy was established to use advanced technology to revolutionize TCMP production and continue developing newly advanced and non-decocting TCMP/TCM products capable of meeting the highest quality standard.
The strategy includes a calculated system of studying aqueous extracting ratio and fingerprint or characteristic charts of components, quantization of bioactive compounds, quality control, stability, development of production process of TCMP products, and establishing a higher benchmark for advanced TCMP products in China.
In 2017, our R&D team found that electron beam (“e-beam”) processing could break down certain medicinal plant cells to create additional paths for components in the cells to be extracted into aqueous solution more easily. This processing significantly improved the bioavailability of some TCMP forms (such as pieces). Our research data on our Directly-Oral-TCMP and After-Soaking-Oral-TCMP indicated the total aqueous component and bioactive compound extracting ratios at 37±1oC (human body temperature) were increased by 15% through e-beam processing than through regular extraction processing; the finding has been included in our patent application for each product.
Our R&D team has received numerous national awards for its significant contribution in the TCMP field. Recently in the China Scientist Forum, we received three awards on the research and development of Directly-Oral TCMP and After-Soaking-Oral TCMP products: Innovation Award, Outstanding Contribution Award, Best R&D Article Award, and State High-tech Enterprise which further demonstrated that we maintain a national leading position in the research and development of Advanced TCMP.
We built a DNA Exam Laboratory which was approved by Jiangsu province Medical Product Administration (JSMPA) in October of 2019. The Laboratory has been granted to perform research and development (R&D) and quality control of TCM raw materials and TCMP products applying DNA testing technology.
We believe our R&D team holds a leading position in the R&D field of Advanced TCMP products based on our market analysis of our 11 Advanced TCMP. We will continue to sharpen our advantages and expect to develop new Advanced TCMP products in the foreseeable future.
Under the administration and regulation of the NMPA, a new TCMP product is subject to GMP requirements to comply with corresponding standards of Chinese Pharmacopeia (Version 2020) Parts I and Part IV before it can be sold commercially without clinic trai’ls and any additional approval from the NMPA. As of the date of this annual report, we have developed 7 Directly-Oral-TCMP and 10 After-Soaking-Oral-TCMP products which are commercially marketed all of those to pharmaceutical distributors/hospitals.
In December 2018, we reconstructed and assembled an 850-square-meter facility and received a “Food Manufacturing Certificate” issued by the local Food and Drug Administration, which granted the Company permission to produce TCMHS (TCM Homologous Supplements). The scope of production includes “substitute teas,” made of TCMHS plants, and “solid beverage” a kind of granule produced through extraction of TCMHS materials.
We extended our production facility for lyophilization processing, also known as freeze drying, and received a new Pharmaceutical Manufacturing Permit with a new production scope of lyphilization processing from Jiangsu Province MPA on June 1, 2021. This lypohilization processing allows us to utilize the lyophilization technology for production of our products, especially Directly-Oral-TCMPs and After-Soaking-Oral-TCMPs, which contain temperature-sensitive components.
The lyophilization process is freezing materials or products and then removing the frozen water by sublimation (so ice turns directly into vapor leaving out the liquid phase). After going through the lyophilization process, materials or products become e loose and fragile, as a result, remarkably improving their aqueous solubility. Also, this process can make materials or products dryer, which can extend our products’ shelf life. More importantly, it can keep the original ingredients materials or products under frozen-drying condition. Our Directly-Oral-TCMP, Luxuejing, which is made from fresh bloods of Cuerus nippon can enjoy such advantages provided by lyophilization process and have better quality.
As of the date of this annual report, we have successfully developed four solid beverage products.
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Intellectual Property
We emphasize the protection of intellectual property and have signed agreements with patent agents to assist us to file patent applications. We also have signed confidentiality agreements with every employee we have to protect our production design. We will submit an application for every technology, production design and research results to the Chinese national intellectual property department to get protection for our intellectual property. The beneficiary of all of our patent applications is “Taizhou Suxuantang.”
Under the Patent Law of the People’s Republic of China (Revised), the validity period of patent rights for an invention shall be 20 years, which shall commence from the date of application. Currently, we have the following 28 utility model and invention patents:
| Name | Patent Type | Patent Application No. |
Application Date | |||
| A chopping knife type medicine cutting machine for traditional Chinese medicine | Utility Model | CN202222093724.8 | 2022.08.10 | |||
| An automatic packaging machine for traditional Chinese medicine decoction pieces with flat sealing | Utility Model | CN202222669609.0 | 2022.10.11 | |||
| A continuous sealing machine for plastic film of traditional Chinese medicine decoction pieces | Utility Model | CN202222670077.2 | 2022.10.11 | |||
| A rapid liquid extraction device for traditional Chinese medicine | Utility Model | CN202222391943.4 | 2022.09.09 | |||
| A high-speed reciprocating medicine cutting machine for traditional Chinese medicine | Utility Model | CN202222391745.8 | 2022.09.09 | |||
| A powder packaging machine for traditional Chinese medicine | Utility Model | CN202222391578.7 | 2022.09.09 | |||
| A multi-stage residue treatment device for traditional Chinese medicine | Utility Model | CN202221746367.4 | 2022.07.08 | |||
| A liquid extraction device for Chinese herbal medicine | Utility Model | CN202222093718.2 | 2022.08.10 | |||
| A moisturizing machine for moisturizing traditional Chinese medicine | Utility Model | CN202221411988.7 | 2022.06.08 | |||
| A low-temperature drying and ozone sterilization cabinet for traditional Chinese medicine preservation | Utility Model | CN202221746470.9 | 2022.07.08 | |||
| A high-efficiency mixing device for refined traditional Chinese medicine decoction pieces | Utility Model | CN202021884165.7 | 2020.09.02 | |||
| A liquid extraction device for refined traditional Chinese medicine decoction pieces processing | Utility Model | CN202021814950.5 | 2020.08.27 | |||
| A cleaning device for traditional Chinese medicine decoction pieces | Utility Model | CN202021893061.2 | 2020.09.03 | |||
| A raw material crushing device for refined traditional Chinese medicine decoction pieces processing | Utility Model | CN202021791297.5 | 2020.08.25 | |||
| A grinding equipment for modern traditional Chinese medicine decoction pieces processing | Utility Model | CN202021802618.7 | 2020.08.26 | |||
| A raw material stirring device for refined traditional Chinese medicine decoction pieces processing | Utility Model | CN202021815137.X | 2020.08.27 | |||
| A pressing device for oral decoction pieces processing | Utility Model | CN202021793481.3 | 2020.08.25 | |||
| A sealed storage device for refined traditional Chinese medicine decoction pieces | Utility Model | CN202022150842.9 | 2020.09.27 | |||
| A post-processing device for refined decoction pieces with recyclable residue | Utility Model | CN202021815136.5 | 2020.08.27 | |||
| A canning device for refined decoction pieces processing | Utility Model | CN202021792405.0 | 2020.08.25 | |||
| A packaging device for refined decoction pieces processing | Utility Model | CN202021791301.8 | 2020.08.25 | |||
| A clamping device for oral decoction pieces processing | Utility Model | CN202021801747.4 | 2020.08.26 | |||
| A drying device for refined traditional Chinese medicine decoction pieces | Utility Model | CN202022150828.9 | 2020.09.27 | |||
| Dendrobium powder crushing method | Invention | CN201910946550.5 | 2019.10.06 | |||
| A grinding device for precious traditional Chinese medicine | Invention | CN201910364895.X | 2019.04.30 | |||
| A tablet grinding method | Invention | CN201810375362.7 | 2018.04.24 | |||
| A tubular film evaporator for pharmaceutical use | Invention | CN201810603332.7 | 2018.06.12 | |||
| A sowing device for traditional Chinese medicine planting | Invention | CN201910075080.X | 2019.01.25 |
We submitted five additional invention patent applications as follows:
| Name | Patent Type | Patent Application No. |
Application Date | |||
| A traditional chinese medicine roasting processing equipment | Utility Model | 202226702142 | 2022-10-11 | |||
| A soaking and cleaning machine for traditional chinese medicine | Utility Model | 202220936550 | 2022-08-10 | |||
| A rotary traditional chinese medicine beverage machine | Utility Model | 202217465078 | 2022-07-08 | |||
| A hot air circulating oven for use with traditional chinese medicine | Utility Model | 2022214119868 | 2022-06-08 | |||
| A flip-board dryer for use with traditional chinese medicine | Utility Model | 2022214122964 | 2022-06-08 |
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Environmental Matters
We comply with the Environmental Protection Law of China as well as applicable local regulations. In addition to statutory and regulatory compliance, we actively ensure the environmental sustainability of our operations. Penalties may be levied upon us if we fail to adhere to and maintain certain standards. Such failure has not occurred in the past, and we generally do not anticipate that it will occur in the future, but no assurance can be given in this regard.
Manufacturing
Regularly, raw materials used in the production of TCMP, primarily medicinal plants, first go through a purifying process, during which raw materials are selected, cut, rinsed and dried. Processed raw materials then go through a series of extraction processes that involve mixing with solvents, soaking, stewing, drying and grinding. Materials extracted from the plants are then processed into various dosage forms such as capsules, tablets, syrups, tinctures and granules. In the past, many steps in the manufacturing of TCMP were performed manually, with limited assistance from modern production equipment, which resulted in a lack of quality and dosage consistency; such manual processing also resulted in lengthy production cycles. We refined the traditional labor intensive manufacturing process to employ modern technology and production equipment to help us improve the quality of our products and to increase manufacturing yield. We use two unique manufacturing methods:
1. High-Energy Electron Beam Sterilization Method
E-beam processing or electron irradiation is a process that involves using beta radiation, usually of high energy, to treat an object for a variety of purposes. E-beam processing has the ability to break the chains of DNA in living organisms, such as bacteria, resulting in microbial death and rendering the space they inhabit sterile. E-beam processing has been used for the sterilization of medical products and aseptic packaging materials for foods as well as disinfestation, the elimination of live insects from grain, tobacco, and other unprocessed bulk crops.
Sterilization with electrons has significant advantages over current methods of sterilization. The process is quick, reliable, and compatible with most materials, and does not require any quarantine following the processing. For some materials and products that are sensitive to oxidative effects, radiation tolerance levels for electron beam irradiation may be slightly higher than for gamma exposure. This is due to the higher dose rates and shorter exposure times of e-beam irradiation that have been shown to reduce the degradative effects of oxygen.
Our research results on the sterilization of TCMP products revealed that certain high energy e-beam processing is a quick, efficient, reliable, non-degradable, and compatible sterilization method for most advanced TCMP products. Combining with the guideline on TCM irradiation sterilization released by NMPA on November 11, 2015, we use the e-beam processing for the sterilization of Directly-Oral TCMP and After-Soaking-Oral TCMP products. The e-beam processing is carried out at a certified and contracted company in Taizhou city of Jiangsu province in the PRC under our closed supervision. The technical method applied for the sterilization has been in our patent application for each product.
2. Dust-Sucking Thermostatic Pulverizing Technique
We also apply the dust sucking thermostatic pulverizing technique for the pulverization of various materials such as roots, barks, fruits, seeds, and leafs to produce the Fine and Advanced TCMP products. This technique allows raw materials to go through multiple filters and cleaning mechanisms to remove impurities.
Quality Control and Assurance
In China, each pharmaceutical manufacturer was required to comply with the GMP standards and to obtain Pharmaceutical Product Manufacturing Permits and GMP Certification granted by the NMPA of the PRC before it engages in any pharmaceutical manufacturing and distribution. GMP standards regulate whole processes and procedures in generating pharmaceutical products to ensure the quality in China. Those include strict Quality Control (“QC”) and Quality Assurance (“QA”).
China National People’s Congress promulgated a new Pharmaceutical Administration Law of PRC, and was effective as of December 1, 2019. NMPA is the new agency that replaced CFDA. The pharmaceutical GMP compliance-inspection replaced the “Pharmaceutical Certificate”. As a result, pharmaceutical manufacturers are required to obtain a “Pharmaceutical Manufacturing Permit” and pass pharmaceutical GMP compliance-inspection
Besides the strict pharmaceutical GMP requirements, TCMP manufacturers also need to obtain pharmaceutical product manufacturing permit specifically tailored to manufacturing of TCMP products.
We are GMP requirements-certified and have obtained a Pharmaceutical Manufacturing permit with the product manufacturing scopes covering all including specific types of TCMP. We have well-qualified and trained professional employees for manufacturing and quality control procedures. Our quality control starts with procurement and continues in our manufacturing, packaging, storage capabilities, and cost competitiveness to ensure that all of our products meet the requirements and are still profitable.
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Certificates and Permits
A pharmaceutical manufacturer, including a TCMP manufacturer, must obtain a Pharmaceutical Manufacturing Permit from the NMPA’s relevant provincial branch. This permit is valid for five years and is renewable for an additional five-year period upon its expiration. Our current Pharmaceutical Manufacturing Permit, issued by the NMPA, will expire on December 17, 2025. Generally, we will file a renewal request 3 months before the expiration date.
Good Manufacturing Practice. A pharmaceutical manufacturer must meet the GMP requirements and standards for each of its production facilities in China for each form of pharmaceutical product it produces. GMP requirements and standards include staff qualifications, production premises and facilities, equipment, raw materials, environmental hygiene, production management, quality control and customer complaint administration. If a manufacturer fails to meet the GMP requirements and standards in the NMPA non-scheduled compliance-inspection, it may be suspended the Pharmaceutical Manufacturing Permit by the NMPA.
Our manufacturing facility previously held a GMP Certificate, which was valid from August 5, 2019, to August 4, 2024. Following a change in government policy, regulatory authorities no longer issue new GMP Certificates and instead provide an inspection satisfactory notice upon verification of compliance. In April 2024, we underwent a GMP compliance inspection by the relevant government authority. As of the date of this annual report, we have received the inspection satisfactory notice and have not been notified of any revocation or suspension of this notice. Beside regular TCMP, fine TCMP, and Directly-oral TCMP, the high-Energy Electron Beam Sterilization Method utilized currently for our advanced TCMP products, and classification of After-Soaking-Oral TCMP had been also certified in the scope of production processing.
Competition
We compete with other top-tier pharmaceutical companies specialized in manufacturing TCM in China. Many of them entered into TCMP markets earlier than us, thus they are more established than we are and have significantly greater financial, technical, marketing and other resources than we presently possess. Some of our product competitors have greater name recognition and a larger customer base. Those competitors may be able to respond more quickly to new opportunities or market changes or customer requirements, and may be able to undertake more extensive promotional activities, offer more attractive terms to distributors, and adopt more aggressive pricing policies. Some of our competitors have also developed similar TCMP products that compete with ours.
Numerous competitors nationwide, including Kangmei, CTCM and Xiangxue, participate in the sale of Chinese medicinal herbs and TCMPs; among them are some high-profile and large-scale companies along with some companies that have huge production and storage capacity to influence the market price. Despite that, we believe we are well-positioned to compete in this fast-developing market with our well recognized Suxuangtang brand, diversified product portfolio, proven research and development and in-licensing capabilities, established sales and marketing network, management experience and favorable cost structure.
Our Competitive Advantages
We believe our principal competitive strengths are as follows:
Recognized Brand Name
“Suxuangtang” (苏轩堂), which has over 270 years of history, is a well-known TCM brand in China, especially in Eastern China. Because of its brand recognition, Suxuantang has received numerous awards from the local government such as the Jiangsu Taizhou Famous Product Award and Well-known Brand Trademark granted by the government of Taizhou city. To some, Suxuangtang is more than just a TCM brand; it is a symbol of tradition and culture, which Chinese customers value deeply. Suxuangtang is also widely recognized by the industry as one of the three most famous TCM brands; the other two are “Hui Chun Tang” (回春堂) and “Tong Ren Tang” (同仁堂). Suxuangtang is a household brand in Jiangsu province, having originated there and being well recognized in provinces nearby, such as Hubei, Shandong, Anhui, where our products have been widely used and their curative effects proven. Our Fine and Regular TCMP products have been in pharmaceutical markets such as hospitals and drug stores for decades, and received steady and consistent positive feedbacks from our customers. As a result, we believe the curative effects of our products have been firmly demonstrated.
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Ready to Use TCMPs
Unlike most TCMPs in the market that have to be prepared as decoction before use, our innovative Directly-Oral-TCMPs and After-Soaking-Oral-TCMPs can be easily dissolved or infused in hot water without requiring lengthy preparation. This feature sets us apart from our peers and makes our products more appealing to our customers.
Complete Permits to Produce Advanced TCMP Products
We have the Pharmaceutical Manufacturing Permit and pharmaceutical GMP Certificates, both the Permit and the Certificate with the scope of Directly-Oral-TCMP authorized by Jiangsu provincial MPA, to produce After-Soaking-Oral-TCMPs, Directly-Oral-TCMPs, Fine TCMPs and Regular TCMPs and there is no need to apply for additional permits from Jiangsu Food and Drug Commission in order to manufacture or sell our products. In China, TCMP companies are treated differently from other pharmaceutical companies manufacturing western drugs and TCPM. Both western drugs and TCPM are required to go through clinical trials and obtain clinical trial approval, whereas TCMP products have no such requirement. Once a TCM company obtains the Pharmaceutical Manufacturing Permit and GMP Certificate, it can begin manufacturing its products immediately. Currently, very few TCM companies in China have both the permit and the certificate with the scope required to produce TCMP, and Directly-Oral and After-Soaking-Oral products.
Strong Research and Development Capability
We believe that our research and development capabilities allow us to create innovative TCMP that fulfill our customers’ needs. Although all of our TCMP products are generic TCMP drugs and, these products are innovative in terms of their conventional administration. Our advance TCMPs come in the form of powders or sachets, which make oral administration easier for our customers. This improvement is significant because otherwise TCMP have to be prepared through decoction before use, which has proven to be both inconvenient and overly complex for customers. Our research and development team has demonstrated its success in use of the sophisticated research strategies and modern technologies to develop TCMP products with innovative features that lend us an edge over our major competitors. We have established a strong research and development team of 13 dedicated researchers as of March 31, 2025. Our R&D Team has successfully developed multiple modernized TCMPs, many of which have already been directly commercialized with our Pharmaceutical Manufacturing Permit, the Pharmaceutical GMP requirements and standards, and China Pharmacopoeia without the need for additional approvals or registrations by the regulatory authorities.
Experienced and accomplished leadership team with a proven track record.
We have an experienced management team. Almost all of our members, except our Co-CEO Mr. Feng Zhou, whose expertise is procurement, possess more than 10 years of pharmaceutical and related industry experience. We believe that our leadership team is well positioned to lead us through clinical development, regulatory approval and commercialization of our product candidates. Collectively, our management team has extensive experience in the research and development, manufacture, commercialization, and in-licensing and acquisition of companies in China’s TCM industry. Experienced in managing fast-growing enterprises, our entrepreneurial management team takes the initiative to adapt our business strategies to market, industry and therapeutic trends. Our management team has successfully established a deep product pipeline, and built an integrated research and development, production, and sales and marketing infrastructure. Our success in existing product development and branding reflects the significant experience that members of our management team have in their respective fields of expertise and their in-depth knowledge of the regulatory framework in China.
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Our Growth Strength
The key elements of our strategy to grow our business include:
Promoting Our Existing Brands to Increase Our National Recognition. Although “Suxuantang” is a brand (“苏轩堂”) with a solid reputation in Eastern China, particularly Jiangsu Province, our national reach is relatively limited. In order to become a national brand, we intend to support and grow the existing recognition and reputation of our over 270-year old brand “Suxuantang” and maintain our branded pricing strategy through continued sales and marketing efforts, as well as our newly upgraded GMP-compliant production lines. To achieve this goal, we plan to promote the efficacy and safety profiles of all of our Advanced TCMP products to physicians at hospitals and clinics through our sales force, independent distributors and educational physician conferences and seminars. Under the current pharmaceutical regulations in China, TCMP manufacturers are not required to obtain approval from any regulatory authority in order to claim the efficacy and safety of TCMP products, since the efficacy and safety of such products are specifically indicated in “China Pharmacopeia”. China Pharmacopoeia provides state pharmaceutical standards and quality control requirements in China. There are currently 618 TCMP raw materials and their related products exclusively listed in China Pharmacopoeia Part I (version 2020). China Pharmacopeia offers guidance related to each TCMP raw material such as its origin, characteristics, properties, identification, quantitation (assay), indication (action), preparation processing, administration and dosage, storage, and side effects. Each TCMP manufacturer is required by law to follow the guidance set forth in the China Pharmacopoeia. China Pharmacopoeia Part I also stipulates the national standard for TCMP products regarding their efficacy and safety. We intend to promote and advertise the efficacy and safety profiles of all of our Advanced TCMP products by educating the physicians who might not be familiar with the China Pharmacopoeia.
Developing and Introducing Additional Products to Expand or Strengthen Our Existing Product Portfolio. We plan to focus on our development capabilities towards expanding our existing portfolio, including our TCMHS products. In addition, we are constantly in the process of developing new types of Advanced TCMP products. We are introducing new products at a steady pace to further strengthen our branded market leadership position in Directly-Oral and After-Soaking-Oral-TCMPs.
Expanding Our Distribution Network to Increase Market Penetration. We intend to expand our reach in the PRC to drive additional growth in our existing and future products. We currently contract with over 102 distributors in the PRC and plan to expand on these relationships to target new markets. We plan to continue to broaden our marketing efforts outside of major cities in the PRC and to increase our market penetration in cities and rural areas where we already have a growing presence. Over the long term, we intend to expand our presence beyond the PRC to international markets by partnering with international pharmaceutical companies in cross-selling our products.
Employees
As of March 31, 2025, we had a total of 75 full-time employees and no part-time employee. The following table sets forth the breakdown of our employees as of March 31, 2025 by function:
| Number of Employees | % of Total | |||||||
| Function | ||||||||
| Technology and Development | 13 | 18 | % | |||||
| Operations, Sales and Marketing | 9 | 12 | % | |||||
| Product Development | 31 | 41 | % | |||||
| General and Administrative | 22 | 29 | % | |||||
| Total | 75 | 100 | % | |||||
As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. As of the date of this annual report, we have made adequate employee benefit payments. However, if we were found by the relevant authorities that we failed to make adequate payment, we may be required to make up the contributions for these plans as well as to pay late fees and fines.
We enter into standard labor and confidentiality agreements with our employees. We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes.
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Insurance
We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees. We do not maintain business interruption insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man insurance. We consider our insurance coverage to be sufficient for our business operations in China.
Legal Proceedings
We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
Regulations
This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.
Overview
We operate our business in China under a legal regime consisting of the National People’s Congress, which is the country’s highest legislative body, the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority, including the Ministry of Industry and Information Technology, State Administration for Industry and Commerce (“SAIC”) and their respective local offices.
In China, unlike western medicine which is required to go through clinical trials and complex approval process before commercial launch, Chinese Traditional Medicine, including TCMP, is subject to a completely different regulatory system in terms of approval, quality control and development process because it is currently impossible to test the effects of TCMP clinically. TCMP utilizes various herbs as its ingredients, which are natural products and their chemical composition varies and complicates. Given that the drug effect on each person can vary significantly, there is a lack of common scientific standards and appropriate clinical methods for evaluating TCMP to ensure its safety, efficacy. In addition, TCMP has a very long history and it originated from the sum total of the practices based on different TCM practitioners’ theories, beliefs and experiences, which are often inexplicable.
The regulatory system, known as the “Traditional Chinese Medicine Pieces System.” provides sole guidance on TCMP production in the following aspects:
The production of TCMP must comply with the “Pharmaceutical Administration Law of PRC (2019 Revision)”, “GMP for drugs”, and “GSP for drugs”. Companies manufacturing and selling TCMP products must have the License: “Pharmaceutical Manufacturing Permit” and “TCM an approval throughout GMP compliance-inspection”. TCMP production companies that met both of the License Requirements within the scope of production and approval throughout GMP compliance-inspection will not be required to obtain NMPA (in lieu of CFDA effective on December 1, 2019) or local MPA approval before manufacturing their TCMP products and TCMP products are categorically exempted from being tested clinically because the effect of TCMP products are impossible to be tested clinically. As a result, TCMP products do not have the NMPA approval registration number, which is typically found in western medicine products.
TCMP also needs to follow national drug reference standard codified in Pharmacopoeia of the PRC (“Guidance”). The Guidance supplies critical information to TCMP manufacturers regarding origin of ingredients, description, identification, processing, assay, property and flavor, meridian tropism, actions, indications, administration and dosage, precautions and warnings and storage.
Besides general GMP for drugs, the production of TCMP also needs to follow the GMP specifically tailored for TCMP, which can be found as annex attached to NMPA regulations.
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Regulations Relating to Pharmaceutical Industry.
The pharmaceutical industry in China is highly regulated. The primary regulatory authority is the NMPA, including its provincial and local branches. As a developer and producer of medicinal products, we are subject to regulation and oversight by the NMPA and its provincial and local branches. The Law of the PRC on the Administration of Pharmaceuticals provides the basic legal framework for the administration of the production and sale of pharmaceuticals in China and covers the manufacturing, distribution, packaging, pricing and advertising of pharmaceutical products. These regulations set forth detailed rules with respect to the administration of pharmaceuticals in China. We are also subject to other PRC laws and regulations that are applicable to business operators, manufacturers and distributors in general.
Registration and Approval of Medicine.
Pursuant to the PRC Provisions for Drug Registration, a medicine must be registered and approved by the NMPA before it can be manufactured and sold. The registration and approval process require the manufacturer to submit to the NMPA a registration application containing detailed information concerning the efficacy and quality of the medicine and the manufacturing process and the production facilities the manufacturer expects to use. This process generally takes two to five years and could be longer, depending on the nature of the medicine under review, the quality of the data provided and the workload of the NMPA. If a manufacturer chooses to manufacture a pre-clinical medicine, it is also required to conduct pre-clinical trials, apply to the NMPA for permission to conduct clinical trials and go through the clinical trials. If a manufacturer chooses to manufacture a post-clinical medicine, it only needs to go through the clinical trials. In both cases, a manufacturer needs to file clinical data with the NMPA for approval for manufacturing after clinical trials are completed.
New Medicine. If the NMPA approves a medicine production, it will issue a new approval after pharmaceutical GMP inspections conducted by NMPA or local MPA. During the monitoring period of pharmaceutical GMP compliance, the NMPA will monitor the safety of the new medicine, and will neither accept the compliance for an identical medicine by another pharmaceutical company, nor approve the production or import of an identical medicine by other pharmaceutical companies. As a result of these new regulations, keeping the compliance with pharmaceutical GMP requirements has the exclusive right to manufacture the new medicine during the monitoring period.
National Production Standard and Provisional Standard. In connection with the NMPA’s approval of a new medicine, the NMPA will normally direct the manufacturer to produce the medicine according to a provisional national production standard, or a provisional standard. A provisional standard is valid for two years, during which time the NMPA closely monitors the production process and quality consistency of the medicine to develop a national final production standard for the medicine, or a final standard. Three months before the expiration of the two-year period, the manufacturer is required to apply to the NMPA to convert the provisional standard to a final standard. Upon approval, the NMPA will publish the final standard for the production of this medicine. There is no statutory timeline for the NMPA to complete its review and grant approval for the conversion. In practice, the approval for conversion to a final standard is time-consuming and could take a number of years. However, during the NMPA’s review period, the manufacturer may continue to produce the medicine according to the provisional standard.
Transitional Period. Prior to the latter of (1) the expiration of a new medicine’s monitoring period or (2) the date when the NMPA grants a final standard for a new medicine after the expiration of the provisional standard, the NMPA will not accept applications for an identical medicine nor will it approve the production of an identical medicine by other pharmaceutical companies. Accordingly, the manufacturer will continue to have an exclusive production right for the new medicine during this transitional period.
All TCMP (not TCPM) products as medicine are administrated separately by NMPA. Without clinical trial application, the TCMP medicines are registered and approved by the NMPA based on manufacturer’s Pharmaceutical Manufacturing Permit before they can be manufactured and sold. A TCMP manufacturer manufactures only the TCMP products of scope approved by NMPA described on both Pharmaceutical Manufacturing Permit and GMP requirements and standards. For example, Directly-Oral-TCMP products are not subjected to manufacture without the directly oral TCMP term appeared on the Permit. The TCMP production and quality standard must comply with corresponding TCM and sections on the Pharmacopeia of the PRC.
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Continuing NMPA Regulation
Pharmaceutical manufacturers in China are subject to continuing regulation by the NMPA. If the labeling or its manufacturing process of an approved medicine is significantly modified, a new pre-market approval or pre-market approval supplement will be required by the NMPA. A pharmaceutical manufacturer is subject to periodic inspection and safety monitoring by the NMPA to determine compliance with regulatory requirements.
The NMPA has a variety of enforcement actions available to enforce its regulations and rules, including fines and injunctions, recall or seizure of products, the imposition of operating restrictions, partial suspension or complete shutdown of production and criminal prosecution.
Pharmaceutical Product Manufacturing
A pharmaceutical manufacturer must obtain a Pharmaceutical Manufacturing Permit from the NMPA’s relevant provincial branch. This permit is valid for five years and is renewable for an additional five-year period upon its expiration. Our current Pharmaceutical Manufacturing Permit, issued by the NMPA, will expire on December 17, 2025.
A pharmaceutical manufacturer must meet the Pharmaceutical Good Manufacturing Practice (current 2010 version) standards, or GMP standards, for each of its production facilities in China in respect of each form of pharmaceutical product it produces. GMP standards include staff qualifications, production premises and facilities, equipment, raw materials, environmental hygiene, production management, quality control and customer complaint administration.
China National People’s Congress promulgated a new revision “Pharmaceutical Administration Law of PRC (2019 Revision), and was effective as of December 1, 2019. NMPA is the new agency that replaced CFDA. The pharmaceutical GMP inspection without notification has replaced the “Pharmaceutical GMP Certificate”. As a result, pharmaceutical manufacturers are required to obtain a valid “Pharmaceutical Manufacturing Permit”.
Pharmaceutical products packages.
Pharmaceutical products packages must, in accordance with the regulations, be labeled and have an instruction booklet attached. The name of the drug, its ingredients, specifications, the manufacturing enterprise, approval number, product batch number, date of production, expiry date, suitability for symptoms or main function, methods of use, dosage, contraindications, side-effects and points to note must be clearly indicated on the label or in the instruction booklet. The labels of narcotic drugs, psychotropic drugs, poisonous drugs, radioactive drugs, drugs for external use only and non-prescription drugs must bear the prescribed mark.
Regulations relating to Price Control
The laws of the PRC provide for the government to fix and adjust prices. The prices of certain TCMP products we distribute, including those listed in the Chinese government’s catalogue of medications that are reimbursable under the PRC’s social insurance program, or the Insurance Catalogue, are subject to control by the relevant state or provincial price administration authorities. The PRC establishes price levels for products based on market conditions, average industry cost, supply and demand and social responsibility. In practice, price control with respect to these medicines sets a ceiling on their retail price. The actual price of such medicines set by manufacturers, wholesalers and retailers cannot historically exceed the price ceiling imposed by applicable government price control regulations.
We have one product not listed on national Medicare Insurance Catalogue, which are Directly-Oral products LuXueJing (which is listed on Medicare Insurance Catalogue of Jiangsu and Guangzhou provinces). The revenue attributable to LuXueJing were $481,431 (RMB 3,298,573), $900,701 (RMB 6,455,411), and $259,184 (RMB 1,870,351) for the years ended March 31, 2023, 2024 and 2025, respectively.
Packaging materials and containers selected for production of all TCMP shall accommodate to drug property. No TCMP whose package fails to conform to regulations may be marketed. A label shall be printed on or attached to the package of TCMP. On the label of TCMP shall be indicated the name of the drug, grade/weight, origin of production, manufacturer, product batch number and production date; if the said TCMP is controlled by an approval number, the number shall also be indicated.
Currently, all of our marketed products meet the packaging requirements.
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Microbial limitation standards on Chinese medicine extraction and TCMP.
Chinese medicine extraction - The total number of aerobic organisms shall not exceed 10³ cfu/g or cfu/ml. The total number of molds and yeasts in Chinese medicine extraction shall not exceed 10² cfu/g or cfu/ml. There are no standard regulations regarding control microbes.
Powdered, liquid, Directly-Oral-TCMP and After-Soaking-Oral-TCMP - Their regulations and standards are complied with the description on the GMP certificate and China Pharmacopeia Parts I and IV, including relation to the limitation of the total number of permitted aerobic organisms, molds and yeasts. However, for every 10 grams of powdered Directly-Oral-TCMP and After-Soaking-Oral-TCMP, shall be no Salmonella bacteria detectable. Any other bile salt resistant organisms shall not exceed 104 cfu (1g). We are in full compliance with these microbial limitation standards.
National Drug Reference Standard.
Our TCMP products must also satisfy national drug reference standard. In China, companies manufacturing TCMP products must follow a specific guidance known as the “Pharmacopoeia of the People’s Republic of China” (“Guidance”) and relevant standards promulgated by the drug control and administrative department of the State Council. This Guidance (Latest Version 2020) became effective on December 31, 2020 and it has been codified into state law with the purpose of providing clear guidance on TCMP manufacturing process. The Guidance shall apply to all aspects of TCMP manufacturing process including the research and development, production (import), management, use and supervision of TCMP. It provides standard language that can be used by TCMP companies to draft description, identification, processing, assay, property and flavor, meridian tropism, actions, indications, storage, administration and dosage, precautions and warnings of TCMP products.
C. Organizational Structure Chart
The following diagram illustrates our corporate structure, including our subsidiaries and consolidated affiliated entities, as of the date of this annual report:
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Contractual Arrangements between WFOE and Taizhou Suxuantang
Due to PRC legal restrictions on foreign ownership in the pharmaceutical sector, neither we nor our subsidiaries own any equity interest in Taizhou Suxuantang. Neither we nor our subsidiaries own any share in Taizhou Suxuantang. Instead, WFOE, Taizhou Suxuantang and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, pursuant to which, we are regarded as the primary beneficiary of Taizhou Suxuantang for accounting purpose, and, therefore, we are able to consolidate the financial results of Taizhou Suxuantang in our consolidated financial statements in accordance with U.S. GAAP.
According to the Exclusive Business Cooperation Agreement between WFOE and Taizhou Suxuantang, which is one of the VIE Agreements that was also entered into on October 13, 2017, Taizhou Suxuantang is obligated to pay service fees to WFOE approximately equal to the net income of Taizhou Suxuantang.
Each of the VIE Agreements is described in detail below:
Exclusive Business Cooperation Agreement
Pursuant to the Exclusive Business Cooperation Agreement between Taizhou Suxuantang and WFOE, WFOE provides Taizhou Suxuantang with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, Taizhou Suxuantang granted an irrevocable and exclusive option to WFOE to purchase from Taizhou Suxuantang, any or all of Taizhou Suxuantang’s assets at the lowest purchase price permitted under the PRC laws. Should WFOE exercise such option, the parties shall enter into a separate asset transfer or similar agreement. For services rendered to Taizhou Suxuantang by WFOE under this agreement, WFOE is entitled to collect a service fee each month determined by the parties through negotiation after considering: complexity and difficulty of the services provided by WFOE; title of and time consumed by employees of WFOE providing the services; contents and value of the services provided by WFOE; market price of the same type of services; and operation conditions of Taizhou Suxuantang.
The Exclusive Business Cooperation Agreement shall remain in effect unless it is terminated by WFOE for Taizhou Suxuantang’s material breach of this Agreement. Taizhou Suxuantang does not have the right to terminate the Agreement unilaterally.
WFOE has absolute authority relating to the management of Taizhou Suxuantang, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operational functions. The Exclusive Business Cooperation Agreement does not prohibit related party transactions. However, since establishment of the Company’s audit committee at the consummation of our initial public offering, the audit committee has been required to review and approve in advance any related party transactions, including transactions involving WFOE or Taizhou Suxuantang.
Share Pledge Agreement
Under the Share Pledge Agreement among WFOE and Feng Zhou, Ziqun Zhou, and Di Zhou, who together hold 100% shares of Taizhou Suxuantang (“Taizhou Suxuantang Shareholders”), the Taizhou Suxuantang Shareholders pledged all of their equity interests in Taizhou Suxuantang to WFOE to guarantee the performance of Taizhou Suxuantang’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the agreement, in the event that Taizhou Suxuantang or its shareholders breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. Taizhou Suxuantang Shareholders also agreed that upon occurrence of any event of default, as set forth in the Share Pledge Agreement, WFOE is entitled to dispose of the pledged equity interest in accordance with applicable PRC laws. The Taizhou Suxuantang Shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest.
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The Share Pledge Agreement shall be effective upon execution. Taizhou Suxuantang does not have the right to terminate the Share Pledge Agreement. Only WFOE has right to terminate the Share Pledge Agreement. According to the Share Pledge Agreement, upon fulfillment of all the obligations under the Agreement and full payment under the VIE Agreements by Taizhou Suxuantang and its shareholders, WFOE may release Taizhou Suxuantang from its obligations under the Share Pledge Agreement. WFOE may terminate the Share Pledge Agreement when the Company disposes Taizhou Suxuantang by terminating all the VIE Agreements or when WFOE decides to purchase the equity interest in Taizhou Suxuantang from its shareholders pursuant to the Exclusive Option Agreement and terminates all the VIE Agreements in the event the PRC laws allow foreign ownership in the pharmaceutical sector. In case the Company, upon obtaining its shareholders approval, if required, disposes Taizhou Suxuantang by terminating the VIE Agreements, such termination will have significant effect on the Company. In the event WFOE purchases the equity interests in Taizhou Suxuantang when foreign ownership in pharmaceutical sector is permitted, termination of the VIE Agreements shall not have significant effect to the Company as the Company will control Taizhou Suxuantang through equity ownership.
Pursuant to the Power of Attorney, WFOE is authorized to act on behalf the Taizhou Suxuantang shareholders as their exclusive agent and attorney with respect to all rights as shareholders, including having Taizhou Suxuantang to make required payment under the Share Pledge Agreement.
The purposes of the Share Pledge Agreement are to (1) guarantee the performance of Taizhou Suxuantang’s obligations under the Exclusive Business Cooperation Agreement, (2) make sure the shareholders of Taizhou Suxuantang shall not transfer or assign the pledged equity interest, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior written consent and (3) provide WFOE control over Taizhou Suxuantang. Under the Exclusive Option Agreement (described below), WFOE may exercise its option to acquire the equity interests in Taizhou Suxuantang any time to the extent permitted by the PRC Law. In the event Taizhou Suxuantang breaches its contractual obligations under the Exclusive Business Cooperation Agreement, WFOE will be entitled to foreclose on the Taizhou Suxuantang Shareholders’ equity interests in Taizhou Suxuantang and may (1) exercise its option to purchase or designate third parties to purchase part or all of their equity interests in Taizhou Suxuantang and in this situation, WFOE may terminate the VIE agreements after acquisition of all equity interests in Taizhou Suxuantang or form a new VIE structure with the third parties designated by WFOE; or (2) dispose the pledged equity interests and be paid in priority out of the proceeds from the disposal in which case the VIE structure will be terminated.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the Taizhou Suxuantang Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in Taizhou Suxuantang at the exercise price of RMB10.00.
Under the Exclusive Option Agreement, WFOE may at any time under any circumstances, purchase, or have its designated person to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholders’ equity interests in Taizhou Suxuantang.
This Agreement shall remain effective until all equity interests held by Taizhou Suxuantang Shareholders in Taizhou Suxuantang have been transferred or assigned to WFOE and/or any other person designated by WFOE in accordance with this Agreement.
Power of Attorney
Under the Power of Attorney, the Taizhou Suxuantang Shareholders authorize WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Taizhou Suxuantang.
Although it is not explicitly stipulated in the Power of Attorney, the term of the Power of Attorney shall be the same as the term of that of the Exclusive Option Agreement.
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This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid for each shareholder from the date it is executed until the date he/she no longer is a shareholder of Taizhou Suxuantang.
The Exclusive Option Agreement, together with the Share Pledge Agreement and the Power of Attorney enable WFOE to exercise effective control over Taizhou Suxuantang.
D. Property, plants and equipment
Facilities
We currently have the following GMP-certified facilities located in Taizhou city of Jiangsu province in China: approximately 1,200 square meters for Regular TCMP production, 450 square meters for Fine TCMP production, 240 square meters for Directly-Oral TCMP and After-Soaking-Oral TCMP production, 250 square meters for TCMP raw materials sterilization facility, 450 square meters for quality control, and research& development centers, and a total of 1,100 square meters for storage.
We have started expanding a production base to increase production capacity to meet rapidly growing demand for TCMPs since October 2017, which covers a total of 33,300 square meter land.
Description of Property
We have leased properties set forth in the table below.
| Address | Size(m²) | Leased/Owned/Granted | Function | |||||||||
| 1. | No. 178 Taidongbei Rd., Taizhou, Jiangsu, China | 2,028 | Leased | |||||||||
| 2. | No. 178 Taidongbei Rd., Taizhou, Jiangsu, China | 900 | Leased | |||||||||
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our results of operations and financial condition should be read together with our consolidated financial statements and the notes thereto and other financial information, which are included elsewhere in this Form 20-F. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In addition, our financial statements and the financial information included in this Form 20-F reflect our organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods.
This section contains forward-looking statements. These forward-looking statements are subject to various factors, risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Further, as a result of these factors, risks and uncertainties, the forward-looking events may not occur. Relevant factors, risks and uncertainties include, but are not limited to, those discussed in the section entitled “Business,” “Risk Factors” and elsewhere in this Form 20-F. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s beliefs and opinions as of the date of this annual report on Form 20-F. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new Information, future events or otherwise. See “Forward-Looking Statements”.
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Key Factors Affecting Our Results of Operation
We are an offshore holding company incorporated in British Virgin Islands and we conduct all of our business through our subsidiaries and the consolidated variable interest entity, Taizhou Suxuantang, in China. Neither we nor our subsidiaries own any share in Taizhou Suxuantang. Instead, WFOE, Taizhou Suxuantang and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, pursuant to which, we are regarded as the primary beneficiary of Taizhou Suxuantang for accounting purpose, and, therefore, we are able to consolidate the financial results of Taizhou Suxuantang in our consolidated financial statements in accordance with U.S. GAAP.
Our past operating results are not an accurate indication of the lines of business we are principally engaged in currently. Thus, you should consider our future prospects in light of the risks and uncertainties experienced by early-stage companies in evolving markets rather than typical companies of our age. Some of these risks and uncertainties relate to our ability to:
| ● | attract additional customers and increased spending per customer; |
| ● | increase awareness of our brand and develop customer loyalty; |
| ● | respond to competitive market conditions; |
| ● | respond to changes in our regulatory environment; |
| ● | manage risks associated with intellectual property rights; |
| ● | maintain effective control of our costs and expenses; |
| ● | raise sufficient capital to sustain and expand our business; |
| ● | attract, retain and motivate qualified personnel; and |
| ● | upgrade our technology to support additional research and development of new products. |
Results of Operations for the Year Ended March 31, 2025 Compared to the Year Ended March 31, 2024
| For the Years Ended March 31, | Change | |||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||
| Revenues | $ | 1,740,907 | $ | 1,928,497 | $ | (187,590 | ) | (10 | ) | |||||||
| Cost of revenues | (1,373,480 | ) | (1,374,526 | ) | 1,046 | (0 | ) | |||||||||
| Gross profit | 367,427 | 553,971 | (186,544 | ) | (34 | ) | ||||||||||
| Selling and marketing expenses | (289,859 | ) | (433,566 | ) | 143,707 | (33 | ) | |||||||||
| General and administrative expenses | (2,758,047 | ) | (2,635,622 | ) | (122,425 | ) | 5 | |||||||||
| Total operating expenses | (3,047,906 | ) | (3,069,188 | ) | 21,282 | (1 | ) | |||||||||
| Loss from operations | (2,680,479 | ) | (2,515,217 | ) | (165,262 | ) | 7 | |||||||||
| Interest expense, net | (648,221 | ) | (544,279 | ) | (103,942 | ) | 19 | |||||||||
| Other (expenses) income, net | 25,048 | (39,036 | ) | 64,084 | (164 | ) | ||||||||||
| Total other expenses, net | (623,173 | ) | (583,315 | ) | (39,858 | ) | 7 | |||||||||
| Loss before income taxes expense | (3,303,652 | ) | (3,098,532 | ) | (205,120 | ) | 7 | |||||||||
| Income tax expenses | - | - | - | - | ||||||||||||
| Net Loss | $ | (3,303,652 | ) | $ | (3,098,532 | ) | $ | (205,120 | ) | 7 | ||||||
50
Revenues
We generated revenues primarily from manufacture and sales of the following products: three types of TCMP products, consisting of Advanced TCMP, Fine TCMP and Regular TCMP, and raw medicinal materials and others. As compared with the year ended March 31, 2024, our total revenues decreased by $187,590, or 10%, for the year ended March 31, 2025.
The following table sets forth the breakdown of revenues by revenue source for each period presented:
| For the Years Ended March 31, | Change | |||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||
| Advanced TCMP | $ | 258,416 | 946,015 | $ | (687,599 | ) | (73 | ) | ||||||||
| Regular TCMP | 1,442,466 | 945,000 | 497,466 | 53 | ||||||||||||
| Others | 40,025 | 37,482 | 2,543 | 7 | ||||||||||||
| Total revenues | $ | 1,740,907 | $ | 1,928,497 | $ | (187,590 | ) | (10 | ) | |||||||
Advanced TCMP
Advanced TCMP is comprised of seven Directly-Oral-TCMP products and four After-Soaking-Oral-TCMP products. Both Directly Oral TCMP and After-soaking-oral TCMP are new types of Advanced TCMP.
Revenue from Advanced TCMP accounted for 15% and 49% of the revenue recognized during the years ended March 31, 2025 and 2024, respectively. As compared with the year ended March 31, 2024, our revenue from Advanced TCMP decreased by $687,599, or 73%, for the year ended March 31, 2025. The decrease was primarily the decreased market demand for our Regular TCMP.
Regular TCMP
We currently manufacture 200 Regular TCMP products listed on China Pharmacopoeia (version 2020) Parts I and IV for hospitals and drug stores in treatment of various diseases or serving as dietary supplements.
Revenue from Regular TCMP accounted for 83% and 49% of the revenue recognized during the years ended March 31, 2025 and 2024, respectively. Revenue from Regular TCMP 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, 2024. The increase in revenue from Regular TCMP products is due to the increased market demand for our Regular TCMP during the year ended March 31, 2025.
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Others
For the years ended March 31, 2025 and 2024, we also generated revenue of $40,025 and $37,482, which represented 2% and 2% of our total revenue, respectively. or 7% For the year ended March 31, 2025, the Company generated of $38,264 from sales of a new health beverage product launched in 2024. For the year ended March 31, 2024, the Company generated of $24,166 from sales of raw medicinal materials.
Cost of Revenues
Cost of revenues primarily includes cost of materials, direct labors, overhead, and other related incidental expenses that are directly attributable to the Company’s principal 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 for the year ended March 31, 2024.
Gross Profit
Gross profit decreased by $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% for 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 to the following reasons: (i) the sales in our Advanced TCMP products decreased significantly for the year ended March 31, 2025 compared to the year ended March 31, 2024, and Advanced TCMP products have relatively high margin; (ii) the sales of Regular TCMP products, which have low margin, accounted for higher portion of our total revenue for the year ended March 31, 2025 compared to the year ended March 31, 2024.
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of sales staff payroll and welfare expenses, travelling expenses, market development and advertising fees, distribution and promotion expenses. The selling and marketing expenses increased from $433,566 for the year ended March 31, 2024 to $289,859 for the year ended March 31, 2025, representing an decrease of $143,707, or 33%. The decrease in selling and marketing expenses was mainly due 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 March 31, 2025.
General and Administrative Expenses
General and administrative expenses primarily consisted of staff payroll and welfare expenses, research and development expenses, professional fees, entertainment expenses, travelling expenses, depreciation and amortization expenses for administrative purposes, office supply expenses, credit loss provision and impairment expenses. General and administrative expenses of $2,758,047 for the year ended March 31, 2025 mainly consisted of payroll expenses of $273,580, professional fees of $643,053, credit loss for accounts receivable of $361,623 and impairment loss for long-term deposit of $1,006,052. General and administrative expenses of $2,635,622 for the year ended March 31, 2024 mainly consisted of payroll expenses of $828,341, professional fees of $617,365, credit loss for accounts receivable of $283,234, and impairment expense for property, plant and equipment of $422,924.
For the year ended March 31, 2025, general and administrative expenses increased $122,425, or 5%, compared to the year ended March 31, 2024. The increase in our general and administrative expenses is mainly due to the following reasons: (i) credit loss for accounts receivable increased during the 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 during the year ended March 31, 2025.
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Other Income (Expenses), Net
Interest expenses, net for the year ended March 31, 2024 mainly consisted of accretion of finance cost and interest expense related to the Convertible Note we issued on December 19, 2022, December 13, 2023, March 27, 2024, May 9, 2024 and October 10, March 2024, and interest expenses from our borrowings from banks and various individuals. For the year ended March 31, 2025, we recorded amortization of issuance cost and debt discount of $520,787 and interest expenses of $106,238 for the Convertible Notes. For the year ended March 31, 2025, we recorded interest expenses of $21,688 for the other borrowings from banks and individuals.
Interest expenses, net for the year ended March 31, 2024 mainly consisted of accretion of finance cost and interest expense related to the Convertible Note we issued on December 19, 2022, March 7, 2023, December 13, 2023 and March 27, 2024, and interest expenses from our borrowings from banks and various individuals. For the year ended March 31, 2024, we recorded amortization of issuance cost and debt discount of $292,771 and interest expenses of $231,583 for the Convertible Notes. For the year ended March 31, 2024, we recorded interest expenses of $29,022 for the other borrowings from banks and individuals.
Other expenses for the year ended March 31, 2025 mainly consisted of other non-operating income of $193,639 and other non-operating expenses of $166,628. Other expenses for the year ended March 31, 2024 mainly consisted of other non-operating income of $53,853 and other non-operating expenses of $109,740.
Income Tax Expenses
Income tax expenses represented current and deferred income tax expenses derived from income before taxes generated by Suxuantang, the variable interest entity of the Company. Current income tax expenses for the years ended March 31, 2025 and 2024 were Nil and Nil, respectively. Deferred income tax expenses for the years ended March 31, 2025 and 2024 were Nil and Nil, respectively.
Net Loss
As a result of the foregoing, net 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, for the year ended March 31, 2024. The increase in net loss was mainly due to the increase in general and administrative expenses.
Results of Operations for the Year Ended March 31, 2024 Compared to the Year Ended March 31, 2023
| For the Years Ended March 31, | Change | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Revenues | $ | 1,928,497 | $ | 1,971,679 | $ | (43,182 | ) | (2 | ) | |||||||
| Cost of revenues | (1,374,526 | ) | (1,545,408 | ) | 170,882 | (11 | ) | |||||||||
| Gross profit | 553,971 | 426,271 | 127,700 | 30 | ||||||||||||
| Selling and marketing expenses | (433,566 | ) | (387,452 | ) | (46,114 | ) | 12 | |||||||||
| General and administrative expenses | (2,635,622 | ) | (5,646,328 | ) | 3,010,706 | (53 | ) | |||||||||
| Total operating expenses | (3,069,188 | ) | (6,033,780 | ) | 2,964,592 | (49 | ) | |||||||||
| Loss from operations | (2,515,217 | ) | (5,607,509 | ) | 3,092,292 | (55 | ) | |||||||||
| Interest expense, net | (544,279 | ) | (476,776 | ) | (67,503 | ) | 14 | |||||||||
| Other income (expenses), net | (39,036 | ) | 149,513 | (188,549 | ) | (126 | ) | |||||||||
| Total other expenses, net | (583,315 | ) | (327,263 | ) | (256,052 | ) | 78 | |||||||||
| Loss before income taxes expense | (3,098,532 | ) | (5,934,772 | ) | 2,836,240 | (48 | ) | |||||||||
| Income tax expenses | - | - | - | - | ||||||||||||
| Net Loss | $ | (3,098,532 | ) | $ | (5,934,772 | ) | $ | 2,836,240 | (48 | ) | ||||||
53
Revenues
We generated revenues primarily from manufacture and sales of the following products: three types of TCMP products, consisting of Advanced TCMP, Fine TCMP and Regular TCMP, and raw medicinal materials and others. As compared with the year ended March 31, 2023, our total revenues decreased slightly by $43,182, or 2%, for the year ended March 31, 2024.
The following table sets forth the breakdown of revenues by revenue source for each period presented:
| For the Years Ended March 31, | Change | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Advanced TCMP | $ | 946,015 | 656,942 | $ | 289,073 | 44 | ||||||||||
| Fine TCMP | 166 | 114,794 | (114,628 | ) | (100 | ) | ||||||||||
| Regular TCMP | 945,000 | 697,518 | 247,482 | 35 | ||||||||||||
| Raw medicinal materials | 24,166 | 502,425 | (478, 259) | (95 | ) | |||||||||||
| Others | 13,150 | - | 13,150 | 100 | ||||||||||||
| Total revenues | $ | 1,928,497 | $ | 1,971,679 | $ | (43,182 | ) | (2 | ) | |||||||
Advanced TCMP
Advanced TCMP is comprised of seven Directly-Oral-TCMP products and four After-Soaking-Oral-TCMP products. Both Directly Oral TCMP and After-soaking-oral TCMP are new types of Advanced TCMP.
Revenue from Advanced TCMP accounted for 49% and 33% of the revenue recognized during the years ended March 31, 2024 and 2023, respectively. As compared with the year ended March 31, 2023, our revenue from Advanced TCMP increased by $289,073, or 44%, for the year ended March 31, 2024. The increase was primarily due to that after the lift of lockdown measure imposed due to the COVID-19 pandemic, the supply of raw materials for the production of Advance TCMP products was secured and the Company’s production efficiency was gradually improved, market demand gradually recovered and therefore sales volume of Advanced TCMP increased during the year ended March 31, 2024. Additionally, the sales price of major Advanced TCMP products (DBC products) increased significantly during the year ended March 31, 2024.
Fine TCMP
We currently have four Fine TCMP products for drug stores and hospitals. Our Fine TCMP products are manufactured manually from only high-quality authentic ingredients derived from their region of origin.
Revenue from Fine TCMP accounted for 0% and 6% of the revenue recognized during the years ended March 31, 2024 and 2023. As compared with the year ended March 31, 2023, our revenue from Fine TCMP decreased by $114,628, or nearly 100% for the year ended March 31, 2024. The decrease was primarily attributable to the fact that we decided to discontinue cooperation with major clients in the sales of Fine TCMP, and not to develop or sell Fine TCMP products in future.
Regular TCMP
We currently manufacture 200 Regular TCMP products listed on China Pharmacopoeia (version 2020) Parts I and IV for hospitals and drug stores in treatment of various diseases or serving as dietary supplements.
Revenue from Regular TCMP accounted for 49% and 35% of the revenue recognized during the years ended March 31, 2024 and 2023, respectively. Revenue from Regular TCMP products increased by $247,282, or 35%, to $945,000 for the year ended March 31, 2024 from $697,518 for the year ended March 31, 2023. The increase in revenue from Regular TCMP products is due to the increased market demand for our Regular TCMP during the year ended March 31, 2024.
54
Raw medicinal materials
For the year ended March 31, 2024 and 2023, we generated revenue from sales of raw medicinal materials of $24,166 and $502,425, which represented 1% and 25% of our total revenue, respectively. As the low gross margin rate and declined market demand for our raw medicinal materials, we gradually decreased the sales of raw medicinal materials during the year ended March 31, 2024.
Others
For the year ended March 31, 2024, we also generated revenue of $13,150, or 1% of our total revenue, from the launch of a new health beverage product.
Cost of Revenues
Cost of revenues primarily includes cost of materials, direct labors, overhead, and other related incidental expenses that are directly attributable to the Company’s principal operations. Total cost of revenue decreased by $170,882, or 11%, to $1,374,526 for the year ended March 31, 2024 from $1,545,408 for the year ended March 31, 2023. The decrease of cost of revenues was mainly due to the significant decrease in sale of raw medicinal materials which have low margin.
Gross Profit
Gross profit increased by $127,700, or 30%, to $ 553,971 for the year ended March 31, 2024 from $ 426,271 for the year ended March 31, 2023. Gross margin was 28.7% for the year ended March 31, 2024, compared to 21.6% for the year ended March 31, 2023. The significant increase in our gross margin is mainly due to the following reasons: (i) the sales in our Advanced TCMP products increased significantly during the year ended March 31, 2024 compared to the year ended March 31, 2023, and Advanced TCMP products have relatively high margin; (ii) the sales of raw medicinal materials, which have very low margin, accounted for a small portion of our total revenue during the year ended March 31, 2024 while a significant portion of total revenue during the year ended March 31, 2023.
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of sales staff payroll and welfare expenses, travelling expenses, market development and advertising fees, distribution and promotion expenses. The selling and marketing expenses increased from $387,452 for the year ended March 31, 2023 to $433,566 for the year ended March 31, 2024, representing an increase of $46,114, or 11%. The increase in selling and marketing expenses was mainly due to the increase market development and advertising fee from $227,850 for the year ended March 31, 2023 to $327,208 for the year ended March 31, 2024.
General and Administrative Expenses
General and administrative expenses primarily consisted of staff payroll and welfare expenses, research and development expenses, professional fees, entertainment expenses, travelling expenses, depreciation and amortization expenses for administrative purposes, office supply expenses, credit loss provision and impairment expenses. General and administrative expenses of $2,635,622 for the year ended March 31, 2024 mainly consisted of payroll expenses of $828,341, professional fees of $617,365, credit loss for accounts receivable of $283,234, and impairment expense for property, plant and equipment of $401,995. General and administrative expenses of $5,646,328 for the year ended March 31, 2023 mainly consisted of payroll expenses of $$1,151,466, credit loss for accounts receivable of $820,352, credit loss for other receivable and other current assets of $474,342, credit loss for loan receivable and accrued interest of $1,581,000, and impairment expense for construction in progress of $349,390.
For the year ended March 31, 2024, general and administrative expenses decreased $3,010,706, or 53%, compared to the year ended March 31, 2023. The significant decrease in our general and administrative expenses is mainly due to the following reasons: (i) the staff payroll and welfare expenses decreased significantly during the year ended March 31, 2024 compared to the year ended March 31, 2023; (ii) the credit loss provision decreased by 90% during the year ended March 31, 2024 compared to the year ended March 31, 2023.
55
Other Income (Expense), Net
Interest expenses, net for the year ended March 31, 2024 mainly consisted of accretion of finance cost and interest expense related to the Convertible Note we issued on December 19, 2022, March 7, 2023, December 13, 2023 and March 27, 2024, and interest expenses from our borrowings from banks and various individuals. For the year ended March 31, 2024, we recorded amortization of issuance cost and debt discount of $292,771 and interest expenses of $231,583 for the Convertible Notes. For the year ended March 31, 2024, we recorded interest expenses of $29,022 for the other borrowings from banks and individuals.
Interest expenses, net for the year ended March 31, 2023 mainly consisted of accretion of finance costs and interest expenses related to the Convertible Notes we issued on March 16, 2022, December 19, 2022 and March 7, 2023, and interest expenses from our borrowings from banks and various individuals. For the year ended March 31, 2023, we recorded amortization of issuance cost and debt discount of $335,654 and interest expenses of $130,282 for the Convertible Notes. For the year ended March 31, 2023, we recorded interest expenses of $10,840 for the other borrowings from banks and individuals.
Other expenses for the year ended March 31, 2024 mainly consisted of other non-operating income of $53,853 and other non-operating expenses of $109,740. Other income for the year ended March 31, 2023 mainly consisted of other non-operating income of $156,914 and other non-operating expenses of $7,401.
Income Tax Expenses
Income tax expenses represented current and deferred income tax expenses derived from income before taxes generated by Suxuantang, the variable interest entity of the Company. Current income tax expenses for the years ended March 31, 2024 and 2023 were Nil and Nil, respectively. Deferred income tax expenses for the years ended March 31, 2024 and 2023 were Nil and Nil, respectively.
Net Loss
As a result of the foregoing, net loss for the year ended March 31, 2024 was $3,098,532, representing a decrease of $2,836,240, or 48%, from net loss of $5,934,772 for the year ended March 31, 2023. The decrease in net loss was mainly due to the increase in gross profit and decrease in operating expenses.
Liquidity and Capital Resources
Consolidation
The Company provides all of its products in China via the VIE of the Company, due to PRC legal restrictions of foreign ownership on certain sectors. WFOE, shareholders of Taizhou Suxuantang and Taizhou Suxuantang entered into a series of contractual arrangements, also known as VIE Agreements, on October 13, 2017. Pursuant to the VIE Agreements, WFOE is regarded as the primary beneficiary of Taizhou Suxuantang and we are able to consolidate the financial statements of Taizhou Suxuantang in accordance with U.S. GAAP.
Total assets and liabilities presented on the Company’s consolidated balance sheets, along with the revenue, expenses, and net income shown on the consolidated statement of operations and comprehensive income, as well as the cash flows from operating, investing and financing activities presented on the consolidated statement of cash flows, all substantially present the financial position, operation and cash flow of the VIE. As of March 31, 2025, our VIE accounted for an aggregate of 90% and 91% of our total assets and total liabilities, respectively. As of March 31, 2024, our VIE accounted for an aggregate of 98% and 75% of our total assets and total liabilities, respectively. As of March 31, 2025 and 2024, $17,897,875 and $$11,589,400 of cash and cash equivalents were denominated in RMB, respectively.
56
The following is a selected consolidating schedule depicting the financial position as of March 31, 2025 and 2024, cash flows and results of operations for the years ended March 31, 2025 and 2024 for our Company, our subsidiaries, the VIE and corresponding eliminating adjustments.
Selected Consolidation Schedule of Balance Sheet
As of March 31, 2025
| Parent and Hong Kong | WFOE | VIE | Elimination and Reclassification | Consolidated | ||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 231,557 | $ | 1,058 | $ | 17,896,817 | $ | - | $ | 18,129,432 | ||||||||||
| Intercompany receivables | 2,393,545 | 4,050,080 | - | (6,443,625 | ) | - | ||||||||||||||
| Total Current Assets | 4,375,580 | 4,339,427 | 19,025,109 | (6,443,625 | ) | 21,296,491 | ||||||||||||||
| Investment in Subsidiaries | 9,010,734 | - | - | (9,010,734 | ) | - | ||||||||||||||
| Total Non-current Assets | 9,010,734 | - | 367,017 | (9,010,734 | ) | 367,017 | ||||||||||||||
| Intercompany payables | - | - | 6,443,625 | (6,443,625 | ) | - | ||||||||||||||
| Total Liabilities | 410,433 | 178,589 | 12,078,349 | (6,443,625 | ) | 6,223,746 | ||||||||||||||
| Total Shareholders’ Equity | 12,975,881 | 4,160,838 | 7,313,777 | (9,010,734 | ) | 15,439,762 | ||||||||||||||
Selected Consolidation Schedule of Operations and Comprehensive Loss
For the year ended March 31, 2025
| Parent and Hong Kong | WFOE | VIE | Elimination and Reclassification | Consolidated | ||||||||||||||||
| Revenues | $ | - | $ | 38,264 | $ | 1,702,643 | $ | - | $ | 1,740,907 | ||||||||||
| Cost of revenues | - | (19,044 | ) | (1,354,436 | ) | - | (1,373,480 | ) | ||||||||||||
| Gross profit | - | 19,220 | 348,207 | - | 367,427 | |||||||||||||||
| Total operating expenses | (579,713 | ) | (3,745 | ) | (2,464,448 | ) | - | (3,047,906 | ) | |||||||||||
| Loss from operations | (579,713 | ) | (3,745 | ) | (2,097,021 | ) | - | (2,680,479 | ) | |||||||||||
| Net (loss) income | (1,209,263 | ) | 130,378 | (2,224,767 | ) | - | (3,303,652 | ) | ||||||||||||
| Total Comprehensive Loss | (1,209,263 | ) | 130,378 | (2,274,494 | ) | - | (3,353,379 | ) | ||||||||||||
Selected Consolidation Schedule of Cash Flows
For the year ended March 31, 2025
| Parent and Hong Kong | WFOE | VIE | Elimination and Reclassification | Consolidated | ||||||||||||||||
| Net cash used in operating activities | $ | (436,238 | ) | $ | (299,847 | ) | $ | (1,609,248 | ) | $ | - | $ | (2,345,333 | ) | ||||||
| Net cash provided by investing activities | - | - | 63,516 | - | 63,516 | |||||||||||||||
| Net cash provided by financing activities | 7,949,554 | 297,851 | 151,748 | - | 8,399,153 | |||||||||||||||
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Selected Consolidation Schedule of Balance Sheet
As of March 31, 2024
| Parent and Hong Kong | WFOE | VIE | Elimination and Reclassification | Consolidated | ||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 487,787 | $ | 3,058 | $ | 11,586,342 | $ | - | $ | 12,077,187 | ||||||||||
| Intercompany receivables | 2,359,863 | 3,592,064 | - | (5,951,927 | ) | - | ||||||||||||||
| Total Current Assets | 2,859,319 | 3,627,210 | 13,698,757 | (5,951,927 | ) | 14,233,359 | ||||||||||||||
| Investment in Subsidiaries | 8,430,742 | - | - | (8,430,742 | ) | - | ||||||||||||||
| Total Non-current Assets | 8,430,742 | - | 8,893,698 | (8,430,742 | ) | 8,893,698 | ||||||||||||||
| Intercompany payables | - | - | 5,951,927 | (5,951,927 | ) | - | ||||||||||||||
| Total Liabilities | 2,117,612 | 178,589 | 12,852,337 | (5,951,927 | ) | 9,196,611 | ||||||||||||||
| Total Shareholders’ Equity | 9,172,449 | 3,448,621 | 9,740,118 | (8,430,742 | ) | 13,930,446 | ||||||||||||||
Selected Consolidation Schedule of Operations and Comprehensive Loss
For the year ended March 31, 2024
| Parent and Hong Kong | WFOE | VIE | Elimination and Reclassification | Consolidated | ||||||||||||||||
| Revenues | $ | - | $ | 13,150 | $ | 1,915,347 | $ | - | $ | 1,928,497 | ||||||||||
| Cost of revenues | - | (9,167 | ) | (1,365,359 | ) | - | (1,374,526 | ) | ||||||||||||
| Gross profit | - | 3,983 | 549,988 | - | 553,971 | |||||||||||||||
| Total operating expenses | (621,878 | ) | (29,977 | ) | (2,417,333 | ) | - | (3,069,188 | ) | |||||||||||
| Loss from operations | (621,878 | ) | (25,994 | ) | (1,867,345 | ) | - | (2,515,217 | ) | |||||||||||
| Net loss | (1,147,536 | ) | (108,498 | ) | (1,842,498 | ) | - | (3,098,532 | ) | |||||||||||
| Total Comprehensive Loss | (1,147,536 | ) | (108,498 | ) | (2,670,722 | ) | - | (3,926,756 | ) | |||||||||||
Selected Consolidation Schedule of Cash Flows
For the year ended March 31, 2024
| Parent and Hong Kong | WFOE | VIE | Elimination and Reclassification | Consolidated | ||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (738,154 | ) | $ | 53,990 | $ | (1,243,891 | ) | $ | - | $ | (1,928,053 | ) | |||||||
| Net cash provided by investing activities | - | - | 26,423 | - | 26,423 | |||||||||||||||
| Net cash provided by (used in) financing activities | 577,422 | (220,917 | ) | (2,980,933 | ) | - | (2,624,428 | ) | ||||||||||||
As of the date of this annual report, we have financed our operations primarily through shareholder capital contributions, and mainly cash used on operating activities. This has resulted in a cash and cash equivalents and restricted cash balance of $18,129,432 as of March 31, 2025, as compared to $12,077,187 as of March 31, 2024. We primarily hold our excess unrestricted cash in short-term interest-bearing bank accounts at financial institutions. As of March 31, 2025 and 2024, we had a balance of $7,267,770 and $1,047,550 due to related parties, respectively, which we expect to repay using our cash and cash equivalents.
58
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net cash used in operating activities | $ | (2,345,333 | ) | $ | (1,928,053 | ) | (80,757 | ) | ||||
| Net cash provided by (used in) investing activities | 63,516 | 26,423 | (12,303 | ) | ||||||||
| Net cash provided by (used in) financing activities | 8,399,153 | (2,624,428 | ) | 2,941,602 | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | (65,091 | ) | (765,233 | ) | (1,049,683 | ) | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 6,052,245 | (5,291,291 | ) | 1,798,859 | ||||||||
| Cash, cash equivalents and restricted cash at beginning of the year | 12,077,187 | 17,368,478 | 15,569,619 | |||||||||
| Cash, cash equivalents and restricted cash at end of the year | $ | 18,099,019 | $ | 12,077,187 | 17,368,478 | |||||||
Cash Flow in Operating Activities
For the year ended March 31, 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 the year ended March 31, 2024, representing an increase in cash outflow of $417,280. The increase in cash outflow in operating activities primarily resulted from the change of the following accounts:
| a) | A net loss for the year ended 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 of 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 a decrease in cash outflow of $172,896 for the year ended March 31, 2025, compared with the year ended March 31, 2024. |
| b) | Change in inventory was $0.01 million net cash outflow for the year ended March 31, 2024. For the year ended March 31, 2024, the change in inventory was $0.22 million net cash outflow, which led to a $0.21 million decrease in net cash outflow from operating activities. |
| c) | Change in advance to suppliers was $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 suppliers was $0.03 million net cash inflow, which led to a $0.33 million increase in net cash outflow from operating activities. |
| d) | Change in other receivables and other current assets was $0.22 million net cash outflow for the year ended March 31, 2025. For the year ended March 31, 2024, the change in other receivables and other current assets was $0.14 million net cash inflow, which led to a $0.36 million increase in net cash outflow from operating activities. |
| e) | Change in refund liabilities was $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 was $0.11 million net cash inflow, which led to a $0.27 million increase in net cash outflow from operating activities. |
For the year ended March 31, 2024, net cash used in operating activities was $1,928,053, as compared to net cash used in operating activities of $80,757 for the year ended March 31, 2023, representing an increase in cash outflow of $1,847,296. The increase in cash outflow in operating activities primarily resulted from the change of the following accounts:
| a) | A net loss for the year ended March 31, 2024 of $3,098,532, compared with a net loss of $5,934,772 for the year ended March 31, 2023. Excluding the adjustments of non-cash items, net loss for the year ended March 31, 2024 and 2023 were $1,546,494 and $1,496,267, respectively. This represents an increase in cash outflow of $50,277 for the year ended March 31, 2024, compared with the year ended March 31, 2023. |
| b) | Change in accounts receivable was $0.32 million net cash outflow for the year ended March 31, 2024. For the year ended March 31, 2023, the change in accounts receivable was $0.91 million net cash inflow, which led to a $1.23 million increase in net cash outflow from operating activities. |
| c) | Change in inventory was $0.22 million net cash outflow for the year ended March 31, 2024. For the year ended March 31, 2023, the change in inventory was $0.41 million net cash inflow, which led to a $0.63 million increase in net cash outflow from operating activities. |
| d) | Change in refund liabilities was $0.11 million net cash inflow for the year ended March 31, 2024. For the year ended March 31, 2023, the change in refund liabilities was $1,380 net cash outflow, which led to a $0.11 million increase in net cash inflow from operating activities. |
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Cash Flow in Investing Activities
We had net cash provided by investing activities of $63,516 for the year ended March 31, 2025, which primarily consisted of cash received from disposal of property, plant and equipment of $65,539, offset by cash paid for purchase of property, plant and equipment of $2,023.
We had net cash provided by investing activities of $26,423 for the year ended March 31, 2024, which primarily consisted of cash received from Huangshan Panjie Investment Management Co., Ltd. of $33,486, offset by cash paid for purchase of property, plant and equipment of $7,063.
We had net cash used in investing activities of $12,303 for the year ended March 31, 2023, which primarily consisted of the purchase of property, plant and equipment of $70,684, and cash received from Huangshan Panjie Investment Management Co., Ltd. of $58,381.
Cash Flow in Financing Activities
For the year ended March 31, 2025, the net cash provided by financing activities was $8,399,153, which was primarily attributable to net proceeds from due to related 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 issuance cost of $135,000), net proceeds from shares purchase agreements of $2,759,991 (gross proceeds of $2,840,000 and issuance cost of $80,009) and proceeds from borrowing from banks and individuals of $258,003, offset by repayment of borrowing of $78,118 and repayment of convertible notes of $1,840,000.
For the year ended March 31, 2024, the net cash used in financing activities was $2,624,428, which was primarily attributable to advances to related parties of $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 from the issuance of convertible notes of $952,971(gross proceeds of $1,063,333 and debt issuance cost of $110,362) and proceeds from borrowing from banks and individuals of $433,927.
For the year ended March 31, 2023, the net cash provided by financing activities was $2,941,602, which was primarily attributable to net proceeds from the issuance of convertible notes of $3,289,930 (gross proceeds of $3,721,667 and debt issuance cost of $431,737), net proceeds from shares purchase agreements of $2,194,827, and proceeds from borrowing from banks and individuals of $309,417, net by repayment to related parties of $2,197,555, advances to related parties of $628,911, and repayment of principal and interest of bank loans of $26,106.
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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Related Parties and Material Related Party Transactions
Please refer to “Item 7.B. Related Party Transactions” and Note 19 of our Consolidated Financial Statements included in this Form 20-F for details of related parties and material related party transactions.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. The estimates include but are not limited to: determinations of the useful lives of long-lived assets, estimates of expected credit loss for doubtful accounts, sales return rate, abnormal capacity for inventory production, valuation assumptions in performing asset impairment tests of long-lived assets, the discount rate used for right-of-use assets and lease liabilities calculation, and determinations of fair value of warrants.
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that i) involve a significant level of estimation uncertainty and ii) have had or are reasonably likely to have a material impact on the financial condition or results of operations. The management determined there were no critical accounting estimates.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors, Executive Officers and Key Employees
Set forth below is information concerning our directors, executive officers and other key employees. The following individuals are members of the Board and executive management of the Registrant.
| Name | Age | Position(s) | ||
| Feng Zhou | 34 | Co-Chief Executive Officer and Director | ||
| Simon Lim Sze Beng | 49 | Co- Chief Executive Officer | ||
| Xiaodong Pan | 48 | Chief Financial Officer | ||
| Jun Zheng | 49 | Director | ||
| Tong Liu | 47 | Independent Director | ||
| Xiaodong Ji | 56 | Independent Director | ||
| Yong Lip Chee | 37 | Independent Director | ||
The following is a brief biography of each of our executive officers and directors:
Executive Officers:
Mr. Feng Zhou has been our CEO and director since July 4, 2017 and was changed to Co-CEO on January 20, 2025. He was the CEO of Taizhou Suxuantang, the VIE Entity from May 2017 to February, 2018. From January 2015 to May 2017, he was the vice manager of Taizhou Suxuantang. As vice manager of Taizhou Suxuantang, he was responsible for procurement and formulating a cost effective strategy for purchasing goods and services. Mr. Zhou graduated from Logistical Engineering University of PLA and majored in Business Administration. We believe that Mr. Zhou should serve as a member of our board of directors due to the perspective and experience he brings as our founder, Chairman, and CEO, and as our largest and controlling shareholder.
Mr. Simon Lim Sze Beng was appointed as our Co-CEO on January 20, 2025. Mr. Simon Lim Sze Beng is an experienced professional in the healthcare sector. Since 2019, he has served as a manager of Reform Medical Marketing Co., Limited, where he serves clients in medical, and healthcare sectors and promotes their products and services. From 2017 to 2019, he was the senior operations director at Axcel Digital, where he conducts multichannel promotion for healthcare sector clients. He earned a bachelor’s degree in arts from Universiti Malaya in Malaysia in 2001.
Mr. Xiaodong Pan was appointed as our Chief Financial Officer on January 31, 2022. He has served as the Finance Director of Jiangsu Suxuantang Pharmaceutical Co., Ltd., the consolidated variable interests entity of the Company in China, since March 2015. Prior to that, Mr. Pan was the Financial Director of Taizhou Jieda Concrete Co., Ltd. from January 2007 to March 2015. Mr. Pan earned his Bachelor’s Degree in Accounting from Nanjing College of Economics in 2000, and obtained his Master’s Degree in Business Administration in 2021 from Nanjing Institute of Technology.
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Non-Management Directors
Mr. Jun Zheng has been appointed as our director upon closing of our IPO on December 31, 2018. Mr. Zheng was a sales area manager at Jiangxi Bo Shi Da Pharmaceutical Co., Ltd. from 1999 to 2004, and a department manager and deputy general manager at Taizhou Jiutian Pharmaceutical Co., Ltd. from the 2005 to 2012. Mr. Zheng served as a general manager at Taizhou Renji Chinese Traditional Medicine Pieces Co., Ltd. from 2013 to 2015 and a general manager at Jiangsu Health Pharmaceutical Investment Management Co., Ltd. from 2016 to 2017. Currently, Mr. Zheng is a vice president at Taizhou Suxuantang. Mr. Zheng received his bachelor’s degree from Jiangnan University (Wuxi Light Industry University) in 1999.
Mr. Tong Liu was appointed as our independent director on May 10, 2022. He has worked at Beijing Yingke (Taizhou) Law Firm since December 2019. From June 2016 to November 2019, he worked at Jiangsu Puchen Law Firm. From October 2014 to June 2016, he worked at Jiangsu Bihong Law Firm. From December 2010 to October 2014, he worked Jiangsu Suyi Law Firm. From September 2006 to December 2010, he worked at Jiangsu Zhushi law firm. Mr. Liu obtained his Bachelor of Law degree from Nanjing University in 2002.
Mr. Xiaodong Ji was appointed as our director on May 22, 2021. Mr. Ji established Jiangsu Sutaitang E-Commerce Co., Ltd. (“Sutaitang”) in October 2019 and currently serves as the CEO of Sutaitang. He is also the deputy general manager of Jiangsu Health Pharmaceutical investment Co., Ltd. Mr. Ji has rich experience of two decades in corporation management, brand chain operation and marketing. Prior to joining us, Mr. Ji has served as CEOs of Dongfang Purple Wine, Zhengde Pharmaceutical, China Belt and Road Shopping Mall Co., Ltd. (the subsidiary of Zhong Zong Tou Group, “Shopping Mall”), respectively. Mr. Ji was responsible for the enterprise management and channel construction of Dongfang Purple Wine and Zhengde Pharmaceutical. Dongfang Purple Wine creates the fifth largest category of wine in China - Purple wine (purple wine is a fine wine made from mulberry fruit). Zhengde pharmaceutical is a brand channel enterprise controlled by Jilin Zixin Pharmaceutical Industrial Co., Ltd. which is listed on Shenzhen Stock Exchange. Mr. Ji was in charge of the strategic planning and ecological chain construction of Shopping Mall, which is a world shopping mall system under the Belt and Road Initiative. Mr. Ji earned his bachelor degree from Beijing University of Chinese Medicine.
Mr. Yong Lip Chee was appointed as our independent director on January 20, 2025 to fill in the vacancies result from Mr. Songfan He’s resignation as our then independent director. Mr. Yong Lip Chee has a background in sales and client relations within the healthcare sector. Since 2021, Mr. Yong has been an independent sales consultant, advising healthcare companies on market penetration strategies and distributor partnerships. From 2017 to 2021, he served as a sales supervisor at Winner Medical Hong Kong, where he promotes medical consumables products to hospitals and private healthcare medical professionals and related users. He earned a bachelor’s degree in business administration from University Malaya in Malaysia in 2013.
Pursuant to our articles of association as amended, the minimum number of directors shall consist of not less than one person unless otherwise determined by the shareholders in a general meeting. Unless removed or re-appointed, each director shall be appointed for a term expiring at the next-following annual general meeting, if any is held. At any annual general meeting held, our directors will be elected by a majority vote of shareholders eligible to vote at that meeting. At each annual general meeting, each director so elected shall hold office for a one-year term and until the election of their respective successors in office or removed.
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Board Diversity
The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
| Board Diversity Matrix | ||||
| Country of Principal Executive Offices: | China | |||
| Foreign Private Issuer | Yes | |||
| Disclosure Prohibited under Home Country Law | No | |||
| Total Number of Directors | 5 | |||
| Female | Male |
Non- Binary |
Did Not Disclose Gender | |
| Part I: Gender Identity | ||||
| Directors | 0 | 5 | ||
| Part II: Demographic Background | ||||
| Underrepresented Individual in Home Country Jurisdiction | 0 | |||
| LGBTQ+ | 0 | |||
| Did Not Disclose Demographic Background | 0 | |||
The table below provides certain information regarding the diversity of our board of directors as of March 31, 2025.
| Board Diversity Matrix | ||||
| Country of Principal Executive Offices: | China | |||
| Foreign Private Issuer | Yes | |||
| Disclosure Prohibited under Home Country Law | No | |||
| Total Number of Directors | 5 | |||
| Female | Male |
Non- Binary |
Did Not Disclose Gender | |
| Part I: Gender Identity | ||||
| Directors | 0 | 5 | ||
| Part II: Demographic Background | ||||
| Underrepresented Individual in Home Country Jurisdiction | 0 | |||
| LGBTQ+ | 0 | |||
| Did Not Disclose Demographic Background | 0 | |||
Under Rule 5606(f)(2) and Rule 5606(f)(6) of the Nasdaq Listing Rules, we are required to have, or disclose why we do not have, at least one “diverse” (as such term is defined in Rule 5606(f)(2)(B) of the Nasdaq Listing Rules) director by December 31, 2023. As of July 31, 2025, we did not have at least one diverse director because we have not yet identified a suitable candidate. We will continue our search for a suitable candidate in order to increase the diversity of our board.
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Family Relationships
None of the directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.
Board of Directors
Our board of directors consists of 5 directors as of the date of this annual report.
Duties of Directors
Under British Virgin Islands law, our directors have a duty to act honestly and in good faith and in what the director believes to be in our best interests. Our directors also have a duty to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances. See “Description of Ordinary Shares - Differences in Corporate Law” for additional information on our directors’ fiduciary duties under British Virgin Islands law. In fulfilling their duty of care to us, our directors must ensure compliance with our M&A. We have the right to seek damages if a duty owed by our directors is breached.
A director must exercise his powers as a director for a proper purpose and must not act, or agree to us acting, in a manner that contravenes the BC Act or the M&A. When exercising his powers or performing his duties as a director, a director is entitled to rely upon the register of members and upon books, records, financial statements and other information prepared or supplied, and on professional or expert advice given to him. However, such reliance is subject to the director acting in good faith, making proper enquiry where indicated by the circumstances and having no knowledge that reliance on the matter is not warranted. Under the BC Act, our directors have all the powers necessary for managing, and for directing and supervising, our business and affairs, including but not limited to exercising the borrowing powers of the company and mortgaging the property of the company, as well as executing checks, promissory notes and other negotiable instruments on behalf of the company.
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.
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6.B. Compensation
Summary Compensation Table
The following table sets forth certain information with respect to compensation for the year ended March 31, 2025 earned by or paid to our directors and senior management.
| Name and Principal Position | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation | Deferred Compensation Earnings | Other | Total ($) | ||||||||||||||||||||||||
| Feng Zhou, Co-CEO and Director | 50,000 | - | - | - | - | - | - | 50,000 | ||||||||||||||||||||||||
| Simon Lim Sze Beng, Co-CEO(1) | ||||||||||||||||||||||||||||||||
| Xiaodong Pan, CFO (2) | 50,000 | - | - | - | - | - | - | 50,000 | ||||||||||||||||||||||||
| Junsong Li, Former Independent Director (3) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Jun Zheng, Director | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Tong Liu, Independent Director (4) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Xiaodong Ji, Independent Director | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Songfan He, Independent Director (5) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Yong Lip Chee, Independent Director (6) | ||||||||||||||||||||||||||||||||
| (1) | Simon Lim Sze Beng assumed his position of Co-CEO of the Company on January 20, 2025 |
| (2) | Xiaodong Pan assumed his position of CFO of the Company on January 31, 2022. |
| (3) | Junsong Li resigned from his position of director of the Company on May 9, 2022 |
| (4) | Tong Liu assumed his position of director of the Company on May 10, 2022 |
| (5) | Songfan He assumed his position of director of the Company on May 10, 2022 and resigned from his position of director of the Company on January 20, 2025 |
| (6) | Yong Lip Chee assumed his position of director of the Company on January 20, 2025 |
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Agreements with Named Executive Officers
On December 30, 2017, we entered into an employment agreement with our CEO, Mr. Feng Zhou, pursuant to which he receive an annual base salary of $50,000 Under this employment agreement, Mr. Zhou is employed as our CEO for a term of five years, which automatically renews for additional one year term unless previously terminated on three months written notice by either party. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and the executive officer’s right to all other benefits will terminate, except as required by any applicable law. We may also terminate an executive officer’s employment without cause upon one-month advance written notice. In such case of termination by us, we are required to provide compensation to the executive officer, including severance pay equal to 12 months of base salary. The executive officer may terminate the employment at any time with a one-month advance written notice if there is any significant change in the executive officer’s duties and responsibilities or a material reduction in the executive officer’s annual salary. In such case, the executive officer will be entitled to receive compensation equivalent to 12 months of the executive officer’s base salary. In connection with the appointment of Mr. Simon Lim Sze Beng as our Co-CEO, on January 20, 2025, the title of Mr. Zhou was changed from the CEO and Director to the Co-CEO and Director of the Company.
On January 31, 2022, we entered into an employment agreement with our CFO, Mr. Xiaodong Pan, pursuant to which he shall receive an annual base salary of $50,000 Under his employment agreement, Mr. Pan is employed as our CFO for a term of five years, which automatically renews for additional one year term unless previously terminated on three months written notice by either party. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and the executive officer’s right to all other benefits will terminate, except as required by any applicable law. We may also terminate an executive officer’s employment without cause upon one-month advance written notice. In such case of termination by us, we are required to provide compensation to the executive officer, including severance pay equal to 3 months of base salary. The executive officer may terminate the employment at any time with a one-month advance written notice if there is any significant change in the executive officer’s duties and responsibilities or a material reduction in the executive officer’s annual salary. In such case, the executive officer will be entitled to receive compensation equivalent to 12 months of the executive officer’s base salary.
On January 20, 2025 we entered into an employment agreement with our Co-CEO, Mr. Simon Lim Sze Beng, pursuant to which he receive an annual base salary of $50,000 Under this employment agreement, Mr. Beng is employed as our Co-CEO for a term of five years, which automatically renews for additional one year term unless previously terminated on three months written notice by either party. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and the executive officer’s right to all other benefits will terminate, except as required by any applicable law. We may also terminate an executive officer’s employment without cause upon one-month advance written notice. In such case of termination by us, we are required to provide compensation to the executive officer, including severance pay equal to 12 months of base salary. The executive officer may terminate the employment at any time with a one-month advance written notice if there is any significant change in the executive officer’s duties and responsibilities or a material reduction in the executive officer’s annual salary. In such case, the executive officer will be entitled to receive compensation equivalent to 12 months of the executive officer’s base salary.
Each executive officer has agreed to hold, both during and after the termination of his employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment, any of our confidential information or proprietary information of any third party received by us and for which we have confidential obligations.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his employment and for one year following termination of the employment.
6.C. Board Practices
Terms of Directors and Executive Officers
Each of our directors holds office until a successor has been duly elected and qualified unless the director was appointed by the board of directors, in which case such director holds office until the next following annual meeting of shareholders at which time such director is eligible for reelection. All of our executive officers are appointed by and serve at the discretion of our board of directors.
Qualification
There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.
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Committees of the Board of Directors
We established an audit committee, a compensation committee and a nominating and governance committee. Each of the committees of the Board have the composition and responsibilities described below.
Audit Committee
Mr. Yong Lip Chee, Mr. Tong Liu and Mr. Xiaodong Ji are members of our Audit Committee, where Mr. Yong Lip Chee, serves as the chairman. All members of our Audit Committee satisfy the independence standards promulgated by the SEC and by NASDAQ as such standards apply specifically to members of audit committees.
We adopted and approved a charter for the Audit Committee prior to consummation of our initial public offering. In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including:
| ● | evaluates the independence and performance of, and assesses the qualifications of, our independent auditor, and engages such independent auditor; |
| ● | approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approves in advance any non-audit service to be provided by the independent auditor; |
| ● | monitors the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; |
| ● | reviews the financial statements to be included in our Annual Reports on Form 20-F and semi-annual reports on Form 6-K and reviews with management and the independent auditors the results of the annual audit and reviews of our six-month financial statements; |
| ● | oversees all aspects our systems of internal accounting control and corporate governance functions on behalf of the board; |
| ● | reviews and approves in advance any proposed related-party transactions and report to the full Board on any approved transactions; and |
| ● | provides oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the Board, including Sarbanes-Oxley Act implementation, and makes recommendations to the Board regarding corporate governance issues and policy decisions. |
It is determined that Mr. Yong Lip Chee possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC.
Compensation Committee
Mr. Tong Liu, Mr. Yong Lip Chee, and Mr. Xiaodong Ji are members of our Compensation Committee and Mr. Tong Liu is the chairman. All members of our Compensation Committee are qualified as independent under the current definition promulgated by NASDAQ. We adopted a charter for the Compensation Committee prior to consummation of our initial public offering. In accordance with the Compensation Committee’s Charter, the Compensation Committee shall be responsible for overseeing and making recommendations to the Board regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices.
Nominating and Governance Committee
Mr. Xiaodong Ji, Mr. Tong Liu, and Mr. Yong Lip Chee are the members of our Nominating and Governance Committee where Mr. Xiaodong Ji serves as the chairman. All members of our Nominating and Governance Committee are qualified as independent under the current definition promulgated by NASDAQ. The Board of Directors adopted and approved a charter for the Nominating and Governance Committee prior to consummation of our initial public offering. In accordance with the Nominating and Governance Committee’s Charter, the Nominating and Corporate Governance Committee shall be responsible to identity and propose new potential director nominees to the Board of Directors for consideration and review our corporate governance policies.
Code of Conduct and Ethics
We adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws and NASDAQ rules.
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6.D. Employees
See the section entitled “Employees” in Item 4 above.
6.E. Share Ownership
The following table sets forth information with respect to the beneficial ownership of our equity shares as of July 23, 2025 by each director and our senior management executives. There were 116,027,758 Ordinary Shares issued and outstanding as of July 23, 2025. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to equity shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all equity shares beneficially owned.
Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of our Company at 178 Taidong Rd North, Taizhou, Jiangsu, China.
| Ordinary Shares Beneficially Owned As of July 23, 2025 |
||||||||
| Number | Percent | |||||||
| Directors and Executive Officers: | ||||||||
| Feng Zhou(1) | 532 | - | % | |||||
| Xiaodong Pan | - | - | ||||||
| Jun Zheng | - | - | ||||||
| Tong Liu | - | - | ||||||
| Xiaodong Ji | - | - | ||||||
| Yong Lip Chee | - | - | ||||||
| All directors and executive officers as a group (6 persons) | 532 | - | % | |||||
| 5% shareholder: | ||||||||
| - | - | - | ||||||
| Total share outstanding | 532 | - | % | |||||
| (1) | Feng Zhou is the 100% owner of Feng Zhou Management Limited and therefore shall be deemed as the beneficial owner of shares held by such entity. As of the date of this annual report, Mr. Feng Zhou is entitled to an aggregate of 17,282 with shared voting power, includes (i) 532 Ordinary Shares solely held by Mr. Feng Zhou through his wholly owned entity Feng Zhou Management Limited; (ii) 8,621 Ordinary Shares that are subject to the voting agreement entered into between Feng Zhou and Rising Sun Capital Ltd., a limited liability company organized under the laws of Australia, which is wholly-owned by Wei Shi. Rising Sun Capital Ltd.’s principal business address is Suite 118, 252 Russel Street, Melbourne, Vic, 3000, dated February 22, 2023, pursuant to which, Rising Sun Capital Ltd. irrevocably grants a power of attorney to, and entrusts Mr. Zhou for the maximum period of time permitted by law, with all of the Investor ’s voting rights as a shareholder of the Company, including without limitation, in connection with the election of directors and approval of all corporate transactions which requires the approval of the Company’s shareholders. Therefore, Mr. Feng Zhou is deemed to have the voting power and investment discretion over the shares held by Rising Sun Capital Ltd. (iii) 8,129 Ordinary Shares that are subject to the voting agreement entered into between Feng Zhou, Haoxia and Zhijun Xiao, whose principal business address is No.41 Team Huangjiu, Liangxu Town, Jiangyan District, Taizhou City, Jiangsu Province, China, dated September 22, 2022, pursuant to which Mr. Zhijun Xiao irrevocably grants a power of attorney to, and entrust Mr. Zhou and Mr. Xia, respectively, for the maximum period of time permitted by law, with all of Mr. Zhijun Xiao’s voting rights as a shareholder of the Company, including without limitation, in connection with the election of directors and approval of all corporate transactions which requires the approval of the Company’s shareholders. Therefore, Mr. Feng Zhou is deemed to have the voting power and investment discretion over the shares held by Mr. Zhijun Xiao. |
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On May 10, 2022, the Company’s board of directors approved an amended and restated memorandum and articles of association to effectuate a one-for-twenty (1-for-20) reverse split for its ordinary shares (the “2022 Reverse Split”). The amended and restated memorandum and articles of association became effective on May 19, 2022. The market effective date of 2022 Reverse Split was May 19, 2022, which was the first day when the Company’s ordinary shares begin trading on a split-adjusted basis. The 2022 Reverse Split did not change the number of the Company’s authorized preferred and ordinary shares, which remain as unlimited. As a result of the 2022 Reverse Split, the shareholders received one new ordinary share of the Company, par value $0.08 each, for every twenty (20) shares they hold. No fractional ordinary shares were issued to any shareholders in connection with the reverse stock split. Each shareholder was entitled to receive one ordinary share in lieu of the fractional share that would have resulted from the reverse stock split. The share numbers in this annual report are all presented on a post-split basis unless otherwise noted. Holders of ordinary shares are entitled to one vote per share.
On September 22, 2022, the Company entered into certain securities purchase agreement (the “2022 SPA”) with Zhijun Xiao, a non-affiliate non-U.S. person, pursuant to which Mr. Zhijun Xiao agreed to purchase 1,625,798 ordinary shares of the Company, par value $0.08 per share at a per share purchase price of $1.35. The gross proceeds of this transaction are $2,194,827.3, which has been paid in full. On the same date, Mr. Zhijun Xiao entered into voting agreements (the “2022 Voting Agreements”) with Mr. Feng Zhou and Mr. Hao Xia. According to the 2022 Voting Agreements, Mr. Zhijun Xiao irrevocably grants a power of attorney to, and entrust Mr. Zhou and Mr. Xia, respectively, for the maximum period of time permitted by law, with all of Mr. Zhijun Xiao’s voting rights as a shareholder of the Company, including without limitation, in connection with the election of directors and approval of all corporate transactions which requires the approval of the Company’s shareholders.
On February 22, 2023, the Company entered into a securities purchase agreement (the “2023 SPA”) with Rising Sun Capital Ltd., a limited liability company organized under the laws of Australia, pursuant to which Rising Sun Capital Ltd. agreed to purchase 1,724,138 ordinary shares of the Company, par value $0.08 per share at a per share purchase price of $0.58. The gross proceeds of this transaction are approximately $1 million, which has not received by the Company as of the date of this annual report. On the same date, Rising Sun Capital Ltd. entered into voting agreements (the “2023 Voting Agreements”) with Mr. Feng Zhou, who beneficially owns 1,732,048 Ordinary Shares (including 1,625,798 ordinary shares he controls via the 2022 Voting Agreement with Mr. Zhijun Xiao dated September 22, 2022) as of the date of February 22, 2023. According to the 2023 Voting Agreement, Rising Sun Capital Ltd. irrevocably grants a power of attorney to, and entrusts Mr. Zhou for the maximum period of time permitted by law, with all of the Investor ’s voting rights as a shareholder of the Company, including without limitation, in connection with the election of directors and approval of all corporate transactions which requires the approval of the Company’s shareholders.
On March 24, 2023, the Company offered and sold up to $1,374,712 of its Ordinary Shares, par value $0.08 each, issuable upon conversion of an unsecured convertible promissory note (the “2023 Note”). Ordinary Shares are issuable upon conversion of the 2023 Note which are currently held by Streeterville. The Company issued the 2023 Note pursuant a securities purchase agreement dated March 7, 2023, where the Company issued Streeterville an unsecured promissory note in the original principal amount of $2,126,666.67, convertible into ordinary shares of the Company for $2,000,000.00 in gross proceeds. The shares issuable upon conversion of the 2023 Note may be offered for sale from time to time by Streeterville. The Company will not receive proceeds from the sale of the underlying ordinary shares.
On September 11, 2023, the Company’s board of directors approved an amended and restated memorandum and articles of association to (i) alter the par value of its ordinary shares from $0.08 per share to no par value each; and (ii) effectuate a one-for-twenty-five (1-for-25) reverse split for its ordinary shares (the “2023 Reverse Split”). The market effective date of 2023 Reverse Split was October 5, 2023, which was the first day when the Company’s ordinary shares begin trading on a split-adjusted basis. The 2023 Reverse Split did not change the number of the Company’s authorized preferred and ordinary shares, which remain as unlimited. As a result of 2023 Reverse Split, the shareholders received one new ordinary share of the Company, no par value each, for every twenty-five (25) shares they hold. No fractional ordinary shares were issued to any shareholders in connection with the reverse stock split. Each shareholder was entitled to receive one ordinary share in lieu of the fractional share that would have resulted from the reverse stock split.
On December 13, 2023, the Company entered into a securities purchase agreement (the “December 2023 Purchase Agreement”) with Streeterville Capital, LLC (the “Investor”), pursuant to which the Company issued the Investor an unsecured promissory note on December 13, 2023 in the original principal amount of $531,666.67 (the “December 2023 Note” ) convertible into Ordinary Shares, for $500,000.00 in gross proceeds. Ordinary Shares are issuable upon conversion of the December 2023 Note which are currently held by Streeterville. The shares issuable upon conversion of the December 2023 Note may be offered for sale from time to time by Streeterville. The Company will not receive proceeds from the sale of the underlying Ordinary Shares.
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On March 27, 2024, the Company entered into a securities purchase agreement (the “March 2024 Purchase Agreement”) with the Investor, pursuant to which the Company issued the Investor an unsecured promissory note on March 27, 2024 in the original principal amount of $531,666.67 (the “March 2024 Note”), convertible into Ordinary Shares of the Company, for $500,000.00 in gross proceeds. Ordinary Shares are issuable upon conversion of the March 2024 Note which are currently held by Streeterville. The shares issuable upon conversion of the March 2024 Note may be offered for sale from time to time by Streeterville. The Company will not receive proceeds from the sale of the underlying Ordinary Shares.
On May 9, 2024, the Company entered into a securities purchase agreement (the “May 2024 Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (the “Investor”), pursuant to which the Company issued the Investor an unsecured promissory note on May 9, 2024 in the original principal amount of $797,500.00 (the “May 2024 Note”), convertible into ordinary shares, $0.08 par value per share, of the Company (the “Ordinary Shares”), for $750,000.00 in gross proceeds. Ordinary Shares are issuable upon conversion of the May 2024 Note which are currently held by Streeterville. The shares issuable upon conversion of the May 2024 Note may be offered for sale from time to time by Streeterville. The Company will not receive proceeds from the sale of the underlying Ordinary Shares.
On January 21, 2025, the Company entered into a securities purchase agreement to sell 14,200,000 ordinary shares at $0.20 per share in a PIPE offering (the “January 2025 PIPE”). Investors received warrants (the “January 2025 PIPE Warrants”) for 200% of their purchased shares. Separately, lenders who had provided a $1.84 million one-month loan on January 15, 2025, surrendered their repayment rights in exchange for PIPE shares through a January 21, 2025 surrender agreement. This transaction effectively converted the debt into equity as part of the January 2025 PIPE financing arrangement. On March 13, 2025, the Company entered into a warrant exchange agreement with holders of 28,400,000 January 2025 PIPE Warrants issued on January 21, 2025. These January 2025 PIPE Warrants, adjusted for a reverse stock split and reset, were exercisable for 1.52 ordinary shares each (totaling 43,134,871 shares at $0.66 per share). Under the agreement, the holders surrendered all 28,400,000 January 2025 PIPE Warrants for cancellation, and in exchange, the Company issued 11,225,000 ordinary shares to them. In addition, on February 25, 2025, the Company has further effectuated a one-for-eight (1:8) reverse split for its ordinary shares (the “2025 Reverse Split”). On September 29, 2023, the Company’s board of directors approved the elimination of par value for its ordinary shares, and thereafter, no par value is assigned to the ordinary shares. Accordingly, the reverse stock splits effected on October 5, 2023 and February 25, 2025 did not involve any change in par value for its ordinary shares, and as a result of the 2025 Reverse Split, the shareholders received one new ordinary share of the Company, no par value each, for every eight (8) shares they hold.
On May 5, 2025, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company agreed to sell and issue 200,000 Ordinary Shares, with no par value, of the Company for $100,000 in gross proceeds.
On May 16, 2025, the Company entered into a securities purchase agreement with several investors, pursuant to which the Company agreed to sell and issue (i) 10,000,000 Ordinary Shares, with no par value, of the Company; and (ii) Ordinary Share purchase warrants to purchase up to 100,000,000 Ordinary Shares (the “May 2025 Warrants”); and (iii) up to 100,000,000 Ordinary Shares issuable upon exercise of the Warrants (the “Underlying Shares”). Each Ordinary Share is being sold together with two associated Warrants, each to purchase one Ordinary Share at a combined offering price of $0.51 per Ordinary Share and associated Warrants. From May 30 to June 2, 2025, certain investors (the “Investors”) have exercised their Warrants under the alternate cashless exercise provision. According to which, the Investors may exercise the Warrants in exchange for 0.9 times the number of Ordinary Shares they would receive upon a standard cash exercise. Accordingly, the Company has cancelled the Warrants that were exercisable into 100,000,000 ordinary shares, and issued a total of 90,000,000 Underlying Shares to such Investors. As of July 23, 2025, the Company’s total issued and outstanding number of shares were 116,027,758 Ordinary Shares.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.
Equity Incentive Plans
2025 Equity Incentive Plan
On March 21, 2025, the board of directors adopted an equity incentive plan for our employees, directors and consultants (the “2025 Plan”). Under the 2025 Plan, there are 2,064,490 Ordinary Shares available for issuance. As of the date of this annual report, we have issued 2,064,490 Ordinary Shares available under such plan. A copy of the incentive plan was filed as Exhibit 4.6 to this annual report.
2024 Equity Incentive Plan
On January 24, 2024, the board of directors adopted an equity incentive plan for our employees, directors and consultants (the “2024 Plan”). Under the 2024 Plan, there are 185,316 Ordinary Shares available for issuance. As of the date of this annual report, we have issued 185,316 Ordinary Shares available under such plan. A copy of the incentive plan was filed as Exhibit 4.7 to this annual report.
2022 Equity Incentive Plan
On March 15, 2022, the board of directors adopted an equity incentive plan for our employees, directors and consultants (the “2022 Plan”). Under the 2022 Plan, there are 6,094,180 Ordinary Shares (12,188 shares retrospectively restated for effect of reverse stock split on May 19, 2022 and October 5, 2023) available for issuance. As of the date of this annual report, we have issued all the Ordinary Shares available under such plan. A copy of the incentive plan was filed as Exhibit 4.8 to this annual report.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
See Item 6.E., “Share Ownership,” for a description of our major shareholders.
7.B. Related Party Transactions
Nature of relationships with related parties
| Name of related parties | Relationship with the Company | |
| Feng Zhou | Major shareholder of the Company, Chief Executive Officer | |
| Jun Zheng | Director of the Company | |
| Xiaodong Ji | Independent Director of the Company | |
| Jiangsu Health Pharmaceutical Investment Co., Ltd. | An entity controlled by Jianping Zhou | |
| Taizhou Su Xuan Tang Chinese Medicine Clinic | An entity controlled by Jianping Zhou | |
| Taizhou Su Xuan Tang Chinese hospital Co., Ltd. | An entity controlled by Jianping Zhou | |
| Jiangsu Sutaitang Online Commercial Co., Ltd. | An entity controlled by Xiaodong Ji |
Related party balances
The amounts due from related parties as of March 31, 2025 and 2024 were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Jiangsu Sutaitang Online Commercial Co., Ltd. | $ | 370,862 | $ | - | ||||
| Taizhou Su Xuan Tang Chinese hospital Co., Ltd. | 41,561 | - | ||||||
| Taizhou Su Xuan Tang Chinese Medicine Clinic | 5,140 | - | ||||||
| Total due from related parties | $ | 417,563 | $ | - | ||||
The amounts due to related parties as of March 31, 2025 and 2024 were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Jiangsu Health Pharmaceutical Investment Co., Ltd. | $ | - | $ | 1,047,550 | ||||
| Total due to related parties | $ | - | $ | 1,047,550 | ||||
Material Transactions with Related Parties
1) Revenues generated from related parties
The company sells several TCMP products to related companies based on terms and conditions mutually agreed between the relevant parties. These related party transactions were conducted in the ordinary course of business of the Company.
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Taizhou Su Xuan Tang Chinese Hospital Co. Ltd. | 1,621 | 25,528 | 17,478 | |||||||||
| Taizhou Su Xuan Tang Chinese Medicine Clinic | 1,091 | 2,232 | 11,533 | |||||||||
| Taizhou Jiutian Pharmaceutical Co. Ltd. | 1,589 | - | 4,610 | |||||||||
| Total revenue generated from related parties | $ | 4,301 | $ | 27,760 | $ | 33,621 | ||||||
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2) Other related party transactions
For the years ended March 31, 2025, 2024 and 2023, the Company made advances to related parties of $Nil, $2,205,254 and $628,911, respectively. For the years ended March 31, 2025, 2024 and 2023, the Company made repayments to related parties of $Nil, $1,727,418 and $2,197,555, respectively.
For the years ended March 31, 2025, 2024 and 2023, non-cash settlement between balances of accounts receivable from related parties and due to related parties were $Nil, $1,235,290 and $1,263,993, respectively. For the years ended March 31, 2025, 2024 and 2023, non-cash settlement between balances of due from related parties and due to related parties were $8,993,443, $6,080,971 and $4,051,569, respectively. For the year ended March 31, 2025, non-cash settlement between balances of long-term deposit and due to related parties was $7,267,770.
For the year ended March 31, 2024, the Company borrowed $90,024 from Jun Zheng, which has no fixed term and bear interest of 6%.
On January 1, 2018, the Company entered into a lease agreement with Jiangsu Health Pharmaceutical Investment Co., Ltd. to obtain the right of use for office and warehouse of 3,627 square meters for 10 years for free. The Company recorded right-of-use assets and lease expenses based on the fair value for the lease. For the years ended March 31, 2025, 2024 and 2023, the Company record operating lease expenses were $69,343, $69,819, and $73,034, respectively.
Guarantee
On April 12, 2021, Taizhou Suxuantang signed a financial guarantee agreement with Jiangsu Changjiang Commercial Bank for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $387,796 (equivalent of RMB 2,800,000) for three-year period, which expires on April 11, 2024. On April 23, 2024, Taizhou Suxuantang signed a financial guarantee agreement with Jiangsu Changjiang Commercial Bank for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $303,168 (equivalent of RMB 2,200,000) for three-year period, which expires on April 22, 2027. Taizhou Suxuantang is obliged to pay on behalf of the related party the principal, interest, penalty and other expenses if Taizhou Jiutian Pharmaceutical Co. Ltd. defaults in payment. The Company did not charge financial guarantee fees over Taizhou Jiutian Pharmaceutical Co. Ltd.
On October 28, 2013, Taizhou Suxuantang signed a financial guarantee agreement with Fenlan Xu for JJianping Zhou in borrowing of $799,261 (equivalent of RMB 5,800,000) for an unlimited period. Taizhou Suxuantang is obliged to pay the amount if Jianping Zhou in default of the payment of principal and interests. Since Jianping Zhou deceased after yearend, Taizhou Suxuantang should bear all the risk for the repayment. However, subsequent to yearend, Taizhou Jiutian Pharmaceutical Co. Ltd. signed an agreement with Taizhou Suxuantang to take all the responsibility and obligation for repay the amount borrowed from Fenlan Xu on behalf of Jianping Zhou. This additional agreement releases Taizhou Suxuantang from future obligation in regard to the guarantee agreement. The Company did not charge financial guarantee fees over Jianping Zhou. Taizhou Jiutian Pharmaceutical Co. Ltd. is fully obliged to pay the principal, interests from January 1, 2021 to the actual date of repayment, including penalty and other expenses. As such, the Company expects no liabilities from the financial guarantee.
Employment Agreements
See Item 6.B “Agreements with Named Executive Officers.”
7.C. Interests of Experts and Counsel
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
The financial statements required by this item may be found at the end of this report on 20-F, beginning on page F-1.
Legal Proceedings
See “Item 4. Information on the Company-B. Business Overview-Legal Proceedings.”
Dividends
We have never declared or paid any dividend on our ordinary shares and we do not anticipate paying any dividends on our ordinary shares in the future. We currently intend to retain all future earnings to finance our operations and to expand our business.
8.B. Significant Changes
Except as disclosed elsewhere in this annual report, no other significant changes to our financial condition have occurred since the date of the annual financial statements contained herein.
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
Our ordinary shares are listed for trading on the NASDAQ Capital Market under the symbol “SXTC” The shares began trading on January 3, 2019 on the NASDAQ Capital Market.
9.B. Plan of Distribution
Not Applicable.
9.C. Markets
Our ordinary shares are currently traded on the NASDAQ Capital Market.
9.D. Selling Shareholders
Not Applicable.
9.E. Dilution
Not Applicable.
9.F. Expenses of the Issue
Not Applicable.
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ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Not Applicable.
10.B. Memorandum and Articles of Association
We are a BVI business company incorporated in the British Virgin Islands and our affairs are governed by the provisions of our Memorandum and Articles of Association, as amended and restated from time to time (“M&A”), and the BVI Business Companies Act, 2004 (the “BVI Act”), and the applicable laws of the BVI (including applicable common law).
Our M&A authorizes us to issue unlimited shares consisting of one class of Ordinary Shares, of the Company, no par value each. A copy of our M&A, effective on September 29, 2023, which was filed as Exhibit 1.5 to this annual report.
On September 11, 2023, the Company’s board of directors approved an amended and restated memorandum and articles of association to effectuate a one-for-twenty-five (1-for-25) reverse split for its ordinary shares. The amended and restated memorandum and articles of association became effective on September 29, 2023. The market effective date of 2023 Reverse Split was October 5, 2023, which was the first day when the Company’s ordinary shares begin trading on a split-adjusted basis. The 2023 Reverse Split did not change the number of the Company’s authorized preferred and ordinary shares, which remain as unlimited. As a result of the 2023 Reverse Split, the shareholders received one new ordinary share of the Company, no par value each, for every twenty-five (25) shares they hold. No fractional ordinary shares were issued to any shareholders in connection with the reverse stock split. Each shareholder was entitled to receive one ordinary share in lieu of the fractional share that would have resulted from the reverse stock split. The share numbers in this annual report are all presented on a post-split basis unless otherwise noted. Holders of Ordinary Shares are entitled to one vote per share. In addition, on February 25, 2025, the Company has further effectuated a one-for-eight (1:8) reverse split for its ordinary shares (the “2025 Reverse Split”). On September 29, 2023, the Company’s board of directors approved the elimination of par value for its ordinary shares, and thereafter, no par value is assigned to the ordinary shares. Accordingly, the reverse stock splits effected on October 5, 2023 and February 25, 2025 did not involve any change in par value for its ordinary shares, and as a result of the 2025 Reverse Split, the shareholders received one new ordinary share of the Company, no par value each, for every eight (8) shares they hold.
The following description of our authorized shares and our constitutional rules under our M&A is qualified in its entirety by reference to our M&A, which have been filed as an exhibit to the annual report and incorporated herein by reference.
M&A
The following discussion describes our M&A:
Objects and Purposes, Register, and Shareholders. Subject to the BVI Act and our M&A, our objects and purposes are unlimited other than any object not prohibited by the BVI Act or any other law of the British Virgin Islands. Our register of members will be maintained by our registered agent. The entry of the name of a person in the register of members as a holder of a share in a BVI company is prima facie evidence that legal title in the share vests in that person. Under the BVI Act, a BVI company may treat the registered holder of a share as the only person entitled to (a) exercise any voting rights attaching to the share, (b) receive notices, (c) receive a distribution in respect of the share and (d) exercise other rights and powers attaching to the share. Consequently, as a matter of BVI law, where a shareholder’s shares are registered in the name of a nominee, the nominee is entitled to receive notices, receive distributions and exercise rights in respect of any such shares registered in its name. The beneficial owners of the shares registered in a nominee’s name will therefore be reliant on their contractual arrangements with the nominee in order to receive notices and dividends and ensure the nominee exercises voting and other rights in respect of the shares in accordance with their directions.
Directors’ Powers. Under the BVI Act, subject to any modifications or limitations in a company’s M&A, a company’s business and affairs are managed by, or under the direction or supervision of, its directors; and directors generally have all powers necessary to manage a company. A director must disclose any interest he has on any proposal, arrangement or contract not entered into in the ordinary course of business and on usual terms and conditions. An interested director may (subject to the M&A) vote on a transaction in which he has an interest. In accordance with, and subject to, our M&A, the directors may by resolution of directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party.
Rights, Preferences and Restrictions of Ordinary Shares. Our directors may (subject to the M&A) authorize dividends at such time and in such amount as they determine. Each Ordinary Share is entitled to one vote. In the event of a liquidation or dissolution of the Company, the holders of Ordinary Shares are (subject to the M&A) entitled to share ratably in all surplus assets remaining available for distribution to them after payment and discharge of all claims, debts, liabilities and obligations of the Company and after provision is made for each class of shares (if any) having preference over the Ordinary Shares if any at that time. There are no sinking fund provisions applicable to our Ordinary Shares. Holders of our Ordinary Shares have no pre-emptive rights. Subject to the provisions of the BVI Act, we may, (subject to the M&A) with shareholder consent, repurchase our Ordinary Shares in certain circumstances provided always that the company will, immediately after the repurchase, satisfy the solvency test. The company will satisfy the solvency test, if (i) the value of the company’s assets exceeds its liabilities; and (ii) the company is able to pay its debts as they fall due.
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In accordance with the BVI Act:
| (i) | the company may purchase, redeem or otherwise acquire its own shares in accordance with either (a) Sections 60, 61 and 62 of the BVI Act (save to the extent that those Sections are negated, modified or inconsistent with provisions for the purchase, redemption or acquisition of its own shares specified in the company’s M&A); or (b) such other provisions for the purchase, redemption or acquisition of its own shares as may be specified in the company’s M&A; |
| (ii) | where a company may purchase, redeem or otherwise acquire its own shares otherwise than in accordance with Sections 60, 61 and 62 of the BVI Act, it may not purchase, redeem or otherwise acquire the shares without the consent of the shareholder whose shares are to be purchased, redeemed or otherwise acquired, unless the company is permitted by the M&A to purchase, redeem or otherwise acquire the shares without that consent; and |
| (iii) | unless the shares are held as treasury shares in accordance with Section 64 of the BVI Act, any shares acquired by the Company are deemed to be cancelled immediately on purchase, redemption or other acquisition. |
Variation of the Rights of Shareholders. As permitted by the BVI Act and in accordance with our M&A, the rights attached to shares of the Company may (subject to the M&A) only, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than one third of the issued shares of that class and the holders of not less than one third of the issued shares of any other class which may be affected by such variation.
Shareholder Meetings. In accordance with, and subject to, our M&A, (a) any director of the Company may convene meetings of the shareholders at such times as the director considers necessary or desirable (and the director convening a meeting of shareholders may fix as the record date for determining those shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice); and (b) upon the written request of shareholders entitled to exercise thirty percent (30%) (or such lesser percentage that may be accepted by the directors in their absolute discretion) or more of the voting rights in respect of the matter for which the meeting is requested, the directors shall convene a meeting of shareholders. In accordance with, and subject to, our M&A, (a) the director convening a meeting shall give not less than seven (7) days’ notice of a meeting of shareholders to those shareholders whose names on the date the notice is given appear as shareholders in the register of shareholders of the Company and are entitled to vote at the meeting; and the other directors; (b) a meeting of shareholders held in contravention of the requirement to give notice is valid if shareholders holding at least ninety percent (90%) of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a shareholder at the meeting shall constitute waiver in relation to all of the Ordinary Shares that that shareholder holds; (c) a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than one third of the votes of the Ordinary Shares or class or series of Ordinary Shares entitled to vote on resolutions of shareholders to be considered at the meeting; and (d) if within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the request of the shareholders, shall be dissolved.
Dividends. Subject to the BVI Act and our M&A, our directors may, by resolution, declare dividends at a time and amount as they think fit if they are satisfied, based on reasonable grounds, that, immediately after distribution of the dividend, the value of our assets will exceed our liabilities and we will be able to pay our debts as they fall due. There is no further BVI law restriction on the amount of funds which may be distributed by us by dividend, including all amounts paid by way of the subscription price for Ordinary Shares regardless of whether such amounts may be wholly or partially treated as share capital or share premium under certain accounting principles. Shareholder approval is not (except as otherwise provided in our M&As) required to pay dividends under BVI law. In accordance with, and subject to, our M&A, no dividend shall bear interest as against the Company (except as otherwise provided in our M&As).
Disclosure of the Securities and Exchange Commission’s Position on Indemnification for Securities Act Liabilities. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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Transfer of Shares. Subject to any applicable restrictions or limitations arising pursuant to (i) our M&A; or (ii) the BVI Act, any of our shareholders may transfer all or any of his or her shares by an instrument of transfer in the usual or common form or in any other form which our directors may approve (such instrument of transfer being signed by the transferor and containing the name and address of the transferee). Our M&A also (save as otherwise provided therein) provide that (i) where Ordinary Shares of the Company are listed on the Nasdaq Capital Market or any other stock exchange or automated quotation system on which the Ordinary Shares are then traded (the “Recognised Exchange”), shares may be transferred without the need for a written instrument of transfer if the transfer is carried out in accordance with the law, rules, procedures and other requirements applicable to shares listed on the Recognised Exchange or (ii) shares may be transferred by means of a system utilized for the purposes of holding and transferring shares in uncertified form (the “Relevant System”), and that the operator of the Relevant System (and any other person necessary to ensure the Relevant System is effective to transfer shares) shall act as agent and attorney-in-fact of the Shareholders for the purposes of the transfer of any shares transferred by means of the Relevant System (including, for such purposes, to execute and deliver an instrument of transfer in the name of and on behalf of any Shareholder who is transferring shares).
Summary of Certain Significant Provisions of the BVI Act
The BVI Act differs from laws applicable to US corporations and their shareholders. Set forth below is a summary of certain significant provisions of the BVI Act applicable to us (save to the extent that such provisions have been, to the extent permitted under the BVI Act, negated or modified in our M&A in accordance with the BVI Act).
Mergers, Consolidations and Similar Arrangements. The BVI Act provides for mergers as that expression is understood under US corporate law. Common law mergers are also permitted outside of the scope of the BVI Act. Under the BVI Act, two or more companies may either merge into one of such existing companies, or the surviving company, or consolidate with both existing companies ceasing to exist and forming a new company, or the consolidated company. The procedure for a merger or consolidation between our Company and another company (which need not be a BVI company) is set out in the BVI Act. The directors of the BVI company or BVI companies which are to merge or consolidate must approve a written plan of merger or consolidation which must also be authorized by a resolution of shareholders (and the outstanding shares of every class of shares that are entitled to vote on the merger or consolidation as a class if the memorandum or articles of association so provide or if the plan of merger or consolidation contains any provisions that, if contained in a proposed amendment to the memorandum or articles, would entitle the class to vote on the proposed amendment as a class) of the shareholders of the BVI company or BVI companies which are to merge. A foreign company which is able under the laws of its foreign jurisdiction to participate in the merger or consolidation is required by the BVI Act to comply with the laws of that foreign jurisdiction in relation to the merger or consolidation. The BVI company must then execute articles of merger or consolidation, containing certain prescribed details. The plan and articles of merger or consolidation are then filed with the Registrar of Corporate Affairs in the BVI, or the Registrar. If the surviving company or the consolidated company is to be incorporated under the laws of a jurisdiction outside BVI, it shall file the additional instruments required under Section 174(2)(b) of the BVI Act. The Registrar then (if he or she is satisfied that the requirements of the BVI Act have been complied with) registers, in the case of a merger, the articles of merger or consolidation and any amendment to the M&A of the surviving company and, in the case of a consolidation, the M&A of the new consolidated company and issues a certificate of merger or consolidation (which is conclusive evidence of compliance with all requirements of the BVI Act in respect of the merger or consolidation). The merger or consolidation is effective on the date that the articles of merger or consolidation are registered by the Registrar or on such subsequent date, not exceeding thirty days, as is stated in the articles of merger or consolidation but if the surviving company or the consolidated company is a company incorporated under the laws of a jurisdiction outside the BVI, the merger or consolidation is effective as provided by the laws of that other jurisdiction.
As soon as a merger or consolidation becomes effective (inter alia), (a) the surviving company or consolidated company (so far as is consistent with its amended M&A, as amended or established by the articles of merger or consolidation) has all rights, privileges, immunities, powers, objects and purposes of each of the constituent companies; (b) the M&A of any surviving company are automatically amended to the extent, if any, that changes to its amended M&A are contained in the articles of merger; (c) assets of every description, including choses-in-action and the business of each of the constituent companies, immediately vest in the surviving company or consolidated company; (d) the surviving company or consolidated company is liable for all claims, debts, liabilities and obligations of each of the constituent companies; (e) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against a constituent company or against any shareholder, director, officer or agent thereof, is released or impaired by the merger or consolidation; and (f) no proceedings, whether civil or criminal, pending at the time of a merger or consolidation by or against a constituent company, or against any shareholder, director, officer or agent thereof, are abated or discontinued by the merger or consolidation, but: (i) the proceedings may be enforced, prosecuted, settled or compromised by or against the surviving company or consolidated company or against the shareholder, director, officer or agent thereof, as the case may be or (ii) the surviving company or consolidated company may be substituted in the proceedings for a constituent company but if the surviving company or the consolidated company is incorporated under the laws of a jurisdiction outside the BVI, the effect of the merger or consolidation is the same as noted foregoing except in so far as the laws of the other jurisdiction otherwise provide.
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The Registrar shall strike off the register of companies each constituent company that is not the surviving company in the case of a merger and all constituent companies in the case of a consolidation (save that this shall not apply to a foreign company).
If the directors determine it to be in the best interests of us, it is also possible for a merger to be approved as a court approved plan of arrangement or as a scheme of arrangement in accordance with (in each such case) the BVI Act. The convening of any necessary shareholders meetings and subsequently the arrangement must be authorized by the BVI court. A scheme of arrangement requires the approval of 75% of the votes of the shareholders or class of shareholders, 75% in value of the creditors or class of creditors, as the case may be. If the effect of the scheme is different in relation to different shareholders, it may be necessary for them to vote separately in relation to the scheme, with it being required to secure the requisite approval level of each separate voting group. Under a plan of arrangement, a BVI court may determine what shareholder approvals are required and the manner of obtaining the approval.
Continuation into a Jurisdiction Outside the BVI. In accordance with, and subject to, our M&A, the Company may by resolution of Shareholders or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the BVI in the manner provided under those laws. The Company does not cease to be a BVI company unless the foreign law permits continuation and the BVI company has complied with the requirements of that foreign law. Where a company is continued under the laws of a jurisdiction outside the BVI, (a) the Company continues to be liable for all of its claims, debts, liabilities and obligations that existed prior to its continuation, (b) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against the Company or against any shareholder, director, officer or agent thereof, is released or impaired by its continuation as a company under the laws of the jurisdiction outside the BVI, (c) no proceedings, whether civil or criminal, pending by or against the Company, or against any shareholder, director, officer or agent thereof, are abated or discontinued by its continuation as a company under the laws of the jurisdiction outside the BVI, but the proceedings may be enforced, prosecuted, settled or compromised by or against the Company or against the shareholder, director, officer or agent thereof, as the case may be; and (d) service of process may continue to be effected on the registered agent of the Company in the BVI in respect of any claim, debt, liability or obligation of the Company during its existence as a company under the BVI Act.
Directors. In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any Ordinary Shares), (a) the directors are elected by resolution of shareholders or by resolution of directors for such term as the shareholders or directors determine; (b) each director holds office until his disqualification, death, resignation or removal; (c) a director may be removed from office by resolution of directors or resolution of shareholders; (d) a director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company at the office of its registered agent or from such later date as may be specified in the notice and a director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the BVI Act; and (e) a director is not required to hold Ordinary Shares as a qualification to office.
In accordance with, and subject to, our M&A, (a) any one director of the Company may call a meeting of the directors by sending a written notice to each other director; (b) the directors of the Company or any committee thereof may meet at such times and in such manner as the directors may determine to be necessary or desirable; (c) a director shall be given not less than three (3) days’ notice of meetings of directors, but a meeting of directors held without three (3) days’ notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend waive notice of the meeting, and the inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting; (d) a meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than such number as may be fixed by the directors and if not fixed shall be two (2), unless there are only one (1) director in which case the quorum is one; (e) a director may by a written instrument appoint an alternate who need not be a director and the alternate shall be entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director until the appointment lapses or is terminated; (f) a resolution of directors is passed if either (i) the resolution is approved at a duly convened and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority casting the vote; or (ii) in the form of written resolution by all of the directors or by all of the members of a committee of directors of the Company, as the case may be, unless (in either case) the BVI Act or our M&A require a different majority.
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Indemnification of Directors. In accordance with, and subject to, our M&A (including the limitations detailed therein), the Company shall indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who (a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director of the Company; or (b) is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise.
In accordance with, and subject to, our M&A (including the limitations detailed therein), the indemnity referred to above only applies if the liability does not arise as a result of actual fraud or willful default of the indemnified person.
In accordance with, and subject to, our M&A, the Company may purchase and maintain insurance in relation to any person who is or was a director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in the articles.
Directors and Conflicts of Interest. As noted above, pursuant to the BVI Act and the Company’s M&A, a director of a company who has an interest in a transaction and who has declared such interest to the other directors, may:
| (a) | vote on a matter relating to the transaction; |
| (b) | attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and |
| (c) | sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction, and, subject to compliance with the BVI Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit. |
In accordance with, and subject to, our M&A, no director shall be disqualified by his office from contracting with the Company either as a buyer, seller or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any director shall be in any way interested be voided, nor shall any director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or arrangement, by reason of such director holding that office or by reason of the fiduciary relationship thereby established, provided such director shall, immediately after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose such interest to the board. For the purposes noted foregoing, a disclosure to all other directors to the effect that a director is a member, director, officer or trustee of another named company or other person and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction.
Shareholders’ Suits. The enforcement of the Company’s rights will ordinarily be a matter for its directors.
In certain circumstances, a shareholder has the right to seek various remedies against a BVI company in the event the directors are in breach of their duties under the BVI Act. Pursuant to Section 184B of the BVI Act, if a company or director of a BVI company engages, proposes to engage in, or has engaged in conduct that contravenes the provisions of the BVI Act or the M&A of the company, the BVI court may, on application of a shareholder or director of the company, make an order directing the company or director to comply with, or restraining the company or director from engaging in conduct that contravenes, the BVI Act or the memorandum or articles of association.
Furthermore, pursuant to Section 184I(1) of the BVI Act a shareholder of a company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or any acts of the company have been, or are likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI Court for an order which, inter alia, can require the company or any other person to pay compensation to the shareholder.
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The BVI Act provides for a series of remedies available to shareholders. Where a company incorporated under the BVI Act conducts some activity which contravenes the BVI Act or the company’s M&A, the court can issue a restraining or compliance order. Under Section 184G of the BVI Act, a shareholder of a company may bring an action against the company for breach of a duty owed by the company to him as a shareholder. A shareholder also pursuant to Section 184C of the BVI Act may, with the leave of the BVI court, bring proceedings or intervene in proceedings in the name of the company, in certain circumstances. Such actions are known as derivative actions. The BVI court may only grant leave to bring a derivative action where the following circumstances apply:
| ● | the company does not intend to bring, diligently continue or defend or discontinue proceedings; and |
| ● | it is in the interests of the company that the conduct of the proceedings not be left to the directors or to the determination of the shareholders as a whole. |
When considering whether to grant leave, the BVI court is also required to have regard to the following matters:
| ● | whether the shareholder is acting in good faith; |
| ● | whether a derivative action is in the company’s interests, taking into account the directors’ views on commercial matters; |
| ● | whether the proceedings are likely to succeed; |
| ● | the costs of the proceedings; and |
| ● | whether an alternative remedy is available. |
Any shareholder of a company may apply to the BVI court under the Insolvency Act, 2003 of the BVI (the “Insolvency Act”) for the appointment of a liquidator to liquidate the company and the court may appoint a liquidator for the company if it is of the opinion that it is just and equitable to do so.
Appraisal Rights. The BVI Act provides that any shareholder of a company is entitled to payment of the fair value of his shares upon dissenting from any of the following: (a) a merger if the company is a constituent company, unless the company is the surviving company and the shareholder continues to hold the same or similar shares; (b) a consolidation, if the company is a constituent company; (c) any sale, transfer, lease, exchange or other disposition of more than 50% in value of the assets or business of the Company if not made in the usual or regular course of the business carried on by the Company but not including: (i) a disposition pursuant to an order of the court having jurisdiction in the matter, (ii) a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the shareholders in accordance with their respective interests within one year after the date of disposition, or (iii) a transfer pursuant to the power of the directors to transfer assets for the protection thereof; (d) a compulsory redemption of 10% or fewer of the issued shares of the Company required by the holders of 90% or more of the votes of the outstanding shares of the Company pursuant to the terms of Section 176 of the BVI Act; and (e) an arrangement, if permitted by the BVI court.
Generally, any other claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the BVI or their individual rights as shareholders as established by the company’s M&A. There are common law rights for the protection of shareholders that may be invoked, largely derived from English common law. For example, under the rule established in the English case known as Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to seek to have the affairs of the company conducted properly according to law and the constituent documents of the company. As such, if those who control the Company have persistently disregarded the requirements of company law or the provisions of the company’s M&A, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following:
| ● | a company is acting or proposing to act illegally or beyond the scope of its authority; |
| ● | the act complained of, although not beyond the scope of the authority, could only be effected if duly authorized by more than the number of votes which have actually been obtained; |
| ● | the individual rights of the plaintiff shareholder have been infringed or are about to be infringed; or |
| ● | those who control the Company are perpetrating a “fraud on the minority.” |
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Share Repurchases and Redemptions. As permitted by the BVI Act and subject to our M&A, shares may be repurchased, redeemed or otherwise acquired by us with shareholder consent. Depending on the circumstances of the redemption or repurchase, our directors may need to determine that, immediately following the redemption or repurchase, we will be able to satisfy our debts as they fall due and the value of our assets exceeds our liabilities. Our directors may only exercise this power on our behalf, subject to the BVI Act, our M&A and to any applicable requirements imposed from time to time by the SEC, the NASDAQ or any other stock exchange on which our securities are listed.
Inspection of Books and Records. Under the BVI Act, members of the general public, on payment of a nominal fee, can obtain copies of the public records of a company available at the office of the Registrar, including the company’s certificate of incorporation, its M&A (with any amendments thereto), records of license fees paid to date, any articles of dissolution, any articles of merger, and a register of charges created by the company (if the Company has elected to file such a register or an applicable charge has caused the same to be filed).
A shareholder of a company is entitled, on giving written notice to the company, to inspect:
| (a) | the M&A; |
| (b) | the register of members; |
| (c) | the register of directors; and |
| (d) | the minutes of meetings and resolutions of shareholders and of those classes of shares of which he is a shareholder. |
In addition, a shareholder may make copies of or take extracts from the documents and records referred to in (a) through (d) above. However, subject to the M&A of the Company, the directors may, if they are satisfied that it would be contrary to the Company’s interests to allow a shareholder to inspect any document, or part of any document, specified in (b), (c) or (d) above, refuse to permit the shareholder to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts from the records. Where a company fails or refuses to permit a shareholder to inspect a document or permits a shareholder to inspect a document subject to limitations, that shareholder may apply to the High Court of the BVI for an order that he should be permitted to inspect the document or to inspect the document without limitation.
Our registered agent is Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. A company is required to keep a copy of its register of members and register of directors at the offices of its registered agent in the BVI, and the Company is required to notify any changes to the originals of such registers (assuming the originals are held elsewhere) to the registered agent, in writing, within 15 days of any change; and to provide the registered agent with a written record of the physical address of the place or places at which the original register of members or the original register of directors is kept.
Where the place at which the original register of members or the original register of directors of the Company is changed, the Company must provide the registered agent with the physical address of the new location of the records within 14 days of the change of location.
A company is also required to keep at the office of its registered agent or at such other place or places, within or outside the BVI, as the directors may determine the minutes of meetings and resolutions of shareholders and of classes of shareholders; and the minutes of meetings and resolutions of directors and committees of directors. If such records are kept at a place other than at the office of the Company’s registered agent, the Company is required to provide the registered agent with a written record of the physical address of the place or places at which the records are kept and to notify the registered agent, within 14 days, of the physical address of any new location where such records may be kept.
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Dissolution; Winding Up. As permitted by the BVI Act and subject to our M&A, we may be voluntarily liquidated and dissolved under Part XII of the BVI Act by resolution of directors and resolution of shareholders if we have no liabilities or we are able to pay our debts as they fall due and the value of our assets equals or exceeds our liabilities.
We also may be wound up and dissolved in circumstances where we are insolvent in accordance with the terms of the Insolvency Act.
Anti-Money Laundering Laws. In order to comply with legislation and regulations aimed at the prevention of money laundering we are required to adopt and maintain anti-money laundering procedures, and may require subscribers to provide evidence to verify their identity. Where permitted, and subject to certain conditions, we also may delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person. We reserve the right to request such information as is necessary to verify the identity of a subscriber. In the event of delay or failure on the part of the subscriber in producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited.
If any person resident in the BVI knows or suspects that another person is engaged in money laundering or terrorist financing and the information for that knowledge or suspicion came to his or her attention in the course of his or her business the person will be required to report his belief or suspicion to the Financial Investigation Agency of the BVI, pursuant to the Proceeds of Criminal Conduct Act 1997 (as amended). Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.
Exchange controls. We know of no BVI laws, decrees, regulations or other legislation that limit the import or export of capital or the payment of dividends to shareholders holders who do not reside in the BVI.
Material Differences in BVI Law and our Amended and Restated M&A and Delaware Law
Our corporate affairs are governed by our amended and restated M&A and the provisions of applicable BVI law, including the BVI Act and BVI common law. The BVI Act differs from laws applicable to US corporations and their shareholders. The following table provides a comparison between certain statutory provisions of the BVI Act (together with the provisions of our M&A) and the Delaware General Corporation Law relating to shareholders’ rights.
Shareholder Meetings
| BVI | Delaware | |||
| ● | In accordance with, and subject to, our M&A, (a) any director of the company may convene meetings of the shareholders at such times and in such manner as the director considers necessary or desirable; and (b) upon the written request of shareholders entitled to exercise thirty percent (30%) or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting of shareholders | ● | May be held at such time or place as designated in the charter or the by-laws, or if not so designated, as determined by the board of directors | |
| ● | May be held inside or outside the BVI | ● | May be held inside or outside Delaware | |
| ● | In accordance with, and subject to, our M&A, (a) the director convening a meeting shall give not less than 7 days’ notice of a meeting of shareholders to those shareholders whose names on the date the notice is given appear as shareholders in the register of members of the company and are entitled to vote at the meeting; and the other directors; and (b) the director convening a meeting of shareholders may fix as the record date for determining those shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice | ● | Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any | |
| ● | In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) a shareholder may be represented at a meeting of shareholders by a proxy who may speak and vote on behalf of the shareholder; and (b) the instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice of the meeting may specify an alternative or additional place or time at which the proxy shall be presented. | ● | Any person authorized to vote may authorize another person or persons to act for him by proxy | |
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Shareholder’s Voting Rights
| BVI | Delaware | |||
| ● | In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than one third of the votes of the Ordinary Shares or class or series of Ordinary Shares entitled to vote on resolutions of shareholders to be considered at the meeting; and (b) if within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the request of shareholders, shall be dissolved. | ● | The charter or bylaws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares shall constitute a quorum | |
| ● | In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), (a) at any meeting of the shareholders, a resolution put to the vote of the meeting shall be decided on a show of hands by a simple majority, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the Chairman; or one or more shareholders present in person or by proxy entitled to vote and who together hold not less than 10 percent of the total voting share issued and having the right to vote on such resolution. Unless a poll is so demanded, a declaration by the Chairman that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of or against such resolution; (b)if a poll is duly demanded it shall be taken in such manner as the Chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn, at the discretion of the Chairman; (c) on a poll, every holder of a voting share present in person or by proxy shall have one vote for every voting share of which he is the holder which confers the right to a vote on the resolution; and (d) in the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place, or at which the poll is demanded, shall not be entitled to a second or casting vote. In accordance with the BVI Act, a shareholder resolution is passed if approved by a majority of in excess of 50% or, if a higher majority is required by the M&A, that higher majority, of the votes of those shareholders entitled to vote and voting on the resolution; unless (in either case) the BVI Act or our M&A require a different majority. | |||
| ● | In accordance with, and subject to, our M&A, (a) the rights attached to Ordinary Shares as specified in the M&A may only, whether or not the company is being wound up, be varied with the consent in writing of the holders of not less than one third of the issued shares of that class and the holders of not less than one third of the issued shares of any other class which may be affected by such variation., except where some other majority is required under our M&A or the BVI Act. | ● | Except as provided in the charter documents, changes in the rights of shareholders as set forth in the charter documents require approval of a majority of its shareholders | |
| ● | In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any shares), the company may amend its memorandum or articles by a resolution of shareholders or by a resolution of directors, save that no amendment may be made by a Resolution of directors: (i) to restrict the rights or powers of the shareholders to amend the memorandum or articles; (ii) to change the percentage of shareholders required to pass a Resolution of Shareholders to amend the memorandum or articles; (iii) in circumstances where the memorandum or articles cannot be amended by the shareholders. | ● | The certificate of incorporation or bylaws may provide for cumulative voting | |
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Directors
| BVI | Delaware | |||
| ● | In accordance with, and subject to, our M&A, the minimum number of directors shall be one | ● | Board must consist of at least one member | |
| ● | In accordance with, and subject to, our M&A (including, for the avoidance of any doubt, any rights or restrictions attaching to any Ordinary Shares), (a) the directors are elected by resolution of shareholders or by resolution of directors for such term as the shareholders or directors determine; (b) each director holds office until his disqualification, death, resignation or removal; (c) a director may be removed from office by resolution of directors or resolution of shareholders; (d) a director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company at the office of its registered agent or from such later date as may be specified in the notice and a director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the BVI Act; and (e) a director is not required to hold Ordinary Shares as a qualification to office. | ● | Number of board members shall be fixed by the by laws, unless the charter fixes the number of directors, in which case a change in the number shall be made only by amendment of the charter | |
| ● | Directors do not have to be independent. | ● | Directors do not have to be independent | |
Fiduciary Duties
| BVI | Delaware | |||
| ● | Directors owe duties at both common law and under statute including as follows: | ● | Directors and officers must act in good faith, with the care of a prudent person, and in the best interest of the corporation | |
| ● | Duty to act honestly and in good faith and in what the director believes to be in the best interests of the company; | ● | Directors and officers must refrain from self-dealing, usurping corporate opportunities and receiving improper personal benefits | |
| ● | Duty to exercise powers for a proper purpose and directors shall not act, or agree to the Company acting, in a manner that contravenes the BVI Act or the M&A; | |||
| ● | The BVI Act provides that a director of a company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into, or to be entered into, by the company, disclose the interest to the board of the company. However, the failure of a director to disclose that interest does not affect the validity of a transaction entered into by the director or the company, so long as the transaction was not required to be disclosed because the transaction is between the company and the director himself and is in the ordinary course of business and on usual terms and conditions. Additionally, the failure of a director to disclose an interest does not affect the validity of the transaction entered into by the company if (a) the material facts of the interest of the director in the transaction are known by the shareholders entitled to vote at a meeting of shareholders and the transaction is approved or ratified by a resolution of shareholders or (b) the company received fair value for the transaction | ● | Directors may vote on a matter in which they have an interest so long as the director has disclosed any interests in the transaction | |
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Shareholder’s Derivative Actions
| BVI | Delaware | |||
| ● | Generally speaking, the company is the proper plaintiff in any action. A shareholder may, with the leave of the BVI court, bring proceedings or intervene in proceedings in the name of the company, in certain circumstances. Such actions are known as derivative actions. The BVI court may only grant leave to bring a derivative action where the following circumstances apply: | ● | In any derivative suit instituted by a shareholder of a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the corporation at the time of the transaction of which he complains or that such shareholder’s stock thereafter devolved upon such shareholder by operation of law | |
| ● | the company does not intend to bring, diligently continue or defend or discontinue the proceedings; and | ● | Complaint shall set forth with particularity the efforts of the plaintiff to obtain the action by the board or the reasons for not making such effort | |
| ● | it is in the interests of the company that the conduct of the proceedings not be left to the directors or to the determination of the shareholders as a whole when considering whether to grant leave, the BVI court is also required to have regard to the following matters: | ● | Such action shall not be dismissed or compromised without the approval of the Delaware Court of Chancery | |
| i. | whether the shareholder is acting in good faith; | |
| ii. | whether a derivative action is in the interests of the company, taking into account the directors’ views on commercial matters; | |
| iii. | whether the action is likely to succeed; | |
| iv. | the costs of the proceedings in relation to the relief likely to be obtained; and | |
| v. | whether an alternative remedy to the derivative claim is available |
10.C. Material Contracts
The following descriptions of the material provisions of the referenced agreements do not purport to be complete and are subject to, and qualified in their entirety by reference to the agreements which have been filed as exhibits to this report.
The Underwriting Agreement with Aegis Capital Corp.
On January 18, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp. (the “Underwriter”), pursuant to which the Company agreed to sell to the Underwriter, in a firm commitment public offering (the “Offering”) (i) 8,285,260 ordinary shares (pre-2022 Reverse Split, the “Firm Shares”) of the Company, for a public offering price of $0.18 per share (pre-2022 Reverse Split), (ii) 11,521,500 pre-funded warrants (the “Pre-funded Warrants”) to purchase 11,521,500 shares (pre-2022 Reverse Split, the “Warrant Shares”), for a public offering price of $0.17 per Pre-funded Warrant to those purchasers whose purchase of ordinary shares in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding ordinary shares immediately following the consummation of this Offering. The Company also granted the Underwriter an over-allotment option to purchase up to 2,971,014 ordinary shares (pre-2022 Reverse Split, the “Option Shares”, together with Firm Shares, the “Shares”). The Pre-funded Warrants have an exercise price of $0.01 per share. The Pre-funded Warrants were issued in registered form under a warrant agent agreement (the “Warrant Agent Agreement”) between the Company and TranShare Corporation as the warrant agent. The Underwriter has exercised, an over-allotment option to purchase the Option Shares.
As of February 8, 2022, the investors have exercised all the Pre-funded Warrants to purchase 11,521,500 ordinary shares (pre-2022 Reverse Split). As a result, the number of issued and outstanding ordinary shares of the Company was 40,627,868 (pre-2022 Reverse Split) as of February 9, 2022.
The Underwriting Agreement and the form of the Warrant Agent Agreement were filed as Exhibits 1.1 and 4.1 to the Current Report on Form 6-K filed with the Commission on January 21, 2022, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the Underwriting Agreement and the Warrant Agent Agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
85
The Securities Purchase Agreement with Streeterville Capital, LLC (March 2022)
On March 14, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company, pursuant to which the Company issued Streeterville an unsecured promissory note on March 16, 2022 in the original principal amount of $2,804,848.00 (the “2022 Note”), convertible into ordinary shares, $0.004 par value per share (pre-2022 Reverse Split), of the Company (the “Pre-reverse Ordinary Shares”), for $2,636,557.00 in gross proceeds.
The 2022 Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on the 2022 Note will become due and payable twelve months after the purchase price of the 2022 Note is delivered by Purchaser to the Company (the “Purchase Price Date”). The 2022 Note includes an original issue discount of $168,291.00 along with $20,000.00 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the Note. The Company may prepay all or a portion of the 2022 Note at any time by paying 120% of the outstanding balance elected for pre-payment. The Investor has the right to redeem the 2022 Note at any time ninety (90) days after the Purchase Price Date, subject to maximum monthly redemption amount of $600,000. Redemptions may be satisfied in cash or Pre-reverse Ordinary Shares at the Company’s election during the period ninety (90) days after the Purchase Price Date and six months after the Purchase Price Date. However, the Company will be required to pay the redemption amount in cash, in the event there is an Equity Conditions Failure (as defined in the Note). If Company chooses to satisfy a redemption in Pre-reverse Ordinary Shares, such Pre-reverse Ordinary Shares shall be issued at a redemption conversion price of the lower of (i) the Lender Conversion Price (as defined in the Note) which is initially $0.30 and (ii) 80% of the average of the lowest VWAP during the fifteen (15) trading days immediately preceding the redemption notice is delivered. In addition, Streeterville agreed that in any given calendar week (being from Sunday to Saturday of that week), the number of Pre-reverse Ordinary Shares sold by it in the open market will not be more than fifteen percent (15%) of the weekly trading volume for the Pre-reverse Ordinary Shares during any such week.
Under the Purchase Agreement, while the 2022 Note is outstanding, the Company agreed to keep adequate public information available and maintain its Nasdaq listing. Upon the occurrence of a Trigger Event (as defined in the 2022 Note), Streeterville shall have the right to increase the balance of the 2022 Note by 15% for Major Trigger Event (as defined in the 2022 Note) and 5% for Minor Trigger Event (as defined in the 2022 Note). In addition, the 2022 Note provides that upon occurrence of an Event of Default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law.
As of the date of this annual report, Streeterville has redeemed all original principal amount and interest fee and the Company has issued 4,748,930 Ordinary Shares (pre-2022 Reverse Split) to Streeterville upon conversion of the note issued on March 16, 2022.
The form of the Purchase Agreement and the form of the Note are filed as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed with the Commission on March 16, 2022, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the Purchase Agreement and the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
The Securities Purchase Agreement relating to the offering and sale of 1,625,798 Ordinary Shares.
On September 22, 2022, the Company entered into certain securities purchase agreement (the “SPA”) with Zhijun Xiao, a non-affiliate non-U.S. person, pursuant to which Mr. Xiao agreed to purchase 1,625,798 Ordinary Shares (pre-2023 Reverse Split) of the Company, par value $0.08 per share at a per share purchase price of $1.35. The gross proceeds of this transaction are $2,194,827.3.
On October 11, 2022, the Company received the funds from Zhijun Xiao and issued the Ordinary Shares in reliance of the exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation S promulgated thereunder. On October 11, 2022, the transaction contemplated by the SPA closed since all the closing conditions of the SPA have been satisfied or waived.
The form of the securities purchase agreement is filed as Exhibit 10.1 to the Current Report on Form 6-K filed with the Commission on September 27, 2022, and such document is incorporated herein by reference.
The foregoing is only a brief description of the material terms of the securities purchase agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.
86
The Securities Purchase Agreement with Streeterville Capital, LLC (December 2022)
On December 19, 2022, the Company entered into a securities purchase agreement (the “2022 Streeterville Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company, pursuant to which the Company issued Streeterville an unsecured promissory note on December 19, 2022 in the original principal amount of $1,595,000.00 (the “Note”), convertible into Ordinary Shares, $0.08 par value per share, of the Company, for $1,500,000.00 in gross proceeds.
The Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on the Note will become due and payable twelve months after the purchase price of the Note is delivered by Purchaser to the Company (the “Purchase Price Date”). The Note includes an original issue discount of $95,000.00 along with $20,000.00 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the Note. The Company may prepay all or a portion of the Note at any time by paying 120% of the outstanding balance elected for pre-payment. The Investor has the right to redeem the Note at on the earlier of the date that is six (6) months from the Purchase Price Date and the effective date of the first prospectus supplement filed in connection with the Note, subject to maximum monthly redemption amount of $425,000.00. Redemptions may be satisfied in cash or Ordinary Shares at the Company’s election. However, the Company will be required to pay the redemption amount in cash, in the event there is an Equity Conditions Failure (as defined in the Note). If Company chooses to satisfy a redemption in Ordinary Shares, such Ordinary Shares shall be issued at a redemption conversion price of the lower of (i) the Lender Conversion Price (as defined in the Note) which is initially $0.60 and (ii) 80% of the average of the lowest VWAP during the fifteen (15) trading days immediately preceding the redemption notice is delivered. In addition, Streeterville agreed that in any given calendar week (being from Sunday to Saturday of that week), the number of Ordinary Shares sold by it in the open market will not be more than fifteen percent (15%) of the weekly trading volume for the Ordinary Shares during any such week.
Under the 2022 Streeterville Purchase Agreement, while the Note is outstanding, the Company agreed to keep adequate public information available and maintain its Nasdaq listing. Upon the occurrence of a Trigger Event (as defined in the Note), Streeterville shall have the right to increase the balance of the Note by 15% for Major Trigger Event (as defined in the Note) and 5% for Minor Trigger Event (as defined in the Note). In addition, the Note provides that upon occurrence of an Event of Default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law.
In addition, until the earlier of (i) the date that is six (6) months from the Purchase Price Date and (ii) the date that Company has filed one (1) or more prospectus supplement(s) relating to the sale of up to $1,595,000 of Ordinary Shares, the Company should, within than three (3) trading days after at least $100,000.00 becomes available for the Company to register its securities in accordance with General Instruction I.B.5 of Form F-3, file a prospectus supplement to its registration statement on Form F-3 (File No. 333-252664) (the “Shelf”), provided that, each prospectus supplement should at least register $100,000.00 of Ordinary Shares. In any event, Company agreed to cause at least one prospectus supplement to the Shelf to be filed in connection with the Note on or before March 24, 2023. The obligation of the Company to file prospectus supplements for registration statement will continue until the $1,595,000 of Ordinary Shares issuable upon conversion of the Note are registered on an effective registration statement.
As of the date of this annual report, the balance of the Note has been all converted into 1,483,313 Ordinary Shares to Streeterville.
The form of the Streeterville Purchase Agreement and the form of the Note are filed as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed with the Commission on December 23, 2022, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the Streeterville Purchase Agreement and the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
The Securities Purchase Agreement with Rising Sun Capital Ltd.
On February 22, 2023, the Company entered into certain securities purchase agreement with Rising Sun Capital Ltd., a limited liability company organized under the laws of Australia, pursuant to which Rising Sun Capital Ltd. agreed to purchase 1,724,138 Ordinary Shares (pre-2023 Reverse Split) of the Company, par value $0.08 per share at a per share purchase price of $0.58. The gross proceeds of this transaction are approximately $1 million. Upon the issuance date of these condensed consolidated financial statements, the transaction has not been closed and the Company has not received the proceeds.
The form of the securities purchase agreement is filed as Exhibit 10.1 to the Current Report on Form 6-K filed with the Commission on February 28, 2023, and such document is incorporated herein by reference.
The foregoing is only a brief description of the material terms of the securities purchase agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.
87
The Securities Purchase Agreement with Streeterville Capital, LLC (March 2023)
On March 7, 2023, the Company entered into a securities purchase agreement (the “2023 Streeterville Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company, pursuant to which the Company issued Streeterville an unsecured promissory note on March 7, 2023 in the original principal amount of $2,126,666.67 (the “2023 Note”), convertible into Ordinary Shares, $0.08 par value per share, of the Company, for $2,000,000.00 in gross proceeds.
The 2023 Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on the 2023 Note will become due and payable twelve months after the purchase price of the 2023 Note is delivered by Purchaser to the Company (the “Closing Date”). The 2023 Note includes an original issue discount of $126,666.67 along with $20,000.00 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the 2023 Note. The Company may prepay all or a portion of the 2023 Note at any time by paying 120% of the outstanding balance elected for pre-payment. The Investor has the right to redeem the 2023 Note at on the earlier of the date that is six (6) months from the Closing Date and the effective date of the first prospectus supplement filed in connection with the 2023 Note, subject to maximum monthly redemption amount of $550,000.00. Redemptions may be satisfied in cash or Ordinary Shares at the Company’s election. However, the Company will be required to pay the redemption amount in cash, in the event there is an Equity Conditions Failure (as defined in the 2023 Note). If Company chooses to satisfy a redemption in Ordinary Shares, such Ordinary Shares shall be issued at a redemption conversion price of the lower of (i) the Lender Conversion Price (as defined in the 2023 Note) which is initially $0.60 and (ii) 80% of the average of the lowest VWAP during the fifteen (15) trading days immediately preceding the redemption notice is delivered. In addition, Streeterville agreed that in any given calendar week (being from Sunday to Saturday of that week), the number of Ordinary Shares sold by it in the open market will not be more than fifteen percent (15%) of the weekly trading volume for the Ordinary Shares during any such week.
Under the 2023 Streeterville Purchase Agreement, while the 2023 Note is outstanding, the Company agreed to keep adequate public information available and maintain its Nasdaq listing. Upon the occurrence of a Trigger Event (as defined in the 2023 Note), Streeterville shall have the right to increase the balance of the 2023 Note by 15% for Major Trigger Event (as defined in the 2023 Note) and 5% for Minor Trigger Event (as defined in the 2023 Note).
In addition, the 2023 Note provides that upon occurrence of an Event of Default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law.
In addition, until the earlier of (i) the date that is six (6) months from the Closing Date and (ii) the date that Company has filed one (1) or more prospectus supplement(s) relating to the sale of up to $2,126,666.67 of Ordinary Shares, the Company should, within than three (3) trading days after at least $100,000.00 becomes available for the Company to register its securities in accordance with General Instruction I.B.5 of Form F-3, file a prospectus supplement to its registration statement on Form F-3 (File No. 333-252664) (the “Shelf”), provided that, each prospectus supplement should at least register $100,000.00 of Ordinary Shares. In any event, Company agreed to cause at least one prospectus supplement to the Shelf to be filed in connection with the 2023 Note on or before March 24, 2023.
The obligation of the Company to file prospectus supplements for registration statement will continue until the $2,126,666.67 of Ordinary Shares issuable upon conversion of the 2023 Note are registered on an effective registration statement. In the event the $2,126,666.67 of Ordinary Shares have not been registered under the Shelf by the date that is six (6) months from the Closing Date, then on such date the Outstanding Balance will automatically increase by an amount equal to five percent (5%) multiplied by the portion of original principal amount that was not registered under the Shelf.
On March 9, 2023, the transaction contemplated by the 2023 Streeterville Purchase Agreement was closed as all the closing conditions of as set forth therein have been satisfied.
As of the date of this annual report, Streeterville has redeemed for an amount of $2,194,807 and the Company has issued 8,404,945 Ordinary Shares (pre-2023 Reverse Split) to Streeterville upon conversion of the note issued on March 7, 2023. The Company has filed a prospectus supplement to its registration statement on Form F-3 (File No. 333-252664) relating to the sale of up to $1,374,712 of Ordinary Shares on March 27, 2023.
The form of the 2023 Streeterville Purchase Agreement and the form of the 2023 Note are filed as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed with the Commission on March 23, 2023, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the 2023 Streeterville Purchase Agreement and the 2023 Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
88
The Securities Purchase Agreement with Streeterville Capital, LLC (December 2023)
On December 13, 2023, the Company entered into a securities purchase agreement (the “December 2023 Purchase Agreement”) with Streeterville Capital, LLC (the “Investor”), pursuant to which the Company issued the Investor an unsecured promissory note on December 13, 2023 in the original principal amount of $531,666.67 (the “December 2023 Note” ) convertible into Ordinary Shares, for $500,000.00 in gross proceeds.
The December 2023 Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on the December 2023 Note will become due and payable twelve months after the purchase price of the December 2023 Note is delivered by Purchaser to the Company (the “December 2023 Note Closing Date”). The December 2023 Note includes an original issue discount of $ $31,666.67 along with $20,000.00 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the March 2024 Note. The Company may prepay all or a portion of the December 2023 Note at any time by paying 120% of the outstanding balance elected for pre-payment. The Investor has the right to redeem the Note at on the earlier of the date that is six (6) months from the December 2023 Note Closing Date and the effective date of the first prospectus supplement filed in connection with the December 2023 Note, subject to maximum monthly redemption amount of $200,000.00. Redemptions may be satisfied in cash or Ordinary Shares at the Company’s election. However, the Company will be required to pay the redemption amount in cash, in the event there is an Equity Conditions Failure (as defined in the December 2023 Note). If Company chooses to satisfy a redemption in Ordinary Shares, such Ordinary Shares shall be issued at a redemption conversion price of the lower of (i) the Lender Conversion Price (as defined in the December 2023 Note) which is initially $3.00 and (ii) 80% of the average of the lowest VWAP during the fifteen (15) trading days immediately preceding the redemption notice is delivered. In addition, the Investor agreed that in any given calendar week (being from Sunday to Saturday of that week), the number of Ordinary Shares sold by it in the open market will not be more than fifteen percent (15%) of the weekly trading volume for the Ordinary Shares during any such week.
Under the December 2023 Purchase Agreement, while the December 2023 Note is outstanding, the Company agreed to keep adequate public information available and maintain its Nasdaq listing. Upon the occurrence of a Trigger Event (as defined in the December 2023 Note), the Investor shall have the right to increase the balance of the December 2023 Note by 15% for Major Trigger Event (as defined in the December 2023 Note) and 5% for Minor Trigger Event (as defined in the December 2023 Note).
In addition, the December 2023 Note provides that upon occurrence of an Event of Default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law.
On December 16, 2023, the transaction contemplated by the December 2023 Purchase Agreement was closed as all the closing conditions of as set forth therein have been satisfied.
As of the date of this annual report, Streeterville has not redeemed any amount under the note issued on December 13, 2023.
The form of the December 2023 Securities Purchase Agreement and the form of the December 2023 Note are filed as Exhibits 10.3 and 10.6 to the Current Report on Form 6-K filed with the Commission on May 14, 2024, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the December 2023 Securities Purchase Agreement and the December 2023 Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
The Securities Purchase Agreement with Streeterville Capital, LLC (March 2024)
On March 27, 2024, the Company entered into a securities purchase agreement (the “March 2024 Purchase Agreement”) with the Investor, pursuant to which the Company issued the Investor an unsecured promissory note on March 27, 2024 in the original principal amount of $531,666.67 (the “March 2024 Note”), convertible into Ordinary Shares of the Company, for $500,000.00 in gross proceeds.
The March 2024 Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on the March 2024 Note will become due and payable twelve months after the purchase price of the March 2024 Note is delivered by Purchaser to the Company (the “March 2024 Note Closing Date”). The March 2024 Note includes an original issue discount of $ $31,666.67 along with $20,000.00 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the March 2024 Note. The Company may prepay all or a portion of the March 2024 Note at any time by paying 120% of the outstanding balance elected for pre-payment. The Investor has the right to redeem the March 2024 Note at on the earlier of the date that is six (6) months from the March 2024 Note Closing Date and the effective date of the first prospectus supplement filed in connection with the March 2024 Note, subject to maximum monthly redemption amount of $200,000.00. Redemptions may be satisfied in cash or Ordinary Shares at the Company’s election. However, the Company will be required to pay the redemption amount in cash, in the event there is an Equity Conditions Failure (as defined in the March 2024 Note). If Company chooses to satisfy a redemption in Ordinary Shares, such Ordinary Shares shall be issued at a redemption conversion price of the lower of (i) the Lender Conversion Price (as defined in the March 2024 Note) which is initially $3.00 and (ii) 80% of the average of the lowest VWAP during the fifteen (15) trading days immediately preceding the redemption notice is delivered. In addition, the Investor agreed that in any given calendar week (being from Sunday to Saturday of that week), the number of Ordinary Shares sold by it in the open market will not be more than fifteen percent (15%) of the weekly trading volume for the Ordinary Shares during any such week.
89
Under the March 2024 Purchase Agreement, while the March 2024 Note is outstanding, the Company agreed to keep adequate public information available and maintain its Nasdaq listing. Upon the occurrence of a Trigger Event (as defined in the March 2024 Note), the Investor shall have the right to increase the balance of the March 2024 Note by 15% for Major Trigger Event (as defined in the March 2024 Note) and 5% for Minor Trigger Event (as defined in the March 2024 Note).
In addition, the March 2024 Note provides that upon occurrence of an Event of Default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law.
On March 29, 2024, the transaction contemplated by the March 2024 Purchase Agreement was closed as all the closing conditions of as set forth therein have been satisfied.
As of the date of this annual report, Streeterville has not redeemed any amount under the note issued on March 27, 2024.
The form of the March 2024 Securities Purchase Agreement and the form of the March 2024 Note are filed as Exhibits 10.2 and 10.5 to the Current Report on Form 6-K filed with the Commission on May 14, 2024, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the March 2024 Securities Purchase Agreement and the March 2024 Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
The Securities Purchase Agreement with Streeterville Capital, LLC (May 2024)
On May 9, 2024, China SXT Pharmaceuticals, Inc., a British Virgin Islands company (the “Company”) entered into a securities purchase agreement (the “May 2024 Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (the “Investor”), pursuant to which the Company issued the Investor an unsecured promissory note on May 9, 2024 in the original principal amount of $797,500.00 (the “May 2024 Note”), convertible into ordinary shares, $0.08 par value per share, of the Company (the “Ordinary Shares”), for $750,000.00 in gross proceeds.
The May 2024 Note bears interest at a rate of 6% per annum compounding daily. All outstanding principal and accrued interest on May 2024 Note will become due and payable twelve months after the purchase price of May 2024 Note is delivered by Purchaser to the Company (the “May 2024 Note Closing Date”). The May 2024 Note includes an original issue discount of $47,500.00 along with $20,000.00 for Investor’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the May 2024 Note. The Company may prepay all or a portion of the May 2024 Note at any time by paying 120% of the outstanding balance elected for pre-payment. The Investor has the right to redeem the May 2024 Note at on the earlier of the date that is six (6) months from the May 2024 Note Closing Date and the effective date of the first prospectus supplement filed in connection with the May 2024 Note, subject to maximum monthly redemption amount of $300,000.00. Redemptions may be satisfied in cash or Ordinary Shares at the Company’s election. However, the Company will be required to pay the redemption amount in cash, in the event there is an Equity Conditions Failure (as defined in the May 2024 Note). If Company chooses to satisfy a redemption in Ordinary Shares, such Ordinary Shares shall be issued at a redemption conversion price of the lower of (i) the Lender Conversion Price (as defined in the May 2024 Note) which is initially $3.00 and (ii) 80% of the average of the lowest VWAP during the fifteen (15) trading days immediately preceding the redemption notice is delivered. In addition, the Investor agreed that in any given calendar week (being from Sunday to Saturday of that week), the number of Ordinary Shares sold by it in the open market will not be more than fifteen percent (15%) of the weekly trading volume for the Ordinary Shares during any such week.
Under the May 2024 Purchase Agreement, while the May 2024 Note is outstanding, the Company agreed to keep adequate public information available and maintain its Nasdaq listing. Upon the occurrence of a Trigger Event (as defined in the May 2024 Note), the Investor shall have the right to increase the balance of the May 2024 Note by 15% for Major Trigger Event (as defined in the May 2024 Note ) and 5% for Minor Trigger Event (as defined in the May 2024 Note).
In addition, the May 2024 Note provides that upon occurrence of an Event of Default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law.
On May 13, 2024, the transaction contemplated by the May 2024 Purchase Agreement was closed as all the closing conditions of as set forth therein have been satisfied
As of the date of this annual report, Streeterville has not redeemed any amount under the note issued on May 9, 2024.
The form of the May 2024 Securities Purchase Agreement and the form of the May 2024 Note are filed as Exhibits 10.1 and 10.4 to the Current Report on Form 6-K filed with the Commission on May 14, 2024, and such documents are incorporated herein by reference. The foregoing is only a brief description of the material terms of the May 2024 Securities Purchase Agreement and the May 2024 Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
90
The Securities Purchase Agreement with certain investors (January 2025)
On January 21, 2025, the Company entered into a securities purchase agreement (the “January 2025 Securities Purchase Agreement”) to sell 14,200,000 ordinary shares at $0.20 per share in a PIPE offering (the “January 2025 PIPE”). Investors received warrants (the “January 2025 PIPE Warrants”) for 200% of their purchased shares. Separately, lenders who had provided a $1.84 million one-month loan on January 15, 2025, surrendered their repayment rights in exchange for PIPE shares through a January 21, 2025 surrender agreement. This transaction effectively converted the debt into equity as part of the January 2025 PIPE financing arrangement. On March 13, 2025, the Company entered into a warrant exchange agreement (the “2025 Warrant Exchange Agreement”) with holders of 28,400,000 January 2025 PIPE Warrants issued on January 21, 2025. These January 2025 PIPE Warrants, adjusted for a reverse stock split and reset, were exercisable for 1.52 ordinary shares each (totaling 43,134,871 shares at $0.66 per share). Under the agreement, the holders surrendered all 28,400,000 January 2025 PIPE Warrants for cancellation, and in exchange, the Company issued 11,225,000 ordinary shares to them.
The form of the January 2025 Securities Purchase Agreement, the form of the January 2025 PIPE Warrants, the relevant surrender letter and loan agreement are filed as Exhibits 99.1, 99.2, 99.3 and 99.4 to the Current Report on Form 6-K filed with the Commission on January 27, 2025, and such documents are incorporated herein by reference. Furthermore, the form of the 2025 Warrant Exchange Agreement is filed as Exhibit 99.1 to the Current Report on Form 6-K filed with the Commission on March 19, 2025.
The foregoing is only a brief description of the material terms of the January 2025 Securities Purchase Agreement, January 2025 PIPE Warrants and the 2025 Warrant Exchange Agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
The Securities Purchase Agreement with an investor (May 2025)
On May 5, 2024, China SXT Pharmaceuticals, Inc., a British Virgin Islands company (the “Company”) entered into a securities purchase agreement (the “May 2025 Purchase Agreement”) with an investor, pursuant to which the Company agreed to sell and issue 200,000 Ordinary Shares (the “Ordinary Shares”), with no par value, of the Company, for $100,000.00 in gross proceeds.
On May 12, 2025, the transaction contemplated by the May 2025 Purchase Agreement was closed as all the closing conditions of as set forth therein have been satisfied
As of the date of this annual report, the Ordinary Shares to be issued in the offering were issued on May 12, 2025pursuant to a prospectus supplement dated as of May 5, 2025, which was filed with the SEC, in connection with a takedown from the Company’s shelf registration statement on Form F-3 (File No. 333-282776), which became effective on November 4, 2024, and the base prospectus dated as of October 22, 2024 contained in such registration statement.
The foregoing is only a brief description of the material terms of the May 2025 Securities Purchase Agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
The Securities Purchase Agreement with several investors (May 2025)
On May 16, 2024, China SXT Pharmaceuticals, Inc., a British Virgin Islands company (the “Company”) entered into a securities purchase agreement (the “Second May 2025 Purchase Agreement”) with an investor, pursuant to which the Company agreed to sell and issue (i) 10,000,000 Ordinary Shares (the “Ordinary Shares”), with no par value, of the Company; and (ii) Ordinary Share purchase warrants to purchase up to 100,000,000 Ordinary Shares (the “Warrants”); and (iii) up to 100,000,000 Ordinary Shares issuable upon exercise of the Warrants (the “Underlying Shares”). Each Ordinary Share is being sold together with two associated Warrants, each to purchase one Ordinary Share at a combined offering price of $0.51 per Ordinary Share and associated Warrants.
From May 30 to June 2, 2025, certain investors (the “Investors”) have exercised their Warrants under the alternate cashless exercise provision. According to which, the Investors may exercise the Warrants in exchange for 0.9 times the number of Ordinary Shares they would receive upon a standard cash exercise. Accordingly, the Company has cancelled the Warrants that were exercisable into 100,000,000 ordinary shares, and issued a total of 90,000,000 Underlying Shares to such Investors. As of June 10, 2025, the Company’s total issued and outstanding number of shares were 116,027,758 Ordinary Shares.
As of the date of this annual report, the Ordinary Shares and the Underlying Shares pursuant to the Warrants to be issued in the offering were issued pursuant to a prospectus supplement dated as of May 16, 2025, which was filed with the SEC, in connection with a takedown from the Company’s shelf registration statement on Form F-3 (File No. 333-282776), which became effective on November 4, 2024, and the base prospectus dated as of October 22, 2024 contained in such registration statement.
The foregoing is only a brief description of the material terms of the Second May 2025 Securities Purchase Agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibits.
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10.D. Exchange Controls
British Virgin Islands
There are currently no exchange control regulations in the British Virgin Islands applicable to us or our shareholders.
The PRC
General administration of foreign exchange
The principal regulation governing foreign currency exchange in the PRC is the Administrative Regulations of the PRC on Foreign Exchange (the “Foreign Exchange Regulations”), which were promulgated on January 29, 1996, became effective on April 1, 1996 and were last amended on August 5, 2008. Under these rules, Renminbi is generally freely convertible for payments of current account items, such as trade- and service -related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct investment, investment in securities, derivative products or loans unless prior approval by competent authorities for the administration of foreign exchange is obtained. Under the Foreign Exchange Regulations, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE to pay dividends by providing certain evidentiary documents, including board resolutions, tax certificates, or for trade- and services-related foreign exchange transactions, by providing commercial documents evidencing such transactions.
Circular No. 75, Circular No. 37 and Circular No. 13
Circular 37 was released by SAFE on July 4, 2014 and abolished Circular 75 which had been in effect since November 1, 2005. Pursuant to Circular 37, a PRC resident should apply to SAFE for foreign exchange registration of overseas investments before it makes any capital contribution to a special purpose vehicle, or SPV, using his or her legitimate domestic or offshore assets or interests. SPVs are offshore enterprises directly established or indirectly controlled by domestic residents for the purpose of investment and financing by utilizing domestic or offshore assets or interests they legally hold. Following any significant change in a registered offshore SPV, such as capital increase, reduction, equity transfer or swap, consolidation or division involving domestic resident individuals, the domestic individuals shall amend the registration with SAFE. Where an SPV intends to repatriate funds raised after completion of offshore financing to the PRC, it shall comply with relevant PRC regulations on foreign investment and foreign debt management. A foreign-invested enterprise established through return investment shall complete relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration regulations on foreign direct investment and truthfully disclose information on the actual controller of its shareholders.
If any shareholder who is a PRC resident (as determined by the Circular No. 37) holds any interest in an offshore SPV and fails to fulfil the required foreign exchange registration with the local SAFE branches, the PRC subsidiaries of that offshore SPV may be prohibited from distributing their profits and dividends to their offshore parent company or from carrying out other subsequent cross-border foreign exchange activities. The offshore SPV may also be restricted in its ability to contribute additional capital to its PRC subsidiaries. Where a domestic resident fails to complete relevant foreign exchange registration as required, fails to truthfully disclose information on the actual controller of the enterprise involved in the return investment or otherwise makes false statements, the foreign exchange control authority may order them to take remedial actions, issue a warning, and impose a fine of less than RMB300,000 on an institution or less than RMB50,000 on an individual.
Circular 13 was issued by SAFE on February 13, 2015, and became effective on June 1, 2015. Pursuant to Circular 13, a domestic resident who makes a capital contribution to an SPV using his or her legitimate domestic or offshore assets or interests is no longer required to apply to SAFE for foreign exchange registration of his or her overseas investments. Instead, he or she shall register with a bank in the place where the assets or interests of the domestic enterprise in which he or she has interests are located if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate domestic assets or interests; or he or she shall register with a local bank at his or her permanent residence if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate offshore assets or interests.
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Circular 19 and Circular 16
Circular 19 was promulgated by SAFE on March 30, 2015, and became effective on June 1, 2015. According to Circular 19, foreign exchange capital of foreign-invested enterprises shall be granted the benefits of Discretional Foreign Exchange Settlement (“Discretional Foreign Exchange Settlement”). With Discretional Foreign Exchange Settlement, foreign exchange capital in the capital account of a foreign-invested enterprise for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau, or for which book-entry registration of monetary contribution has been completed by the bank, can be settled at the bank based on the actual operational needs of the foreign-invested enterprise. The allowed Discretional Foreign Exchange Settlement percentage of the foreign exchange capital of a foreign-invested enterprise has been temporarily set to be 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated account and if a foreign-invested enterprise needs to make any further payment from such account, it will still need to provide supporting documents and to complete the review process with its bank.
Furthermore, Circular 19 stipulates that foreign-invested enterprises shall make bona fide use of their capital for their own needs within their business scopes. The capital of a foreign-invested enterprise and the Renminbi if obtained from foreign exchange settlement shall not be used for the following purposes:
| ● | directly or indirectly used for expenses beyond its business scope or prohibited by relevant laws or regulations; | |
| ● | directly or indirectly used for investment in securities unless otherwise provided by relevant laws or regulations; | |
| ● | directly or indirectly used for entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; and | |
| ● | directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises). |
Circular 16 was issued by SAFE on June 9, 2016. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange capital items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis applicable to all enterprises registered in the PRC. Circular 16 reiterates the principle that an enterprise’s Renminbi converted from foreign currency-denominated capital may not be directly or indirectly used for purposes beyond its business scope or purposes prohibited by PRC laws or regulations, and such converted Renminbi shall not be provided as loans to non-affiliated entities.
Circulars 16 and 19 address foreign direct investments into the PRC, and stipulate the procedures applicable to foreign exchange settlement. If and when circumstances require funds to be transferred to our WFOE in the PRC from our offshore entities, then any such transfer would be subject to Circulars 16 and 19.
10.E. Taxation
People’s Republic of China Enterprise Taxation
The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders.
We are a holding company incorporated in the British Virgin Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.
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Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Notice 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although SXT Pharmaceuticals, Inc. does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of SXT Pharmaceuticals, Inc. and its subsidiaries organized outside the PRC.
According to SAT Notice 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
We believe that we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of SXT Pharmaceuticals, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that SXT Pharmaceuticals and its offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Notice 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
The implementation rules of the EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholders from the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%. We are unable to provide a “will” opinion because it is more likely than not that the Company and its offshore subsidiaries would be treated as a non-resident enterprise for PRC tax purposes because they do not meet some of the conditions out lined in SAT Notice. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities as of the date of this annual report. Therefore we believe that it is possible but highly unlikely that the income received by our overseas shareholders will be regarded as China-sourced income. See “Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-Under the enterprise Income Tax Law, we may be classified as a “Resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.”
Our company pays an EIT rate of 25% for WFOE, and 15% for Taizhou Suxuantang since April 2018 since it was qualified as a high-technology company. The EIT is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. If the PRC tax authorities determine that Taizhou Suxuantang a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our Ordinary Shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise. There is no guidance from the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstances where a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRC and other countries may impact non-resident enterprises.
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British Virgin Islands Taxation
Under British Virgin Islands law as currently in effect, there is no tax applicable to a holder of Ordinary Shares who is not a resident of the British Virgin Islands on dividends paid with respect to the Ordinary Shares and none of the holders of Ordinary Shares are liable to the British Virgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands does not impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Act.
There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or re-registered under the BVI Act or persons not resident in the British Virgin Islands. In addition, shares of companies incorporated or re-registered under the BVI Act are not subject to transfer taxes, stamp duties or similar charges.
There is no income tax treaty currently in effect between the United States and the British Virgin Islands or between Taiwan and the British Virgin Islands.
United States Federal Income Taxation
WE URGE POTENTIAL PURCHASERS OF OUR ORDINARY SHARES TO CONSULT THEIR OWN TAXADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAXCONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR ORDINARY SHARES.
The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
| ● | banks; |
| ● | financial institutions; |
| ● | insurance companies; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | broker-dealers; |
| ● | traders that elect to mark-to-market; |
| ● | U.S. expatriates; |
| ● | tax-exempt entities; |
| ● | persons liable for alternative minimum tax; |
| ● | persons holding our Ordinary Shares as part of a straddle, hedging, conversion or integrated transaction; |
| ● | persons that actually or constructively own 10% or more of our voting shares (including by reason of owning our Ordinary Shares); |
| ● | persons who acquired our Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation; or |
| ● | persons holding our Ordinary Shares through partnerships or other pass-through entities. |
Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.
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Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the Ordinary Shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the British Virgin Islands, clause (1) above can be satisfied only if the Ordinary Shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, Ordinary Shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Ordinary Shares, including the effects of any change in law after the date of this annual report.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our Ordinary Shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Ordinary Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Ordinary Shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the Ordinary Shares for more than one year, you will be eligible for (a) reduced tax rates of 0% (for individuals in the 10% or 15% tax brackets), (b) higher tax rates of 20% (for individuals in the 39.6% tax bracket) or (c) 15% for all other individuals. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes.
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Passive Foreign Investment Company
A non-U.S. corporation is considered a PFIC for any taxable year if either:
| ● | at least 75% of its gross income is passive income; or | |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash we raise in our initial public offering will generally be considered to be held for the production of passive income and (2) the value of our assets must be determined based on the market value of our Ordinary Shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets (including the cash raised in our initial public offering) on any particular quarterly testing date for purposes of the asset test.
We must make a separate determination each year as to whether we are a PFIC. The proceeds from our initial public offering, together with any other assets held for the production of passive income, it is possible that, for our 2016 taxable year or for any subsequent year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. Although the law in this regard is unclear, we are treating Taizhou Suxuantang as being owned by us for United States federal income tax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with Taizhou Suxuantang, and as a result, we are treating Taizhou Suxuantang as our wholly-owned subsidiary for U.S. federal income tax purposes. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Ordinary Shares and because cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part on the market price of our Ordinary Shares and the amount of cash we raised in our initial public offering. Accordingly, fluctuations in the market price of the Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raised in our initial public offering. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Ordinary Shares from time to time and the amount of cash we raise in our initial public offering) that may not be within our control. If we are a PFIC for any year during which you hold Ordinary Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Ordinary Shares. However, if we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the Ordinary Shares.
If we are a PFIC for any taxable year during which you hold Ordinary Shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Ordinary Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the Ordinary Shares; |
| ● | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| ● | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
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The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Ordinary Shares cannot be treated as capital, even if you hold the Ordinary Shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the first taxable year which you hold (or are deemed to hold) Ordinary Shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the Ordinary Shares as of the close of your taxable year over your adjusted basis in such Ordinary Shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the Ordinary Shares over their fair market value as of the close of the taxable year. However, such ordinary loss is allowable only to the extent of any net mark-to-market gains on the Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Ordinary Shares. Your basis in the Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “- Taxation of Dividends and Other Distributions on our Ordinary Shares” generally would not apply.
The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the NASDAQ. If the Ordinary Shares are regularly traded on the NASDAQ and if you are a holder of Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold Ordinary Shares in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such Ordinary Shares, including regarding distributions received on the Ordinary Shares and any gain realized on the disposition of the Ordinary Shares.
If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our Ordinary Shares, then such Ordinary Shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such Ordinary Shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your Ordinary Shares for tax purposes.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Ordinary Shares and the elections discussed above.
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Information Reporting and Backup Withholding
Dividend payments with respect to our Ordinary Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our Ordinary Shares, subject to certain exceptions (including an exception for Ordinary Shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Ordinary Shares.
10.F. Dividends and Paying Agents
Not Applicable.
10.G. Statement by Experts
Not Applicable.
10.H. Documents on Display
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, registration statements and other information with the SEC. The Company’s reports, registration statements and other information can be inspected on the SEC’s website at www.sec.gov and such information can also be inspected and copies ordered at the public reference facilities maintained by the SEC at the following location: 100 F Street NE, Washington, D.C. 20549. You may also visit us on the World Wide Web at www.sxtchina.com. However, information contained on our website does not constitute a part of this annual report.
10.I. Subsidiary Information
Not Applicable.
99
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that expose us to concentrations of credit risk primarily consist of cash and accounts receivables. The maximum amount of loss due to credit risk in the event of other parties failing to perform their obligations is represented by the carrying amount of each financial asset as stated in our consolidated balance sheets.
As of March 31, 2025, 2024 and 2023, substantially all of our cash included bank deposits in accounts maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of bank failure. However, we have not experienced any losses in such accounts and we believe we are not exposed to any significant risks on our cash in bank accounts.
We are exposed to various types of market risks, including changes in foreign exchange rates, commodity prices and inflation in the normal course of business.
Interest rate risk
We are subject to risks resulting from fluctuations in interest rates on our bank balances. A substantial portion of our cash is held in China in interest bearing bank deposits and denominated in RMB. To the extent that we may need to raise debt financing in the future, upward fluctuations in interest rates would increase the cost of new debt. We do not currently use any derivative instruments to manage our interest rate risk.
Commodity price risk
Certain raw materials used by us are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. The primary purpose of our commodity price management activities is to manage the volatility associated with purchases of commodities in the normal course of business. We do not speculate on commodity prices.
Foreign exchange risk
The RMB is not a freely convertible currency. The PRC government may take actions that could cause future exchange rates to vary significantly from current or historical exchange rates. Fluctuations in exchange rates may adversely affect the value of any dividends we declare.
Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.
Inflation risk
Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. A high rate of inflation may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase proportionately with these increased costs.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
100
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There are no material modifications to the rights of security holders.
ITEM 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management has concluded that, as of March 31, 2025, our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2025. The assessment was based on criteria established in the framework Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, as of March 31, 2024, our internal control over financial reporting was not effective due to the existence of the following significant deficiencies and material weaknesses:
| ● | The Company had inadequate accounting personnel who is capable of US GAAP and bilingual, and that it did not supply adequate training to new staff in a timely manner. |
| ● | The Company has inadequate segregation of duties in certain accounting processes, including the payroll, cash receipts and disbursements processes in its accounting system, partly because of its limited size and accounting staff. |
101
(c) Attestation Report of Independent Registered Public Accounting Firm
Not applicable.
(d) Changes in Internal Control over Financial Reporting
The management is committed to improving the internal controls over financial reporting and will undertake consistent improvements or enhancements on an ongoing basis. Except as described above, there were no changes in our internal controls over financial reporting during our fiscal year ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The management plans to remediate the material weakness in internal control over financial reporting identified by implementing the following actions:
| ● | continue to engage bilingual accounting consultant who is familiar with US GAAP while provide ongoing US GAAP training to in-house accounting staff; |
| ● | retain additional accounting personnel and continue to enhance our internal finance and accounting organizational structure; |
| ● | strengthen the direct management oversight of transactions, along with the use of legal and accounting professionals; and | |
| ● | develop and conduct internal control training to executive officers, management personnel, and finance and accounting departments, so that management and key personnel understand the requirements of internal control over financial reporting under the SEC rules. |
We estimate to complete our remediation plan by the end of this year and will not incur any material costs.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Mr. Yong Lip Chee, Mr. Tong Liu and Mr. Xiaodong Ji are members of our Audit Committee, where Mr. Yong Lip Chee, serves as the chairman. All proposed members of our Audit Committee satisfy the independence standards promulgated by the SEC and by NASDAQ as such standards apply specifically to members of audit committees. It is determined that Mr. Yong Lip Chee, possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC.
102
ITEM 16B. CODE OF ETHICS
We adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws and NASDAQ rules.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our principal external auditors, for the periods indicated.
| Year Ended March 31, 2025 | Year Ended March 31, 2024 | Year Ended March 31, 2024 | ||||||||||
| Audit fees(1) | $ | 130,000 | $ | 151,000 | $ | 151,000 | ||||||
| Audit related fees(2) | 15,000 | 30,000 | 35,037 | |||||||||
| Tax fees(3) | - | - | - | |||||||||
| All other fees(4) | - | - | - | |||||||||
| TOTAL | $ | 145,000 | $ | 181,000 | $ | 186,037 | ||||||
| (1) | “Audit fees” means the aggregate fees billed for each of the fiscal years for professional services rendered by our principal accountant for the audit of our annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. |
| (2) | “Audit related fees” means the aggregate fees billed for each of the fiscal years for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under paragraph (1). |
| (3) | “Tax Fees” represents the aggregate fees billed in each of the fiscal years listed for the professional tax services rendered by our principal auditors. |
| (4) | “All Other Fees” represents the aggregate fees billed in each of the fiscal years listed for services rendered by our principal auditors other than services reported under “Audit fees,” “Audit-related fees” and “Tax fees.” |
The policy of our audit committee and our board of directors is to pre-approve all audit and non-audit services provided by our principal auditors, including audit services, audit-related services, and other services as described above, other than those for de minimis services which are approved by the audit committee or our board of directors prior to the completion of the services.
103
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
Our ordinary shares are listed on the NASDAQ Capital Market, or NASDAQ. As such, we are subject to corporate governance requirements imposed by NASDAQ. Under NASDAQ rules, listed non-US companies such as ourselves may, in general, follow their home country corporate governance practices in lieu of some of the NASDAQ corporate governance requirements. A NASDAQ-listed non-US company is required to provide a general summary of the significant differences to its US investors either on the company website or in its annual report distributed to its US investors.
Other than as described in this section, our corporate governance practices do not differ from those followed by domestic companies listed on the NASDAQ Capital Market. NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on the NASDAQ Capital Market prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value (ii) resulting in a change of control of the company; and (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. Notwithstanding this general requirement, NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. The British Virgin Islands laws do not require shareholder approval prior to any of the foregoing types of issuances. The Company, therefore, is not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. The Board of Directors of the Company has elected to follow the Company’s home country rules as to such issuances and will not be required to seek shareholder approval prior to entering into such a transaction. Rule 5620(a) requires each company listing common stock or voting preferred stock, or their equivalents, shall hold an annual meeting of shareholders no later than one year after the end of the issuer’s fiscal year-end. The Company follows the home country practice and expect to hold annual shareholders meetings only if there are matters that require shareholders’ approval.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTION
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We will be required to comply with disclosure requirements under this Item 16J for the fiscal year ending on March 31, 2025.
104
ITEM 16K. CYBERSECURITY
Risk Management and Strategy
We recognize the importance
of safeguarding the security of our computer systems, software, networks, and other technology assets.
As of the date of this
annual report, we have
Governance
At the management level, our CEO, CFO and the head of the departments in connection with cybersecurity-related matters are responsible for assessing, identifying and managing cybersecurity risks and monitoring the prevention, detection, mitigation, and remediation of cybersecurity incidents. Our CEO and CFO report to our board of directors (i) timely updates to the status of any material cybersecurity incidents or material risks from cybersecurity threats to our company, and the disclosure issues, if any, and (ii) in connection with disclosure concerning cybersecurity matters in our annual report on Form 20-F.
If a cybersecurity incident occurs, our cybersecurity-related departments will promptly organize personnel for internal assessment. If it is further determined that the incident could potentially be a material cybersecurity event, the cybersecurity-related departments will promptly report the incident and assessment results to our CEO and CFO, and, to the extent appropriate, seek advice from external experts and legal counsels. If it is determined that the incident could potentially be a material cybersecurity event, our CEO and CFO will decide on relevant response measures and management shall promptly prepare disclosure material on the cybersecurity incident for review and approval by our board of directors before it is disseminated to the public.
105
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
106
107
108
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on this Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| China SXT Pharmaceuticals, Inc. | ||
| /s/ Feng Zhou | ||
| Name: | Feng Zhou | |
| Title: | Co-Chief Executive Officer | |
Date: July 31, 2025
109
CHINA SXT PHARMACEUTICALS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CHINA SXT PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
China SXT Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of China SXT Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of March 31, 2025, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the year ended March 31, 2025 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2025, and the results of its operations and its cash flows for the year ended March 31, 2025, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provided a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company’s auditor since 2024
July 31, 2025
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
China SXT Pharmaceuticals, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of China SXT Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of March 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
The Company’s ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company reported net losses of $3,098,532, $5,934,772 and $5,736,095 for the years ended March 31, 2024, 2023 and 2022, respectively. The Company had accumulated deficits of $24,711,665 and $21,613,133 as of March 31, 2024 and 2023, respectively. The Company used funds in operating activities of $1,928,053 and $80,757 for the years ended March 31, 2024 and 2023, and generated funds from operating activities of $268,293 for the year ended March 31, 2022, respectively. In addition, the Company suffered a continuous decline in revenue for the years ended March 31, 2024, 2023, and 2022.These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ ZH CPA, LLC
We have served as the Company’s auditor since 2018.
Denver, Colorado
August 13, 2024
F-3
CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS, EXCEPT SHARES DATA)
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Advance to suppliers | ||||||||
| Due from related parties | ||||||||
| Other receivables and other current assets, net | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term deposit | - | |||||||
| Right-of-use assets – operating leases – related party | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Short-term borrowings | $ | $ | ||||||
| Long-term borrowings – current | ||||||||
| Short-term convertible notes | ||||||||
| Accounts payable | ||||||||
| Refund liabilities | ||||||||
| Contract liabilities | ||||||||
| Amounts due to related parties | - | |||||||
| Accrued expenses and other liabilities | ||||||||
| Tax payable | ||||||||
| Operating lease liabilities – current – related party | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities | ||||||||
| Long-term borrowings | ||||||||
| Operating lease liabilities – non-current – related party | ||||||||
| Total Non-current Liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, shares authorized, par value, | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(IN U.S. DOLLARS, EXCEPT SHARES DATA)
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Revenues generated from third parties | ||||||||||||
| Revenue generated from related parties | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses): | ||||||||||||
| Interest expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses), net | ( | ) | ||||||||||
| Total other expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expenses | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive loss: | ||||||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Loss per ordinary share | ||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted average number of ordinary shares outstanding | ||||||||||||
| Basic and diluted* | ||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2025, 2024 AND 2023
(IN U.S. DOLLARS, EXCEPT SHARES DATA)
| Shares* | Amount | Additional paid-in capital | Accumulated deficits | Accumulated other comprehensive income (loss) | Total equity | |||||||||||||||||||
| Balance as of April 1, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Shares issued as employee incentives | ||||||||||||||||||||||||
| Shares issued under share purchase agreements | ||||||||||||||||||||||||
| Shares subscribed | - | ( | ) | ( | ) | |||||||||||||||||||
| Share issuance due to reverse-split round up | ||||||||||||||||||||||||
| Issuance of shares for convertible note principal and interest partial settlement | ||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Share issuance due to reverse-split round up | - | |||||||||||||||||||||||
| Shares issued as employee incentives | ( | ) | ||||||||||||||||||||||
| Issuance of shares for convertible notes | ( | ) | ||||||||||||||||||||||
| Elimination of par value | - | ( | ) | |||||||||||||||||||||
| Foreign currency translations | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | - | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of shares for convertible notes | - | |||||||||||||||||||||||
| Shares issued under shares purchase agreements | - | |||||||||||||||||||||||
| Share issuance due to reverse-split round up | ||||||||||||||||||||||||
| Foreign currency translations | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | - | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization expenses | ||||||||||||
| Expected credit loss | ||||||||||||
| Allowance for long-term deposit | ||||||||||||
| Inventory impairment provision | ( | ) | ( | ) | ||||||||
| Loss from disposal of property, plant and equipment | ||||||||||||
| Property, plant and equipment impairment | ||||||||||||
| Construction in progress impairment | ||||||||||||
| Convertible notes - Accretion of financing cost | ||||||||||||
| Share-based compensation | ||||||||||||
| Non-cash operating lease expense | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | ( | ) | ( | ) | ||||||||
| Note receivable | ||||||||||||
| Inventory | ( | ) | ( | ) | ||||||||
| Advance to suppliers | ( | ) | ||||||||||
| Other receivables and other current assets | ( | ) | ||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||
| Refund liability | ( | ) | ( | ) | ||||||||
| Contract liabilities | ( | ) | ||||||||||
| Tax payable | ( | ) | ||||||||||
| Operating lease liability – related party lease | ( | ) | ( | ) | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Cash received from disposal of property, plant and equipment | ||||||||||||
| Collection of deposit - Huangshan Panjie | ||||||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Proceeds from borrowings | ||||||||||||
| Repayment of borrowings | ( | ) | ( | ) | ( | ) | ||||||
| Repayment from (Advances to) related parties | ( | ) | ( | ) | ||||||||
| Repayment to related parties | ( | ) | ( | ) | ||||||||
| Proceeds from convertible note | ||||||||||||
| Repayment of convertible notes | ( | ) | ||||||||||
| Payment of convertible note issuance cost | ( | ) | ( | ) | ( | ) | ||||||
| Net proceeds from shares purchase agreements | ||||||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||||||
| Cash, cash equivalents and restricted cash at the beginning of the year | ||||||||||||
| Cash, cash equivalents and restricted cash at the end of the year | $ | $ | $ | |||||||||
| Supplemental disclosures of cash flows information: | ||||||||||||
| Cash paid for interest expense | $ | $ | $ | |||||||||
| Non-cash transactions: | ||||||||||||
| Issuance of shares for convertible note principal and interest partial settlement | $ | $ | $ | |||||||||
| Non-cash settlement between balances of accounts receivable and due to related parties | $ | - | $ | $ | ||||||||
| Non-cash settlement between balances of due from related parties and due to related parties | $ | $ | $ | |||||||||
| Non-cash settlement between balances of long-term deposit and due to related parties | ||||||||||||
| Equity portion opening adjustment for adoption of ASU 2020-06 | $ | $ | $ | ( | ) | |||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | $ | |||||||||
| Disposal of property, plant and equipment | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CHINA SXT PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES
China SXT Pharmaceutical, Inc. (“SXT” or the “Company”)
is a holding company incorporated in British Virgin Islands on
The following diagram illustrates our corporate structure, including our subsidiary and consolidated variable interest entity as of the date of the financial statements:
VIE Agreements with Taizhou Suxuantang
Due to PRC legal restrictions on foreign ownership in the pharmaceutical sector, neither the Company nor our subsidiaries own any equity interest in Taizhou Suxuantang. Instead, the Company controls and receives the economic benefits of Taizhou Suxuantang’s business operations through a series of contractual arrangements. WFOE, Taizhou Suxuantang and its shareholders entered into such a series of contractual arrangements, also known as VIE Agreements, on October 13, 2017. The VIE agreements are designed to provide WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Taizhou Suxuantang, including absolute control rights and the rights to the assets, property and revenue of Taizhou Suxuantang.
F-8
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)
VIE Agreements with Taizhou Suxuantang (continued)
According to the Exclusive Business Cooperation Agreement between WFOE and Taizhou Suxuantang, which is one of the VIE Agreements that was also entered into on October 13, 2017, Taizhou Suxuantang is obligated to pay service fees to WFOE approximately equal to the net income of Taizhou Suxuantang.
Each of the VIE Agreements is described in detail below:
Exclusive Business Cooperation Agreement
Pursuant to the Exclusive Business Cooperation Agreement between Taizhou Suxuantang and WFOE, WFOE provides Taizhou Suxuantang with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, Taizhou Suxuantang granted an irrevocable and exclusive option to WFOE to purchase from Taizhou Suxuantang, any or all of Taizhou Suxuantang’s assets at the lowest purchase price permitted under the PRC laws. Should WFOE exercise such option, the parties shall enter into a separate asset transfer or similar agreement. For services rendered to Taizhou Suxuantang by WFOE under this agreement, WFOE is entitled to collect a service fee calculated based on the time of services rendered multiplied by the corresponding rate, plus the amount of the services fees or ratio decided by the board of directors of WFOE based on the value of services rendered by WFOE and the actual income of Taizhou Suxuantang from time to time, which is approximately equal to the net income of Taizhou Suxuantang.
The Exclusive Business Cooperation Agreement shall remain in effect for ten years unless it is terminated by WFOE with 30-day prior notice. Taizhou Suxuantang does not have the right to terminate the agreement unilaterally. WFOE may unilaterally extend the term of this agreement with prior written notice.
The CEO and president of WFOE, Mr. Feng Zhou, is currently managing Taizhou Suxuantang pursuant to the terms of the Exclusive Business Cooperation Agreement. WFOE has absolute authority relating to the management of Taizhou Suxuantang, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operational functions. The Exclusive Business Cooperation Agreement does not prohibit related party transactions. The audit committee is required to review and approve in advance any related party transactions, including transactions involving WFOE or Taizhou Suxuantang.
Share Pledge Agreement
Under the Share Pledge Agreement among WFOE and
Feng Zhou, Ziqun Zhou, and Di Zhou, who together hold
The Share Pledge Agreement shall be effective until all payments due under the Exclusive Business Cooperation Agreement have been paid by Taizhou Suxuantang. WFOE shall cancel or terminate the Share Pledge Agreement upon with no additional expense.
F-9
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)
Share Pledge Agreement (continued)
The purposes of the Share Pledge Agreement are to (1) guarantee the performance of Taizhou Suxuantang’s obligations under the Exclusive Business Cooperation Agreement, (2) make sure the shareholders of Taizhou Suxuantang shall not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior written consent and (3) provide WFOE control over Taizhou Suxuantang. Under the Exclusive Option Agreement (described below), WFOE may exercise its option to acquire the equity interests in Taizhou Suxuantang any time to the extent permitted by the PRC Law. In the event Taizhou Suxuantang breaches its contractual obligations under the Exclusive Business Cooperation Agreement, WFOE will be entitled to foreclose on the Taizhou Suxuantang Shareholders’ equity interests in Taizhou Suxuantang and may (1) exercise its option to purchase or designate third parties to purchase part or all of their equity interests in Taizhou Suxuantang and in this situation, WFOE may terminate the VIE agreements after acquisition of all equity interests in Taizhou Suxuantang or form a new VIE structure with the third parties designated by WFOE; or (2) dispose the pledged equity interests and be paid in priority out of the proceeds from the disposal in which case the VIE structure will be terminated.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the Taizhou
Suxuantang Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC
law, once or at multiple times, at any time, part or all of their equity interests in Taizhou Suxuantang at the exercise price of RMB
Under the Exclusive Option Agreement, WFOE may at any time under any circumstances, purchase, or have its designated person to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholders’ equity interests in Taizhou Suxuantang.
This Agreement shall remain effective until all equity interests held by Taizhou Suxuantang Shareholders in Taizhou Suxuantang have been transferred or assigned to WFOE and/or any other person designated by WFOE in accordance with this Agreement.
Power of Attorney
Under the Power of Attorney, the Taizhou Suxuantang Shareholders authorize WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Taizhou Suxuantang.
Although it is not explicitly stipulated in the Power of Attorney, the term of the Power of Attorney shall be the same as the term of that of the Exclusive Option Agreement.
This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid for each shareholder from the date it is executed until the date he/she no longer is a shareholder of Taizhou Suxuantang.
The Exclusive Option Agreement, together with the Share Pledge Agreement and the Power of Attorney enable WFOE to exercise effective control over Taizhou Suxuantang.
Basis of presentation and principles of consolidation
The accompany consolidated financial statements of the Company has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
The consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries and VIE over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. All inter-company accounts and transactions have been eliminated in consolidation.
The VIE, Taizhou Suxuantang is owned by three shareholders, each of which act as the Company’s nominee shareholder. For the consolidated VIEs, the Company’s management made evaluations of the relationships between the Company and the VIE and the economic benefit flow of contractual arrangements with Taizhou Suxuantang. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Company control the shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that the Company is the primary beneficiary of the consolidated VIEs, Taizhou Suxuantang. The Company does not have any VIEs that are not consolidated in the financial statements.
F-10
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Risks in relation to the VIE structure
It is possible that the Company’s operation of certain of its operations and businesses through its VIE could be found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Company’s management considers the possibility of such a finding by PRC regulatory authorities under current law and regulations to be remote. On January 19, 2015, the Ministry of Commerce of the PRC, or (the “MOFCOM”) released on its website for public comment a proposed PRC law (the “Draft FIE Law”) that appears to include VIE within the scope of entities that could be considered to be foreign invested enterprises (or “FIEs”) that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of “actual control” for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of “actual control.” If the Draft FIE Law was passed by the People’s Congress of the PRC and went into effect in its current form and as a result the Company’s VIE could become explicitly subject to the current restrictions on foreign investment in certain categories of industry. The Draft FIE Law includes provisions that would exempt from the definition of foreign invested enterprises entities where the ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken against existing VIEs that operate in restricted or prohibited industries and are not controlled by entities organized under PRC law or individuals who are PRC citizens. If a finding were made by PRC authorities, under existing law and regulations or under the Draft FIE Law if it becomes effective, about the Company’s operation of certain of its operations and businesses through its VIEs, regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Company’s income, revoking the business or operating licenses of the affected businesses, requiring the Company to restructure its ownership structure or operations, or requiring the Company to discontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Company’s business operations and have a severe adverse impact on the Company’s cash flows, financial position and operating performance.
In addition, it is possible that the contracts among Taizhou Suxuantang, WFOE, and the nominee shareholders of Taizhou Suxuantang would not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce these contractual arrangements, the Company will not be able to exert effective control over the VIEs. Consequently, the VIEs’ results of operations, assets and liabilities would not be included in the Company’s consolidated financial statements. If such were the case, the Company’s cash flows, financial position, and operating performance would be materially adversely affected. The Company’s contractual arrangements Taizhou Suxuantang, WFOE, and the nominee shareholders of Taizhou Suxuantang are approved and in place. Management believes that such contracts are enforceable and considers the possibility remote that PRC regulatory authorities with jurisdiction over the Company’s operations and contractual relationships would find the contracts to be unenforceable.
The Company’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized revenue-producing assets. The VIEs also have an assembled workforce, focused primarily on research and development, whose costs are expensed as incurred. The Company’s operations and businesses may be adversely impacted if the Company loses the ability to use and enjoy assets held by its VIE.
Foreign currency translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting and functional currencies of the Company and SXT HK are the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. In addition, the WFOE and the VIE maintain their books and records in their respective local currency, Renminbi (“RMB”), which is also the respective functional currency for each subsidiary and VIE as they are the primary currency of the economic environment in which each subsidiary operates.
F-11
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation (continued)
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of a foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity. Other equity items are translated using the exchange rates on the transaction date.
Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
| March 31, 2025 | March 31, 2024 | March 31, 2023 | ||||||||||
| Balance sheet items, except for equity accounts | ||||||||||||
| Items in the statements of operations and comprehensive income (loss), and statements of cash flows | ||||||||||||
Measurement of credit losses on financial instruments
On April 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments,” for financial assets at amortized cost including accounts receivable and other receivables. This guidance replaced the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information.
Changes in facts and circumstances may cause the Company to revise its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The following are some of the areas requiring significant judgments and estimates as of March 31, 2025 and 2024: determinations of the useful lives of long-lived assets, estimates of expected credit loss for accounts receivable and other receivables, estimates of inventory provision, sales return rate, abnormal capacity for inventory production, valuation assumptions in performing asset impairment tests of long-lived assets, the discount rate used for right-of-use assets and lease liabilities calculation, and determinations of fair value of convertible notes (liability component, etc.) and warrants.
F-12
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair values of financial instruments
ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.
| ● | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities inactive markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value. |
As of March 31, 2025 and 2024, financial instruments of the Company primarily comprised of cash and cash equivalents, restricted cash, accounts receivables, receivables and other current assets (exclude prepayments and deposits), borrowings (current and non-current portion), accounts payable, amounts due to related parties and accrued expenses, lease liabilities and other liabilities. For lease liabilities, fair value approximates their carrying value at the year-end as the interest rates used to discount the host contracts approximate market rates. The carrying amounts of these financial instruments approximated their fair values because of their generally short maturities.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of March 31, 2025 and 2024.
Cash and cash equivalents
The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains most of the bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.
Restricted cash
Restricted cash is cash held as collateral for transactions and loans the Company has entered into.
Accounts receivable
Accounts receivable are recorded at the invoiced amount less an allowance for any uncollectible accounts and do not bear interest, which are due based on the respective contractual credit terms. Management reviews the adequacy of the allowance of expected credit loss on an ongoing basis, using historical collection trends and aging of receivables. The carrying value of such receivable, net of the expected credit loss, represents its estimated realizable value. The Company expect to collect the outstanding balance of current accounts receivable, net within one year.
F-13
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts receivable (continued)
The Company use loss rate method and individual evaluation method to estimate the allowance for credit losses. For those past due balances over one year and other higher risk receivables identified by the Company are reviewed individually for collectability. The Company evaluates the expected credit loss of accounts receivable based on historical collection experience, the financial condition of its customers and assumptions for the future movement of different economic drivers and how these drivers will affect each other. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount that is less than the carrying value.
As of March 31, 2025 and 2024, the Company assessed
the recoverability of its accounts receivable and record an allowance of $
Inventories
Inventories primarily include raw materials and finished goods.
Inventories are stated at the lower of cost or
net realizable value. Cost is determined by the weighted-average method. Raw material cost is based on purchase costs while work-in-progress
and finished goods comprise direct materials, direct labor and an allocation of manufacturing overhead costs. Net realizable value represents
the anticipated selling price, net of distribution cost, less estimated costs to completion for inventories. As of March 31, 2025and 2024,
the Company assessed the net realizable value of its inventories and record a provision of $
Advance to suppliers
Advance to suppliers represent amounts advanced to suppliers for future purchases of raw materials and for other services. The suppliers usually require advance payments when the Company makes purchase or orders service, and the advanced payments will be utilized to offset the Company’s future payments. These amounts are unsecured, non-interest bearing and generally short-term in nature.
Allowances are recorded when utilization and collection of amounts due are in doubt. Delinquent prepayments are written-off after management has determined that the likelihood of utilization or collection is not probable and known bad debts are written off against the allowances when identified. As of March 31, 2025 and 2024, the Company record no allowances for advance to suppliers balances, respectively.
Contract liabilities
Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration, or an amount of consideration is due from the customer. The Company recognizes contract liabilities when it receives payments from customers before the related performance obligation is satisfied.
Contract liabilities are recognized at the earlier of when the related revenue is recognized or when payments are received in advance of performance. Upon satisfying the performance obligations, the Company recognizes the revenue and reduces the contract liabilities.
Property, plant and equipment, net
Property and equipment are stated at cost. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| Residual value rate | Useful Lives | |||||
| Machinery | | % | ||||
| Electric equipment | % | |||||
| Office equipment | % | |||||
| Vehicles | % | |||||
| Leasehold improvement cost | % | |||||
The Company reviews property, plant and equipment
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset
is considered impaired if its carrying amount exceeds the future net undiscounted cash flows that the asset is expected to generate. If
such asset is considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset, if any, exceeds
its fair value determined using a discounted cash flow model. For the years ended March 31, 2025 and 2024, the Company recorded impairment
losses for property, plant and equipment of $ and $
F-14
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment, net (continued)
Costs of repairs and maintenance are expensed as incurred and asset improvements are capitalized. The cost and related accumulated depreciation and amortization of assets disposed of or retired are removed from the accounts, and any resulting gain or loss is reflected in the consolidated income statements.
Intangible assets, net
Intangible assets are stated at cost less accumulated
amortization. Intangible assets represented the trademarks registered in the PRC and purchased software which are amortized on a straight-line
basis over a useful life of
The Company follows ASC Topic 350 in accounting for intangible assets, which requires impairment losses to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by the assets are less than the assets’ carrying amounts. For the years ended March 31, 2025 and 2024, the Company recorded no impairment of intangible assets.
Impairment of long-lived assets
Long-lived assets primarily include property,
plant and equipment, construction on progress, and intangible assets. In accordance with the provision of ASC Topic 360-10-5, “Impairment
or Disposal of Long-Lived Assets”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually
in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the
business climate. The recoverability of long-lived assets is measured at the reporting unit level, which is an operating segment or one
level below an operating segment. If the total of the expected undiscounted future net cash flows is less than the carrying amount of
the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. The Company record impairment
losses for property, plant and equipment of $ and $
Convertible note, net
The Company accounts for convertible debt instruments in accordance with ASC 470-20 and ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under this guidance, the Company no longer separates the liability and equity components of convertible instruments that do not require bifurcation under ASC 815. Instead, the entire convertible instrument is accounted for as a single liability, unless the fair value option under ASC 825-10 is elected or an embedded conversion feature requires separate accounting as a derivative.
The Company first evaluates whether to elect the fair value option under ASC 825-10. If the fair value option is not elected, the Company assesses whether the embedded conversion feature requires bifurcation under ASC 815. If bifurcation is not required and the instrument is not issued with a substantial premium, the convertible debt is accounted for as a single liability instrument under the traditional convertible debt model. Any debt discount or premium is amortized over the expected term of the instrument using the effective interest method and recognized as additional non-cash interest expense.
F-15
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
Revenue is recognized when control of promised goods is transferred to the Company’s customers in an amount of consideration of which the Company expect to be entitled to in exchange for the goods. The Company does not have performance obligations that extend beyond the point of shipment or delivery. Revenue is recognized at a point in time, which is typically upon shipment or delivery of goods, depending on the shipping terms.
The product return provisions are estimated based
on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts
and claims and (3) estimated returns, discounts and claims expected, but not yet finalized with customers. These estimates require judgment
and are updated regularly based on actual experience and trends. Changes in return estimates are accounted for prospectively and reflected
in revenue in the period of change. The Company recognizes refund obligations as a liability and, when applicable, recognizes a corresponding
asset for the right to recover products expected to be returned by customers, which is included in Inventory. As of March 31, 2025
and 2024, sales return provision recorded in refund liabilities were $
The contract liabilities of the Company consist
of advance payments from customers. The contract liabilities are reported in a net position on a customer-by-customer basis at the end
of each reporting period. Contract liabilities were recognized when the Company receives prepayment from customers resulting from purchase
order. Contract liabilities will be recognized as revenue when the products are delivered. As of March 31, 2025 and 2024, the Company
record advance from customers of $
The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred.
For the years ended March 31, 2025, 2024 and 2023, the Company did not have any significant incremental costs of obtaining contracts with customers incurred or costs incurred in fulfilling contracts with customers within the scope of ASC Topic 606, that shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.
Cost of revenue
Cost of revenue consists primarily of cost of materials, direct labors, overhead, and other related incidental expenses that are directly attributable to the Company’s principal operations.
Market development fees
Market development fees relate mainly to market
development and advertisements of our pharmaceutical products. For the years ended March 31, 2025 and 2024, marketing and advertising
expenses are $
Income Taxes
Current income tax expenses are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the liability method, under which deferred income taxes are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized as income or expense in the period that includes the enactment date. Valuation allowance is provided on deferred tax assets to the extent that it is more likely than not that the asset will not be realizable in the foreseeable future.
The Company adopts ASC 740-10-25 “Income Taxes” which prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The Company did not have significant unrecognized uncertain tax positions, or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of March 31, 2025 and 2024.
Comprehensive income
Comprehensive income includes net income and foreign
currency adjustments. Comprehensive income is reported in the consolidated statements of operations and comprehensive income. Accumulated
other comprehensive income, as presented on the balance sheets are the cumulative foreign currency translation adjustments. As of March
31, 2025 and 2024, the Company recorded accumulated other comprehensive loss balances of $
F-16
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases
Leases are classified at lease commencement date as either a finance lease or an operating lease. A lease is a finance lease if it meets any of the following criteria: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term. (b) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or (e) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. When none of the criteria meets, the lease shall be classified as an operating lease.
For lessee, a lease is recognized as a right-of-use asset with a corresponding liability at lease commencement date. The lease liability is calculated at the present value of the lease payments not yet paid by using the lease term and discount rate determined at lease commencement. The right-of-use asset is calculated as the lease liability, increased by any initial direct costs and prepaid lease payments, reduced by any lease incentives received before lease commencement. The right-of-use asset itself is amortized on a straight-line basis unless another systematic method better reflects how the underlying asset will be used by and benefits the lessee over the lease term.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The amendments in this ASU require an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The Company adopted ASC 842 effective as of the beginning of the year ended March 31, 2023 by using a modified retrospective transition approach in the accompanying financial statements of the Company. The adoption of this standard had a material impact on the Company’s financial position as increased its assets and liabilities due to the recognition of right-of-use assets and lease liabilities on its consolidated balance sheets, and no material impact on its consolidated statements of comprehensive loss and cash flows.
Commitments and contingencies
In the normal course of business, the Company is subject to commitments and contingencies, including operating lease and finance lease commitments, legal proceedings and claims arising out of its business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss will occur, and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments on liability for contingencies, including historical and the specific facts and circumstances of each matter.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, which is a strategic committee comprised of members of the Company’s management team. In the respective periods presented, the Company had one single operating and reportable segment, namely the manufacture and distribution of TCMP. Although TCMP consist of different business units of the Company, information provided to the chief operating decision-maker is at the revenue level and the Company does not allocate operating costs or assets across business units, as the chief operating decision-maker does not use such information to allocate resources or evaluate the performance of the business units. As the Company’s long-lived assets are substantially all located in the PRC and substantially all of the Company’s revenue is derived from within the PRC, no geographical information is presented.
F-17
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per share
Loss per share is calculated in accordance with ASC 260 Earnings per Share. Basic loss per share is computed by dividing the net loss attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted loss per share is computed in accordance with the treasury stock method and based on the weighted average number of ordinary shares and dilutive ordinary share equivalents. Dilutive ordinary share equivalents are excluded from the computation of diluted loss per share if their effects would be anti-dilutive. There were no dilutive ordinary share equivalents outstanding during the years ended March 31, 2025 and 2024.
Related party transactions
In general, related parties exist when there is
a relationship that offers the potential for transactions at less than arm’s-length, favorable treatment, or the ability to influence
the outcome of events different from that which might result in the absence of that relationship. A related party may be any of the following:
a) an affiliate, which is a party that directly or indirectly controls, is controlled by, or is under common control with another party;
b) a principle owner, owner of record or known beneficial owner of more than
Significant risks and uncertainties
Credit risk
Assets that potentially subject the Company to
significant concentration of credit risk primarily consist of cash and cash equivalents, accounts receivable, other receivables, advances
to suppliers. The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of March 31,
2025 and 2024 the Company held cash and cash equivalents of $
The Company conducts credit evaluations of its
customers and suppliers and generally does not require collateral or other security from them. The Company use a loss rate method to estimate
the allowance for credit losses. For those past due balances over one year and other higher risk receivables identified by the Company
are reviewed individually for collectability. The Company evaluates the expected credit loss of receivables based on historical collection
experience, the financial condition of its customers and assumptions for the future movement of different economic drivers and how these
drivers will affect each other. The Company writes off potentially uncollectible receivables against the allowance for credit losses if
it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount
that is less than the carrying value. As of March 31, 2025 and 2024, the Company record expected credit loss of $
Liquidity risk
The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liabilities that potentially subject the Company to significant concentration of liquidity risk primarily consist of bank loans (current and non-current portion), accounts payable, amounts due to related parties, and accrued expenses and other liabilities. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.
Interest Rate Risks
The Company is exposed to interest rate risk primarily
relates to the variable-rate borrowings, which carry interest rates ranging from
F-18
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant risks and uncertainties (continued)
Foreign currency risk
The Company has significant operating activities, thus has assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers ‘invoices and signed contracts”. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Where there is a significant change in value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significantly affected.
Concentration risk
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases, respectively. The loss of any of the Company’s significant supplier or the failure to purchase key raw material could have a material adverse effect on our business, consolidated results of operations and financial condition.
For the years ended March 31, 2025 and 2024, there were one customer and two customers generated sales which accounted for over 10% of total revenues generated for that year, respectively. The details are as follows:
| For the years ended, March 31, | ||||||||
| 2025 | 2024 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
As of March 31, 2025 and 2024, accounts receivable due from these customers as a percentage of consolidated accounts receivable balances were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
For the years ended March 31, 2025 and 2024, there were two suppliers and two suppliers which accounted for over 10% of total purchase for that year, respectively. The details are as follows:
| For the years ended, March 31, | ||||||||
| 2025 | 2024 | |||||||
| Supplier A | % | % | ||||||
| Supplier B | % | % | ||||||
As of March 31, 2025 and 2024, accounts payable due to these suppliers as a percentage of consolidated accounts payable balances were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Supplier A | % | % | ||||||
| Supplier B | % | % | ||||||
F-19
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant risks and uncertainties (continued)
Recently issued accounting standards
The Company does not believe other recently issued but not yet effective accounting statements, if recently adopted, would have a material effect on the Company’s condensed consolidated balance sheets, statements of income (loss) and comprehensive income (loss) and statements of cash flows.
NOTE 3 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Accounts receivable – third parties | $ | $ | ||||||
| Total accounts receivable, gross | ||||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Changes of allowance for credit loss for accounts receivable for the fiscal years ended March 31, 2025 and 2024 are as follows:
| For the years ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision of allowance for expected credit loss | ||||||||
| Exchange rate difference | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
For the years ended March 31, 2025 and 2024, the
Company record credit loss provision of $
NOTE 4 – INVENTORIES, NET
Inventories as of March 31, 2025 and 2024 consisted of the following:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Provision for inventory write downs | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
F-20
NOTE 5 – OTHER RECEIVABLES AND OTHER CURRENT ASSETS, NET
Other receivables and other current assets consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Receivable from a third-party company* | $ | $ | ||||||
| Deposits | ||||||||
| Loan receivables | ||||||||
| Other receivables | ||||||||
| Total other receivables and other current assets, gross | ||||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Total other receivables and other current assets, net | $ | $ | ||||||
*
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Machinery | $ | $ | ||||||
| Vehicles | ||||||||
| Electric equipment | ||||||||
| Office equipment | ||||||||
| Leasehold improvement | ||||||||
| Total property plant and equipment, at cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: impairment provision | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | $ | $ | ||||||
Depreciation expenses were $
For the year ended March 31, 2025, the Company
disposed a vehicle of carrying amount of $
F-21
NOTE 7 – INTANGIBLE ASSETS, NET
Intangible assets consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Trademark | $ | $ | ||||||
| Software | ||||||||
| Total intangible assets, at cost | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
Amortization expenses were $
NOTE 8 – LONG-TERM DEPOSIT
Long-term deposit consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Deposit made for acquisition | $ | $ | ||||||
| Less: offset of deposit | ( | ) | ||||||
| Less: allowance for impairment | ( | ) | ||||||
| Total Long-term deposit, net | $ | $ | ||||||
As of March 31, 2024, the Company had a long-term
deposit of RMB
For the year ended March 31, 2025, the Company
has assessed and concluded that it is not probable that Jiangsu Health will proceed with the investment. Accordingly, the Company has
entered into an offsetting agreement with Jiangsu Health and other related parties. The amounts due from Jiangsu Health amounting to $
NOTE 9 – OPERATING LEASES
On January 1, 2018, the Company entered into a
lease agreement with its related party company to obtain the right of use for office and warehouse of
Operating lease right-of-use assets as of March 31, 2025 and 2024 were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Office and warehouse | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total right-of-use assets, net | $ | $ | ||||||
The Company recognized lease expenses for the
operating lease right-of-use assets office and warehouse over the lease period which is
Operating lease liabilities as of March 31, 2025 and 2024 consisted of the following:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Office and warehouse | $ | $ | ||||||
| Total operating lease liabilities, net | $ | $ | ||||||
F-22
NOTE 9 – OPERATING LEASES (CONTINUED)
Current portion and non-current portion of operating lease liabilities as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Non-current portion of operating lease liabilities – related party | $ | $ | ||||||
| Current portion of operating lease liabilities – related party | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The discount rate used for the office and warehouse
was
Maturity analysis of operating lease liabilities as of March 31, 2025 is as follows:
| Office and warehouse | ||||||||
| RMB | USD | |||||||
| Discount rate at commencement | % | % | ||||||
| One year | $ | |||||||
| Two years | ||||||||
| Three years | ||||||||
| Total undiscounted cash flows | $ | |||||||
| Less: imputed interest | ( |
) | ( |
) | ||||
| Operating lease liabilities | ||||||||
The Company had no other operating or financing lease agreements or short-term leases, defined as leases with initial term of 12 months or less, for the years ended March 31, 2025 and 2024.
NOTE 10 – BORROWINGS
Short-term borrowings
Short-term borrowings consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Short-term loans from a related party | $ | $ | ||||||
| Short-term loans from third-party individuals | ||||||||
| Total short-term borrowings | $ | $ | ||||||
Short-term borrowings included loans from various
individuals that are unsecured. As of March 31, 2025 and 2024, short-term loans from a related party represented the unsecured loan of
$
As of March 31, 2025 and 2024, the total amount
of these loans was $
F-23
NOTE 10 – BORROWINGS (CONTINUED)
Long-term borrowings
Long-term borrowings consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Car loans | ||||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total car loans | $ | $ | ||||||
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Bank loans | ||||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total long-term bank loans | $ | $ | ||||||
Long-term bank loans are loans the Company borrowed
from Jiangsu Taizhou Rural Commercial Bank which are valid from November 2, 2022 to November 1, 2025 and bear interest of
As of March 31, 2025 and 2024, one car loan of
$ and $
Future loan payments as of March 31, 2025 is as follows:
| RMB | USD | |||||||
| One year | $ | |||||||
| Two years | ||||||||
| Total payment | $ | |||||||
NOTE 11 – CONTRACT LIABILITIES
Contract liabilities consisted of the following as of March 31, 2025 and 2024:
| For the years ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Prepayments from customers | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Exchange rate difference | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
For the years ended March 31, 2025 and 2024, the
Company recognized $
F-24
NOTE 12 – CONVERTIBLE NOTE
The Convertible Note 2022-1
On December 19, 2022, the Company entered into
a securities purchase agreement with Streeterville, pursuant to which the Company issued the investor an unsecured promissory note on
December 19, 2022 in the original principal amount of $
Material Terms of the Convertible Note 2022-2:
| ● | Interest accrues on the outstanding balance of the Note at |
| ● | Upon the occurrence of a trigger event, the investor may increase the outstanding balance payable under the Note by |
| ● | Subject to adjustment as set forth in this Note, the price at which the lender has the right to convert all or any portion of the outstanding balance into ordinary shares is $ |
In accounting for the issuance of the Convertible
Note 2022-2 under ASU 2020-06, the Company recorded the convertible note as a single liability in its entirety according to the new framework.
Debt issuance costs related to the Convertible Note 2022-2 comprised of commissions paid to third party placement agents, lawyers, and
warrants value of $
As of December 18, 2023, the Company had not repaid the Convertible Note 2022-2, nor had Streeterville converted the debt into the Company’s ordinary shares. The Company and Streeterville reached an oral agreement to extend the maturity date of the convertible debt by six months, during which Streeterville will convert the debt into the Company’s ordinary shares. All other terms of the Convertible Note 2022-2 remain unchanged.
In accounting for the extension of the Convertible
Note 2022-2 under ASC470-50, the Company recognizes: (i) the new debt instrument at its fair value (“the Convertible Note 2022-2
(new)”) of $
For the year ended March 31, 2024, the Company
issued
For the year ended March 31, 2025, the Company
issued
The Convertible Note 2022-2 (new) was fully repaid on June 12, 2024.
The Convertible Note 2023-1
On March 7, 2023, the Company entered into a securities
purchase agreement with Streeterville Capital, LLC, pursuant to which the Company issued the investor an unsecured promissory note on
March 7, 2023 in the original principal amount of $
Material Terms of the Convertible Note 2023-1:
| ● | Interest accrues on the outstanding balance of the Note at |
F-25
NOTE 12 – CONVERTIBLE NOTE (CONTINUED)
The Convertible Note 2023-1 (continued)
| ● | Upon the occurrence of a trigger event, the investor may increase the outstanding balance payable under the Note by |
| ● | Subject to adjustment as set forth in this Note, the price at which the lender has the right to convert all or any portion of the outstanding balance into ordinary shares is $ |
In accounting for the issuance of the Convertible
Note 2023 under ASU 2020-06, the Company recorded the convertible note as a single liability in its entirety according to the new framework.
Debt issuance costs related to the Convertible Note 2023-1 comprised of commissions paid to third party placement agents, lawyers, and
warrants value of $
For the year ended March 31, 2023, the Company
issued
For the year ended March 31, 2024, the Company
issued
The Convertible Note 2023-1 was fully repaid on January 25, 2024.
The Convertible Note 2023-2
On December 13, 2023, the Company entered into
a securities purchase agreement with Streeterville Capital, LLC, pursuant to which the Company issued the investor an unsecured promissory
note on December 13, 2023 in the original principal amount of $
Material Terms of the Convertible Note 2023-2:
| ● | Interest accrues on the outstanding balance of the Note at |
| ● | Upon the occurrence of a trigger event, the investor may increase the outstanding balance payable under the Note by |
| ● | Subject to adjustment as set forth in this Note, the price at which the lender has the right to convert all or any portion of the outstanding balance into ordinary shares is the lower of (i) $ |
In accounting for the issuance of the Convertible
Note 2023-2 under ASU 2020-06, the Company recorded the convertible note as a single liability in its entirety according to the new framework.
Debt issuance costs related to the Convertible Note 2023-2 comprised of commissions paid to third party placement agents, lawyers, and
warrants value of $
For the year ended March 31, 2025, the Company
issued
The Convertible Note 2023-2 was fully repaid on September 23, 2024.
F-26
NOTE 12 – CONVERTIBLE NOTE (CONTINUED)
The Convertible Note 2024-1
On March 27, 2024, the Company entered into a
securities purchase agreement with Streeterville Capital, LLC, pursuant to which the Company issued the investor an unsecured promissory
note on March 27, 2024 in the original principal amount of $
Material Terms of the Convertible Note 2024-1:
| ● | Interest accrues on the outstanding balance of the Note at |
| ● | Upon the occurrence of a trigger event, the investor may increase the outstanding balance payable under the Note by |
| ● | Subject to adjustment as set forth in this Note, the price at which the lender has the right to convert all or any portion of the outstanding balance into ordinary shares is the lower of (i) $ |
In accounting for the issuance of the Convertible
Note 2024-1 under ASU 2020-06, the Company recorded the convertible note as a single liability in its entirety according to the new framework.
Debt issuance costs related to the Convertible Note 2024-1 comprised of commissions paid to third party placement agents, lawyers, and
warrants value of $
For the year ended March 31, 2025, the Company
issued
The Convertible Note 2024-1 was fully repaid on December 24, 2024.
The Convertible Note 2024-2
On May 9, 2024, the Company entered into a securities
purchase agreement with Streeterville Capital, LLC, pursuant to which the Company issued the investor an unsecured promissory note on
May 9, 2024 in the original principal amount of $
F-27
NOTE 12 – CONVERTIBLE NOTE (CONTINUED)
The Convertible Note 2024-2 (continued)
Material Terms of the Convertible Note 2024-2:
| ● | Interest accrues on the outstanding balance of the Note at |
| ● | Upon the occurrence of a trigger event, the investor may increase the outstanding balance payable under the Note by |
| ● | Subject to adjustment as set forth in this Note, the price at which the lender has the right to convert all or any portion of the outstanding balance into ordinary shares is the lower of (i) $ |
In accounting for the issuance of the Convertible
Note 2024-2 under ASU 2020-06, the Company recorded the convertible note as a single liability in its entirety according to the new framework.
Debt issuance costs related to the Convertible Note 2024-2 comprised of commissions paid to third party placement agents, lawyers, and
warrants value of $
For the year ended March 31, 2025, the Company
issued
The Company paid off the remaining balance of the Convertible Note 2024-2 fully in cash on January 17, 2025.
The Convertible Note 2024-3
On October 10, 2024, the Company entered into
a securities purchase agreement with Streeterville Capital, LLC, pursuant to which the Company issued the investor an unsecured promissory
note on October 10, 2024 in the original principal amount of $
Material Terms of the Convertible Note 2024-3:
| ● | Interest accrues on the outstanding balance of the Note at |
| ● | Upon the occurrence of a trigger event, the investor may increase the outstanding balance payable under the Note by |
| ● | Subject to adjustment as set forth in this Note, the price at which the lender has the right to convert all or any portion of the outstanding balance into ordinary shares is the lower of (i) $ |
In accounting for the issuance of the Convertible
Note 2024-3 under ASU 2020-06, the Company recorded the convertible note as a single liability in its entirety according to the new framework.
Debt issuance costs related to the Convertible Note 2024-3 comprised of commissions paid to third party placement agents, lawyers, and
warrants value of $
The Company paid off the remaining balance of the Convertible Note 2024-2 fully in cash on January 17, 2025.
F-28
NOTE 12 – CONVERTIBLE NOTE (CONTINUED)
The Convertible Note 2024-3 (continued)
Net carrying amount of Convertible Notes dated as of March 31, 2025 was $.
Net carrying amount of Convertible Notes dated as of March 31, 2024 were as follows:
| Principal outstanding |
Unamortized issuance cost |
Net carrying value |
||||||||||
| Convertible Note – 2022-2 (new) | $ | $ | $ | |||||||||
| Convertible Note – 2023-2 | ( |
) | ||||||||||
| Convertible Note – 2024 | ( |
) | ||||||||||
| Total | $ | ( |
) | $ | ||||||||
Amortization of issuance cost, debt discount and interest cost for the year ended March 31, 2025 were as follows:
| Accretion of debt discount | Convertible note interest | Total | ||||||||||
| Convertible Note – 2022-2 (new) | $ | $ | $ | |||||||||
| Convertible Note – 2023-2 | ||||||||||||
| Convertible Note – 2024 | ||||||||||||
| Convertible Note – 2024-2 | ||||||||||||
| Convertible Note – 2024-3 | ||||||||||||
| Total | $ | $ | $ | |||||||||
Amortization of issuance cost, debt discount and interest cost for the year ended March 31, 2024 were as follows:
| Accretion of debt discount | Convertible note interest | Total | ||||||||||
| Convertible Note – 2022-2 | $ | $ | $ | |||||||||
| Convertible Note – 2022-2 (new) | ||||||||||||
| Convertible Note – 2023-1 | ||||||||||||
| Convertible Note – 2023-2 | ||||||||||||
| Convertible Note – 2024-1 | ||||||||||||
| Total | $ | $ | $ | |||||||||
NOTE 13 – REFUND LIABILITY
Refund liabilities represents the accrued liability for sales return based on the sales and the Company’s estimate of sale return rate.
Estimates of discretionary authorized returns, discounts and claims are based on (1) historical rates, (2) specific identification of outstanding returns not yet received from customers and outstanding discounts and claims and (3) estimated returns, discounts and claims expected, but not yet finalized with customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from estimates recorded. If actual or expected future returns, discounts or claims were significantly greater or lower than the reserves established, a reduction or increase to net revenues would be recorded in the period in which such determination was made.
The estimated cost of inventory for product returns
of $
F-29
NOTE 14 – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following as of March 31, 2025 and 2024:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Accrued payroll and welfare | $ | $ | ||||||
| Other payable for construction deposit* | ||||||||
| Accrued professional service expenses | ||||||||
| Other current liabilities** | ||||||||
| Total | $ | $ | ||||||
* As disclosed in Note 5 to the financial statements, the Company had entered into a limited partnership agreement with Huangshan Panjie (the “Partnership”), which was subsequently terminated in June 2020. Related to this Partnership, the Company had anticipated that a tourism town development project would be awarded to the company (the “Project”). In preparation, the Company had engaged a engaged the services of a third party as a subcontractor (“Subcontractor”) of the Project..
In 2019, the Subcontractor paid the Company approximately
$
In 2023, the Company refunded $
**
NOTE 15 – SHAREHOLDERS’ EQUITY
Ordinary shares
The Company is authorized to issue unlimited shares
of $
Initial public offering
On December 31, 2018, the Company completed the
closing of its initial public offering of
Reverse stock splits
On February 22, 2021, May 19, 2022, October 5,
2023, and February 25, 2025, the Company’s board of directors approved and effected one-for-four (
F-30
NOTE 15 – SHAREHOLDERS’ EQUITY (CONTINUED)
Ordinary shares - continued
As a result of each reverse stock split, each specified number of pre-split ordinary shares outstanding was automatically combined and converted into one issued and outstanding ordinary share without any action required on the part of shareholders. No fractional shares were issued; instead, each shareholder was entitled to receive one whole ordinary share in lieu of any fractional share that would otherwise have resulted. All options and other outstanding securities convertible or exercisable for ordinary shares were adjusted proportionally by dividing the number of ordinary shares into which such instruments were exercisable or convertible by the applicable split ratio and multiplying the exercise or conversion price by the same ratio.
All share and per share amounts in the accompanying consolidated financial statements and notes have been retroactively adjusted to reflect the effects of the reverse stock splits, including rounding of fractional shares to whole shares where applicable.
The 2022 Public Offering
On January 18, 2022, the Company entered into
an underwriting agreement with Aegis Capital Corp. (the “Underwriter”), pursuant to which the Company agreed to sell to the
Underwriter, in a firm commitment public offering (the “2022 Public Offering”) (i)
Pursuant to the 2022 Public Offering, the Company
issued
Securities purchase agreements
On September 22, 2022, the Company entered into
certain securities purchase agreement with Zhijun Xiao, a non-affiliate non-U.S. person, pursuant to which Mr. Xiao agreed to purchase
par value $
On February 22, 2023, the Company entered into
certain securities purchase agreement with Rising Sun Capital Ltd., a limited liability company organized under the laws of Australia,
pursuant to which the investor agreed to purchase
On January 21, 2025, the Company entered into
a securities purchase agreement with certain investors, pursuant to which it issued an aggregate of
Equity incentive plans
In September 2021, the Company adopted a share
incentive plan (the “2021 Equity Incentive Plan”), which provides for the granting of share incentives, including incentive
share options, restricted shares and any other form of award pursuant to the 2021 Equity Incentive Plan, to members of the board, and
employees of the Company. The Company reserved
F-31
NOTE 15 – SHAREHOLDERS’ EQUITY (CONTINUED)
Ordinary shares - continued
In March 2022, the Company adopted a share incentive
plan (the “2022 Equity Incentive Plan”), which provides for the granting of share incentives, including incentive share options,
restricted shares and any other form of award pursuant to the Equity Incentive Plan, to members of the board, and employees of the Company.
The vesting schedule, time and condition to exercise options is determined by the Company’s compensation committee. The term of
the options may not exceed ten years from the date of the grant. Pursuant to the 2022 Equity Incentive Plan, the Company issued
In January 2024, the Company adopted a share incentive
plan (the “2024 Equity incentive plan”), which provides for the granting of share incentives, including incentive share options,
restricted shares and any other form of award pursuant to the 2024 Equity Incentive Plan, to members of the board, and employees of the
Company. The vesting schedule, time and condition to exercise options is determined by the Company’s compensation committee. The
term of the options may not exceed ten years from the date of the grant. Pursuant to the 2024 Equity incentive plan, the Company
issued
Issuance of shares for convertible note principal and interest settlement
For the year ended March 31, 2020,
For the year ended March 31, 2021,
For the year ended March 31, 2023,
For the year ended March 31, 2024,
For the year ended March 31, 2025,
NOTE 16 – SELLING AND MARKETING EXPENSES
For the years ended March 31, 2025, 2024 and 2023, selling and marketing expenses consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Marketing and advertising expenses | $ | $ | $ | |||||||||
| Payroll and welfare expenses | ||||||||||||
| Distribution and transportation expenses | ||||||||||||
| Others | ||||||||||||
| Total selling and marketing expenses | $ | $ | $ | |||||||||
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NOTE 17 – GENERAL AND ADMINISTRATIVE EXPENSES
For the years ended March 31, 2025, 2024 and 2023, general and administrative expenses consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Payroll and welfare expenses | $ | $ | $ | |||||||||
| Professional fees | ||||||||||||
| Impairment for property, plant and equipment and construction in process | ||||||||||||
| Impairment for long-term deposit | ||||||||||||
| Estimated credit loss provision for doubtful accounts | ||||||||||||
| Research and development expenses | ||||||||||||
| Others | ||||||||||||
| Total general and administrative expenses | $ | $ | $ | |||||||||
NOTE 18 – INCOME TAXES
| (a) | Corporate Income Taxes |
Under the current laws of the British Virgin Islands
(“BVI”), the Company is not subject to tax on its income or capital gains. In addition, upon payments of dividends by the
Company to its shareholders, no BVI withholding tax is imposed. The Company’s subsidiaries incorporated in Hong Kong were subject
to the Hong Kong profits tax rate at
For the years ended March 31, 2025, 2024 and 2023, income tax expenses consisted of the following:
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Current income tax provision | $ | $ | $ | |||||||||
| Deferred income tax provision | ||||||||||||
| Total income tax | $ | $ | $ | |||||||||
The following is a reconciliation of the Company’s
total income tax expense to the amount computed by applying the PRC statutory income tax rate of
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Income tax expense at the PRC statutory rate | ( | ) | ( | ) | ( | ) | ||||||
| Non-deductible expenses | ||||||||||||
| Deductible research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| Deferred tax provision | ( | ) | ( | ) | ( | ) | ||||||
| Valuation allowance for deferred tax assets | ||||||||||||
| Effect of income tax rate differences in jurisdictions other than the PRC | ||||||||||||
| Total income tax expenses | $ | $ | $ | |||||||||
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NOTE 18 – INCOME TAXES (CONTINUED)
| (b) | Deferred Tax Assets |
Deferred income tax was measured using the enacted
income tax rates for the periods in which they are expected to be reversed.
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Tax loss carry forward | $ | $ | ||||||
| Credit loss provision for doubtful account - accounts receivable | ||||||||
| Credit loss provision for doubtful account – other receivable and other current assets | ||||||||
| Impairment provision for inventory | ||||||||
| Impairment provision for long-term deposit | ||||||||
| Valuation allowance for deferred tax assets | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the years ended March 31, 2025, 2024 and 2023 the Company had no unrecognized tax benefits. The Company does not anticipate any significant increase to its asset for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.
NOTE 19 – RELATED PARTY TRANSACTIONS
Nature of relationships with related parties
| Name of related parties | Relationship with the Company | |
| Feng Zhou | ||
| Jun Zheng | ||
| Xiaodong Ji | ||
| Taizhou Jiutian Pharmaceutical Co. Ltd. | ||
| Jiangsu Health | ||
| Taizhou Su Xuan Tang Chinese Medicine Clinic | ||
| Taizhou Su Xuan Tang Chinese hospital Co., Ltd. | ||
| Jiangsu Sutaitang Online Commercial Co., Ltd. |
Related party balances
The amounts due from related parties as of March 31, 2025 and 2024 were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Jiangsu Sutaitang Online Commercial Co., Ltd. | $ | $ | ||||||
| Taizhou Su Xuan Tang Chinese hospital Co., Ltd. | ||||||||
| Taizhou Su Xuan Tang Chinese Medicine Clinic | ||||||||
| Total due from related parties | $ | $ | ||||||
The amounts due to related parties as of March 31, 2025 and 2024 were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Jiangsu Health | $ | $ | ||||||
| Total due to related parties | $ | $ | ||||||
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NOTE 19 – RELATED PARTY TRANSACTIONS (CONTINUED)
Related party transactions
1) Revenues generated from related parties
The company sells several TCMP products to related
companies based on terms and conditions mutually agreed between the relevant parties.
| For the years ended March 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Taizhou Su Xuan Tang Chinese Hospital Co. Ltd. | ||||||||||||
| Taizhou Su Xuan Tang Chinese Medicine Clinic | ||||||||||||
| Taizhou Jiutian Pharmaceutical Co. Ltd. | ||||||||||||
| Total revenue generated from related parties | $ | $ | $ | |||||||||
2) Other related party transactions
For the years ended March 31, 2025, 2024 and 2023,
the Company made advances to related parties of $, $
For the years ended March 31, 2025, 2024 and 2023, non-cash settlement
between balances of accounts receivable from related parties and due to related parties were $, $
For the year ended March 31, 2024, the Company
borrowed $
On January 1, 2018, the Company entered into a
lease agreement with Jiangsu Health Pharmaceutical Investment Co., Ltd. to obtain the right of use for office and warehouse of
Guarantee
For the years ended March 31, 2025 and 2024, Taizhou Suxuantang signed several financial guarantee agreements for its related parties. Details of the financial guarantee agreements, please refer to Note 20.
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NOTE 20 – GUARANTEE
On April 12, 2021, Taizhou Suxuantang signed a
financial guarantee agreement with Jiangsu Changjiang Commercial Bank for Taizhou Jiutian Pharmaceutical Co. Ltd. in borrowing of $
On October 28, 2013, Taizhou Suxuantang signed
a financial guarantee agreement with Fenlan Xu for JJianping Zhou in borrowing of $
The Company has not made any payment under the above guarantee agreements for the years ended March 31, 2025 and 2024.
NOTE 21 – COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is involved in various legal proceedings, claims and other disputes arising from commercial operations, employees, and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity. As of March 31, 2025 and 2024, and through the issuance date of these consolidated financial statements, the Company had no pending legal proceedings.
NOTE 22 – SUBSEQUENT EVENTS
The Company evaluated all events and transactions that occurred after March 31, 2025 up through the date the Company issued these financial statements on July 31, 2025 and concluded that no other material subsequent events except for the disclosed above.
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